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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE NUMBER 1-10739
SENSORMATIC ELECTRONICS CORPORATION
(Exact name of Registrant as specified in its charter)
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DELAWARE 34-1024665
(I.R.S. Employer
(State of Incorporation) Identification Number)
951 YAMATO ROAD
BOCA RATON, FLORIDA 33431-0700
(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: 561-989-7000
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
Name of each exchange on which registered:
NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes [ ] No [X]
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The aggregate market value of Common Stock held by non-affiliates of the
Registrant as of September 17, 1999 was $948,116,700.
As of September 17, 1999, there were 75,849,336 shares of the Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Definitive proxy statement for the Company's 1999 Annual Meeting of Stockholders
(incorporated in Part III to the extent provided in Items 10, 11, 12 and 13
hereof).
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Founded in 1966, Sensormatic is the leading designer, manufacturer and marketer
of electronic security, sensing and tracking systems in the world. Sensormatic
has a leading market share in its three major market segments: electronic
article surveillance ("EAS") systems, closed circuit television ("CCTV") and
video systems, and access control and asset management systems. The Company's
EAS products include reusable hard tags and disposable labels as well as
detection and deactivation systems. Sensormatic's CCTV products include various
types of micro-processor-controlled cameras and monitoring systems. The
Company's access control and asset management systems provide intelligent
tagging, tracking and access systems to monitor the movements of people and/or
assets.
Sensormatic's installed base of customers (i.e. customers at which Sensormatic
products are installed) includes a substantial majority of the top 100 retailers
in the world, as well as more than half of the global Fortune 500 companies. The
Company operates in more than 113 countries, marketing its products directly to
retail customers using an extensive worldwide sales and service organization
complemented by a broad network of independent dealers and distributors serving
commercial/industrial ("C/I") customers worldwide and retailers in certain
foreign countries.
The Company operates in four reportable business segments based on the way the
Company organizes its operations. The four segments are as follows:
North America Retail
Europe (Retail and C/I)
International (Retail and C/I)
Other (includes North America based C/I)
Certain information about the Company's reportable segments is contained in Note
14 of Notes to Consolidated Financial Statements under Item 8 of this report.
The Company has its principal executive offices at 951 Yamato Road, Boca Raton,
Florida 33431-0700 (561-989-7000). As used in this report, the terms "Company"
and "Sensormatic" refer to Sensormatic Electronics Corporation and its
subsidiaries unless the context indicates otherwise.
STRATEGIC RESTRUCTURING AND OTHER STRATEGIES
The Company's rapid growth and success in the late 1980's and first half of the
1990's took Sensormatic from $100 million in revenues in fiscal 1987 to
approximately $900 million in fiscal 1995. These results were driven by internal
growth as well as strategic acquisitions. This rapid growth caused the Company
to outgrow its corporate management infrastructure and systems. As a result, in
1996 the management team, led by newly recruited senior management personnel,
began implementing a long-term strategic restructuring plan to harness the
Company's growth, rebuild and improve the infrastructure of the Company and
restore stability to the Company's operations. The plan is centered around three
main priorities: (i) expense and asset control, (ii) investments in processes
and systems and (iii) quality, sustainable growth. The plan included an
extensive and systematic review of the Company's operations, cost structure and
balance sheet aimed at reducing its operating expenses and manufacturing costs
while increasing efficiencies, and resulted in the fiscal 1996 restructuring
charge. This review of the Company's global operations focused on operational
and organizational structures and systems, facilities utilization, product
rationalization, quality improvements, inventory valuation and accounts
receivable balances and related collection efforts.
At the end of fiscal 1997 and during the first and third quarters of fiscal
1998, the Company recorded additional restructuring charges related to the
divestiture of non-core businesses and additional cost-reduction plans
principally consisting of staff reductions within its European operations. The
Company's U.S. commercial/industrial direct sales and service business, which
was sold in September 1997, constituted the largest
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non-core business divested. The Company elected to exit the
commercial/industrial direct sales and service business due to market conflicts
with its indirect sales channels (dealers and distributors). This strategic
decision allows the Company to focus on partnering with dealers and distributors
to promote products in the commercial/industrial markets and thereby lower its
distribution and installation costs while improving customer service. In
connection with this restructuring plan, the Company planned for the reduction
in workforce of approximately 1,200 positions, of which 600 related to the
divestiture of non-core businesses and the remaining positions principally
represented the termination of administrative personnel. As of June 30, 1999,
approximately 90% of the positions had been eliminated, including the positions
associated with the divested business units.
In connection with its restructuring plans, the Company embarked upon a
long-term process improvement and total quality management program internally
referred to as "Q(3)". The program's objective is to provide superior value for
customers, shareholders and employees, by establishing a culture of "continuous
improvement" in all of the Company's business processes. Q(3) is a multi-year,
enterprise-wide, effort in which the Company is reengineering operations in
every function and business unit globally. In connection with Q(3), the Company
initiated the implementation of a new global enterprise resource planning system
and an extensive internal training program, both of which are expected to
significantly enhance global operational efficiencies and improve customer
service.
The Company is organized into four principal sales organizations which generally
correspond to the Company's reportable segments: North America Retail, Europe
(Retail and C/I), International (Retail and C/I), which principally consists of
the Asia Pacific and Latin America, and North America based C/I. Product line
management for the Company's electronic article surveillance products is
performed by the EAS Division, which services retail customers and sales
organizations as well as coordinates engineering, marketing and quality control.
The product line management function for C/I is performed by three product
divisions: Access Control Division ("ACD"), Video Products Division ("VPD") and
CCTV System Division ("CSD"). The EAS division and ACD, VPD and CSD are
supported by a supply chain management organization with responsibility for
purchasing, logistics and manufacturing.
The Company also has a Global Source Tagging Division with responsibility for
managing and directing the Company's source tagging initiatives globally. The
Global Source Tagging Division is staffed with sales, marketing and technical
personnel who work globally with major retailers, manufacturers, packaging
companies, licensees, associations and industry consultants to implement and
expand the use of source tagging by manufacturers and distributors. This group
is also responsible for developing and commercializing "smart" source tagging,
i.e., the Company's strategic initiative for incorporating radio frequency
identification ("RFID") into traditional EAS source tags to create intelligent
source tagging for sensing and tracking of assets.
STRATEGIC MERGERS AND ACQUISITIONS
The Company has historically increased its presence in a number of the
geographic areas in which it markets its products and has expanded into new
geographic areas. Additionally, the Company has expanded its business through
several strategic acquisitions.
The Company's strategy to expand internationally also has included the use of
distribution arrangements with independent, local businesses in certain
countries, and, in some cases, majority owned subsidiaries. The Company
presently markets its products directly in more than 29 countries throughout
North America, Europe and certain Asia/Pacific and South American countries,
and, in more than 84 other countries, the Company sells its products to dealers
and distributors. The Company will continue to explore expanding into additional
countries in the Middle East, Latin America, Asia, Africa and eastern Europe
using similar distribution arrangements.
The Company has expanded its commercial/industrial business through several
strategic acquisitions, including Software House, Inc. ("Software House"), a
designer and marketer of high-end access control systems; Robot Research, Inc.
("Robot Research"), a manufacturer and marketer of sophisticated CCTV display
and transmission systems; and American Dynamics, a manufacturer of CCTV
components, switchers
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and controllers. As a result of these acquisitions, the Company acquired
additional product lines to complement its previously existing CCTV and access
control products, together with well established dealer/distributor sales
channels. These acquisitions have enabled the Company to integrate certain
product lines thereby, improving product compatibility and performance.
PRINCIPAL PRODUCTS AND SYSTEMS
Sensormatic's products and systems are focused in three general categories:
- EAS systems and devices, consisting of electronic detection units which
work in conjunction with specially designed reusable tags and/or
disposable labels and label deactivation units, and benefit denial
products. These systems and devices are most commonly used by retailers
to help prevent shoplifting, reduce inventory shrinkage and enhance or
improve merchandising of products.
- CCTV and video systems, consisting of computer controlled cameras
integrated with sophisticated video switching, storage and transmission
products which monitor activity throughout an establishment for
operational safety and/or theft deterrence and detection purposes.
- Access control and asset management systems, which are software-based
products used to monitor, protect and track people and assets. These
systems electronically regulate access to facilities to protect equipment
and assets, as well as track products throughout the supply chain.
EAS Systems
EAS systems come in many different forms and make use of a number of different
technologies. The Company's typical EAS system is comprised of an electronic
detection unit, tags and/or labels and a detacher or deactivator. Detection
units can be installed directly into floors as pedestals or concealed under
floors, mounted on walls or hung from ceilings, and are usually placed in high
traffic areas, such as entrances and exits of stores or office buildings,
distribution centers and/or checkout lanes. Specially designed and sensitized
reusable tags or disposable labels are affixed to or embedded in the merchandise
or assets to be protected. When an active tag or label passes through the
detection unit, the system sounds an alarm, a light is activated and/or other
suitable control devices are set into operation indicating a possible theft in
progress. Tags and labels are available in a variety of shapes, sizes and
configurations. Tags are easily removed from merchandise using a specially
designed detacher, enabling the merchandise or asset to be taken through a
controlled zone without incident, and can then be reused. Labels are deactivated
by a deactivator positioned at the cash register and are generally disposed of
after use. Certain labels can be reactivated with the Company's reactivation
devices.
To satisfy many types of customers on a global basis, the Company offers every
major EAS technology type available in addition to the Company's proprietary
technologies. The following is a description of the principal EAS technologies,
as well as the systems and products which incorporate such technologies, offered
by the Company.
Ultra-Max(R) systems utilize a proprietary acousto-magnetic technology which is
the most advanced and rapidly growing anti-theft technology in the world. This
technology is used in over 15 different electronic anti-theft systems sold by
the Company under various brand names including Pro-Max(R), Floor-Max(R),
Euro-Max(TM), Sensor-Max, Mega-Max, MAX Checkout(TM), Ultra-Post(TM), Rapid
Pad(TM) and ScanMax(TM). The versatility of Ultra-Max enables it to protect
assets, merchandise, people, property and information for retailers and
commercial/industrial businesses. The success of Ultra-Max is attributable to
its unique combination of features, unobstructed coverage of wide exits, a high
"pick rate" or ability to detect labels or tags, ease of deactivation, ability
to be reactivated, and ability to work in close proximity to metal. This
technology's sophisticated electronic capability and the unique signal from the
label or tag virtually eliminate false alarms, a problem often encountered by
retailers using other technologies.
For use in source tagging, the Company markets Ultra-Strip(TM) labels, which are
used in conjunction with Ultra-Max systems and have the performance
characteristics inherent in the acousto-magnetic technology. Ultra-Strip labels
are the smallest EAS labels available with wide exit coverage performance and
are offered
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in a standard and narrow width size. These labels have demonstrated superior
pick rates, are compatible with a wide range of packaging materials and product
substances, including foil and metal, are unaffected by moisture and are well
suited for application in high-speed manufacturing processes.
SensorStrip(TM) Checkout (the latest generation of AisleKeeper(R)) systems
utilize proprietary advanced magnetostrictive technology and standard low
frequency electromagnetic technology. These systems are designed to protect
high-theft items in supermarkets and hypermarkets around the world as well as
bookstores, libraries, health clubs, liquor stores and video stores. The
magnetostrictive technology sold by the Company includes SensorStrip Checkout
and SensorStrip Checkout Plus (formerly known as AisleKeeper and AisleKeeper II,
respectively, in the U.S., and as Checkout Control and Checkout Control II,
respectively, in Europe). The SensorStrip Checkout Plus, a relatively narrow
exit system, is especially engineered to comply with the Americans with
Disabilities Act as well as the European Disabilities Acts. The standard
SensorStrip label is a thin micromagnetic wire encapsulated in transparent tape
attached to merchandise which is passed around the system during the checkout
process or, with certain versions, may be deactivated by a device which can be
fitted in the conveyor belt at a checkout station. Like Ultra-Max, Sensormatic's
electromagnetic technology supports source tagging programs.
Microwave systems are anti-shoplifting systems that utilize high radio frequency
technology. Microwave systems protect wide exits and are widely used by
department stores and soft goods (apparel merchandisers) specialty retailers.
These systems are marketed under the names of MicroMax(R), SlimLine(R), and
Sensormat(R) II and offer a variety of features and benefits, such as concealed
protection which allows for wide exit, flexible installations which can fit in
multiple store configurations, and a variety of lightweight tags and labels.
Microwave systems are the most widely used technology with soft good retailers
and the large base of Microwave system installations represents the largest
potential for upgrade to Ultra-Max.
Swept-RF or swept radio frequency systems utilize low radio frequency technology
and are principally used to cover single door exits. The Company markets this
technology under the brand name of System One(R). The Company is also a
distributor of Swept RF labels from an independent European RF label
manufacturer.
Benefit Denial products are non-electronic anti-theft devices that, when
tampered with, can destroy or damage valuable merchandise or otherwise make it
unfit for resale or use, thereby reducing the incentive to steal. Benefit denial
products can be used alone or in conjunction with other anti-theft systems to
provide an incremental level of security for retailers. The Company's Inktag(R)
and Microlock(R) products are part of a family of benefit denial products. The
Company's Inktag products are fastened to clothing and other soft goods in the
retail market. When unauthorized removal of an Inktag product is attempted, the
vials of ink inside the unit break and stain the merchandise. The Company's
Inktag products are sold primarily to department, specialty, discount and mass
merchandise stores. The Microlock product is used to protect items such as
eyeglasses and jewelry products by creating physical obstructions to the use of
the merchandise until removed. The Microlock product is designed for use
primarily in department, specialty, discount, mass merchandise, jewelry, optical
and drug stores.
CCTV Systems
CCTV video surveillance systems are used by a wide variety of businesses,
industries and government agencies to protect against inventory shrinkage in
retail businesses and for the protection and monitoring of personnel and assets
in office and manufacturing complexes, hospitals, casinos, nuclear facilities,
warehouses, correctional facilities, airports and numerous other facilities.
Sensormatic's CCTV systems can be used alone, integrated with other CCTV
components or used in combination with EAS, Access Control and Asset Management
systems. The following is a description of key CCTV products and systems offered
by the Company.
Video cameras can be used indoors and outdoors to monitor, investigate and
record events. The Company offers multiple types of cameras which include fixed
cameras, pan/tilt/zoom devices and the more sophisticated SpeedDome(R) Ultra and
Delta Dome(TM) programmable dome cameras. These cameras include digital and high
resolution color or monochrome features. SpeedDome(R) Ultra and Delta Dome(TM)
cameras have advanced surveillance features which include the ability to deliver
high resolution images of stationary or
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moving objects and focus on objects at a distance in low light conditions, as
well as the ability to acquire, zoom and focus on targets in less than one
second. SpeedDome(R) Ultra and Delta Dome(TM) cameras may be integrated with
other Sensormatic products to create a more comprehensive overall security
program.
Matrix switcher/controller systems are used to switch cameras to view an object
in response to an alarm or at an operator's command. The Company markets a full
line of matrix switcher/controller systems, ranging from systems which can
support up to sixteen cameras to more complex systems which support more than
1,000 cameras. Matrix switcher/controller systems are marketed under various
brand names including high-end video switchers/controllers such as the Mega
Power 1024 (1,024 cameras/128 monitors) and AD168 (168 cameras/12 monitors) used
in large complex configurations and the more retail oriented family of products
consisting of View Manager(R) 16 ("VM16") and View Manager(R) 96 ("VM96"), which
when used with a Touch Tracker(R) keyboard, can control 16 and 96 cameras,
respectively.
Video multiplexers provide for sophisticated video manipulation of up to 16
video inputs recorded to a single VCR. This technology captures high quality
video from multiple cameras, providing for security surveillance of multiple
areas within a facility to be viewed on a single video monitor.
Video transmission systems allow for the capability to remotely view stores,
warehouses, and other facilities and are marketed under the SensorLink(TM) PC or
HyperScan(R) Ultra brand names. These video transmission systems are PC based
and can be operated over standard telephone lines or the ISDN ("Integrated
Services Digital Network") lines, allowing users to view video images and/or
control and operate cameras, alarm inputs, and relay controls from remote
locations. SensorLink PC and HyperScan(R) allow users to view up to sixteen
cameras simultaneously.
Intelligent Digital Video systems search video recordings, and based on
parameters set by the user, locate and playback preprogrammed alarm events,
light level changes, or special types of motion normally associated with a
security breach. Proprietary video tools provide image magnification and
enhancement to further improve alarm event analysis and documentation.
Intelligent digital video systems are marketed under the brand name
Intellex(TM). A new Intellex unit introduced in 1997 won the Security Industry
Association's 1997 "Judge's Choice" award of the Security Industry Association,
an association of manufacturers and distributors of security systems and
services. Candidates for the "Judge's Choice" award are judged on innovation,
the value of the problems solved and needs addressed, ease of product
installation and implementation, the number of product strengths and benefits
and the value of such benefits.
Access Control and Asset Management Systems
Access control systems are designed to monitor, control and appropriately
authorize passage (pedestrian, asset or vehicular) into and out of designated
areas. In a typical access control system application, each individual is issued
a badge and inserts or swipes the badge at a door reader to gain access to
buildings, rooms, and other enclosures. The Company's access control systems
offer a variety of features and benefits such as environmental security of
people, assets and information, automatic data collection and report generation.
Access Control systems can be integrated with CCTV and alarm management systems,
thus providing for additional security and protection. These versatile systems
can also be integrated with ERP (enterprise resource planning) systems providing
shared information across many applications.
The Company offers a full line of Access Control systems to address a wide range
of customers and their requirements. Systems include the C-CURE(R) 80, a
scaleable access control and security management system that monitors and
controls entrances and exits with fully embedded photo imaging, e-mail and
broadcast paging as well as RFID asset tracking and integrated CCTV; and
C-Cure(R) 750, a small facility software application that manages access control
and alarm monitoring. These systems range in capacities from two readers with
3,000 cardholders up to 2,048 readers with 250,000 cardholders.
Asset management systems are new and important initiatives within Sensormatic
which will utilize "smart" tags that combine the security benefits of
conventional EAS tags with the intelligence capabilities of RFID technology
("radio frequency identification"). RFID chips provide a miniature database able
to store variable data, such as warranty information, time, date, and location
of sale or manufacture. Asset tracking systems will combine existing proprietary
asset protection and access control applications with RFID tags and software to
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create a complete range of sensing and tracking solutions which can be used to
protect and track assets in commercial/industrial and retail environments. Asset
management, service, warranty, lease information, perpetual inventory
management, and reverse logistics management are some of the applications to be
provided by asset tracking systems.
The Company began test marketing its new C-Cure(R) Trac system in fiscal 1998.
C-Cure(R) Trac combines the power and flexibility of the Company's C-Cure data
base management and reporting system with RFID readers or sensors for the
purpose of reading and tracking "smart" tags. These smart tags are RFID
transponders that are attached to, or imbedded within, employee access control
badges, high value assets, vehicles or other objects. The C-Cure Trac system can
function in a stand alone mode, be combined within access control applications,
function as a hands free access control system or be integrated into other
security applications.
Consolidated reported revenues by principal products and systems for the years
ended June 30, 1999, 1998 and 1997 are presented below. The reported amounts,
for all principal products and systems, were negatively impacted by foreign
currency fluctuations and divestitures. Eliminating the impact of foreign
currency fluctuations and divestitures, total revenues increased 6% in fiscal
1999 and 8% in fiscal 1998.
CONSOLIDATED REVENUES BY PRINCIPAL PRODUCTS AND SYSTEMS
YEARS ENDED JUNE 30,
($ in millions)
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1999 1998(1) 1997
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EAS(2)...................................................... $ 548.2 $539.8 $ 533.0
CCTV........................................................ 292.4 307.1 314.6
Access Control and Asset Management......................... 45.0 32.6 60.7
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Subtotal.......................................... 885.6 879.5 908.3
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Installation, Maintenance and Other......................... 131.9 107.4 117.4
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Total............................................. $1,017.5 $986.9 $1,025.7
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(1) Includes $11.4 in revenues related to the divested U.S.
commercial/industrial direct sales and service business, as compared with
approximately $80.0 in revenues in the prior year. This impacted CCTV and
Access Control product lines. See Item 7, Management's Discussion and
Analysis of Operations and Financial Condition.
(2) Increases in Ultra-Max revenue of 12% in fiscal 1999 and 19% in fiscal 1998,
partially offset by declines in other EAS system revenues. See Item 7,
Management's Discussion and Analysis of Results of Operations and Financial
Condition.
MARKETS AND MARKETING STRATEGY
Markets
The Company principally markets its EAS products and systems directly to
retailers. In many retail environments, the use of EAS systems has become a
standard operating practice because these products and systems have proven to be
a cost-effective method of reducing inventory shrinkage. Inventory shrinkage is
often the second largest variable operating expense of retailers, after payroll
costs, and normally ranges from 1% to 5% of sales. EAS products and systems help
improve a retailer's profitability not only by reducing inventory shrinkage, but
also by allowing the use of open merchandising which increases product
accessibility to customers. EAS products and systems were first used by soft
goods retailers to protect clothing. Due to technological advances, applications
for hard goods merchandise (non-apparel merchandise) have become economical and
effective. Hard goods and food retailers, such as supermarkets, hypermarkets,
home improvement centers, drug, mass merchandise, optical, music, hardware,
book, video, and entertainment stores have increasingly become users of EAS
products and systems. The Company believes that it holds a significant market
share of this worldwide EAS market. Retailers also make extensive use of CCTV
products and systems to enhance security and the safety of their operations as
well as access control systems.
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Several of the newer EAS technologies used by retailers are used in
commercial/industrial markets to protect assets such as personal computers,
facsimile and copy machines, telephones, artwork, limited access files and
portable laboratory equipment and tools from loss by unauthorized removal. Other
specialized applications include the protection of newborn infants in hospitals
and patients in nursing homes and other long term care facilities.
C/I installations of the Company's CCTV, access control and/or asset management
products and systems range from small to medium size businesses to large
domestic and international operations and businesses. The Company sells its C/I
products and systems to end-user customers primarily through an indirect network
of dealers and distributors. This network of dealers and distributors is global
in scale and provides comprehensive coverage of the C/I market worldwide. The
Company engages in various direct advertising and marketing activities to
stimulate demand for its products and partners with the dealers and distributors
to fulfill the needs of end-user customers.
The Company has a broad range of electronic security products and systems, and
the Company's customers in general are increasingly receptive to the Company's
ability to design, supply, install and service integrated security systems that
combine the technologies of the Company's various products and systems. The
Company's installed base of customers (i.e. customers at which the Company's
products are installed) includes a substantial majority of the top 100 retailers
in the world, as well as more than half of the global Fortune 500 companies.
Marketing Strategy
The Company's principal marketing strategies are as follows:
1. Recurring label sales
The sale of EAS systems and devices to hard goods retailers has been growing
significantly in recent years and the Company believes that there is potential
for continued growth. Hard goods merchandise is protected with labels which
leave the store with the merchandise, representing a source of recurring
revenues to the Company. Labels may be self-adhesive, stick-on labels which are
attached to merchandise by the retailer or applied at the point of manufacture
or distribution.
2. Source tagging
The Company has formed relationships with manufacturers, packaging companies and
a number of its retail customers around the world, from virtually all retail
segments (including department stores, specialty apparel, discount, drug stores,
hypermarkets, food, multi-media, home improvement and automotive parts stores),
to apply EAS labels during manufacturing or packaging processes. Source tagging
is intended to help retailers increase product sales and profitability through
open merchandising and product exposure, reduced shrinkage, and reduced costs by
eliminating the need for sales associates to apply security tags and labels to
merchandise. Currently, nearly 1000 vendors in the U.S. and approximately 2300
worldwide participate in source tagging with the Company's EAS technologies. The
Company estimates that in fiscal 1999, these suppliers provided U.S. and
international retailers with more than 1 billion source tagged items, which
represents 33% of total Company EAS label sales. Source tagging programs are
expected to grow at a rapid pace in fiscal 2000. The increased utilization of
source tagging is expected to result in increased label sales and/or royalty
income as well as increased sales of systems and deactivators.
3. Licensing label production
The Company has entered into license agreements with leading label producing
companies to manufacture the Company's Ultra-Strip labels. The Company believes
its licensing programs will allow it to gain efficiencies in label
manufacturing, distribution and application for source tagging that are expected
to reduce the overall cost of source tagging programs to retailers and suppliers
as well as reduce the Company's capital investment in label manufacturing. This
licensing is intended to provide customers with multiple sources of EAS labels,
and to increase the level of research and development resources directed to
these technologies. These programs are expected to result in a broader
distribution of Ultra-Strip labels and, therefore, facilitate the growth of
Ultra-Max technology, as well as allow Sensormatic to focus on systems and
security solutions.
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Royalty fees to be paid to the Company based on sales generated by the licensees
will provide recurring revenue to the Company.
4. Product choice
The Company's marketing and sales efforts are focused on offering choice to
retailers recognizing that there are different technologies for different
circumstances. Each technology has its advantages and disadvantages. While
Ultra-Max is the newest and fastest growing technology with broad utilization,
and the most often recommended by the Company, the Company offers a broad range
of EAS technologies in order to comply with the customer's choice.
5. Commercial/Industrial market
Through its sales and marketing personnel dedicated to C/I customers, the
Company intends to further gain market share in the expanding
commercial/industrial market. C/I sales personnel will continue to build the
breadth and quality in its network of dealers and distributors to sell and
market the Company's broad portfolio of products. In addition, the Company plans
to focus on improving levels of customer service and support to dealers and
distributors. The foundation of the Company's C/I strategy is to provide high
value products that easily integrate to meet customer needs. It is the Company's
objective to become the sought after provider of products and services for
commercial/industrial customers.
SALES AND SERVICE ORGANIZATION
At June 30, 1999, the Company employed approximately 2,460 sales and customer
engineering personnel worldwide to market and service its products directly to
retail and commercial/industrial customers. In addition, the Company's products
are marketed and serviced by a large network of sales and customer engineering
personnel employed by dealers and distributors throughout the world. Sales and
service personnel are directed from offices located throughout the U.S. and in
more than 113 countries worldwide. The Company believes that a major factor in
its success has been the high quality of its extensive and experienced sales and
service organization.
The Company has organized its sales force into specialized sales groups to
market its systems to specific customer groups. For example, in addition to its
sales and marketing personnel dedicated to C/I customers and the Global Source
Tagging Division, retail specialized sales groups have been created to target
the supermarket industry and key soft goods retailers in the U.S. Similar
specialized sales groups, concentrating on self-service stores and hypermarkets,
have been formed in Europe. The Company will continue to specialize its sales
force and believes such specialization will accelerate its success in marketing
to targeted user groups and provide improved customer service. The Company has
an indirect sales force dedicated to C/I customers which supports dealers and
distributors in promoting the Company's products and engages in national
marketing.
BACKLOG
As of June 30, 1999 and June 30, 1998, the Company had a backlog of orders of
$51.9 million and $53.5 million, respectively. Backlog includes only expected
revenues from firm orders which are expected to be installed or delivered within
one year. Backlog at any time is not necessarily indicative of the level of
business to be expected in the ensuing period.
SEASONAL ASPECT OF THE BUSINESS
Although the business of the Company is not necessarily seasonal, it has been
the Company's experience, with respect to its worldwide retail customers, that
new orders and installations generally decrease during the December through
February period. The Company believes this is attributable to the focus by
retail store management on the holiday selling season and year-end inventory
analysis during this period. Additionally, the traditional European vacation
period during the months of July and August results in a general decline of new
orders and installations during this period.
8
<PAGE> 10
PATENTS AND RELATED RIGHTS
As of June 30, 1999, the Company owned or was the exclusive licensee of 253
active patents issued by the U.S. Patent and Trademark Office (as well as 441
corresponding foreign patents). These patents cover a variety of inventions and
features, including the Company's acousto-magnetic (Ultra-Max), electromagnetic,
microwave, swept-RF systems and CCTV systems. The Company had 73 patent
applications pending in the U.S. for various other inventions relating to its
products. Patents corresponding to many of the U.S. patents have been issued or
are pending in various foreign countries. There can be no assurance that any
patents will be issued to the Company on any of its pending applications. The
Company is also a non-exclusive licensee under certain patents issued in the
U.S. and various foreign countries relating to the manufacture, use and sale of
certain labels for use with its electromagnetic systems.
The Company does not make any representation as to the scope, validity or value
of any patents which have been or may be issued or licensed to it or as to the
possible infringement by its products on patents owned by others.
Although the Company's patent program is important, the Company believes that
because of its technical knowledge and experience, the abilities of its
established and experienced sales and service organization and its leadership
position in the industry, it is not dependent upon patent protection to maintain
its leadership in the electronic security industry.
SUPPLY CHAIN OPERATIONS AND DISTRIBUTION
The Company's major production facilities are located in Puerto Rico, Florida
and Ireland. The Company also has a manufacturing facility in Brazil and does
limited final assembly and testing at its San Diego facility. The Puerto Rico
facility is the Company's largest and accounts for two-thirds of the Company's
manufacturing personnel. The Boca Raton, Florida facility specializes in EAS
label production. The operation in Cork, Ireland allows the Company to
manufacture a wide range of products closer to its large European customer base.
Fabrication of many of the C/I products is sub-contracted to local manufacturing
facilities near the C/I divisions located in Massachusetts and California, while
hard tag production is sub-contracted to low cost, high quality suppliers in
Mexico and China.
The Company's strategy is to maintain critical manufacturing processes in-house
and to form alliances with independent manufacturing partners to produce its
products at the lowest possible cost. This in-house capability, combined with
such alliances, provides control over costs and quality, while increasing
responsiveness to the demands of the market which results in a distinct
competitive advantage. Independent suppliers provide various component products
and materials used to manufacture the Company's products, and also manufacture
certain component parts and label products to the Company's specifications. A
core supplier base of approximately 180 major suppliers, representing 98% of
purchasing dollars, has been established worldwide to maintain generally a
reliable flow of quality materials at the lowest possible cost. Certain magnetic
materials used in the manufacture of Ultra-Max labels and tags are currently
purchased from one supplier, Vacuumschmelze GmbH ("Vacuumschmelze"). While there
are potential alternatives to the supply of such material by Vacuumschmelze, the
loss or disruption of this source of supply could result in increased costs or
product shortages or otherwise materially adversely affect the Company's
business. The Company has been pursuing development of alternative materials for
use in the Company's Ultra-Max labels and additional sources of supply.
The Company has improved, and expects to continue to improve, its production
efficiencies and cost structures through new processes, increased automation and
improved product designs. Such improvements, particularly to increase capacity
and lower product costs of EAS products, have required additional capital
investment for new production equipment.
The Company's consolidation program for its warehousing and distribution
locations, which commenced during fiscal year 1998, will be completed during the
first half of fiscal 2000. This consolidation strategy leverages the use of
third party logistics service providers, enabling the Company to capitalize on
"best in
9
<PAGE> 11
class" logistics services and resources. The number of warehouse locations has
been reduced significantly during this timeframe.
COMPETITION
The electronic security industry continues to be highly competitive. There are
many alternatives available to protect people and assets, in addition to the use
of EAS, CCTV, and access control systems. These alternatives include, among
other things, guards and private detective services, mirrors, burglar alarms and
other magnetic and electronic devices, and services combining some or all of the
above elements. To the Company's knowledge, there are several other companies
that market EAS equipment to retail stores directly or through distributors,
such as Sentry Technology Corporation in the U.S., Checkpoint Systems, Inc. in
the U.S., Europe, Latin America and Asia and Meto AE and Nedap B.V. in Europe,
all of which are principal competitors of the Company. With respect to CCTV
system components and access control systems, there are numerous companies,
including Philips, Panasonic and Pelco, that market directly or through
distributors such equipment to both retail and non-retail customers. There are
many competing companies in the sale of access control systems, including
Cardkey Inc., Westinghouse Electronic Corporation, Northern Computers Inc. and
Casi-Rusco Inc.
The Company competes in marketing its systems and products principally on the
basis of product performance, multiple technologies, service and price. Price
competition has been especially intense in some market segments in recent years.
There can be no assurance that other firms with greater financial and other
resources may not enter into direct competition, or expand the scope of their
existing competition, with the Company, nor that new technologies will not be
developed and introduced into the market place, which could adversely affect the
Company's business.
SALES REVENUE
Direct Sales and Sales-Type Leases
The Company's sales revenues are predominantly generated by direct sales and
sales-type leases of new products and systems. Additionally, the Company
generates sales revenues by export sales of new products and systems to
distributors in foreign countries and through the sale of selected new equipment
to dealers and system integrators.
The Company sells its systems on a current, deferred or installment payment
basis. Substantially all deferred payment obligations are payable within one
year. Installment contract obligations are payable monthly over terms generally
up to five years. Installment contract obligations are subject to stated or
imputed interest at prevailing market rates and are generally secured by the
purchased equipment. The Company's sales-type leases consist of non-cancelable
leases of new equipment, generally with terms of 60 months or greater. It is the
Company's policy to securitize sales-type leases. The Company believes that
offering its customers flexible terms, including long-term financing, is an
advantageous competitive marketing program. For each of the three fiscal years
in the period ended June 30, 1999, no single customer accounted for 10% or more
of the Company's consolidated revenues.
Rental and Installation, Maintenance and Other Revenues
The Company also leases systems under non-cancelable operating leases. Such
leases are generally for terms of 36 to 54 months. Additionally, the Company
generates revenues from the installation, service and maintenance of its
systems.
WORKING CAPITAL ITEMS
The Company historically maintains a high level of accounts receivables and
sales-type leases outstanding, measured as a percentage of revenues. This
results, in part, from a key element of the Company's marketing strategy to
increase market penetration by providing alternative financing options to its
retail customers including deferred billing and long-term installment sales and
lease terms, resulting in extended accounts receivable recovery periods.
Additionally, the Company has experienced a historical pattern of delayed
10
<PAGE> 12
payments by certain retail customers and, accordingly, the Company's levels of
receivables past due represent a relatively high percentage of total
receivables. This strategy has given the Company a competitive marketing program
and has helped the Company penetrate markets and increase customer loyalty and
commitment to Sensormatic. The ability to pursue such a strategy results from
the Company's relatively high gross profit margins and the financing programs
the Company has put in place which allow the Company to sell its customer
receivables and leases.
PRODUCT RESEARCH, DEVELOPMENT AND ENGINEERING
Though research, development and engineering expenditures decreased slightly
during fiscal 1999 when compared to fiscal 1998, over the past decade, these
expenditures have trended upwarded. The increase in these activities has
resulted in the continued broadening of the systems and technology offered by
the Company, resulting in the expansion of the applications and customer base
for the Company's systems. New product development in all product categories
continues to be a high priority for the Company. During fiscal 1999, the Company
introduced 30 new or enhanced EAS products, while eliminating 136 products from
its portfolio. Additionally, during fiscal 1999, the Company introduced 30 new
or enhanced video and access control products.
The Company has strengthened its research, development and engineering
activities by increasing its investment in sophisticated engineering equipment,
expanding key consulting relationships throughout the world and substantially
increasing its professional engineering staff, with particular emphasis on
magnetic materials research, digital signal processing, RF data transmission and
software development skills. Several of the Company's EAS systems depend on the
use of magnetic materials and the Company has liaisons with many key research
centers throughout the world. Software is another major element in the Company's
new product designs and manufacturing processes.
In fiscal 1999, 1998 and 1997, the Company incurred approximately $25.8 million,
$27.2 million and $24.5 million, respectively, for research, development and
engineering costs. The reduced level in fiscal 1999 when compared to 1998 was
due to the Company's efforts to outsource certain products resulting in a
reduction in the associated research, development and engineering expenses.
Planned consolidations and product rationalizations resulted in reduced spending
levels during fiscal 1997. During fiscal 2000, the Company expects spending for
research, development and engineering to be approximately 15% higher than fiscal
1999.
GOVERNMENTAL REGULATION
The sale and use of the Company's products are subject to regulation by
governmental authorities having jurisdiction over the sale and use of electronic
and communication equipment or health and safety standards (e.g., the U.S.
Department of Health and Human Services). Such products are in compliance with
currently applicable requirements and standards under the regulations of
government authorities in the U.S., in countries in which the Company markets
such products directly or through its subsidiaries and in many other countries.
In particular, electromagnetic field ("EMF") emissions from the Company's EAS
systems are within the levels permitted by such current U.S. safety standards
applicable to such equipment. Although there can be no assurance that rules or
regulations establishing more restrictive standards will not be adopted by
government authorities in the U.S., the Company believes that the EMF levels
generated by the EAS systems it markets will remain within any such new safety
standards which may be established. In addition, in view of the Company's high
level of business activity in the European Union ("EU"), the Company actively
participates in the development of evolving technical standards issued by
CENELEC (European Committee For Electrotechnical Standardization) and ETSI
(European Telecommunications Standards Institute). As of January 1, 1996 new
standards were required to be met to apply the CE Mark to market products in the
EU, and the Company certified its products to the CE Mark requirements. Meeting
CE Mark requirements includes meeting standards established by CENELEC, ETSI and
other standards-setting organizations. In addition, the EU Council of Health
Ministers recently recommended basic guidelines for exposure to EMF emissions.
These guidelines contemplate that standards relating to measurement methods,
duration of exposure and other criteria must be developed by member states
and/or international bodies such as CENELEC to implement such guidelines. These
guidelines, together with such standards as are developed,
11
<PAGE> 13
would be subject to adoption, as presented or with modifications, by individual
countries. The Company is actively working with CENELEC to help develop such
standards relating to EAS and related products. The Company expects that the
products it markets will comply with such standards as may be developed
implementing the basic guidelines, if and when such standards and guidelines
have been adopted by individual countries.
Such standard-setting organizations are continually considering the
establishment of new standards and reconsidering existing standards, including
health and safety standards. There can be no assurance that adverse changes or
amendments to existing regulations or standards, or new adverse regulations or
standards, will not be adopted, or that all products of the Company subject to
regulations or standards will meet the requirements of all such regulations and
standards in all countries in which the Company desires its products to be
marketed.
The U.S. Food and Drug Administration ("FDA") has been examining the effects of
various devices, including EAS systems, on implantable medical devices. The FDA
has issued a physician advisory letter recommending that patients with
implantable medical devices avoid lingering near, or leaning on, EAS systems.
FDA staff members indicated, in connection with the release of such letter, that
the FDA does not view interactions with EAS systems as representing a
significant public health hazard and made reference to the large number of
people passing through such systems each day in relation to the small number of
reported incidents. Manufacturers of implantable medical services, as well as
the Company and the International Electronic Article Surveillance Manufacturers
Association (of which the Company is a member), have long offered the same
advice as was given by the FDA. An American Heart Association Science Advisory
also agreed with the FDA recommendations, as did statements recently issued by
the European Society of Cardiology and the U.K. Medical Devices Agency. The
Company is also aware of other studies as to whether any hazards are posed to
wearers of implantable medical devices by EAS systems. While the Company
believes there to be substantial evidence that no health hazard is posed by the
interactions between the Company's EAS systems and such medical devices,
including opinions expressed by leading physicians, and has presented such
evidence to the FDA, and offers such evidence to persons conducting such
studies, there can be no assurance that such studies will not result in the
publication of adverse reports, the recommendation of precautionary measures
and/or the adoption of regulations which could adversely affect the Company.
The Company is also aware of prior attempts by one of its competitors to
generate adverse publicity regarding these matters. There can be no assurance
that such attempts will not adversely affect the Company.
EMPLOYEES
As of June 30, 1999, the Company employed approximately 5,700 persons worldwide.
The Company also uses temporary staff, particularly in manufacturing areas, to
balance workload during peak periods.
ITEM 2. PROPERTIES
Domestically, the Company owns or leases facilities in Florida, Georgia, Puerto
Rico, California, Massachusetts, and New York for executive, marketing, product
development, manufacturing and warehousing activities. The Company also leases
space in various locations throughout the U.S. for sales and customer
engineering offices and warehouse space in order to most effectively serve its
customers.
The Company's international subsidiaries own or lease office and warehouse space
for their operations. The principal facilities are located in Argentina,
Australia, Belgium, Brazil, Canada, France, Germany, Ireland, Italy, Mexico, The
Netherlands, Singapore, Spain, Sweden and the U.K. Additionally, the Company
sub-contracts manufacturing in Mexico and China.
The Company considers its key properties identified above as suitable to its
business and, in general, adequate for its current and near-term needs.
12
<PAGE> 14
ITEM 3. LEGAL PROCEEDINGS
The Company has entered into a definitive agreement for the settlement of the
three derivative actions filed against certain directors and former directors of
the Company in the Court of Chancery of the State of Delaware by Marion Lord and
Norman Rabinstein, Harry Lewis and Alan Freberg on or about September 7,
September 13 and September 14, 1995. These actions, which were described in
previously-filed periodic reports of the Company, arose out of alleged
statements and omissions regarding, among other things, the Company's financial
results and accounting practices for the fiscal period ended on June 30, 1995,
and prior periods, that were also generally the subject of a class action
previously pending against the Company which was settled in fiscal 1998. The
settlement of the three derivative actions provides, among other things, for the
payment of plaintiff's legal fees in an amount that would not be material. The
settlement agreement is subject to Court approval.
Upon receipt of an order granting such approval, and the expiration of the
deadline to appeal such order, the balance of the proceeds previously placed in
escrow from directors and officers liability insurance policies is to be paid
over to the Company. Such proceeds had been placed in escrow in order to satisfy
any potential liabilities that certain of the Company's current and former
directors and officers may have had that were covered under such insurance
policies.
In June 1997, AlliedSignal Inc. ("Allied") commenced an action against
Vacuumschmelze GmBH, a wholly owned subsidiary of Siemens AG, and its
subsidiary, Vacuumschmelze Corporation ("Vacuumschmelze"), in the United States
District Court for New Jersey, Civil Action No. 97-3071 (JAG). Vacuumschmelze is
the supplier of the principal electromagnetic alloy used in the Company's
Ultra-Max labels. The Allied complaint alleges that this alloy infringes a
patent owned by Allied and seeks to enjoin Vacuumschmelze from making, using or
selling infringing alloys. The complaint also seeks damages, interest and costs.
In October 1997, the Company brought a separate action against Allied in the
same Court asserting, among other things, the Company's rights to and interest
in the patent at issue in the Vacuumschmelze litigation and certain related
patents. The Company's action is based on its claim to be a co-inventor of the
inventions claimed in such patents. Allied filed an answer and asserted
counterclaims against the Company for, among other things, a declaratory
judgment concerning the various patent rights at issue and damages and
injunctive relief for alleged patent infringement, which counterclaims were
denied by the Company. The Company has entered into an agreement with
Vacuumschmelze to bear a substantial part of Vacuumschmelze's costs and damages,
if any, arising from this suit.
In June 1999, the Company also brought an action against Allied in Germany to
establish its co-ownership of the corresponding European patent applications. In
July 1999, Allied brought a motion for leave of Court to amend its answer and
counterclaims in the U.S. action to add claims for damages and injunctive relief
for the alleged breach by the Company of a non-disclosure agreement with Allied
and for the alleged misappropriation of certain confidential and proprietary
information of Allied, arising out of the Company's alleged disclosure to
Vacuumschmelze of certain information.
The Company is opposing Allied's motion for leave to amend and is vigorously
prosecuting its own claims against Allied and defending against Allied's
counterclaims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
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<PAGE> 15
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information as of September xx, 1999 with respect
to the executive officers of the Company.
<TABLE>
<CAPTION>
OFFICER
NAME AGE SINCE POSITION
- ---- --- ------- --------
<S> <C> <C> <C>
Per-Olof Loof........................... 48 1999 President and Chief Executive Officer
Kenneth W. Chmiel....................... 55 1997 Senior Vice President of Supply Chain
Operations and Corporate Quality
Dennis Constantine...................... 58 1999 Senior Vice President of Electronic
Article Surveillance Division
Jerry T. Kendall........................ 56 1993 Senior Vice President and President of
North America Retail Operations and
Global Service Support
Garrett E. Pierce....................... 55 1996 Senior Vice President, Chief
Administrative Officer and Chief
Financial Officer
Ronald F. Premuroso..................... 45 1996 Senior Vice President and President of
International Operations
John P. Smith........................... 51 1999 Senior Vice President and President of
Europe Operations
Walter A. Engdahl....................... 61 1992 Vice President -- Corporate Counsel and
Secretary
Gregory C. Thompson..................... 44 1997 Vice President and Controller
</TABLE>
The terms of office of each of the officers, pursuant to the By-Laws of the
Company, will continue until the next Annual Meeting of the Board of Directors
(to be held after the next Annual Meeting of Stockholders) and until a successor
is elected and qualified.
Per-Olof Loof joined the Company as President and Chief Executive Officer in
August 1999. Prior to joining the Company, Mr. Loof served as Senior Vice
President in charge of Financial Services Group, the largest division in NCR.
Prior to joining NCR, Mr. Loof was President and CEO of AT&T ISTEL Corp., a
leading Europe-based system integrator. Prior to AT&T, Mr. Loof spent twelve
years with Digital Equipment Corp., holding a variety of management positions,
including Vice President, Sales and Marketing for Europe and Vice President,
Financial Services Enterprises.
Kenneth W. Chmiel joined the Company in July 1997 as Senior Vice President of
Supply Chain Operations and is responsible for managing product manufacturing
and distribution. In May 1999, his role was expanded to include Corporate
Quality. Prior to joining the Company, Mr. Chmiel served as Executive Vice
President and Chief Operating Officer of Amerail/Morrison Knudsen Corporation's
Transit Systems Group from 1993, and as Executive Vice President of the Rail
Systems Group from 1990. From 1973 to 1989, Mr. Chmiel held a number of
different management positions with AlliedSignal.
Dennis Constantine joined the Company in April 1997 as Vice President and
General Manager of the EAS Product Company. In May 1999, Mr. Constantine was
appointed Senior Vice President. Prior to joining the Company, he was with
Recognition International Inc. for seven years where he progressed from Division
President, Systems Division to Division President, OEM and Technology Division.
Recognition International Inc.,which merged with Banctec Corporation, is an
international provider of document processing hardware, software and services.
Jerry T. Kendall joined Sensormatic as Senior Vice President -- Sales, Marketing
and Service of Security Tag Systems, Inc., which was acquired by the Company
during fiscal 1993, and was appointed Vice President of Marketing in September
1993. In 1996, Mr. Kendall was appointed Vice President, North America Retail
Operations, with responsibilities to lead the retail business unit field sales,
service and administrative
14
<PAGE> 16
organization in the U.S. and Canada. In July 1997, Mr. Kendall was appointed
Senior Vice President and President of North America Retail Operations. In May
1999, his role was expanded to include Global Service Support.
Garrett E. Pierce joined the Company as Senior Vice President and Chief
Financial Officer in January 1996. He was named Chief Administrative Officer in
July 1998. Prior to joining the Company, Mr. Pierce was the Executive Vice
President and Chief Financial Officer of California Microwave, Inc., a leading
supplier of microwave, radio frequency, and satellite systems and products for
communications and wireless networks. From 1980 to 1993, Mr. Pierce was with
Materials Research Corporation, a leading provider of thin film equipment and
material technology to the semiconductor, telecommunications and media storage
industries, where he progressed from Chief Financial Officer to President and
Chief Executive Officer. Materials Research Corporation was acquired by Sony
Corporation as a wholly-owned subsidiary in 1989. From 1972 to 1980, Mr. Pierce
held various management positions with AlliedSignal.
Ronald F. Premuroso was the Managing Director of the Asia Pacific Operations
from 1989 to 1992 and Vice President of the Asia Pacific Operations from 1992 to
1996. In 1996, Mr. Premuroso was appointed Vice President of International
Retail Operations with responsibility to lead the retail business unit field
sales, service and administrative organizations in Asia Pacific, the Middle
East, Africa and Latin America. In July 1997, Mr. Premuroso was appointed Senior
Vice President and President of the International Retail Operations. In April
1998, Mr. Premuroso was appointed Senior Vice President and President of Europe
Retail Operations. In January 1999, Mr. Premuroso was re-appointed Senior Vice
President and President of International Operations.
John P. Smith joined the Company in September 1998 as Vice President,
International Retail Operations. In January 1999, he was appointed Senior Vice
President and President of Europe Operations. Prior to joining the Company, Mr.
Smith was Managing Director, Chubb Electronic Security U.K. Ltd., which is a
division of Williams plc, a global security company. Before joining Chubb
Electronic Security U.K. Ltd., Mr. Smith was Chief Operating Officer for
Automated Security Holdings (ASH) plc U.K.
Walter A. Engdahl was appointed Vice President -- Corporate Counsel of the
Company in February 1992 and became Secretary of the Company in 1993. He is a
member of the Bars of both Florida and New York.
Gregory C. Thompson joined the Company as Vice President and Controller in 1997.
Prior to joining the Company, Mr. Thompson was with Wang Laboratories for seven
years where he progressed from Assistant Controller to Vice President and
Corporate Controller. Wang Laboratories, a high-technology company, specializing
in software and services, was acquired, in June 1999, by Getronics N.V., a
company headquartered in the Netherlands focusing on computer-related services.
None of the above executive officers has any family relationship with any other
director or executive officer of the Company.
15
<PAGE> 17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York Stock Exchange ("NYSE")
under the symbol SRM. The following table sets forth for the periods indicated,
the range of the high and low sales prices per common share:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C> <C> <C>
FISCAL 1999:
First Quarter............................................. $15 1/16 $ 5 3/16
Second Quarter............................................ 8 1/8 3 3/16
Third Quarter............................................. 11 7/16 7 5/8
Fourth Quarter............................................ 14 7/16 9 3/16
FISCAL 1998:
First Quarter............................................. $14 3/8 $12 3/8
Second Quarter............................................ 17 13 9/16
Third Quarter............................................. 19 5/8 16 5/16
Fourth Quarter............................................ 16 15/16 12 9/16
</TABLE>
As of September 17, 1999, there were 3,876 shareholders of record of the
Company's Common Stock.
The Company did not pay any dividends on the Common Stock during fiscal 1999 or
fiscal 1998. Certain of the Company's financial agreements currently prohibit
the payment of cash dividends until after certain cumulative income levels are
obtained, as reflected in the Company's audited financial statements and it is
unlikely that the Company would be able to pay cash dividends until after the
preparation of its audited financial statements for fiscal 2000 at the earliest.
The Company intends to pay dividends on the Preferred Stock with shares of its
Common Stock prior to the time it is able to pay such cash dividends.
On April 13, 1998, 6,900,000 Depositary Shares were issued by the Company, each
representing a one-tenth interest in a share of Preferred Stock (See Note 10 of
Notes to Consolidated Financial Statements for further details). The aggregate
gross proceeds of the April 13, 1998 Offering were $172.5 million, and the net
proceeds thereof, after deduction of discounts and commissions of $0.75 per
depositary share and estimated expenses of $650,000, were approximately $166.7
million. Such proceeds were used to repay borrowings under the Company's
revolving credit facility, to fund the remaining balance due under the
settlement of the shareholder class action and for working capital and general
corporate purposes. The Company has filed a registration statement on Form S-3
with respect to the Depositary Shares, the Preferred Stock and Common Stock
issuable. As of June 30, 1999, the registration statement had not become
effective and, as a result, the Company is incurring liquidated damages in the
amount of 0.25% of the aggregate gross proceeds annually.
The Company also issued approximately 1,480,405 of Common Stock which are not
currently registered, in payment of the dividends payable, including the
liquidated damages referred to above, on the Preferred Stock on July 1, 1998
through July 1, 1999. (Registration of these shares is not required because no
additional consideration was paid therefor.) The resale of these shares will
also be covered by the registration statement.
16
<PAGE> 18
ITEM 6. SELECTED FINANCIAL DATA AND QUARTERLY SUMMARY
SELECTED FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1999(1) 1998(1) 1997(1) 1996(1) 1995(5)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Year Ended
Total revenues....................... $1,017.5 $ 986.9 $1,025.7 $ 994.6 $ 889.1
======== ======== ======== ======== ========
Operating income (loss).............. $ 81.5 $ 40.1 $ 2.1 $ (134.5) $ 97.9
======== ======== ======== ======== ========
Income (loss) from continuing
operations......................... $ 38.1 $ (32.7) $ (21.4) $ (97.7) $ 69.6
======== ======== ======== ======== ========
Net income (loss).................... $ 38.1 $ (32.7) $ (21.4) $ (97.7) $ 73.7
======== ======== ======== ======== ========
Earnings (loss) applicable to common
stockholders....................... $ 26.6 $ (35.2) $ (21.4) $ (97.7) $ 73.7
======== ======== ======== ======== ========
Basic earnings (loss) per common
share:
Continuing operations.............. $ 0.35 $ (0.47) $ (0.29) $ (1.33) $ 0.98
======== ======== ======== ======== ========
Net income (loss).................. $ 0.35 $ (0.47) $ (0.29) $ (1.33) $ 1.04
======== ======== ======== ======== ========
Diluted earnings (loss) per common
share:
Continuing operations.............. $ 0.35 $ (0.47)(2) $ (0.29)(2) $ (1.33)(2) $ 0.96
======== ======== ======== ======== ========
Net income (loss).................. $ 0.35 $ (0.47)(2) $ (0.29)(2) $ (1.33)(2) $ 1.02
======== ======== ======== ======== ========
Cash dividends per common share...... $ -- $ -- $ 0.22 $ 0.22 $ 0.22
======== ======== ======== ======== ========
At Year-End
Total assets......................... $1,775.6 $1,799.5 $1,646.6 $1,621.3 $1,570.9
======== ======== ======== ======== ========
Total debt........................... $ 508.1 $ 548.7 $ 523.3 $ 516.5(4) $ 326.7
======== ======== ======== ======== ========
Total stockholders' equity........... $ 889.7 $ 902.0(3) $ 772.9 $ 831.7 $ 952.7
======== ======== ======== ======== ========
</TABLE>
- ---------------
(1) Includes the following pre-tax charges:
<TABLE>
<CAPTION>
1999 1998 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Restructuring and inventory write-downs relating
to restructuring activities..................... $ -- $21.9 $26.8 $85.3
Litigation settlement (recoveries), net........... (6.2) 45.7 -- --
----- ----- ----- -----
$(6.2) $67.6 $26.8 $85.3
===== ===== ===== =====
</TABLE>
(2) Amounts are not adjusted as the effect is anti-dilutive.
(3) In fiscal 1998, the Company issued 6 1/2% Convertible Preferred Stock for
net proceeds of $166.7.
(4) In fiscal 1996, the Company issued $350.0 Senior Notes.
(5) In fiscal 1995, the Company acquired Knogo Corporation's operations
primarily in Europe and Australia.
QUARTERLY SUMMARY (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
- ------------- ------------- ------------ --------- --------
<S> <C> <C> <C> <C>
1999(1)
Total revenues.................................... $227.2 $250.4 $245.5 $294.4
Operating income.................................. $ 6.2 $ 12.8 $ 22.0 $ 40.3
Net (loss) income................................. $ (1.5) $ 7.3 $ 9.2 $ 23.0
</TABLE>
17
<PAGE> 19
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
- ------------- ------------- ------------ --------- --------
<S> <C> <C> <C> <C>
(Loss) earnings applicable to common
stockholders................................... $ (4.3) $ 4.6 $ 6.5 $ 19.9
Basic and diluted (loss) earnings per common
share.......................................... $(0.06) $ 0.06 $ 0.09 $ 0.26
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
- ------------- ------------- ------------ --------- --------
<S> <C> <C> <C> <C>
1998(2)(3)
Total revenues.................................... $245.4 $243.7 $237.0 $260.8
Operating (loss) income........................... $(18.1) $ 19.2 $ 16.3 $ 22.8
Net (loss) income................................. $(58.6) $ 5.4 $ 10.1 $ 10.4
(Loss) earnings applicable to common
stockholders................................... $(58.6) $ 5.4 $ 10.1 $ 7.9
Basic and diluted (loss) earnings per common
share.......................................... $(0.79) $ 0.07 $ 0.14 $ 0.11
</TABLE>
- ---------------
(1) Includes a pre-tax litigation insurance recovery of $6.2 recorded in the
second quarter.
(2) Includes pre-tax restructuring charges and inventory write-downs relating to
restructuring activities of $17.2 (net of a reversal of $12.0 originally
recorded in the fourth quarter of fiscal 1997) recorded in the first quarter
and $4.7 recorded in the third quarter.
(3) Includes a pre-tax litigation settlement charge of $53.0 recorded in the
first quarter, and a litigation insurance recovery of $7.3 recorded in the
third quarter.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion should be read in conjunction with the consolidated
financial statements.
RESULTS OF OPERATIONS
OVERVIEW
Consolidated revenues increased 3.1% to $1,017.5 million in fiscal 1999 versus
$986.9 million in fiscal 1998, as compared to a decrease of 3.8% in fiscal 1998
versus fiscal 1997. Revenues for fiscal 1999 increased due to 20.9% growth in
the Company's North America Retail business unit driven by large purchases of
Ultra-Max systems by major retailers. The decrease of 3.8% in fiscal 1998
revenues versus fiscal 1997 was primarily due to the strengthening of the U.S.
dollar against currencies in Europe and Asia and the related impact of foreign
currency fluctuations.
Results of operations reflected operating income of $81.5 million in fiscal 1999
versus $40.1 million in fiscal 1998 and $2.1 million in fiscal 1997. The Company
reported net income of $38.1 million, or $.35 per share, in fiscal 1999, a net
loss of $32.7 million, or a per share loss of $.47, in fiscal 1998, and a net
loss of $21.4 million, or a per share loss of $.29, in fiscal 1997. The
Company's results for fiscal 1998 and 1997 include the effects of restructuring
charges of $21.9 million and $22.6 million, respectively, and inventory
write-downs of $4.2 million relating to restructuring activities in fiscal 1997.
For fiscal 1998 and 1997, the after-tax effect of these restructuring charges
and inventory write-downs was $15.3 million and $19.0 million, respectively, or
$.21 and $.26.
The Company's results also included provisions for doubtful accounts of $22.5,
$23.4 million and $42.8 million and provisions for excess and obsolete
inventories (excluding the inventory write-downs relating to the restructuring
activities) of $11.5, $11.7 million and $11.6 million in fiscal 1999, 1998 and
1997, respectively. The provision for doubtful accounts for fiscal 1997 includes
incremental charges that resulted from an extensive review of the collectibility
of accounts receivable amounting to $16.1 million. The provisions for excess and
obsolete inventories for fiscal 1998 and 1997 include incremental charges of
$3.0 million and $2.5 million, respectively, relating principally to the results
of the Company's extensive review of its balance sheet. The Company's results
also included incremental charges of $10.8 million and $3.5 million in fiscal
1998 and 1997, respectively, for certain employee separation and warranty and
contract resolution costs. The after-tax effect of these incremental charges in
fiscal 1998 and 1997 was $9.7 million and $15.6 million, respectively, or $.13
and $.21 per share. In addition, in fiscal 1999 and 1998 the Company incurred
net litigation settlement
18
<PAGE> 20
(recovery) costs of $(6.2) and $45.7 million, respectively, the after-tax effect
of which was $(4.3) million and $31.9 million, or $(0.6) and $.43 per share,
respectively. See "Restructuring Charges, Incremental Accounts Receivable,
Inventory and Other Charges, Net Litigation Settlement Charges and Other
Strategies" below and Notes 2 and 13 of the Notes to the Consolidated Financial
Statements for further discussion.
RESTRUCTURING CHARGES, INCREMENTAL ACCOUNTS RECEIVABLE, INVENTORY AND OTHER
CHARGES, NET LITIGATION SETTLEMENT CHARGES AND OTHER STRATEGIES
Sensormatic's rapid growth and success in the late 1980's and first half of the
1990's took the Company from $100 million in revenues in fiscal 1987 to
approximately $900 million in fiscal 1995. This growth was attained principally
through internally developed new products, various strategic acquisitions and
increased market penetration in existing and new markets. The rapid growth
experienced by the Company in sales, customers and product diversity and the
demands of integrating acquired businesses outpaced the Company's growth in
corporate management infrastructure and systems. In addition, expenses and
working capital requirements increased to unacceptable levels. Consequently, in
fiscal 1996, the Company launched a strategic restructuring plan with the
following objectives: (i) expense reduction and asset control, (ii) improved
processes and systems, and (iii) quality, sustainable growth.
The initial phase of this plan included an extensive and systematic review of
the Company's operations, cost structure and balance sheet aimed at reducing its
operating expenses and manufacturing costs while increasing efficiencies. This
review of the Company's global operations focused primarily on operational
systems, organizational structures, facilities utilization, product
rationalization, quality improvements, inventory levels and accounts receivable
balances and related collection efforts. At the end of fiscal 1997, the Company
announced further restructuring actions which included the divestiture of
non-core businesses and additional cost-reduction plans, which mainly included
staff reductions within its European operations.
Restructuring Charges
As a result of its 1996 restructuring plan, the Company instituted a major
reorganization of its business units. The principal objective of the
reorganization was to improve market focus, customer service and product quality
while reducing costs and eliminating redundancies. Related to the fiscal 1996
restructuring plan, the Company planned for the reduction of 875 people and the
sale, disposal or termination of lease arrangements of 30 locations, principally
in the U.K. and U.S. At June 30, 1999, all planned terminations have been
completed and the majority of the facilities have been eliminated or subleased.
The Company also reviewed its existing product lines and product sourcing to
discontinue marginally profitable products and outsource other products.
The fiscal 1996 pre-tax restructuring charges and inventory write-downs relating
to the restructuring activities were $85.3 million (of which $19.6 million
consisted of inventory write-downs recorded in "costs of sales"). Upon
completion of the restructuring activities, anticipated savings in operating
expenses and manufacturing costs are estimated to be $44 million. Through June
30, 1999, the savings realized as a result of this plan have been partially
offset by reinvestment in the Company's business, including costs associated
with the addition of approximately 250 employees in strategic growth and key
technical areas, the new enterprise-wide management information system and
related costs, and by increased legal fees relating principally to then-pending
litigation and government investigations including the matters referred to under
Legal Proceedings of Item 3. These savings were also partially reflected as
reductions in manufacturing costs which have helped to generally maintain gross
profit margins in the face of intense price competition.
In fiscal 1997, the Company continued to review its organization to improve
market focus and customer service as well as reduce costs. Accordingly, the
Company announced additional restructuring activities in fiscal 1997 which
included the divestiture of non-core businesses and workforce reductions,
principally in its European operations. The principal non-core business divested
by the Company was its U.S. commercial/ industrial direct sales and installation
business which was sold in September 1997. The Company elected to exit this
commercial/industrial direct sales and installation activity due to market
conflicts with its indirect sales channels (dealers and distributors). This
strategic decision allows the Company to focus on partnering
19
<PAGE> 21
with dealers and distributors to promote products in the commercial/industrial
division. In connection with this restructuring plan, the Company planned for
the reduction in workforce of approximately 1,200 positions, of which 600
related to the divestiture of non-core businesses and the remaining positions
principally represented the termination of administrative personnel. As of June
30, 1999, approximately 90% of the positions had been eliminated, including the
positions associated with the divested business units, and the rest will be
terminated as soon as practicable. The pre-tax restructuring charges related to
this restructuring plan were $48.7 million, of which $26.8 million (including
$4.2 million of inventory write-downs recorded in "costs of sales") was recorded
in the fourth quarter of fiscal 1997, $17.2 million, net was recorded in the
first quarter of fiscal 1998 and the balance of $4.7 million was recorded in the
third quarter of fiscal 1998. The $17.2 million recorded in the first quarter of
fiscal 1998 was net of a reversal of $12.0 million, originally recorded in the
fourth quarter of fiscal 1997, for estimated losses due to the Company's plan to
sell its U.S. commercial/industrial direct sales and installation business. As
of June 30, 1999, total cash disbursed was $18.6 million, offset by $8.2 million
of proceeds received from the sale of non-core businesses. Upon completion of
the planned restructuring activities, the Company expects annualized savings of
approximately $50 million.
The most significant portion of the savings from restructuring (approximately
58% or approximately $53.8 million) was expected to result from involuntary
employee terminations. In the fiscal 1996 charge the Company planned for
involuntarily termination of 875 employees. Approximately 63% of these employees
were in Europe. These terminations were completed as of March 31, 1997. In the
fiscal 1998 charge, the Company planned for the involuntary termination of 600
employees (excluding an additional 600 employees that would leave the Company's
employment upon the disposition of non-core businesses). Approximately 44% of
these employees were in Europe. Worldwide, through June 30, 1999, excluding the
positions associated with the divested business units, 475 employees had been
involuntarily terminated and the rest will be terminated as soon as practicable.
The realized savings in the U.S. are consistent with those originally expected.
In Europe, realized and expected savings from yet to be completed involuntary
terminations of employees are expected to produce the savings initially
contemplated.
In general, the involuntary termination of employees in Europe is a lengthy
process because of the individual administrative process which needs to be
followed in each country. In addition, as a result of successive changes in
European management, implementation of the European restructuring plan has been
delayed. While the speed of execution is slower than originally anticipated, no
changes have been made to the original restructuring plan and the Company is
proceeding with the remaining involuntary employee separations and location
consolidations.
Incremental Accounts Receivable, Inventory and Other Charges
In fiscal 1996, as part of the Company's plan to focus on asset management and
review its balance sheet in view of the then existing business environment, the
Company performed an extensive review of the collectibility of accounts
receivable, including off-balance sheet receivables. This initiative was
primarily the result of the overall weakening in the retail industry following a
poor holiday season. In addition, several C/I and retail customers had filed for
bankruptcy and other customers experienced financial difficulties. The Company
also conducted a review of slow moving and potentially obsolete inventory in
light of softening demand for certain EAS products. In fiscal 1997 and 1998, the
Company recorded further incremental charges relating to accounts receivables,
inventories, certain employee separation and warranty and contract resolution
costs. The related amounts and their effects are discussed below.
Net Litigation Settlement Charge
In November 1997, the Company reached an agreement to settle a series of class
action lawsuits filed during fiscal 1995. The class action stockholder lawsuit
challenged the Company's prior revenue recognition practices in fiscal 1995 and
earlier. The terms of the agreement provided for an approximately $53.5 million
settlement payment. The Company recorded a net pre-tax charge of $53.0 million
with an after-tax effect of $37.0 million in the first quarter of fiscal 1998.
During fiscal 1998, the Company also recovered a portion of the settlement
amount and related expenses from its primary directors and officers liability
insurance policy, which has a policy limit of $10.0 million, and was paid an
amount equal to the policy limit of $10.0 million by one of its
20
<PAGE> 22
two excess directors and officers liability insurers pursuant to a settlement.
As a result of this recovery, the Company recorded a pre-tax insurance recovery
of $7.3 million net with an after-tax effect of $5.1 million in the third
quarter of fiscal 1998. In addition, in the second quarter of fiscal 1999, the
Company reached agreement with its other excess insurance carrier providing for
the payment by the carrier of $6.2 million in settlement of its insurance
obligations in connection with, among other things, settlement of the above
class action, and recorded the related insurance recovery.
Other Strategies
To assist with the Company's restructuring plan objective to improve processes
and systems, the Company has embarked upon a process improvement and total
quality management program internally referred to as "Q(3)." The program's
objective is to provide superior value for customers, shareholders and
employees. Q(3) is a multi-year effort in which the Company will reengineer the
way it operates enterprise-wide. The program is also establishing a culture of
"continuous improvement" in all of the Company's business processes to reduce
cost and increase customer satisfaction. In connection with this program, the
Company has committed to the implementation of a new global enterprise resource
planning system and an extensive internal training program, both of which are
expected to significantly enhance operational efficiencies and improve customer
service.
RESULTS OF OPERATIONS -- FISCAL 1999 COMPARED TO FISCAL 1998
Except as otherwise indicated, the following discussion of operating results
excludes the effects of the net restructuring charges and inventory write-downs
relating to restructuring activities and the net litigation settlement charges
recorded in fiscal 1999, 1998 and 1997, which were discussed above.
Revenues
Revenues for fiscal 1999 increased 3.1%, or $30.6 million, from fiscal 1998.
After adjusting for currency fluctuations and divestitures, revenues for fiscal
1999 increased 5.9%, as compared with fiscal 1998. Fiscal 1999 results reflect
strong growth in the Company's North America Retail business unit reflecting
significant purchases of Ultra-Max systems by retailers as well as increasing
demand for the Company's disposable security labels used in source tagging.
Consolidated revenues for the EAS worldwide product lines increased 1.7% from
fiscal 1998. EAS revenue growth was driven by an 11.9% increase in Ultra-Max
revenues in fiscal 1999 as compared to fiscal 1998, offset by declines in other
EAS system revenues, principally the electromagnetic systems. Revenues from
electromagnetic systems, principally sold in Europe, decreased 27.4% from fiscal
1998 principally due to market saturation in certain countries with older
technologies. Label unit level volume for source tagging, which is based on the
Company's EAS technologies, increased by approximately 53.8% in fiscal 1999 as
compared to fiscal 1998, resulting in sales of more than 1 billion labels.
Overall reported CCTV and Access Control and Asset Management product line
revenues were flat in fiscal 1999 as compared to fiscal 1998. In the CCTV
product line, revenue increases in domes and digital video were offset by
decreases in multiplexer revenue driven by price competition. CCTV, and Access
Control and Asset Management revenues were negatively impacted in fiscal 1999 by
a decline in revenues partially due to the divestiture of non-core businesses.
The primary divestiture was the Company's U.S. commercial/industrial direct
sales and service business which had fiscal year 1998 revenues of approximately
$11 million. Excluding the effects of all divested businesses, revenues in this
product line increased 3.9% in fiscal 1999 as compared to fiscal 1998.
Installation and Maintenance revenues increased 22% in fiscal 1999 as compared
with fiscal 1998. This increase was driven largely by installations at major
U.S. retailers in the Company's North America Retail business unit.
North America Retail revenue for fiscal 1999 increased 20.9% versus fiscal 1998.
The increase in North America retail revenues was driven by large purchases of
Ultra-Max systems from major U.S. retailers and increased demand for the
Company's disposable security labels used in source tagging. As a result, the
21
<PAGE> 23
Company will make additional capital investments in fiscal year 2000 to increase
manufacturing capacity in this area.
Europe revenues decreased 3.6% in fiscal 1999 as compared to fiscal 1998. Europe
retail revenues, which account for 80% of total Europe revenues, decreased 4.4%
while Europe C/I revenues were flat. Europe Retail's results during fiscal 1999
were negatively impacted by the market saturation of electromagnetic technology
products in hypermarkets and lower levels of sales-type leases.
International revenues, which includes Latin America and Asia Pacific, decreased
14% in fiscal 1999 as compared to fiscal 1998. International retail revenues,
which account for approximately 80% of total International revenues, decreased
7%. Excluding the effects of currency fluctuations and divestitures,
International Retail revenue decreased 2% in fiscal 1999 as compared to fiscal
1998. The decrease in International Retail was largely due to overall economic
weakness in many of these economies.
Revenues generated by North America based C/I decreased by 6.4% in fiscal 1999
as compared to fiscal 1998. The decrease in revenues is principally due to the
divestiture in September 1997 of the U.S. commercial/ industrial direct sales
and service business. Excluding the effect on revenues of this divested non-core
business, North America based C/I revenues increased 6.4% in fiscal 1999 as
compared to fiscal 1998. The increase in revenues is due to new product
introductions and customer service initiatives.
Gross Margins and Operating Income
Gross margins were 42.6% for fiscal 1999 compared with 44.8% for fiscal 1998.
The decline in gross margin percentages was primarily due to a 22.9% increase in
service revenue, which currently has a lower gross margin than the Company's
product revenue, and to a lesser degree by pricing allowances on larger
shipments to major retailers. The decline in gross margin for fiscal 1998 was
more than offset by lower operating expenses for the year.
Excluding restructuring charges, operating income for fiscal 1999 was $81.5
million or 8.0% of total revenue, versus $62.0 million or 6.3% of total revenue
in fiscal 1998.
Selling, General and Administrative Expenses
Total selling, general and administration expenses, as a percentage of total
revenues, were 27.7% in fiscal 1999 versus 31.2% in fiscal 1998. Included in
selling, general and administration expenses in fiscal 1998 was $10.8 million
relating to certain employee separation and warranty and contract resolution
costs. The decrease in expenses as a percentage of revenue for fiscal 1999
largely reflects the benefit from executing the restructuring plans and the
Company's focused efforts to reduce costs and improve profitability.
Provision for Doubtful Accounts
Provision for doubtful accounts, as a percentage of total revenues, was 2.2% and
2.4% in fiscal 1999 and 1998, respectively.
Research, Development and Engineering Expenses
Research, development and engineering expenses decreased to 2.5% of total
revenues in fiscal 1999 versus 2.8% in fiscal 1998. The decrease as a percentage
of revenues as compared to the prior year was due to the Company's efforts to
outsource certain products resulting in a reduction of the associated research,
development and engineering expenses.
Other (Expenses) Income
Non-operating expenses, which include interest expense and interest income,
decreased from $41.2 million in fiscal 1998 to $32.2 million in fiscal 1999. The
decrease is principally due to a decrease in interest expense resulting from
lower average debt levels throughout fiscal 1999 as compared to fiscal 1998.
Taxes
The Company's worldwide effective tax rate provision (benefit) for fiscal 1999
was 31.2% as compared to (30.1)% in fiscal 1998.
22
<PAGE> 24
In August 1996, Congress repealed the favorable tax status in Puerto Rico which
is being phased out over a ten year period for years beginning in 1996. The
Company does not anticipate any material adverse effect on net income as a
result of the new law through fiscal 2002; for years thereafter, the Company is
evaluating the impact which is linked to the Company's further growth and
investment in its Puerto Rico manufacturing facility.
Under Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes", a deferred tax asset is recognized for deductible future
temporary differences. A valuation allowance against this asset is recognized
if, based upon the weight of the available evidence, it is more likely than not
that some portion or all of the deferred tax asset will not be realized.
The Company has evaluated its deferred tax assets. Management believes, more
likely than not, that future taxable income will be sufficient to realize
substantially all of these assets; however, there can be no assurance that this
will be the case. In addition, the Company has identified tax planning
strategies it will utilize, if necessary, to realize a substantial portion of
the recorded deferred tax assets. A significant portion of these deferred tax
assets relate to the future benefit of tax net operating loss and credit
carryforwards. The Company has analyzed the use of the carryforwards on a
country by country basis and recognized the related tax benefit where the
carryforwards are expected to be utilized.
In determining the need for a valuation allowance, SFAS No. 109 requires an
assessment of all available evidence both positive and negative. Where a
valuation allowance was not recorded, the Company believes that there was
sufficient positive evidence to support its conclusion not to record a valuation
allowance. Management believes that the Company will utilize the loss
carryforwards to offset future taxable income because: (1) the Company generated
taxable income in fiscal 1999 and utilized approximately $18 million of net
operating loss carryforwards; (2) prior to the restructuring charges and
shareholder litigation settlement costs, the Company had a history of pre-tax
income; (3) a significant portion of the loss carryforwards resulted from
restructuring and shareholder litigation settlement costs; (4) management
believes that the restructuring of the Company's businesses will reduce their
cost structures and that the Company will be profitable and will generate
taxable income in the near term; (5) management is aware of viable tax
strategies that could be implemented to accelerate taxable income in order to
realize a substantial portion of the recorded deferred tax assets; and (6) a
significant portion of the net operating losses have an indefinite life or do
not expire in the near term. However, there can be no assurance that the Company
will generate taxable income or that all of its loss carryforwards will be
utilized.
See Note 8 of Notes to Consolidated Financial Statements for further discussion,
including amounts of net operating losses by country and expiration dates.
Results of Operations -- Fiscal 1998 compared to Fiscal 1997
Except as otherwise indicated, the following discussion of operating results
excludes the effects of the net restructuring charges and inventory write-downs
relating to restructuring activities and the net litigation settlement charges
recorded in fiscal 1998 and 1997, which were discussed above.
Revenues
Revenues for fiscal 1998 decreased 4%, or $38.8 million, from fiscal 1997.
Fiscal 1998 results were negatively affected by the strengthening of the U.S.
dollar against currencies in Europe and Asia and the related impact of foreign
currency fluctuations, resulting in a reduction in revenues of approximately
$38.4 million. Fiscal 1998 revenues also reflect the decline in revenues of
certain non-core businesses, principally the U.S. commercial/industrial direct
sales and service business which was sold in September 1997. Excluding the
effects of the strengthening of the U.S. dollar against currencies in Europe and
Asia and the divestiture of non-core businesses, fiscal 1998 revenues increased
approximately 8%.
Consolidated revenues for the EAS product lines remained relatively unchanged
from fiscal 1997. However, Ultra-Max revenues increased 19% in fiscal 1998 as
compared to fiscal 1997. Unit level volume for source tagging, which is based on
the Company's EAS technologies, increased by approximately 50% in fiscal 1998 as
compared to fiscal 1997, resulting in sales of more than 650 million labels. The
increase in Ultra-Max
23
<PAGE> 25
revenues was partially offset by declines in other EAS system revenues,
principally the SensorStrip Checkout systems. Revenues from SensorStrip Checkout
systems, principally sold in Europe, decreased 21% from fiscal 1997 where they
were negatively affected by the strengthening of the U.S. dollar against most
European currencies and market saturation in certain countries.
Overall CCTV revenues decreased 2.4% in fiscal 1998 as compared to fiscal 1997.
A significant percentage of CCTV revenues and nearly all of Access Control
revenues are generated by C/I Worldwide which was negatively impacted in fiscal
1998 by the decline in revenues partially due to the divestiture of a non-core
business. Due to channel conflicts, the Company made a strategic decision to
exit the commercial/industrial direct sales and service business in the U.S. and
partner with its dealers and distributors to promote its products in the
commercial/industrial markets and thereby lower its distribution and
installation costs. The Company's U.S. commercial/industrial direct sales and
service business, which had fiscal year 1997 revenues of approximately $80
million, was sold to Security Technologies Group, Inc. ("STG"). The Company also
agreed in such transaction to sell to STG the Company's monitoring business, the
sale of which was consummated in October 1997. Installation and product revenues
from the divested business unit were approximately $11.4 million in fiscal 1998.
North America Retail revenue for fiscal 1998 increased 11% versus fiscal 1997.
EAS market penetration increased in the following market segments: music,
discounters, mass merchants, automotive, office supply, home centers, video and
shoes. Excluding the effect on revenues of a divested non-core business, North
America Retail revenues increased 14% in fiscal 1998 as compared with fiscal
1997.
Europe Retail revenues decreased 7% in fiscal 1998 as compared to fiscal 1997.
Excluding the effect of exchange due to foreign currency fluctuations, Europe
Retail revenues increased 2% in fiscal 1998 as compared with fiscal 1997. The
Company believes that Europe Retail's results during fiscal 1998 were negatively
impacted by a shift from direct sales to indirect sales, a decrease in sales to
low end users and increased competition.
International Retail revenues, which includes Latin America, Asia Pacific and
the Middle East, increased 12% in fiscal 1998 as compared to fiscal 1997. The
increase in International Retail was largely due to Latin America revenues which
increased by 30% in fiscal 1998 as compared to fiscal 1997. Beginning in the
second quarter of fiscal 1998, Asia Pacific revenue growth was negatively
impacted by the Asian currency volatility. Excluding the effect of acquisitions
and currency effects, International Retail revenues for fiscal 1998 increased
18% as compared to fiscal 1997.
Revenues generated by C/I Worldwide decreased by 24% in fiscal 1998 as compared
to fiscal 1997. The decrease in revenues is principally due to the divestiture
referred to above in September 1997 of the U.S. commercial/industrial direct
sales and service business. Excluding the effect on revenues of this divested
non-core business and foreign exchange, C/I Worldwide indirect revenues
increased 5% in fiscal 1998 as compared to fiscal 1997.
Gross Margins and Operating Income
Before restructuring charges and inventory write-downs relating to restructuring
activities, gross margins were 44.8% for fiscal 1998 compared with 45.4% for
fiscal 1997. The decrease in gross margin percentages reflect pricing pressures
in some market segments for retail article protection equipment, partially
offset by savings from cost reduction efforts.
Excluding restructuring charges and inventory write-downs relating to
restructuring activities, operating income for fiscal 1998 was $62.0 million or
6.3% of total revenue, versus $28.9 million or 2.8% of total revenue in fiscal
1997.
Selling, General and Administrative Expenses
Total selling, general and administration expenses, as a percentage of total
revenues, were 31.2% in fiscal 1998 versus 34.1% in fiscal 1997. Included in
selling, general and administration expenses in fiscal 1998 and 1997 were $10.8
million and $3.5 million, respectively, relating to certain employee separation
and warranty and contract resolution costs. As a percentage of revenue, these
amounts were 1.1% and 0.3% in fiscal 1998 and
24
<PAGE> 26
1997, respectively. The decrease in expenses as a percentage of revenue for
fiscal 1998 reflects the benefit from cost reduction efforts resulting from the
restructuring actions previously discussed, as well as 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.
Provision for Doubtful Accounts
Provision for doubtful accounts, as a percentage of total revenues, was 2.4% and
4.2% in fiscal 1998 and 1997, respectively. The higher provision for doubtful
accounts in fiscal 1997 reflects the Company's assessment of accounts receivable
collection experience in certain market segments, following the extensive review
of accounts which took place in fiscal 1996.
Research, Development and Engineering Expenses
Research, development and engineering expenses increased to 2.8% of total
revenues in fiscal 1998 versus 2.4% in fiscal 1997. Research, development and
engineering spending 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.
Other (Expenses) Income
Non-operating expenses, which include interest expense and interest income,
increased from $32.4 million in fiscal 1997 to $41.2 million in fiscal 1998. The
increase is principally due to an increase in interest expense due to higher
average debt levels in fiscal 1998 as compared to fiscal 1997 as well as the
Company's decision to substitute long-term fixed rate borrowings for short-term
variable rate borrowings to insulate the Company from interest rate volatility.
Fiscal 1997 non-operating expenses also included a gain of approximately $2.4
million as a result of the cancellation of certain foreign currency contracts.
These forward contracts, which allowed the Company to sell British Pounds for a
fixed U.S. dollar amount, were canceled as a result of the recapitalization of
its U.K. affiliate.
Taxes
The Company's worldwide effective tax rate benefit for fiscal 1998 was 30.1% as
compared to 29.4% in fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1999, cash and cash equivalents increased $82.0 million primarily
due to significant improvements in cash provided by operations. Cash flow
provided by operating activities was $194.8 million in fiscal 1999 compared with
cash used of $34.9 million in fiscal 1998 and $2.1 million in fiscal 1997. The
improvement in cash provided by operations in fiscal 1999 as compared to cash
used in fiscal 1998 was primarily due to improvements in net income and
decreases in inventories and customer receivables.
The Company historically maintains a high level of receivables and sales-type
leases outstanding, measured as a percentage of revenues. This results, in part,
from a key element of the Company's marketing strategy, which has been to
provide alternative financing options to its retail customers, including
deferred billing and long-term installment sales and lease terms, resulting in
extended accounts receivable recovery periods. Additionally, the Company has
experienced a historical pattern of delayed payments by certain retail customers
and, accordingly, the Company's levels of receivables past due represent a
relatively high percentage of total receivables. The Company's strategy has
helped it penetrate markets and increase customer loyalty and commitment to
Sensormatic. The ability to pursue such a strategy results from the Company's
relatively high gross profit margins and the various accounts receivable
securitization programs the Company has put in place which allow the Company to
sell its customer receivables.
The terms of certain of the Company's principal receivable securitization
programs provide for overcollateralization and accordingly the Company does not
receive the full balance of such receivables until the customer's receivables
have been paid in full to financing institutions. The Company accounts for this
overcollateraliza-
25
<PAGE> 27
tion as a "Receivable due from financing institution" which is included in
"Other current assets" and the non-current portion in "Patents and other
assets -- net".
The Company aggressively pursues the sale and/or securitization of all its
long-term customer receivables and a significant portion of its trade customer
receivables. The Company believes the gross profit margin it receives on the
sale of its products, combined with the interest income it receives on such
receivables, are sufficient to cover the carrying cost of the long-term customer
receivables which it is unable to securitize and the overcollateralization
holdbacks.
The Company's investing activities used $69.8 million of cash in fiscal 1999,
compared with $53.9 million in fiscal 1998. Additions to property, plant and
equipment, during fiscal 1999, totaled $29.1 million, primarily relating to
investments in the Company's global enterprise resource planning system and
manufacturing operations for new production equipment. Additional investing
activities also included increases in revenue equipment of $22.7 million, which
represents equipment held under operating leases, and additional investments in
acquisitions of $20.7 million relating to on-going payments for commitments
relating to prior year acquisitions. During fiscal 2000, the Company plans to
invest approximately $45.0 million in capital projects. The projects primarily
include investments in label manufacturing operations for new production
equipment and global enterprise resource planning systems.
Fiscal 1999 financing activities used cash of $37.4 million as compared with
cash generated of $195.1 million in fiscal 1998. Fiscal 1999 cash used in
financing activities is due primarily to repayments of bank borrowings. Cash
generated in fiscal 1998 is principally due to proceeds received from the
issuance of the new series of 6 1/2% Convertible Preferred Stock. The proceeds
from the Convertible Preferred Stock were primarily used to repay the
outstanding balance under the Company's revolving credit line, the payable
associated with the shareholder litigation settlement, and working capital and
general corporate purposes. See Note 10 of Notes to Consolidated Financial
Statements for further discussion.
The Company's percentage of total debt to total capital was 36.4% at June 30,
1999 as compared to 37.8% at June 30, 1998. Certain of the Company's financial
agreements currently prohibit the payment of cash dividends until after certain
cumulative income levels are obtained, as reflected in the Company's audited
financial statements, and it is unlikely that the Company would be able to pay
cash dividends until after the preparation of its audited financial statements
for fiscal year 2000 at the earliest. The Company intends to pay any dividends
declared on the Convertible Preferred Stock with shares of Common Stock prior to
the time it is able to pay such cash dividends.
The Company anticipates continuing to provide vendor financing to its customers
and aggressively pursues collection of all accounts receivable past due. The
Company is closely monitoring inventory and overall working capital requirements
and has implemented numerous programs that are expected to result in reduced
working capital requirements.
The Company requires significant cash flow to meet its debt service and other
continuing obligations. As of June 30, 1999, the Company has $508.1 million of
total indebtedness outstanding. The Company's principal liquidity requirements
are expected to be to provide working capital, finance customer equipment
purchases, invest in revenue equipment and capital expenditures and meet debt
service requirements, including the payment of principal and interest on
borrowings under the Revolving Credit Facility and principal and interest on the
Senior Notes. At June 30, 1999, the Company's principal sources of liquidity are
(i) cash on hand, (ii) cash flow from operations, (iii) borrowings under the
$250.0 million Revolving Credit Facility, which had unused availability of
$226.0 million, and (iv) receivable securitization facilities. The Company
believes that cash on hand and cash flow from operations, together with
borrowings under the Revolving Credit Facility, will be sufficient to meet its
liquidity needs for the foreseeable future. The $250 million Revolving Credit
Facility will expire in December 1999. The Company plans to replace this
committed facility with a Revolving Credit Facility in fiscal 2000.
26
<PAGE> 28
CURRENCY RISKS
See Item 7A, Quantitative and Qualitative Disclosures about Market Risk
INTEREST RATE RISKS AND DERIVATIVES
See Item 7A, Quantitative and Qualitative Disclosures about Market Risk
ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income,"
which is effective for fiscal years beginning after December 15, 1997. This
Statement establishes standards for the reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
The rule requires that the Company (a) classify items of other comprehensive
income by their nature in a financial statement and (b) display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in-capital in the equity section of the balance sheet. The
Company adopted SFAS No. 130 as of July 1, 1998 with impact only to the
Company's disclosure information.
Also in June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of
an Enterprise and Related Information," which is effective for fiscal years
beginning after December 15, 1997. This Statement supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise" and amends SFAS No.
94 "Consolidation of All Majority-Owned Subsidiaries". This Statement requires
annual financial statements to disclose financial and descriptive information
about an enterprise's reportable operating segments based on reporting
information in the same way as management organizes the segments for making
business decisions and assessing performance. Disclosure of information about
products and services, geographic areas and major customers based on this
management approach is also required, along with interim reports. This new
management approach resulted in additional reportable operating segments and
changes to the composition of such reportable operating segments. The Company
adopted SFAS No. 131 is fiscal 1999.
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures about
Pensions and Other Postretirement Benefits -- an amendment of FASB Statements
No. 87, 88 and 106" which is effective for fiscal years beginning after December
15, 1997. This statement revises employers' disclosures about pension and other
postretirement benefits plans. It does not change the measurement or recognition
of those plans. The Company adopted SFAS No. 132 in fiscal 1999 with impact only
to the Company's disclosure information.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" which would have been effective for fiscal
quarters of fiscal years beginning after June 15, 1999. In June 1999, the FASB
issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133" which
amended SFAS 133 to change the effective date to fiscal quarters of fiscal years
beginning after June 15, 2000. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This statement amends SFAS No. 52 "Foreign Currency Translation", and supersedes
SFAS No. 80 "Accounting for Future Contracts", No. 105 "Disclosure of
Information about Financial Instruments with Off-Balance-Sheet Risk and
Financial Instruments with Concentration of Credit Risk", No. 107 "Disclosures
about Fair Value of Financial Instruments", and No. 119 "Disclosure about
Derivative Financial Instruments". The Company plans to adopt SFAS No. 133 in
fiscal 2001 and is currently assessing the impact this statement will have on
its consolidated financial statements.
YEAR 2000 ISSUE
Many computer applications, processor chips embedded in many products and
computers and operating systems that are not Year 2000 compliant are unable to
distinguish between the calendar year 1900 and the calendar year 2000. The Year
2000 Issue creates potential risks for the Company, including potential problems
in the Company's products as well as in the Information Technology ("IT") and
non-IT systems that the
27
<PAGE> 29
Company uses in its business operations. The Company may also be exposed to
risks from third parties with whom the Company interacts who fail to adequately
address their Year 2000 Issues. The Company has recognized the need to ensure
that its business operations will not be adversely affected by the upcoming
calendar year 2000 and is cognizant of the time sensitive nature of the Year
2000 problem. In 1996, the Company began a project to implement a global
enterprise resource planning system. The Company has completed this
implementation at all manufacturing locations and many of the sales and service
subsidiaries around the world. The Company's key non-compliant IT systems
remaining are in the United Kingdom and implementation is scheduled for October
4, 1999.
The Company's State of Readiness
The Company centralized its focus on addressing the Year 2000 Issue by
establishing a Year 2000 Program Management Office in order to implement a
consistent approach to minimizing Year 2000 risks across the Company worldwide.
The Company also assigned Project Teams in each Business Unit. The Program
Management Office and the Project Teams are assisted by specialists and
consultants. The Company's key dates relative to its program focusing on IT and
non-IT systems that the Company uses in its business operations are as follows:
<TABLE>
<S> <C>
Inventory and assessment completed September 30, 1999
All Critical components in testing October 15, 1999
Critical components Year 2000 compliant November 30, 1999
</TABLE>
The Company has substantially completed testing of its manufactured products. To
aid in communication with the Company's customers and suppliers, the Company has
developed an Internet Web site that identifies the current Year 2000 status for
each of the Company's products.
A survey of the Company's suppliers and service providers has begun to insure
they are working on this effort and will remain viable suppliers through and
after January 1, 2000. The process of evaluating the Year 2000 status of the
Company's principal suppliers and service providers will be on-going through the
remainder of the calendar year.
The Costs to Address the Company's Year 2000 Issues
The cost of implementing the enterprise resource planning system is estimated at
$40.0 million. In addition to the enterprise resource planning system, the
Company currently estimates approximately $1.0 million for the cost associated
with the Company's Year 2000 project. Remediation efforts are not currently
expected to be significant.
The Risks of the Company's Year 2000 Issues
The Company presently believes that the Year 2000 issue will not cause material
operational problems for the Company. However, if the Company is not successful
in identifying all material Year 2000 problems, or its assessment and
remediation of identified Year 2000 problems are not completed in a timely
manner, there may be an interruption in, or failure of, certain normal business
activities or operations. This risk includes unforeseen delays in the
implementation of the Company's enterprise resource planning system. Such
interruptions, failures or delays in implementing the enterprise resource
planning system could have a material adverse impact on the Company's
consolidated results of operations and financial condition, or on its
relationships with customers, suppliers or others.
The Company's Contingency Plans
The Company expects to have developed by November 15, 1999, or shortly
thereafter, contingency plans to address the major areas of the Company and
situations that may result if the Company or any of the third parties upon which
the Company is dependent is unable to achieve Year 2000 readiness. The Company's
Year 2000 compliance program is ongoing and its ultimate scope, as well as the
consideration of contingency plans, will continue to be evaluated as new
information becomes available.
28
<PAGE> 30
Year 2000 Forward-Looking Statements
The foregoing Year 2000 discussion contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements, including without limitation, anticipated costs and the dates by
which the Company expects to complete certain actions, are based on management's
best current estimates, which were derived utilizing numerous assumptions about
future events, including the continued availability of certain resources,
representations received from third parties and other factors. However, there
can be no guarantee that these estimates will be achieved, and actual results
could differ materially from those anticipated. Specific factors that might
cause such material differences include, but are not limited to, the ability to
identify and remediate all relevant IT and non-IT systems, results of Year 2000
testing, adequate resolution of Year 2000 Issues by businesses and other third
parties who are service providers, suppliers or customers of the Company,
unanticipated system costs, the adequacy of and ability to develop and implement
contingency plans and similar uncertainties. The "forward-looking statements"
made in the foregoing Year 2000 discussion speak only as of the date on which
such statements are made, and the Company undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events.
EURO CONVERSION
On January 1, 1999, certain member nations of the European Economic and Monetary
Union ("EMU") adopted a common currency, the Euro. For the three-year transition
period, both the Euro and individual participant's currencies will remain in
circulation. After January 1, 2002, the Euro will be the sole legal tender for
EMU countries. The adoption of the Euro will affect a multitude of financial
systems and business applications as the commerce of these nations will be
transacted in the Euro and the existing national currency. For the year ended
June 30, 1999, approximately 33.6% of the Company's revenues were derived from
EMU countries.
The Company is currently addressing Euro related issues and its impact on
information systems, currency exchange rate risk, taxation, contracts,
competition and pricing. Action plans currently being implemented are expected
to result in compliance with all laws and regulations. While the Company does
not expect that the Euro conversion will have a material impact on its
operations, financial condition or liquidity, there can be no certainty that
action plans will be successfully implemented or that external factors will not
have an adverse effect on the Company's operations.
INFORMATION RELATING TO FORWARD-LOOKING STATEMENTS
Except for historical matters, the matters discussed in this Form 10-K are
forward looking statements which reflect the Company's current views with
respect to future events and financial performance. These forward-looking
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from historical results or those
anticipated. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their dates. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
The following factors, among other possible factors, could cause actual results
to differ materially from historical results or those anticipated: (1) changes
in international operations, (2) exchange rate risk, (3) market conditions for
the Company's products, (4) the Company's ability to provide innovative and
cost-effective solutions, (5) development risks, (6) changes in regulations or
standards applicable to the Company's products, (7) competition and (8) changes
in the economic climate.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates and foreign
currency exchange rates which may adversely affect its results of operations and
financial condition. The Company seeks to minimize the risks from these interest
rates and foreign currency exchange rate fluctuations through its regular
operating and financing activities and, when considered appropriate, through the
use of derivative financial instruments. The Company's policy is to not use
financial instruments for trading or other speculative purposes and is not a
party to any leveraged financial instruments.
29
<PAGE> 31
A discussion of the Company's accounting policies for Interest Rate Swap and
Foreign Currency Forward Agreements is included in Notes 1 and 16 of Notes to
Consolidated Financial Statements.
The Company manages market risk by restricting the use of derivative financial
instruments to hedging activities and by limiting potential interest and
currency rate exposures to amounts that are not material to the Company's
consolidated results of operations and cash flows. The Company also has
procedures to monitor the impact of market risk on the fair value of its
long-term debt, short-term debt instruments and other financial instruments,
considering reasonably possible changes in interest and currency rates.
EXPOSURE TO SHORT-TERM INTEREST RATES
The Company utilizes primarily fixed-rate debt as described in Note 9 of Notes
to Consolidated Financial Statements. The Company uses interest rate swap
agreements to further limit the Company's exposure to short-term interest rate
movements relating to off balance sheet receivable financings.
At June 30, 1999 and 1998, the Company's fixed rate long-term debt had a face
value and carrying value of $485.0 million. The fair value of long-term debt at
June 30, 1999 and 1998 was $492.8 million and $471.3 million, respectively.
Based upon a hypothetical 1% point increase in the period end market interest
rate across all maturities, the fair value of this liability would decrease by
approximately $16.9 million and $17.3 million, respectively.
At June 30, 1999 the notional amount of interest rate swaps totaled $123.7
million. The carrying value and fair value of the liability for these agreements
were $0.7 million and $0.5 million, respectively. Based upon a hypothetical 1%
point increase in the period end market interest rate, the fair value of this
liability would decrease by approximately $2.2 million resulting in a receivable
of $1.7 million.
At June 30, 1998 the notional amount of interest rate swaps totaled $131.1
million. The carrying value and fair value of the liability for these agreements
were $0.5 million and $0.9 million, respectively. Based upon a hypothetical 1%
point increase in the period end market interest rate, the fair value of this
liability would decrease by approximately $3.1 million resulting in a receivable
of $2.2 million.
These amounts are determined by considering the impact of the hypothetical
interest rates on the Company's borrowing cost and interest rate swap
agreements. These analyses do not consider the effects of the reduced level of
overall economic activity that could exist in such an environment. Further, in
the event of a change of such magnitude, management would likely take actions to
further mitigate its exposure to the change. However, due to the uncertainty of
the specific actions that would be taken and their possible effects, the
sensitivity analysis assumes no changes in the Company's financial structure.
EXPOSURE TO EXCHANGE RATES
As a result of the sales of its products in foreign markets, the Company's
offshore operations are affected by fluctuations in the value of the U.S.
dollars as compared to foreign currencies. Its offshore operations are
principally in Europe, Asia and Latin America. Foreign currency forward
contracts are used to hedge against the earnings effects of short-term
fluctuation in significant foreign jurisdictions.
The Company uses foreign currency forward contracts to hedge the exposure to
adverse changes in foreign currency exchange rates. Therefore, increases and
decreases in the fair value of foreign currency forward agreements are offset by
changes in the fair value of net underlying foreign currency transaction
exposures. The Company's principal currency exposures relate to the Euro and the
British pound against the U.S. dollar. The Company's exposure to changes in
foreign currency exchange rates arises from intercompany loans utilized to
finance foreign subsidiaries, receivables, payables and firm commitments arising
from international transactions. The Company attempts to have all such
transaction exposures hedged with internal natural offsets to the fullest extent
possible and, once these opportunities have been exhausted, through derivative
financial instruments with third parties using forwards.
At June 30, 1999 the Company had in place foreign currency forward contracts
with a notional amount of $65.8 million. The carrying value of these contracts
was an asset of $0.9 million at June 30, 1999. The fair
30
<PAGE> 32
value of these contracts as of June 30, 1999 was immaterial. Based upon a 10%
strengthening of the U.S. dollar compared to these foreign currencies, the
estimated fair value of the asset would increase by $6.6 million. This
calculation assumes that each exchange rate would change in the same direction
relative to the U.S. dollar. In addition to the direct effects of changes in
exchange rates quantified above, changes in exchange rates also change the
dollar value of the resulting sales and affect the volume of sales or the
foreign currency sales price as competitors' products become more or less
attractive. The Company's sensitivity analysis of the effects of changes in
foreign currency exchange rates does not factor in a potential change in levels
of local currency prices or sales reported in U.S. dollars.
At June 30, 1998 the Company had in place foreign currency forward contracts
with a notional amount of $260.6 million. The carrying value and fair value of
these contracts was a liability of $7.1 million and an asset of $.3 million at
June 30, 1998, respectively. Based upon a 10% strengthening of the U.S. dollar
compared to these foreign currencies, the estimated fair value of the asset
would increase by $24.7 million. This calculation assumes that each exchange
rate would change in the same direction relative to the U.S. dollar. In addition
to the direct effects of changes in exchange rates quantified above, changes in
exchange rates also change the dollar value of the resulting sales and affect
the volume of sales or the foreign currency sales price as competitors' products
become more or less attractive. The Company's sensitivity analysis of the
effects of changes in foreign currency exchange rates does not factor in a
potential change in levels of local currency prices or sales reported in U.S.
dollars.
The above discussion of the Company's procedures to monitor market risk and the
estimated changes in fair value resulting from the Company's sensitivity
analyses are forward-looking statements of market risk assuming certain adverse
market conditions occur. Actual results in the future may differ materially from
these estimated results due to actual developments in the global financial
markets. The analysis methods used by the Company to assess and mitigate risk
discussed above should not be considered projections of future events or gains
(losses).
31
<PAGE> 33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Financial Statements:
Reports of Independent Certified Public Accountants....... 33
Consolidated Balance Sheets at June 30, 1999 and 1998..... 35
Consolidated Statements of Operations for the years ended
June 30, 1999, 1998 and 1997........................... 36
Consolidated Statements of Cash Flows for the years ended
June 30, 1999, 1998 and 1997........................... 37
Consolidated Statements of Stockholders' Equity for the
years ended June 30, 1999, 1998 and 1997............... 38
Notes to Consolidated Financial Statements................ 39
Financial Statement Schedules:
For the three years ended June 30, 1999:
Schedule II -- Valuation and Qualifying Accounts....... 65
</TABLE>
Consolidated Financial Statement schedules not included have been omitted
because they are not applicable or the required information is shown in the
Consolidated Financial Statements or notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
32
<PAGE> 34
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors
of Sensormatic Electronics Corporation
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Sensormatic Electronics Corporation and its subsidiaries at June 30, 1999, and
the results of their operations and their cash flows for the year ended June 30,
1999 in conformity with generally accepted accounting principles. In addition,
in our opinion, the financial statement schedule for the year ended June 30,
1999 listed in the accompanying index presents fairly, in all material respects,
the information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and the financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and the
financial statement schedule based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Miami, Florida
August 2, 1999
33
<PAGE> 35
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors --
Sensormatic Electronics Corporation
We have audited the accompanying consolidated balance sheet of Sensormatic
Electronics Corporation as of June 30, 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the years
ended June 30, 1998 and 1997. Our audit also included the financial statement
schedule for the years ended June 30, 1998 and 1997 listed at Item 8. These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Sensormatic Electronics Corporation at June 30, 1998, and the consolidated
results of its operations and its cash flows for the years ended June 30, 1998
and 1997, in conformity with generally accepted accounting principles. Also, in
our opinion, the related financial statement schedule for the years ended June
30, 1998 and 1997, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.
/s/ ERNST & YOUNG LLP
West Palm Beach, Florida
August 13, 1998
34
<PAGE> 36
SENSORMATIC ELECTRONICS CORPORATION
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
--------- ---------
(IN MILLIONS, EXCEPT
PAR VALUE AMOUNTS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 209.0 $ 127.0
Customer receivables, net................................. 318.6 326.2
Inventories, net.......................................... 163.7 203.6
Current portion of deferred income taxes.................. 31.2 36.2
Other current assets...................................... 46.0 43.7
-------- --------
TOTAL CURRENT ASSETS.............................. 768.5 736.7
Customer receivables, net -- noncurrent..................... 76.5 132.5
Revenue equipment, less accumulated depreciation of $52.6 in
1999 and $60.3 in 1998.................................... 71.2 69.2
Property, plant and equipment, net.......................... 137.5 137.2
Costs in excess of net assets acquired, less accumulated
amortization of $85.5 in 1999 and $74.4 in 1998........... 439.7 465.5
Deferred income taxes....................................... 150.2 149.4
Patents and other assets, less accumulated amortization of
$44.6 in 1999 and $33.2 in 1998........................... 132.0 109.0
-------- --------
TOTAL ASSETS...................................... $1,775.6 $1,799.5
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt and short-term debt..... $ 80.4 $ 33.5
Accounts payable.......................................... 76.0 57.0
Other current liabilities and deferred income taxes....... 246.1 246.3
-------- --------
TOTAL CURRENT LIABILITIES......................... 402.5 336.8
Long-term debt.............................................. 427.7 515.2
Other noncurrent liabilities and deferred income taxes...... 55.7 45.5
-------- --------
Total liabilities................................. 885.9 897.5
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 10.0 shares authorized
6 1/2% Convertible Preferred Stock, 0.7 shares
outstanding............................................ 166.7 166.7
Common stock, $.01 par value, 125.0 shares authorized,
75.6 and 74.4 shares outstanding in 1999 and 1998,
respectively........................................... 743.5 733.7
Retained earnings......................................... 133.4 108.3
Treasury stock at cost and other, 1.7 shares in 1999 and
1998................................................... (10.4) (11.7)
Accumulated other comprehensive loss...................... (143.5) (95.0)
-------- --------
TOTAL STOCKHOLDERS' EQUITY........................ 889.7 902.0
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $1,775.6 $1,799.5
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
35
<PAGE> 37
SENSORMATIC ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------ --------
(IN MILLIONS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues:
Sales..................................................... $ 841.5 $831.9 $ 853.0
Rentals................................................... 44.0 47.6 55.3
Installation, maintenance and other....................... 132.0 107.4 117.4
-------- ------ --------
Total revenues.................................... 1,017.5 986.9 1,025.7
-------- ------ --------
Operating costs and expenses:
Costs of sales............................................ 563.1 525.8 543.6
Depreciation on revenue equipment......................... 20.5 18.6 20.8
Selling, general and administrative....................... 282.0 308.2 349.8
Provision for doubtful accounts........................... 22.5 23.4 42.8
Restructuring charges..................................... -- 21.9 22.6
Research, development and engineering..................... 25.8 27.2 24.5
Amortization of intangible assets......................... 22.1 21.7 19.5
-------- ------ --------
Total operating costs and expenses................ 936.0 946.8 1,023.6
-------- ------ --------
Operating income............................................ 81.5 40.1 2.1
-------- ------ --------
Other (expenses) income:
Interest income........................................... 17.8 16.0 16.2
Interest expense.......................................... (44.1) (50.8) (47.9)
Litigation recoveries (settlement), net................... 6.2 (45.7) --
Other, net................................................ (5.9) (6.4) (0.7)
-------- ------ --------
Total other (expenses) income..................... (26.0) (86.9) (32.4)
-------- ------ --------
Income (loss) before income taxes........................... 55.5 (46.8) (30.3)
Provision for (benefit of) income taxes..................... 17.4 (14.1) (8.9)
-------- ------ --------
Net income (loss)........................................... $ 38.1 $(32.7) $ (21.4)
======== ====== ========
Earnings (loss) applicable to common stockholders........... $ 26.6 $(35.2) $ (21.4)
======== ====== ========
Basic and Diluted earnings (loss) per common share.......... $ 0.35 $(0.47) $ (0.29)
======== ====== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
36
<PAGE> 38
SENSORMATIC ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
------ ------- ------
(IN MILLIONS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 38.1 $ (32.7) $(21.4)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation........................................... 42.4 42.6 46.7
Amortization........................................... 22.1 21.7 19.5
Net changes in operating assets and liabilities, net of
effects of acquisitions and dispositions:
Customer receivables................................... 29.5 (20.9) (30.0)
Inventories............................................ 33.9 (11.0) (45.8)
Current and deferred income taxes relating to
restructuring and net litigation settlement charges... -- (19.9) (7.8)
Accounts payable....................................... 20.5 (10.0) 8.4
Restructuring accruals, net............................ (8.8) 7.3 18.8
Other, net............................................. 17.1 (12.0) 9.5
------ ------- ------
Net cash provided by (used in) operating
activities...................................... 194.8 (34.9) (2.1)
------ ------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net................................. (29.1) (29.3) (38.4)
Increase in revenue equipment, net........................ (22.7) (23.3) (23.0)
Acquisitions, net of cash................................. -- -- (14.8)
Additional investments in acquisitions.................... (20.7) (19.7) (16.4)
Proceeds from sale of business............................ -- 8.2 --
Other, net................................................ 2.7 10.2 7.4
------ ------- ------
Net cash used in investing activities............. (69.8) (53.9) (85.2)
------ ------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank borrowings and other debt............................ 4.3 442.4 105.5
Repayments of bank borrowings and other debt.............. (40.3) (416.1) (96.0)
Proceeds from issuance of Convertible Preferred Stock,
net.................................................... -- 166.7 --
Dividends paid............................................ -- -- (16.7)
Other, net................................................ (1.4) 2.1 4.0
------ ------- ------
Net cash (used in) provided by financing
activities...................................... (37.4) 195.1 (3.2)
------ ------- ------
Effect of foreign currency translation on cash balances... (5.6) (1.0) (1.5)
------ ------- ------
Net increase (decrease) in cash and cash equivalents........ 82.0 105.3 (92.0)
Cash and cash equivalents at beginning of year.............. 127.0 21.7 113.7
------ ------- ------
Cash and cash equivalents at end of year.................... $209.0 $ 127.0 $ 21.7
====== ======= ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid during the year......................... $ 11.0 $ 9.2 $ 10.8
Interest paid during the year............................. $ 45.9 $ 49.5 $ 43.5
</TABLE>
The accompanying notes are an integral part of these financial statements.
37
<PAGE> 39
SENSORMATIC ELECTRONICS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
ACCUMULATED OTHER
PREFERRED COMMON RETAINED TREASURY STOCK COMPREHENSIVE
STOCK STOCK EARNINGS AND OTHER LOSS TOTAL
--------- ------ -------- -------------- ----------------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1996........ -- $723.8 $181.8 $(13.4) $ (60.5) $831.7
Net loss...................... -- -- (21.4) -- -- (21.4)
Cumulative translation........ (26.8) (26.8)
------
Total comprehensive income.... (48.2)
------
Stock issued pursuant to
employee benefit plans..... -- 6.7 -- (1.3) -- 5.4
Common stock cash dividends... -- -- (16.7) -- -- (16.7)
Other......................... -- -- -- 0.7 -- .7
------ ------ ------ ------ ------- ------
Balance at June 30, 1997........ -- 730.5 143.7 (14.0) (87.3) 772.9
Net loss...................... -- -- (32.7) -- -- (32.7)
Cumulative translation........ (7.7) (7.7)
------
Total comprehensive income.... (40.4)
------
Stock issued pursuant to
employee benefit plans..... -- 1.7 -- -- -- 1.7
Convertible Preferred Stock
Issued, net of issuance
cost of $5.8............... 166.7 -- -- -- -- 166.7
Preferred stock dividend (paid
in Common)................. -- 2.4 (2.4) -- -- --
Other......................... -- (0.9) (0.3) 2.3 -- 1.1
------ ------ ------ ------ ------- ------
Balance at June 30, 1998........ 166.7 733.7 108.3 (11.7) (95.0) 902.0
Net income.................... -- -- 38.1 -- -- 38.1
Cumulative translation........ -- -- -- -- (48.5) (48.5)
------
Total comprehensive income.... (10.4)
------
Stock issued pursuant to
employee benefit plans..... -- 0.1 -- -- -- 0.1
Preferred stock dividend (paid
in Common)................. -- 11.5 (11.5) -- -- --
Other......................... -- (1.8) (1.5) 1.3 -- (2.0)
------ ------ ------ ------ ------- ------
Balance at June 30, 1999........ $166.7 $743.5 $133.4 $(10.4) $(143.5) $889.7
====== ====== ====== ====== ======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
38
<PAGE> 40
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The Consolidated Financial Statements include the accounts of Sensormatic
Electronics Corporation and all of its subsidiaries (the "Company"). All
significant intercompany balances and transactions have been eliminated.
Cash and cash equivalents
Cash equivalents include short-term highly liquid investments with a maturity of
three months or less from date of purchase. The recorded amounts approximate
fair value because of the short maturities of these investments.
Inventories
Inventories are stated at the lower of cost or market, cost being determined on
a first-in, first-out basis.
Revenue equipment and property, plant and equipment
Revenue equipment (principally equipment on lease) and property, plant and
equipment (including assets acquired under capital leases) are recorded at cost
and depreciated using the straight-line method over their estimated useful lives
(4 years through 6 years for revenue equipment, 10 years through 40 years for
buildings and improvements and 3 years through 10 years for property, plant and
equipment).
Revenue recognition
Revenue from product sales is recognized at the time the product is shipped in
accordance with the terms agreed upon by the parties. Revenue from sales-type
leases (primarily with terms of 60 months or greater) is recognized as a "sale"
upon shipment in an amount equal to the present value of the minimum rental
payments under the fixed non-cancelable lease term. The deferred finance charges
applicable to these leases are recognized over the terms of the leases using the
effective interest method.
The Company also leases equipment to customers under long-term operating leases
(primarily leases with terms of 36 to 54 months) which are generally
non-cancelable. Rental revenues are recognized as earned over the term of the
lease. Minimum future rentals on non-cancelable operating leases at June 30,
1999 aggregated $56.2 and are due as follows: 2000 -- $26.0; 2001 -- $16.7;
2002 -- $9.1; 2003 -- $3.5; 2004 -- $0.9 and thereafter -- $0.0.
Installation and service revenues are recognized as earned and maintenance
revenues are recognized ratably over the service contract term.
Accounting for currency translation and transactions
Foreign currency transactions and financial statements (except for those
relating to countries with highly inflationary economies) are translated into
U.S. dollars at the rate in effect on the date of the transaction or the date of
the financial statements, except that revenues, costs and expenses are
translated at average exchange rates during each reporting period. Resulting
translation adjustments and transaction gains or losses attributable to certain
intercompany transactions that are of a long-term investment nature are excluded
from results of operations and accumulated in accumulated other comprehensive
loss, a separate component of consolidated stockholders' equity. Gains and
losses attributable to other intercompany transactions are included in results
of operations.
The financial statements of subsidiaries located in countries with highly
inflationary economies are remeasured as if the functional currency were the
U.S. dollar. The remeasurement creates translation adjustments that are
39
<PAGE> 41
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
reflected in net income. Allocations for income taxes included in the
translation adjustments account in stockholders' equity were not significant.
Interest rate swap and foreign currency forward agreements
The Company enters into interest rate swap agreements and foreign exchange
forward contracts to manage exposure to fluctuations in interest and foreign
currency exchange rates.
The cash differentials paid or received on interest rate swap agreements are
accrued and recognized as adjustments to interest expense or interest income.
Gains and losses realized upon the settlement of these agreements are deferred
and either amortized to interest expense over a period relevant to the agreement
if the underlying hedged instrument remains outstanding, or recognized
immediately if the underlying hedged instrument is settled and the swap
agreement is terminated. Interest rate agreements, if any, are stated at cost.
The Company principally uses foreign exchange forward contracts to hedge certain
identifiable, foreign currency intercompany firm commitments and certain
short-term intercompany advances. Gains and losses on the contracts which hedge
intercompany advances are recorded as adjustments to net income because such
advances are expected to be repaid in the foreseeable future. Gains and losses
on the contracts which hedge identifiable intercompany firm commitments are
deferred and recorded in net income in the period in which the related
transaction occurs. Losses are not deferred if it is estimated that deferral
would lead to recognizing losses in later periods. Forward contracts which hedge
identifiable intercompany firm commitments and intercompany advances are stated
at market value.
Cash flows related to interest rate agreements and foreign exchange forward
contracts are classified as operating activities in the Consolidated Statements
of Cash Flows.
Cost in excess of net assets acquired and other intangibles
Costs in excess of net assets acquired (goodwill) are amortized using the
straight-line method over 20 to 40 years. Patents and other intangibles, stated
at cost, are amortized using the straight-line method over periods ranging from
5 to 15 years.
Earnings per share
Basic earnings per common share is calculated by dividing earnings (loss)
applicable to common stockholders by the weighted average number of common
shares outstanding. Earnings (loss) applicable to common stockholders is
calculated by deducting dividends on preferred stock from net income (or adding
dividends declared on preferred stock to a net loss). Diluted earnings per share
includes the dilutive effect of common stock equivalents outstanding during the
period using the treasury stock method. Common stock equivalents include stock
options issued under employee benefit plans.
Impairment
The Company reviews long-lived assets and related goodwill for impairment
whenever events or changes in circumstances indicate that the carrying amount of
such assets may not be fully recoverable. If this review indicates that such
assets will not be recoverable, as generally determined based on estimated
undiscounted cash flows over the remaining amortization period, the carrying
amount of such assets would be adjusted to fair value.
Impact of recently issued accounting standards
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income,"
which is effective for fiscal years beginning after December 15, 1997. This
Statement establishes standards for the reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
The rule requires that the Company (a) classify items of other comprehensive
income by their nature in a financial statement and (b) display the accumulated
balance of other comprehensive income separately from retained
40
<PAGE> 42
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
earnings and additional paid-in-capital in the equity section of the balance
sheet. The Company adopted SFAS No. 130 as of July 1, 1998 with impact only to
the Company's disclosure information.
Also in June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of
an Enterprise and Related Information," which is effective for fiscal years
beginning after December 15, 1997. This Statement supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise" and amends SFAS No.
94 "Consolidation of All Majority-Owned Subsidiaries". This Statement requires
annual financial statements to disclose financial and descriptive information
about an enterprise's reportable operating segments based on reporting
information in the same way as management organizes the segments for making
business decisions and assessing performance. Disclosure of information about
products and services, geographic areas and major customers based on this
management approach is also required, along with interim reports. This new
management approach resulted in additional reportable operating segments and
changes to the composition of such reportable operating segments. The Company
adopted SFAS No. 131 in fiscal 1999.
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures about
Pensions and Other Postretirement Benefits -- an amendment of FASB Statements
No. 87, 88 and 106" which is effective for fiscal years beginning after December
15, 1997. This statement revises employers' disclosures about pension and other
postretirement benefit plans. It does not change the measurement or recognition
of those plans. The Company adopted SFAS No. 132 in fiscal 1999 with impact only
to the Company's disclosure information.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" which would have been effective for fiscal
quarters of fiscal years beginning after June 15, 1999. In June 1999, the FASB
issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133" which
amended SFAS 133 to change the effective date to fiscal quarters of fiscal years
beginning after June 15, 2000. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This statement amends SFAS No. 52 "Foreign Currency Translation", and supersedes
SFAS No. 80 "Accounting for Future Contracts", No. 105 "Disclosure of
Information about Financial Instruments with Off-Balance-Sheet Risk and
Financial Instruments with Concentration of Credit Risk", No. 107 "Disclosures
about Fair Value of Financial Instruments", and No. 119 "Disclosure about
Derivative Financial Instruments". The Company plans to adopt SFAS No. 133 in
fiscal 2001 and is currently assessing the impact this statement will have on
its consolidated financial statements.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Reclassifications
Certain amounts in the prior years' Consolidated Financial Statements have been
reclassified to conform to the current fiscal year's presentation.
2. RESTRUCTURING CHARGES
In fiscal 1996, the Company initiated a review of its global operations, cost
structure and balance sheet directed at reducing its operating expenses,
manufacturing costs and increasing efficiencies. This review focused primarily
on operational and organizational structures and systems, facilities
utilization, product rationalization and inventory valuation, receivable
balances and related collection efforts and certain other matters. As a result
of the review in fiscal 1996, the Company recorded restructuring charges of
$65.7 million
41
<PAGE> 43
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and inventory write-downs related to restructuring activities of $19.6 million.
The combined charge was $85.3 million with an after-tax impact of $54.2 million.
The Company recorded additional restructuring charges in the fourth quarter of
fiscal 1997 and the first and third quarters of fiscal 1998 as a result of
further cost-reduction actions, primarily workforce reductions in the Company's
European operations, and the divestiture of non-core businesses which included
the U.S. commercial/industrial direct sales and service business sold in
September 1997. The Company also reversed certain restructuring charges in the
first quarter of fiscal 1998 which were originally established in the fourth
quarter of fiscal 1997. These net restructuring charges totaled $44.5 million
and the inventory write-downs related to restructuring activities totaled $4.2
million. The total combined charge of $48.7 million resulted in an after-tax
impact of $32.3 million. As of June 30, 1999, total cash disbursed was $18.6
offset by $8.2 million of proceeds received from the sale of non-core
businesses.
In fiscal 1996, as a result of the review described above, the Company recorded
a charge related to discontinued products and equipment used in the manufacture
of certain products which will no longer be manufactured or purchased from third
party suppliers. In connection with its review of operational and organizational
structures and systems, management adopted a plan to consolidate certain sales
and manufacturing facilities, reorganize certain business units and corporate
functions, and eliminate redundant positions. The Company planned for the
termination of approximately 875 manufacturing and administrative personnel in
North America and Europe and the reduction of approximately 30 facilities. As of
June 30, 1999, all planned terminations have been completed and more than 70% of
the facilities have been eliminated or subleased. Certain terminated employees
are receiving severance payments over time.
The Company's 1997 and 1998 announced restructuring activities principally
included workforce reductions in the Company's European operations and the
divestiture of non-core businesses which includes the U.S. commercial/industrial
direct sales and service business sold in September 1997. The Company planned
for the reduction in workforce of approximately 1,200 positions, of which 600
related to the divestiture of non-core businesses and the remaining positions
principally represented the termination of administrative personnel. As of June
30, 1999, approximately 90% of the positions had been eliminated, including the
positions associated with the divested business units.
An expanded summary of the restructuring charges and inventory write-downs
relating to the restructuring plans follows:
<TABLE>
<CAPTION>
1998 1997 1996 TOTAL
----- ----- ----- ------
<S> <C> <C> <C> <C>
Product rationalization, related equipment charges and
other................................................. $ -- $ 2.9 $45.3 $ 48.2
Closure of facilities and related costs................. 8.8 6.5 23.5 38.8
Employee termination and related costs.................. 20.4 .5 16.5 37.4
Non-core business divestitures.......................... (7.3) 16.9 -- 9.6
----- ----- ----- ------
Total......................................... 21.9 26.8 85.3 134.0
Less: Inventory write-downs recorded as a component of
costs of sales........................................ -- (4.2) (19.6) (23.8)
----- ----- ----- ------
Total......................................... $21.9 $22.6 $65.7 $110.2
===== ===== ===== ======
</TABLE>
42
<PAGE> 44
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following tables set forth the details and the activity of the restructuring
charge reserves for fiscal 1999:
<TABLE>
<CAPTION>
ACCRUAL ACCRUAL
UTILIZATION BALANCE AT UTILIZATION BALANCE AT
1996 ----------------- JUNE 30, ---------------- RESERVE JUNE 30,
PROVISION CASH NON-CASH 1996 CASH NON-CASH REALLOCATIONS 1997
--------- ------ -------- ---------- ----- -------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996 RESERVE
Product rationalization, related
equipment charges and other.... $ 45.3 $ -- $(34.2) $11.1 $ -- $(12.4) $ 2.8 $ 1.5
Closure of facilities and related
costs.......................... 23.5 (1.0) (1.6) 20.9 (1.4) (6.5) (7.3) 5.7
Employee termination and related
costs.......................... 16.5 (10.4) (0.7) 5.4 (6.6) -- 4.5 3.3
------ ------ ------ ----- ----- ------ ----- -----
Total................... $ 85.3 $(11.4) $(36.5) $37.4 $(8.0) $(18.9) $ -- $10.5
------ ------ ------ ----- ----- ------ ----- -----
Inventory write downs recorded as
a component of cost of sales... (19.6) -- 10.6 (9.0) -- 9.0 -- --
------ ------ ------ ----- ----- ------ ----- -----
Total................... $ 65.7 $(11.4) $(25.9) $28.4 $(8.0) $ (9.9) $ -- $10.5
------ ------ ------ ----- ----- ------ ----- -----
</TABLE>
<TABLE>
<CAPTION>
ACCRUAL ACCRUAL ACCRUAL
BALANCE AT UTILIZATION BALANCE AT UTILIZATION BALANCE AT
JUNE 30, ---------------- JUNE 30, ---------------- JUNE 30,
1997 CASH NON-CASH 1998 CASH NON-CASH 1999
---------- ----- -------- ---------- ----- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
1996 RESERVE (CONTINUED)
Product rationalization, related equipment
charges and other......................... $ 1.5 $ -- $(1.1) $0.4 $ -- $ -- $ 0.4
Closure of facilities and related costs..... 5.7 (0.7) 0.2 5.2 (0.4) -- 4.8
Employee termination and related costs...... 3.3 (3.3) -- -- -- -- --
----- ----- ----- ---- ----- ----- -----
Total.............................. $10.5 $(4.0) $(0.9) $5.6 $(0.4) $ -- $ 5.2
----- ----- ----- ---- ----- ----- -----
</TABLE>
<TABLE>
<CAPTION>
ACCRUAL ACCRUAL ACCRUAL
BALANCE AT 1998 UTILIZATION BALANCE AT UTILIZATION BALANCE AT
1997 JUNE 30, ADDITIONS/ ----------------- JUNE 30, ---------------- JUNE 30,
PROVISION 1997 (REVERSALS) CASH NON-CASH 1998 CASH NON-CASH 1999
--------- ---------- ----------- ------ -------- ---------- ----- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997/1998 RESERVE
Product rationalization,
related equipment
charges and other...... $ 2.9 $ 2.9 $ -- $ -- $(1.6) $ 1.3 $ -- $(1.1) $ 0.2
Closure of facilities and
related costs.......... 6.5 6.5 8.8 0.2 (5.6) 9.9 (1.3) 0.1 8.7
Closure of facilities
(1).................... -- (2.9) (2.9) (2.9)
Employee termination and
related costs.......... 0.5 0.5 20.4 (10.4) -- 10.5 (6.7) -- 3.8
Non-core business
divestitures........... 16.9 16.9 (7.3) -- -- 9.6 (0.4) -- 9.2
----- ----- ----- ------ ----- ----- ----- ----- -----
Total........... $26.8 $23.9 $21.9 $(10.2) $(7.2) $28.4 $(8.4) $(1.0) $19.0
----- ----- ----- ------ ----- ----- ----- ----- -----
Inventory write downs
recorded as a component
of cost of sales
(1):................... -- (4.2) -- -- 3.6 (0.6) -- 0.6 --
----- ----- ----- ------ ----- ----- ----- ----- -----
Total........... $26.8 $19.7 $21.9 $(10.2) $(3.6) $27.8 $(8.4) $(0.4) $19.0
===== ===== ===== ====== ===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) Amounts classified directly to the impaired assets.
43
<PAGE> 45
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. CUSTOMER RECEIVABLES
Amounts due to the Company in the form of accounts receivable (which are
generally due within 90 days), deferred receivables (which are generally due
within one year), installment receivables (which generally have periodic
payments over a term of five years) and net investment in sales-type leases
(which principally have periodic payments over lease terms of five years or
greater) at June 30, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Trade accounts receivable due in 1 year..................... $306.1 $303.9
Allowance for doubtful accounts............................. (30.6) (33.2)
------ ------
Trade accounts receivable due in 1 year, net...... $275.5 $270.7
====== ======
Deferred receivables........................................ $ 9.6 $ 4.9
Installment receivables..................................... 34.1 38.8
Allowance for doubtful accounts............................. (5.2) (5.6)
Unearned interest and maintenance........................... (21.4) (14.5)
------ ------
Total deferred and installment receivables, net... 17.1 23.6
Less: Amounts due in 1 year, net............................ (14.3) (19.0)
------ ------
Total noncurrent deferred and installment
receivables, net................................ $ 2.8 $ 4.6
====== ======
Sales-type leases-minimum lease payments receivable......... $144.3 $225.1
Allowance for uncollectible minimum lease payments.......... (11.5) (20.3)
Unearned interest and maintenance........................... (30.3) (40.4)
------ ------
Total sales-type leases, net...................... 102.5 164.4
Less: Amounts due in 1 year, net............................ (28.8) (36.5)
------ ------
Total noncurrent sales-type leases, net........... $ 73.7 $127.9
====== ======
Total customer receivables.................................. $395.1 $458.7
Less: Amounts due in 1 year, net............................ 318.6 326.2
------ ------
Total noncurrent customer receivables............. $ 76.5 $132.5
====== ======
</TABLE>
Net receivables and sales-type lease receivables at June 30, 1999 are due as
follows: 2000 -- $318.6; 2001 -- $25.7; 2002 -- $19.4; 2003 -- $16.5;
2004 -- $9.6 and $5.3 thereafter.
At June 30, 1999 and 1998, credit risk concentration for receivables (including
those subject to recourse) due from supermarkets and specialty, department and
discount store sectors of the U.S. retail market, aggregated $97.0 and $115.6,
respectively. Assuming the obligors under these receivables were to fail to
completely perform according to the terms of the receivables, at June 30, 1999,
the Company estimates its aggregate exposure to loss in these customer groups to
be $79.5. The estimate takes into consideration the related allowances for
doubtful accounts and the estimated realizable value of the equipment
collateralizing these receivables. The Company minimizes its exposure to credit
risk through its credit review procedures and collection practices and its
general policy of retaining a security interest in the underlying equipment and
ability to re-market such equipment if repossessed.
4. ACCOUNTS RECEIVABLE FINANCING
Effective January 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities", and accordingly, subsequent to the
adoption of SFAS No. 125, only receivables sold or transferred under financing
agreements which meet the criteria for off-balance sheet treatment as defined by
SFAS No. 125 are
44
<PAGE> 46
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
recognized as sales. All other transfers of receivables are treated as financing
transactions. The Company participates in the following receivable financing
agreements with financial institutions.
The agreements entered into include a five year L100 million (approximately
$160.0) asset backed commercial paper conduit program (the "Program") which
allows for the sale of accounts receivables from eligible equipment lease
contracts originating in the United Kingdom and Scotland on a nonrecourse basis
to Mont Blanc Receivables Financing Limited ("MBRF"), an entity sponsored by the
Union Bank of Switzerland ("UBS"). Under the Program, the Company periodically
sells receivables to MBRF which in turn sells a percentage ownership in the
receivables to a commercial paper conduit sponsored by UBS. The Company receives
a subordinated receivable from MBRF equal to the difference between the value of
the receivables sold and the cash received from MBRF.
Effective April 1999, the Company entered into a Receivables Purchase Agreement
with a U.S. leasing institution. Under this agreement, the Company sells
equipment leases to its wholly owned non-consolidated special purpose
corporation which in turn sells the related receivables to the leasing
institution. In addition, the Company entered into a leasing program agreement
whereby future equipment leases will be originated by the leasing institution
and the leasing institution will pay the Company a discounted value for the
equipment leases.
The Company also has agreements in Spain, Italy and France with financial
institutions which allow it to transfer, and record as a sale under SFAS No.
125, its long term equipment leases.
Prior to December 31, 1996, the Company's two U.S. factoring agreements met the
requirements for sales treatment. The Company modified its principal U.S.
factoring agreement to continue to qualify for sales treatment under SFAS No.
125 and subsequently cancelled the second agreement. Under the Company's U.S.
factoring agreement, certain pre-approved U.S. accounts receivables are assigned
to the financial institution without customer non-payment recourse. The
financing institution advances, in anticipation of customer collections, to the
Company at fluctuating interest rates of 60 basis points in excess of LIBOR.
During fiscal 1999, the Company sold approximately $334 under all of the above
facilities. A portion of the sale of receivables is reflected in the financial
statements, primarily in other noncurrent assets, and such amounts of
approximately $44 are recorded at fair market value based on management's
assessment of realization and the expected timing of cash flows. Cash proceeds
from the sale of receivables under these facilities are included in cash flows
from operating activities in the Consolidated Statements of Cash Flows.
The 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 $65.1 at June 30, 1999. Loss reserves have
been provided for receivables and sales-type lease receivables sold, as deemed
necessary, and are included in accrued liabilities.
5. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Finished goods.............................................. $ 135.7 $ 165.4
Parts....................................................... 45.2 56.3
Work-in-process............................................. 11.2 14.7
------- -------
192.1 236.4
Less allowance for excess and obsolete inventory............ (28.4) (32.8)
------- -------
Total inventories, net............................ $ 163.7 $ 203.6
======= =======
</TABLE>
45
<PAGE> 47
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Machinery and equipment..................................... $ 142.5 $ 133.8
Buildings and improvements.................................. 50.9 52.0
Leasehold improvements and furniture and fixtures........... 30.2 33.3
Enterprise resource planning system assets.................. 21.6 14.6
Land........................................................ 11.5 11.9
------- -------
256.7 245.6
Less accumulated depreciation and amortization.............. (119.2) (108.4)
------- -------
Total property, plant and equipment, net.......... $ 137.5 $ 137.2
======= =======
</TABLE>
The Company leases certain operating plant and equipment. The future lease
commitments for plant and equipment and other assets at June 30, 1999 aggregated
$28.4 and are due as follows: 2000 -- $10.1; 2001 -- $6.1; 2002 -- $3.1;
2003 -- $1.9; 2004 -- $1.5 and $5.7 thereafter. Rent expense for certain
operating plant and equipment was charged to operations as follows:
1999 -- $7.9; 1998 -- $9.2 and 1997 -- $13.8.
7. 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
computation of basic and diluted earnings per share under SFAS No. 128 is set
forth in the table below. To conform to the fiscal 1999 presentation, for fiscal
1998, the Company has deducted from loss applicable to common stockholders the
value of Common Stock issued as dividends on the 6 1/2% Convertible Preferred
Stock which had accrued from April 13, 1998, the date on which the 6 1/2%
Convertible Preferred Stock was issued:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Numerator:
Net income (loss).................................... $ 38.1 $(32.7) $(21.4)
Less: Preferred stock dividends...................... $(11.5) $ (2.5) $ -0-
------ ------ ------
Income (loss) applicable to common stockholders...... $ 26.6 $(35.2) $(21.4)
====== ====== ======
</TABLE>
46
<PAGE> 48
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Denominator:
Basic EPS -- weighted average shares................. 75.0 74.2 74.0
Dilutive effect: Stock options....................... 0.3 0.3 0.2
------ ------ ------
Diluted EPS -- weighted average shares............... 75.3 74.5 74.2
====== ====== ======
Basic income (loss) per share........................ $ 0.35 $(0.47) $(0.29)
====== ====== ======
Diluted income (loss) per share...................... $ 0.35 --(a) --(a)
====== ====== ======
</TABLE>
- ---------------
Options to purchase 7.3 million shares of Common Stock at varying prices were
outstanding at June 30,1999 but the Common Stock issuable thereunder was not
included in the computation of diluted EPS because the options' exercise price
was greater than the average market price of the common shares. Additionally,
Common Stock issuable upon the conversion of the Depositary Shares, each
representing a one-tenth interest in a share of 6 1/2% Convertible Preferred
Stock, was not included in the denominator in the computation of diluted EPS as
the impact would be anti-dilutive.
(a) Excluded as result is anti-dilutive.
8. INCOME TAXES
Sensormatic applies SFAS No. 109 "Accounting for Income Taxes" which specifies
an asset and liability approach requiring the recognition of deferred tax assets
and liabilities with respect to the expected future tax consequences of events
that have been recorded in the Consolidated Financial Statements and tax
returns.
The income tax provisions (benefits) on income (loss) from continuing operations
are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ------ ------
<S> <C> <C> <C>
U.S. Federal income taxes:
Current................................................... $(1.3) $ 1.6 $ 6.0
Deferred.................................................. 11.8 (20.5) (21.9)
Foreign income taxes:
Current................................................... (0.8) 15.2 13.1
Deferred.................................................. 4.9 (6.0) (4.7)
State and other............................................. 2.8 (4.4) (1.4)
----- ------ ------
Total............................................. $17.4 $(14.1) $ (8.9)
===== ====== ======
</TABLE>
The 1999, 1998 and 1997 deferred provisions include a tax (cost) benefit of
$(3.2), $15.9 and $14.2, respectively, relating to net operating losses.
The United States (including Puerto Rico) and foreign components of income
(loss) from continuing operations before income taxes are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ------ ------
<S> <C> <C> <C>
United States............................................. $33.0 $(51.3) $(35.5)
Foreign................................................... 22.5 4.5 5.2
----- ------ ------
Total........................................... $55.5 $(46.8) $(30.3)
===== ====== ======
</TABLE>
47
<PAGE> 49
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The U.S. Federal tax rate reconciles to the effective tax rate for continuing
operations as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ------ ------
<S> <C> <C> <C>
U.S. Federal tax rate..................................... 35.0% (35.0)% (35.0)%
Benefits due to tax exempt earnings and investment income
of the Puerto Rico operations........................... (1.3) (13.7) (19.2)
Amortization of costs in excess of net assets acquired.... 9.0 6.9 14.4
International tax rate differentials, net of foreign tax
credits................................................. (11.1) 12.8 (3.2)
Tax benefit of foreign sales corporation.................. (1.1) (2.7) (4.4)
State income tax effect, net of Federal benefit........... 3.1 (5.7) (3.1)
Adjustment of prior years' accruals....................... (6.2) 5.0 --
Valuation allowance....................................... (6.5) 2.2 18.0
Other..................................................... 10.3 0.1 3.5
----- ------ ------
31.2% (30.1)% (29.0)%
===== ====== ======
</TABLE>
Undistributed earnings of international subsidiaries are indefinitely reinvested
except for earnings of the Company's German subsidiary which are periodically
distributed to utilize the lower German integrated tax rate. No provision has
been made for income taxes that might be payable upon the remittance of the
indefinitely reinvested earnings. Upon distribution of those earnings, the
Company would be subject to both U.S. income taxes and withholding taxes payable
to the various foreign countries. The Company has not determined the amount of
tax liability associated with an unplanned distribution of these permanently
reinvested earnings.
Certain Commonwealth of Puerto Rico taxes (tollgate taxes) are due upon
distribution of earnings at rates ranging up to 10% depending on the fiscal year
earned. At June 30, 1999, approximately $176.4 of undistributed earnings were
considered indefinitely reinvested in the Puerto Rico subsidiary, upon which no
tollgate taxes have been provided.
The effects of temporary differences and carryforwards that give rise to
deferred tax assets and liabilities at June 30, 1999 and 1998, are as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------- --------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Property, plant and equipment...................... $ 25.8 $ 0.0 $ 38.7 $ 1.4
Reserves and allowances............................ 26.0 (1.1) 23.7 (1.0)
Sales-type leases.................................. (60.5) 5.0 (66.7) 6.9
Undistributed earnings of German subsidiary........ (4.2) -- (3.2) --
Deemed sales revenues from Puerto Rico
operations....................................... 51.2 -- 44.2 --
Restructuring charges.............................. 7.7 -- 6.4 1.9
NOL and tax credit carryforwards................... 152.7 (0.2) 166.1 (0.6)
Valuation allowance................................ (16.1) 0.0 (19.7) --
Other.............................................. (1.2) 10.2 (3.9) 1.5
------ ----- ------ -----
Total deferred income taxes.............. $181.4 $13.9 $185.6 $10.1
====== ===== ====== =====
</TABLE>
Because deferred tax assets and liabilities are netted by jurisdiction, the
above disclosure reflects the asset and liability characterization based upon
the netting as reflected in the Consolidated Balance Sheets.
SFAS No. 109 requires a valuation allowance to reduce deferred tax assets if,
based on the weight of the available evidence, it is more likely than not that
some portion or all of the deferred tax assets will not be realized. In
determining the need for a valuation allowance, SFAS No. 109 requires an
assessment of all available evidence both positive and negative. Management has
determined that a $16.1 valuation allowance
48
<PAGE> 50
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
at June 30, 1999 is necessary. The decrease in the valuation allowance for the
years ended June 30, 1999 and 1998 was $3.6 and $5.6, respectively. The decrease
in the 1999 deferred tax asset related primarily to utilization of loss
carryforwards in various jurisdictions.
A significant portion of the deferred tax assets recognized relate to net
operating loss and credit carryforwards. Because the Company operates in
multiple off shore jurisdictions, it considered the need for a valuation
allowance on a country by country basis taking into account the effects of local
tax law. Where a valuation allowance was not recorded, the Company believes that
there was sufficient positive evidence to support its conclusion not to record a
valuation allowance. Management believes that the Company will utilize the loss
carryforwards in the future because: (1) in various countries, including the
United States, the Company generated taxable income in fiscal 1999 and utilized
approximately $55 million of net operating loss carryforwards; (2) prior to the
restructuring charges and shareholder litigation settlement costs, the Company
had a history of pre-tax income; (3) a significant portion of the loss
carryforwards resulted from restructuring and shareholder litigation settlement
costs; (4) management believes that the restructuring of the Company's
businesses will reduce their cost structures and that the Company will be
profitable and will generate taxable income in the near term; (5) management is
aware of viable tax strategies that could be implemented to accelerate taxable
income in order to realize a substantial portion of the recorded deferred tax
assets; and (6) a significant portion of the net operating losses have an
indefinite life or do not expire in the near term. However, there can be no
assurance that the Company will generate taxable income or that all of its loss
carryforwards will be utilized.
Net operating losses exist as follows:
<TABLE>
<S> <C>
- - Losses expiring in fiscal
2000 -- 2001: France $5.6, Italy $0.3, Norway $0.4, Portugal $1.2
- - Losses expiring in fiscal
2002 -- 2006: Italy $13.3, Norway $3.3, Portugal $2.6, Spain $6.0
- - Losses expiring in fiscal
2007 -- 2011: Norway $5.3, United States $79.7
- - Losses expiring after
fiscal 2011: United States losses of $29.6 and $66.3 expiring in 2012
and 2018, respectively
- - Losses with indefinite
life: Belgium $28.5, France $17.7, Germany $20.9, Ireland
$22.1, Portugal $4.5, Sweden $11.4, United Kingdom $37.1,
Other $3.2
- - Foreign tax credits expiring in fiscal 2000 through 2003 are $0.6.
</TABLE>
49
<PAGE> 51
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. DEBT
Debt is summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
8.04% Senior Notes due March, 2006.......................... $230.0 $230.0
7.21% Senior Notes due March, 2000.......................... 70.0 70.0
7.34% Senior Notes due March, 2001.......................... 50.0 50.0
8.21% Senior Notes due January, 2003........................ 135.0 135.0
Other debt, at 4.52% to 9.97%, net of unamortized interest
of $2.5 and $3.5 at 1999 and 1998, respectively........... 23.1 63.7
------ ------
Total debt........................................ 508.1 548.7
------ ------
Less: Amounts payable in 1 year............................. (80.4) (33.5)
------ ------
Total noncurrent debt............................. $427.7 $515.2
====== ======
</TABLE>
The Company has a committed line of credit agreement expiring in December 1999
with a group of U.S. and international banks which provides for aggregate
unsecured borrowings by the Company of up to $250.0 of which $226.0 was
available for use as of June 30, 1999. Borrowings under this agreement bear
interest at the London Interbank Offered Rate (LIBOR) plus 0.375% and are
subject to an annual facility fee of 0.225% of the total credit line.
Additionally, the Company has various uncommitted lines-of-credit with several
financial institutions of which $12.1 was utilized at June 30, 1999. Borrowings
under these agreements bear interest at rates from 4.52% to 7.75%. The $250
million Revolving Credit Facility will expire in December 1999. The Company
plans to replace this committed facility with a Revolving Credit Facility in
fiscal 2000.
Under the terms of the Company's principal borrowing and financing agreements,
the Company is required, among other things to maintain a minimum interest
coverage ratio, to maintain a minimum net worth, as defined, is allowed to incur
debt up to a level whereby certain debt-to-total capitalization ratios would not
be exceeded, and is subject to certain limitations with respect to repurchases
of its Common Stock and the payment of cash dividends. The Company was in full
compliance with all of these terms at June 30, 1999 and 1998.
10. CONVERTIBLE PREFERRED STOCK
In April 1998, the Company issued 6,900,000 Depositary Shares for gross proceeds
of $172.5, or $166.7 net of commissions, discounts and other estimated
transaction issue expenses. Each Depositary Share represents a one-tenth
interest in a share of 6 1/2% Convertible Preferred Stock with a liquidation
preference of $250.00 per share of preferred stock. Dividends on the Preferred
Stock accrue at a rate per annum equal to 6 1/2% of the liquidation preference
per share of Preferred Stock and are payable quarterly on January 1, April 1,
July 1 and October 1 of each year, and commenced on July 1, 1998. Dividends are
payable in cash or, at the option of the Company, in shares of Common Stock of
the Company or a combination thereof. The Company issued approximately 1,480,405
shares of Common Stock, which are not currently registered, in payment of the
dividends payable, including certain liquidated damages, on July 1, 1998 through
July 1, 1999. Certain of the Company's financial agreements currently prohibit
the payment of cash dividends until after certain cumulative income levels are
obtained, as reflected in the Company's audited financial statements, and it is
unlikely that the Company would be able to pay cash dividends until after the
preparation of its audited financial statements for fiscal year 2000 at the
earliest. The Company intends to pay any dividends declared on the Convertible
Preferred Stock with shares of Common Stock prior to the time it is able to pay
cash dividends. The Depositary Shares are convertible, subject to prior
redemption, at any time after July 13, 1998, at the option of the holder thereof
into shares of Common Stock at a conversion price of $19.52 per share of Common
Stock, subject to certain adjustments. The Preferred Stock will be redeemable,
at the option of the
50
<PAGE> 52
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company, in whole or in part, at any time on or after April 4, 2001, at prices
commencing with 103.71% of liquidation preference, declining to 100% of
liquidation preference on April 4, 2005. The Preferred Stock ranks junior in
right of payment to all indebtedness and other liabilities of the Company.
11. STOCK OPTION PLANS
Under the Company's existing stock incentive plan (the "1999 Plan") stock
options may be granted to officers, key employees, and directors who are also
officers or employees or otherwise participate in the 1999 Plan. The 1999 Plan
provides for granting of other awards, such as stock appreciation rights, stock
awards and cash awards, although the Company intends to continue to grant
principally stock options under this plan. The Company also has a Directors
Stock Option Plan under which non-qualified stock options are granted to
directors not covered by the 1999 Plan.
The exercise price of a stock option granted under the 1999 Plan and its
predecessor plans is not less than the fair market value of the Common Stock on
the date of grant. Stock options granted under all such plans generally become
exercisable, cumulatively, in equal annual installments over three years, and
expire five or ten years from the date of grant. The Company has granted to
certain corporate officers performance-based options under certain of such
predecessor plans. These options become exercisable from four to ten years after
grant depending upon the Company's attainment of certain performance objectives.
All such options are non-compensatory; therefore, any U.S. Federal income tax
benefits received upon their exercise are recorded as an increase to Common
Stock.
Information for all stock incentive plans of the Company under which awards have
been granted and remain outstanding is summarized for fiscal 1999, 1998 and 1997
as follows (in millions, except for price per option amounts):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Options outstanding at beginning of year................. 8.1 7.3 6.6
Granted.................................................. 1.6 1.9 1.0
Exercised................................................ (0.1) (0.1) (0.1)
Canceled................................................. (0.4) (1.0) (0.2)
-------- -------- --------
Options outstanding at end of year....................... 9.2 8.1 7.3
======== ======== ========
Average price of options exercised....................... $ 9.30 $ 10.29 $ 15.24
$5.37 to $7.42 to $7.42 to
Exercise prices of options outstanding at end of year.... $ 36.38 $ 36.38 $ 36.38
Average exercise price of options outstanding at end of
year................................................... $ 17.47 $ 19.48 $ 21.73
Exercisable options at end of year....................... 6.0 3.9 2.8
Options available for future grants at end of year....... 3.9 1.0 1.7
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED NUMBER WEIGHTED
RANGE OF NUMBER AVERAGE EXERCISABLE AVERAGE
EXERCISE PRICE OUTSTANDING EXERCISE PRICE AT EXERCISE PRICE
- -------------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 5.01 - $10.00........................... 1.8 7.15 .2 7.80
$10.01 - $15.00........................... 1.3 13.38 .5 13.34
$15.01 - $20.00........................... 3.5 17.37 3.1 17.46
$20.01 - $25.00........................... 1.2 21.68 .7 22.39
$25.01 - $30.00........................... .5 27.88 .5 27.84
$30.01 - $36.38........................... .9 32.39 .9 32.39
--------- ---------
9.2 5.9
========= =========
</TABLE>
51
<PAGE> 53
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 1999 and 1998, 13.2 and 9.2 million shares of Common Stock,
respectively, were reserved for issuance of which 13.1 million and 9.1 million,
respectively, were reserved for the exercise of stock options or additional
awards under the above Plans. Additionally, at June 30, 1999 and 1998, 8.8
million shares of Common Stock were reserved for the conversion of the 6 1/2%
Convertible Preferred Stock.
The Company has adopted SFAS No. 123, "Accounting for Stock-Based Compensation."
As permitted by SFAS No. 123, the Company continues to follow the measurement
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and does not recognize compensation expense for its
stock-based incentive plans. Had compensation cost for the Company's stock based
incentive compensation plans been determined based on the fair value at the
grant dates for awards under those plans consistent with the methodology
prescribed by SFAS No. 123, the Company's net income and earnings per share for
fiscal 1999, 1998 and 1997 would have been reduced to the pro forma amounts
indicated below.
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Net income (loss):
As reported............................................... $ 38.1 $(32.7) $(21.4)
Pro forma................................................. $ 32.9 $(39.3) $(26.0)
Basic income (loss) per common share:
As reported............................................... $ 0.35 $(0.47) $(0.29)
Pro forma................................................. $ 0.29 $(0.56) $(0.35)
</TABLE>
These pro forma amounts may not be indicative of future pro forma income and
earnings per share.
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model, with the following historical weighted
average assumptions applied to grants in fiscal 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Dividend yields............................................. -- -- 1.17%
Expected volatility......................................... .513 .361 .398
Risk-free interest rates.................................... 4.76% 5.83% 6.26%
Expected life (in years)(1)................................. 8 5 5
</TABLE>
- ---------------
(1) With the exception of employee stock purchase plan grants with an expected
life of 1 year.
Based upon the above assumptions, the weighted-average fair value of options
granted during 1999, 1998 and 1997 was $4.36, $5.64 and $7.75, respectively.
12. BENEFIT PLANS
Defined Contribution Plans
The Company has retirement plans for U.S. employees, Puerto Rico employees and
for certain European employees which allow or require employee contributions.
Annual contributions by the Company to these retirement plans are discretionary.
The Company charged to operations $3.0, $7.1 and $5.7 in fiscal 1999, 1998,
1997, respectively, related to the plans described under this section.
Defined Benefit Plans
The Company initiated the following defined benefit plans during fiscal 1999:
(a) Supplemental Executive Retirement Plan for Vice President Level Employees
and (b) Supplemental Executive Retirement Plan for Director Level Employees.
Accordingly, the Company has accounted for these plans in accordance with the
provisions of SFAS No. 87 "Employers' Accounting for Pensions" as it relates to
defined benefit plans. Prior to fiscal 1999, these plans were defined
contribution plans.
52
<PAGE> 54
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the benefit obligations, change in plan assets,
funded status, amounts recognized in the statement of financial position and
rate assumptions associated with the Company's pension plans.
<TABLE>
<CAPTION>
06/30/1999
----------
<S> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year................... $ 23.2
Service cost........................................... 1.1
Interest cost.......................................... 1.7
Plan amendments........................................ 0.0
Actuarial gains........................................ 0.0
Benefits paid.......................................... (1.4)
------
Benefit obligation at end of year......................... $ 24.6
======
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year............ $ 0.0
Actual return on plan assets........................... 0.0
Employer contributions................................. 1.4
Benefits paid.......................................... (1.4)
------
Fair value of plan assets at end of year.................. $ 0.0
======
RECONCILIATION OF THE FUNDED STATUS
Funded status............................................. $(24.6)
Unrecognized transition obligation........................ 0.7
Unrecognized prior service cost........................... 3.6
Unrecognized actuarial gains.............................. 0.0
------
Net amount recognized at year-end...................... $(20.3)
======
AMOUNTS RECOGNIZED IN THE STATEMENT OF
FINANCIAL POSITION CONSIST OF:
Prepaid benefit cost...................................... $ 0.0
Accrued benefit liability................................. (24.6)
Intangible asset.......................................... 4.3
Accumulated other comprehensive income.................... 0.0
------
Net amount recognized at year-end...................... $(20.3)
======
WEIGHTED-AVERAGE ASSUMPTIONS AS OF JUNE 30
Discount rate:.............................................. 7.50%
Rate of compensation increase............................... 5.00%
Expected return on plan assets.............................. N/A
Net periodic benefit cost includes the following
amounts:
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost.............................................. $ 1.1
Interest cost............................................. 1.7
Expected return on plan assets............................ 0.0
Amortization of transitional obligation................... 0.1
Amortization of prior service cost........................ 0.5
Recognized actuarial gains................................ 0.0
------
Net periodic benefit cost.............................. $ 3.4
======
</TABLE>
53
<PAGE> 55
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. COMMITMENTS AND CONTINGENCIES
An action was brought by AlliedSignal Inc. ("Allied") in the United States
District Court for New Jersey against Vacuumschmelze GmbH, a wholly owned
subsidiary of Siemens AG, and its subsidiary, Vacuumschmelze Corporation
("Vacuumschmelze"), the supplier of the principal electromagnetic alloy used in
the Company's Ultra-Max labels. The Allied complaint alleges that this alloy
infringes a patent owned by Allied and seeks to enjoin Vacuumschmelze from
making, using or selling infringing alloys. The complaint also seeks damages,
interest and costs. The Company has brought a separate action against Allied
asserting, among other things, the Company's rights to and interest in the
patent at issue in the Vacuumschmelze litigation and certain related patents.
The Company's action is based on its claim to be a co-inventor of the inventions
claimed in such patents. Allied filed an answer and asserted counterclaims
against the Company for, among other things, a declaratory judgment concerning
the various patent rights at issue and damages and injunctive relief for alleged
patent infringement, which counterclaims were denied by the Company. The Company
has entered into an agreement with Vacuumschmelze to bear a substantial part of
Vacuumschmelze's costs and damages, if any, arising from this suit.
The Company also brought an action against Allied in Germany to establish its
co-ownership of the corresponding European patent applications. Allied has
brought a motion for leave of Court to amend its answers and counterclaims in
the U.S. action to add claims for damages and injunctive relief for the alleged
breach by the Company of a non-disclosure agreement with Allied and for the
alleged misappropriation of certain confidential and proprietary information of
Allied, arising out of the Company's alleged disclosure to Vacuumschmelze of
certain information.
The Company is opposing Allied's motion for leave to amend and is vigorously
prosecuting its own claims against Allied and defending against Allied's
counterclaims. The Company has not yet determined what impact, if any, the
resolution of the foregoing matters will have on the Company's financial
position, results of operations or cash flows.
As noted above, Vacuumschmelze is presently the sole supplier of the principal
electromagnetic alloy used in the Company's Ultra-Max labels. While there are
potential alternatives to the supply of such material by Vacuumschmelze, the
loss or disruption of this source of supply could result in increased costs or
product shortages or otherwise materially adversely affect the Company's
business. The Company has been pursuing development of alternative materials for
use in the Company's Ultra-Max labels and additional sources of supply.
Contingent payments
In connection with certain acquisitions, the Company pays contingent
consideration (ranging from 3% to 10%) on revenues generated by the acquired
businesses for periods expiring through 2004. Such contingent payments, when
incurred, will be recorded as additional cost of the related acquisitions and
included in patents and other assets and amortized over the remaining
amortization period. Contingent consideration payments in fiscal 1999, 1998, and
1997 were $20.7, $19.7, and $16.4, respectively.
54
<PAGE> 56
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. SEGMENT INFORMATION
The Company operates globally and offers products and services which are sold to
retail customers and to commercial industrial ("C/I") customers. The Company's
products and systems are focused in three general categories: electronic article
surveillance ("EAS") systems, closed circuit television ("CCTV") and video
systems, and access control and asset management systems. The Company also
provides installation and maintenance services. Consolidated revenues by
principal products and systems follow:
<TABLE>
<CAPTION>
INSTALLATION,
ACCESS CONTROL AND MAINTENANCE AND
EAS CCTV ASSET MANAGEMENT OTHER TOTAL
------ ------ ------------------ --------------- --------
<S> <C> <C> <C> <C> <C>
Revenues
1999........................ $548.2 $292.4 $45.0 $131.9 $1,017.5
1998........................ $539.8 $307.1 $32.6 $107.4 $ 986.9
1997........................ $533.0 $314.6 $60.7 $117.4 $1,025.7
</TABLE>
The Company operates in four reportable segments consistent with the way the
Company organizes its operations which is based on geographic area considering
customer focus. The four reportable segments and the principal products and
services of each segment are listed below:
(1) North America Retail -- EAS, CCTV, access control and asset management, and
service.
(2) Europe (Retail and C/I) -- EAS, CCTV, access control and asset management,
and service.
(3) International (retail and C/I) -- EAS, CCTV, access control and asset
management, and service.
(4) Other (North America based C/I) -- CCTV, access control and asset
management, and service.
(5) Corporate and unallocated
The accounting policies of the segments are the same as those described in Note
1 Summary of Significant Accounting Policies. There are no intersegment sales.
Segment operating results are measured based on operating income. Corporate and
unallocated expenses primarily include amounts for certain divested businesses
and provisions for restructuring charges. Identifiable assets are comprised of
those accounts of the Company that are identified with the operations of each
segment. Corporate and unallocated assets are primarily comprised of cash.
Capital expenditures included under Corporate and unallocated consist primarily
of manufacturing machinery and equipment and enterprise resource planning system
assets. These amounts are not allocated to the segments.
In 1999, 1998 and 1997, no single customer represented 10% or more of the
Company's sales.
GEOGRAPHIC SEGMENT INFORMATION
<TABLE>
<CAPTION>
NORTH AMERICA NORTH AMERICA CORPORATE AND
RETAIL EUROPE INTERNATIONAL BASED C/I UNALLOCATED TOTAL
------------- ------ ------------- ------------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues
Retail
1999................... $440.6 $277.2 $113.6 $ 0.0 $ (0.3) $ 831.1
1998................... 364.5 289.9 122.2 0.0 0.0 776.6
1997................... 329.2 311.2 108.9 0.0 3.7 753.0
C/I
1999................... $ 0.0 $ 66.8 $ 31.0 $ 88.6 $ 0.0 $ 186.4
1998................... 0.0 66.9 45.8 94.6 3.0 210.3
1997................... 0.0 73.9 39.4 159.4 0.0 272.7
</TABLE>
55
<PAGE> 57
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
NORTH AMERICA NORTH AMERICA CORPORATE AND
RETAIL EUROPE INTERNATIONAL BASED C/I UNALLOCATED TOTAL
------------- ------ ------------- ------------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Total Revenues
1999...................... $440.6 $344.0 $144.6 $ 88.6 $ (0.3) $1,017.5
1998...................... 364.5 356.8 168.0 94.6 3.0 986.9
1997...................... 329.2 385.1 148.3 159.4 3.7 1,025.7
Depreciation/Amortization
1999...................... $ 14.4 $ 21.3 $ 5.3 $ 3.0 $ 0.0 $ 44.0
1998...................... 13.7 22.9 5.7 3.4 0.0 45.7
1997...................... 13.5 22.6 5.7 3.6 0.0 45.4
Operating income
1999...................... $ 59.8 $(13.7) $ 22.0 $ 13.4 $ 0.0 $ 81.5
1998...................... 51.0 (7.4) 28.4 (9.3) (22.6) 40.1
1997...................... 24.6 (18.8) 21.9 (4.9) (20.7) 2.1
Total assets
1999...................... $431.3 $832.2 $140.8 $102.5 $268.8 $1,775.6
1998...................... 399.0 929.9 151.5 104.6 214.5 1,799.5
1997...................... 367.8 935.0 131.7 122.3 89.8 1,646.6
Capital expenditures
1999...................... $ 0.5 $ 4.0 $ 0.9 $ 0.9 $ 22.8 $ 29.1
1998...................... 2.0 2.9 1.5 1.1 21.8 29.3
1997...................... 0.6 3.0 0.8 1.1 32.9 38.4
</TABLE>
15. ACQUISITIONS AND DIVESTITURES
In connection with acquisitions during fiscal 1997, the market value of the
assets acquired was as follows:
<TABLE>
<CAPTION>
1997
-----
<S> <C>
Cash paid (net of cash acquired)............................ $15.5
Liabilities assumed and/or incurred......................... 1.2
Common stock issued......................................... --
-----
Market value of assets acquired............................. $16.7
=====
</TABLE>
No acquisitions occurred in fiscal 1999 or 1998.
In September 1997, the Company sold its U.S. commercial/industrial direct sales
and service business to STG for total proceeds of $10.5. The Company also agreed
in such transaction to sell its monitoring business, which was consummated in
October 1997. The Company retained ownership of all of the accounts receivable
related to these operations which totaled approximately $30.7.
As one of the terms of the sale, the Company is required to reimburse STG for
costs to complete certain jobs in process if those costs exceed defined amounts.
While there is no stated "cap" or limit on the amount the Company is obligated
to pay the buyer under this provision, the Company believes that the ultimate
settlement will not exceed the amounts currently accrued of $6.6 which includes
the amount of the gain deferred.
56
<PAGE> 58
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The revenues of these operations prior to the divestiture date and included in
the Company's Consolidated Condensed Statement of Operations for June 30, 1998
and 1997 were $11.4 and approximately $80.0, respectively.
16. FINANCIAL INSTRUMENTS
At June 30, 1999 and 1998, the recorded value of all financial instruments
reported as assets such as cash, short-term investments, trade receivables and
payables and short-term debt approximated their fair values, based on the
short-term maturities and floating rate characteristics of these instruments.
Fair value of balance sheet financial instruments
The recorded value of balance sheet financial instruments reported as
liabilities, where there is a difference between recorded value and estimated
market value, were as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Senior Note debt
Recorded value............................................ $485.0 $485.0
Fair value................................................ 492.8 471.3
</TABLE>
Fair value is determined based on expected future cash flows (discounted at
market interest rates), quotes from financial institutions and other appropriate
valuation methodologies.
Interest rate agreements
The Company is subject to interest rate risk under various financing facilities,
primarily its receivable financing programs. Under these programs, the Company
sells fixed interest rate receivables to a financing institution which funds the
receivables with a floating rate. Any resulting differential in interest caused
by the varying rates (variance amount) is either paid or received by the
Company.
The Company has entered into a fixed to floating interest rate swap agreement
with a party to its U.K. receivable financing program. The effect of the
interest rate swap agreement is to return to the Company the differential
between the fixed rate to be received on the receivables sold under this program
and the floating rate to be paid to the purchasers of the receivables. As of
June 30, 1999, the notional amount of this interest rate swap agreement was
L79.9 million. The interest rate swap agreement will expire when the underlying
receivables are paid down. At June 30, 1999, the floating rate to be paid by the
Company was 5.34%, equivalent to the variable cost of funds of the purchaser of
the assets, and the fixed rate to be received was approximately 8.62%. Under
SFAS No. 125, financial components received or incurred in connection with the
transfer of financial assets accounted for as a sale are to be recorded at fair
market value at the date of sale with changes in fair value recognized
immediately in earnings. The fair market value of this interest rate swap
agreement was not determinable due to the open ended expiration date and
consequently has not been recognized in the Consolidated Balance Sheet at June
30, 1999.
In order to manage the risk associated with the variance amount on the sale of
certain receivables, including the UK financing program as described above, the
Company enters into interest rate swap agreements, which have the effect of
converting the floating discount rate to a fixed discount rate, thereby limiting
the variance amount paid or received by the Company.
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
interest rate swap agreements combined with existing swap agreements and the
terms of various finance agreements, approximately 75.0% of the Company's
interest
57
<PAGE> 59
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
rate exposure is fixed and 25.0% is variable. The table below describes the
terms on the material interest rate agreements outstanding at June 30, 1999:
FLOATING TO FIXED SWAP AGREEMENTS
<TABLE>
<CAPTION>
NOTIONAL EXPIRATION FIXED RATE FLOATING RATE
AMOUNT DATE TO BE PAID TO BE RECEIVED
-------- ---------- ----------- --------------
<S> <C> <C> <C>
$30.0................................................ March 2001 5.97 3 Month LIBOR
$30.0................................................ March 2000 5.92 3 Month LIBOR
$30.0................................................ March 2003 6.05 3 Month LIBOR
$30.0................................................ March 2002 6.01 3 Month LIBOR
</TABLE>
The weighted average interest rate paid was 5.99% and the weighted average
interest rate received was 5.09% under all such Floating to Fixed Swap
Agreements outstanding at June 30, 1999.
The notional amount of the Company's interest rate agreements at June 30, 1999
and 1998 was $123.7 and $131.1, respectively. Notional amounts do not quantify
risks or represent assets or liabilities of the Company, but are used in the
calculation of cash settlements under the agreements.
The fair value of the interest rate agreements represents the discounted cash
flow differential between offsetting interest rate agreements at market interest
rates and existing interest rate agreements at their coupon rates. At June 30,
1999 and 1998 the fair value of these agreements, as determined by the financial
institution counterparties, was immaterial.
Foreign currency contracts
The Company conducts business in a wide variety of currencies and consequently
enters into foreign exchange forward contracts to manage its exposure to
fluctuations in foreign currency exchange rates. These contracts generally
involve the exchange of one currency for another at a future date and are used
to hedge the Company's intercompany firm commitments. At June 30, 1999 and 1998,
the Company had contract principal amounts of approximately $65.8 and $260.6,
respectively in contracts to sell foreign currency in the future. The fair value
of these investments at June 30, 1999 and 1998 was not material.
58
<PAGE> 60
SENSORMATIC ELECTRONICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At June 30, 1999, the Company owned forward contracts which allowed it to sell
currencies for the indicated U.S. dollar amounts, in fiscal year 2000, as
follows:
<TABLE>
<CAPTION>
CURRENCIES 2000
- ---------- -----
<S> <C>
Euro........................................................ $48.8
British Pounds.............................................. 13.9
Other....................................................... 3.1
-----
Total............................................. $65.8
=====
</TABLE>
Credit risk
The Company is exposed to credit risk to the extent of potential nonperformance
by counterparties on financial instruments. In the event of nonperformance by
the counterparties to the Company's interest rate agreements, the effective
interest rate on the underlying transaction would revert to the respective
contractual rate. The counterparties to the Company's interest rate agreements
and foreign currency contracts are limited to major financial institutions with
investment grade ratings; thus the Company believes the risk of incurring losses
due to credit risk is remote. Refer to Note X for disclosure regarding accounts
receivables subject to concentrations of credit risks.
Market risk
Exposure to market risk on financial instruments results from fluctuations in
interest and currency rates during the periods in which the contracts are
outstanding. The mark-to-market valuations of interest rate, foreign currency
agreements and of associated underlying exposures are closely monitored. Overall
financial strategies and the effects of using derivatives are reviewed
periodically.
59
<PAGE> 61
PART III
ITEMS 10 TO 13 INCLUSIVE
This information required by Item 10 (Directors and Executive Officers of the
Registrant) (other than information as to executive officers of the Company,
which is set forth Part I under the caption "Executive Officers of the
Registrant"), Item 11 (Executive Compensation), Item 12 (Security Ownership of
Certain Beneficial Owners and Management) and Item 13 (Certain Relationships and
Related Transactions) is incorporated by reference to the Company's definitive
proxy statement for the 1999 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission on or about October 6, 1999, except that the
"Report of the Governance and Stock Incentive Plan Committees" and the
"Performance Graph" and the text describing it contained in the proxy statement
are not incorporated by reference herein.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) and (2) The following documents are filed as a part of this report:
Financial Statements and Financial Statement Schedules -- See Index to
Consolidated Financial Statements at Item 8 of this report.
(3) Listing of exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C> <C>
3(a) -- Composite Restated Certificate of Incorporation of the
Company filed pursuant to Rule 232.102(c) of Regulation S-T
(incorporated by reference to Exhibit 4(d) to Registration
Statement No. 33-61626).
3(b) -- By-Laws of the Company (incorporated by reference to Exhibit
3(b) to Form 10-K for the fiscal year end June 30, 1996).
4(a) -- Article FOURTH of the Restated Certificate of Incorporation
of the Company (incorporated by reference to Exhibit 4(d) to
Registration Statement No. 33-61626).
4(b) -- Note Agreement, dated as of March 29, 1996, among the
Company, and the other Purchasers named therein, including
the form of 6.99% Senior Notes due March 2001, 7.74% Senior
Notes due March 2001, and 7.11% Senior Notes due March 2001,
issued thereunder (incorporated by reference to Exhibit 4(a)
to Form 10-Q for the fiscal quarter ended March 31, 1996).
4(c) -- Note Agreement, dated as of January 15, 1993, among the
Company, The Northwestern Mutual Life Insurance Company and
the other Purchasers named therein, including the form of
8.21% Senior Notes due January 30, 2003, issued thereunder,
and First Amendment to such Note Agreement dated as of May
31, 1993 (incorporated by reference to Exhibit 4.4 to
Registration Statement No. 33-62750).
4(d) -- Certificate of Designations of the Powers Preferences and
Relative, Participating Optional and Other Special Rights of
Preferred Stock and Qualifications, Limitations and
Restrictions thereof of 6 1/2% Convertible Preferred Stock
of the Company, filed with the Secretary of State of the
State of Delaware on April 9, 1998 (incorporated by
reference to Exhibit 4 to Form 10-Q for the fiscal quarter
ended March 31, 1998).
4(e) -- The Registrant agrees to furnish copies of any instrument
defining the rights of holders of long-term debt of the
Registrant and its consolidated subsidiaries that does not
exceed 10 percent of the total assets of the Registrant and
its consolidated subsidiaries, which is not required to be
filed as an exhibit, to the Commission upon request.
</TABLE>
60
<PAGE> 62
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C> <C>
10(a) -- Grant of Industrial Tax Exemption to Sensormatic Electronics
Corporation (Puerto Rico) from the Commonwealth of Puerto
Rico (incorporated by reference to Exhibit 10(n) to Form
10-K for the fiscal year ended May 31, 1986) and Order of
Conversion of Grant of Industrial Tax Exemption
(incorporated by reference to Exhibit 10(m) to Form 10-K for
the fiscal year ended May 31, 1988).
10(b) -- Description of Non-qualified Stock Option Plan (incorporated
by reference to Registration Statement No. 2-74526) and
representative form of non-qualified stock option
(incorporated by reference to Exhibit 3(c) to Registration
Statement No. 2-74526) and representative form of
non-qualified stock option (incorporated by reference to
Exhibit 3(c) to Registration Statement No. 2-74526).
10(c) -- Amended 1989 Stock Incentive Plan and representative forms
of non-qualified stock option under such Plan (incorporated
by reference to Exhibit 10(c) to Form 10-K for the fiscal
year ended June 30, 1994).
10(d) -- 1995 Stock Incentive Plan and representative forms of
non-qualified stock options and Restricted Stock Agreement
under such Plan (incorporated by reference to Exhibit 10(d)
to Form 10-K for the fiscal year ended June 30, 1995).
10(e) -- Directors Stock Option Plan, amended and restated as of
September 18, 1998, and representative form of a
non-qualified stock option under such Plan (incorporated by
reference to Exhibit 10(h) to Form 10-K for the fiscal year
ended May 31, 1992 and to Exhibit 10(e) to Form 10-K/A for
the fiscal year ended June 30, 1998.)
10(f) -- Stock Purchase Loan Plan (incorporated by reference to
Exhibit 10(g) to Form 10-K for the fiscal year ended May 31,
1986).
10(g) -- Executive Salary Continuation Plan and representative form
of agreement thereunder (incorporated by reference to
Exhibit 10(g) to Form 10-K for the fiscal year ended May 31,
1989).
10(h) -- Board of Directors Retirement Plan and representative form
of agreement thereunder (incorporated by reference to
Exhibit 10(h) to Form 10-K for the fiscal year ended May 31,
1989).
10(i) -- Senior Executive Defined Contribution Retirement Plan and
representative form of agreement thereunder (incorporated by
reference to Exhibit 10(h) to Form 10-K for the fiscal year
ended June 30, 1994).
10(j) -- 1999 Stock Incentive Plan and representative forms of
non-qualified stock options and Restricted Stock Agreement
under such Plan.
10(k) -- Employment Agreement, dated as of October 14, 1995, between
the Company and Robert A. Vanourek, President and Chief
Executive Officer of the Company (incorporated by reference
to Exhibit 10(v) to Form 10-K/A for the fiscal year ended
June 30, 1995).
10(l) -- Agreement, dated as of September 1, 1998, between the
Company and Robert A. Vanourek, President and Chief
Executive Officer of the Company (incorporated by reference
to Exhibit 10(k) to Form 10-K for the fiscal year ended June
30, 1998).
10(m) -- Employment Agreement, dated as of December 21, 1995, between
the Company and Garrett E. Pierce, Senior Vice President,
Chief Administrative Officer and Chief Financial Officer of
the Company (incorporated by reference to Exhibit 10(m) to
Form 10-K for the fiscal year ended June 30, 1996).
10(n) -- Agreement, dated as of September 1, 1998, between the
Company and Garrett E. Pierce, Senior Vice President, Chief
Administrative Officer and Chief Financial Officer of the
Company (incorporated by reference to Exhibit 10(m) to Form
10-K for the fiscal year ended June 30, 1998).
</TABLE>
61
<PAGE> 63
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C> <C>
10(o) -- Agreement, dated as of September 1, 1998, between the
Company and Ronald G. Assaf, Chairman of the Board of the
Company, amending and superseding Agreement, dated as of
December 23, 1988, between the Company and Mr. Assaf
(incorporated by reference to Exhibit 10(n) to Form 10-K for
the fiscal year ended June 30, 1998) and amendment thereto
dated as of August 5, 1999 filed herewith.
10(p) -- Agreement, dated as of August 9, 1996, between the Company
and Ronald G. Assaf, Chairman of the Board, and former
President and Chief Executive Officer of the Company
(incorporated by reference to Exhibit 10(o) to Form 10-K for
the fiscal year ended June 30, 1996) and amendment thereto
dated as of September 1, 1998 (incorporated by reference to
Exhibit 10(o) to Form 10-K for the fiscal year ended June
30, 1998).
10(q) -- Agreement, dated as of September 1, 1998, between the
Company and James E. Lineberger, Chairman of the Executive
Committee and a director of the Company, amending and
superseding Agreement, dated as of December 23, 1988,
between the Company and Mr. Lineberger (incorporated by
reference to Exhibit 10(p) to Form 10-K for the fiscal year
ended June 30, 1998).
10(r) -- Form of Agreement, dated as of September 1, 1998, between
the Company and each of Thomas V. Buffett, Timothy P.
Hartman and John T. Ray, Jr., directors of the Company,
amending and superseding Agreements, dated as of February
12, 1996, between the Company and such individuals
(incorporated by reference to Exhibit 10(q) to Form 10-K for
the fiscal year ended June 30, 1998) and amendment thereto
dated as of August 5, 1999 filed herewith.
10(s) -- Form of Agreement, dated as of September 1, 1998, between
the Company and each of Fred A. Breidenbach and J. Richard
Munro, directors of the Company (incorporated by reference
to Exhibit 10(r) to Form 10-K for the fiscal year ended June
30, 1998) and amendment thereto dated as of August 5, 1999
filed herewith.
10(t) -- Agreement, dated as of August 31, 1997, between the Company
and Jerry T. Kendall, Senior Vice President of the Company
and President of North America Retail Operations
(incorporated by reference to Exhibit 10(s) to Form 10-K for
the fiscal year ended June 30, 1998).
10(u) -- Agreement, dated as of September 1, 1998, between the
Company and Jerry T. Kendall, Senior Vice President of the
Company and President of North America Retail Operations
(incorporated by reference to Exhibit 10(f) to Form 10-K for
the fiscal year ended June 30, 1998).
10(v) -- Agreement, dated as of June 25, 1997, between the Company
and Ronald F. Premuroso, Senior Vice President of the
Company and President of Europe Retail Operations
(incorporated by reference to Exhibit 10(u) to Form 10-K for
the fiscal year ended June 30, 1998).
10(w) -- Agreement, dated as of September 1, 1998, between the
Company and Ronald F. Premuroso Senior Vice President of the
Company and President of Europe Retail Operations
(incorporated by reference to Exhibit 10(v) to Form 10-K for
the fiscal year ended June 30, 1998).
10(x) -- Employment Agreement, dated as of August 23, 1999, between
the Company and Per-Olof Loof, President and Chief Executive
Officer of the Company.
10(y) -- Agreement, dated as of August 23, 1999, between the Company
and Per-Olof Loof, President and Chief Executive Officer at
the Company.
10(z) -- Employment Agreement, dated as of October 29, 1997, between
the Company and Kenneth W. Chmiel, Senior Vice
President-Supply Chain Operations.
</TABLE>
62
<PAGE> 64
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C> <C>
10(aa) -- Agreement, dated as of September 1, 1998, between the
Company and Kenneth W. Chmiel, Senior Vice President-Supply
Chain Operations.
10(bb) -- Employment Agreement, dated as of September 14, 1998,
between the Company and John P. Smith, Senior Vice President
and President of Europe Operations.
10(cc) -- Agreement, dated as of September 14, 1998, between the
Company and John P. Smith, Senior Vice President and
President of Europe Operations.
10(dd) -- Directors and Officers Liability Insurance Policies
(incorporated by reference to Exhibit 10(v) to Form 10-K for
the fiscal year ended June 30, 1996).
10(ee) -- Amended and Restated Credit Agreement, dated as of December
12, 1995, between the Company, Wachovia Bank of Georgia,
N.A., ABN Amro Bank N.V., the other Borrowers listed therein
and the domestic banks and foreign company banks listed
therein (incorporated by reference to Exhibit 10(w) to Form
10-K for the fiscal year ended June 30, 1996).
10(ff) -- Amended and Restated Multicurrency Revolving Credit
Agreement, dated as of March 18, 1997, between the Company
and The First National Bank of Boston as Agent and other
lenders referred to therein (incorporated by reference to
Exhibit 10(w) to Form 10-K for the fiscal year ended June
30, 1997).
10(gg) -- Second Amendment, dated as of February 20, 1998, to the
Amended and Restated Multicurrency Revolving Credit
Agreement, dated as of March 18, 1997, between the Company
and BankBoston, N.A. and other lending institutions
(incorporated by reference to Exhibit 21 to Form 10-K/A for
the fiscal year ended June 30, 1998).
12 -- Computation of Ratio of Earnings to Fixed Charges.
21 -- List of Subsidiaries of the Company (incorporated by
reference to Exhibit 21 to Form 10-K/A for the fiscal year
ended June 30, 1998).
23(a) -- Consent of PricewaterhouseCoopers LLP, Independent Certified
Public Accountants.
23(b) -- Consent of Ernst & Young LLP, Independent Certified Public
Accountants (reference to Exhibit 23(a) to Form S-8 Nos.
2-19339, 33-26786, 33-38753, 33-54626 and 33-58299).
23(c) -- Consent of Ernst & Young LLP, Independent Certified Public
Accountants (reference to Exhibit 23(b) to Form S-4/A No.
33-51957).
27 -- Financial Data Schedule (EDGAR version only).
</TABLE>
(b) Reports on Form 8-K:
On August 9, 1999, the Company filed a current report on Form 8-K with
respect to the resignation and retirement of Mr. Robert A. Vanourek as
President and Chief Executive Officer, and the appointment of Mr. Per-Olof
Loof to those positions effective August 23, 1999.
63
<PAGE> 65
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized, on September 28, 1999.
SENSORMATIC ELECTRONICS
CORPORATION
By: /s/ GARRETT E. PIERCE
------------------------------------
Garrett E. Pierce
Senior Vice President, Chief
Administrative
Officer and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Company and in
the capacities indicated on September 28, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ PER-OLOF LOOF President and Chief Executive Officer
- ----------------------------------------------------- (Principal Executive Officer) and Director
Per-Olof Loof
/s/ GARRETT E. PIERCE Senior Vice President, Chief Administrative
- ----------------------------------------------------- Officer and Chief Financial Officer
Garrett E. Pierce (Principal Financial Officer)
/s/ GREGORY C. THOMPSON Vice President and Controller (Principal
- ----------------------------------------------------- Accounting Officer)
Gregory C. Thompson
/s/ RONALD G. ASSAF Chairman of the Board of Directors
- -----------------------------------------------------
Ronald G. Assaf
/s/ THOMAS V. BUFFETT Director
- -----------------------------------------------------
Thomas V. Buffett
/s/ TIMOTHY P. HARTMAN Director
- -----------------------------------------------------
Timothy P. Hartman
Director
- -----------------------------------------------------
Fred A. Breidenbach
/s/ JAMES E. LINEBERGER Director
- -----------------------------------------------------
James E. Lineberger
Director
- -----------------------------------------------------
J. Richard Munro
/s/ JOHN T. RAY, JR. Director
- -----------------------------------------------------
John T. Ray, Jr.
</TABLE>
64
<PAGE> 66
SCHEDULE II
SENSORMATIC ELECTRONICS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDING JUNE 30, 1999, 1998, AND 1997
(In millions)
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ -------
<S> <C> <C> <C>
Balance, beginning of period................................ $ 59.1 $ 63.8 $ 62.8
Additions charged to income(1).............................. 22.4 23.4 27.2
Amounts written off......................................... (32.8) (22.4) (28.7)
Other (including currency translation)...................... (1.4) (5.7) 2.5
------ ------ ------
Balance, end of period...................................... $ 47.3 $ 59.1 $ 63.8
====== ====== ======
</TABLE>
ALLOWANCE FOR INVENTORY LOSSES
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Balance, beginning of period................................ $ 32.8 $ 29.1 $ 38.0
Additions charged to income(1).............................. 11.5 11.7 11.6
Inventory write-downs related to restructuring
activities(2)............................................. -- -- 4.2
Amounts written off......................................... (15.5) (7.6) (19.2)
Other (including currency translation)...................... (0.4) (0.4) (5.5)
------ ------ ------
Balance, end of period...................................... $ 28.4 $ 32.8 $ 29.1
====== ====== ======
</TABLE>
- ---------------
(1) Includes incremental charges discussed in Item 7. Management's Discussion
and Analysis of Results of Operations and Financial Condition of the Form
10-K for fiscal 1999.
(2) Refer to Note 2 of the Notes to the Consolidated Financial Statements for
discussion of restructuring charges.
65
<PAGE> 1
Exhibit 10(o)
AMENDMENT
AMENDMENT NO. 1, dated as of August 5, 1999, to the Agreement, dated as
of September 1, 1998, between SENSORMATIC ELECTRONICS CORPORATION, a Delaware
corporation ("Sensormatic"), and Ronald G. Assaf ("Director").
W I T N E S S E T H:
WHEREAS, the parties hereto wish to amend and clarify the Agreement in
relation to medical insurance benefits as hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the parties hereto agree as follows:
A new Section 2A is hereby added to the Agreement as follows:
2A. MEDICAL INSURANCE BENEFITS. Sensormatic currently provides
to Director group medical and group dental plans in which Director and
his eligible dependents are participants. Sensormatic hereby agrees
that there shall be no material reduction in any such currently
provided benefits (and there shall be no material reduction in any
additional benefits subsequently approved by Sensormatic's Board of
Directors or any Committee thereof) during the pendency of an Attempted
Change in Control or in the event of a Change in Control or at any time
within 36 months after a Change in Control has occurred. Nothing in
this Agreement shall be deemed to require Sensormatic to continue any
such benefits or to prohibit Sensormatic from modifying any such
benefits in any respect, although it is anticipated that such benefits
(together with any such additional benefits) shall continue to be
provided to Director on the same or a substantially similar basis in
the future in accordance with the terms of the applicable benefit plans
and policies.
Except as expressly set forth in this Amendment, nothing contained
herein shall be deemed to alter, change, waive, amend or otherwise modify any
provision of the Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first set forth above.
SENSORMATIC ELECTRONICS
CORPORATION
Director: By: /s/ Walter A. Engdahl
-----------------------------------------
Name: Walter A. Engdahl
Title: Vice President - Corporate Counsel
/s/ Ronald G. Assaf
- -------------------
Ronald G. Assaf
<PAGE> 1
Exhibit 10(r)
AMENDMENT
AMENDMENT NO. 1, dated as of August 5, 1999, to the Agreement, dated as
of September 1, 1998, between SENSORMATIC ELECTRONICS CORPORATION, a Delaware
corporation ("Sensormatic"), and Thomas V. Buffett ("Director").
W I T N E S S E T H:
WHEREAS, the parties hereto wish to amend and clarify the Agreement in
relation to medical insurance benefits as hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the parties hereto agree as follows:
A new Section 3A is hereby added to the Agreement as follows:
3A. MEDICAL INSURANCE BENEFITS. Sensormatic currently provides
to Director group medical and group dental plans in which Director and
his eligible dependents are participants. Sensormatic hereby agrees
that there shall be no material reduction in any such currently
provided benefits (and there shall be no material reduction in any
additional benefits subsequently approved by Sensormatic's Board of
Directors or any Committee thereof) during the pendency of an Attempted
Change in Control or in the event of a Change in Control or at any time
within 36 months after a Change in Control has occurred. Nothing in
this Agreement shall be deemed to require Sensormatic to continue any
such benefits or to prohibit Sensormatic from modifying any such
benefits in any respect, although it is anticipated that such benefits
(together with any such additional benefits) shall continue to be
provided to Director on the same or a substantially similar basis in
the future in accordance with the terms of the applicable benefit plans
and policies.
Except as expressly set forth in this Amendment, nothing contained
herein shall be deemed to alter, change, waive, amend or otherwise modify any
provision of the Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first set forth above.
SENSORMATIC ELECTRONICS
CORPORATION
Director: By: /s/ Walter A. Engdahl
---------------------------------------
Name: Walter A. Engdahl
Title: Vice President-Corporate Counsel
/s/ Thomas V. Buffett
- ---------------------------------------
Thomas V. Buffett
<PAGE> 2
AMENDMENT
AMENDMENT NO. 1, dated as of August 5, 1999, to the Agreement, dated as
of September 1, 1998, between SENSORMATIC ELECTRONICS CORPORATION, a Delaware
corporation ("Sensormatic"), and Timothy P. Hartman ("Director").
W I T N E S S E T H:
WHEREAS, the parties hereto wish to amend and clarify the Agreement in
relation to medical insurance benefits as hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the parties hereto agree as follows:
A new Section 3A is hereby added to the Agreement as follows:
3A. MEDICAL INSURANCE BENEFITS. Sensormatic currently provides
to Director group medical and group dental plans in which Director and
his eligible dependents are participants. Sensormatic hereby agrees
that there shall be no material reduction in any such currently
provided benefits (and there shall be no material reduction in any
additional benefits subsequently approved by Sensormatic's Board of
Directors or any Committee thereof) during the pendency of an Attempted
Change in Control or in the event of a Change in Control or at any time
within 36 months after a Change in Control has occurred. Nothing in
this Agreement shall be deemed to require Sensormatic to continue any
such benefits or to prohibit Sensormatic from modifying any such
benefits in any respect, although it is anticipated that such benefits
(together with any such additional benefits) shall continue to be
provided to Director on the same or a substantially similar basis in
the future in accordance with the terms of the applicable benefit plans
and policies.
Except as expressly set forth in this Amendment, nothing contained
herein shall be deemed to alter, change, waive, amend or otherwise modify any
provision of the Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first set forth above.
SENSORMATIC ELECTRONICS
CORPORATION
Director: By: /s/ Walter A. Engdahl
----------------------------------------
Name: Walter A. Engdahl
Title:Vice President - Corporate Counsel
/s/ Timothy P. Hartman
- ----------------------
Timothy P. Hartman
<PAGE> 3
AMENDMENT
AMENDMENT NO. 1, dated as of August 5, 1999, to the Agreement, dated as
of September 1, 1998, between SENSORMATIC ELECTRONICS CORPORATION, a Delaware
corporation ("Sensormatic"), and John T. Ray, Jr. ("Director").
W I T N E S S E T H:
WHEREAS, the parties hereto wish to amend and clarify the Agreement in
relation to medical insurance benefits as hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the parties hereto agree as follows:
A new Section 3A is hereby added to the Agreement as follows:
3A. MEDICAL INSURANCE BENEFITS. Sensormatic currently provides
to Director group medical and group dental plans in which Director and
his eligible dependents are participants. Sensormatic hereby agrees
that there shall be no material reduction in any such currently
provided benefits (and there shall be no material reduction in any
additional benefits subsequently approved by Sensormatic's Board of
Directors or any Committee thereof) during the pendency of an Attempted
Change in Control or in the event of a Change in Control or at any time
within 36 months after a Change in Control has occurred. Nothing in
this Agreement shall be deemed to require Sensormatic to continue any
such benefits or to prohibit Sensormatic from modifying any such
benefits in any respect, although it is anticipated that such benefits
(together with any such additional benefits) shall continue to be
provided to Director on the same or a substantially similar basis in
the future in accordance with the terms of the applicable benefit plans
and policies.
Except as expressly set forth in this Amendment, nothing contained
herein shall be deemed to alter, change, waive, amend or otherwise modify any
provision of the Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first set forth above.
SENSORMATIC ELECTRONICS
CORPORATION
Director: By: /s/ Walter A. Engdahl
-----------------------------------------
Name: Walter A. Engdahl
Title: Vice President - Corporate Counsel
/s/ John T. Ray, Jr.
- -----------------------------------------
John T. Ray, Jr.
<PAGE> 1
Exhibit 10(s)
AMENDMENT
AMENDMENT NO. 1, dated as of August 5, 1999, to the Agreement, dated as
of September 1, 1998, between SENSORMATIC ELECTRONICS CORPORATION, a Delaware
corporation ("Sensormatic"), and Fred A. Breidenbach ("Director").
W I T N E S S E T H:
WHEREAS, the parties hereto wish to amend and clarify the Agreement in
relation to medical insurance benefits as hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the parties hereto agree as follows:
A new Section 3A is hereby added to the Agreement as follows:
3A. MEDICAL INSURANCE BENEFITS. Sensormatic currently provides
to Director group medical and group dental plans in which Director and
his eligible dependents are participants. Sensormatic hereby agrees
that there shall be no material reduction in any such currently
provided benefits (and there shall be no material reduction in any
additional benefits subsequently approved by Sensormatic's Board of
Directors or any Committee thereof) during the pendency of an Attempted
Change in Control or in the event of a Change in Control or at any time
within 36 months after a Change in Control has occurred. Nothing in
this Agreement shall be deemed to require Sensormatic to continue any
such benefits or to prohibit Sensormatic from modifying any such
benefits in any respect, although it is anticipated that such benefits
(together with any such additional benefits) shall continue to be
provided to Director on the same or a substantially similar basis in
the future in accordance with the terms of the applicable benefit plans
and policies.
Except as expressly set forth in this Amendment, nothing contained
herein shall be deemed to alter, change, waive, amend or otherwise modify any
provision of the Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first set forth above.
SENSORMATIC ELECTRONICS
CORPORATION
Director: By: /s/ Walter A. Engdahl
--------------------------------------
Name: Walter A. Engdahl
Title: Vice President - Corporate Counsel
/s/ Fred A. Breidenbach
- --------------------------------------
Fred A. Breidenbach
<PAGE> 2
AMENDMENT
AMENDMENT NO. 1, dated as of August 5, 1999, to the Agreement, dated as
of September 1, 1998, between SENSORMATIC ELECTRONICS CORPORATION, a Delaware
corporation ("Sensormatic"), and J. Richard Munro ("Director").
W I T N E S S E T H:
WHEREAS, the parties hereto wish to amend and clarify the Agreement in
relation to medical insurance benefits as hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the parties hereto agree as follows:
A new Section 3A is hereby added to the Agreement as follows:
3A. MEDICAL INSURANCE BENEFITS. Sensormatic currently provides
to Director group medical and group dental plans in which Director and
his eligible dependents are participants. Sensormatic hereby agrees
that there shall be no material reduction in any such currently
provided benefits (and there shall be no material reduction in any
additional benefits subsequently approved by Sensormatic's Board of
Directors or any Committee thereof) during the pendency of an Attempted
Change in Control or in the event of a Change in Control or at any time
within 36 months after a Change in Control has occurred. Nothing in
this Agreement shall be deemed to require Sensormatic to continue any
such benefits or to prohibit Sensormatic from modifying any such
benefits in any respect, although it is anticipated that such benefits
(together with any such additional benefits) shall continue to be
provided to Director on the same or a substantially similar basis in
the future in accordance with the terms of the applicable benefit plans
and policies.
Except as expressly set forth in this Amendment, nothing contained
herein shall be deemed to alter, change, waive, amend or otherwise modify any
provision of the Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first set forth above.
SENSORMATIC ELECTRONICS
CORPORATION
Director: By: /s/ Walter A. Engdahl
-----------------------------------------
Name: Walter A. Engdahl
Title: Vice President - Corporate Counsel
/S/ J. Richard Munro
- --------------------
J. Richard Munro
<PAGE> 1
Exhibit 10(x)
EMPLOYMENT AGREEMENT
AGREEMENT, made as of the 23rd day of August, 1999, by and between
SENSORMATIC ELECTRONICS CORPORATION, a Delaware corporation having its principal
place of business at 951 Yamato Road, Boca Raton, Florida 33431 (hereinafter
referred to as the "Corporation"), and PER-OLOF LOOF, residing at 20281 Boca
West Drive, #2202, Boca Raton, Florida 33434 (hereinafter referred to as the
"Employee");
W I T N E S S E T H:
WHEREAS, the Corporation desires to employ the Employee as its
President and Chief Executive Officer, and the Employee is willing to accept
such employment, all subject to the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
1. EMPLOYMENT AND TERM. Subject to the terms and conditions hereof, the
Corporation hereby employs the Employee, and the Employee hereby accepts
employment by the Corporation, for an initial term of four years commencing on
August 23, 1999 and continuing thereafter, subject to termination by either
party, with or without cause, by giving written notice to the other party in
accordance with and subject to Section 4 or Section 5 hereunder (the "Term of
Employment").
2. DUTIES. The Employee shall serve the Corporation as a member of its
Board of Directors and shall hold the offices of President and Chief Executive
Officer or shall serve in such other executive capacity as may be reasonably
determined by the Board of Directors and is reasonably acceptable to him. The
Employee shall perform such executive, administrative and other services and
duties as are incidental to the offices he holds and as may, from time to time,
be assigned to him by the Board of Directors of the Corporation or a committee
thereof. The Employee further agrees to serve as an officer and/or director of
any parent, subsidiary or affiliate of the Corporation, upon request by the
Board of Directors of the Corporation or a committee thereof. During the term of
this Agreement, the Employee shall devote substantially all of his business
time, attention and energies to the business of the Corporation. Neither the
Employee's participation in other businesses, as a director or otherwise, with
the approval of the Corporation's Board of Directors (which approval shall be
deemed to include the Board of Directors not objecting to such participation
following disclosure thereof to the Board of Directors by Employee, and which
approval may not subsequently be withdrawn without cause) nor the Employee's
engaging in charitable activities and community affairs or managing his personal
investments and affairs shall be deemed to contravene the foregoing provision.
-1-
<PAGE> 2
3. COMPENSATION.
(a) As base compensation for the services to be rendered by the
Employee hereunder, the Corporation shall pay to the Employee a salary at the
rate of $495,000 per annum, to be paid in equal biweekly installments, during
the Term of Employment. The base salary shall be reviewed no less frequently
than annually for increase in the discretion of the Board of Directors of the
Corporation or a committee thereof.
(b) The Corporation shall pay the Employee bonus compensation, based
upon certain performance criteria, as shall be established by the Board of
Directors and agreed to by the Employee for each fiscal year during the Term of
Employment. Targeted bonus compensation will be set at approximately 65% of
annual base salary per fiscal year. For the 12 months following the commencement
of the Employee's employment, Employee's bonus compensation shall be a
guaranteed minimum of $325,000 prorated between the fiscal year ending June 30,
2000 and the fiscal year ending June 30, 2001, based on the respective portions
of such fiscal years that he is employed (subject to Employee's continued
employment through such period in accordance with the terms of this Agreement).
Bonus compensation shall be payable within ninety (90) days following the end of
the Corporation's fiscal year during the Term of Employment.
(c) During the Term of Employment, the Employee shall be entitled to
reimbursement for all normal and reasonable travel, entertainment and other
expenses necessarily incurred by him in the performance of his obligations
hereunder.
(d) Until the time of his retirement, and thereafter in accordance with
their respective terms, the Employee shall be entitled to participate in or
benefit from such medical insurance, pension, retirement, life insurance, bonus,
profit-sharing, stock option, stock purchase, stock purchase loan, and other
fringe benefit plans or policies as the Corporation may make available to or
have in effect for its executive personnel from time to time. The Employee shall
also be entitled to vacations, sick leave and other fringe benefits in
accordance with the policies of the Corporation from time to time in effect for
executive personnel.
During the Term of Employment the Corporation shall provide and
maintain for the Employee's use an automobile of his reasonable choice. The
Corporation shall also provide for the payment of such country club/golf club
fees and airline club room fees as are necessary or advisable for the Employee's
professional activities, including the entertainment of business
associates/clients.
(e) Except as hereinafter provided, the Corporation shall pay the
Employee, for any period during the Term of Employment during which he is unable
fully to perform his duties because of physical or mental disability or
incapacity, an amount equal to the compensation due him for such period in
accordance with this Agreement less the aggregate amount of all income
disability benefits which for such period he may receive or to which he may be
entitled under or by reason of (i) any group health insurance plan; (ii) any
applicable compulsory state disability law; (iii) the Federal Social Security
Act and/or any other governmental plan or program; (iv) any applicable workmen's
compensation law or similar law; and (v) any plan towards which the Corporation
or any parent, subsidiary or affiliate of the Corporation has contributed or for
which it has made payroll deductions, such as group accident or health policies,
but not including the SERP (as hereinafter defined) (collectively, ADisability
Benefits@).
-2-
<PAGE> 3
(f) During the Employee's employment hereunder, and thereafter upon
retirement in accordance with such Plan, the Employee shall be entitled to
participate in the Corporation's Supplemental Executive Retirement Plan for
officers (the "SERP"). Under the SERP, the Employee's target retirement benefit,
assuming retirement at age 62, would be 50% of the average of the Employee's
last three years' cash compensation (base salary plus annual incentive bonus).
The Employee's benefits under the SERP shall vest 50% after three years, 75%
after four years and 100% after five years of service. Benefits under the SERP
are earned ratably over the years of employment remaining until the Employee
reaches age 62, and are payable for a 15-year period.
(g) Upon the commencement of the Employee's employment, the Corporation
shall grant him a 10-year option to purchase 375,000 shares of common stock of
the Corporation under the Corporation's 1999 Stock Incentive Plan at an exercise
price equal to the fair market value on the date of the commencement of his
employment. Such option shall vest and become exercisable as to 33% of the
shares on each of the first, second and third anniversaries of such date. The
Employee shall also be entitled to participate in future stock option grants
made by the Corporation under its regular option program for executives, as
determined by the Board of Directors or a committee thereof or under the
relevant plans.
(h) The Employee shall be entitled to participate in the Corporation's
Success Sharing Program, Long-Term Incentive Plan, with a target benefit and
other terms and conditions to be determined by the Board of Directors or a
committee thereof.
(i) The Employee shall be entitled to the benefits of the Corporation's
full international relocation package.
(j) To facilitate the Employee's purchase of a home in the Boca Raton,
Florida area, the Corporation shall lend $1,000,000 to the Employee, interest
free, upon his request in connection with such purchase. Conditioned on the
continuation of the Employee's employment with the Corporation, such loan shall
be forgiven at the rate of 25% per year, effective on each of the first four
anniversaries of the commencement of the Employee's employment.
4. COMPENSATION UPON TERMINATION.
(a) The Employee may terminate the Term of Employment at any time by
giving at least three (3) month's prior written notice to the Corporation. If
the Employee provides less than three (3) months' notice, he shall not be
entitled to any bonus compensation for the fiscal year in which termination
occurs. In the event that the Term of Employment is terminated pursuant to this
Section 4(a), the Employee shall be entitled only to any base salary and any
other amounts earned or accrued by or otherwise owing to the Employee but not
yet paid as of the date of termination, a pro rata for the portion of the
current fiscal through the date of termination (subject to the preceding
sentence), and any other benefits to which the Employee or his beneficiaries may
be entitled under the applicable benefit plans and policies of the Corporation.
(b) The Corporation may terminate the Term of Employment at any time by
giving at least 30 days' prior written notice to the Employee, if without cause,
or effective immediately on notice,
-3-
<PAGE> 4
if with cause (after compliance with the provisions of Section 5). In the event
of such termination by the Corporation (except pursuant to Section 5 hereunder),
and subject to the Employee's continued compliance with Sections 6, 7 and 8, the
Employee shall be entitled to:
(i) base salary through the date of termination of his
employment;
(ii) base salary, at the annualized rate in effect on the date
of termination of employment (or in the event a reduction in base
salary is the basis for a termination pursuant to Section 4(c) below,
then the base salary in effect immediately prior to such reduction),
for the balance of the initial four-year term of this Agreement, or for
a period of 24 months following such termination, whichever period is
longer (the "Continuation Period"), payable at the same regular
intervals as in effect prior to the termination;
(iii) an annual bonus for the fiscal year in which termination
occurs and each subsequent full fiscal year during the Continuation
Period, in an amount equal to the targeted bonus for the year in which
termination occurs, payable annually at the applicable time under
Section 3(b);
(iv) a prorated such bonus for any portion of the Continuation
Period following the end of the last fiscal year referred to in clause
(iii) above, payable within sixty (60) days after the end of the
Continuation Period;
(v) forgiveness of any unpaid principal amount under the loan
referred to in Section 3(j), effective on the date of termination;
(vi) any other amounts earned, accrued or owing to the
Employee but not yet paid as of the date of termination; and
(vii) continued participation in all medical, dental,
hospitalization and life insurance coverage plans or programs in which
he was participating on the date of the termination of his employment
until the end of the Continuation Period; provided that the
Corporation's obligations under this clause shall be reduced to the
extent that the Employee is eligible for similar coverage and benefits
under the plans and programs of a subsequent employer or has similar
coverage under a governmental plan.
(c) In the event that any of the following events occur, the Employee
may terminate the Term of Employment by giving 30 days' prior written notice to
the Corporation, and if the event giving rise to such right has not been cured
within such 30-day period, the Employee shall thereupon be entitled to the
payments, entitlements and benefits provided in Section 4(b) above as if the
Corporation had terminated the Term of Employment pursuant to Section 4(b)
above:
(i) a reduction in the Employee's then current base salary or
targeted bonus or the termination or material reduction of any employee
benefit or perquisite to which he is then entitled (other than as part
of an across-the-board reduction of such benefit or perquisite
applicable to executive officers of the Corporation generally);
(ii) the failure to continue the Employee as Chief Executive
Officer and a director of the Corporation or removal of him from either
such position;
-4-
<PAGE> 5
(iii) a material diminution in the Employee's duties or the
assignment to the Employee of duties which are materially inconsistent
with his duties or which materially impair the Employee's ability to
function as the Chief Executive Officer of the Corporation; or
(iv) the failure of the Corporation to obtain the assumption
in writing of its obligation to perform this Agreement by any successor
to all or substantially all of the assets of the Corporation within 15
days after a merger, consolidation, sale or similar transaction.
(d) In the event that the aggregate of all payments or benefits made or
provided to the Employee following a change in control of the Corporation under
this Agreement and under all other plans and programs of the Corporation (the
"Aggregate Payment") is determined to include an excess parachute payment, as
such term is defined in Section 280G(b)(1) of the Internal Revenue Code, the
Corporation shall pay to the Employee, prior to the time any excise tax imposed
by Section 4999 of the Internal Revenue Code ("Excise Tax") is payable with
respect to such excess parachute payment, an additional amount which, after the
imposition of all income and excise taxes thereon, is equal to the Excise Tax on
the excess parachute payment. The determination of whether the Aggregate Payment
includes an excess parachute payment and, if so, the amount to be paid to the
Employee and the time of payment pursuant to this Section 4(d) shall be made by
an independent auditor (the "Auditor") jointly selected by the Corporation and
the Employee and paid by the Corporation. The Auditor shall be a nationally
recognized United States public accounting firm which has not, during the two
years preceding the date of its selection, acted in any way on behalf of the
Corporation or any affiliate thereof. If the Employee and the Corporation cannot
agree on the firm to serve as the Auditor, then the Employee and the Corporation
shall each select one accounting firm and those two firms shall jointly select
the accounting firm to serve as the Auditor.
(e) In the event of any termination of employment under this Section 4,
the Employee shall be under no obligation to seek other employment and there
shall be no offset against amounts due the Employee under this Agreement on
account of any remuneration attributable to any subsequent employment that he
may obtain except as specifically provided in this Section 4.
5. TERMINATION FOR CERTAIN CAUSES. (a) Notwithstanding anything to the
contrary set forth elsewhere herein, in the event of the willful misconduct of
the Employee in the performance of his duties hereunder resulting in material
economic harm to the Corporation or the conviction of the Employee for a felony
under federal or state law relating to the assets, business or affairs of the
Corporation or involving moral turpitude, the Term of Employment may be
terminated by the Corporation by written notice to the Employee, provided that
the Employee shall be given prior written notice by the Board of Directors of
the intention to terminate him for cause and the specific grounds for such
termination. The Employee shall be entitled to a hearing before the Board before
such termination becomes effective. In the event that the Term of Employment is
terminated pursuant to this Section 5(a), the Employee shall be entitled only to
any base salary and any other amounts earned or accrued by or owing to the
Employee but not yet paid as of the date of termination.
(b) In the event that the Employee, due to physical or mental
disability or incapacity, is unable to substantially perform his duties
hereunder for a period of six or more successive months, or for six months in
any 12-month period, the Corporation or the Employee shall have the right to
terminate the Term of Employment hereunder upon 30 days' prior written notice.
In the event that the Employee is able to and recommences rendering services and
performing his duties hereunder within such 30-day notice period, the Employee
shall be reinstated and such notice shall be without further force or effect. If
the Employee dies during the term of this Agreement, the Term of Employment
shall
-5-
<PAGE> 6
terminate immediately upon his death. In the event that the Term of Employment
is terminated pursuant to this Section 5(b), the Employee shall be entitled to
receive the payments and benefits contemplated by Section 4(b) as if the Term of
Employment were terminated by the Corporation other than for cause, PROVIDED,
that any amounts payable thereunder shall be reduced by the aggregate amount of
any Disability Benefits which the Employee may receive or to which he may be
entitled, in the case of termination for disability, and by any death benefits
payable to his beneficiaries pursuant to any plan (other than the SERP or other
option or savings plans) to which the Corporation has contributed or for which
it has made payroll deductions, such as group accident, health or life insurance
policies, in the case of termination upon death.
6. DISCLOSURE AND ASSIGNMENT OF DISCOVERIES. The Employee shall
(without any additional compensation) promptly disclose in writing to the Board
of Directors of the Corporation all ideas, formulae, programs, systems, devices,
processes, business concepts, discoveries and inventions (hereinafter referred
to collectively as "discoveries") whether or not patentable, which the Employee,
while employed by the Corporation, conceives, makes, develops, acquires or
reduces to practice, whether alone or with others and whether during or after
usual working hours, and which are related to the Corporation's business or
interests, or are used or usable by the Corporation; and the Employee hereby
transfers and assigns to the Corporation all right, title and interest in and to
said discoveries, including any and all domestic and foreign patent rights
therein and any renewals thereof. On request of the Corporation, the Employee
shall (without any additional compensation), from time to time during or after
the expiration or termination of his employment, execute such further
instruments (including, without limitation, applications for letters patent and
assignments thereof) and do all such other acts and things as may be deemed
necessary or desirable by the Corporation to protect and/or enforce its rights
in respect of said discoveries. All expenses of filing or prosecuting any patent
applications shall be borne by the Corporation, but the Employee shall cooperate
in filing and/or prosecuting any such applications.
7. CONFIDENTIALITY. The Employee agrees that all patent rights,
inventions, technical information and know-how and trade secrets relating to the
Corporation's electronic security systems and any other products marketed by the
Corporation, any information relating thereto, and any other information
relating to the business or interests of the Corporation which he knows or
should know, is regarded as confidential and valuable by the Corporation
(whether or not any of the foregoing information is actually novel or unique or
is actually known to others), made available to the Employee by the Corporation
or acquired by the Employee from the Corporation, other than that which legally
and legitimately is or becomes of general public knowledge or passes into the
public domain from authorized sources other than the Employee, will be held in
confidence and will not be divulged (or caused or permitted to be divulged) by
the Employee, without the prior written consent of the Corporation, to any
person or entity, except to responsible officers and employees of the
Corporation and other responsible persons who are in a contractual or fiduciary
relationship with the Corporation or who have a need for such information for
purposes in the interest of the Corporation or otherwise in the course of
carrying out his duties hereunder and except when required to disclose such
information by a court of law, by any governmental agency having supervisory
authority over the business of the Company or by any administrative or
legislative body (including a committee thereof) with the apparent jurisdiction
to order him to divulge, disclose or make accessible such information. The
Employee further agrees that his obligations of secrecy and confidentiality
under this Section 7 shall survive any termination of this Agreement unless
specifically waived in writing by the Corporation and, in the event of any such
termination, the Employee shall never use or market, nor disclose to others nor
assist others in using or marketing, any of the information or property rights
of the Corporation referred to in this Section 7, other than that which legally
and legitimately is or becomes of general public knowledge or
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passes into the public domain from authorized sources other than the Employee.
8. NON-COMPETITION. The Employee shall not, directly or indirectly,
(a) engage in the business of manufacturing, leasing, selling,
maintaining, or servicing, anywhere in the world, anti-shoplifting, theft
detection, inventory/asset control, closed circuit television, access control,
or article surveillance devices which are similar to or purport to accomplish
results similar to the Corporation's electronic article surveillance, closed
circuit television and access control systems and other products marketed by the
Corporation;
(b) otherwise engage in competition with the Corporation;
(c) solicit or attempt to solicit business of any customers of the
Corporation for products or services the same or similar to those offered, sold,
produced or under development by the Corporation during the Term of Employment;
(d) solicit or attempt to solicit for any business endeavor any
employee of the Corporation; or
(e) render any services as an officer, director, employee, partner,
consultant or otherwise to, or have any interest as a stockholder, partner,
lender or otherwise in, any person which is engaged in any activities described
under clauses (a) through (d) above;
during the Term of Employment and for a period of two (2) years from and after
the date of termination of the Term of Employment (or, if longer, during the
term of the Continuation Period), or for such lesser area or lesser period as
may be determined by a court of law or equity to be a reasonable limitation on
the competitive activity of the Employee, it being understood and agreed by the
parties hereto that this provision is reasonably necessary to protect the patent
rights, inventions, technical information and know-how, trademarks and the good
will and reputation of the Corporation. For the purpose of Section 7 and this
Section 8, the term "Corporation" shall include any and all affiliates of the
Corporation in existence from time to time. Notwithstanding anything to the
contrary contained in this Section 8, the provisions hereof shall not prevent
the Employee from purchasing or owning up to two (2%) percent of the voting
securities of any corporation, the stock of which is publicly traded.
9. INJUNCTIVE RELIEF. In the event of a breach or threatened breach by
the Employee of any of the provisions of Sections 6, 7 and 8, the Corporation
shall be entitled, if it shall so elect, to institute legal proceedings to
obtain damages or to enforce the specific performance of such provisions by the
Employee and to enjoin the Employee from any further violation of such
provisions and to exercise such remedies cumulatively or in conjunction with all
other rights and remedies provided by law. The Employee acknowledges, however,
that the remedies at law for any breach or threatened breach by him of such
provisions may be inadequate and that the Corporation shall be entitled to
injunctive relief against him in the event of any breach or threatened breach.
10. ENTIRE AGREEMENT. This Agreement supersedes all prior agreements
and understandings between the parties pertaining to the subject matter hereof
and may not be changed or terminated orally, and no change, termination or
attempted waiver of any of the provisions hereof shall be binding unless in
writing and signed by the party against whom the same is sought to be enforced;
provided, however, that the Employee's compensation and/or benefits may be
increased at any
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<PAGE> 8
time by the Corporation without in any way affecting any of the other terms and
conditions of this Agreement, which in all other respects shall remain in full
force and effect.
11. SUCCESSORS AND ASSIGNS. Neither party shall have the right to
assign this personal Agreement, or any rights or obligations hereunder, without
the consent of the other party, provided, however, that upon the sale of all or
substantially all of the assets, business and goodwill of the Corporation to
another corporation, or upon the merger or consolidation of the Corporation with
another corporation, this Agreement shall inure to the benefit of, and be
binding upon, both the Employee and the corporation purchasing such assets,
business and goodwill, or surviving such merger or consolidation, as the case
may be, in the same manner and to the same extent as though such other
corporation were the Corporation. In the event of a sale, merger or
consolidation described in the preceding sentence, the Corporation shall take
whatever action it legally can in order to cause such other corporation to
expressly assume the liabilities, obligations and duties of the Corporation
hereunder. Subject to the foregoing, this Agreement shall inure to the benefit
of, and bind, the parties hereto and their legal representatives, heirs,
successors and assigns.
12. GOVERNING LAW. This Agreement is made and executed and shall be
governed by the laws of the State of Florida, without giving effect to choice of
law principles.
13. INDEMNIFICATION.
(a) The Corporation agrees that if the Employee is made a party, or is
threatened to be made a party, to any action, suit or proceeding, whether civil,
criminal, administrative or investigative (a "Proceeding"), by reason of the
fact that he is or was a director, officer, or employee of the Corporation or is
or was serving at the request of the Corporation as a director, officer, member,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, including service with respect to employee benefit plans,
whether or not the basis of such Proceeding is the Employee's alleged action in
an official capacity while serving as a director, officer, member, employee or
agent, the Employee shall be indemnified and held harmless by the Corporation to
the fullest extent legally permitted or authorized by the Corporation's
certificate of incorporation or bylaws or resolutions of the Company's Board of
Directors or, if greater, by the laws of the State of Delaware against all cost,
expense, liability and loss (including, without limitation, attorney's fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement) reasonably incurred or suffered by the Employee in connection
therewith, and such indemnification shall continue as to the Employee even if he
has ceased to be a director, officer, member, employee or agent of the
Corporation or other entity and shall inure to the benefit of the Employee's
heirs, executors and administrators. The Corporation shall advance to the
Employee all reasonable costs and expenses incurred by him in connection with a
Proceeding within 20 days after receipt by the Corporation of a written request
for such advance. Such request shall include an undertaking by the Employee to
repay the amount of such advance if it shall ultimately be determined that he is
not entitled to be indemnified against such costs and expenses.
(b) Neither the failure of the Corporation (including its board of
directors, independent legal counsel or stockholders) to have made a
determination prior to the commencement of any Proceeding concerning payment of
amounts claimed by the Employee under Section 13(a) above that indemnification
of the Employee is proper because he has met the applicable standard of conduct,
nor a determination by the Corporation (including its board of directors,
independent legal counsel or stockholders) that the Employee has not met such
applicable standard of conduct, shall create a presumption that the Employee has
not met the applicable standard of conduct.
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<PAGE> 9
(c) The Corporation agrees to continue and maintain a directors and
officers' liability insurance policy covering the Employee to the extent the
Corporation provides such coverage for its other executive officers.
14. REPRESENTATION. The Corporation represents and warrants that it is
fully authorized and empowered by action of the Board of Directors to enter into
this Agreement and that the performance if its obligations under this Agreement
will not violate any agreement between it and any other person, firm or
organization.
15. SEVERABILITY. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, in
whole or in part, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law.
16. SURVIVORSHIP. The respective rights and obligations of the parties
hereunder shall survive any termination of the Employee's employment to the
extent necessary to the intended preservation of such rights and obligations.
17. BENEFICIARIES/REFERENCES. The Employee shall be entitled, to the
extent permitted under the applicable law, to select and change a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder following
the Employee's death by giving the Company written notice thereof. In the event
of the Employee's death or a judicial determination of his incompetence,
reference in this Agreement to the Employee shall be deemed, where appropriate,
to refer to his beneficiary, estate or other legal representative.
18. RESOLUTION OF DISPUTES. Except for disputes which are subject to
the provisions of Section 9, any disputes arising under or in connection with
this Agreement shall, at the election of the Executive or the Company, be
resolved by binding arbitration, to be held in Ft. Lauderdale, Florida in
accordance with the rules and procedures of the American Arbitration
Association. Judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. Costs of the arbitration or
litigation, including, without limitation, reasonable attorneys' fees of both
parties, shall be borne by the Corporation.
19. NOTICES. Any notice given to a party shall be in writing and shall
be deemed to have been given when delivered personally or sent by certified or
registered mail, postage prepaid, return receipt requested, duly addressed to
the party concerned at the address indicated at the beginning of this Agreement
or to such changed address as such party may subsequently give such notice of.
20. HEADINGS. The headings of the sections contained in this Agreement
are for convenience only and shall not be deemed to control or affect the
meaning or construction of any provision of this Agreement.
21. COUNTERPARTS. This Agreement may be executed in two or more
counterparts.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
SENSORMATIC ELECTRONICS CORPORATION Employee:
By:
----------------------------- -----------------------------
Name: PER-OLOF LOOF
Title:
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<PAGE> 1
Exhibit 10(y)
AGREEMENT
AGREEMENT, dated as of August 23, 1999, by and between
SENSORMATIC ELECTRONICS CORPORATION, a Delaware corporation having its principal
place of business at 951 Yamato Road, Boca Raton, Florida 33431 ("Sensormatic"),
and PER-OLOF LOOF ("Executive"), residing at 20281 Boca West Drive, Apt. #2202,
Boca Raton, Florida 33434.
W I T N E S S E T H:
WHEREAS, as of the date hereof, Executive is becoming the
President and Chief Executive Officer of Sensormatic, and Executive is expected
to make a significant contribution to the performance and growth of Sensormatic;
WHEREAS, the Board of Directors of Sensormatic recognizes
that, as is the case with many publicly-held corporations, the possibility of a
Change in Control (as defined below) exists and that such possibility, and the
uncertainty which it may raise among Sensormatic's management, may result in the
distraction or departure of management personnel to the detriment of Sensormatic
and its stockholders, particularly at a time when Sensormatic is placing heavy
demands on its management in connection with its efforts to expand its product
lines and markets, restructure its operations and reduce its expenses;
WHEREAS, the Board of Directors of Sensormatic has determined
that it is in the best interest of Sensormatic and its stockholders to provide
to Executive certain rights as to termination compensation in the event of a
Change in Control; and
WHEREAS, the Board of Directors of Sensormatic believes that
the grant of such rights to Executive will help assure Executive's continuing
dedication to his duties to Sensormatic, notwithstanding the occurrence of any
Change in Control, and, in particular, will enable Executive to objectively and
impartially assess, and advise the Board of Directors with respect to, any
proposal received by Sensormatic regarding a Change in Control and to take such
action regarding any such proposal as the Board of Directors may deem to be
appropriate;
WHEREAS, this Agreement is contemplated by the Executive's
Employment Agreement with Sensormatic dated August 23, 1999 (the "Employment
Agreement");
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the parties hereto agree as follows:
1. TERM.
(a) The term of this Agreement shall commence on the date
hereof (which for all purposes of this Agreement shall mean the date first above
written) and shall continue after a Change in Control for so long as Sensormatic
has or may have any obligations under Sections 6, 7, 8, 12, 13 or 16 hereof.
(b) Notwithstanding the provisions of Section 1(a) hereof,
this Agreement shall terminate automatically in the event of the voluntary or
involuntary termination of Executive's employment with Sensormatic prior to the
occurrence of a Change in Control, so long as, at the time of such termination
of employment, no Attempted Change in Control shall have occurred and then be
pending. Notwithstanding anything contained in this Agreement to the contrary,
if Executive's employment is terminated by Sensormatic
<PAGE> 2
prior to a Change in Control, which Change in Control occurs, and Executive
reasonably demonstrates that such termination was at the request of a third
party who effectuates such Change in Control or that such termination was
directly related to or in anticipation of such Change in Control, then for all
purposes of this Agreement, Executive shall be entitled to the payments and
other benefits provided under this Agreement, offset by any amounts previously
paid pursuant to the Employment Agreement.
2. SALARY AND BONUS. Executive's present base salary is
$495,000 per year and Executive's target bonus is deemed to be $325,000 per
year. After the date of this Agreement, Executive's annual base salary and
target bonus (subject to Section 3(b) of the Employment Agreement) may be
increased or decreased, to the extent permitted under the Employment Agreement,
as determined by Sensormatic's Board of Directors or any compensation committee
thereof, provided, however, that none of the following shall be effective during
the pendency of an Attempted Change in Control or in the event of a Change in
Control or at any time within 36 months after a Change in Control has occurred:
(i) any decrease in Executive's annual base salary or target bonus from the
amounts set forth above (or any greater amounts subsequently so determined and
approved), (ii) any decrease in the actual amount paid to Executive as a bonus
from the amount of the bonus actually paid for the most recently concluded
fiscal year (except to the extent that such actual amount paid in the
then-current fiscal year exceeds 150% of the greater of the target bonus then in
effect or $325,000), or (iii) any change in the formula then in effect for
calculation of Executive's bonus that could be reasonably anticipated to result
in a decrease in the amount payable thereunder.
3. FRINGE BENEFITS. Sensormatic currently provides to
Executive the fringe benefits listed below, without cost to Executive, and,
while nothing in this Agreement shall be deemed to require Sensormatic to
continue any such benefits or to prohibit Sensormatic from modifying any such
benefits in any respect (subject to the express terms of the Employment
Agreement, as applicable), except that there shall be no material reduction in
any such currently provided benefits (and there shall be no material reduction
in any additional benefits subsequently approved by Sensormatic's Board of
Directors or any committee thereof) during the pendency of an Attempted Change
in Control or in the event of a Change in Control or at any time within 36
months after a Change in Control has occurred (and, in addition, there shall
not, at any time following a Change in Control, be any change in Sensormatic's
Senior Executive Defined Contribution Retirement Plan or any similar or
successor plan (the "Senior Executive Plan", which shall include, for all
purposes of this Agreement, any Senior Executive Defined Contribution Retirement
Agreement between Sensormatic and Executive under such Plan) resulting in a
reduction of Executive's benefits thereunder), it is anticipated that such
benefits (together with any such additional benefits) shall continue to be
provided to Executive on the same or a substantially similar basis in the future
in accordance with the terms of the applicable benefit plans and policies: [NOTE
- -- CHECK CURRENT APPLICABILITY OF BENEFITS LISTED BELOW]
(a) group medical and group dental plans in which Executive
and his eligible dependents are participants;
(b) life insurance on Executive's life and accidental death
and dismemberment insurance, each equal to two times Executive's annual
base salary (but not to exceed $1,000,000 or such greater amount as may
be established by Sensormatic for such purposes from time to time);
(c) participation in Sensormatic's retirement and/or profit
sharing plans (including the Senior Executive Plan) and in
Sensormatic's annual contributions, if any, thereto, provided that such
participation is contingent on Executive's continued qualification
prior to any such Change in Control
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<PAGE> 3
or Attempted Change in Control as an eligible participant under the
provisions of such plans as then in effect and on Executive's election
to continue his participation in such plans;
(d) the use of a Sensormatic owned or leased automobile and
comprehensive insurance protection on such vehicle;
(e) disability income protection in an amount equal to not
less than 60% of his annual base salary and target bonus;
(f) payment of such country club/golf fees and airline club
room fees as are necessary or advisable for Executive's professional
activities, including the entertainment of business associates/clients,
and commensurate with those provided to him under his Employment
Agreement as of the date this Agreement;
(g) reimbursement of Executive for reasonable travel and
entertainment expenses incurred by Executive in connection with the
business of Sensormatic; and
(h) the provision to Executive of office space befitting
Executive's position, secretarial help, and access to telephone
service, including WATS lines.
Further, Sensormatic expects that, during the term of this Agreement, and so
long as Executive continues to be employed by Sensormatic, Executive's position
shall continue to be located in Palm Beach County or Broward County, Florida,
and that the duties and responsibilities of Executive's position shall not be
significantly diminished.
4. EMPLOYMENT COMMITMENT. As partial consideration for the
benefits available to Executive under this Agreement, Executive hereby agrees to
remain as an officer and employee of Sensormatic during any Attempted Change in
Control and for a period of six months immediately after a Change in Control
first occurs (the "Commitment Period"), and during the Commitment Period to
devote substantially all his business time and efforts to the business and
affairs of Sensormatic, provided that Executive shall be entitled to terminate
his employment by Sensormatic during an Attempted Change in Control or at any
time following a Change in Control in circumstances which constitute an
involuntary termination pursuant to Section 10 hereof. Neither Executive's
participation in other businesses, as a director or otherwise, with the approval
of Sensormatic's Board of Directors (which approval shall be deemed to include
the Board of Directors not objecting to such participation following disclosure
thereof to the Board of Directors by Executive, and which approval may not be
withdrawn following such Change in Control), nor Executive's engaging in
charitable activities and community affairs or managing his personal investments
and affairs, shall be deemed to contravene the foregoing provision. In the event
that Executive voluntarily terminates his employment with Sensormatic (other
than by resignation contemplated in Section 10 hereof) at any time during the
Commitment Period, Executive shall not be entitled to any of the benefits
provided for in this Agreement, other than those provided under Sections 6(a),
6(b), 6(c), 6(d), 7(a)(ii), 12, 13 and 16 hereof, and shall promptly repay to
Sensormatic, on an after-tax basis, any benefits previously received by him
pursuant to any provisions of Sections 6 or 7 of this Agreement not referred to
in this sentence, but Sensormatic shall have no other remedy for Executive's
failure to remain an employee and officer as required by this Section 4. Any
amounts or benefits received by Executive pursuant to the Employment Agreement
or any other compensation plan or arrangement of Sensormatic, even if similar or
identical to those to which
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<PAGE> 4
he would be entitled under this Agreement, shall not be deemed received pursuant
to this Agreement or be repayable to Sensormatic for purposes of the preceding
sentence.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, the term "Change in
Control" shall mean a change in control of Sensormatic of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
provided, that, without limitation, such a change in control shall be deemed to
have occurred if (i) any person (as such term is used in Sections 13(d) and
14(d) of the Exchange Act, "Person") is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act, "Beneficial Owner"), directly or
indirectly, of securities of Sensormatic representing 30% or more of the
combined voting power of Sensormatic's then outstanding voting securities, (ii)
Sensormatic consummates a merger, consolidation, share exchange, division or
other reorganization of Sensormatic with any other corporation or entity, unless
the shareholders of Sensormatic immediately prior to such transaction
beneficially own, directly or indirectly, (A) if Sensormatic is the surviving
corporation in such transaction, 60% or more of the combined voting power of
Sensormatic's outstanding voting securities as well as 60% or more of the total
market value of Sensormatic's outstanding equity securities, (B) if Sensormatic
is not the surviving corporation, 80% or more of the combined voting power of
the surviving entity's outstanding voting securities as well as 80% or more of
the total market value of such entity's outstanding equity securities, or (C) in
the case of a division, 80% or more of the combined voting power of the
outstanding voting securities of each entity resulting from the division as well
as 80% or more of the total market value of each such entity's outstanding
equity securities, in each case in substantially the same proportion as such
shareholders owned shares of Sensormatic prior to such transaction; (iii)
Sensormatic adopts a plan of complete liquidation or winding-up of Sensormatic;
(iv) the shareholders of Sensormatic approve an agreement for the sale or
disposition (in one transaction or a series of transactions) of all or
substantially all of Sensormatic's assets; or (v) during any period of 24
consecutive months, individuals (y) who at the beginning of such period
constitute the Board of Directors of Sensormatic or (z) whose election,
appointment or nomination for election was approved prior to such election or
appointment by a vote of at least two-thirds of the directors in office
immediately prior to such election or appointment who were directors at the
beginning of such two-year period (other than any directors who prior to the
Change in Control were associated or affiliated with any Person involved with
any Change in Control or Attempted Change in Control), cease for any reason to
constitute at least three-fourths of the Board of Directors of Sensormatic.
(b) For purposes of this Agreement, an "Attempted Change in
Control" shall be deemed to have occurred (i) if any Person files (or fails to
file when required to do so) with the Securities and Exchange Commission (the
"SEC") a Statement on Schedule 13D relating to voting securities of Sensormatic
(A) disclosing the acquisition of 10% or more thereof or (B) while disclosing
the acquisition of less than 10% of such voting securities, indicates an
intention to effect any of the transactions listed in Item 4 of Schedule 13D or
otherwise to effect a Change in Control, (ii) upon the public announcement
(including, without limitation, the filing with the SEC of a Statement on
Schedule 14D-1) by any Person of an intention to make a tender offer or
otherwise to effect a Change in Control, (iii) in the event of any solicitation
of proxies for the election of directors of Sensormatic pursuant to Rule 14a-11
of the Rules and Regulations under the Exchange Act or the filing of a Statement
on Schedule 14B in anticipation thereof, (iv) the receipt by Sensormatic from
any Person of any other communication proposing, or indicating an intention, to
effect a Change in Control by the acquisition of voting securities of
Sensormatic, the solicitation of proxies for the election of directors or
otherwise or (v) if the Board of Directors of Sensormatic or an authorized
committee thereof otherwise determines that an Attempted Change in Control is
pending. The termination of the pendency of an Attempted Change in Control shall
be determined by the Board of Directors of Sensormatic (or an authorized
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<PAGE> 5
committee thereof); PROVIDED, that any Attempted Change in Control shall in any
event be deemed to have terminated upon the occurrence of a Change in Control.
(c) A Change in Control shall be deemed, for purposes of this
Agreement, to be: (i) "non-approved" if (A) in connection with the consideration
thereof by the Board of Directors of Sensormatic, a majority of the Previous
Members of the Board of Directors (as defined below), either before or after
such Change in Control, (x) votes to disapprove of such Change in Control, (y)
votes to approve of such Change in Control, but as a consequence of the
existence of a competing proposal for a Change in Control, or (z) otherwise
expressly declares that such Change in Control is "non-approved", or (B) a
majority of the Previous Members of the Board of Directors neither expressly
approves nor disapproves of such Change in Control, or (ii) "approved" if in
connection with the consideration thereof by the Board of Directors of
Sensormatic, a majority of the Previous Members of the Board of Directors,
either before or after such Change in Control, (x) approves of such Change in
Control (other than as a consequence of the existence of a competing proposal
for a Change of Control) or (y) otherwise expressly declares that such Change in
Control is "approved", notwithstanding clause (A)(y) of this Section 5(c). The
majority of the Previous Members of the Board of Directors shall indicate its
approval or disapproval of a Change in Control by a statement or statements in
writing to such effect. For purposes of this Agreement, Previous Members of the
Board of Directors shall mean members of the Board of Directors of Sensormatic
as of the date of a Change in Control (the first Change in Control, if there are
more than one) who had been in office for a period of at least two years
immediately prior to such Change in Control (other than directors who prior to
such Change in Control were appointed or elected as directors as a consequence
of their association or affiliation with any Person effecting such Change in
Control).
In addition, notwithstanding any previous determination that a
Change in Control was "approved", such Change in Control may subsequently be
determined, in good faith, to be "non-approved" by a majority of the Previous
Members of the Board of Directors who are then still in office with Sensormatic
or a corporate successor of Sensormatic (or if fewer than two such Previous
Members of the Board of Directors are still in office, then by a majority of the
Previous Members of the Board of Directors, whether or not still in office)
within the 36-month period immediately following such Change in Control, if
during such period there occur (1) events of the types referred to in Section 10
hereof with respect to individuals who were officers of Sensormatic at the time
of the Change in Control, (2) defaults by Sensormatic under this Agreement or
any similar agreement, (3) the involuntary termination (other than for cause or
in the event of death or permanent disability) of the employment of a number of
the officers of Sensormatic who were officers immediately prior to such Change
in Control exceeding 40% of the total number of such officers, or (4) the
transfer (by sale, merger or otherwise) of all or substantially all the equity
securities of Sensormatic acquired by the Person effecting such Change in
Control, of all or substantially all the assets of Sensormatic, or of all or
substantially all the equity securities of Sensormatic's successor corporation,
directly or indirectly, to a third party (other than a majority owned affiliate
of such Person). In the event of such a subsequent determination, Executive
shall be entitled to all benefits arising under this Agreement out of a
"non-approved" Change in Control as if such Change in Control had been deemed
"non-approved" initially. Any additional benefits arising out of such
"non-approved" Change in Control which Executive is entitled to receive through
the date of such determination shall be paid or satisfied promptly by
Sensormatic. For purposes of this Section 5(c), the term "officers" shall not
include individuals whose only office with Sensormatic is Assistant Secretary or
Assistant Treasurer.
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(d) For the purposes of this Section 5, references to
provisions of the Exchange Act and rules, regulations and schedules thereunder
shall be to such provisions as they are in effect and interpreted as of the date
of this Agreement.
6. BENEFITS EFFECTIVE UPON A CHANGE IN CONTROL. In the event a
Change in Control occurs, Executive shall be entitled to the following benefits:
(a) All stock options issued by Sensormatic to Executive,
whether or not then exercisable, shall remain fully exercisable or shall become
fully exercisable immediately (or, notwithstanding the foregoing, in the event
of an Attempted Change in Control involving a proposed Reorganization Event (as
such term is defined in Section 6(b) hereof)), such options shall become fully
exercisable thirty days before the date of such Reorganization Event, and such
options shall remain outstanding and fully exercisable for the stated term
thereof or until the later of (i) nine months following the voluntary or
involuntary termination of Executive's employment with Sensormatic (or, at the
option of Executive, in the case of an incentive stock option, three months
following such termination) or (ii) the end of the respective post-termination
exercisability periods provided for in such options (including if applicable,
such periods in the event of death or disability); PROVIDED, that in no event
shall the term of such options be extended beyond their respective original
terms. In addition, any deferred vesting or forfeiture provisions applicable to
any shares of Sensormatic stock awarded to or otherwise held by Executive shall
be without further force or effect, and Executive shall have the unrestricted
right to such shares.
(b) In the event that (i) such Change in Control is effected
through (A) a tender or exchange offer (a "Tender Offer") or (B) any means, in
one or more transactions, with the result in either case that any Person becomes
the Beneficial Owner, directly or indirectly, of securities of Sensormatic
representing 50% or more of the combined voting power of Sensormatic's then
outstanding voting securities (any such Change in Control referred to in this
clause (i), including pursuant to a Tender Offer, being hereinafter referred to
as a "Majority Acquisition"), (ii) in connection with, as a result of or within
24 months immediately following a Change in Control, Sensormatic's Board of
Directors shall have approved a merger, consolidation, reclassification,
reorganization, dissolution, sale of all or substantially all of the assets of
Sensormatic or similar event (a "Reorganization Event") as a result of which
Sensormatic's Common Stock would cease to be outstanding or (iii) in connection
with, as a result of or within 24 months immediately following a Change in
Control, Sensormatic's Common Stock ceases to be listed for trading on a
national securities exchange or quoted through NASDAQ or a comparable securities
quotation system, Executive shall have the right, exercisable by written notice
given at any time during the 13-month period immediately following the date of
such Change in Control (and, if later, the date of any such Majority
Acquisition, Reorganization Event or cessation of listing or quotation), to
require Sensormatic to purchase:
(1) any or all of such stock options issued by Sensormatic to
Executive, whether or not then exercisable, and/or any stock options
issued upon conversion of or in exchange for any such Sensormatic stock
options pursuant to any such Reorganization Event ("Conversion
Options"), at a purchase price equal to the excess of the aggregate
Fair Market Value (as defined below) of the shares of Sensormatic
Common Stock subject to such Sensormatic stock options over the
aggregate exercise price of such stock options (or, in the case of any
Conversion Options, such amount calculated with respect to the
Sensormatic stock options which were converted into or exchanged for
such Conversion Options); and/or
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(2) any or all shares of Sensormatic Common Stock held by
Executive at or immediately prior to the date of such Change in Control
(including any shares of Sensormatic Common Stock (restricted or
otherwise, and whether or not vested) awarded to Executive pursuant to
any compensation plan or arrangement of Sensormatic) or issued pursuant
to the exercise of any such Sensormatic stock options following the
date of such Change in Control, and/or (without duplication) any shares
or other securities issued upon conversion of or in exchange for any
such shares of Common Stock pursuant to any such Reorganization Event
("Conversion Shares"), at a purchase price equal to the aggregate Fair
Market Value of such shares (or, in the case of any Conversion Shares
issued upon conversion of or in exchange for Common Stock, the Fair
Market Value of the shares of Common Stock which were converted into or
exchanged for such Conversion Shares); provided, that Sensormatic may
offset against the amount so payable for Common Stock or Conversion
Shares all amounts outstanding on any loans made to Executive for the
purchase of, or payment of taxes relating to, such shares of Common
Stock or Conversion Shares, as contemplated by Section 6(c) hereof or
otherwise.
Payment for any such options or shares shall be made by Sensormatic within 10
days after Executive's surrender of any such options, and/or within 10 days
after Executive's surrender of the certificates representing any such shares of
Common Stock or Conversion Shares (or, if such certificates are in Sensormatic's
possession, within 10 days after Executive's notice of exercise under this
Section 6(b)).
For purposes of this Section 6(b), the "Fair Market Value" of
a share of Sensormatic Common Stock means the highest fair market value per
share of Sensormatic Common Stock of the consideration paid in any transaction
by any Person who effects such Change in Control, in connection therewith,
whether through open market purchases, Tender Offers, Reorganization Events,
private transactions or otherwise.
(c) Upon Executive's request, Sensormatic shall lend to
Executive, interest free, up to an amount equal to the aggregate exercise price
of the options referred to in Section 6(a) hereof, should Executive elect to
exercise such options. If requested by Executive, Sensormatic shall also lend to
Executive, interest free (or, at Executive's option, provide a guaranty to
enable Executive to borrow), up to an amount equal to the percentage specified
in Section 6(d)(i) times the Share Income (as such term is defined in such
Section) resulting from such exercise and/or vesting. Such loan or loans shall
be due and payable to Sensormatic upon the earliest of (i) the fifth anniversary
date of such loan or loans, (ii) in the event that Executive's employment with
Sensormatic terminates, other than termination by Sensormatic for Cause (as
defined in Section 9 hereof, "Cause"), upon the expiration of 30 months
following such termination, or in the event that Executive's employment is
terminated by Sensormatic for Cause, upon the expiration of 30 days after such
termination, or (iii) promptly (but in any event within five (5) business days)
after receipt of the proceeds of sale from the sale of such shares, to the
extent of the loan or loans applicable to such sold shares. Executive shall
deposit such shares with Sensormatic as security for any such loan, if
Sensormatic shall so request. Notwithstanding anything to the contrary contained
in this Section 6(c), Sensormatic's Stock Purchase Loan Plan or any promissory
note or security agreement executed by Executive pursuant to such Plan, no
additional collateral shall be required by Sensormatic in connection with any
such loan to Executive, and, if necessary to be in compliance with applicable
margin regulations under federal laws, such loans shall be unsecured; and if,
because of Internal Revenue Service rules or other rules, Sensormatic is unable
to lend such funds to Executive interest free and without any imputation of
interest, Sensormatic shall pay Executive a dollar amount of additional
compensation which shall equal the amount of interest required to be charged in
order to avoid such imputation in such instances and Executive shall then pay
Sensormatic the rate of interest on such loan required by law to avoid
imputation.
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(d) (i) If a Majority Acquisition shall have occurred or if,
in connection with, as a result of or within 24 months immediately
following a Change in Control, either a Reorganization Event shall have
occurred or Sensormatic's Common Stock ceases to be listed for trading
on a national securities exchange or quoted through NASDAQ or a
comparable securities quotation system, then Executive shall have the
right, exercisable during the period and in the manner described in
Section 6(d)(ii) hereof, to require Sensormatic to purchase any or all
of Executive's Option Acquired Shares and Award Shares (as defined
below), and/or any or all Conversion Shares issued with respect to any
Option Acquired Shares or Award Shares. The price at which Executive
shall be entitled to sell any Option Acquired Share to Sensormatic
under this Section 6(d)(i) shall equal the sum of (A) the option
exercise price paid (including payments made by promissory notes issued
under Sensormatic's Stock Purchase Loan Plan or otherwise) by Executive
in acquiring such share, plus (B) an amount equal to a percentage,
determined as provided below in this clause (i), of the difference
between such option exercise price and the Market Value of a share of
Sensormatic Common Stock on the date the share was acquired. The price
at which Executive shall be entitled to sell any Award Share under this
Section 6(d)(i) shall be equal to the Market Value (as defined below)
of such share on the date Executive's right to such share vested,
multiplied by the percentage determined as provided below in this
clause (i). The price at which Executive shall be entitled to sell any
Conversion Shares pursuant to this Section 6(d)(i) shall be calculated
as set forth above with respect to Option Acquired Shares or Award
Shares, as applicable, based upon the purchase price, date of purchase
and Market Value of any Option Acquired Shares, and the vesting date
and Market Value of any Award Shares, which were converted into or
exchanged for any such Conversion Shares sold. The percentage referred
to in this Section 6(d)(i) shall be equal to the sum of (1) the highest
marginal net rate of income tax (federal, state and local) applicable
to an individual residing where the Executive resided at the time the
Executive reported income ("Share Income") with respect to the Option
Acquired Shares or Award Shares, as the case may be plus (2) the
Medicare employee tax rate, plus (3) a percentage equal to (x) that
part, if any, of the Share Income that was actually subject to employee
Social Security tax, multiplied by (y) the social security employee tax
rate, divided by (z) the total Share Income (in each case as applicable
at the time such share was purchased by Executive, in the case of any
Option Acquired Shares, or at the time Executive's right to such share
vested, in the case of any Award Shares). The purchase price payable by
Sensormatic shall in all events be equitably adjusted to reflect any
stock dividends, stock splits, extraordinary dividends or similar
events since the date of acquisition by Executive of any such shares.
For purposes of this Section 6(d), the term "Option Acquired
Shares" shall mean shares of Sensormatic Common Stock acquired by
Executive upon exercise of options granted to Executive, the term
"Award Shares" shall mean shares of Sensormatic Common Stock awarded to
Executive pursuant to Sensormatic's Stock Incentive Plan or any other
compensation plan or arrangement of Sensormatic, other than pursuant to
the exercise of options, and the term "Market Value" shall mean the
average of the high and low sales prices of a share of such Common
Stock on the applicable date (or most recent date on which one or more
sales occurred) as reported through NASDAQ or the principal exchange on
which such Common Stock was listed for trading.
(ii) Executive may exercise his right to sell Option
Acquired Shares, Award Shares and/or Conversion Shares under this
Section 6(d) at any time within 13 months following any of the events
specified in the first sentence of Section 6(d)(i) hereof by giving
written notice of such exercise to Sensormatic, which notice shall set
forth the Option Acquired Shares, Award Shares and/or Conversion Shares
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to be sold, the exercise price paid by Executive in acquiring any such
Option Acquired Shares or Conversion Shares, the highest marginal tax
rates applicable for purposes of the respective calculations specified
in Section 6(d)(i) hereof and the Market Value of the Common Stock or
Conversion Shares, as applicable, on each date that any applicable
Option Acquired Shares or Conversion Shares to be sold were purchased
by Executive or Executive's right to any applicable Award Shares
vested, as the case may be. The information set forth in such notice
shall be presumed to be correct.
(iii) In addition to the purchase price for the Option
Acquired Shares, Award Shares or Conversion Shares being sold to
Sensormatic under this Section 6(d), Sensormatic shall pay to Executive
an amount (the "Tax Payment") equal to a percentage (determined
pursuant to the following sentence) of the excess, if any, of (A) the
product of the number of such Option Acquired Shares, Award Shares
and/or Conversion Shares being sold multiplied by the Market Value of a
share of Sensormatic Common Stock or Conversion Shares, as applicable,
on the Purchase Date, as such term is defined in Section 6(d)(iv)
hereof, or such other value of a share of Sensormatic Common Stock or
Conversion Shares as may be required to be used to determine the
amount, if any, recognizable as ordinary income arising out of the sale
of such shares to Sensormatic, over (B) the aggregate purchase price
for all such Option Acquired Shares, Award Shares and/or Conversion
Shares being sold by Executive. The percentage referred to in the
preceding sentence shall be determined in accordance with Section
6(d)(i) hereof as applicable on the Purchase Date.
(iv) Within 10 days after Executive's surrender of the
certificates representing any such Option Acquired Shares, Award Shares
and/or Conversion Shares or, if such certificates are in Sensormatic's
possession, within 10 days after Executive's notice of exercise under
this Section 6(d) (the "Purchase Date"), Sensormatic shall purchase the
Option Acquired Shares, Award Shares and/or Conversion Shares referred
to in such notice by paying to Executive (subject to offset as provided
in the following sentence) the full purchase price thereof, as
calculated under Section 6(d)(i) hereof, plus the Tax Payment
applicable thereto. Sensormatic may offset against payment of any or
all of such purchase price and the related Tax Payment all or a portion
of any indebtedness of Executive then outstanding under Sensormatic's
Stock Purchase Loan Plan attributable to any Option Acquired Shares
and/or Conversion Shares sold to Sensormatic hereunder.
(v) Executive's rights under this Section 6(d) are
independent of and not limited by, and do not constitute any limitation
of, Executive's rights under Section 6(b) hereof. Executive may
exercise any rights under either Section 6(b) hereof or this Section
6(d), in whole or in part (but without duplication), in Executive's
sole discretion.
(e) (i) Subject to Section 4 hereof, if either a Majority
Acquisition occurs or, in connection with, as a result of or within 24
months following a Change in Control, a Reorganization Event occurs,
then Sensormatic shall pay to Executive (irrespective of whether he is
then employed by Sensormatic or its successor; PROVIDED, HOWEVER, that
in the event that Executive voluntarily terminates his employment with
Sensormatic (other than by resignation contemplated by Section 10
hereof) prior to the occurrence of the event giving rise to the right
to receive the cash bonus payment provided for in this Section 6(e),
Executive shall have no right to receive such bonus payment), within
thirty days after the effective date of such Majority Acquisition or
Reorganization Event, as the case may be, a cash bonus payment equal to
a percentage (determined pursuant to Sections 6(e)(ii) and 6(e)(iii)
hereof) of Executive's Special Bonus Base (as defined below).
Executive's Special Bonus Base shall equal four times the greater of
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(A) the sum of Executive's annual base salary in effect at the end of
the last full month preceding the first public announcement relating to
the proposed Majority Acquisition or Reorganization Event, as the case
may be, plus the bonus paid to Executive by Sensormatic with respect to
the most recently completed fiscal year of Sensormatic prior to such
month, or (B) the sum of Executive's annual base salary and target
bonus as specified in Section 2 hereof.
(ii) The percentage of the Special Bonus Base which
Executive shall be entitled to receive under this Section 6(e) shall be
calculated on the basis of the Premium (as defined below) paid or
offered to holders of Sensormatic's Common Stock in connection with a
Majority Acquisition or Reorganization Event. Premium shall mean the
percentage which results from dividing (A) the amount by which the
Event Value (as defined below) exceeds the Pre-Event Share Price (as
defined below), by (B) the Pre-Event Share Price. The Pre-Event Share
Price shall be equal to the average of the closing sales prices (or if
there is no sales price, the last bid price) for a share of
Sensormatic's Common Stock, as such prices are reported through NASDAQ
or the principal exchange on which such shares are listed for trading,
on the last business day of each week during the twenty-six weeks
immediately preceding the first to occur of (x) the first public
announcement relating to any proposed Change in Control or
Reorganization Event, or (y) any event resulting in the pendency of an
Attempted Change in Control which culminates, directly or indirectly,
in the Change in Control giving rise to Executive's rights under this
Section 6(e). In the case of any Reorganization Event or Tender Offer,
or combination or series of Reorganization Events and/or Tender Offers,
"Event Value" shall mean the fair market value of the consideration
paid per share of Sensormatic Common Stock pursuant to such
Reorganization Event or Tender Offer determined as of the effective
date of the Reorganization Event or of the consummation of the Tender
Offer, as the case may be, provided that in the event that different
prices are paid per share of Sensormatic Common Stock pursuant to such
Reorganization Event, Tender Offer or any combination or series
thereof, the Event Value shall be equal to the fair market value of the
aggregate consideration paid pursuant to all such Tender Offers and/or
Reorganization Events (determined as of the dates set forth above)
divided by the number of shares of Sensormatic Common Stock purchased
pursuant to all such Tender Offers and/or Reorganization Events. In
case of any other transaction or series of transactions giving rise to
the right of Executive to receive the bonus provided for in this
Section 6(e), "Event Value" shall mean the highest fair market value of
the consideration paid per share of Sensormatic Common Stock pursuant
to any such transaction, determined as of the date of payment
thereunder. The determination of Event Value shall be conclusively made
by an investment banking firm selected by the Previous Members of the
Board of Directors who are not entitled to receive bonuses under this
Section 6(e) or analogous provisions of other agreements; PROVIDED,
that in the event that the Previous Members of the Board of Directors
fail to make such selection within 45 days after consummation of the
transaction giving rise to the right to rights under this Section 6(e),
or the selected investment banking firm fails to make such a
determination within an additional 90 days, Event Value shall be
determined by arbitration under Section 17. Sensormatic shall pay all
fees and expenses of any such investment banker.
(iii) The percentage of the Special Bonus Base which
Executive shall be entitled to receive as a bonus under this Section
6(e) shall be 20% if the Premium is at least 20% and shall increase by
3.2% for each one percent (and by a fraction of 3.2% for each fraction
of one percent) by which the Premium exceeds 20%. For example, if the
Premium were 30%, Executive would be entitled to a bonus of 52% of the
Special Bonus Base; if the Premium were 40.5%, Executive would be
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entitled to a bonus of 85.6% of the Special Bonus Base; and if the
Premium were 50%, Executive would be entitled to a bonus of 116% of the
Special Bonus Base. The maximum bonus which Executive shall be entitled
to receive is 167% of the Special Bonus Base. No bonus shall be payable
pursuant to this Section 6(e) if the Premium is less than 20%.
7. BENEFITS ON TERMINATION.
(a) TERMINATION AT ANY TIME AFTER CHANGE IN CONTROL. In the
event of any termination, other than termination by Sensormatic for Cause, of
Executive's employment with Sensormatic at any time following a Change in
Control, Executive shall be entitled to the following benefits:
(i) Subject to Section 4 hereof, Sensormatic shall, as soon
as practicable, pay to Executive a lump sum payment equal to the amount
of any then unvested interest which Executive may have had on the date
of such Change in Control (less any amount of such interest
subsequently vested), and as supplemented thereafter through the date
of such termination, in Sensormatic's profit sharing, ESOP or other
retirement plans (other than the Senior Executive Plan); and
(ii) Unless a trust or other arrangement previously
determined in writing to be satisfactory by a majority of the Previous
Members of the Board of Directors (as defined below) then in office
assuring payment of benefits to or for the benefit of Executive under
Sensormatic's Senior Executive Plan in the event of a Change in Control
has been previously established and is then in effect, Sensormatic
shall take such steps as are necessary, within 30 days after such
termination, to fully fund all of Executive's benefits under such Plan
(after giving effect to the change in control provisions of such Plan)
through paid-up insurance, annuity contracts and/or other similar
means, so that the ultimate payment of benefits (at a rate not less
than the greater of the rates in effect under such Plan at the date of
such termination or immediately after such Change in Control) upon
Executive's attaining retirement age under such Plan or upon his
earlier death or disability (as defined in such Plan) (despite
Executive's no longer being employed by Sensormatic) shall be assured
beyond any reasonable doubt; PROVIDED, HOWEVER, that either such manner
of funding shall be structured so as not to constitute "constructive
receipt" by Executive of the benefits in question for income tax
purposes, or the benefits in question shall be paid out in a lump sum,
discounted to present value in the manner provided in Section 8(a). In
addition, following any such termination which is involuntary, any
noncompetition provisions included in such Plan shall have no force or
effect.
(b) INVOLUNTARY TERMINATION WITHIN 36 MONTHS AFTER CHANGE IN
CONTROL. In the event of the involuntary termination (other than for Cause) of
Executive's employment with Sensormatic within the 36-month period immediately
following a Change in Control:
(i) Executive shall be entitled to receive, for each of the
36 months immediately following the effective date of such termination
and irrespective of whether Executive commences new employment within
such period, the greatest of (A) 1/12 of the amount of Executive's most
recent rate of annual base salary, plus 1/12 of Executive's most recent
annual bonus, (B) 1/12 of Executive's annual base salary and target
bonus in effect immediately prior to the date of such Change in Control
or (C) 1/12 of Executive's annual base salary and target bonus as
specified in Section 2 hereof;
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(ii) During that portion of the period set forth in Section
7(b)(i) hereof during which Executive has not commenced new regular,
full time employment,
(x) Sensormatic shall continue to provide to
Executive the fringe benefits enumerated in Sections 3(a),
(b), (c), (e) and (f) hereof on at least the same basis as in
effect immediately prior to the Change in Control, and shall,
if requested by Executive, provide Executive with office space
appropriate for his level and in close proximity to the office
he occupied at the time of the Change in Control, secretarial
help and local and long distance telephone service; and
(y) Sensormatic shall provide Executive with
appropriate out-placement services, including counseling and
traveling expenses to such outplacement services, when
necessary, as well as to potential job interviews when not
paid by the potential employer, all without charge to
Executive;
(iii) Within 30 days after such termination, Sensormatic
shall pay to Executive an amount equal to his PRO RATA annual bonus for
the year in which termination occurs, based on the target bonus for
such year; and
(iv) On the date of such termination, ownership of the car
which Sensormatic was providing to Executive shall immediately be
transferred to Executive free and clear of any liens or other
obligations, if such car is then owned by Sensormatic. If such car is
then leased, rather than owned, by Sensormatic, Executive shall
continue to have the use of such car and Sensormatic shall continue to
pay all lease payments and insurance premiums with respect thereto
until the end of the then existing term, at which time Sensormatic
shall purchase such car and shall transfer title to such car to
Executive.
(c) VOLUNTARY TERMINATION WITHIN 24 MONTHS AFTER CHANGE IN
CONTROL. Subject to Section 4 hereof, in the event of Executive's voluntary
termination of employment with Sensormatic (other than by resignation
contemplated in Section 10 hereof) within the 24-month period immediately
following a Change in Control:
(i) Executive shall be entitled to receive, for each of the
24 months immediately following the effective date of such termination
and irrespective of whether Executive commences new employment within
such period, the greatest of (A) 1/12 of the amount of Executive's most
recent rate of annual base salary, plus 1/12 of Executive's most recent
annual bonus, (B) 1/12 of Executive's annual base salary and target
bonus in effect immediately prior to the date of such Change in Control
or (C) 1/12 of Executive's annual base salary and target bonus as
specified in Section 2 hereof; and
(ii) During that portion of the period set forth in Section
7(c)(i) hereof during which Executive has not commenced new regular,
full time employment, Executive shall be entitled to the benefits set
forth in Section 7(b)(ii) hereof; and
(iii) Within 30 days after such termination, Sensormatic
shall pay to Executive an amount equal to his PRO RATA annual bonus for
the year in which termination occurs, based on the target bonus for
such year; and
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(iv) Executive shall be entitled to the benefits set forth
in Section 7(b)(iv) hereof.
(d) CONSULTING SERVICES. For a period of one year following
Executive's voluntary termination (other than by resignation contemplated in
Section 10 hereof or in Section 4(c) of the Employment Agreement (or the
corresponding provision of any successor agreement)), following an "approved"
Change in Control, of his employment with Sensormatic in which Executive
receives payments under Section 7(c)(i) hereof, or, if shorter, the period
beginning on the date of such termination and ending six months after the
appointment of a new chief executive officer (other than an interim or acting
chief executive officer) (the "Payment Period"), Executive agrees to make
himself available at the executive offices of Sensormatic in Palm Beach County
or Broward County, Florida to advise and consult with Sensormatic with respect
to matters specified by the chief executive officer or Board of Directors of
Sensormatic and appropriate for a former chief executive officer or chief
operating officer. Executive shall perform such services at such times as are
(i) reasonably requested by the chief executive officer or Board of Directors of
Sensormatic, (ii) reasonably acceptable to Executive and (iii) consistent with
Executive's duties and obligations in the course of his then occupation or
employment, if any. Executive shall use reasonable efforts to comply with such
requests to perform up to 250 hours of such services during the Payment Period.
(e) In the event of any termination of Executive's employment
to which this Section 7 is applicable, Executive shall be under no obligation to
seek other employment and there shall be no offset against amounts due Executive
under this Agreement on account of any remuneration attributable to any
subsequent employment that he may obtain, except as expressly set forth in this
Section 7.
8. BENEFITS ON DEATH OR DISABILITY.
(a) In the event of Executive's death at any time within 36
months after a Change in Control and prior to any termination of Executive's
employment, or in the event that Executive had died prior to a Change in Control
and that as of the date of such Change in Control there remain outstanding
amounts payable under Sensormatic's Senior Executive Plan for Executive, unless
in either case a trust or other arrangement previously determined in writing to
be satisfactory by a majority of the Previous Members of the Board of Directors
then in office assuring payment of benefits to or for the benefit of the
Executive under such Plan in the event of a Change in Control has been
previously established and is then in effect, Sensormatic shall promptly pay to
Executive's designated beneficiary or Executive's heirs, executors,
administrators or personal representatives (collectively, "Successors") all of
the remaining benefits under such Plan to which Executive's Successors are then
entitled, in the form of a lump sum payment equal to the amount of such benefits
discounted to present value using an interest rate equal to the rate published
by Pension Benefit Guaranty Corporation for the purpose of discounting pension
benefits to present value in the event of a lump sum prepayment thereof, as then
in effect, but such discount rate shall in no event be greater than ten percent
(10%) PER ANNUM.
(b) In the event of Executive's death or permanent and total
disability (within the meaning of Section 22(e)(3) of the Internal Revenue Code
of 1986, as amended and in effect and interpreted as of the date of this
Agreement) at any time within the 24-month period immediately following a Change
in Control and prior to any termination of Executive's employment, Executive or
Executive's Successors shall be entitled to all of the benefits of Executive
provided under this Agreement as if Executive had voluntarily terminated his
employment with Sensormatic (but without giving effect to Section 4 hereof or to
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the loss of benefits upon voluntary termination under Section 6(e)(i) hereof),
including, without limitation, those set forth in Section 6(c) hereof.
(c) In the event of Executive's death or disability after
termination of Executive's employment with Sensormatic, Executive or Executive's
Successors shall be entitled to receive all remaining benefits to which
Executive is entitled under this Agreement.
9. TERMINATION FOR CAUSE. In the event that Executive's
employment with Sensormatic is terminated for Cause at any time after any Change
in Control, Executive shall not be entitled to any of the benefits set forth in
Sections 6, 7 or 8 of this Agreement not yet received by him, except to the
extent that Executive exercised rights prior to such termination with respect to
options, Award Shares or Conversion Shares as provided under Sections 6(a), 6(b)
and 6(d) hereof. The foregoing shall not affect any rights of Executive accrued
other than by virtue of this Agreement. For purposes of this Agreement,
Sensormatic shall be deemed to have terminated Executive's employment with
Sensormatic for Cause only if such termination is effected for any of the
following reasons:
(a) willful misconduct by Executive in the performance of
Executive's duties resulting in material economic harm to
Sensormatic; or
(b) the conviction of Executive for a felony involving moral
turpitude under federal or state law;
PROVIDED, HOWEVER, that the determination of the existence of the grounds
referred to in subparagraph (a) of this Section 9 shall be made, in good faith,
only by a majority of the Previous Members of the Board of Directors who are
then in office with Sensormatic or a corporate successor of Sensormatic,
provided that such majority shall consist of not less than two persons; and
PROVIDED, FURTHER, that Executive shall be given prior written notice by the
Board of Directors of the intention to terminate him for Cause and the specific
grounds for such termination, as determined in accordance with this Section 9,
and shall be entitled to a hearing before such Previous Members of the Board of
Directors before such termination becomes effective.
10. INVOLUNTARY TERMINATION EVENTS. By way of illustration,
and not of limitation, each of the following events shall constitute involuntary
termination of Executive's employment with Sensormatic, PROVIDED that Executive
resigns from such employment within six months following such event, but in no
case later than 36 months immediately following a Change in Control, and
PROVIDED, FURTHER, that Executive shall not have consented to such event in
writing:
(a) Executive is assigned any duties or responsibilities that
are materially inconsistent with Executive's position, office, duties,
responsibilities or status immediately prior to the date of such Change in
Control, or which materially impair Executive's ability to function as President
or Chief Executive Officer of Sensormatic, or a material change is made in
Executive's reporting responsibilities, titles or offices from those in effect
immediately prior to such Change in Control, or Executive is removed from, or is
not re-elected to, any such position or office, or as a director of Sensormatic,
following such Change in Control, unless in connection with the termination of
Executive's employment with Sensormatic for Cause or by reason of his death or
disability;
(b)(i) Executive's annual rate of salary or target bonus is
reduced below the greater of the amounts (x) paid therefor immediately preceding
the date of such Change in Control or (y) expressly set forth in Section 2
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hereof, (ii) the formula for the calculation of Executive's bonus is changed in
a manner that could reasonably be anticipated to decrease the amount payable
thereunder or (iii) any other change is made with respect to Executive's salary
or bonus that would violate Section 2;
(c) a material reduction is made in the benefits set forth in
paragraphs (a) through (i) of Section 3 hereof or to any additional benefits or
perquisites which may have been granted to Executive subsequent to the date of
this Agreement (other than changes made in benefit plans required by law or
applicable regulations thereunder), as they may be in effect immediately prior
to the date of such Change in Control, or if any increase is made in the cost to
Executive for such benefits; or
(d) Executive is transferred or required to transfer to a
location outside of a 25-mile radius of Sensormatic's then-current headquarters
in Palm Beach County or Broward County, Florida, or the principal place of
business of Sensormatic in which Executive's major duties have been carried out
is transferred to a location outside of a 25-mile radius of Sensormatic's
then-current headquarters in Palm Beach County or Broward County, Florida.
(e) Sensormatic fails to obtain the assumption in writing of
its obligation to perform this Agreement by any successor to all or
substantially all of the assets and/or business of Sensormatic within 15 days
after a Reorganization Event or any other transaction occurring in connection
with, as a result of or within 24 months following a Change in Control pursuant
to which Sensormatic is not the surviving corporation.
11. PAYMENTS. All monthly payments that Executive (or his
Successors) is entitled to receive under Sections 6 or 7 of this Agreement shall
be paid by or on behalf of Sensormatic on or before the 10th day of each month
in which payable, except that any payments required to be made under the plans
referred to in Section 7(a) hereof shall be made in accordance with the terms of
such plans. Any lump sum payable to Executive under Sections 6, 7, 8(a) or 12 of
this Agreement shall be paid by or on behalf of Sensormatic within 10 days after
Executive's right to such payment accrues, except as otherwise expressly set
forth any provision of such Sections.
12. EXCISE TAXES. In the event that the aggregate of all
payments or benefits made or provided to Executive in connection with a Change
in Control under this Agreement and under all other plans and programs of
Sensormatic (the "Aggregate Payment") is determined to constitute a Parachute
Payment, as such term is defined in Section 280G(b)(2) of the Internal Revenue
Code, as amended, or any successor provision, Sensormatic shall pay to
Executive, prior to the time any excise tax imposed by Section 4999 of the
Internal Revenue Code, as amended, or any successor provision ("Excise Tax"), is
payable with respect to such Aggregate Payment, an additional amount which,
after the imposition of all income and excise taxes thereon, is equal to the
Excise Tax on the Aggregate Payment. The determination of whether the Aggregate
Payment constitutes a Parachute Payment and, if so, the amount to be paid to
Executive and the time of payment pursuant to this Section 12 shall be made by
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an independent auditor (the "Auditor") jointly selected by Sensormatic and
Executive and paid by Sensormatic. The Auditor shall be a nationally recognized
United States public accounting firm which has not, during the two years
preceding the date of its selection, acted in any way on behalf of Sensormatic
or any affiliate thereof. If Executive and Sensormatic cannot agree on the firm
to serve as the Auditor, then Executive and Sensormatic shall each select one
nationally recognized United States accounting firm and those two firms shall
jointly select the accounting firm to serve as the Auditor. Notwithstanding the
foregoing, in the event that the amount of Executive's Excise Tax liability is
subsequently determined to be greater than the Excise Tax liability with respect
to which an initial payment to Executive under this Section 12 has been made,
Sensormatic shall pay to Executive an additional amount with respect to such
additional Excise Tax (and any interest and penalties thereon) at the time that
the amount of the actual Excise Tax liability is finally determined, such
additional amount to be calculated in the same manner as such initial payment.
Executive and Sensormatic shall cooperate with each other in connection with any
action, arbitration, suit, investigation or proceeding (collectively,
"Proceeding") relating to the existence or amount of liability for Excise Tax,
and all expenses relating to any such Proceeding (including all reasonable
attorney's fees and other expenses incurred by Executive in connection
therewith) shall be paid by Sensormatic promptly upon notice of demand from
Executive.
13. COSTS OF COLLECTION. Sensormatic agrees upon demand to pay
all costs and expenses of Executive (including, without limitation, reasonable
counsel fees and expenses) in connection with the enforcement, whether through
negotiations, arbitration or legal proceedings or otherwise, of this Agreement
and the collection of any benefits due to Executive hereunder.
14. NO EFFECT ON EMPLOYMENT. This Agreement is not, and
nothing hereby shall be deemed to create, a contract of employment between
Sensormatic and Executive. The right of Sensormatic to terminate Executive's
employment with Sensormatic or any subsidiary thereof, at any time at will or as
otherwise provided in the Employment Agreement or any other agreement between
Sensormatic and Executive, shall not be affected or limited by this Agreement
and is specifically reserved. Further, this Agreement shall not be deemed to
require Sensormatic to continue, or to continue unmodified, any benefit plan or
policy, whether or not referred to in Section 3 hereof, provided that no Change
in Control shall have occurred and no Attempted Change in Control shall have
occurred and then be pending.
15. CONFLICTS WITH OTHER AGREEMENTS. Nothing contained in or
arising out of this Agreement shall be deemed to discharge, release or modify
the obligations of Sensormatic to Executive under the provisions of the
Employment Agreement or any other agreement between them or of any plan or
program of Sensormatic, regardless of whether the subject matter of any
provision thereof is the same or similar to that of any provision of this
Agreement, the rights and remedies of Executive under this Agreement and any
other such agreement, plan or program being cumulative and not in substitution
of each other; provided, however, that nothing in this Agreement shall entitle
Executive to receive duplicative payments of salary, bonus or other benefits.
Further, nothing in this Agreement shall diminish or otherwise adversely affect
Executive's rights or benefits accruing as a consequence of his death or
disability, at any time after a Change in Control, under the terms and
conditions of the plans or programs of Sensormatic in which Executive is a
participant immediately prior to any Change in Control and any additional plan
or program of Sensormatic in which Executive is a participant at the time of
Executive's death or disability.
16. MAINTENANCE OF PLANS. Sensormatic agrees that, for not
less than 36 months after a Change in Control (whether "approved" or
"non-approved"), it shall maintain in effect the plans and programs in which
Executive is a participant immediately prior to such Change in Control (or
comparable plans and programs) to the extent necessary to assure that the rights
and benefits of Executive thereunder shall be no less favorable after such
Change in Control than immediately prior thereto, provided, that Sensormatic
shall in no event make any change in the event of or at any time after a Change
in Control in the Senior Executive Plan resulting in a reduction of Executive's
benefits thereunder.
17. ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement shall be settled by arbitration before the American
Arbitration Association in Miami, Florida, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. Judgment upon the
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award rendered by the arbitrators may be entered in any court having
jurisdiction thereof. Any costs, including, without limitation, attorneys' fees
and disbursements, incurred by Executive in such arbitration or in connection
with any appeal therefrom or any action brought to enforce or collect any such
award or judgment thereon, shall be reimbursed by Sensormatic, provided, that
Sensormatic shall not be required to reimburse Executive hereunder in the event
that the arbitral panel or appeals court finds that Executive's claims and/or
defenses are substantially without reasonable basis.
18. SURVIVAL. This Agreement shall be binding on, enforceable
against and inure to the benefit of Executive and his heirs, executors,
administrators, personal representatives, successors and assigns and Sensormatic
and its successors and assigns, including, without limitation, any corporation
with or into which Sensormatic is merged or consolidated, or any entity which
acquires all or substantially all of the business and assets of Sensormatic, in
connection with any Change in Control. In connection with any sale, merger or
consolidation described in the preceding sentence, Sensormatic shall take all
actions permissible under applicable law in order to cause such other
corporation to expressly assume Sensormatic's liabilities, obligations and
duties hereunder.
19. NOTICES. Any notice given to a party pursuant to or in
connection with this Agreement shall be in writing and shall be deemed to have
been given when delivered personally or sent by Federal Express or a similar
overnight courier service or by certified or registered mail, postage prepaid,
return receipt requested, duly addressed to the party concerned at the address
indicated at the beginning of this Agreement or to such changed address as such
party may subsequently give such notice of.
20. SEVERABILITY. If any provision of this Agreement is found
to be invalid or unenforceable by a court of competent jurisdiction or an
arbitral panel under Section 17 hereof, this Agreement shall be interpreted and
enforceable as if such provision were severed or limited, but only to the extent
necessary to render such provision and this Agreement enforceable.
21. GOVERNING LAW. This Agreement shall in all respects be
governed by and construed in accordance with the laws of the State of Florida
applicable to agreements made and fully to be performed in such state, without
giving effect to conflicts of law principles.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first set forth above.
SENSORMATIC ELECTRONICS CORPORATION
By: /s/ GARRETT E. PIERCE
---------------------------------
Garrett E. Pierce
Senior Vice President and Chief Financial Officer
/s/ PER-OLOF LOOF
------------------------------------
Per-Olof Loof
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EXHIBIT 10(z)
AGREEMENT
AGREEMENT, made as of the 29th day of October, 1997, by and between
Sensormatic Electronics Corporation, a Delaware corporation having its
principal place of business at 951 Yamato Road, Boca Raton, Florida 33431-0700
(hereinafter referred to as the "Corporation"), and Kenneth W. Chmiel, residing
at 1621 Sarazen Drive, Chesterton, IN 46304 (hereinafter referred to as the
"Employee");
WITNESSETH:
WHEREAS, the Employee is an executive officer and employee of the
Corporation, and has made, and is expected to continue to make, a significant
contribution to the performance and growth of the Corporation; and
WHEREAS, in order to best dedicate himself to his duties with the
Corporation, and to avoid the distractions and market pressures which may arise
as a result of an employment-at-will relationship, the Employee wishes to be
assured of receiving, or continuing to receive for a certain period, certain
compensation and benefits in the event of the termination of his employment
without cause by the Corporation; and
WHEREAS, the Corporation has determined that the continued services of
the Employee to the Corporation are in the best interest of the Corporation and
its stockholders, and desires to assure such continued services by agreeing to
provide the Employee certain rights as to termination compensation, subject to
certain reasonable limitations on the Employee's future employment necessary to
protect the legitimate interests of the Corporation in fair competition, and
subject to such other conditions as are set forth hereunder;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
1. EMPLOYMENT AT WILL. The Employee shall continue to serve the
Corporation as Senior Vice President-Supply Chain Operations and shall serve in
such other executive capacity as may be reasonably determined by the President
and the Board of Directors and is reasonably acceptable to him. The parties
acknowledge and agree that the Employee's employment with the Corporation is
not contracted for any fixed term, but shall continue until terminated by
either party, with or without cause, by giving written notice to the other
party pursuant to Section 3 hereunder. The provisions of this Agreement which
are intended to apply and be effective subsequent to such termination of
employment shall survive and continue to be enforceable.
2. COMPENSATION.
(a) The Employee's present base salary is $215,000 per year and the
Employee's present targeted bonus is $85,000 per year. In addition, the
Employee presently participates in or benefits from the Corporation's group
medical, dental and life insurance plans, Executive Medical Reimbursement Plan,
SensorSave and ESOP pension plans, Senior Executive Defined Contribution
Retirement Plan, Employee Stock Purchase Plan, Stock Incentive Plan, and
certain other fringe benefit plans or policies as the Corporation makes
available to or has in effect for its executive personnel from time to time.
After the date of this Agreement, such compensation and benefits may be
increased or decreased, discontinued or modified, as determined by the
Corporation's Board of Directors or the Compensation Committee thereof, subject
to the provisions of Section 3(c)(i) below.
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(b) Except as hereinafter provided, the Corporation shall pay the
Employee, for any period that this Agreement is in effect during which he is
unable fully to perform his duties because of physical or mental disability or
incapacity, an amount equal to the base salary due him for such period based on
his rate of base salary just prior to the disability, less the aggregate amount
of all income disability benefits which for such period he may receive or to
which he may be entitled under or by reason of (i) any group health insurance
plan; (ii) any applicable compulsory state disability law; (iii) the Federal
Social Security Act; (iv) any applicable workmen's compensation law or similar
law; and (v) any plan towards which the Corporation or any parent, subsidiary
or affiliate of the Corporation has contributed or for which it has made
payroll deductions, such as group accident or health policies or the Key
Executive Supplemental Retirement Plan.
3. COMPENSATION UPON TERMINATION.
(a) The Employee may terminate his employment with the Corporation at
any time by giving thirty (30) days written notice to the Corporation. The
Corporation may waive any or all of this notice period. Except as provided in
Section 3(c) below, the Corporation's sole obligation to the Employee in such
event is (i) to pay the Employee's base salary to the date of termination, (ii)
to pay any non-discretionary incentive compensation which had been earned but
not yet paid for any evaluation period completed prior to the date of notice of
termination, and (iii) to complete any obligations required to be discharged
under the terms of group benefit plans. No further compensation (including,
without limitation, payment of severance compensation, discretionary bonus
compensation for any period, or incentive compensation for the current
evaluation period as of the date of notice, whether through discretionary or
targeted plans) shall be paid to the Employee, pro-rata or otherwise, and all
other benefits and perquisites (including, without limitation, stock options,
executive medical reimbursement and auto allowances) shall be canceled as of
the date of termination.
(b) The Corporation may terminate the Employee's employment with the
Corporation at any time by giving written notice to the Employee. In the event
of such termination (except for cause pursuant to Section 4 hereunder, and
subject to the Employee's continued compliance with the provisions of Sections
5, 6 and 7 below), the Employee shall be entitled to:
(i) base salary through the date of termination of his
employment;
(ii) non-discretionary incentive compensation which had been
earned but not yet paid for any evaluation period completed prior to the date
of termination;
(iii) base salary, at the annualized rate in effect on the
date of termination of employment (or in the event a reduction in base salary
is the basis for a termination pursuant to Section 3(c) below, then the base
salary in effect immediately prior to such reduction), for a period of 18
months following such termination (the "Continuation Period"), payable at the
same regular intervals as in effect prior to the termination, provided,
however, that in the event the Employee procures full time employment at any
time during the Continuation Period, base salary payable hereunder shall
continue to be paid only for a period equal to one-half of the remainder of the
Continuation Period;
(iv) a thirty (30) day period following termination in which
the Employee may exercise any vested stock options (all unvested options, as
well as shares of restricted stock issued under the Corporation's long-term
incentive plan/Success Sharing Program, or any subsequently adopted similar
plan, shall automatically terminate and be canceled upon the Employee's
termination of employment);
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(v) participation until the end of the Continuation Period,
through Corporation-paid COBRA premiums, in medical and dental insurance
coverage equivalent to that in which he was participating on the date of the
termination of his employment (including spouse or family coverage, if
applicable); provided that the Corporation's obligations under this clause
shall be reduced to the extent that the Employee is eligible for similar
coverage and benefits under the plans and programs of a subsequent employer;
and
(vi) other or additional benefits in accordance with
applicable group plans and programs of the Corporation.
Except as provided above, no further compensation (including,
without limitation, payment of discretionary bonus compensation for any period
or incentive compensation for the current evaluation period as of the date of
termination, whether through discretionary or targeted plans) shall be paid to
the Employee, pro-rata or otherwise, and all other benefits and perquisites
(including, without limitation, stock options, executive medical reimbursement
and auto allowances) shall be canceled as of the date of termination.
(c) In the event that any of the following events occur, the Employee
may terminate his employment with the Corporation by giving written notice to
the Corporation, and shall thereupon be entitled to the payments, entitlements
and benefits provided in Section 3(b) above as if the Corporation had
terminated the Employee's employment with the Corporation pursuant to Section
3(b) above.
(i) a reduction in the Employee's then current base salary,
or a reduction in the Employee's targeted bonus under a non-discretionary
incentive compensation plan not offset by a corresponding increase in base
salary, or the termination or material reduction of any employee benefit or
perquisite enjoyed by him without his permission or agreement (in each case,
other than as part of an across-the-board reduction of such compensation,
benefit or perquisite applicable to all executive officers of the Corporation);
(ii) a material diminution in the Employee's duties, or the
assignment to the Employee of duties, such that the remaining duties are
materially inconsistent with the duties of a senior officer of the Corporation;
or
(iii) the failure of the Corporation to obtain the assumption
in writing of its obligation to perform this Agreement by any successor to all
or substantially all of the assets of the Corporation within 15 days after a
merger, consolidation, sale or similar transaction.
(d) In the event that the aggregate of all payments or benefits made
or provided to the Employee following a change in control of the Corporation
under this Agreement and under all other plans and programs of the Corporation
(the "Aggregate Payment") is determined to include an excess parachute payment,
as such term is defined in Section 280G(b)(1) of the Internal Revenue Code, the
Corporation shall pay to the Employee, prior to the time any excise tax imposed
by Section 4999 of the Internal Revenue Code ("Excise Tax") is payable with
respect to such excess parachute payment, an additional amount which, after the
imposition of all income and excise taxes thereon, is equal to the Excise Tax
on the excess parachute payment. The determination of whether the Aggregate
Payment includes an excess parachute payment and, if so, the amount to be paid
to the Employee and the time of payment pursuant to this Section 3(d) shall be
made by an independent auditor (the "Auditor") jointly selected by the
Corporation and the Employee and paid by the Corporation. The Auditor shall be
a nationally recognized United States public
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accounting firm which has not, during the two years preceding the date of its
selection, acted in any way on behalf of the Corporation or any affiliate
thereof. If the Employee and the Corporation cannot agree on the firm to serve
as the Auditor, then the Employee and the Corporation shall each select one
accounting firm and those two firms shall jointly select the accounting firm to
serve as the Auditor.
4. TERMINATION FOR CERTAIN CAUSES. Notwithstanding anything to the
contrary set forth elsewhere herein, in the event of the willful misconduct of
the Employee in the performance of his duties hereunder resulting in
significant economic harm to the Corporation or the conviction of the Employee
for a felony under federal or state law relating to the assets, business or
affairs of the Corporation or involving moral turpitude, the Employee's
employment with the Corporation may be terminated by the Corporation by written
notice to the Employee, provided that the Employee shall be given prior written
notice by the Board of Directors of the intention to terminate him for cause
and the specific grounds for such termination. The Employee shall be entitled
to a hearing before the Board before such termination becomes effective.
5. DISCLOSURE AND ASSIGNMENT OF DISCOVERIES. The Employee shall
(without any additional compensation) promptly disclose in writing to the Board
of Directors of the Corporation all ideas, formulae, programs, systems, devices,
processes, business concepts, discoveries and inventions (hereinafter referred
to collectively as "discoveries") whether or not patentable, which the Employee,
while employed by the Corporation, conceives, makes, develops, acquires or
reduces to practice, whether alone or with others and whether during or after
usual working hours, and which are related to the Corporation's business or
interests, or are used or usable by the Corporation; and the Employee hereby
transfers and assigns to the Corporation all right, title and interest in and to
said discoveries, including any and all domestic and foreign patent rights
therein and any renewals thereof. On request of the Corporation, the Employee
shall (without any additional compensation), from time to time during or after
the expiration or termination of his employment, execute such further
instruments (including, without limitation, applications for letters patent and
assignments thereof) and do all such other acts and things as may be deemed
necessary or desirable by the Corporation to protect and/or enforce its rights
in respect of said discoveries. All expenses of filing or prosecuting any patent
applications shall be borne by the Corporation, but the Employee shall cooperate
in filing and/or prosecuting any such applications.
6. CONFIDENTIALITY. The Employee agrees that all patent rights,
inventions, technical information and know-how and trade secrets relating to the
Corporation's electronic security systems and any other products in development
or marketed by the Corporation, any information relating thereto, and any other
information relating to the business or interests of the Corporation which he
knows or should know, is regarded as confidential and valuable by the
Corporation (whether or not any of the foregoing information is actually novel
or unique or is actually known to others), made available to the Employee by the
Corporation or acquired by the Employee from the Corporation, other than that
which legally and legitimately is or becomes of general public knowledge or
passes into the public domain from authorized sources other than the Employee,
will be held in confidence and will not be divulged (or caused or permitted to
be divulged) by the Employee, without the prior written consent of the
Corporation, to any person or entity, except to responsible officers and
employees of the Corporation and other responsible persons who are in a
contractual or fiduciary relationship with the Corporation or who have a need
for such information for purposes in the interest of the Corporation or
otherwise in the course of carrying out his duties hereunder and except when
required to disclose such information by a court of law, by any governmental
agency having supervisory authority over the business of the Company or by any
administrative or legislative body (including a committee thereof) with the
apparent jurisdiction to order him to
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<PAGE> 5
divulge, disclose or make accessible such information. The Employee further
agrees that his obligations of secrecy and confidentiality under this Section 6
shall survive any termination of this Agreement unless specifically waived in
writting by the Corporation and, in the event of any such termination, the
Employee shall never use or market, nor disclose to others nor assist others in
using or marketing, any of the information or property rights of the Corporation
referred to in this Section 6, other than that which legally and legitimately is
or becomes of general public knowledge or passes into the pulic domain from
authorized sources other than the Employee.
7. NON-COMPETITION. In order to protect the legitimate business
interests of the Corporation, such as, without limitation, in its trade
secrets, confidential and professional information, substantial relationships
with existing and prospective customers, and investments in extraordinary and
specialized training, the Employee shall not, directly or indirectly:
(a) engage in the business of manufacturing, leasing, selling,
maintaining, or servicing, anywhere in the world, anti-shoplifting, theft
detection, inventory/asset control, closed circuit television, access control,
article surveillance devices or other products which are similar to or purport
to accomplish results similar to the Corporation's electronic article
surveillance, closed circuit television and access control systems and other
products being developed or marketed by the Corporation during the Employee's
employment with the Corporation;
(b) render any services as an officer, director, employee, partner,
consultant or otherwise to, or have any interest as a stockholder, partner,
lender or otherwise in, any entity which is so engaged;
(c) solicit or attempt to solicit business of any customers of the
Corporation for products or services the same or similar to those offered,
sold, produced or under development by the Corporation during the Employee's
employment with the Corporation;
(d) solicit or attempt to solicit for any business endeavor any
employee of the Corporation;
(e) accept any orders for products or services or any other business
from any customers of the Corporation for products or services the same or
similar to those offered, sold, produced or under development by the
Corporation during the Employee's employment with the Corporation; or
(f) hire or retain as a consultant - or render any services as an
officer, director, employee, partner, consultant or otherwise to, or have any
interest as a stockholder, partner, lender or otherwise in, any entity which
hires or retains as a consultant - any person which, within six (6) months prior
to the date of such hiring or retention, had been employed by the Corporation
in a sales, marketing, managerial or professional (e.g. accounting,
engineering, legal) capacity;
during the term of the Employee's employment with the Corporation and for a
period of eighteen (18) months from and after the date of termination of such
employment, or for such lesser area or lesser period as may be determined by a
court of law or equity to be a reasonable limitation on the competitive
activity of the Employee, it being understood and agreed by the parties hereto
that this provision is reasonably necessary to protect the patent rights,
inventions, technical information and knowhow, trademarks and the good will and
reputation of the Corporation. For the purpose of this Section 7, the term
"Corporation" shall include any and all affiliates of
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the Corporation in existence from time to time. Notwithstanding anything to the
contrary contained in this Section 7, the provisions hereof shall not prevent
the Employee from purchasing or owning up to two (2%) percent of the voting
securities of any corporation, the stock of which is publicly traded.
8. TERMINATION OF BENEFITS AND INJUNCTIVE RELIEF. In the event of a
breach or threatened breach by the Employee of any of the provisions of
Sections 5, 6 and 7, the Corporation shall be entitled, if it shall so elect,
to (a) terminate any remaining benefits (including any unpaid severance payments
or unexercised options) otherwise due or outstanding pursuant to Section 3,
and/or (b) except in the case of a breach or threatened breach of Section 7(e)
or (f), institute legal proceedings to obtain damages or to enforce the specific
performance of such provisions by the Employee and to enjoin the Employee from
any further violation of such provisions and to exercise such remedies
cumulatively or in conjunction with all other rights and remedies provided by
law. The Employee acknowledges, however, that the remedies at law for any breach
or threatened breach by him of such provisions may be inadequate and that the
Corporation shall be entitled to injunctive relief against him in the event of
any breach or threatened breach.
9. ENTIRE AGREEMENT. This Agreement supersedes all prior agreements
and understandings between the parties pertaining to the subject matter hereof
(other than (i) any additional terms set forth in the offer letter agreement
dated July 11, 1997 from Robert Vanourek to the Employee, and (ii) the plans and
policies referred to in Sections 2 hereof and any other agreements or
understandings pertaining thereto) and may not be changed or terminated orally,
and no change, termination or attempted waiver of any of the provisions hereof
shall be binding unless in writing and signed by the party against whom the
same is sought to be enforced; provided, however, that the Employee's
compensation and/or benefits may be increased at any time by the Corporation
without in any way affecting any of the other terms and conditions of this
Agreement, which in all other respects shall remain in full force and effect.
10. SUCCESSORS AND ASSIGNS. Neither party shall have the right to
assign this personal Agreement, or any rights or obligations hereunder, without
the consent of the other party, provided, however, that upon the sale of all or
substantially all of the assets, business and goodwill of the Corporation to
another corporation, or upon the merger or consolidation of the Corporation with
another corporation, this Agreement shall inure to the benefit of, and be
binding upon, both the Employee and the corporation purchasing such assets,
business and goodwill, or surviving such merger or consolidation, as the case
may be, in the same manner and to the same extent as though such other
corporation were the Corporation. In the event of a sale, merger or
consolidation described in the preceding sentence, the Corporation shall take
whatever action it legally can in order to cause such other corporation to
expressly assume the liabilities, obligations and duties of the Corporation
hereunder. Subject to the foregoing, this Agreement shall inure to the benefit
of, and bind, the parties hereto and their legal representatives, heirs,
successors and assigns.
11. GOVERNING LAW. This Agreement is made and executed and shall be
governed by the laws of the State of Florida, without giving effect to choice
of law principles.
12. INDEMNIFICATION.
(a) The Corporation agrees that if the Employee is made a
party, or is threatened to be made a party, to any action, suit or proceeding,
whether civil, criminal, administrative or investigative (a "Proceeding"), by
reason of the fact that he is or was a director, officer, or employee of the
Corporation or is or was serving at the
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request of the Corporation as a director, officer, member, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether or not the
basis of such Proceeding is the Employee's alleged action in an official
capacity while serving as a director, officer, member, employee or agent, the
Employee shall be indemnified and held harmless by the Corporation to the
fullest extent legally permitted or authorized by the Corporation's certificate
of incorporation or bylaws or resolutions of the Company's Board of Directors
or, if greater, by the laws of the State of Delaware against all cost, expense,
liability and loss (including, without limitation, attorney's fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by the Employee in connection
therewith, and such indemnification shall continue as to the Employee even if he
has ceased to be a director, officer, member, employee or agent of the
Corporation or other entity and shall inure to the benefit of the Employee's
heirs, executors and administrators. The Corporation shall advance to the
Employee all reasonable costs and expenses incurred by him in connection with a
Proceeding within 20 days after receipt by the Corporation of a written request
for such advance. Such request shall include an undertaking by the Employee to
repay the amount of such advance if it shall ultimately be determined that he is
not entitled to be indemnified against such costs and expenses.
(b) Neither the failure of the Corporation (including its
board of directors, independent legal counsel or stockholders) to have made a
determination prior to the commencement of any Proceeding concerning payment of
amounts claimed by the Employee under Section 12(a) above that indemnification
of the Employee is proper because he has met the applicable standard of conduct,
nor a determination by the Corporation (including its board of directors,
independent legal counsel or stockholders) that the Employee has not met such
applicable standard of conduct, shall create a presumption that the Employee has
not met the applicable standard of conduct.
(c) The Corporation agrees to continue and maintain a
directors and officers' liability insurance policy covering the Employee to the
extent the Corporation provides such coverage for its other executive officers.
13. REPRESENTATION. The Corporation represents and warrants that it is
fully authorized and empowered by action of the Board of Directors to enter
into this Agreement and that the performance of its obligations under this
Agreement will not violate any agreement between it and any other person, firm
or organization.
14. SEVERABILITY. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, in
whole or in part, the remaining provisions of this Agreement shall be
unaffected thereby and shall remain in full force and effect to the fullest
extent permitted by law.
15. SURVIVORSHIP, The respective rights and obligations of the parties
hereunder shall survive any termination of the Employee's employment to the
extent necessary to the intended preservation of such rights and obligations.
16. BENEFICIARIES/REFERENCES. The Employee shall be entitled, to the
extent permitted under the applicable law, to select and change a beneficiary
or beneficiaries to receive any compensation or benefit payable hereunder
following the Employee's death by giving the Company written notice thereof. In
the event of the Employee's death or a judicial determination of his
incompetence, reference in this Agreement to the Employee shall be deemed,
where appropriate, to refer to his beneficiary, estate or other legal
representative.
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17. RESOLUTION OF DISPUTES. Except for disputes which are subject to
the provisions of Section 8, any disputes arising under or in connection with
this Agreement shall, at the election of the Employee or the Company, be
resolved by binding arbitration, to be held in Ft. Lauderdale, Florida in
accordance with the rules and procedures of the American Arbitration
Association. Judgment upon the award rendered by the arbitrator(s) may be
entered in any court having jurisdiction thereof. Any judgment or order entered
in such action shall contain a specific provision providing for the prevailing
party's recovery of its attorneys' fees and costs in bringing the action and
enforcing the judgment from the losing party. "Prevailing Party" shall mean the
party which has been granted the relief or remedy sought, or which has obtained
judgment for damages of at least 50 percent of the amount claimed.
18. NOTICES. Any notice given to a party shall be in writing and shall
be deemed to have been given when delivered personally or sent by certified or
registered mail, postage prepaid, return receipt requested, duly addressed to
the party concerned at the address indicated at the beginning of this Agreement
or to such changed address as such party may have specified by written notice
hereunder.
19. HEADINGS The headings of the sections contained in this Agreement
are for convenience only and shall not be deemed to control or affect the
meaning or construction of any provision of this Agreement.
20. COUNTERPARTS. This Agreement may be executed in two or more
counterparts.
IN WITNESS WHEREOF, the parties hereto have duly executed
this Agreement as of the day and year first above written.
SENSORMATIC ELECTRONICS CORPORATION KENNETH W. CHMIEL
By: /s/ Robert A. Vanourek By: /s/ Kenneth W. Chmiel
-------------------------------- ---------------------------------
Robert A. Vanourek
President and Chief Executive Officer
8
<PAGE> 1
Exhibit 10(aa)
AGREEMENT
AGREEMENT, dated as of September 1, 1998, by and between SENSORMATIC
ELECTRONICS CORPORATION, a Delaware corporation having its principal place of
business at 951 Yamato Road, Boca Raton, Florida 33431 ("Sensormatic"), and
KENNETH W. CHMIEL, an individual whose address is 6574 N.W. 38th Ct., Boca
Raton, Florida 33496 ("Executive").
WITNESSETH:
WHEREAS, Executive is an employee of Sensormatic, with the title of
Sr. Vice President - Supply Chain Operations, and has made, and is expected to
continue to make, a significant contribution to the performance and growth of
Sensormatic;
WHEREAS, the Board of Directors of Sensormatic recognizes that, as is
the case with many publicly-held corporations, the possibility of a Change in
Control (as defined below) exists and that such possibility, and the
uncertainty which it may raise among Sensormatic's management, may result in
the distraction or departure of management personnel to the detriment of
Sensormatic and its stockholders, particularly at a time when Sensormatic is
placing heavy demands on its management in connection with its efforts to
expand its product lines and markets, restructure its operations and reduce its
expenses;
WHEREAS, the Board of Directors of Sensormatic has determined that the
continued services of Executive to Sensormatic are in the best interest of
Sensormatic and its stockholders and desires to assure such continued services
by agreeing to provide to Executive certain rights as to termination
compensation in the event of a Change in Control;
WHEREAS, the Board of Directors of Sensormatic believes that the grant
of such rights to Executive will help assure Executive's continuing dedication
to his duties to Sensormatic, notwithstanding the occurrence of any Change in
Control, and, in particular, will enable Executive to objectively and
impartially assess, and advise the Board of Directors with respect to, any
proposal received by Sensormatic regarding a Change in Control and to take such
action regarding any such proposal as the Board of Directors may deem to be
appropriate; and
WHEREAS, Sensormatic and Executive are parties to an Agreement dated
October 29, 1997 (the "Officer Agreement");
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the parties hereby agree as follows:
1. TERM.
(a) The term of this Agreement shall commence on the date hereof
(which for all purposes of this Agreement shall mean the date first above
written) and shall continue until a Change in Control shall occur and for so
long thereafter as Sensormatic has or may have any obligations under Sections
6, 7, 8, 12, 13 or 15 hereof.
(b) Notwithstanding the provisions of Section 1(a) hereof, Sensormatic
shall have the right to terminate this Agreement, effective on any anniversary
of the date of this Agreement, provided that no Change in Control shall have
occurred and no Attempted Change in
<PAGE> 2
Control (as defined below) shall have occurred and then be pending. In the event
that any Attempted Change in Control is not followed by a Change in Control and
is no longer pending, Sensormatic shall again be entitled to terminate this
Agreement as provided in the first sentence of this Section 1(b). Sensormatic
may effect a termination of this Agreement hereunder solely by notifying
Executive thereof at least 30 days prior to the relevant anniversary date hereof
(c) Notwithstanding the provisions of Sections 1 (a) and 1(b) hereof,
this Agreement shall terminate automatically in the event of the voluntary or
involuntary termination of Executive's employment with Sensormatic prior to the
occurrence of a Change in Control, so long as, at the time of such termination
of employment, no Attempted Change in Control shall have occurred and then be
pending. Notwithstanding anything contained in this Agreement to the contrary,
if Executive's employment is terminated by Sensormatic prior to a Change in
Control, which Change in Control occurs, and Executive reasonably demonstrates
that such termination was at the request of a third party who effectuates such
Change in Control or that such termination was directly related to such Change
in Control, then for all purposes of this Agreement, Executive shall be
entitled to the payments and other benefits provided under this Agreement as if
such termination had occurred following such Change in Control.
2. Salary and Bonus. Executive's present base salary is $215,000 per
year and Executive's target bonus is deemed to be $85,000 per year. After the
date of this Agreement, Executive's annual base salary and target bonus may be
increased or decreased as determined by the chief executive officer of
Sensormatic and approved by Sensormatic's Board of Directors or any
compensation committee thereof, except as otherwise provided by the Officer
Agreement, provided, however, that none of the following shall be effective
during the pendency of an Attempted Change in Control or in the event of a
Change in Control or at any time within 36 months after a Change in Control has
occurred: (i) any decrease in Executive's annual base salary or target bonus
from the amounts set forth above (or any greater amounts subsequently so
determined and approved), or (ii) any change in the formula then in effect for
calculation of Executive's bonus that could be reasonably anticipated to result
in a decrease in the amount payable thereunder.
3. Fringe Benefits. Sensormatic currently provides to Executive the
fringe benefits listed below, without cost to Executive, and, while nothing in
this Agreement shall be deemed to require Sensormatic to continue any such
benefits or to prohibit Sensormatic from modifying any such benefits in any
respect, except that there shall be no material reduction in any such currently
provided benefits (and there shall be no material reduction in any additional
benefits subsequently approved by Sensormatic's Board of Directors or any
Committee thereof) during the pendency of an Attempted Change in Control or in
the event of a Change in Control or at any time within 36 months after a Change
in Control has occurred (and, in addition, there shall not, at any time
following a Change in Control, be any change in the non-qualified retirement
plan or plans of the Corporation for key executives in which Executive is a
participant, as listed on Schedule I hereto, or any similar or successor plan
(the "Retirement Plan", which shall include, for all purposes of this
Agreement, any agreement between Sensormatic and Executive under any such Plan)
resulting in a reduction of Executive's benefits thereunder), it is anticipated
that such benefits (together with any such additional benefits) shall continue
to be provided to Executive on the same or a substantially similar basis in the
future in accordance with the terms of the applicable benefit plans and
policies:
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<PAGE> 3
(a) group medical and group dental plans in which Executive
and his eligible dependents are participants;
(b) life insurance on Executive's life and accidental death
and dismemberment insurance, each equal to two times Executive's
annual base salary (but not to exceed $800,000 or such greater amount
as may be established by Sensormatic for such purposes from time to
time);
(c) participation in Sensormatic's retirement and/or profit
sharing plans (including the Retirement Plan) and in Sensormatic's
annual contributions, if any, thereto, provided that such
participation is contingent on Executive's continued qualification
prior to any such Change in Control or Attempted Change in Control as
an eligible participant under the provisions of such plans as then in
effect and on Executive's election to continue his participation in
such plans;
(d) the use of a Sensormatic owned or leased automobile or
payment of its equivalent allowance, and comprehensive insurance
protection on such vehicle;
(e) disability income protection;
(f) reimbursement of Executive for reasonable travel and
entertainment expenses incurred by Executive in connection with the
business of Sensormatic; and
(g) the provision to Executive of office space befitting
Executive's position, secretarial help, and access to WATS lines.
Further, Sensormatic expects that, during the term of this Agreement, and so
long as Executive continues to be employed by Sensormatic, Executive's position
shall continue to be located in Palm Beach County or Broward County, Florida
(or, if Executive's position is located outside of Broward County or Palm Beach
County, Florida prior to any Attempted Change in Control or Change in Control,
such position shall continue to be located at substantially the same location),
and that the duties and responsibilities of Executive's position shall not be
significantly diminished.
4. Employment Commitment. As partial consideration for the benefits
available to Executive under this Agreement, Executive hereby agrees to remain
as an officer and employee of Sensormatic during any Attempted Change in
Control and for a period of six months immediately after a Change in Control
first occurs (the "Commitment Period"), and during the Commitment Period to
devote substantially all his business time and efforts to the business and
affairs of Sensormatic, provided that Executive shall be entitled to terminate
his employment by Sensormatic during an Attempted Change in Control or at any
time following a Change in Control in circumstances which constitute an
involuntary termination pursuant to Section 10 hereof. Executive's
participation in other businesses, as a director or otherwise, with the
approval of Sensormatic's Board of Directors (which approval shall be deemed to
include the Board of Directors not objecting to such participation following
disclosure thereof to the Board of Directors by Executive, and which approval
may not be withdrawn following such Change in Control) shall not be deemed to
contravene the foregoing provision. In the event that Executive voluntarily
terminates his employment with Sensormatic (other than by resignation
contemplated
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<PAGE> 4
in Section 10 hereof) at any time during the Commitment Period, Executive shall
not be entitled to any of the benefits provided for in this Agreement, other
than those provided under Sections 6(a)(i), 6(a)(ii), 6(a)(iii), 6(a)(iv),
6(b)(ii), 12 13 and 15 hereof, and shall promptly repay to Sensormatic, on an
after-tax basis, any benefits previously received by him pursuant to any
provisions of Sections 6 or 7 of this Agreement not referred to in this
sentence, but Sensormatic shall have no other remedy for Executive's failure to
remain an employee and officer as required by this Section 4. Any amounts or
benefits received by Executive pursuant to the Officer Agreement or any other
written employment agreement between Sensormatic and Executive or any other
compensation plan or arrangement of Sensormatic, even if similar or identical
to those to which he would be entitled under this Agreement, shall not be
deemed received pursuant to this Agreement or be repayable to Sensormatic for
purposes of the preceding sentence.
5. Change in Control.
(a) For purposes of this Agreement, the term "Change in Control" shall
mean a change in control of Sensormatic of a nature that would be required to
be reported in response to Item 6(e) of Schedule 14A of Regulation 14A under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), provided,
that, without limitation, such a change in control shall be deemed to have
occurred if (i) any person (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act, "Person") is or becomes the "beneficial owner" (as defined in
Rule l3d-3 under the Exchange Act, "Beneficial Owner"), directly or indirectly,
of securities of Sensormatic representing 30% or more of the combined voting
power of Sensormatic's then outstanding voting securities, (ii) Sensormatic
consummates a merger, consolidation, share exchange, division or other
reorganization of Sensormatic with any other corporation or entity, unless the
shareholders of Sensormatic immediately prior to such transaction beneficially
own, directly or indirectly, (A) if Sensormatic is the surviving corporation in
such transaction, 60% or more of the combined voting power of Sensormatic's
outstanding voting securities as well as 60% or more of the total market value
of Sensormatic's outstanding equity securities, (B) if Sensormatic is not the
surviving corporation, 80% or more of the combined voting power of the
surviving entity's outstanding voting securities as well as 80% or more of the
total market value of such entity's outstanding equity securities, or (C) in
the case of a division, 80% or more of the combined voting power of the
outstanding voting securities of each entity resulting from the division as
well as 80% or more of the total market value of each such entity's outstanding
equity securities, in each case in substantially the same proportion as such
shareholders owned shares of Sensormatic prior to such transaction; (iii)
Sensormatic adopts a plan of complete liquidation or winding-up of Sensormatic;
(iv) the shareholders of Sensormatic approve an agreement for the sale or
disposition (in one transaction or a series of transactions) of all or
substantially all of Sensormatic's assets; or (v) during any period of 24
consecutive months, individuals (y) who at the beginning of such period
constitute the Board of Directors of Sensormatic or (z) whose election,
appointment or nomination for election was approved prior to such election or
appointment by a vote of at least two-thirds of the directors in office
immediately prior to such election or appointment who were directors at the
beginning of such two-year period (other than any directors who prior to the
Change in Control were associated or affiliated with any Person involved with
any Change in Control or Attempted Change in Control), cease for any reason to
constitute at least three-fourths of the Board of Directors of Sensormatic.
(b) For purposes of this Agreement, an "Attempted Change in Control"
shall be deemed to have occurred (i) if any Person files (or fails to file when
required to do so) with
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the Securities and Exchange Commission (the "SEC") a Statement on Schedule 13D
relating to voting securities of Sensormatic (A) disclosing the acquisition of
10% or more thereof or (B) while disclosing the acquisition of less than 10% of
such voting securities, indicates an intention to effect any of the
transactions listed in Item 4 of Schedule 13D or otherwise to effect a Change
in Control, (ii) upon the public announcement (including, without limitation,
the filing with the SEC of a Statement on Schedule 14D-1) by any Person of an
intention to make a tender offer or otherwise to effect a Change in Control,
(iii) in the event of any solicitation of proxies for the election of directors
of Sensormatic pursuant to Rule 14a-11 of the Rules and Regulations under the
Exchange Act or the filing of a Statement on Schedule 14B in anticipation
thereof, (iv) the receipt by Sensormatic from any Person of any other
communication proposing, or indicating an intention, to effect a Change in
Control by the acquisition of voting securities of Sensormatic, the
solicitation of proxies for the election of directors or otherwise or (v) if
the Board of Directors of Sensormatic or an authorized committee thereof
otherwise determines that an Attempted Change in Control is pending. The
termination of the pendency of an Attempted Change in Control shall be
determined by the Board of Directors of Sensormatic (or an authorized committee
thereof); provided, that any Attempted Change in Control shall in any event be
deemed to have terminated upon the occurrence of a Change in Control.
(c) A Change in Control shall be deemed, for purposes of this
Agreement, to be: (i) "non-approved" if (A) in connection with the
consideration thereof by the Board of Directors of Sensormatic, a majority of
the Previous Members of the Board of Directors (as defined below), either
before or after such Change in Control, (x) votes to disapprove of such Change
in Control, (y) votes to approve of such Change in Control, but as a
consequence of the existence of a competing proposal for a Change in Control,
or (z) otherwise expressly declares that such Change in Control is
"non-approved", or (B) a majority of the Previous Members of the Board of
Directors neither expressly approves nor disapproves of such Change in Control,
or (ii) "approved" if in connection with the consideration thereof by the Board
of Directors of Sensormatic, a majority of the Previous Members of the Board of
Directors, either before or after such Change in Control, (x) approves of such
Change in Control (other than as a consequence of the existence of a competing
proposal for a Change of Control) or (y) otherwise expressly declares that such
Change in Control is "approved", notwithstanding clause (A) (y) of this Section
5(c). The majority of the Previous Members of the Board of Directors shall
indicate its approval or disapproval of a Change in Control by a statement or
statements in writing to such effect. For purposes of this Agreement, Previous
Members of the Board of Directors shall mean members of the Board of Directors
of Sensormatic as of the date of a Change in Control who had been in office for
a period of at least two years immediately prior to such Change in Control
(other than directors who prior to such Change in Control were appointed or
elected as directors as a consequence of their association or affiliation with
any Person effecting such Change in Control).
In addition, notwithstanding any previous determination that a Change
in Control was "approved", such Change in Control may subsequently be
determined, in good faith, to be "non-approved" by a majority of the Previous
Members of the Board of Directors who are then still in office with Sensormatic
or a corporate successor of Sensormatic (or if fewer than two such Previous
Members of the Board of Directors are still in office, then by a majority of
the Previous Members of the Board of Directors, whether or not still in office)
within the 36-month period immediately following such Change in Control, if
during such period there occur (1) events of the types referred to in Section
10 hereof with respect to individuals who were officers
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of Sensormatic at the time of the Change in Control, (2) defaults by
Sensormatic under this Agreement or any similar agreement, (3) the involuntary
termination (other than for cause or in the event of death or permanent
disability) of the employment of a number of the officers of Sensormatic who
were officers immediately prior to such Change in Control exceeding 40% of the
total number of such officers, or (4) the transfer (by sale, merger or
otherwise) of all or substantially all the equity securities of Sensormatic
acquired by the Person effecting such Change in Control, of all or
substantially all the assets of Sensormatic, or of all or substantially all the
equity securities of Sensormatic's successor corporation, directly or
indirectly, to a third party (other than a majority owned affiliate of such
Person). In the event of such a subsequent determination, Executive shall be
entitled to all benefits arising under this Agreement out of a "non-approved"
Change in Control as if such Change in Control had been deemed "non-approved"
initially. Any additional benefits arising out of such "non-approved" Change in
Control which Executive is entitled to receive through the date of such
determination shall be paid or satisfied promptly by Sensormatic. For purposes
of this Section 5(c), the term "officers" shall not include individuals whose
only office with Sensormatic is Assistant Secretary or Assistant Treasurer.
(d) For the purposes of this Section 5, references to
provisions of the Exchange Act and rules, regulations and schedules thereunder
shall be to such provisions as they are in effect and interpreted as of the
date of this Agreement.
6. Benefits on "Non-Approved" Change in Control.
(a) Benefits Effective Upon a Change in Control. In the event a
"non-approved" Change in Control occurs, Executive shall be entitled to the
following benefits:
(i) All stock options issued by Sensormatic to Executive, whether or
not then exercisable, shall remain fully exercisable or shall become fully
exercisable immediately (or, notwithstanding the foregoing, in the event of an
Attempted Change in Control involving a proposed Reorganization Event (as such
term is defined in Section 6(a)(ii) hereof)), such options shall become fully
exercisable thirty days before the date of such Reorganization Event), and such
options shall remain outstanding and fully exercisable for the stated term
thereof or until the later of (A) nine months following the voluntary or
involuntary termination of Executive's employment with Sensormatic (or, at the
option of Executive, in the case of an incentive stock option, three months
following such termination) or (B) the end of the respective post-termination
exercisability periods provided for in such options (including if applicable,
such periods in the event of death or disability); provided, that in no event
shall the term of such options be extended beyond their respective original
terms. In addition, any deferred vesting or forfeiture provisions applicable to
any shares of Sensormatic stock awarded to or otherwise held by Executive shall
be without further force or effect, and Executive shall have the unrestricted
right to such shares.
(ii) In the event that (A) such Change in Control is effected through
(w) a tender or exchange offer (a "Tender Offer") or (x) any means, in one or
more transactions, with the result in either case that any Person becomes the
Beneficial Owner, directly or indirectly, of securities of Sensormatic
representing 50% or more of the combined voting power of Sensormatic's then
outstanding voting securities (any such Change in Control referred to in this
clause (A), including pursuant to a Tender Offer, being hereinafter referred to
as a "Majority
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Acquisition"), (B) in connection with, as a result of or within 24 months
immediately following a Change in Control, Sensormatic's Board of Directors
shall have approved a merger, consolidation, reclassification, reorganization,
dissolution, sale of all or substantially all of the assets of Sensormatic or
similar event (a "Reorganization Event") as a result of which Sensormatic's
Common Stock would cease to be outstanding or (C) in connection with, as a
result of or within 24 months immediately following a Change in Control,
Sensormatic's Common Stock ceases to be listed for trading on a national
securities exchange or quoted through NASDAQ or a comparable securities
quotation system, Executive shall have the right, exercisable by written notice
given at any time during the 13-month period immediately following the date
of such Change in Control (and, if later, the date of any such Majority
Acquisition, Reorganization Event or cessation of listing or quotation), to
require Sensormatic to purchase:
(1) any or all stock options issued by Sensormatic to
Executive, whether or not then exercisable, and/or any stock options
issued upon conversion of or in exchange for any such Sensormatic
stock options pursuant to any such Reorganization Event ("Conversion
Options"), at a purchase price equal to the excess of the aggregate
Fair Market Value (as defined below) of the shares of Sensormatic
Common Stock subject to such Sensormatic stock options over the
aggregate exercise price of such stock options (or, in the case of any
Conversion Options, such amount calculated with respect to the
Sensormatic stock options which were converted into or exchanged for
such Conversion Options); and/or
(2) any or all shares of Sensormatic Common Stock held by
Executive at or immediately prior to the date of such Change in
Control (including any shares of Sensormatic Common Stock (restricted
or otherwise, and whether or not vested) awarded to Executive pursuant
to any compensation plan or arrangement of Sensormatic) or issued
pursuant to the exercise of any such Sensormatic stock options
following the date of such Change in Control, and/or (without
duplication) any shares or other securities issued upon conversion of
or in exchange for any such shares of Common Stock pursuant to any
such Reorganization Event ("Conversion Shares"), at a purchase price
equal to the aggregate Fair Market Value of such shares (or, in the
case of any Conversion Shares issued upon conversion of or in exchange
for Common Stock, the Fair Market Value of the shares of Common Stock
which were converted into or exchanged for such Conversion Shares);
provided, that Sensormatic may offset against the amount so payable
for Common Stock or Conversion Shares all amounts outstanding on any
loans made to Executive for the purchase of, or payment of taxes
relating to, such shares of Common Stock or Conversion Shares, as
contemplated by Section 6(a)(iii) hereof or otherwise.
Payment for any such options or shares shall be made by Sensormatic within 10
days after Executive's surrender of any such options, and/or within 10 days
after Executive's surrender of the certificates representing any such shares of
Common Stock or Conversion Shares (or, if such certificates are in Sensormatic's
possession, within 10 days after Executive's notice of exercise under this
Section 6(a)(ii)).
For purposes of this Section 6(a)(ii), the "Fair Market Value" of a
share of Sensormatic Common Stock means the highest fair market value per
share of Sensormatic Common Stock of the consideration paid in any transaction
by any Person who effects such
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Change in Control, in connection therewith, whether through open market
purchases, Tender Offers, Reorganization Events, private transactions or
otherwise.
(iii) Upon Executive's request, Sensormatic shall lend to Executive,
interest free, up to an amount equal to the aggregate exercise price of the
options referred to in Section 6(a)(i) hereof, should Executive elect to
exercise such options. If requested by Executive, Sensormatic shall also lend
to Executive, interest free (or, at Executive's option, provide a guaranty to
enable Executive to borrow), up to an amount equal to the percentage specified
in Section 6(a)(iv)(A) hereof times the Share Income (as such term is defined
in such Section) resulting from such exercise and/or vesting. Such loan or
loans shall be due and payable to Sensormatic upon the earliest of (A) the
fifth anniversary date of such loan or loans, (B) in the event that Executive's
employment with Sensormatic terminates, other than termination by Sensormatic
for Cause (as defined in Section 9 hereof, "Cause") upon the expiration of 30
months following such termination, or in the event that Executive's employment
is terminated by Sensormatic for Cause, upon the expiration of 30 days after
such termination, or (C) promptly (but in any event within five (5) business
days) after receipt of the proceeds of sale from the sale of such shares, to
the extent of the loan or loans applicable to such sold shares. Executive shall
deposit such shares with Sensormatic as security for any such loan, if
Sensormatic shall so request. Notwithstanding anything to the contrary
contained in this Section 6(a)(iii), Sensormatic's Stock Purchase Loan Plan or
any promissory note or security agreement executed by Executive pursuant to
such Plan, no additional collateral shall be required by Sensormatic in
connection with any such loan to Executive, and, if necessary to be in
compliance with applicable margin regulations under federal laws, such loans
shall be unsecured; and if, because of Internal Revenue Service rules or other
rules, Sensormatic is unable to lend such funds to Executive interest free and
without any imputation of interest, Sensormatic shall pay Executive a dollar
amount of additional compensation which shall equal the amount of interest
required to be charged in order to avoid such imputation in such instances and
Executive shall then pay Sensormatic the rate of interest on such loan required
by law to avoid imputation.
(iv)(A) If a Majority Acquisition shall have occurred or if, in
connection with, as a result of or within 24 months immediately following a
Change in Control, either a Reorganization Event shall have occurred or
Sensormatic's Common Stock ceases to be listed for trading on a national
securities exchange or quoted through NASDAQ or a comparable securities
quotation system, then Executive shall have the right, exercisable during the
period and in the manner described in Section 6(a)(iv)(B) hereof, to require
Sensormatic to purchase any or all of Executive's Option Acquired Shares and
Award Shares (as defined below), and/or any or all Conversion Shares issued
with respect to any Option Acquired Shares or Award Shares. The price at which
Executive shall be entitled to sell any Option Acquired Share to Sensormatic
under this Section 6(a)(iv) shall equal the sum of (x) the option exercise
price paid (including payments made by promissory notes issued under
Sensormatic's Stock Purchase Loan Plan or otherwise) by Executive in acquiring
such share, plus (y) an amount equal to a percentage, determined as provided
below in this clause (A), of the difference between such option exercise price
and the Market Value (as defined below) of a share of Sensormatic Common Stock
on the date the share was acquired. The price at which Executive shall be
entitled to sell any Award Share under this Section 6(a)(iv)(A) shall be equal
to the Market Value of such share on the date Executive's right to such share
vested, multiplied by the percentage determined as provided below in this
clause (A). The price at which Executive shall be entitled to sell any
Conversion Shares pursuant to this Section 6(a)(iv)(A) shall be calculated as
set forth above with respect to
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Option Acquired Shares or Award Shares, as applicable, based upon the purchase
price, date of purchase and Market Value of any Option Acquired Shares, and the
vesting date and Market Value of any Award Shares, which were converted into or
exchanged for any such Conversion Shares sold. The percentage referred to in
this Section 6(a)(iv)(A) shall be equal to the sum of (1) the highest marginal
net rate of income tax (federal, state and local) applicable to an individual
residing where the Executive resided at the time the Executive reported income
("Share Income") with respect to the Option Acquired Shares or Award Shares, as
the case may be, plus (2) the Medicare employee tax rate, plus (3) a
percentage equal to (x) that part, if any, of the Share Income that was actually
subject to employee Social Security tax, multiplied by (y) the social security
employee tax rate, divided by (z) the total Share Income (in each case as
applicable at the time such share was purchased by Executive, in the case of
any Option Acquired Shares, or at the time Executive's right to such share
vested, in the case of any Award Shares). The purchase price payable by
Sensormatic shall in all events be equitably adjusted to reflect any stock
dividends, stock splits, extraordinary dividends or similar events since the
date of acquisition by Executive of any such shares.
For purposes of this Section 6(a)(iv), the term "Option Acquired
Shares" shall mean shares of Sensormatic Common Stock acquired by Executive upon
exercise of options granted to Executive, the term "Award Shares" shall mean
shares of Sensormatic Common Stock awarded to Executive pursuant to
Sensormatic's Stock Incentive Plan or any other compensation plan or arrangement
of Sensormatic, other than pursuant to the exercise of options, and the term
"Market Value" shall mean the average of the high and low sales prices of a
share of such Common Stock on the applicable date (or most recent date on which
one or more sales occurred) as reported through NASDAQ or the principal exchange
on which such Common Stock was listed for trading.
(B) Executive may exercise his right to sell Option Acquired Shares,
Award Shares under this Section 6(a)(iv) at any time within 13 months following
any of the events specified in the first sentence of Section 6(a)(iv)(A) hereof
by giving written notice of such exercise to Sensormatic, which notice shall set
forth the Option Acquired Shares, Award Shares and/or Conversion Shares to be
sold, the exercise price paid by Executive in acquiring any such Option Acquired
Shares or Conversion Shares, the highest marginal tax rates applicable for
purposes of the respective calculations specified in Section 6(a)(iv)(A) hereof
and the Market Value of the Common Stock or Conversion Shares, as applicable, on
each date that any applicable Option Acquired Shares or Conversion Shares to be
sold were purchased by Executive or Executive's right to any applicable Award
Shares vested, as the case may be. The information set forth in such notice
shall be presumed to be correct.
(C) In addition to the purchase price for the Option Acquired
Shares, Award Shares or Conversion Shares being sold to Sensormatic under this
Section 6(a)(iv), Sensormatic shall pay to Executive an amount (the "Tax
Payment") equal to a percentage (determined pursuant to the following sentence)
of the excess, if any, of (1) the product of the number of such Option Acquired
Shares, Award Shares and/or Conversion Shares being sold multiplied by the
Market Value of a share of Sensormatic Common Stock or Conversion Shares, as
applicable, on the Purchase Date (as such term is defined in Section
6(a)(iv)(D) hereof) or such other value of a share of Sensormatic Common Stock
or Conversion Shares as may be required to be used to determine the amount, if
any, recognizable as ordinary income arising out of the sale of such shares to
Sensormatic, over (2) the aggregate purchase price for all such Option Acquired
Shares,
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Award Shares and/or Conversion Shares being sold by Executive. The percentage
referred to in the preceding sentence shall be determined in accordance with
Section 6(a)(iv)(A) hereof as applicable on the Purchase Date.
(D) Within 10 days after Executive's surrender of the certificates
representing any such Option Acquired Shares, Award Shares and/or Conversion
Shares or, if such certificates are on Sensormatic's possession, within 10 days
after Executive's notice of exercise under this Section 6(a)(iv) (the "Purchase
Date"), Sensormatic shall purchase the Option Acquired Shares, Award Shares
and/or Conversion Shares referred to in such notice by paying to Executive
(subject to offset as provided in the following sentence) the full purchase
price thereof, as calculated under Section 6(a)(iv)(A) hereof, plus the Tax
Payment applicable thereto. Sensormatic may offset against payment of any or all
of such purchase price and the related Tax Payment all or a portion of any
indebtedness of Executive then outstanding under Sensormatic's Stock Purchase
Loan Plan attributable to any Option Acquired Shares and/or Conversion Shares
sold to Sensormatic hereunder.
(E) Executive's rights under this Section 6(a)(iv) are independent of
and not limited by, and not constitute any limitation of, Executive's rights
under Section 6(a)(ii) hereof. Executive may exercise any rights under either
Section 6(a)(ii) hereof or this Section 6(a)(iv), in whole or in part (but
without duplication), in Executive's sole discretion.
(v)(A) Subject to Section 4 hereof, if either a Majority
Acquisition occurs or, in connection with, as a result of or within 24 months
following a Change in Control, a Reorganization Event occurs, then Sensormatic
shall pay to Executive (irrespective of whether he is then employed by
Sensormatic or its successor; provided, however, that in the event that
Executive voluntarily terminates his employment with Sensormatic (other than by
resignation contemplated by Section 10 hereof) prior to the occurrence of the
event giving rise to the right to receive the cash bonus payment provided for
in this Section 6(a)(v), Executive shall have no right to receive such bonus
payment), within thirty days after the effective date of such Majority
Acquisition or Reorganization Event, as the case may be, a cash bonus payment
equal to a percentage (determined pursuant to Sections 6(a)(v)(B) and
6(a)(v)(C) hereof) of Executive's "Special Bonus Base" (as defined below).
Executive's Special Bonus Base shall equal two (2) times the greater of (x) the
sum of Executive's annual base salary in effect at the end of the last full
month preceding the first public announcement relating to the proposed Majority
Acquisition or Reorganization Event, as the case may be, plus the bonus paid to
Executive by Sensormatic with respect to the most recently completed fiscal
year of Sensormatic prior to such month, or (y) the sum of Executive's annual
base salary and target bonus as specified in Section 2 hereof.
(B) The percentage of the Special Bonus Base which Executive
shall be entitled to receive under this Section 6(a)(v) shall be calculated on
the basis of the Premium (as defined below) paid or offered to holders of
Sensormatic's Common Stock in connection with a Majority Acquisition or
Reorganization Event. "Premium" shall mean the percentage which results from
dividing (1) the amount by which the Event Value (as defined below) exceeds the
Pre-Event Share Price (as defined below), by (2) the Pre-Event Share Price. The
"Pre-Event Share Price" shall be equal to the average of the closing sales
prices (or if there is no sales price, the last bid price) for a share of
Sensormatic's Common Stock, as such prices are reported through NASDAQ or the
principal exchange on which such shares are listed for trading, on the last
business day of each week during the twenty-six weeks immediately preceding the
first to
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occur of (x) the first public announcement relating to any proposed Change in
Control or Reorganization Event, or (y) any event resulting in the pendency of
an Attempted Change in Control which culminates, directly or indirectly, in the
Change in Control giving rise to Executive's rights under this Section 6(a)(v).
In the case of any Reorganization Event or Tender Offer, or combination or
series of Reorganization Events and/or Tender Offers, "Event Value" shall mean
the fair market value of the consideration paid per share of Sensormatic Common
Stock pursuant to such Reorganization Event or Tender Offer determined as of the
effective date of the Reorganization Event or of the consummation of the Tender
Offer, as the case may be, provided that in the event that different prices are
paid per share of Sensormatic Common Stock pursuant to such Reorganization
Event, Tender Offer or any combination or series thereof, the "Event Value"
shall be equal to the fair market value of the aggregate consideration paid
pursuant to all such Tender Offers and/or Reorganization Events (determined as
of the dates set forth above) divided by the number of shares of Sensormatic
Common Stock purchased pursuant to all such Tender Offers and/or Reorganization
Events. In case of any other transaction or series of transactions giving rise
to the right of Executive to receive the bonus provided for in this Section
6(a)(v), "Event Value" shall mean the highest fair market value of the
consideration paid per share of Sensormatic Common Stock pursuant to any such
transaction, determined as of the date of payment thereunder. The determination
of Event Value shall be conclusively made by an investment banking firm selected
by the Previous Members of the Board of Directors who are not entitled to
receive bonuses under this Section 6(a)(v) or analogous provisions of other
agreements; provided, that in the event that the Previous Members of the Board
of Directors fail to make such selection within 45 days after consummation of
the transaction giving rise to the right to rights under this Section 6(a)(v),
or the selected investment banking firm fails to make such a determination
within an additional 90 days, Event Value shall be determined by arbitration
under Section 16. Sensormatic shall pay all fees and expenses of any such
investment banker.
(C) The percentage of the Special Bonus Base which Executive shall be
entitled to receive as a bonus under this Section 6(a)(v) shall be 20% if the
Premium is at least 20% and shall increase by 3.2% for each one percent (and by
a fraction of 3.2% for each fraction of one percent) by which the Premium
exceeds 20%. For example, if the Premium were 30%, Executive would be entitled
to a bonus of 52% of the Special Bonus Base; if the Premium were 40.5%,
Executive would be entitled to a bonus of 85.6% of the Special Bonus Base; and
if the Premium were 50%, Executive would be entitled to a bonus of 116% of the
Special Bonus Base. The maximum bonus which Executive shall be entitled to
receive is 167% of the Special Bonus Base. No bonus shall be payable pursuant
to this Section 6(a)(v) if the Premium is less than 20%.
(b) Benefits on Termination. In the event of any termination, other
than termination by Sensormatic for Cause, of Executive's employment with
Sensormatic at any time following a "non-approved" Change in Control, Executive
shall be entitled to the following benefits:
(i) Subject to Section 4 hereof, Sensormatic shall, as soon
as practicable, pay to Executive a lump sum payment equal to the
amount of any then unvested interest which Executive may have had on
the date of such "non-approved" Change in Control (less any amount of
such interest subsequently vested), and as supplemented
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thereafter through the date of such termination, in Sensormatic's
profit sharing, ESOP or other retirement plans (other than the
Retirement Plan); and
(ii) Unless a trust or other arrangement previously determined
in writing to be satisfactory by a majority of the Previous Members of
the Board of Directors then in office assuring payment of benefits to
or for the benefit of Executive under Sensormatic's Retirement Plan in
the event of a Change in Control has been previously established and is
then in effect, Sensormatic shall take such steps as are necessary,
days after such termination, to fully fund all of Executive's benefits
under such Plan (after giving effect to the change in control
provisions of such Plan) through paid-up insurance, annuity contracts
and/or other similar means, so that the ultimate payment of benefits
(at a rate not less than the greater of the rates in effect under such
plan at the date of such termination or immediately after such Change
in Control) upon Executive's attaining retirement age under such Plan
or upon his earlier death or disability (as defined in such Plan)
(despite Executive's no longer being employed by Sensormatic) shall be
assured beyond any reasonable doubt; provided, however, that either
such manner of funding shall be structured so as not to constitute
"constructive receipt" by Executive its in question for income tax
purposes, or the benefits in question shall be lump sum, discounted to
present value in the manner provided in Section 8(a). In addition,
(following any such termination which is involuntary, the
non-competition provisions included in any such Plan shall have no
force or effect.
(c) Additional Benefits In the Case of a Voluntary Termination.
Subject to Section 4 hereof, in the event of Executive's voluntary termination
of employment with Sensormatic (other than by resignation contemplated in
Section 10 hereof) within the 24-month period immediately following a
"non-approved" Change in Control:
(i) Executive shall be entitled to receive, for each of the 6
months immediately following the effective date of such termination
and irrespective of whether Executive commences new employment within
such period, the greatest of (A) 1/12 of the amount of Executive's
most recent rate of annual base salary, plus 1/12 of Executive's most
recent annual bonus, (B) 1/12 of Executive's annual base salary and
target bonus in effect immediately prior to the date of such Change in
Control or (C) 1/12 of Executive's annual base salary and target bonus
as specified in Section 2 hereof;
(ii) If Executive has not commenced new regular, full time
employment during the first 6 months following the effective date of
such termination, Executive shall receive for each of the 7th through
12th months following such effective date of termination in which
Executive was not so employed for the entire month the amount payable
under Section 6(c)(i) hereof;
(iii) Within 30 days after the effective date of such
termination, Sensormatic shall pay to Executive an amount equal to his
pro rata annual bonus for the year in which termination occurs, based
on the target bonus for such year; provided; that if at the time of
such termination, it is probable, based upon interim period results
for the then-current fiscal year together with the current forecast
for the remainder of such year, that the conditions to payment of the
full amount of the target bonus will not be met, the amount of the
bonus payment hereunder may be reduced accordingly; and
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(iv) During that portion of the periods set forth in Sections
6(c)(i) and 6(c)(ii) hereof during which Executive has not commenced
new regular, full time employment,
(x) Sensormatic shall continue to provide to Executive the
fringe benefits enumerated in Sections 3(a), (b), (c) and (e) hereof
on at least the same basis as in effect immediately prior to the
Change in Control, and shall, if requested by Executive, provide
Executive with office space appropriate for his level and in close
proximity to the office he occupied at the time of the Change in
Control, secretarial help and local and long distance telephone
service; and
(y) Sensormatic shall provide Executive WITH APPROPRIATE
out-placement services, including counseling and traveling expenses to
such out-placement services, when necessary, as well as to potential
job interviews when not paid by the potential employer, all without
charge to Executive.
(d) Additional Benefits in Case of an Involuntary Termination. In the
event of the involuntary termination (other than termination by Sensormatic for
Cause) of Executive's employment with Sensormatic within the 36-month period
immediately following a "non-approved" Change in Control:
(i) Executive shall be entitled to receive, for each of the
18 months immediately following the effective date of such termination
and irrespective of whether Executive commences new employment within
such period, the greatest of (A) 1/ 12 of the amount of Executive's
most recent rate of annual base salary, plus 1/ 12 of Executive's most
recent annual bonus, (B) 1/ 12 of Executive's annual base salary and
target bonus in effect immediately prior to the date of such Change in
Control or (C) 1/ 12 of Executive's annual base salary and target
bonus as specified in Section 2 hereof;
(ii) If Executive has not commenced new regular, full time
employment during the first 18 months following the effective date of
such termination, Executive shall receive for each of the 19th through
24th months following such effective date of termination in which
Executive was not so employed for the entire month the amount payable
under Section 6(d)(i) hereof;
(iii) During that portion of the periods set forth in
Sections 6(d)(i) and 6(d)(ii) hereof during which Executive has not
commenced new regular, full time employment, Executive shall be
entitled to the benefits set forth in Section 6(c)(iv) hereof;
(iv) Within 30 days after the effective date of such
termination, Sensormatic shall pay to Executive an amount equal to his
pro rata annual bonus for the year in which termination occurs, based
on the target bonus for such year, subject to the proviso in Section
6(c)(iii) hereof; and
(v) On the date of such termination, ownership of the car
which Sensormatic was providing to Executive shall immediately be
transferred to Executive
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free and clear of any liens or other obligations, if such car is then
owned by Sensormatic. If such car is then leased, rather than owned,
by Sensormatic, Executive shall continue to have the use of such car
and Sensormatic shall continue to pay all lease payments and insurance
premiums with respect thereto until the end of the then existing term,
at which time Sensormatic shall purchase such car and shall transfer
title to such car to Executive. If, on the date of such termination,
Sensormatic is paying a car allowance to Executive in lieu of
providing a car to Executive, for each month in which Sensormatic is
obligated to make a monthly payment to Executive under Sections
6(d)(i) or 6(d)(ii) hereof, Executive shall receive 1/12 of the amount
of Executive's most recent rate of annual car allowance.
7. Benefits on "Approved" Change in Control.
(a) Benefits Effective Upon Change in Control.
(i) Subject to Section 4 hereof, in the event an "approved"
Change in Control occurs, Executive shall be entitled to all of the
rights and compensation set forth in Section 6(a) hereof.
(ii) In the event that Executive voluntarily terminates his
employment with Sensormatic (other than by resignation contemplated in
Section 10 hereof) at any time following an "approved" Change in
Control, Executive shall not be entitled to any benefits under this
Agreement other than as set forth in Section 7(a)(i) hereof.
(b) Additional Benefits Upon Involuntary Termination. In the event
that Executive's employment with Sensormatic is involuntarily terminated (other
than for Cause) within the 36-month period following an "approved" Change in
Control:
(i) Executive shall be entitled to receive, for each of the
first 18 months immediately following the effective date of such
termination and irrespective of whether Executive commences new
employment within such period, the greatest of (A) 1/12 of the amount
of Executive's most recent rate of annual salary, plus 1/12 of the
amount of Executive's most recent annual bonus, (B) 1/12 of
Executive's annual base salary and target bonus in effect immediately
prior to the date of such Change in Control or (C) 1/2 of Executive's
annual base salary and target bonus as specified in Section 2 hereof;
(ii) If Executive has not commenced new regular, full time
employment during the first 18 months following the effective date of
such termination, Executive shall receive for each of the 19th through
24th months following such effective date of termination in which
Executive was not so employed for the entire month the amount payable
under Section 7(b)(i) hereof;
(iii) Within 30 days after the effective date of such
termination, Sensormatic shall pay to Executive an amount equal to his
pro rata annual bonus for the year in which termination occurs, based
on the target bonus for such year, subject to the proviso in Section
6(c)(iii) hereof; and
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(iv) During that portion of the period set forth in section 7(b)(i)
hereof during which Executive has not commenced new regular, full time
employment, Executive shall be entitled to all of the rights and compensation
set forth in Section 6(c)(iv) hereof.
(c) In the event of any termination of Executive's employment to which
Section 6(c) or 6(d) or this Section 7 is applicable, Executive shall be under
no obligation to seek other employment and there shall be no offset against
amounts due Executive under this Agreement on account of any remuneration
attributable to any subsequent employment that he may obtain, except as
expressly set forth in Section 6(c) or 6(d) or this Section 7.
8. Benefits on Death or Disability.
(a) In the event of Executive's death at any time within 36 months
immediately following a Change in Control (whether "approved" or "non-approved")
and prior to any termination of Executive's employment, or in the event that
Executive had died prior to a Change in Control and that as of the date of such
Change in Control there remain outstanding amounts payable under Sensormatic's
Retirement Plan for Executive, unless in either case a trust or other
arrangement previously determined in writing to be satisfactory by a majority of
the Previous Members of the Board of Directors then in office assuring payment
of benefits to or for the benefit of the Executive under such Plan in the event
of a Change in Control has been previously established and is then in effect,
Sensormatic shall promptly pay to Executive's designated beneficiary or
Executive's heirs, executors, administrators or personal representatives
(collectively, "Successors") all of the remaining benefits under such Plan to
which Executive's Successors are then entitled, in the form of a lump sum
payment equal to the amount of such benefits discounted to present value using
an interest rate equal to the rate published by Pension Benefit Guaranty
Corporation for the purpose of discounting pension benefits to present value in
the event of a lump sum prepayment thereof, as then in effect, but such discount
rate shall in no event be greater than ten percent (10%) per annum.
(b) In the event of Executive's death or permanent and total disability
(within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended and in effect and interpreted as of the date of this Agreement) at any
time within the 24-month period immediately following a Change in Control and
prior to any termination of Executive's employment, Executive or Executive's
Successors shall be entitled to all of the benefits of Executive provided under
this Agreement as if Executive had voluntarily terminated his employment with
Sensormatic (but without giving effect to Section 4 hereof or to the loss of
benefits upon voluntary termination under Section 6(a)(v)(A) hereof), including,
without limitation, those set forth in Section 6(a)(iii) hereof.
(c) In the event of Executive's death or disability after termination of
Executive's employment with Sensormatic, Executive or Executive's Successors
shall be entitled to receive all remaining benefits to which Executive is
entitled under this Agreement.
9. Termination for Cause. In the event that Executive's employment with
Sensormatic is terminated for Cause at any time after any Change in Control,
whether "approved" or "non-approved", Executive shall not be entitled to any of
the benefits set forth in Sections 6, 7 or 8 of this Agreement not yet received
by him, except to the extent that Executive
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exercised rights prior to such termination with respect to options, Award Shares
or Conversion Shares as provided under Sections 6(a)(i), 6(a)(ii) and, 6(a)(iv)
hereof (including by reference under Section 7(a)(i) hereof). The foregoing
shall not affect any rights of Executive accrued other than by virtue of this
Agreement. For purposes of this Agreement, Sensormatic shall be deemed to have
terminated Executive's employment with Sensormatic for Cause only if such
termination is effected for any of the following reasons:
(a) gross neglect or willful misconduct by Executive in the performance
of Executive's duties resulting in material economic harm to Sensormatic; or
(b) the conviction of Executive for a felony involving moral turpitude
under federal or state law;
provided however, that the determination of the existence of the grounds
referred to in subparagraph (a) of this Section 9 shall be made, in good faith,
only (i) by a majority of the Previous Members of the Board of Directors who are
then in office with Sensormatic or a corporate successor of Sensormatic
(provided that such majority shall consist of not less than two persons); and
provided, further, that Executive shall be given prior written notice by the
Board of Directors of the intention to terminate him for Cause and the specific
grounds for such termination, as determined in accordance with this Section 9,
and shall be entitled to a hearing before such Previous Members of the Board of
Directors (or a committee thereof designated by such Previous Members) before
such termination becomes effective or (ii) if at least two Previous Members of
the Board of Directors are not then in office, by a majority of the persons who
are then, and were, for a period of two years immediately prior to such Change
in Control, officers of Sensormatic (or, if Sensormatic is then a division, such
persons who were previously such officers of Sensormatic and are then employed
in an executive or managerial capacity in the division).
10. Involuntary Termination Events. By way of illustration, and not of
limitation, each of the following events shall constitute involuntary
termination of Executive's employment with Sensormatic, provided that Executive
resigns from such employment within six months following such event, but in no
case later than 36 months immediately following a Change in Control, and
provided, further, that Executive shall not have consented to such event in
writing:
(a) Executive is assigned any duties or responsibilities that are
materially inconsistent with Executive's position, office, duties,
responsibilities or status immediately prior to the date of such Change in
Control, or a material change is made in Executive's reporting responsibilities,
titles or offices from those in effect immediately prior to such Change in
Control, or Executive is removed from, or is not re-elected to, any such
position or office, following such Change in Control, unless in connection with
the termination of Executive's employment with Sensormatic for Cause or by
reason of his death or disability; provided, however, that, in the event of an
"approved" Change in Control, as a result of which Sensormatic becomes a
division and not a separate corporation, a change to offices and titles in such
division reasonably comparable to the previous offices and positions in
Sensormatic and a reasonable change in reporting responsibilities shall not be
deemed such a material change;
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(b)(i) Executive's annual rate of base salary or target bonus is reduced
below the greater of the amounts (x) paid therefor immediately preceding the
date of such Change in Control or (y) expressly set forth in Section 2 hereof,
(ii) the formula for the calculation of Executive's bonus is changed in a manner
that could reasonably be anticipated to decrease the amount payable thereunder
or (iii) any other change is made with respect to Executive's salary or bonus
that would violate Section 2;
(c) a material reduction is made in the benefits set forth in paragraphs
(a) through (g) of Section 3 hereof or to any additional benefits or perquisites
which may have been granted to Executive subsequent to the date of this
Agreement (other than changes made in benefit plans required by law or
applicable regulations thereunder), as they may be in effect immediately prior
to the date of such Change in Control, or if any increase is made in the cost to
Executive for such benefits; or
(d) Executive is transferred or required to transfer to a location outside
of a 25-mile radius of Sensormatic's then-current headquarters in Palm Beach
County or Broward County, Florida (or, if Executive's position was located
outside of Palm Beach County or Broward County, Florida prior to such Change in
Control, Executive is transferred or required to transfer to a location located
more than 25 miles therefrom), or the principal place of business of Sensormatic
in which Executive's major duties have been carried out is transferred to a
location outside of a 25-mile radius of Sensormatic's then-current headquarters
in Palm Beach County or Broward County, Florida.
(e) Sensormatic fails to obtain the assumption in writing of its
obligation to perform this Agreement by any successor to all or substantially
all of the assets and/or business of Sensormatic within 15 days after a
Reorganization Event or any other transaction occurring in connection with, as a
result of or within 24 months following a Change in Control pursuant to which
Sensormatic is not the surviving corporation.
11. Payments. All monthly payments that Executive (or his Successors) is
entitled to receive under Sections 6 or 7 of this Agreement shall be paid by or
on behalf of Sensormatic on or before the 10th day of each month in which
payable, except that any regular payments required to be made under the plans
referred to in Section 6(b) hereof shall be made in accordance with the terms of
such plans. Any lump sum payable to Executive under Sections 6 or 8(a) of this
Agreement shall be paid by or on behalf of Sensormatic within 10 days after
Executive's right to such payment accrues.
12. Costs of Collection. Sensormatic agrees upon demand to pay all costs
and expenses of Executive (including, without limitation, reasonable counsel
fees and expenses) in connection with the enforcement, whether through
negotiations, arbitration or legal proceedings or otherwise, of this Agreement
and the collection of any benefits due to Executive hereunder.
13. No Effect on Employment. This Agreement is not, and nothing hereby
shall be deemed to create, a contract of employment between Sensormatic and
Executive. The right of Sensormatic to terminate Executive's employment with
Sensormatic or any subsidiary thereof, at any time at will or as otherwise
provided in the Officer Agreement or any other agreement between Sensormatic and
Executive, shall not be affected or limited by this Agreement and is
specifically reserved. Further, this Agreement shall not be deemed to require
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Sensormatic to continue, or to continue unmodified, any benefit plan or policy,
whether or not referred to in Section 3 hereof, provided that no Change in
Control shall have occurred and no Attempted Change in Control shall have
occurred and then be pending.
14 Conflicts with Other Agreements. Nothing contained in or arising out of
this Agreement shall be deemed to discharge, release or modify the obligations
of Sensormatic to Executive under the provisions of the Officer Agreement or any
other agreement between them or of any plan or program of Sensormatic,
regardless of whether the subject matter of any provision thereof is the same or
similar to that of any provision of this Agreement, the rights and remedies of
Executive under this Agreement and any other such agreement, plan or program
being cumulative and not in substitution of each other; provided, however, that
nothing in this Agreement shall entitle Executive to receive duplicative
payments of salary, bonus or other benefits. Further, nothing in this Agreement
shall diminish or otherwise adversely affect Executive's rights or benefits
accruing as a consequence of his death or disability, at any time after a Change
in Control, under the terms and conditions of the plans or programs of
Sensormatic in which Executive is a participant immediately prior to any Change
in Control and any additional plan or program of Sensormatic in which Executive
is a participant at the time of Executive's death or disability.
15. Maintenance of Plans. Sensormatic agrees that, for not less than 36
months after a Change in Control, it shall maintain in effect the plans and
programs in which Executive is a participant immediately prior to such Change in
Control (or comparable plans and programs) to the extent necessary to assure
that the rights and benefits of Executive thereunder shall be no less favorable
after such Change in Control than immediately prior thereto, provided, that
Sensormatic shall in no event make any change in the event of or at any time
after a Change in Control in the Retirement Plan resulting in a reduction of
Executive's benefits thereunder.
16. Arbitration. Any controversy or claim arising out of or relating to
this Agreement shall be settled by arbitration before the American Arbitration
Association in Miami, Florida, in accordance with the Commercial Arbitration
Rules of the American Arbitration Association. Judgment upon the award rendered
by the arbitrators may be entered in any court having jurisdiction thereof. Any
costs, including, without limitation, attorneys' fees and disbursements,
incurred by Executive in such arbitration or in connection with any appeal
therefrom or any action brought to enforce or collect any such award or judgment
thereon, shall be reimbursed by Sensormatic, provided, that Sensormatic shall
not be required to reimburse Executive hereunder in the event that the arbitral
panel or appeals court finds that Executive's claims and/or defenses are
substantially without reasonable basis.
17. Survival. This Agreement shall be binding on, enforceable against
and inure to the benefit of Executive and his heirs, executors, administrators,
personal representatives, successors and assigns and Sensormatic and its
successors and assigns, including, without limitation, any corporation with or
into which Sensormatic is merged or consolidated, or any entity which acquires
all or substantially all of the business and assets of Sensormatic, in
connection with any Change in Control. In connection with any sale, merger or
consolidation described in the preceding sentence, Sensormatic shall take all
actions permissible under applicable law in order to cause such other
corporation to expressly assume Sensormatic's liabilities, obligations and
duties hereunder.
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18. Notices. Any notice given to a party pursuant to or in connection with
this Agreement shall be in writing and shall be deemed to have been given when
delivered personally or sent by Federal Express or a similar overnight courier
service or by certified or registered mail, postage prepaid, return receipt
requested, duly addressed to the party concerned at the address indicated at the
beginning of this Agreement or to such changed address as such party may
subsequently give such notice of.
19. Severability. If any provision of this Agreement is found to be
invalid or unenforceable by a court of competent jurisdiction or an arbitral
panel under Section 16 hereof, this Agreement shall be interpreted and
enforceable as if such provision were severed or limited, but only to the extent
necessary to render such provision and this Agreement enforceable.
20. Governing Law. This Agreement shall in all respects be governed by and
construed in accordance with the laws of the State of Florida applicable to
agreements made and fully to be performed in such state, without giving effect
to conflicts of law principles.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
ate first set forth above.
SENSORMATIC ELECTRONICS
CORPORATION
By: /s/ R.A. VANOURCH
---------------------------------
Title: President & C.E.O.
------------------------------
EXECUTIVE Kenneth Chmiel
--------------------------
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<PAGE> 20
SCHEDULE I
Applicable Retirement Plans
I . Supplemental Executive Retirement Plan.
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<PAGE> 1
Exhibit 10(bb)
AGREEMENT
AGREEMENT, made as of the 14th day of September, 1998, by and between
SENSORMATIC ELECTRONICS CORPORATION, a Delaware corporation having its principal
place of business at 951 Yamato Road, Boca Raton, Florida 33431-0700
(hereinafter referred to as the "Corporation"), and John P. Smith, residing at
2202-2204 Courtside, Boca Raton, Florida 33433 (hereinafter referred to as the
"Employee");
WITNESSETH:
WHEREAS, the Employee is an officer and employee of the Corporation, and is
expected to make a significant contribution to the performance and growth of the
Corporation; and
WHEREAS, in order to best dedicate himself to his duties with the
Corporation, and to avoid the distractions and market pressures which may arise
as a result of an employment-at-will relationship, the Employee wishes to be
assured of receiving, or continuing to receive for a certain period, certain
compensation and benefits in the event of the termination of his employment
without cause by the Corporation; and
WHEREAS, the Corporation has determined that the continued services of the
Employee to the Corporation are in the best interest of the Corporation and its
stockholders, and desires to assure such continued services by agreeing to
provide the Employee certain rights as to termination compensation, subject to
certain reasonable limitations on the Employee's future employment necessary to
protect the legitimate interests of the Corporation in fair competition, and
subject to such other conditions as are set forth hereunder;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto agree as follows:
1. EMPLOYMENT AT WILL. The Employee shall serve the Corporation as its Vice
President and President - International Retail Operations and shall serve in
such other executive capacity as may be reasonably determined by the President
and the Board of Directors and is reasonably acceptable to him. The parties
acknowledge and agree that the Employee's employment with the Corporation is not
contracted for any fixed term, but shall continue until terminated by either
party, with or without cause, by giving written notice to the other party
pursuant to Section 3 hereunder. The provisions of this Agreement which are
intended to apply and be effective subsequent to such termination of employment
shall survive and continue to be enforceable.
2. COMPENSATION.
(a) The Employee's present base salary is $200,000 per year and the
Employee's present targeted bonus is $100,000 per year. In addition, the
Employee presently participates in or benefits from, or may later qualify to
participate in or benefit from, the Corporation's group medical, dental and life
insurance plans, Executive Personal Umbrella Liability insurance plan, Executive
Medical Reimbursement Plan, SensorSave Plan, Supplemental Executive Retirement
Plan, Stock Incentive Plan and certain other fringe benefit plans or policies as
the Corporation makes available to or has in effect for its executive personnel
from time to time. After the date of this Agreement, such compensation and
benefits may be increased or decreased, discontinued or modified, as determined
by the Corporation's Board of Directors or the Compensation Committee thereof,
subject to the provisions of Section 3(c)(i) below.
<PAGE> 2
(b) Except as hereinafter provided, the Corporation shall pay the
employee, for any period that this Agreement is in effect during which he is
unable fully to perform his duties because of physical or mental disability or
incapacity, an amount equal to the base salary due him for such period based on
his rate of base salary just prior to the disability, less the aggregate amount
of all income disability benefits which for such period he may receive or to
which he may be entitled under or by reason of (i) any group health insurance
plan; (ii) any applicable compulsory state disability law; (iii) the Federal
Social Security Act; (iv) any applicable workmen's compensation law or similar
law; and (v) any plan towards which the Corporation or any parent, subsidiary or
affiliate of the Corporation has contributed or for which it has made payroll
deductions, such as group accident or health policies or the Key Executive
Supplemental Retirement Plan.
3. COMPENSATION UPON TERMINATION.
(a) The Employee may terminate his employment with the Corporation at
any time by giving written notice to the Corporation. Except as provided in
Section 3(c) below, the Corporation's sole obligation to the Employee in such
event is (i) to pay the Employee's base salary to the date of termination, (ii)
to pay any non-discretionary incentive compensation which had been earned but
not yet paid for any evaluation period completed prior to the date of notice of
termination, and (iii) to complete any obligations required to be discharged
under the terms of group benefit plans. No further compensation (including,
without limitation, payment of severance compensation, discretionary bonus
compensation for any period, or incentive compensation for the current
evaluation period as of the date of notice, whether through discretionary or
targeted plans) shall be paid to the Employee, pro-rata or otherwise, and all
other benefits and perquisites (including, without limitation, stock options,
executive medical reimbursement, corporate country club privileges and auto
allowances) shall be canceled as of the date of termination.
(b) The Corporation may terminate the Employee's employment with the
Corporation at any time by giving written notice to the Employee. In the event
of such termination (except for cause pursuant to Section 4 hereunder, and
subject to the Employee's continued compliance with the provisions of Sections
5, 6 and 7 below), the Employee shall be entitled to:
(i) base salary through the date of termination of his
employment;
(ii) non-discretionary incentive compensation which had been
earned but not yet paid for any evaluation period completed prior to the date of
termination;
(iii) base salary, at the annualized rate in effect on the date
of termination of employment (or in the event a reduction in base salary is the
basis for a termination pursuant to Section 3(c) below, then the base salary in
effect immediately prior to such reduction), for a period of 18 months following
such termination (the "Continuation Period"), payable at the same regular
intervals as in effect prior to the termination, provided, however, that in the
event the Employee procures full time employment at any time during the Contin-
uation Period, base salary payable hereunder shall continue to be paid only for
a period equal to one-half of the remainder of the Continuation Period;
(iv) a thirty (30) day period following termination in which the
Employee may exercise any vested stock options (all unvested options, as well
as shares of restricted stock issued under the Corporation's long-term incentive
plan/Success Sharing Program, or any subsequently adopted similar plan, shall
automatically terminate and be canceled upon the Employee's termination of
employment);
(v) participation until the end of the Continuation Period,
through Corporation-paid COBRA premiums, in medical and dental insurance
coverage equivalent to that offered to active employees at such time (including
spouse or family coverage, if applicable); provided that the
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<PAGE> 3
Corporation's obligations under this clause shall be reduced to the extent that
the Employee is eligible for similar coverage and benefits under the plans and
programs of a subsequent employer; and
(vi) other or additional benefits in accordance with applicable
group plans and programs of the Corporation (subject to any and all Employee
obligations or contributions required by such plans and programs, which shall
continue to be paid by the Employee) which, by their terms, survive termination,
Except as provided above, no further compensation (including,
without limitation, payment of discretionary bonus compensation for any period
or incentive compensation for the current evaluation period as of the date of
termination, whether through discretionary or targeted plans) shall be paid to
the Employee, pro-rata or otherwise, and all other benefits and perquisites
(including, without limitation, stock options, executive medical reimbursement,
corporate country club privileges and auto allowances) shall be canceled as of
the date of termination.
(c) In the event that any of the following events occur, the Employee
may terminate his employment with the Corporation within twelve (12) months of
the occurrence of such event by giving written notice to the Corporation, and
shall thereupon be entitled to the payments, entitlements and benefits provided
in Section 3(b) above as if the Corporation had terminated the Employee's
employment with the Corporation pursuant to Section 3(b) above.
(i) a reduction in the Employee's then current base salary, or a
reduction in the Employee's targeted bonus under a non-discretionary incentive
compensation plan not offset by a corresponding increase in base salary, or the
termination or material reduction of any employee benefit or perquisite enjoyed
by him without his permission or agreement (in each case, other than as part of
an across-the-board reduction of such compensation, benefit or perquisite
applicable to all officers of the Corporation);
(ii) a material diminution in the Employee's duties, or the
assignment to the Employee of duties, such that the remaining duties are
materially inconsistent with the duties of an officer of the Corporation; or
(iii) the failure of the Corporation to obtain the assumption in
writing of its obligation to perform this Agreement by any successor to all or
substantially all of the assets of the Corporation within 15 days after a
merger, consolidation, sale or similar transaction.
(d) In the event that the aggregate of all payments or benefits made
or provided to the Employee following a change in control of the Corporation
under this Agreement and under all other plans and programs of the Corporation
(the "Aggregate Payment") is determined to include an excess parachute payment,
as such term is defined in Section 280G(b)(1) of the Internal Revenue Code, the
Corporation shall pay to the Employee, prior to the time any excise tax imposed
by Section 4999 of the Internal Revenue Code ("Excise Tax") is payable with
respect to such excess parachute payment, an additional amount which, after the
imposition of all income and excise taxes thereon, is equal to the Excise Tax on
the excess parachute payment. The determination of whether the Aggregate Payment
includes an excess parachute payment and, if so, the amount to be paid to the
Employee and the time of payment pursuant to this Section 3(d) shall be made by
an independent auditor (the "Auditor") jointly selected by the Corporation and
the Employee and paid by the Corporation. The Auditor shall be a nationally
recognized United States public accounting firm which has not, during the two
years preceding the date of its selection, acted in any way on behalf of the
Corporation or any affiliate thereof. If the Employee and the Corporation cannot
agree on the firm to serve as the Auditor, then the Employee and the Corporation
shall each select one accounting firm and those two firms shall jointly select
the accounting firm to serve as the Auditor.
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<PAGE> 4
4. TERMINATION FOR CERTAIN CAUSES. Notwithstanding anything to the contrary
set forth elsewhere herein, in the event of the willful misconduct of the
Employee in the performance of his duties hereunder resulting in significant
economic harm to the Corporation or the conviction of the Employee for a felony
under federal or state law relating to the assets, business or affairs of the
Corporation or involving moral turpitude, the Employee's employment with the
Corporation may be terminated by the Corporation by written notice to the
Employee, provided that the Employee shall be given prior written notice by the
Board of Directors of the intention to terminate him for cause and the specific
grounds for such termination. The Employee shall be entitled to a hearing before
the Board before such termination becomes effective.
5. DISCLOSURE AND ASSIGNMENT OF DISCOVERIES. The Employee shall (without
any additional compensation) promptly disclose in writing to the Board of
Directors of the Corporation all ideas, formulae, programs, systems, devices,
processes, business concepts, discoveries and inventions (hereinafter referred
to collectively as "discoveries") whether or not patentable, which the Employee,
while employed by the Corporation, conceives, makes, develops, acquires or
reduces to practice, whether alone or with others and whether during or after
usual working hours, and which are related to the Corporation's business or
interests, or are used or usable by the Corporation; and the Employee hereby
transfers and assigns to the Corporation all right, title and interest in and to
said discoveries, including any and all domestic and foreign patent rights
therein and any renewals thereof. On request of the Corporation, the Employee
shall (without any additional compensation), from time to time during or after
the expiration or termination of his employment, execute such further
instruments (including, without limitation, applications for letters patent and
assignments thereof) and do all such other acts and things as may be deemed
necessary or desirable by the Corporation to protect and/or enforce its rights
in respect of said discoveries. All expenses of filing or prosecuting any patent
applications shall be borne by the Corporation, but the Employee shall cooperate
in filing and/or prosecuting any such applications.
6. CONFIDENTIALITY. The Employee agrees that all patent rights, inventions,
technical information and know-how and trade secrets relating to the
Corporation's electronic security systems and any other products in development
or marketed by the Corporation, any information relating thereto, and any other
information relating to the business or interests of the Corporation which he
knows or should know, is regarded as confidential and valuable by the
Corporation (whether or not any of the foregoing information is actually novel
or unique or is actually known to others), made available to the Employee by the
Corporation or acquired by the Employee from the Corporation, other than that
which legally and legitimately is or becomes of general public knowledge or
passes into the public domain from authorized sources other than the Employee,
will be held in confidence and will not be divulged (or caused or permitted to
be divulged) by the Employee, without the prior written consent of the
Corporation, to any person or entity, except to responsible officers and
employees of the Corporation and other responsible persons who are in a
contractual or fiduciary relationship with the Corporation or who have a need
for such information for purposes in the interest of the Corporation or
otherwise in the course of carrying out his duties hereunder and except when
required to disclose such information by a court of law, by any governmental
agency having supervisory authority over the business of the Company or by any
administrative or legislative body (including a committee thereof) with the
apparent jurisdiction to order him to divulge, disclose or make accessible such
information. The Employee further agrees that his obligations of secrecy and
confidentiality under this Section 6 shall survive any termination of this
Agreement unless specifically waived in writing by the Corporation and, in the
event of any such termination, the Employee shall never use or market, nor
disclose to others nor assist others in using or marketing, any of the
information or property rights of the Corporation referred to in this Section 6,
other than that which legally and legitimately is or becomes of general public
knowledge or passes into the public domain from authorized sources other than
the Employee.
7. NON-COMPETITION. In order to protect the legitimate business interests
of the Corporation, such as, without limitation, in its trade secrets,
confidential and professional information, substantial
4
<PAGE> 5
relationships with existing and prospective customers, and investments in
extraordinary and specialized training, the Employee shall not, directly or
indirectly:
(a) engage in the business of manufacturing, leasing, selling,
maintaining, or servicing, anywhere in the world, anti-shoplifting, theft
detection, inventory/asset control, closed circuit television, access control,
article surveillance devices or other products which are similar to or purport
to accomplish results similar to the Corporation's electronic article
surveillance, closed circuit television and access control systems and other
products being developed or marketed by the Corporation during the Employee's
employment with the Corporation;
(b) render any services as an officer, director, employee, partner,
consultant or otherwise to, or have any interest as a stockholder, partner,
lender or otherwise in, any entity which is so engaged;
(c) solicit or attempt to solicit business of any customers of the
Corporation for products or services the same or similar to those offered, sold,
produced or under development by the Corporation during the Employee's
employment with the Corporation;
(d) solicit or attempt to solicit for any business endeavor any
employee of the Corporation;
(e) accept any orders for products or services or any other business
from any customers of the Corporation for products or services the same or
similar to those offered, sold, produced or under development by the Corporation
during the Employee's employment with the Corporation; or
(f) hire or retain as a consultant - or render any services as an
officer, director, employee, partner, consultant or otherwise to, or have any
interest as a stockholder, partner, lender or otherwise in, any entity which
hires or retains as a consultant - any person which, within six (6) months prior
to the date of such hiring or retention, had been employed by the Corporation in
a sales, marketing, managerial or professional (e.g. accounting, engineering,
legal) capacity;
during the term of the Employee's employment with the Corporation and (i) in
connection with the business of electronic article surveillance products or
services, for a period of eighteen (18) months from and after the date of
termination of such employment, (ii) in connection with the business of closed
circuit television and/or video products or services, for a period of twelve
(12) months from and after the date of termination of such employment, or (iii)
for such lesser area or lesser period as may be determined by a court of law or
equity to be a reasonable limitation on the competitive activity of the
Employee, it being understood and agreed by the parties hereto that this
provision is reasonably necessary to protect the patent rights, inventions,
technical information and know-how, trademarks and the good will and reputation
of the Corporation. For the purpose of this Section 7, the term "Corporation"
shall include any and all affiliates of the Corporation in existence from time
to time. Notwithstanding anything to the contrary contained in this Section 7,
the provisions hereof shall not prevent the Employee from purchasing or owning
up to two (2%) percent of the voting securities of any corporation, the stock of
which is publicly traded.
8. TERMINATION OF BENEFITS AND INJUNCTIVE RELIEF. In the event of a breach
or threatened breach by the Employee of any of the provisions of Sections 5, 6
and 7, the Corporation shall be entitled, if it shall so elect, to (a) terminate
any remaining benefits (including any unpaid severance payments or unexercised
options) otherwise due or outstanding pursuant to Section 3, and/or (b) except
in the case of a breach or threatened breach of Section 7(e) or (f), institute
legal proceedings to obtain damages or to enforce the specific performance of
such provisions by the Employee and to enjoin the Employee from any further
violation of such provisions and to exercise such remedies cumulatively or in
conjunction with all other rights and remedies provided by law. The Employee
acknowledges, however, that the remedies at law for any breach or threatened
breach by him of such provisions may be inadequate and that the Corporation
shall be entitled to injunctive relief against him in the event of any breach or
threatened breach.
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9. ENTIRE AGREEMENT. This Agreement supersedes all prior agreements and
understandings between the parties pertaining to the subject matter hereof
(other than (i) the May 1, 1998 offer letter from Robert Vanourek to the
Employee, as amended by the May 18, 1998 Addendum to Offer Letter, and (ii) the
plans and policies referred to in Sections 2 hereof and any other agreements or
understandings pertaining thereto) and may not be changed or terminated orally,
and no change, termination or attempted waiver of any of the provisions hereof
shall be binding unless in writing and signed by the party against whom the same
is sought to be enforced; provided, however, that the Employee's compensation
and/or benefits may be increased at any time by the Corporation without in any
way affecting any of the other terms and conditions of this Agreement, which in
all other respects shall remain in full force and effect.
10. SUCCESSORS AND ASSIGNS. Neither party shall have the right to assign
this personal Agreement, or any rights or obligations hereunder, without the
consent of the other party, provided, however, that upon the sale of all or
substantially all of the assets, business and goodwill of the Corporation to
another corporation, or upon the merger or consolidation of the Corporation with
another corporation, this Agreement shall inure to the benefit of, and be
binding upon, both the Employee and the corporation purchasing such assets,
business and goodwill, or surviving such merger or consolidation, as the case
may be, in the same manner and to the same extent as though such other
corporation were the Corporation. In the event of a sale, merger or
consolidation described in the preceding sentence, the Corporation shall take
whatever action it legally can in order to cause such other corporation to
expressly assume the liabilities, obligations and duties of the Corporation
hereunder. Subject to the foregoing, this Agreement shall inure to the benefit
of, and bind, the parties hereto and their legal representatives, heirs,
successors and assigns.
11. GOVERNING LAW. This Agreement is made and executed and shall be
governed by the laws of the State of Florida, without giving effect to choice of
law principles.
12. INDEMNIFICATION.
(a) The Corporation agrees that if the Employee is made a party, or
is threatened to be made a party, to any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "Proceeding"), by reason of
the fact that he is or was a director, officer, or employee of the Corporation
or is or was serving at the request of the Corporation as a director, officer,
member, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, whether or not the basis of such Proceeding is the Employee's alleged
action in an official capacity while serving as a director, officer, member,
employee or agent, the Employee shall be indemnified and held harmless by the
Corporation to the fullest extent legally permitted or authorized by the
Corporation's certificate of incorporation or bylaws or resolutions of the
Company's Board of Directors or, if greater, by the laws of the State of
Delaware against all cost, expense, liability and loss (including, without
limitation, attorney's fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be paid in settlement) reasonably incurred or suffered by
the Employee in connection therewith, and such indemnification shall continue as
to the Employee even if he has ceased to be a director, officer, member,
employee or agent of the Corporation or other entity and shall inure to the
benefit of the Employee's heirs, executors and administrators. The Corporation
shall advance to the Employee all reasonable costs and expenses incurred by him
in connection with a Proceeding within 20 days after receipt by the Corporation
of a written request for such advance. Such request shall include an undertaking
by the Employee to repay the amount of such advance if it shall ultimately be
determined that he is not entitled to be indemnified against such costs and
expenses.
(b) Neither the failure of the Corporation (including its board of
directors, independent legal counsel or stockholders) to have made a
determination prior to the commencement of any Proceeding concerning payment of
amounts claimed by the Employee under Section 12(a) above that
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indemnification of the Employee is proper because he has met the applicable
standard of conduct, nor a determination by the Corporation (including its board
of directors, independent legal counsel or stockholders) that the Employee has
not met such applicable standard of conduct, shall create a presumption that the
Employee has not met the applicable standard of conduct.
13. REPRESENTATION. The Corporation represents and warrants that it is
fully authorized and empowered by action of the Board of Directors to enter into
this Agreement and that the performance of its obligations under this Agreement
will not violate any agreement between it and any other person, firm or
organization.
14. SEVERABILITY. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, in
whole or in part, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law.
15. SURVIVORSHIP. The respective rights and obligations of the parties
hereunder shall survive any termination of the Employee's employment to the
extent necessary to the intended preservation of such rights and obligations.
16. BENEFICIARIES/REFERENCES. The Employee shall be entitled, to the
extent permitted under the applicable law, to select and change a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder following
the Employee's death by giving the Company written notice thereof. In the event
of the Employee's death or a judicial determination of his incompetence,
reference in this Agreement to the Employee shall be deemed, where appropriate,
to refer to his beneficiary, estate or other legal representative.
17. RESOLUTION OF DISPUTES. Except for disputes which are subject to the
provisions of Section 8, any disputes arising under or in connection with this
Agreement shall, at the election of the Employee or the Company, be resolved by
binding arbitration, to be held in Ft. Lauderdale, Florida in accordance with
the rules and procedures of the American Arbitration Association. Judgment upon
the award rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof. Any judgment or order entered in such action shall contain
a specific provision providing for the prevailing party's recovery of its
attorneys' fees and costs in bringing the action and enforcing the judgment from
the losing party. "Prevailing Party" shall mean the party which has been granted
the relief or remedy sought, or which has obtained judgment for damages of at
least 50 percent of the amount claimed.
18. NOTICES. Any notice given to a party shall be in writing and shall be
deemed to have been given when delivered personally or sent by certified or
registered mail, postage prepaid, return receipt requested, duly addressed to
the party concerned at the address indicated at the beginning of this Agreement
or to such changed address as such party may have specified by written notice
hereunder.
19. HEADINGS. The headings of the sections contained in this Agreement are
for convenience only and shall not be deemed to control or affect the meaning or
construction of any provision of this Agreement.
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20. COUNTERPARTS. This Agreement may be executed in two or more
counterparts.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
SENSORMATIC ELECTRONICS CORPORATION JOHN P. SMITH
By: /s/ Robert A. Vanourek By: /s/ John P. Smith
------------------------------------- -----------------------------
Robert A. Vanourek
President and Chief Executive Officer
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<PAGE> 1
Exhibit 10(cc)
AGREEMENT
AGREEMENT, dated as of September 14, 1998, by and between
SENSORMATIC ELECTRONICS CORPORATION, a Delaware corporation having its principal
place of business at 951 Yamato Road, Boca Raton, Florida 33431 ("Sensormatic"),
and JOHN P. SMITH, an individual whose address is 2202-2204 Courtside, Boca
Raton, Florida 33433 ("Executive").
WITNESSETH:
WHEREAS, Executive is an employee of Sensormatic, with the
title of Vice President and President - International Retail Operations, and is
expected to make a significant contribution to the performance and growth of
Sensormatic;
WHEREAS, the Board of Directors of Sensormatic recognizes
that, as is the case with many publicly-held corporations, the possibility of a
Change in Control (as defined below) exists and that such possibility, and the
uncertainty which it may raise among Sensormatic's management, may result in
the distraction or departure of management personnel to the detriment of
Sensormatic and its stockholders, particularly at a time when Sensormatic is
placing heavy demands on its management in connection with its efforts to expand
its product lines and markets, restructure its operations and reduce its
expenses;
WHEREAS, the Board of Directors of Sensormatic has determined
that the continued services of Executive to Sensormatic are in the best interest
of Sensormatic and its stockholders and desires to assure such continued
services by agreeing to provide to Executive certain rights as to termination
compensation in the event of a Change in Control;
WHEREAS, the Board of Directors of Sensormatic believes that
the grant of such rights to Executive will help assure Executive's continuing
dedication to his duties to Sensormatic, notwithstanding the occurrence of any
Change in Control, and, in particular, will enable Executive to objectively and
impartially assess, and advise the Board of Directors with respect to, any
proposal received by Sensormatic regarding a Change in Control and to take such
action regarding any such proposal as the Board of Directors may deem to be
appropriate; and
WHEREAS, Sensormatic and Executive are parties to an Agreement
dated September 14, 1998 (the "Officer Agreement");
NOW, THEREFORE, in consideration of the premises and for other
good and valuable consideration, the parties hereby agree as follows:
1. TERM.
(a) The term of this Agreement shall commence on the date
hereof (which for all purposes of this Agreement shall mean the date first above
written) and shall continue until a Change in Control shall occur and for so
long thereafter as Sensormatic has or may have any obligations under Sections 6,
7, 8, 12, 13 or 15 hereof.
(b) Notwithstanding the provisions of Section l(a) hereof,
Sensormatic shall have the right to terminate this Agreement, effective on any
anniversary of the date of this Agreement, provided that no Change in Control
shall have occurred and no Attempted Change in
<PAGE> 2
Control (as defined below) shall have occurred and then be pending, in the event
that any Attempted Change in Control is not followed by a Change in Control and
is no longer pending, Sensormatic shall again be entitled to terminate this
Agreement as provided in the first sentence of this Section 1(b). Sensormatic
may effect a termination of this Agreement hereunder solely by notifying
Executive thereof at least 30 days prior to the relevant anniversary date hereof
(c) Notwithstanding the provisions of Sections 1(a) and l(b)
hereof, this Agreement shall terminate automatically in the event of the
voluntary or involuntary termination of Executive's employment with Sensormatic
prior to the occurrence of a Change in Control, so long as, at the time of such
termination of employment, no Attempted Change in Control shall have occurred
and then be pending. Notwithstanding anything contained in this Agreement to the
contrary, if Executive's employment is terminated by Sensormatic prior to a
Change in Control, which Change in Control occurs, and Executive reasonably
demonstrates that such termination was at the request of a third party who
effectuates such Change in Control or that such termination was directly related
to such Change in Control, then for all purposes of this Agreement, Executive
shall be entitled to the payments and other benefits provided under this
Agreement as if such termination had occurred following such Change in Control.
2. SALARY AND BONUS. Executive's present base salary is
$200,000 per year and Executive's target bonus is deemed to be $100,000 per
year. After the date of this Agreement, Executive's annual base salary and
target bonus may be increased or decreased as determined by the chief executive
officer of Sensormatic and approved by Sensormatic's Board of Directors or any
compensation committee thereof, except as otherwise provided by the Officer
Agreement, provided, however, that none of the following shall be effective
during the pendency of an Attempted Change in Control or in the event of a
Change in Control or at any time within 36 months after a Change in Control has
occurred: (i) any decrease in Executive's annual base salary or target bonus
from the amounts set forth above (or any greater amounts subsequently so
determined and approved), or (ii) any change in the formula then in effect for
calculation of Executive's bonus that could be reasonably anticipated to result
in a decrease in the amount payable thereunder.
3. FRINGE BENEFITS. Sensormatic currently provides to
Executive the fringe benefits listed below, without cost to Executive, and,
while nothing in this Agreement shall be deemed to require Sensormatic to
continue any such benefits or to prohibit Sensormatic from modifying any such
benefits in any respect, except that there shall be no material reduction in any
such currently provided benefits (and there shall be no material reduction in
any additional benefits subsequently approved by Sensormatic's Board of
Directors or any Committee thereof) during the pendency of an Attempted Change
in Control or in the event of a Change in Control or at any time within 36
months after a Change in Control has occurred (and, in addition, there shall
not, at any time following a Change in Control, be any change in the
non-qualified retirement plan or plans of the Corporation for key executives in
which Executive is a participant, as listed on Schedule I hereto, or any similar
or successor plan (the "Retirement Plan", which shall include, for all purposes
of this Agreement, any agreement between Sensormatic and Executive under any
such Plan) resulting in a reduction of Executive's benefits thereunder), it is
anticipated that such benefits (together with any such additional benefits)
shall continue to be provided to Executive on the same or a substantially
similar basis in the future in accordance with the terms of the applicable
benefit plans and policies:
(a) group medical and group dental plans in which Executive
and his eligible dependents are participants;
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(b) life insurance on Executive's life and accidental death
and dismemberment insurance, each equal to two times Executive's annual base
salary (but not to exceed $800,000 or such greater amount as may be established
by Sensormatic for such purposes from time to time);
(c) participation in Sensormatic's retirement and/or profit
sharing plans (including the Retirement Plan) and in Sensormatic's annual
contributions, if any, thereto, provided that such participation is contingent
on Executive's continued qualification prior to any such Change in Control or
attempted Change in Control as an eligible participant under the provisions of
such plans as then in effect and on Executive's election to continue his
participation in such plans;
(d) the use of a Sensormatic owned or leased automobile or
payment of its equivalent allowance, and comprehensive insurance protection on
such vehicle;
(e) disability income protection;
(f) reimbursement of Executive for reasonable travel and
entertainment expenses incurred by Executive in connection with the business of
Sensormatic; and
(g) the provision to Executive of office space befitting
Executive's position, secretarial help, and access to WATS lines.
Further, Sensomatic expects that, during the term of this Agreement, and so long
as Executive continues to be employed by Sensormatic, Executive's position shall
continue to be located in Palm Beach County or Broward County, Florida (or, if
Executive's position is located outside of Broward County or Palm Beach County,
Florida prior to any Attempted Change in Control or Change in Control, such
position shall continue to be located at substantially the same location), and
that the duties and responsibilities of Executive's position shall not be
significantly diminished.
4. EMPLOYMENT COMMITMENT. As partial consideration for the
benefits available to Executive under this Agreement, Executive hereby agrees to
remain as an officer and employee of Sensormatic during any Attempted Change in
Control and for a period of six months immediately after a Change in Control
first occurs (the "Commitment Period"), and during the Commitment Period to
devote substantially all his business time and efforts to the business and
affairs of Sensormatic, provided that Executive shall be entitled to terminate
his employment by Sensormatic during an Attempted Change in Control or at any
time following a Change in Control in circumstances which constitute an
involuntary termination pursuant to Section 10 hereof. Executive's participation
in other businesses, as a director or otherwise, with the approval of
Sensormatic's Board of Directors (which approval shall be deemed to include the
Board of Directors not objecting to such participation following disclosure
thereof to the Board of Directors by Executive, and which approval may not be
withdrawn following such Change in Control) shall not be deemed to contravene
the foregoing provision. In the event that Executive voluntarily terminates his
employment with Sensormatic (other than by resignation contemplated
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in Section 10 hereof) at any time during the Commitment Period, Executive shall
not be entitled to any of the benefits provided for in this Agreement, other
than those provided under Sections 6(a)(i), 6(a)(ii), 6(a)(iii), 6(a)(iv),
6(b)(ii), 12, 13 and 15 hereof, and shall promptly repay to Sensormatic, on an
after-tax basis, any benefits previously received by him pursuant to any
provisions of Sections 6 or 7 of this Agreement not referred to in this
sentence, but Sensormatic shall have no other remedy for Executive's failure to
remain an employee and officer as required by this Section 4. Any amounts or
benefits received by Executive pursuant to the Officer Agreement or any other
written employment agreement between Sensormatic and Executive or any other
compensation plan or arrangement of Sensormatic, even if similar or identical to
those to which he would be entitled under this Agreement, shall not be deemed
received pursuant to this Agreement or be repayable to Sensormatic for purposes
of the preceding sentence.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, the term "Change in
Control" shall mean a change in control of Sensormatic of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
provided, that, without limitation, such a change in control shall be deemed to
have occurred if (i) any person (as such term is used in Sections 13(d) and
14(d) of the Exchange Act, "Person") is or becomes the "beneficial owner" (as
defined in Rule l3d-3 under the Exchange Act, "Beneficial Owner"), directly or
indirectly, of securities of Sensormatic representing 30% or more of the
combined voting power of Sensormatic's then outstanding voting securities, (ii)
Sensormatic consummates a merger, consolidation, share exchange, division or
other reorganization of Sensormatic with any other corporation or entity, unless
the shareholders of Sensormatic immediately prior to such transaction
beneficially own, directly or indirectly, (A) if Sensormatic is the surviving
corporation in such transaction, 60% or more of the combined voting power of
Sensormatic's outstanding voting securities as well as 60% or more of the total
market value of Sensormatic's outstanding equity securities, (B) if Sensormatic
is not the surviving corporation, 80% or more of the combined voting power of
the surviving entity's outstanding voting securities as well as 80% or more of
the total market value of such entity's outstanding equity securities, or (C) in
the case of a division, 80% or more of the combined voting power of the
outstanding voting securities of each entity resulting from the division as well
as 80% or more of the total market value of each such entity's outstanding
equity securities, in each case in substantially the same proportion as such
shareholders owned shares of Sensormatic prior to such transaction; (iii)
Sensormatic adopts a plan of complete liquidation or winding-up of Sensormatic;
(iv) the shareholders of Sensormatic approve an agreement for the sale or
disposition (in one transaction or a series of transactions) of all or
substantially all of Sensormatic's assets; or (v) during any period of 24
consecutive months, individuals (y) who at the beginning of such period
constitute the Board of Directors of Sensormatic or (z) whose election,
appointment or nomination for election was approved prior to such election or
appointment by a vote of at least two-thirds of the directors in office
immediately prior to such election or appointment who were directors at the
beginning of such two-year period (other than any directors who prior to the
Change in Control were associated or affiliated with any Person involved with
any Change in Control or Attempted Change in Control), cease for any reason to
constitute at least three-fourths of the Board of Directors of Sensormatic.
(b) For purposes of this Agreement, an "Attempted Change in
Control" shall be deemed to have occurred (i) if any Person files (or fails to
file when required to do so) with
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the Securities and Exchange Commission (the "SEC") a Statement on Schedule 13D
relating to voting securities of Sensormatic (A) disclosing the acquisition of
10% or more thereof or (B) while disclosing the acquisition of less than 10% of
such voting securities, indicates an intention to effect any of the transactions
listed in Item 4 of Schedule 13D or otherwise to effect a Change in Control,
(ii) upon the public announcement (including, without limitation, the filing
with the SEC of a Statement on Schedule 14D-1) by any Person of an intention to
make a tender offer or otherwise to effect a Change in Control, (iii) in the
event of any solicitation of proxies for the election of directors of
Sensormatic pursuant to Rule 14a-11 of the Rules and Regulations under the
Exchange Act or the filing of a Statement on Schedule 14B in anticipation
thereof, (iv) the receipt by Sensormatic from any Person of any other
communication proposing, or indicating an intention, to effect a Change in
Control by the acquisition of voting securities of Sensormatic, the solicitation
of proxies for the election of directors or otherwise or (v) if the Board of
Directors of Sensormatic or an authorized committee thereof otherwise determines
that an Attempted Change in Control is pending. The termination of the pendency
of an Attempted Change in Control shall be determined by the Board of Directors
of Sensormatic (or an authorized committee thereof); provided, that any
Attempted Change in Control shall in any event be deemed to have terminated upon
the occurrence of a Change in Control.
(c) A Change in Control shall be deemed, for purposes of this
Agreement, to be: (i) "non-approved" if (A) in connection with the consideration
thereof by the Board of Directors of Sensormatic, a majority of the Previous
Members of the Board of Directors (as defined below), either before or after
such Change in Control, (x) votes to disapprove of such Change in Control, (y)
votes to approve of such Change in Control, but as a consequence of the
existence of a competing proposal for a Change in Control, or (z) otherwise
expressly declares that such Change in Control is "non-approved", or (B) a
majority of the Previous Members of the Board of Directors neither expressly
approves nor disapproves of such Change in Control, or (ii) "approved" if in
connection with the consideration thereof by the Board of Directors of
Sensormatic, a majority of the Previous Members of the Board of Directors,
either before or after such Change in Control, (x) approves of such Change in
Control (other than as a consequence of the existence of a competing proposal
for a Change of Control) or (y) otherwise expressly declares that such Change in
Control is "approved", notwithstanding clause (A) (y) of this Section 5(c). The
majority of the Previous Members of the Board of Directors shall indicate its
approval or disapproval of a Change in Control by a statement or statements in
writing to such effect. For purposes of this Agreement, Previous Members of the
Board of Directors shall mean members of the Board of Directors of Sensormatic
as of the date of a Change in control who had been in office for a period of at
least two years immediately prior to such Change in Control (other than
directors who prior to such Change in Control were appointed or elected as
directors as a consequence of their association or affiliation with any Person
effecting such Change in Control).
In addition, notwithstanding any previous
determination that a Change in Control was "approved", such Change in Control
may subsequently be determined, in good faith, to be "non-approved" by a
majority of the Previous Members of the Board of Directors who are then still in
office with Sensormatic or a corporate successor of Sensormatic (or if fewer
than two such Previous Members of the Board of Directors are still in office,
then by a majority of the Previous Members of the Board of Directors, whether or
not still in office) within the 36-month period immediately following such
Change in Control, if during such period there occur (1) events of the types
referred to in Section 10 hereof with respect to individuals who were officers
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of Sensormatic at the time of the Change in Control, (2) defaults by Sensormatic
under this Agreement or any similar agreement, (3) the involuntary termination
(other than for cause or in the event of death or permanent disability) of the
employment of a number of the officers of Sensormatic who were officers
immediately prior to such Change in Control exceeding 40% of the total number of
such officers, or (4) the transfer (by sale, merger or otherwise) of all or
substantially all the equity securities of Sensormatic acquired by the Person
effecting such Change in Control, of all or substantially all the assets of
Sensormatic, or of all or substantially all the equity securities of
Sensormatic's successor corporation, directly or indirectly, to a third party
(other than a majority owned affiliate of such Person). In the event of such a
subsequent determination, Executive shall be entitled to all benefits arising
under this Agreement out of a "non-approved" Change in Control as if such
Change in Control had been deemed "nonapproved" initially. Any additional
benefits arising out of such "non-approved" Change in Control which Executive is
entitled to receive through the date of such determination shall be paid or
satisfied promptly by Sensormatic. For purposes of this Section 5(c), the term
"officers" shall not include individuals whose only office with Sensormatic is
Assistant Secretary or Assistant Treasurer.
(d) For the purposes of this Section 5, references to
provisions of the Exchange Act and rules, regulations and schedules thereunder
shall be to such provisions as they are in effect and interpreted as of the date
of this Agreement.
6. BENEFITS ON "NON-APPROVED" CHANGE IN CONTROL.
(a) BENEFITS EFFECTIVE UPON A CHANGE IN CONTROL. In the event
a "nonapproved" Change in Control occurs, Executive shall be entitled to the
following benefits:
(i) All stock options issued by Sensormatic to Executive,
whether or not then exercisable, shall remain fully exercisable or shall become
fully exercisable immediately (or, notwithstanding the foregoing, in the event
of an Attempted Change in Control involving a proposed Reorganization Event (as
such term is defined in Section 6(a)(ii) hereof)), such options shall become
fully exercisable thirty days before the date of such Reorganization Event), and
such options shall remain outstanding and fully exercisable for the stated term
thereof or until the later of (A) nine months following the voluntary or
involuntary termination of Executive's employment with Sensormatic (or, at the
option of Executive, in the case of an incentive stock option, three months
following such termination) or (B) the end of the respective Post-termination
exercisability periods provided for in such options (including if applicable,
such periods in the event of death or disability); provided, that in no event
shall the term of such options be extended beyond their respective original
terms. In addition, any deferred vesting or forfeiture provisions applicable to
any shares of Sensormatic stock awarded to or otherwise held by Executive shall
be without further force or effect, and Executive shall have the unrestricted
right to such shares.
(ii) In the event that (A) such Change in Control is effected
through (w) a tender or exchange offer (a "Tender Offer") or (x) any means, in
one or more transactions, with the result in either case that any Person becomes
the Beneficial Owner, directly or indirectly, of securities of Sensormatic
representing 50% or more of the combined voting power of Sensormatic's then
outstanding voting securities (any such Change in Control referred to in this
clause (A), including pursuant to a Tender Offer, being hereinafter referred to
as a "Majority
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Acquisition"), (B) in connection with, as a result of or within 24 months
immediately following a Change in Control, Sensormatic's Board of Directors
shall have approved a merger, consolidation, reclassification, reorganization,
dissolution, sale of all or substantially all of the assets of Sensormatic or
similar event (a "Reorganization Event") as a result of which Sensormatic's
Common Stock would cease to be outstanding or (C) in connection with, as a
result of or within 24 months immediately following a Change in Control,
Sensormatic's Common Stock ceases to be listed for trading on a national
securities exchange or quoted through NASDAQ or a comparable securities
quotation system, Executive shall have the right, exercisable by written notice
given at any time during the 13-month period immediately following the date of
such Change in Control (and, if later, the date of any such Majority
Acquisition, Reorganization Event or cessation of listing or quotation), to
require Sensormatic to purchase:
(1) any or all stock options issued by Sensormatic to Executive,
whether or not then exercisable, and/or any stock options issued upon
conversion of or in exchange for any such Sensormatic stock options
pursuant to any such Reorganization Event ("Conversion Options"), at a
purchase price equal to the excess of the aggregate Fair Market Value (as
defined below) of the shares of Sensormatic Common Stock subject to such
Sensormatic stock options over the aggregate exercise price of such stock
options (or, in the case of any Conversion Options, such amount calculated
with respect to the Sensormatic stock options which were converted into or
exchanged for such Conversion Options); and/or
(2) any or all shares of Sensormatic Common Stock held by Executive
at or immediately prior to the date of such Change in Control (including
any shares of Sensormatic Common Stock (restricted or otherwise, and
whether or not vested) awarded to Executive pursuant to any compensation
plan or arrangement of Sensormatic) or issued pursuant to the exercise of
any such Sensormatic stock options following the date of such Change in
Control, and/or (without duplication) any shares or other securities
issued upon conversion of or in exchange for any such shares of Common
Stock pursuant to any such Reorganization Event ("Conversion Shares"), at
a purchase price equal to the aggregate Fair Market Value of such shares
(or, in the case of any Conversion Shares issued upon conversion of or in
exchange for Common Stock, the Fair Market Value of the shares of Common
Stock which were converted into or exchanged for such Conversion Shares);
provided, that Sensormatic may offset against the amount so payable for
Common Stock or Conversion Shares all amounts outstanding on any loans
made to Executive for the purchase of, or payment of taxes relating to,
such shares of Common Stock or Conversion Shares, as contemplated by
Section 6(a)(iii) hereof or otherwise.
Payment for any such options or shares shall be made by Sensormatic within 10
days after Executive's surrender of any such options, and/or within 10 days
after Executive's surrender of the certificates representing any such shares of
Common Stock or Conversion Shares (or, if such certificates are in Sensormatic's
possession, within 10 days after Executive's notice of exercise under this
Section 6(a)(ii)).
For purposes of this Section 6(a)(ii), the "Fair Market Value"
of a share of Sensormatic Common Stock means the highest fair market value per
share of Sensormatic Common Stock of the consideration paid in any transaction
by any Person who effects such
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Change in Control, in connection therewith, whether through open market
purchases, Tender Offers, Reorganization Events, private transactions or
otherwise.
(iii) Upon Executive's request, Sensormatic shall lend to
Executive, interest free, up to an amount equal to the aggregate exercise price
of the options referred to in Section 6(a)(i) hereof, should Executive elect to
exercise such options. If requested by Executive, Sensormatic shall also lend to
Executive, interest free (or, at Executive's option, provide a guaranty to
enable Executive to borrow), up to amount equal to the percentage specified in
Section 6(a)(iv)(A) hereof times the Share Income (as such term is defined in
such Section) resulting from such exercise and/or vesting. Such loan or loans
shall be due and payable to Sensormatic upon the earliest of (A) the fifth
anniversary date of such loan or loans, (B) in the event that Executive's
employment with Sensormatic terminates, other than termination by Sensormatic
for Cause (as defined in Section 9 hereof, "Cause") upon the expiration of 30
months following such termination, or in the event that Executive's employment
is terminated by Sensormatic for Cause, upon the expiration of 30 days after
such termination, or (C) promptly (but in any event within five (5) business
days) after receipt of the proceeds of sale from the sale of such shares, to the
extent of the loan or loans applicable to such sold shares. Executive shall
deposit such shares with Sensormatic as security for any such loan, if
Sensormatic shall so request. Notwithstanding anything to the contrary contained
in this Section 6(a)(iii), Sensormatic's Stock Purchase Loan Plan or any
promissory note or security agreement executed by Executive pursuant to such
Plan, no additional collateral shall be required by Sensormatic in connection
with any such loan to Executive, and, if necessary to be in compliance with
applicable margin regulations under federal laws, such loans shall be unsecured;
and if, because of Internal Revenue Service rules or other rules, Sensormatic is
unable to lend such funds to Executive interest free and without any imputation
of interest, Sensormatic shall pay Executive a dollar amount of additional
compensation which shall equal the amount of interest required to be charged in
order to avoid such imputation in such instances and Executive shall then pay
Sensormatic the rate of interest on such loan required by law to avoid
imputation.
(iv)(A) If a Majority Acquisition shall have occurred or if,
in connection with, as a result of or within 24 months immediately following a
Change in Control, either a Reorganization Event shall have occurred or
Sensormatic's Common Stock ceases to be listed for trading on a national
securities exchange or quoted through NASDAQ or a comparable securities
quotation system, then Executive shall have the right, exercisable during the
period and in the manner described in Section 6(a)(iv)(B) hereof, to require
Sensormatic to purchase any or all of Executive's Option Acquired Shares and
Award Shares (as defined below), and/or any or all Conversion Shares issued
with respect to any Option Acquired Shares or Award Shares. The price at which
Executive shall be entitled to sell any Option Acquired Share to Sensormatic
under this Section 6(a)(iv) shall equal the sum of (x) the option exercise price
paid (including payments made by promissory notes issued under Sensormatic's
Stock Purchase Loan Plan or otherwise) by Executive in acquiring such share,
plus (y) an amount equal to a percentage, determined as provided below in this
clause (A), of the difference between such option exercise price and the Market
Value (as defined below) of a share of Sensormatic Common Stock on the date the
share was acquired. The price at which Executive shall be entitled to sell any
Award Share under this Section 6(a)(iv)(A) shall be equal to the Market Value of
such share on the date Executive's right to such share vested, multiplied by the
percentage determined as provided below in this clause (A). The price at which
Executive shall be entitled to sell any Conversion Shares pursuant to this
Section 6(a)(iv)(A) shall be calculated as set forth above with respect to
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Option Acquired Shares of Award Shares, as applicable, based upon the purchase
price, date of purchase and Market Value of any Option Acquired Shares, and the
vesting date and Market Value of any Award Shares, which were converted into or
exchanged for any such Conversion Shares sold. The percentage referred to in
this Section 6(a)(iv)(A) shall be equal to the sum of (1) the highest marginal
net rate of income tax (federal, state and local) applicable to an individual
residing where the Executive resided at the time the Executive reported income
("Share Income") with respect to the Option Acquired Shares or Award Shares, as
the case may be, plus (2) the Medicare employee tax rate, plus (3) a percentage
equal to (x) that part, if any, of the Share Income that was actually subject to
employee Social Security tax, multiplied by (y) the social security employee tax
rate, divided by (z) the total Share Income (in each case as applicable at the
time such share was purchased by Executive, in the case of any Option Acquired
Shares, or at the time Executive's right to such share vested, in the case of
any Award Shares). The purchase price payable by Sensormatic shall in all events
be equitably adjusted to reflect any stock dividends, stock splits,
extraordinary dividends or similar events since the date of acquisition by
Executive of any such shares.
For purposes of this Section 6(a)(iv), the term "Option
Acquired Shares" shall mean shares of Sensormatic Common Stock acquired by
Executive upon exercise of options granted to Executive, the term "Award Shares"
shall mean shares of Sensormatic Common Stock awarded to Executive pursuant to
Sensormatic's Stock Incentive Plan or any other compensation plan or arrangement
of Sensormatic, other than pursuant to the exercise of options, and the term
"Market Value" shall mean the average of the high and low sales prices of a
share of such Common Stock on the applicable date (or most recent date on which
one or more sales occurred) as reported through NASDAQ or the principal exchange
on which such Common Stock was listed for trading.
(B) Executive may exercise his right to sell Option Acquired
Shares, Award Shares and/or Conversion Shares under this Section 6(a)(iv) at any
time within 13 months following any of the events specified in the first
sentence of Section 6(a)(iv)(A) hereof by giving written notice of such exercise
to Sensormatic, which notice shall set forth the Option Acquired Shares, Award
Shares and/or Conversion Shares to be sold, the exercise price paid by Executive
in acquiring any such Option Acquired Shares or Conversion Shares, the highest
marginal tax rates applicable for purposes of the respective calculations
specified in Section 6(a)(iv)(A) hereof and the Market Value of the Common Stock
or Conversion Shares, as applicable, on each date that any applicable Option
Acquired Shares or Conversion Shares to be sold were purchased by Executive or
Executive's right to any applicable Award Shares vested, as the case may be. The
information set forth in such notice shall be presumed to be correct.
(C) In addition to the purchase price for the Option Acquired
Shares, Award Shares or Conversion Shares being sold to Sensormatic under this
Section 6(a)(iv), Sensormatic shall pay to Executive an amount (the "Tax
Payment") equal to a percentage (determined pursuant to the following sentence)
of the excess, if any, of (1) the product of the number of such Option Acquired
Shares, Award Shares and/or Conversion Shares being sold multiplied by the
Market Value of a share of Sensormatic Common Stock or Conversion Shares, as
applicable, on the Purchase Date (as such term is defined in Section 6(a)(iv)(D)
hereof) or such other value of a share of Sensormatic Common Stock or Conversion
Shares as may be required to be used to determine the amount, if any,
recognizable as ordinary income arising out of the sale of such shares to
Sensormatic, over (2) the aggregate purchase price for all such Option Acquired,
Shares,
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Award Shares and/or Conversion Shares being sold by Executive. The percentage
referred to in the preceding sentence shall be determined in accordance with
Section 6(a)(iv)(A) hereof as applicable on the Purchase Date.
(D) Within 10 days after Executive's surrender of the
certificates representing any such Option Acquired Shares, Award Shares and/or
Conversion Shares or, if such certificates are in Sensormatic's possession,
within 10 days after Executive's notice of exercise under this Section 6(a)(iv)
(the "Purchase Date"), Sensormatic shall purchase the Option Acquired Shares,
Award Shares and/or Conversion Shares referred to in such notice by paying to
Executive (subject to offset as provided in the following sentence) the full
purchase price thereof, as calculated under Section 6(a)(iv)(A) hereof, plus the
Tax Payment applicable thereto. Sensormatic may offset against payment of any or
all of such purchase price and the related Tax Payment all or a portion of any
indebtedness of Executive then outstanding under Sensormatic's Stock Purchase
Loan Plan attributable to any Option Acquired Shares and/or Conversion Shares
sold to Sensormatic hereunder.
(E) Executive's rights under this Section 6(a)(iv) are
independent of and not limited by, and do not constitute any limitation of,
Executive's rights under Section 6(a)(ii) hereof. Executive may exercise any
rights under either Section 6(a)(ii) hereof or this Section 6(a)(iv), in whole
or in part (but without duplication), in Executive's sole discretion.
(v)(A) Subject to Section 4 hereof, if either a Majority
Acquisition occurs or, in connection with, as a result of or within 24 months
following a Change in Control, a Reorganization Event occurs, then Sensormatic
shall pay to Executive (irrespective of whether he is then employed by
Sensormatic or its successor; provided, however, that in the event that
Executive voluntarily terminates his employment with Sensormatic (other than by
resignation contemplated by Section 10 hereof) prior to the occurrence of the
event giving rise to the right to receive the cash bonus payment provided for in
this Section 6(a)(v), Executive shall have no right to receive such bonus
payment), within thirty days after the effective date of such Majority
Acquisition or Reorganization Event, as the case may be, a cash bonus payment
equal to a percentage (determined pursuant to Sections 6(a)(v)(B) and 6(a)(v)(C)
hereof) of Executive's "Special Bonus Base" (as defined below). Executive's
Special Bonus Base shall equal one (1) times the greater of (x) the sum of
Executive's annual base salary in effect at the end of the last full month
preceding the first public announcement relating to the proposed Majority
Acquisition or Reorganization Event, as the case may be, plus the bonus paid to
Executive by Sensormatic with respect to the most recently completed fiscal year
of Sensormatic prior to such month, or (y) the sum of Executive's annual base
salary and target bonus as specified in Section 2 hereof.
(B) The percentage of the Special Bonus Base which Executive
shall be entitled to receive under this Section 6(a)(v) shall be calculated on
the basis of the Premium (as defined below) paid or offered to holders of
Sensormatic's Common Stock in connection with a Majority Acquisition or
Reorganization Event. "Premium" shall mean the percentage which results from
dividing (1) the amount by which the Event Value (as defined below) exceeds the
Pre-Event Share Price (as defined below), by (2) the Pre-Event Share Price. The
"Pre-Event Share Price" shall be equal to the average of the closing sales
prices (or if there is no sales price, the last bid price) for a share of
Sensormatic's Common Stock, as such prices are reported through NASDAQ or the
principal exchange on which such shares are listed for trading, on the last
business day of each week during the twenty-six weeks immediately preceding the
first to
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<PAGE> 11
occur of (x) the first public announcement relating to any proposed Change in
Control or Reorganization Event, or (y) any event resulting in the pendency of
an Attempted Change in Control which culminates, directly or indirectly, in the
Change in Control giving rise to Executive's rights under this Section 6(a)(v).
In the case of any Reorganization Event or Tender Offer, or combination or
series of Reorganization Events and/or Tender Offers, "Event Value" shall mean
the fair market value of the consideration paid per share of Sensormatic Common
Stock pursuant to such Reorganization Event or Tender Offer determined as of the
effective date of the Reorganization Event or of the consummation of the Tender
Offer, as the case may be, provided that in the event that different prices are
paid per share of Sensormatic Common Stock pursuant to such Reorganization
Event, Tender Offer or any combination or series thereof, the "Event Value"
shall be equal to the fair market value of the aggregate consideration paid
pursuant to all such Tender Offers and/or Reorganization Events (determined as
of the dates set forth above) divided by the number of shares of Sensormatic
Common Stock purchased pursuant to all such Tender Offers and/or Reorganization
Events. In case of any other transaction or series of transactions giving rise
to the right of Executive to receive the bonus provided for in this Section
6(a)(v), "Event Value" shall mean the highest fair market value of the
consideration paid per share of Sensormatic Common Stock pursuant to any such
transaction, determined as of the date of payment thereunder. The determination
of Event Value shall be conclusively made by an investment banking firm selected
by the Previous Members of the Board of Directors who are not entitled to
receive bonuses under this Section 6(a)(v) or analogous provisions of other
agreements; provided, that in the event that the Previous Members of the Board
of Directors fail to make such selection within 45 days after consummation of
the transaction giving rise to the right to rights under this Section 6(a)(v),
or the selected investment banking firm fails to make such a determination
within an additional 90 days, Event Value shall be determined by arbitration
under Section 16. Sensormatic shall pay all fees and expenses of any such
investment banker.
(C) The percentage of the Special Bonus Base which Executive
shall be entitled to receive as a bonus under this Section 6(a)(v) shall be 20%
if the Premium is at least 20% and shall increase by 3.2% for each one percent
(and by a fraction of 3.2% for each fraction of one percent) by which the
Premium exceeds 20%. For example, if the Premium were 30%, Executive would be
entitled to a bonus of 52% of the Special Bonus Base; if the Premium were 40.5%,
Executive would be entitled to a bonus of 85.6% of the Special Bonus Base; and
if the Premium were 50%, Executive would be entitled to a bonus of 116% of the
Special Bonus Base. The maximum bonus which Executive shall be entitled to
receive is 167% of the Special Bonus Base. No bonus shall be payable pursuant to
this Section 6(a)(v) if the Premium is less than 20%.
(b) BENEFITS ON TERMINATION. In the event of any termination,
other than termination by Sensormatic for Cause, of Executive's employment with
Sensormatic at any time following a "non-approved" Change in Control, Executive
shall be entitled to the following benefits:
(i) Subject to Section 4 hereof, Sensormatic shall, as soon as
practicable, pay to Executive a lump sum payment equal to the amount
of any then unvested interest which Executive may have had on the
date of such "non-approved" Change in Control (less any amount of
such interest subsequently vested), and as supplemented
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<PAGE> 12
thereafter through the date of such termination, in Sensormatic's
profit sharing, ESOP or other retirement plans (other than the
Retirement Plan); and
(ii) Unless a trust or other arrangement previously determined
in writing to be satisfactory by a majority of the Previous Members
of the Board of Directors then in office assuring payment of
benefits to or for the benefit of Executive under Sensormatic's
Retirement Plan in the event of a Change in Control has been
previously established and is then in effect, Sensormatic shall take
such steps as are necessary, within 30 days after such termination,
to fully fund all of Executive's benefits under such Plan (after
giving effect to the change in control provisions of such Plan)
through paid-up insurance, annuity contracts and/or other similar
means, so that the ultimate payment of benefits (at a rate not less
than the greater of the rates in effect under such Plan at the date
of such termination or immediately after such Change in Control)
upon Executive's attaining retirement age under such Plan or upon
his earlier death or disability (as defined in such Plan) (despite
Executive's no longer being employed by Sensormatic) shall be
assured beyond any reasonable doubt; provided however, that either
such manner of funding shall be structured so as not to constitute
"constructive receipt" by Executive of the benefits in question for
income tax purposes, or the benefits in question shall be paid out
in a lump sum, discounted to present value in the manner provided in
Section 8(a). In addition, following any such termination which is
involuntary, the non-competition provisions included in any such
Plan shall have no force or effect
(c) ADDITIONAL BENEFITS IN THE CASE OF A VOLUNTARY
TERMINATION. Subject to Section 4 hereof, in the event of Executive's voluntary
termination of employment with Sensormatic (other than by resignation
contemplated in Section 10 hereof) within the 24-month period immediately
following a "non-approved" Change in Control:
(i) Executive shall be entitled to receive, for each of the 6
months immediately following the effective date of such termination
and irrespective of whether Executive commences new employment
within such period, the greatest of (A) 1/12 of the amount of
Executive's most recent rate of annual base salary, plus 1/12 of
Executive's most recent annual bonus, (B) 1/12 of Executive's annual
base salary and target bonus in effect immediately prior to the
date of such Change in Control or (C) 1/12 of Executive's annual
base salary and target bonus as specified in Section 2 hereof,
(ii) If Executive has not commenced new regular, full time
employment during the first 6 months following the effective date of
such termination, Executive shall receive for each of the 7th
through 12th months following such effective date of termination in
which Executive was not so employed for the entire month the amount
payable under Section 6(c)(i) hereof;
(iii) Within 30 days after the effective date of such
termination, Sensormatic shall pay to Executive an amount equal to
his pro rata annual bonus for the year in which termination occurs,
based on the target bonus for such year; provided; that if at the
time of such termination, it is probable, based upon interim period
results for the then-current fiscal year together with the current
forecast for the remainder of such year, that the conditions to
payment of the full amount of the target bonus will not be met, the
amount of the bonus payment hereunder may be reduced accordingly;
and
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<PAGE> 13
(iv) During that portion of the periods set forth in Sections
6(c)(i) and 6(c)(ii) hereof during which Executive has not commenced new
regular, full time employment,
(x) Sensormatic shall continue to provide to Executive
the fringe benefits enumerated in Sections 3(a), (b), (c) and
(e) hereof on at least the same basis as in effect immediately
prior to the Change in Control, and shall, if requested by
Executive, provide Executive with office space appropriate for
his level and in close proximity to the office he occupied at
the time of the Change in Control, secretarial help and local
and long distance telephone service; and
(y) Sensormatic shall provide Executive with appropriate
outplacement services, including counseling and traveling
expenses to such outplacement services, when necessary, as
well as to potential job interviews when not paid by the
potential employer, all without charge to Executive.
(d) ADDITIONAL BENEFITS IN CASE OF AN INVOLUNTARY TERMINATION.
In the event of the involuntary termination (other than termination by
Sensormatic for Cause) of Executive's employment with Sensormatic within the
36-month period immediately following a "non-approved" Change in Control:
(i) Executive shall be entitled to receive, for each of
the 18 months immediately following the effective date of such
termination and irrespective of whether Executive commences
new employment within such period, the greatest of (A) 1/12 of
the amount of Executive's most recent rate of annual base
salary, plus 1/12 of Executive's most recent annual bonus, (B)
1/12 of Executive's annual base salary and target bonus in
effect immediately prior to the date of such Change in Control
or (C) 1/12 of Executive's annual base salary and target bonus
as specified in Section 2 hereof;
(ii) If Executive has not commenced new regular, full
time employment during the first 18 months following the
effective date of such termination, Executive shall receive
for each of the 19th through 24th months following such
effective date of termination in which Executive was not so
employed for the entire month the amount payable under Section
6(d)(i) hereof;
(iii) During that portion of the periods set forth in
Sections 6(d)(i) and 6(d)(ii) hereof during which Executive
has not commenced new regular, full time employment, Executive
shall be entitled to the benefits set forth in Section
6(c)(iv) hereof;
(iv) Within 30 days after the effective date of such
termination, Sensormatic shall pay to Executive an amount
equal to his pro rata annual bonus for the year in which
termination occurs, based on the target bonus for such year,
subject to the proviso in Section 6(c)(iii) hereof; and
(v) On the date of such termination, ownership of the
car which Sensormatic was providing to Executive shall
immediately be transferred to Executive
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<PAGE> 14
free and clear of any liens or other obligations, if such car
is then owned by Sensormatic. If such car is then leased,
rather than owned, by Sensormatic, Executive shall continue to
have the use of such car and Sensormatic shall continue to pay
all lease payments and insurance premiums with respect thereto
until the end of the then existing term, at which time
Sensormatic shall purchase such car and shall transfer title
to such car to Executive. If, on the date of such termination,
Sensormatic is paying a car allowance to Executive in lieu of
providing a car to Executive, for each month in which
Sensormatic is obligated to make a monthly payment to
Executive under Sections 6(d)(i) or 6(d)(ii) hereof, Executive
shall receive 1/12 of the amount of Executive's most recent
rate of annual car allowance.
7. BENEFITS ON "APPROVED" CHANGE IN CONTROL.
(a) BENEFITS EFFECTIVE UPON CHANGE IN CONTROL.
(i) Subject to Section 4 hereof, in the event an
"approved" Change in Control occurs, Executive shall be
entitled to all of the rights and compensation set forth in
Section 6(a) hereof
(ii) In the event that Executive voluntarily terminates
his employment with Sensormatic (other than by resignation
contemplated in Section 10 hereof) at any time following an
"approved" Change in Control, Executive shall not be entitled
to any benefits under this Agreement other than as set forth
in Section 7(a)(i) hereof.
(b) ADDITIONAL BENEFITS UPON INVOLUNTARY TERMINATION. In the
event that Executive's employment with Sensormatic is involuntarily terminated
(other than for Cause) within the 36-month period following an "approved" Change
in Control:
(i) Executive shall be entitled to receive, for each of
the first 12 months immediately following the effective date
of such termination and irrespective of whether Executive
commences new employment within such period, the greatest of
(A) 1/12 of the amount of Executive's most recent rate of
annual salary, plus 1/12 of the amount of Executive's most
recent annual bonus, (B) 1/12 of Executive's annual base
salary and target bonus in effect immediately prior to the
date of such Change in Control or (C) 1/12 of Executive's
annual base salary and target bonus as specified in Section 2
hereof;
(ii) If Executive has not commenced new regular, full
time employment during the first 12 months following the
effective date of such termination, Executive shall receive
for each of the 13th through 18th months following such
effective date of termination in which Executive was not so
employed for the entire month the amount payable under Section
7(b)(1) hereof;
(iii) Within 30 days after the effective date of such
termination, Sensormatic shall pay to Executive an amount
equal to his pro rata annual bonus for the year in which
termination occurs, based on the target bonus for such year
year, subject to the proviso in Section 6(c)(iii) hereof, and
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<PAGE> 15
(iv) During that portion of the period set forth in
Section 7(b)(i) hereof during which Executive has not
commenced new regular, full time employment, Executive shall
be entitled to all of the rights and compensation set forth in
Section 6(c)(iv) hereof.
(c) In the event of any termination of Executive's employment
to which Section 6(c) or 6(d) or this Section 7 is applicable, Executive shall
be under no obligation to seek other employment and there shall be no offset
against amounts due Executive under this Agreement on account of any
remuneration attributable to any subsequent employment that he may obtain,
except as expressly set forth in Section 6(c) or 6(d) or this Section 7.
8. BENEFITS ON DEATH OR DISABILITY
(a) In the event of Executive's death at any time within 36
months immediately following a Change in Control (whether "approved" or
"non-approved") and prior to any termination of Executive's employment, or in
the event that Executive had died prior to a Change in Control and that as of
the date of such Change in Control there remain outstanding amounts payable
under Sensormatic's Retirement Plan for Executive, unless in either case a trust
or other arrangement previously determined in writing to be satisfactory by a
majority of the Previous Members of the Board of Directors then in office
assuring payment of benefits to or for the benefit of the Executive under such
Plan in the event of a Change in Control has been previously established and is
then in effect, Sensormatic shall promptly pay to Executive's designated
beneficiary or Executive's heirs, executors, administrators or personal
representatives (collectively, "Successors") all of the remaining benefits under
such Plan to which Executive's Successors are then entitled, in the form of a
lump sum payment equal to the amount of such benefits discounted to present
value using an interest rate equal to the rate published by Pension Benefit
Guaranty Corporation for the purpose of discounting pension benefits to present
value in the event of a lump sum prepayment thereof, as then in effect, but such
discount rate shall in no event be greater than ten percent (10%) per annum.
(b) In the event of Executive's death or permanent and total
disability (within the meaning of Section 22(e)(3) of the Internal Revenue Code
of 1986, as amended and in effect and interpreted as of the date of this
Agreement) at any time within the 24-month period immediately following a
Change in Control and prior to any termination of Executive's employment,
Executive or Executive's Successors shall be entitled to all of the benefits of
Executive provided under this Agreement as if Executive had voluntarily
terminated his employment with Sensormatic (but without giving effect to Section
4 hereof or to the loss of benefits upon voluntary termination under Section
6(a)(v)(A) hereof), including, without limitation, those set forth in Section
6(a)(iii) hereof
(c) In the event of Executive's death or disability after
termination of Executive's employment with Sensormatic, Executive or Executive's
Successors shall be entitled to receive all remaining benefits to which
Executive is entitled under this Agreement
9. TERMINATION FOR CAUSE. In the event that Executive's
employment with Sensormatic is terminated for Cause at any time after any Change
in Control, whether "approved" or "non-approved", Executive shall not be
entitled to any of the benefits set forth in Sections 6, 7 or 8 of this
Agreement not yet received by him, except to the extent that Executive
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<PAGE> 16
exercised rights prior to such termination with respect to options, Award Shares
or Conversion Shares as provided under Sections 6(a)(i), 6(a)(ii) and, 6(a)(iv)
hereof (including by reference under Section 7(a)(i) hereof). The foregoing
shall not affect any rights of Executive accrued other than by virtue of this
Agreement. For purposes of this Agreement, Sensormatic shall be deemed to have
terminated Executive's employment with Sensormatic for Cause only if such
termination is effected for any of the following reasons:
(a) gross neglect or willful misconduct by Executive in the
performance of Executive's duties resulting in material economic harm to
Sensormatic; or
(b) the conviction of Executive for a felony involving moral
turpitude under federal or state law;
provided, however, that the determination of the existence of the grounds
referred to in subparagraph (a) of this Section 9 shall be made, in good faith,
only (i) by a majority of the Previous Members of the Board of Directors who are
then in office with Sensormatic or a corporate successor of Sensormatic
(provided that such majority shall consist of not less than two persons); and
provided, further, that Executive shall be given prior written notice by the
Board of Directors of the intention to terminate him for Cause and the specific
grounds for such termination, as determined in accordance with this Section 9,
and shall be entitled to a hearing before such Previous Members of the Board of
Directors (or a committee thereof designated by such Previous Members) before
such termination becomes effective or (ii) if at least two Previous Members of
the Board of Directors are not then in office, by a majority of the persons who
are then, and were, for a period of two years immediately prior to such Change
in Control, officers of Sensormatic (or, if Sensormatic is then a division, such
persons who were previously such officers of Sensormatic and are then employed
in an executive or managerial capacity in the division).
10. INVOLUNTARY TERMINATION EVENTS. By way of illustration,
and not of limitation, each of the following events shall constitute involuntary
termination of Executive's employment with Sensormatic, provided that Executive
resigns from such employment within six months following such event, but in no
case later than 36 months immediately following a Change in Control, and
provided, further, that Executive shall not have consented to such event in
writing:
(a) Executive is assigned any duties or responsibilities that
are materially inconsistent with Executive's position, office, duties,
responsibilities or status immediately prior to the date of such Change in
Control, or a material change is made in Executive's reporting responsibilities,
titles or offices from those in effect immediately prior to such Change in
Control, or Executive is removed from, or is not re-elected to, any such
position or office, following such Change in Control, unless in connection with
the termination of Executive's employment with Sensormatic for Cause or by
reason of his death or disability; provided, however, that, in the event of an
"approved" Change in Control, as a result of which Sensormatic becomes a
division and not a separate corporation, a change to offices and titles in such
division reasonably comparable to the previous offices and positions in
Sensormatic and a reasonable change in reporting responsibilities shall not be
deemed such a material change;
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<PAGE> 17
(b)(i) Executive's annual rate of base salary or target bonus
is reduced below the greater of the amounts (x) paid therefor immediately
preceding the date of such Change in Control or (y) expressly set forth in
Section 2 hereof, (11) the formula for the calculation of Executive's bonus is
changed in a manner that could reasonably be anticipated to decrease the amount
payable thereunder or (iii) any other change is made with respect to Executive's
salary or bonus that would violate Section 2;
(c) a material reduction is made in the benefits set forth
in paragraphs,(a) through (g) of Section 3 hereof or to any additional benefits
or perquisites which may have been granted to Executive subsequent to the date
of this Agreement (other than changes made in benefit plans required by law or
applicable regulations thereunder), as they may be in effect immediately prior
to the date of such Change in Control, or if any increase is made in the cost to
Executive for such benefits; or
(d) Executive is transferred or required to transfer to a
location outside of a 25-mile radius of Sensormatic's then-current headquarters
in Palm Beach County or Broward County, Florida (or, if Executive's position was
located outside of Palm Beach County or Broward County, Florida prior to such
Change in Control, Executive is transferred or required to transfer to a
location located more than 25 miles therefrom), or the principal place of
business of Sensormatic in which Executive's major duties have been carried out
is transferred to a location outside of a 25-mile radius of Sensormatic's
then-current headquarters in Palm Beach County or Broward County, Florida.
(e) Sensormatic fails to obtain the assumption in writing of
its obligation to perform this Agreement by any successor to all or
substantially all of the assets and/or business of Sensormatic within 15 days
after a Reorganization Event or any other transaction occurring in connection
with, as a result of or within 24 months following a Change in Control pursuant
to which Sensormatic is not the surviving corporation.
11. PAYMENTS. All monthly payments that Executive (or his
Successors) is entitled to receive under Sections 6 or 7 of this Agreement shall
be paid by or on behalf of Sensormatic on or before the 10th day of each month
in which payable, except that any regular payments required to be made under the
plans referred to in Section 6(b) hereof shall be made in accordance with the
terms of such plans. Any lump sum payable to Executive under Sections 6 or 8(a)
of this Agreement shall be paid by or on behalf of Sensormatic within 10 days
after Executive's right to such payment accrues.
12. COSTS OF COLLECTION. Sensormatic agrees upon demand to pay
all costs and expenses of Executive (including, without limitation, reasonable
counsel fees and expenses) in connection with the enforcement, whether through
negotiations, arbitration or legal proceedings or otherwise, of this Agreement
and the collection of any benefits due to Executive hereunder.
13. NO EFFECT ON EMPLOYMENT. This Agreement is not, and
nothing hereby shall be deemed to create, a contract of employment between
Sensormatic and Executive. The right of Sensormatic to terminate Executive's
employment with Sensonnatic or any subsidiary thereof, at any time at will or as
otherwise provided in the Officer Agreement or any other agreement between
Sensormatic and Executive, shall not be affected or limited by this Agreement
and is specifically reserved. Further, this Agreement shall not be deemed to
require
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<PAGE> 18
Sensormatic to continue, Ohio continue unmodified, any benefit plan or policy,
whether or not referred to in Section 3 hereof, provided that no Change in
Control shall have occurred and no Attempted Change in Control shall have
occurred and then be pending.
14. CONFLICTS WITH OTHER AGREEMENTS. Nothing contained in or
arising out of this Agreement shall be deemed to discharge, release or modify
the obligations of Sensormatic to Executive under the provisions of the Officer
Agreement or any other agreement between them or of any plan or program of
Sensormatic, regardless of whether the subject matter of any provision thereof
is the same or similar to that of any provision of this Agreement, the rights
and remedies of Executive under this Agreement and any other such agreement,
plan or program being cumulative and not in substitution of each other;
provided, however, that nothing in this Agreement shall entitle Executive to
receive duplicative payments of salary, bonus or other benefits. Further,
nothing in this Agreement shall diminish or otherwise adversely affect
Executive's rights or benefits accruing as a consequence of his death or
disability, at any time after a Change in Control, under the terms and
conditions of the plans or programs of Sensormatic in which Executive is a
participant immediately prior to any Change in Control and any additional plan
or program of Sensormatic in which Executive is a participant at the time of
Executive's death or disability.
15. MAINTENANCE OF PLANS. Sensormatic agrees that, for not
less than 36 months after a Change in Control, it shall maintain in effect the
plans and programs in which Executive is a participant immediately prior to such
Change in Control (or comparable plans and programs) to the extent necessary to
assure that the rights and benefits of Executive thereunder shall be no less
favorable after such Change in Control than immediately prior thereto, provided,
that Sensormatic shall in no event make any change in the event of or at any
time after a Change in Control in the Retirement Plan resulting in a reduction
of Executive's benefits thereunder.
16. ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement shall be settled by arbitration before the American
Arbitration Association in Miami, Florida, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. Judgment upon the
award rendered by the arbitrators may be entered in any court having
jurisdiction thereof. Any costs, including, without limitation, attorneys' fees
and disbursements, incurred by Executive in such arbitration or in connection
with any appeal therefrom or any action brought to enforce or collect any such
award or judgment thereon, shall be reimbursed by Sensormatic, provided, that
Sensormatic shall not be required to reimburse Executive hereunder in the event
that the arbitral panel or appeals court finds that Executive's claims and/or
defenses are substantially without reasonable basis.
17. SURVIVAL. This Agreement shall be binding on, enforceable
against and inure to the benefit of Executive and his heirs, executors,
administrators, personal representatives, successors and assigns and Sensormatic
and its successors and assigns, including, without limitation, any corporation
with or into which Sensormatic is merged or consolidated, or any entity which
acquires all or substantially all of the business and assets of Sensormatic, in
connection with any Change in Control. In connection with any sale, merger or
consolidation described in the preceding sentence, Sensormatic shall take all
actions permissible under applicable law in order to cause such other
corporation to expressly assume Sensormatic's liabilities, obligations and
duties hereunder.
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<PAGE> 19
18. NOTICES. Any notice given to a party pursuant to or in
connection with this Agreement shall be in writing and shall be deemed to have
been given when delivered personally or sent by Federal Express or a similar
overnight courier service or by certified or registered mail, postage prepaid,
return receipt requested, duly addressed to the party concerned at the address
indicated at the beginning of this Agreement or to such changed address as such
party may subsequently give such notice of.
19. SEVERABILITY. If any provision of this Agreement is
found to be invalid or unenforceable by a court of competent jurisdiction or an
arbitral panel under Section 16 hereof, this Agreement shall be interpreted and
enforceable as if such provision were severed or limited, but only to the extent
necessary to render such provision and this Agreement enforceable.
20. GOVERNING LAW. This Agreement shall in all respects be
governed by and construed in accordance with the laws of the State of Florida
applicable to agreements made and fully to be performed in such state, without
giving effect to conflicts of law principles
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first set forth above.
SENSORMATIC ELECTRONICS
CORPORATION
By: /s/
-----------------------------------------
Title: President and Chief Executive Officer
Executive:
----------------------------------
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SCHEDULE 1
Applicable Retirement Plans
1. Supplemental Executive Retirement Plan
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<PAGE> 21
AMENDMENT
This Amendment to the Agreement, dated September 14, 1998 (the "Change in
Control Agreement") between Sensormatic Electronics Corporation, a Delaware
corporation having its principal place of business at 951 Yamato Road, Boca
Raton, Florida 33431 ("Sensormatic") and John P. Smith, and individual whose
address is 2202-2204 Courtside Road, Boca Raton, Florida 33433 ("Executive"), is
dated and effective as of January 11, 1999 (the "Effective Date").
WITNESSETH
WHEREAS, as of the Effective Date, Executive has been promoted to the position
of Senior Vice and President - European Operations; and
WHEREAS, the parties agree that Executive should be entitled to a level of
change in control benefits commensurate with that offered by Sensormatic to its
other senior vice presidents;
NOW THEREFORE, the parties agree to amend the Change in Control Agreement as
follows:
1. Executive's Special Bonus Base shall equal a multiple of two (2). In
Section 6(a)(v)(A), line 11, replace "one (1)" with "two (2)".
2. In the event of Executive's involuntary termination (other than for cause)
within the 36 month period following an "approved" Change in Control,
Executive shall be entitled to receive base and targeted bonus
compensation for a period of not less than 18 months, not to exceed 24
months. In Section 7(b)(i), line 1, replace "12" with "18". In Section
7(b)(ii), line 2, replace "12" with " 18"; in line 3, replace "13th"
with "19th" and "18th" with "24th".
3. Except as expressly provided herein, all terms and provisions of the
Change in Control Agreement shall Remain in Full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment to the Change in
Control Agreement as of the date first set forth above.
SENSORMATIC ELECTRONICS CORPORATION JOHN P. SMITH
By: /s/ Robert A. Vanourek /s/ John P. Smith
----------------------------------------- -----------------------------
Print Name: Robert A. Vanourek
Title: President and Chief Executive Officer
<PAGE> 1
SENSORMATIC ELECTRONICS CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In millions, except ratio amounts)
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------------------
1995 1996 1997 1998 1999
------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Income (loss) from operations before income taxes.... $ 89.0 $(159.9) $(30.3) $(46.8) $ 55.5
Add (deduct):
Fixed charges less preferred stock dividends....... 30.8 40.5 49.8 52.4 45.7
Minority interest in consolidated subsidiaries..... 1.0 1.6 2.7 4.5 2.7
Minority interest adjustment for losses of majority
owned subsidiaries.............................. -- -- -- -- --
Net losses related to 50% or less owned
subsidiaries.................................... -- -- -- -- --
------ ------- ------ ------ ------
Adjusted Earnings.................................... $120.8 $(117.8) $ 22.2 $ 10.1 $103.9
====== ======= ====== ====== ======
Fixed Charges:
Interest........................................... $ 29.0 $ 38.4 $ 47.9 $ 50.8 $ 44.1
Amortization of debt expense and debt discounts.... 0.3 0.6 0.8 0.9 1.0
Portion of Rents representive of interest factor... 1.5 1.5 1.1 0.7 0.6
Preferred Stock dividends(1)....................... -- -- -- 2.5 11.5
------ ------- ------ ------ ------
Total fixed charges........................ $ 30.8 $ 40.5 $ 49.8 $ 54.9 $ 57.2
====== ======= ====== ====== ======
Ratio of Earnings to fixed charges(2).............. 3.92 -- 0.45 0.18 1.82
====== ======= ====== ====== ======
</TABLE>
- ---------------
(1) Preferred stock dividends declared in fiscal 1999 and 1998 were in the form
of common stock, thereby not effecting fixed charges or the income
statement.
(2) Earnings for the year ended June 30, 1996 was not able to cover fixed
charges by $158.3.
66
<PAGE> 1
Exhibit 23(a)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (Nos. 2-19339, 33-26786, 33-38753, 33-54626 and
33-58299) and Form S-4/A (No. 33-51957) of Sensormatic Electronics Corporation
of our report dated August 2, 1999 relating to the financial statements and
financial statement schedule, which appears in this Form 10-K.
PricewaterhouseCoopers LLP
Miami, Florida
September 28, 1999
<PAGE> 1
Exhibit 23(b)
Consent of Independent Certified Public Accountants
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 2-19339, 33-26786, 33-38753, 33-54626 and 33-58299) pertaining to
the Incentive and Non-Qualified Stock Option Plans and the Employee Stock
Purchase Plan of Sensormatic Electronics Corporation of our report dated August
13, 1998, with respect to the consolidated financial statements and schedule of
Sensormatic Electronics Corporation included in the Annual Report on Form 10-K
for the year ended June 30, 1999.
ERNST & YOUNG LLP
West Palm Beach, Florida
September 27, 1999
<PAGE> 1
Exhibit 23(c)
Consent of Independent Certified Public Accountants
We consent to the incorporation by reference in the Registration Statements
(Form S-4/A No. 33-51957) of Sensormatic Electronics Corporation and in the
related Prospectus of our report dated August 13, 1998, with respect to the
consolidated financial statements and schedule of Sensormatic Electronics
Corporation included in the Annual Report on Form 10-K for the year ended June
30, 1999.
ERNST & YOUNG LLP
West Palm Beach, Florida
September 27, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 209
<SECURITIES> 0
<RECEIVABLES> 442
<ALLOWANCES> 47
<INVENTORY> 164
<CURRENT-ASSETS> 769
<PP&E> 257
<DEPRECIATION> 119
<TOTAL-ASSETS> 1,776
<CURRENT-LIABILITIES> 403
<BONDS> 428
0
167
<COMMON> 744
<OTHER-SE> (21)
<TOTAL-LIABILITY-AND-EQUITY> 1,776
<SALES> 842
<TOTAL-REVENUES> 1,018
<CGS> 563
<TOTAL-COSTS> 584
<OTHER-EXPENSES> 26
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44
<INCOME-PRETAX> 56
<INCOME-TAX> 17
<INCOME-CONTINUING> 38
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38
<EPS-BASIC> .35
<EPS-DILUTED> .35
</TABLE>
