<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Sensormatic Electronics Corporation
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
SENSORMATIC ELECTRONICS CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
NOVEMBER 17, 2000
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
SENSORMATIC ELECTRONICS CORPORATION, a Delaware corporation, will be held at the
Boca Raton Marriott, 5150 Town Center Circle, Boca Raton, Florida 33486, on
November 17, 2000, at 10 A.M., local time, for the following purposes:
1. To elect three directors to serve for a term of three years and
until their successors are elected and qualified;
2. To consider and vote upon a proposal to approve an amendment to the
Company's 1999 Stock Incentive Plan to increase the total number of
shares of the Company's Common Stock that may be issued under such
Plan by 3,400,000 shares;
3. To consider and vote upon a proposal to approve an amendment to the
Company's Directors Stock Option Plan; and
4. To transact such other business as may be properly brought before
the meeting and all adjournments thereof.
Only stockholders of record at the close of business on September 28, 2000,
will be entitled to notice of, and to vote at, the meeting and any adjournment
thereof.
THE BOARD OF DIRECTORS OF SENSORMATIC ELECTRONICS CORPORATION HOPES THAT
YOU WILL FIND IT CONVENIENT TO ATTEND THE MEETING IN PERSON. IN ANY EVENT,
PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY TO MAKE SURE THAT YOUR
SHARES ARE REPRESENTED AT THE MEETING. IF YOU ATTEND THE MEETING, YOU MAY REVOKE
THE PROXY YOU HAVE SENT IN AND VOTE YOUR STOCK PERSONALLY.
By Order of the Board of
Directors,
WALTER A. ENGDAHL
Secretary
Boca Raton, Florida
October 6, 2000
<PAGE> 3
SENSORMATIC ELECTRONICS CORPORATION
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Sensormatic Electronics Corporation, a Delaware
corporation (the "Company"), of proxies to be voted at the Annual Meeting of
Stockholders of the Company to be held at the Boca Raton Marriott, 5150 Town
Center Circle, Boca Raton, Florida 33486, on November 17, 2000, at 10 A.M.,
local time, or at any adjournment or adjournments thereof. Only stockholders of
record at the close of business on September 28, 2000 shall be entitled to
notice of, and to vote at, the meeting. Shares represented by duly executed
proxies received by the Company will be voted in accordance with the
instructions contained therein and, in the absence of specific instructions,
will be voted for the election as directors of the persons who have been
nominated by the Board of Directors, for the approval of the amendment to the
Company's 1999 Stock Incentive Plan, for the approval of the amendment to the
Company's Directors Stock Option Plan and otherwise in accordance with the
judgment of the person or persons voting the proxies on any other matter that
may properly be brought before the meeting. At this time, the Board of Directors
knows of no other such matters that will be presented for consideration at the
Annual Meeting. The execution of a proxy will in no way affect a stockholder's
right to attend the Annual Meeting and to vote in person. Any proxy executed and
returned by a stockholder may be revoked at any time thereafter except as to any
matter or matters upon which, prior to such revocation, a vote shall have been
cast pursuant to the authority conferred by such proxy.
The election of directors requires a plurality of the votes cast. The
proposals to amend the 1999 Stock Incentive Plan and the Company's Directors
Stock Option Plan each require the affirmative vote of a majority of the votes
cast at the Annual Meeting on each such proposal, provided that the total vote
cast represents over 50% of all shares entitled to vote thereon. For purposes of
determining the number of votes cast with respect to a particular matter, only
those cast "for" or "against" are included. Shares represented by proxies marked
to withhold authority to vote, and shares represented by proxies that indicate
that the broker or nominee stockholder thereof does not have discretionary
authority to vote them, will be counted only to determine the existence of a
quorum at the Annual Meeting.
This Proxy Statement and the accompanying proxy are being sent on or about
October 6, 2000 to stockholders entitled to vote at the Annual Meeting of
Stockholders. The cost of solicitation of the Company proxies will be borne by
the Company. In addition to the use of the mails, proxy solicitations may be
made by telephone, telecopier and personal interview by officers, directors and
employees of the Company. The Company has also retained the services of
Georgeson & Company Inc. to assist in the solicitation of proxies for a fee
estimated at $10,000, plus reimbursement for out-of-pocket expenses. The Company
will, upon request, reimburse brokerage houses and persons holding shares in
their names or in the names of their nominees for their reasonable expenses in
sending soliciting material to their principals. The Company's executive offices
are located at 951 Yamato Road, Boca Raton, Florida 33431-4425.
VOTING SECURITIES AND SECURITY OWNERSHIP
Only stockholders of record at the close of business on September 28, 2000
will be entitled to vote at the Annual Meeting of Stockholders and any
adjournment thereof. At the close of business on September 28, 2000, there were
outstanding 77,280,796 shares of Common Stock, $.01 par value, of the Company.
Each of such shares is entitled to one vote. There was no other class of voting
securities outstanding at that date.
To the knowledge of the Company, as of September 28, 2000, no person
beneficially owned more than 5% of the outstanding shares of Common Stock of the
Company.
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The following table sets forth information as to the Common Stock of the
Company beneficially owned as of September 28, 2000 by each director, each
nominee for director, each person named in the Summary Compensation Table under
Executive Compensation, and by all directors and executive officers as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP COMMON STOCK
------------------------ ----------------- ------------
<S> <C> <C>
Pauline Lo Alker.................................. -- --
Ronald G. Assaf................................... 803,184(1) 1.0%
Fred A. Breidenbach............................... 27,833(2) *
Thomas V. Buffett................................. 76,475(3) *
Kenneth W. Chmiel................................. 76,667(4) *
Timothy P. Hartman................................ 127,500(5) *
Jerry T. Kendall.................................. 154,846(6) *
James E. Lineberger............................... 834,117(7) 1.1%
Per-Olof Loof..................................... 135,128(8) *
J. Richard Munro.................................. 32,500(9) *
Garrett E. Pierce................................. 251,474(10) *
John T. Ray, Jr................................... 71,000(11) *
John P. Smith..................................... 45,001(12) *
Robert A. Vanourek................................ 738,839(13) 1.0%
All directors and executive officers as a group... 3,662,572(14) 4.6%
</TABLE>
---------------
* Less than 1%.
(1) Includes 407,000 shares issuable upon exercise of options. Also includes
49,247 shares held for Mr. Assaf's account under the Employee Stock
Ownership Plan (the "ESOP") at June 30, 2000, over which Mr. Assaf has sole
voting power, and 200,000 shares held by the RGA Trust for the benefit of
Mr. Assaf's children. Does not include 22,104 shares held by Mrs. Assaf,
and 3,000 shares and 1,075,000 shares issuable upon exercise of options
held by trusts for the benefit of Mr. Assaf's children, as to all of which
Mr. Assaf disclaims beneficial ownership.
(2) Includes 15,833 shares issuable upon exercise of options.
(3) Includes 60,000 shares issuable upon exercise of options
(4) Includes 76,667 shares issuable upon exercise of options.
(5) Includes 42,500 shares issuable upon exercise of options.
(6) Includes 138,333 shares issuable upon exercise of options. Also includes
371 shares held for Mr. Kendall's account under the ESOP at June 30, 2000,
over which Mr. Kendall has sole voting power.
(7) Includes 177,500 shares issuable upon exercise of options.
(8) Includes 125,000 shares issuable upon exercise of options.
(9) Includes 27,500 shares issuable upon exercise of options.
(10) Includes 243,333 shares issuable upon exercise of options. Also includes 65
shares held for Mr. Pierce's account under the ESOP at June 30, 2000, over
which Mr. Pierce has sole voting power.
(11) Includes 60,000 shares issuable upon exercise of options.
(12) Includes 45,001 shares issuable upon exercise of options.
(13) Includes 677,000 shares issuable upon exercise of options. Also includes 96
shares held for Mr. Vanourek's account under the ESOP at June 30, 2000,
over which Mr. Vanourek has sole voting power.
(14) Includes 2,355,835 shares issuable upon exercise of options and 51,173
shares held for certain directors and executive officers under the ESOP at
June 30, 2000, over which the respective directors and executive officers
exercise sole voting power. Also includes shares beneficially owned by
Messrs. Pierce and Vanourek.
For the purpose of the foregoing table, each of the directors and executive
officers is deemed to be the beneficial owner of shares which may be acquired by
him or her within 60 days after September 28, 2000 through the exercise of
options, if any, and such shares are deemed to be outstanding for the purpose of
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<PAGE> 5
computing the percentage of the Company's Common Stock beneficially owned by him
or her and by the directors and executive officers as a group. Such shares,
however, are not deemed to be outstanding for the purpose of computing the
percentage of the Company's Common Stock beneficially owned by any other person.
Each of the persons named in the above table as beneficially owning the
shares set forth opposite his or her name has sole voting power (as to
outstanding shares) and sole investment power over such shares, except as
otherwise indicated.
ELECTION OF DIRECTORS
Unless otherwise specified, shares represented by the enclosed proxy will
be voted for the election of Timothy P. Hartman, Per-Olof Loof and J. Richard
Munro, who have been nominated by the Board of Directors as directors to serve
until the Annual Meeting of Stockholders in 2003 and until their successors are
elected and qualified. Each of the nominees is now a director of the Company.
The Board of Directors is divided into three classes. One class will stand
for election for a three-year term at the Annual Meeting of Stockholders on
November 17, 2000. The terms of office of the other two classes of continuing
directors do not expire until the Annual Meetings of Stockholders in 2001 and
2002, respectively. The names of, and certain information concerning, the
nominees and such other directors are set forth below:
<TABLE>
<CAPTION>
FIRST YEAR
BECAME
NAME AGE DIRECTOR OFFICES
---- --- ---------- -------
<S> <C> <C> <C>
Nominees to serve until Annual Meeting of
Stockholders in 2003:
TIMOTHY P. HARTMAN(b)(d)................................. 61 1995 Director
PER-OLOF LOOF(a)......................................... 49 1999 President, Chief Executive
Officer and Director
J. RICHARD MUNRO(b)(c)................................... 69 1997 Director
Continuing Directors to serve until
Annual Meeting of Stockholders in 2001:
THOMAS V. BUFFETT(b)(c)(d)............................... 64 1992 Director
JAMES E. LINEBERGER(a)(c)(d)............................. 63 1968 Director
JOHN T. RAY, JR.(c)...................................... 62 1989 Director
Continuing Directors to serve until
Annual Meeting of Stockholders in 2002:
RONALD G. ASSAF(a)....................................... 65 1966 Director and Chairman of the
Board
FRED A. BREIDENBACH(c)................................... 53 1998 Director
PAULINE LO ALKER (d)..................................... 57 2000 Director
</TABLE>
---------------
(a) Member of the Executive Committee
(b) Member of the Audit Committee
(c) Member of the Governance Committee
(d) Member of the Finance Committee
Pauline Lo Alker was appointed a director of the Company in June 2000. Ms.
Alker currently serves as President, Chief Executive Officer and Chairman of the
Board for Amplify.net, a privately-held company based in Fremont, California,
that develops and markets broadband service management solutions for service
providers and network equipment suppliers. Ms. Alker formed Amplify.net in 1998
after a seven-year tenure as President and Chief Executive Officer of Network
Peripherals Inc. (NASDAQ: NPix), a high-technology company specializing in high
performance workgroup networking solutions. Prior to joining Network
Peripherals, Ms. Alker was founder, President and Chief Executive Officer of
Counterpoint Computers, Inc., a multiprocessor UNIX systems workstation company
and Vice President and General Manager of Convergent
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<PAGE> 6
Technologies, Inc. From 1991 through 1995, Ms. Alker served on the Board for the
Asian American Manufacturers Association and, at times during that period, she
also served as its President and Chairman of the Board.
Ronald G. Assaf, a founder of the Company, has been Chairman of the Board
of Directors of the Company since October 1971 and served as President and Chief
Executive Officer of the Company from 1974 to January 1986. In January 1988, Mr.
Assaf was appointed Co-Chief Executive Officer and in July 1988 was reappointed
to the positions of President and Chief Executive Officer. From October 1995,
Mr. Assaf served as Chairman of the Board and Chief Executive Officer. In August
1996, Mr. Assaf retired as Chief Executive Officer of the Company. He continues
to serve as Chairman of the Board. Mr. Assaf is also a director of Senvest
Capital.
Fred A. Breidenbach was appointed a director of the Company in June 1998.
He was the President and Chief Operating Officer of Gulfstream Aerospace Corp.
("Gulfstream"), a manufacturer of business aircraft located in Savannah,
Georgia, until July 1997. Prior to joining Gulfstream in April 1993, he spent 25
years with the Aircraft Engine and Aerospace Groups of General Electric
Corporation ("GE"), where he last served as Vice President and General Manager
of the Government Electronic Controls Division (now Lockheed Martin) and was an
officer of GE from 1989 until his departure in 1993. In November 1997 Mr.
Breidenbach formed a consulting company, F.A. Breidenbach & Associates, LLC. He
is also a member of the Board of Directors of Scott Technologies, Inc.
Thomas V. Buffett, a director of the Company since 1992, is President of
Clipper Investments, a private firm that invests in, and provides consulting
services to, the alarm industry. He served as Chairman and Chief Executive
Officer of Automated Security (Holdings) PLC, a United Kingdom-based
international company specializing in electronic security, from 1974 through
October 1994.
Timothy P. Hartman has been a director of the Company since 1995. Mr.
Hartman was Chairman of NationsBank of Texas until his retirement in June 1996,
and also was a director and Vice Chairman of its parent corporation until he
retired in 1994. Before joining the NationsBank organization in 1982, Mr.
Hartman was the Chief Financial Officer of Baldwin-United Corporation, a
diversified financial services company, with which he was associated from 1963
through 1981. Since April 2000, he has been a member of the Board of Directors
of Infonet Services Corporation.
James E. Lineberger held the office of Chairman of the Executive Committee
of the Company from 1974 through 1996 and remains in that now non-executive
position. From January 1988 to July 1988, Mr. Lineberger served as Co-Chief
Executive Officer of the Company. He has been a partner of Lineberger & Co., LLC
and its predecessors, private investment firms, since 1969. Additionally, Mr.
Lineberger is a director of Wray-Tech Instruments, Inc.
Per-Olof Loof became President and Chief Executive Officer of the Company
in August 1999. From 1995 to June 1999, Mr. Loof was Senior Vice President of
NCR's Financial Solutions Group, a supplier to the retail financial services
industry. From 1994 to 1995, Mr. Loof was President and Chief Executive Officer
of AT&T Istel Co., a Europe-based provider of integrated computing and
communication services. From 1982 to 1994, Mr. Loof held a variety of management
positions with Digital Equipment Corporation, including Vice President of Sales
and Marketing for Europe and Vice President, Financial Services Enterprise for
Europe.
J. Richard Munro was appointed a director of the Company in May 1997. Mr.
Munro served as the Co-Chairman of the Board and Co-Chief Executive Officer of
Time Warner Inc., a global media company, for an interim period beginning in
July 1989, and was Chairman of the Board and Chief Executive Officer of Time
Inc. from September 1986 through July 1989. From October 1980 to September 1986,
Mr. Munro served as President and Chief Executive Officer of Time Inc. Mr. Munro
continued to serve as a director of Time Warner Inc. until 1997. Mr. Munro
presently serves as a member of the Board of Directors of each of Kmart
Corporation, Kellogg Company and Exxon Mobil Corporation.
John T. Ray, Jr. served from June 1985 until his retirement in January
2000, as the Senior Vice President and General Manager of the United States
Adhesives, Sealants and Coatings Division of H.B. Fuller Company ("Fuller"),
expanded in 1994 to include Mexico and Canada and now known as North American
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<PAGE> 7
ASC Group. Mr. Ray also served as the Chairman of the Board of Directors of
EFTEC North America, L.L.C., and of Fiber Resin Corp., the subsidiaries of
Fuller serving the automotive and aerospace industries, respectively. Mr. Ray
became a director of the Company in 1989.
None of the directors has any family relationship with any other director
or with any executive officer of the Company.
The Company has no reason to believe that any of the nominees will be
unable or unwilling to serve as directors, if elected. If, however, any of the
nominees should decline or be unable to act as a director, the shares
represented by the enclosed proxy will be voted for such other person or persons
as may be nominated by the Board of Directors.
Committees and Meetings
The Board of Directors has standing Executive, Audit, Governance and
Finance Committees. The Company had a standing Compensation Committee until
November 1999, when the Governance Committee assumed its duties.
The Audit Committee reviews the proposed scope of audit and non-audit
services and the fees proposed to be charged for such services, reviews the
reports and receives comments and recommendations from the Company's internal
audit function and the Company's independent auditors following completion of
the annual audit and in connection with the preparation of interim quarterly
financial statements, and reviews with such auditors, internal auditors and
management the Company's accounting policies and the adequacy of the Company's
internal accounting controls. The Audit Committee also deals with special
matters relating to the Company's accounting practices and financial statements
brought to its attention by the Company's internal auditors, management or the
Company's independent auditors. The Audit Committee's functions are described in
further detail in the amended Audit Committee Charter adopted by the Board of
Directors on June 29, 2000, and set forth in Exhibit A to this Proxy Statement.
The Audit Committee met four times during the 2000 fiscal year.
The Executive Committee exercises the authority of the Board on such
matters as are delegated to it by the Board of Directors from time to time and
has authority to act on other matters in the absence of the Board. The Executive
Committee met once during the 2000 fiscal year.
The Governance Committee addresses issues of corporate governance. The
Governance Committee reviews the composition of the Board, evaluates its
performance and considers the qualifications of prospective nominees to serve as
directors, and also evaluates the performance of the Company's Chief Executive
Officer. The Governance Committee also addresses executive compensation matters
and administers the Company's stock-based incentive plans, including the
Company's 1999 Stock Incentive Plan (the "1999 Plan"), and its predecessor plans
with respect to options outstanding thereunder, a responsibility that until
November 1999 was performed by the Compensation Committee. Stockholders may
recommend nominees for consideration by the Governance Committee by submitting
such recommendations, in writing, to the Committee in care of the Secretary of
the Company. The Governance Committee met four times during the 2000 fiscal
year. The Compensation Committee met three times during the 2000 fiscal year.
The Finance Committee, among other things, evaluates and provides counsel
on proposals for short and long-term financing for the Company and other
financial transactions. The Finance Committee met five times during the 2000
fiscal year.
The Board of Directors held six meetings during the 2000 fiscal year. No
director of the Company during the last fiscal year attended fewer than 75% of
the aggregate number of meetings of the Company's Board of Directors and of all
committees of the Board on which he or she served.
Compensation of Directors
The directors of the Company (other than Mr. Assaf and Mr. Loof) receive
annual compensation for their services based on a $30,000 per fiscal year
retainer and an additional $3,000 for each meeting of the
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<PAGE> 8
Board of Directors (other than telephonic meetings) attended. Mr. Assaf receives
annual cash compensation of $455,000 and certain benefits for all services to
the Company in his capacities as consultant and director pursuant to a five-year
consulting agreement that became effective August 12, 1996. Under the Company's
Executive Salary Continuation Plan, Mr. Lineberger, who served as an officer of
the Company until the end of calendar 1996, and Mr. Assaf are receiving annual
retirement benefits of $130,000 and $455,000, respectively.
In addition, the directors of the Company participate in either the
Directors Stock Option Plan (the "Directors Plan") or the 1999 Plan. The
Directors Plan currently provides for annual, non-discretionary grants of
ten-year options to purchase 7,500 shares of Common Stock (after an initial
grant to new directors participating in the Directors Plan of an option to
purchase 20,000 shares) at an exercise price per share equal to the fair market
value of a share of Common Stock on the date of grant, and which are exercisable
on a cumulative basis in three equal annual installments. In fiscal 2000,
Messrs. Assaf, Breidenbach, Buffett, Hartman, Lineberger, Munro and Ray each
received options to purchase 7,500 shares of Common Stock. Ms. Alker received an
initial option to purchase 20,000 shares upon joining the Company as a director
in June 2000. Mr. Loof participates in the 1999 Plan and, upon joining the
Company in August 1999, received an option to purchase 375,000 shares of Common
Stock. If the stockholders approve the proposed amendment to the Directors Plan
at the Annual Meeting of Stockholders, the directors will receive annual grants
of options to purchase 10,000 shares commencing on the date of such meeting.
In 1989, the Company adopted a Board of Directors Retirement Plan for
non-officer directors. In fiscal 1997, the directors decided to discontinue the
Plan for the benefit of non-employee directors, although benefits for the
existing participants who were members of the Board of Directors at that time
will be paid in accordance with the terms of the Plan. The Plan provides for
monthly payments over 15 years beginning upon the later of the attainment of age
60 or retirement from the Company, or upon the director's earlier death.
Benefits under the Plan are 50% vested after five years of service and are
vested an additional 10% for each year of service thereafter. Benefits are
payable to the director's designated beneficiary or estate in the event of
death. If the director dies while in office and prior to attaining the age of
60, the director's vested interest would be deemed to be equal to that which
would have accrued had he remained in office until attaining that age. Annual
benefits have been fixed by the Board of Directors or a committee thereof at
$40,000 for Mr. Buffett and $25,000 for each of Mr. Ray, Mr. Hartman and Mr.
Lineberger.
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<PAGE> 9
EXECUTIVE COMPENSATION
REPORT OF THE GOVERNANCE AND THE COMPENSATION COMMITTEES
The Governance Committee of the Board of Directors develops and implements
the Company's compensation policies and administers the Company's stock-based
incentive and compensation plans, including the 1999 Plan. It has responsibility
for, among other things, reviewing and determining the cash compensation and
other benefits of the Company's executive officers. The Governance Committee
grants awards under the 1999 Plan to the Company's executive officers (and
participating directors, if any), including stock-based long-term incentive
compensation under the Company's Long-Term Incentive Programs ("LTIPs"). The
Governance Committee has delegated to the Chief Executive Officer of the Company
its authority to grant options to employees in certain circumstances.
Until November 1999, when the Governance Committee assumed its
compensation-related duties, the Compensation Committee of the Board of
Directors performed such duties. In fiscal 2000, these Committees received from
the Company's Chief Executive Officer recommendations with respect to
compensation of the Company's other executive officers and met with him to
evaluate such executives' performance and, at times, to discuss the bases for
his recommendations. In addition, these Committees reviewed national
compensation data for the industry as well as companies comparable in size and
market capitalization to the Company, generated by independent consulting firms
specializing in compensation and benefits. These Committees met without the
Chief Executive Officer to evaluate his performance and to determine the
compensation of all executive officers.
The members of the Governance Committee provide the following report. The
Compensation Committee, on which Messrs. Breidenbach, Buffett, Munro and Ray
served, was dissolved in November 1999.
Compensation Policy
The Company's executive compensation programs are designed to attract and
retain qualified leaders and motivate them to achieve the Company's short and
long-term business objectives. The Company believes that the key to achieving
such goals is to provide compensation that is competitive with the compensation
packages provided by comparable companies and of which a high proportion is "at
risk" for performance, in the form of annual incentive bonuses and long-term
stock-based and cash incentives.
Fiscal 2000 Performance
The Company's overall performance in fiscal 2000 improved substantially
over fiscal 1999. Earnings per share increased 123% over 1999, fueled by 65%
growth in the Company's source-tagging business and a $17 million increase in
its European operating income. The Company reported its highest level of
quarterly sales ever in the fourth quarter of fiscal 2000, and recorded revenues
of $1.1 billion in fiscal 2000, another Company milestone and an 8% increase
over fiscal 1999. Based on these strong results, and on the Company's continuing
commitment to the further development and acquisition of new products and
technologies, the Company believes that it has a solid foundation for sustained
future growth.
Base Salary
Base compensation for executive officers reflects both the individual's
responsibilities and experience and the competitive salary ranges for executives
with similar responsibilities in corporations with revenues comparable to those
of the Company. The Committees relied on information from a variety of sources
to determine competitive cash compensation ranges, including executive
compensation surveys conducted by employee benefit consulting firms.
Base salaries generally are modified annually as warranted by the
performance of the Company or the applicable department or business unit, or by
the performance of the executive officer or changes in his responsibilities. Mr.
Loof's base salary in fiscal 2000, his first year as Chief Executive Officer,
was fixed by his employment contract, and the fiscal 2000 base salaries of the
Company's other executive officers were generally not higher than those in
fiscal 1999.
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<PAGE> 10
Bonuses
The annual cash bonus component of an executive officer's compensation in
fiscal 2000 depended upon his performance, that of the Company and, if the
executive officer had responsibility for a particular department or business
unit, the performance of that department or business unit. Generally, bonuses
are intended to create incentives to improve the performance of an officer's
department or business unit, and, in fiscal 2000, focused on the performance of
such business units, as well as other criteria, including cash flow. The bonuses
for the Company's executive officers with broad corporate responsibilities, such
as the Chief Executive Officer and the Chief Financial Officer, are based
largely on the financial performance of the Company overall, but also on such
officers' efforts to implement the Company's major initiatives and their success
in so doing. The Company believes that an executive officer's responsibility for
the success of his business unit and of the Company increases as his duties
expand. Accordingly, a larger proportion of a more senior executive officer's
compensation generally will be variable, performance-based incentive
compensation, compared to that of other executive officers. Bonuses awarded to
Mr. Loof and the Company's other executive officers in respect of fiscal 2000
reflect the substantial progress made by the Company in such year.
Stock-Based Incentives and Stock Ownership
The Company believes that stock options are a very important component of
executive compensation because they encourage an executive to remain in the
Company's employ and link long-term rewards to stock price appreciation. The
Governance Committee recognizes that such long-term incentives will motivate
executives to balance pressures to manage for the short-term with the steps
necessary to assure the Company's future vitality. Under the Company's regular
stock option incentive program, options are granted periodically, generally on
an annual basis, to executives.
Awards granted under the Long Term Incentive Plans (LTIPs) are designed to
serve as longer-term incentives than yearly option grants under the 1999 Plan
and have not been made on an annual basis. In particular, options and/or
restricted stock awarded under the terms of the LTIPs, which are established
under the 1999 Plan, have longer vesting schedules (ten years) than is the case
with other option grants to participants, with earlier vesting in whole or in
part if certain long-term (three or four years) performance goals are achieved.
Performance goals under the 1997 LTIP, which ended in fiscal 2000, were not
achieved and, accordingly, there was no acceleration of vesting under such plan.
A new three-year LTIP has been established, providing a cash component and a
restricted stock component, with acceleration of vesting if certain performance
goals have been achieved through fiscal year 2003.
In determining the size of a grant to an executive officer or participating
director under either the regular stock option incentive program or the LTIPs,
the Governance Committee considers the number of shares (and amount of
additional cash compensation, if a component of an LTIP) that would be thought
to be a meaningful incentive for long-term performance, given the participant's
position, responsibilities, level of cash and stock-based incentive
compensation, and expected contributions, based in part on industry surveys, as
well as the recommendations of employee benefits consultants who have studied
such compensation at comparable companies.
The Company also believes that its directors and officers should own
outright a meaningful number of shares of the Company's stock in order to ensure
that stockholders' interests are given appropriate consideration in the course
of conducting the Company's business. Accordingly, the Company in July 1997
adopted guidelines for the levels of stock ownership recommended for its
directors and executive officers. Directors are expected to have invested in the
Company's Stock, over the three-year period following the later of the adoption
of the policy or joining the Board, an amount equal to five times their annual
retainer. The Company's chief executive officer is expected to have invested in
the Company's stock an amount equal to his base salary within two years, and
twice his base salary within five years, after assuming such position. Those
executive officers with the title vice president or higher are expected to have
invested in stock an amount equal to their base salaries within five years after
adoption of the policy or assuming such position.
8
<PAGE> 11
Internal Revenue Code Section 162(m)
In 1993, Congress enacted Section 162(m) of the Internal Revenue Code,
which limits the deductibility of executive compensation in excess of $1,000,000
per year. However, this limitation does not apply to performance-based
compensation, provided certain conditions are satisfied. The Company's policy is
generally to preserve the federal income tax deductibility of compensation paid
to its executives. Accordingly, to the extent feasible, the Company has taken
action to preserve the deductibility of certain stock-based incentive awards to
its executive officers. However, notwithstanding the Company's general policy,
the Governance Committee retains the authority to authorize compensation that
may not be deductible if it believes that it is in the interest of the Company
to do so. Other elements of compensation, including perquisites and cash and
other bonuses, even those based on performance, may also cause a covered
executive officer's income to exceed deductible limits.
Additional Factors Relating to CEO's Compensation
The Committee measured Mr. Loof's performance in fiscal 2000 by the
standards described above and with consideration of his role and success in
leading the Company into a new period of growth. Mr. Loof has had responsibility
for improving the Company's results of operations generally and, among other
things, carrying out the Company's initiatives to develop new products and
deliver services that fully meet customers' needs, to integrate and improve the
profitability of Sensormatic's European operations, and to establish a
profitable global services unit.
GOVERNANCE COMMITTEE
John T. Ray, Jr., Chairman
Fred A. Breidenbach
Thomas V. Buffett
James E. Lineberger
J. Richard Munro
GOVERNANCE COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company established a Stock Purchase Loan Plan (the "Loan Plan") in
1979 under which officers, directors and certain designated key employees may
borrow an amount equal to the purchase price of shares of the Company's Common
Stock purchased upon exercise of their respective stock options ("Option
Shares") and an amount approximating the amount of income tax liability
resulting from the exercise of such options. Under the Loan Plan, loans
generally bear interest at the rate of 4% per annum, payable annually. Loans are
required to be secured and to comply with Federal Reserve margin requirements,
to the extent applicable. The loans generally are due within five years after
the date of the loan, upon cessation of employment or upon the sale of the
Option Shares, whichever occurs first. (Information regarding loans to directors
and executive officers under the Loan Plan is set forth below under "Stock
Purchase Loan Plan.")
9
<PAGE> 12
SUMMARY COMPENSATION TABLE
The following table shows compensation for services rendered in all
capacities to the Company and its subsidiaries during fiscal 2000, 1999 and 1998
by each of the individuals who served as the Chief Executive Officer of the
Company at any time during fiscal 2000 and by the next four highest-paid
executive officers of the Company.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ---------------------
---------------------------------- RESTRICTED
OTHER ANNUAL STOCK OPTIONS/ ALL OTHER
SALARY BONUS COMPENSATION AWARDS SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) (1) ($)
--------------------------- ---- ------- ------- ------------ ---------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per-Olof Loof................... 2000 409,791 685,080 707,841(3) -- 375,000 --
President and 1999 -- -- -- -- -- --
Chief Executive Officer 1998 -- -- -- -- -- --
Robert A. Vanourek.............. 2000 73,789(2) 61,385(2) -- -- -- 762,577(4)(7)
Former President and 1999 498,751 -- -- -- 157,814 5,606(5)(6)(7)
Chief Executive Officer (2) 1998 492,356 -- -- -- 42,186 3,797(5)(6)(7)
Garrett E. Pierce............... 2000 355,962 291,600 -- -- 40,000 6,800(6)(7)
Former Executive Vice 1999 350,002 100,000 -- -- 50,000 5,606(5)(6)(7)
President, and Chief 1998 341,924 50,000 -- -- 40,000 3,797(5)(6)(7)
Financial Officer(8)
Jerry T. Kendall................ 2000 245,313 200,000 -- -- 45,000 6,800(6)(7)
Executive Vice President 1999 226,300 100,000 -- -- 35,000 5,606(5)(6)(7)
of the Americas 1998 223,079 95,000 -- -- 25,000 3,797(5)(6)(7)
Kenneth W. Chmiel............... 2000 232,092 195,000 -- -- 30,000 6,800(6)
Senior Vice President of 1999 216,242 65,000 -- -- 25,000 4,763(5)(6)
Supply Chain Operations 1998 191,020 41,000 -- -- 50,000 --
and EAS
John P. Smith................... 2000 247,942 225,000 -- -- 25,000 --
Executive Vice President of 1999 162,555 110,000 -- -- 60,000 --
Europe, Middle East, Africa 1998 -- -- -- -- -- --
and Asia Pacific (EMEA)
</TABLE>
---------------
(1) See footnote 1 to the table "Option Grants in Last Fiscal Year" for summary
terms of options granted.
(2) Mr. Vanourek retired from the Company as of August 23, 1999. His fiscal 2000
salary, bonus and other annual compensation reflects amounts paid with
respect to the period from July 1, 1999 to August 23, 1999.
(3) Of this total, $77,373 represents tax equalization payments made to Mr.
Loof, along with $346,492 for relocation fees and $250,000 of loan
forgiveness in connection with his purchase of a home in the Boca Raton,
Florida, area, pursuant to his employment agreement with the Company.
(4) Represents amounts paid after August 23, 1999 pursuant to the severance
arrangements under Mr. Vanourek's employment agreement with the Company (see
below).
(5) Includes contributions made in 1998 by the Company under its Employee Stock
Ownership Plan ("ESOP"), a qualified defined contribution plan under the
Internal Revenue Code, to or for the benefit of eligible employees,
including the eligible named executive officers. Under the ESOP, the Company
had made an annual contribution to a trust fund for the benefit of
participants in an amount determined by the Board of Directors. Fund assets
are required to be invested primarily in the Company's Common Stock. The
trust fund holds shares which it previously acquired from the Company and
paid for by delivery of a promissory note of the ESOP's trustee. Principal
and interest of the note were payable from the proceeds of the Company's
annual contributions. As the indebtedness was retired, a proportionate
amount of the purchased shares was allocated to the accounts of eligible
employees under such plan. With the contributions made by the Company for
fiscal 1998, the promissory note obligation was fully discharged and no
further contributions have been made under the ESOP.
(6) Includes contributions made by the Company under its SensorSave Plan
("SSP"), a qualified defined contribution plan under the Internal Revenue
Code, to or for the benefit of eligible employees, including
10
<PAGE> 13
the eligible named executive officers. Under the SSP, the Company makes both
annual contributions as determined by the Board of Directors and, pursuant
to the portion of the SSP that is a 401(k) plan, contributions matching a
proportion of participating employees' voluntary contributions. In fiscal
2000, the Company contributed $6,800 to the accounts of each of Messrs.
Pierce, Kendall and Chmiel, respectively.
(7) Prior to the adoption of the Supplemental Executive Retirement Plan for Vice
President Level Employees and Officers, a non-qualified defined benefit plan
(the "SERP") in July 1998, the Company had maintained a Senior Executive
Defined Contribution Retirement Plan (the "Senior Executive Plan"), a
non-qualified target benefit defined contribution plan, for designated
officers of the Company. For a description of such plans and benefit levels
under the Senior Executive Plan for Messrs. Kendall, Pierce and Vanourek see
"Computation of Benefits" below.
(8) Mr. Pierce resigned from the Company as of August 8, 2000.
Mr. Vanourek retired from the Company in August 1999. In connection
therewith, pursuant to the terms of his employment agreement with the Company,
Mr. Vanourek has received or is receiving: (i) $498,751 per annum (his previous
base salary) for a period of 24 months following the termination of his
employment (the "Continuation Period") and $798,000 (an amount equal to double
his targeted bonus for fiscal 2000), all payable in equal biweekly installments
over the Continuation Period, (ii) subject to certain conditions, continued
participation in certain insurance plans and employee benefit plans or programs
in which Mr. Vanourek was participating on the date of termination of his
employment until the end of the Continuation Period, and (iii) certain other
benefits under other plans of the Company, including his vested benefits under
the Company's Senior Executive Plan.
Mr. Pierce resigned from the Company in August 2000. In connection
therewith, pursuant to the terms of his arrangements with the Company, Mr.
Pierce has received his accrued salary through such date and accrued bonus for
fiscal 2000, and the period for exercise of his vested options has been extended
through December 31, 2000. In addition, Mr. Pierce will receive his vested
benefits under the Senior Executive Plan.
The Company also has an employment agreement with Mr. Loof, pursuant to
which Mr. Loof currently receives a base salary of $495,000 per annum and
receives bonus compensation targeted at not less than approximately 65% of his
annual base salary each fiscal year. Currently his bonus compensation is
targeted at 80% of such annual base salary. In addition, pursuant to the
agreement, the Company loaned Mr. Loof $1,000,000, interest free, in connection
with his purchase of a home in the Boca Raton, Florida, area, which loan will be
forgiven at the rate of 25% per year provided that Mr. Loof continues to be
employed by the Company. The agreement also provides for Mr. Loof's
participation in the Company's benefit plans for executives and provides for an
accelerated vesting schedule of benefits under the SERP. If his employment
terminates under certain circumstances, Mr. Loof is entitled to severance
(including the loan forgiveness) for the balance of the initial four-year term
of the employment agreement or for 24 months following such termination,
whichever period is longer.
The Company also has employment agreements with each of Messrs. Chmiel,
Kendall and Smith. Under each such agreement, if the employee's employment is
terminated under certain circumstances, then such terminated employee would
receive severance in the form of payment of base salary for a period of 18
months following such termination (unless the employee procures full time
employment, in which case the base salary shall be paid for a shortened period).
In addition, the agreements provide for a period after termination within which
to exercise vested stock options, and the continuation of participation in
medical coverage and other benefits in accordance with applicable group plans
and programs of the Company. The employment agreements with Messrs. Chmiel,
Kendall and Smith also provide for each of them to disclose and assign to the
Company certain discoveries, to maintain in confidence confidential information
of the Company and prohibit certain competitive activities for limited periods.
11
<PAGE> 14
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides certain information with respect to options
granted to each person named in the Summary Compensation Table during fiscal
2000 In addition, in accordance with Securities and Exchange Commission rules,
there are shown hypothetical gains that would exist for the options granted,
based on assumed rates of annual compound stock price appreciation of 5% and 10%
from the date the options were granted over the full option term. The named
officers will realize no gain on these options unless the price of the Common
Stock increases above the exercise price for such options, which will benefit
all stockholders proportionately. No stock appreciation rights have been awarded
by the Company.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------
PERCENT OF
TOTAL
OPTIONS/ POTENTIAL REALIZABLE VALUE AT
OPTIONS SARS ASSUMED ANNUAL RATES OF STOCK
SARS GRANTED TO PRICE APPRECIATION FOR
GRANTED IN EMPLOYEES IN EXERCISE OPTION TERM(2)
FISCAL FISCAL OR BASE EXPIRATION --------------------------------
NAME YEAR(1) YEAR(%) PRICE($) DATE 5%($) 10%($)
---- ---------- ------------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Per-Olof Loof................ 375,000 19.48 12.594 8/23/09 2,970,100 7,526,800
Robert A. Vanourek........... -- -- -- -- -- --
Garrett E. Pierce............ 40,000 2.08 12.50 10/01/09 314,500(3) 796,900(3)
Jerry T. Kendall............. 45,000 2.34 12.50 10/01/09 353,800 896,500
John P. Smith................ 25,000 1.30 12.50 10/01/09 196,500 498,000
Kenneth W. Chmiel............ 30,000 1.56 12.50 10/01/09 235,800 597,700
All executive officers....... 687,500 35.71 12.75 5,512,700 13,970,100
All optionees
(participants)(4).......... 1,925,234 100.00 13.113 15,876,800 40,235,000
All Stockholders'
Potential Realizable Value
at Assumed Growth
Rates(5)................... 651,774,045 1,651,723,400
</TABLE>
---------------
(1) All options granted during the period were non-qualified options granted
pursuant to the 1999 Stock Incentive Plan (the "1999 Plan") at fair market
value on the date of grant. Options granted to the named executives and
other officers of the Company have terms of ten years; options granted to
other employees of the Company have terms of five years. Options granted
under the Company's 1999 Plan and predecessor Stock Incentive Plans,
generally become exercisable on a cumulative basis in three equal annual
installments, commencing on the first anniversary of the date of grant.
(2) The potential realizable value of these options is based solely on an
assumed annual rate of appreciation of the base prices thereof. It does not
take into account the fact that current Common Stock prices may be
significantly below such base prices, nor does it take into account any
taxes or other expenses that might become payable as a result of exercise.
The Company expresses no opinion and makes no representation that this level
of appreciation will, in fact, be realized.
(3) These options expired unvested when Mr. Pierce resigned from the Company in
August 2000 and accordingly, the potential value of such options cannot be
realized.
(4) Calculated based on the weighted average exercise price of all options
granted during fiscal 2000 ($13.113), and assuming all options have a term
of ten years.
(5) Calculated based on the weighted average exercise price of all options
granted during fiscal 2000 ($13.113), and assuming stock price appreciation
at the indicated rates over ten years, the same period used to calculate the
individuals' potential realizable value.
12
<PAGE> 15
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
The following table sets forth as to each person named in the Summary
Compensation Table the specified information with respect to their option
exercises during fiscal 2000 and the status of their options at June 30, 2000.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY(2)
NUMBER OF OPTIONS/SARS AT FISCAL OPTIONS/SARS AT
SHARES VALUE YEAR-END FISCAL YEAR-END($)(3)
ACQUIRED ON REALIZED ---------------------------- ----------------------------
NAME EXERCISE ($)(1) EXERCISABLE NONEXERCISABLE EXERCISABLE NONEXERCISABLE
---- ----------- -------- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Per-Olof Loof............... -- -- -- 375,000 -- 1,212,863
Robert A. Vanourek.......... 80,396 484,521 570,334 199,270 2,938 854,868
Garrett E. Pierce(4)........ -- -- 243,333 147,469 204,531 455,310
Jerry T. Kendall............ -- -- 103,333 114,277 149,245 378,331
John P. Smith............... -- -- 20,001 64,999 191,569 466,320
Kenneth W. Chmiel........... -- -- 41,667 63,333 161,332 290,463
</TABLE>
---------------
(1) The "value realized" represents the difference between the exercise price of
the option shares and the market price of the option shares on the date the
option was exercised. The value realized was determined without considering
any taxes which may become payable in respect of the sale of any such
shares.
(2) "In-the-money" options are options whose exercise price was less than the
market price of Common Stock at June 30, 2000.
(3) Based on a stock price of $15.8281 per share, which was the closing price of
a share of Common Stock reported on the New York Stock Exchange on June 30,
2000.
(4) Mr. Pierce's nonexercisable options expired on August 8, 2000.
PENSION PLAN TABLE
The following table sets forth the approximate annual benefits (before
reductions described below) payable for the following pay classifications and
years of service under the Supplemental Executive Retirement Plan for Vice
President Level Employees and Officers, a non-qualified defined benefit plan
(the "SERP") as described below, when an executive retires at the normal
retirement age (62).
<TABLE>
<CAPTION>
REMUNERATION YEARS OF SERVICE
------------------ ------------------------
AVERAGE
FINAL COMPENSATION 5 10 OR MORE
------------------ -------- ----------
<S> <C> <C>
$ 200,000 $ 25,000 $100,000
$ 250,000 $ 31,250 $125,000
$ 300,000 $ 37,500 $150,000
$ 350,000 $ 43,750 $175,000
$ 400,000 $ 50,000 $200,000
$ 500,000 $ 62,500 $250,000
$ 600,000 $ 75,000 $300,000
$ 700,000 $ 87,500 $350,000
$ 800,000 $100,000 $400,000
$ 900,000 $112,500 $450,000
$1,000,000 $125,000 $500,000
$1,200,000 $150,000 $600,000
$1,400,000 $175,000 $700,000
$1,600,000 $200,000 $800,000
$1,800,000 $225,000 $900,000
</TABLE>
The years of credited service as of June 30, 2000 for the executive
officers named on the Summary Compensation Table are as follows: Per-Olof Loof
-- 0; Robert A. Vanourek -- 3; Garret E. Pierce -- 5; Jerry T. Kendall -- 9;
Kenneth W. Chmiel -- 2; and John P. Smith -- 1.
13
<PAGE> 16
Computation of Benefits
The Company's key executive officers generally participate in the Company's
SERP, established in July 1998 and amended in August 2000. A participant under
the SERP would receive an annual retirement benefit for 15 years generally
equal, when fully vested and after 10 years of benefit service, including three
years as a key executive, to 50% of the participant's final average compensation
(i.e., base salary, bonus and/or commissions) for the three highest compensation
years out of the final five years of employment (formerly five out of 10),
reduced by certain adjustments relating to the employer match contributions
under the Company's Sensor Save Plan and by 100% of the participant's annual
Social Security benefits payable at normal retirement age (age 62). Such
benefits vest, subject to proportionate reduction for less than 10 years
(formerly 15 years) of benefit service, over a 10-year vesting schedule, 30% at
the end of three years and 10% per year thereafter. Benefits are normally in the
form of a 15-year certain annuity, commencing when the participant has attained
the age of 62 or retires thereafter. Under the SERP, benefits may also be in an
optional form if approved by the Company, the amount of which would be the
actuarial equivalent of said annuity. Benefits are also payable on death or
disability, subject to certain additional rules. Upon a change in control of the
Company, the participant's retirement benefit would become 100% vested.
The SERP replaced the Senior Executive Defined Contribution Retirement Plan
(the Senior Executive Plan), which was a non-qualified target benefit defined
contribution plan for designated officers. The SERP provides that executive
officers previously participating in the Senior Executive Plan would receive
retirement benefits no less favorable than those under the Senior Executive
Plan. A participant under the Senior Executive Plan would receive an annual
retirement benefit equal to the lesser of (i) the benefit targeted for such
participant by the Board of Directors or (ii) the benefit which could be paid
based upon such participant's theoretical investment account under the Senior
Executive Plan, the annual yield of which would be determined by the chief
executive officer of the Company, subject to the approval of the Board of
Directors or a committee thereof, in each case multiplied by a percentage equal
to the participant's vested interest as of the date of the participant's
termination of employment. Benefits under the Senior Executive Plan generally
vested over a 15-year schedule, but a participant with ten or more years of
service and who was employed by the Company immediately prior to his normal
retirement was deemed to be 100% vested upon retirement. Benefits were payable
in monthly installments for 15 years after the later to occur of the
participant's attaining the retirement age of 60 or his actual retirement from
employment with the Company, or, if earlier, the participant's death. Upon a
change in control of the Company, the participant's targeted benefit under the
Senior Executive Plan would become 100% vested. The Company had purchased life
insurance policies on certain participants, the death benefits or cash surrender
value of which it anticipated would reimburse the Company for its obligations
under the Senior Executive Plan. The Company made no premium payments or other
contributions toward the funding of benefits under the Senior Executive Plan for
the named executive officers during fiscal 1998 and 1999. Certain of such
insurance policies have been relinquished, with the Company recovering the cash
surrender values thereof. Each of Messrs. Vanourek, Pierce and Kendall
participated in the Senior Executive Plan. Under such Plan, assuming Mr.
Kendall's vested interest were 100% upon attaining retirement age, and the last
target benefit determined by the Board of Directors were applicable, Mr. Kendall
would be expected to receive annual retirement benefits of $112,500. The
employment agreement of Mr. Vanourek provided for an accelerated vesting
schedule of benefits under the Senior Executive Plan. Pursuant to his employment
agreement, upon attaining retirement age, Mr. Vanourek would receive annual
retirement benefits under such Plan of $290,625. Under the Senior Executive
Plan, Mr. Pierce would receive annual retirement benefits of $56,250.
PERFORMANCE GRAPH
The Securities and Exchange Commission (the "SEC") requires the Company to
present a line graph comparing cumulative, five-year stockholder returns on an
indexed basis with the Standard & Poor's 500 Stock Index (the "S&P 500") (or
another broad-based index) and either a nationally-recognized industry standard
or a group of peer companies selected by the Company. The Company has selected,
for purposes of this performance comparison, six public companies (the
"Self-Constructed Peer Group") believed to offer security products or services
similar to those offered by the Company, and the provision of which products or
14
<PAGE> 17
services represents a significant portion of their respective businesses. A list
of these companies follows the graph below. The graph assumes that $100 was
invested on June 1, 1994, in each of the Common Stock, the S&P 500 and the
Self-Constructed Peer Group (weighted on the basis of capitalization), and that
all dividends were reinvested.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
AMONG SENSORMATIC ELECTRONICS CORPORATION,
THE S & P 500 INDEX AND A PEER GROUP
<TABLE>
<CAPTION>
SENSORMATIC
ELECTRONICS
CORPORATION PEER GROUP S & P 500
----------- ---------- ---------
<S> <C> <C> <C>
1995 100.00 100.00 100.00
1996 46.62 185.36 126.00
1997 37.16 189.68 169.73
1998 40.41 157.77 220.92
1999 40.23 149.58 271.19
2000 45.69 132.19 290.85
</TABLE>
The Self-Constructed Peer Group consists of the following companies: Burns
International Services Corp. (formerly Borg-Warner Security Corp.); Checkpoint
Systems, Inc.; Diebold, Incorporated; Vicon Industries, Inc. and The Wackenhut
Corporation. In its proxy statement for the 1999 Annual Meeting of the
stockholders of the Company, the Company also included Pittway Corp. as a member
of the Self-Constructed Peer Group. The Company has omitted Pittway Corp. from
the Self-Constructed Peer Group since Pittway Corp. merged into Honeywell
International Inc. in February 2000.
Agreements Relating to Change in Control
The Board of Directors, in 1988, authorized the Company to enter into
agreements (the "Agreements") providing for certain protections and benefits for
all executive and certain other officers in connection with a change in control
of the Company. The Agreements, among other things, protect the value of stock
options held by such persons, protect their retirement benefits, provide for
severance compensation in the event of certain terminations of service and
provide, in certain cases where the Company is acquired at a premium over the
market price for the Common Stock, for a bonus based on such premium. In 1998,
these Agreements were reviewed and updated in order to conform the Agreements to
the Company's current compensation practices, establish uniform treatment in the
Agreements of officers at comparable levels and clarify certain provisions.
Agreements were also entered into with executive officers who joined the Company
in recent years. As used herein, the "Agreements" shall refer to the current
form thereof following such review and updating.
For purposes of the Agreements, a "change in control" means a change in
control of the Company of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A
15
<PAGE> 18
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
will be deemed to have occurred if (a) any "person" or "group" of persons (as
the terms "person" and "group" are used in Section 13(d) and 14(d) of the
Securities Exchange Act of 1934 and the rules thereunder) is or becomes the
beneficial owner, directly or indirectly, of securities of the Company
representing 30% or more of the combined voting power of the then outstanding
securities of the Company; (b) the Company consummates a merger, consolidation,
share exchange, division or other reorganization of the Company with any other
corporation or entity, unless the stockholders of the Company immediately prior
to such transaction beneficially own, directly or indirectly, (i) if the Company
is the surviving corporation in such transaction, 60% or more of the combined
voting power of the Company's outstanding voting securities as well as 60% or
more of the total market value of the Company's outstanding equity securities,
(ii) if the Company is not the surviving corporation, 80% or more of the
combined voting power of the surviving entity's outstanding voting securities as
well as 80% or more of the total market value of such entity's outstanding
equity securities, or (iii) in the case of a division, 80% or more of the
combined voting power of the outstanding voting securities of each entity
resulting from the division as well as 80% or more of the total market value of
each such entity's outstanding equity securities, in each case in substantially
the same proportion as such stockholders owned shares of the Company prior to
such transaction; (c) the Company adopts a plan of complete liquidation or
winding-up of the Company; (d) the stockholders of the Company approve an
agreement for the sale or disposition (in one transaction or a series of
transactions) of all or substantially all of the Company's assets; or (e) a
change of more than 25% in the composition of the Board of Directors occurs
within a two-year period unless such change was approved in advance by at least
two-thirds of the previous directors.
Under the Agreements, upon the occurrence of a change in control, all stock
options become fully exercisable, and any deferred vesting or forfeiture
provisions applicable to restricted stock or other stock awarded to the officer
under a Company plan ("Award Shares") are without further force or effect. In
addition, in the case of an acquisition of 50% or more of the Company's voting
securities, or in connection with the approval by the Board of Directors of a
merger or certain other transactions or in certain other events which would or
do result in the elimination of the Common Stock from, or a cessation of trading
of the Common Stock in, a nationally recognized market, the Company may be
required by the officers to purchase Company options or stock (or securities
issued in exchange therefor pursuant to the change in control) held by them at
the highest price per share paid in connection with the change in control, less,
in the case of unexercised options, the exercise price (or, in the case of
shares previously acquired upon exercise of options or Award Shares, a price
equal to the cost of such option shares or Award Shares (including related tax
costs), if greater).
The Agreements provide for the protection of compensation levels and
benefits during an attempted change in control and for three years following the
change in control. In addition, the Agreements provide for severance
compensation in amounts commensurate with previous annual compensation in the
event of certain terminations of service with the Company following a change in
control. Severance payments would be payable generally for a period of up to 36
months, but not less than 18 or 24 months (as specified in the respective
Agreements), in the event of involuntary termination of service (other than for
cause, as defined in the Agreements) within 36 months following a change in
control deemed "non-approved" by the Board of Directors. Involuntary termination
is defined to include resignation following a material change in
responsibilities, a reduction in compensation or relocation. In the case of the
chief executive officer of the Company, equal amounts would be payable following
an "approved" change in control and irrespective of the manner of termination
(other than for cause). For other officers generally, severance payments would
be payable for varying periods, depending on the level of the officer, of six
months to 24 months in the event of voluntary termination of service following a
"non-approved" change in control, and 12 months to 30 months in the event of
involuntary termination of service following an "approved" change in control.
Also, in the case of a voluntary termination of service following an approved
change of control, the chief executive officer would be required to provide
consulting services to the Company during a portion of the period such officers
receive severance compensation.
The Agreements also provide, in the event of termination of service of the
officer following a "non-approved" change in control, that the Company pay to
such officer an amount equal to the non-vested portion
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of his accounts under the Company's employee retirement plans (other than the
Executive Salary Continuation Plan (the "ESCP") or the Supplemental Executive
Retirement Plan (the "SERP")). With respect to the ESCP and the SERP, in such
event, the Company is required to fund fully the benefits payable under such
plans (after giving effect to the change of control provisions in such plans)
such that their ultimate payment is assured beyond a reasonable doubt, unless
such funding would result in "constructive receipt" of such benefits resulting
in taxable income to the officer, in which event the Company would be required
to pay such benefits in a lump sum, discounted to present value. Following any
such termination which is involuntary, the non-competition provisions included
in such plans would have no force or effect as to the terminated officer.
The Agreements further provide, in the event of a change in control
involving the acquisition of 50% or more of the Company's voting securities, or
a merger or other transaction affecting the market in the Common Stock as
described above, for the payment of bonuses if the stockholders receive a
substantial premium over the market price of the Company's Common Stock. The
amounts of such bonuses are directly related to, and increase in relation to
increases in, the percentage of such premium.
The Agreements and the employment agreements between certain other officers
and the Company, further provide that if any payment or distribution by the
Company to the executive is determined to be subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code, the executive is entitled to
receive a payment on an after-tax basis equal to the excise tax imposed.
Pursuant to the Agreements, the officers are obligated to continue to make
their services available to the Company during an attempted change in control
and for six months following a change in control.
In 1988 and 1989, the Company also entered into agreements similar to the
Agreements described above with certain non-executive officers, other key
employees and then-directors. Certain other officers and other key employees of
the Company have also been granted agreements providing for certain benefits
following a "non-approved" change in control.
The Agreements entered into with Messrs. Assaf and Lineberger, as executive
officers, in 1988, remain in effect, and have been similarly updated. In
addition, updated agreements, providing for benefits relating to stock options,
acquired option shares and Award Shares and protection of retirement and health
insurance benefits, if any, similar to those afforded to the Company's officers
under the Agreements, have been entered into with Messrs. Breidenbach, Buffett,
Hartman, Munro and Ray.
The Board of Directors of the Company believes that the Agreements will
help assure management's continued dedication to their duties to the Company
notwithstanding the occurrence of any change in control and in particular, will
enable management to assess objectively and impartially, and advise the Board of
Directors with respect to, any proposal received by the Company regarding a
change in control. In addition, such agreements will help assure continued
services to the Company by management and other key personnel.
Stock Purchase Loan Plan
Under the Company's Stock Purchase Loan Plan established to facilitate the
exercise of stock options, Mr. Assaf and Mr. Lineberger had loans outstanding
during the fiscal year ended June 30, 2000. Mr. Assaf's loan was outstanding in
the maximum amount of $1,781,648 during fiscal 2000 and is currently outstanding
in that amount. Mr. Lineberger's loan was outstanding in the maximum amount of
$1,585,527 during fiscal 2000 and is currently outstanding in that amount.
Transactions with Management
The Company holds a June 30, 1995, promissory note of TSI Security
Acquisition Corp. ("TSI"), a company in which Mr. Lineberger was the principal
lender, in the principal amount of $109,789. The note is due in 2000, bears
interest at the rate of 10% per annum and is subordinate to other indebtedness
of TSI borrowed for working capital purposes. The Company has concluded that the
loan is uncollectible, as TSI is insolvent.
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Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors, executive officers and persons who own beneficially more than ten
percent of the Company's outstanding Common Stock to file with the SEC initial
reports of beneficial ownership and reports of changes in beneficial ownership
of Common Stock and other securities of the Company on Forms 3, 4 and 5, and to
furnish the Company with copies of all such forms they file. Based on a review
of copies of such reports, all of the Company's directors and officers timely
filed all reports required with respect to fiscal 2000.
Certain Legal Proceedings
In April 1998, the Company, certain former Company officers and Ronald G.
Assaf, the Company's non-executive Chairman of the Board and former Chief
Executive Officer, entered into agreements, without admitting or denying any
wrongdoing, with the SEC to resolve an SEC investigation, which was described in
previously-filed periodic reports of the Company. Pursuant to the agreements,
the SEC instituted and simultaneously settled several enforcement actions.
Generally, the SEC alleged in an administrative proceeding that the Company
violated the antifraud, reporting, internal controls and books and records
provisions of the federal securities laws from at least July 1, 1993 through
July 10, 1995. Specifically, the SEC alleged, among other things, that during
that period the Company improperly recognized and recorded revenue in one
quarter from product shipped to customers in the next quarter and misstated its
quarterly earnings in certain financial statements contained in periodic reports
and registration statements. As part of its settlement, the Company agreed to an
Order of the SEC that it will not in the future violate certain periodic
reporting, books and records, internal controls and antifraud provisions of the
Federal securities laws. There were no penalties imposed upon the Company.
In its related civil injunctive complaint, the SEC alleged, among other
things, that, during the relevant period, certain former officers of the
Company, other than Mr. Assaf (see below), knew of certain improper revenue
recognition practices and condoned or directed those practices, and knew that
certain Company periodic reports filed with the SEC were false and misleading.
Those officers agreed, without admitting or denying any wrongdoing, to, among
other things, final judgments or orders prohibiting them from violating certain
antifraud provisions and certain record keeping and periodic reporting
provisions of the Federal securities laws and ordering certain of them to pay
civil penalties. Further, the SEC alleged, among other things, in the civil
complaint that, during the relevant period, Mr. Assaf knew of certain improper
recognition practices and knew or was generally aware that certain Company
periodic reports filed with the SEC were false and misleading. Mr. Assaf agreed,
without admitting or denying any wrongdoing, to a civil final judgment enjoining
him from future violations of certain record keeping and periodic reporting
provisions of the Federal securities laws and ordering him to pay a civil
penalty of $50,000.
PROPOSAL TO AMEND THE 1999 STOCK INCENTIVE PLAN
TO INCREASE THE NUMBER OF SHARES AVAILABLE
FOR ISSUANCE THEREUNDER
General
In early fiscal 1999, the Company and its stockholders approved the 1999
Stock Incentive Plan (the "1999 Plan") and authorized 3,650,000 shares of Common
Stock for issuance thereunder. As of September 26, 2000, approximately 2,682,000
shares remained available for issuance in connection with future grants under
the 1999 Plan.
In August 2000, the Board of Directors approved an amendment to the 1999
Plan, subject to stockholder approval, to increase the number of shares of
Common Stock of the Company that may be issued under the 1999 Plan by 3,400,000
shares. This amendment is now being submitted to the stockholders for approval.
The Board of Directors recommends approval of the amendment. The purpose of
the 1999 Plan is to aid the Company in attracting, retaining and motivating
officers, key employees and directors by providing them
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with incentives for making significant contributions to the growth and
profitability of the Company. The 1999 Plan is designed to accomplish this goal
by giving participants a proprietary interest in the success of the Company,
through the grant of stock options and other incentive awards. The amendment, if
approved, would increase the total number of shares authorized for issuance
under the 1999 Plan to 7,050,000, and leave approximately 6,082,000 shares
available for future grants. The Board of Directors believes that this
additional share reserve is necessary to permit the Company to make available
competitive long-term incentives for Plan participants to improve the Company's
performance and thereby create stockholder value.
Set forth below is a brief description of the principal features of the
1999 Plan.
General Terms
The 1999 Plan authorizes the Company to grant awards in the form of stock
options, both incentive stock options (within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code")) and
non-qualified stock options, SARs and awards payable in stock, restricted stock
or cash. All of such awards may be granted singly, in combination or in tandem,
or in substitution for awards granted previously under the 1995 Plan or any
other plan of the Company. In addition, the 1999 Plan permits the Company to
extend dividend equivalency rights to awards made thereunder. The payment or
exercise of any awards, including stock options, under the 1999 Plan may be
conditioned on the satisfaction of various criteria, such as the achievement of
specific business objectives, attainment of growth rates and other comparable
measurements of the Company's performance. While some or all of the other types
of awards referred to above may be made from time to time, the Company has
principally granted stock options under the 1999 Plan and its predecessor plans
and has also granted restricted stock awards under its Long-Term Incentive
Programs under the 1995 Plan and recently under the 1999 Plan.
The 1999 Plan terminates in November 2008. The number of shares presently
authorized for issuance thereunder is 3,650,000, plus such additional number of
shares as becomes available under the 1995 Plan and the 1989 Plan by reason of
the forfeiture of awards granted thereunder or their cancellation or expiration
without exercise (other than in connection with a repricing of options by an
exchange to that effect, unless the stockholders approve such repricing). Shares
related to awards (or portions thereof) under the 1999 Plan that are forfeited,
cancelled or terminated, expire unexercised, are surrendered in exchange for
other awards, or are settled in cash in lieu of shares or in any other manner
such that shares covered by an award are not and will not be issued, will be
restored to the total number of shares available for issuance pursuant to awards
granted under the 1999 Plan, unless such awards are cancelled in connection with
an exchange for options issued at a lower price or the stockholders otherwise
approve such exchange (see also the discussion of the Company's adoption of a
policy against repricing below). The aggregate number of shares issuable
pursuant to options, or which may be used as a basis for SARs, granted to any
individual participant under the 1999 Plan is limited to 1,500,000 shares during
any three consecutive fiscal-year periods, subject to proportional adjustments
as described below.
The 1999 Plan provides that, in the event of a stock split, stock dividend,
combination or reclassification of shares, recapitalization, merger,
consolidation or similar event, proportional adjustments will be made in (a) the
number of shares of the Company's Common Stock (i) reserved for issuance under
the 1999 Plan, (ii) available for options or other awards and for issuance
pursuant to options, or upon which SARs may be based, for individual
participants, and (iii) covered by outstanding awards; (b) the prices related to
outstanding awards; and (c) the appropriate fair market value and other price
determinations for such awards. In addition, equitable adjustments will be made
in the event of any other change affecting the Company's Common Stock or any
distribution (other than normal cash dividends) to stockholders of the Company.
The 1999 Plan provides that it shall be administered by a Committee
designated by the Board of Directors (the "Committee"), consisting of at least
two directors who are not officers or employees of the Company or any of its
subsidiaries. The Committee has the authority, among other things, to: grant
awards; determine the terms, conditions and limitations of awards (including any
applicable performance criteria); establish rules, procedures, regulations and
guidelines relating to the 1999 Plan generally; and to interpret the 1999 Plan
and award agreements entered into pursuant to the Plan. The Committee has the
authority to
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delegate, and has delegated to the Chief Executive Officer of the Company, the
authority to select eligible employees (other than the President or any Vice
President of the Corporation) to be participants in the Plan and to grant
options to such participants of not more than 10,000 shares in any fiscal year
period to any such participant, subject to the terms and conditions of the Plan,
certain other limitations imposed on the authority of the Chief Executive
Officer by the Committee and reporting such option grants to the Committee.
Officers, key employees and directors who are also officers or employees of
the Company or its subsidiaries or who have been designated by the Board of
Directors of the Company as eligible to receive awards under the 1999 Plan, are
eligible to participate in the 1999 Plan. Key employees are those employees who
hold positions of responsibility and/or whose performance, in the judgment of
the Committee, can have a significant effect on the growth and profitability of
the Company. The number of persons who are currently eligible to participate in
the 1999 Plan is estimated to be 1,250.
Generally, a 1999 Plan participant may exercise or receive payment of an
award while employed by or associated with the Company or a subsidiary of the
Company, and for a limited period after termination of employment, other than
for cause, the length of which depends upon whether the participant was a senior
executive officer, an executive officer or employee and upon whether the
termination other than for cause was involuntary, voluntary or due to
retirement, but not beyond the original term of the award. Options granted under
the 1999 Plan generally have a term of five or ten years. Under particular
circumstances, and subject to restrictions and limitations imposed by the
Committee, the Committee may permit additional exercise by, or payment to,
participants who have retired or become disabled, or who otherwise have had
their employment or association with the Company or a subsidiary thereof
terminated. In addition, if a participant dies while still employed or
associated with the Company or a subsidiary thereof, the estate, heirs or
beneficiaries of the deceased participant may, subject to restrictions and
limitations imposed by the Committee, exercise or receive payment in respect of
awards held by the participant at the time of death. In general, awards granted
under the 1999 Plan are not assignable or transferable by a participant, except
under the limited circumstances contemplated by the 1999 Plan.
The exercise price of an option granted under the 1999 Plan will be not
less than the fair market value of the Company's Common Stock on the date of
grant, as defined in the 1999 Plan. (The closing sales price of a share of the
Company's Common Stock was $15.12 on September 28, 2000, as reported on the New
York Stock Exchange.) The exercise price of an option must be paid in full in
cash, or arrangements, satisfactory to the Committee, for payment in full in
cash made at the time of exercise, or, if permitted by the Committee, may be
paid in whole or in part by (a) tendering shares of Common Stock or surrendering
another award granted under the Plan or another benefit plan of the Company, (b)
delivering a promissory note issued by the participant to the Company pursuant
to the terms and conditions of the Company's Stock Purchase Loan Plan or
otherwise as determined by the Committee, or (c) any other means acceptable to
the Committee. In order to enable the Company to satisfy any tax payment
obligations resulting from any exercise of, or other payment on, an award under
the Plan, the Company has the right, among other things, to withhold an
appropriate amount from such payment or to withhold an appropriate number of
shares of the Company's Common Stock receivable by the participant, for payment
thereof.
In March 1998, the Board of Directors adopted a policy that the Company
would not, without the approval of the stockholders, reprice options issued
under a stock-based incentive plan, or otherwise exchange options issued at a
lower price for options previously issued having a higher exercise price, unless
the higher-priced options are extinguished and no longer available for grant. In
addition, the Board agreed that stock option plans adopted by the Company in the
future would require stockholder approval for any such repricing or exchange.
Accordingly, the 1999 Plan does not permit the repricing of options issued
thereunder by amendment of outstanding options or by exchange unless the
higher-priced options are extinguished and no longer available for grant, or the
stockholders otherwise approve such amendment or exchange.
The 1999 Plan may not, without the approval of the stockholders as set
forth therein, be amended to (i) increase materially the aggregate number of
shares of the Company's Common Stock that may be issued under the 1999 Plan
(except for adjustments pursuant to the 1999 Plan in connection with a stock
split, stock dividend, combination or reclassification of shares,
recapitalization, merger, consolidation or similar event, as
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described above), (ii) increase the aggregate number of shares that may be
issued to any individual participant during any three consecutive fiscal-year
periods pursuant to options, or which are used as a basis of SARs, granted under
the 1999 Plan, (iii) modify materially the eligibility requirements of the 1999
Plan or (iv) permit the repricing of options issued thereunder by amendment or
by exchange of options at a lower price for options previously issued at a
higher exercise price (unless such higher priced options are extinguished and
the shares subject thereto no longer available for issuance pursuant to grants).
The 1999 Plan may not be changed in such a way as to alter, impair, amend,
modify, suspend or terminate any rights of a participant or any obligations of
the Company under any award theretofore granted in any manner adverse to such
participant without the consent of such participant.
Federal Income Tax Consequences
Under current federal tax laws and regulations and judicial interpretations
thereof, which are subject to change at any time, the following are the federal
income tax consequences generally arising with respect to awards granted under
the 1999 Plan. The grant of a stock option or SAR will create no tax
consequences for the participant or the Company. The participant will have no
taxable income upon exercising an incentive stock option (except that the
alternative minimum tax may apply), and the Company will not receive a deduction
when an incentive stock option is exercised. Upon exercising an SAR or a
non-qualified stock option, the participant must recognize ordinary income in an
amount equal to the difference between the exercise price and the fair market
value of the stock on the exercise date. At such time, the Company will receive
a deduction for the same amount (assuming the applicable requirements of Section
162(m) of the Internal Revenue Code have been met).
With respect to other awards granted under the 1999 Plan that are settled
in cash or stock that is either transferable or not subject to a substantial
risk of forfeiture, the participant must recognize ordinary income in an amount
equal to the cash or the fair market value of the shares received, when
received. The Company will receive a deduction for the same amount, provided
that, at the time the income is recognized, the participant, if the chief
executive officer or one of the four other most highly compensated executive
officers of the Company, does not have total compensation in excess of
$1,000,000 for the year of recognition (other than compensation that otherwise
meets the requirements of Section 162(m) of the Internal Revenue Code). With
respect to other awards granted under the 1999 Plan that are settled in stock
that is subject to restrictions as to transferability and subject to a
substantial risk of forfeiture, the participant must recognize ordinary income
in an amount equal to the fair market value of the shares received on the date
the shares first become transferable or not subject to a substantial risk of
forfeiture, whichever occurs earlier. At such time, the Company will receive a
deduction for the same amount, subject to the provision set forth above in this
paragraph.
The tax treatment upon disposition of shares acquired under the 1999 Plan
will depend on how long the shares have been held. In the case of shares
acquired through exercise of a stock option, the tax treatment will also depend
on whether or not the shares were acquired by exercising an incentive stock
option. There will be no tax consequences to the Company upon the disposition of
shares acquired under the 1999 Plan except that the Company may receive a
deduction in the case of the disposition of shares acquired under an incentive
stock option where the disposition is made within two years from the date of the
granting of the option or within one year after the transfer of the shares
pursuant to the exercise of the incentive stock option.
Recommendation
The Board of Directors of the Company believes that it is in the best
interests of the Company and its stockholders to continue to offer the long-term
incentive compensation necessary in the current competitive business environment
to attract, retain and motivate key employees to make significant contributions
to the Company. Accordingly, the Board of Directors has adopted, and recommends
that the stockholders approve, the amendment to the 1999 Plan increasing the
total number of shares that may be issued under the 1999 Plan by 3,400,000.
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Approval requires the affirmative vote of a majority of the votes cast at
the meeting, in person or by proxy, on such proposal, provided that the total
vote cast represents over 50% of all shares entitled to vote on the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO AMEND THE
1999 STOCK INCENTIVE PLAN.
PROPOSAL TO AMEND THE DIRECTORS STOCK OPTION PLAN
In fiscal 1992, the Company and its stockholders approved the Directors
Stock Option Plan (the "Directors Plan") and authorized a total of 225,000
shares of Common Stock (after giving effect to a subsequent 3-for-2 stock split)
for issuance pursuant to options granted thereunder. In fiscal 1999, the Company
and its stockholders approved an amendment to the Directors Plan to increase the
number of shares of Common Stock of the Company that may be issued under this
Directors Plan by 350,000 shares. The amendment now being submitted to the
stockholders for approval would increase from 7,500 to 10,000 the number of
shares of the Company's Common Stock for which an option is granted annually to
each participating director under the Directors Plan.
The Board of Directors recommends approval of the amendment. The purpose of
the Directors Plan is to aid the Company in attracting, retaining and motivating
its directors by providing them with incentives to make significant
contributions to the growth and profitability of the Company. The Directors Plan
is designed to accomplish this goal by the granting of stock options, thereby
providing participants with a proprietary interest in the growth, profitability
and success of the Company.
Set forth below is a brief description of the principal features of the
Directors Plan.
General Terms
The following persons ("Eligible Directors") are eligible to receive grants
of stock options pursuant to the Directors Plan: (a) directors of the Company
who are members of the Committee of the Board designated to administer
discretionary stock incentive plans from time to time adopted and implemented by
the Company (a "Discretionary Plan") and (b) directors of the Company who are
not officers or employees of the Company or any subsidiary thereof (a
"Non-employee Director") and who (i) have not been designated by the Company's
Board of Directors within 30 days after becoming a director of the Company as
being eligible to receive awards under a Discretionary Plan or (ii) having been
eligible to participate in a Discretionary Plan, have ceased to be so eligible
as a result of a determination by the Board of Directors. The eligibility of any
such director to participate in the Directors Plan shall cease if such director
is subsequently designated as being eligible to receive awards under a
Discretionary Plan for as long as he or she remains so eligible. All of the
directors of the Company, other than Mr. Loof, are currently participants in the
Directors Plan.
As of September 26, 2000, 245,000 shares remained available for issuance in
connection with future grants of options under the Directors Plan. Shares
related to options (or portions thereof) that are forfeited, cancelled or
terminated, expire unexercised, are surrendered in exchange for other options or
are otherwise settled in such manner that all or some of the shares covered by
an option are not and will not be issued will be restored to the total number of
shares available for issuance pursuant to options granted under the Directors
Plan. In the event of any change in the number of shares of outstanding Common
Stock of the Company by reason of a stock split, stock dividend, combination or
reclassification of shares, recapitalization, merger, consolidation or similar
event, proportional adjustments will be made in the number of shares of the
Company's Common Stock (a) reserved for issuance pursuant to the Directors Plan,
(b) for which stock options shall be granted, and (c) covered by outstanding
stock options, as well as in the exercise price of such outstanding options. In
addition, equitable adjustments will be made in the event of any other change
affecting the Company's Common Stock or any distribution (other than normal cash
dividends) to stockholders of the Company.
Under the Directors Plan, non-qualified stock options to purchase shares of
the Company's Common Stock are granted automatically to Eligible Directors at
the times specified in the Directors Plan. In general,
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unless an Eligible Director has received a previous grant of a stock option
(under the Directors Plan, a Discretionary Plan or otherwise), he or she will
receive an initial option to purchase 20,000 shares of the Company's Common
Stock on the date on which he or she first becomes eligible to participate in
the Directors Plan. Thereafter, as long as the Eligible Director (including any
Eligible Director who received a previous grant) remained eligible to
participate in the Directors Plan, he or she would receive annually, on the date
of the Annual Meeting of Stockholders, an option to purchase 7,500 shares of the
Company's Common Stock, beginning on the date specified in the Directors Plan.
The proposed amendment, if approved, would increase from 7,500 to 10,000 the
number of shares of the Company's Common Stock for which an option is granted
annually to each participating director under the Directors Plan.
Notwithstanding the foregoing, no stock option may be granted to any person
whose service as a director of the Company ends on the date on which the option
would otherwise be granted.
The Directors Plan is administered by the Company's Board of Directors or a
committee composed of not less than two members thereof as may be designated
from time to time by all such members. The Board or such committee administers
the Directors Plan, but has no discretion regarding the grant, amount, timing,
terms and conditions of stock options granted under the Directors Plan.
The exercise price of any stock option granted pursuant to the Directors
Plan is the fair market value of the Company's Common Stock on date of grant.
Each stock option is exercisable, cumulatively, as to one-third of the shares
after the first anniversary of the date of grant and as an additional one-third
after each of the second and third anniversaries of the date of grant. Each
option is exercisable for a period of ten years from the date of grant.
The price at which shares of the Company's Common Stock may be purchased
upon exercise of an option must be paid in full in cash at the time of exercise
or by (i) tendering shares of the Company's Common Stock or surrendering another
stock option, (ii) delivering a promissory note issued by the participant to the
Company pursuant to the terms and conditions of the Company's Stock Purchase
Loan Plan or otherwise as determined by the Board or the committee, or (iii) any
other means acceptable to the Board or the committee.
In order to enable the Company to satisfy any tax payment obligations
resulting from any exercise of a stock option under the Directors Plan, the
Company has the right, among other things, to withhold from the shares of the
Company's Common Stock receivable by a participant an appropriate number of
shares for payment thereof. In addition, participants may elect to have the
Company deduct applicable taxes by withholding an appropriate number of shares
of the Company's Common Stock or to elect to tender to the Company other shares
of the Company's Common Stock held by the participant for the purpose of
satisfying tax payment obligations.
Except as described below, if a participant's association with the Company
terminates, any unexercised stock option (or portion thereof) shall, to the
extent it is exercisable pursuant to the terms of such option on the date of
such termination, remain exercisable for a period of three months following the
date of termination or until the stated expiration of the stock option, if
earlier. If a participant dies, or ceases to be associated with the Company
because he or she (i) is disabled, (ii) retires at age 62 or thereafter or (iii)
assumes a position with a governmental, charitable or educational agency or
institution, any stock option granted under the Directors Plan then held by such
participant shall become fully exercisable as of the date on which such
participant dies or ceases to be associated with the Company, and shall be
exercisable through the expiration date specified in the applicable option
agreement.
Stock options granted under the Directors Plan are subject to acceleration
of exercisability in the event of a change in control of the Company, as set
forth in agreements between the Company and certain of its directors which
provide for certain protections and benefits in the event of a change of control
(as defined in such agreements) (see "Agreements Relating to Change in Control"
above), or as provided in applicable option agreements. In general, awards
granted under the Directors Plan are not assignable or transferable by a
participant, except under the limited circumstances contemplated by the
Directors Plan.
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The Board or the committee may amend, suspend or terminate the Directors
Plan for the purpose of meeting or addressing any changes in any applicable tax,
securities or other law. In addition, the Directors Plan may not, without the
approval of the stockholders, as set forth therein, be amended to (i) increase
materially the aggregate number of shares of the Company's Common Stock that may
be issued under the Directors Plan (except for adjustments pursuant to Section 8
of the Directors Plan), (ii) materially increase the benefits accruing to
participants, or (iii) modify materially the eligibility requirements of the
Directors Plan. Nor may the Directors Plan be changed in such a way as to alter,
impair, amend, modify, suspend or terminate any rights of a participant or any
obligations of the Company under any stock options theretofore granted in any
manner adverse to such participant, without the consent of such participant. The
Directors Plan terminates on November 30, 2006.
Federal Income Tax Consequences
The federal income tax consequences to the participants and the Company of
the issuance and exercise of stock options that would be granted pursuant to the
Directors Plan are the same as for the issuance and exercise of stock options
that would be granted under the 1999 Plan.
Recommendation
The Board of Directors of the Company believes that it is in the best
interests of the Company and its stockholders to continue to offer the long-term
incentives available under the Directors Plan to directors of the Company. The
Board of Directors believes that the future success of the Company will depend
in large part on its ability to attract, retain and motivate directors through,
among other things, such incentive programs and that an increase in the number
of shares pursuant to options that are granted annually to directors would
enable the Company to remain competitive in attracting and retaining directors.
Accordingly, the Board of Directors has adopted, and recommends that the
stockholders approve, the amendment to increase from 7,500 to 10,000 the number
of shares of the Company's Common Stock for which an option is granted annually
to each participating director under the Directors Plan.
Approval requires the affirmative vote of a majority of the votes cast at
the meeting in person or by proxy on such proposal, provided that the total
votes cast represent over 50% of all shares entitled to vote on the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL
TO AMEND THE DIRECTORS PLAN
SUBMISSION OF STOCKHOLDER PROPOSALS
In order for a stockholder proposal to be eligible for inclusion in the
Company's proxy material relating to its 2001 Annual Meeting (currently
scheduled to be held on November 16, 2001) it must be in writing and received by
the Secretary of the Company prior to June 8, 2001. Stockholders wishing to
bring any matter before a meeting should consult the Company's By-Laws with
respect to any applicable notice or other procedural requirements.
ANNUAL REPORT
All stockholders of record on September 28, 2000, have been sent, or are
concurrently being sent, a copy of the Company's 2000 Annual Report on Form
10-K, which contains certified financial statements of the Company for the
fiscal year ended June 30, 2000.
ANY PERSON WHO WAS A STOCKHOLDER OF THE COMPANY AT THE CLOSE OF BUSINESS ON
SEPTEMBER 28, 2000, MAY OBTAIN ADDITIONAL COPIES OF THE COMPANY'S 2000 ANNUAL
REPORT ON FORM 10-K AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION,
WITHOUT CHARGE, BY WRITTEN REQUEST TO THE COMPANY, 951 YAMATO ROAD, BOCA RATON,
FLORIDA 33431-4425, ATTENTION: INVESTOR RELATIONS.
24
<PAGE> 27
ACCOUNTANTS
The Company's independent accountants, selected by the Board of Directors,
are PricewaterhouseCoopers LLP ("PwC"), certified public accountants.
Representatives of PwC are expected to be present at the Annual Meeting of
Stockholders, and will have the opportunity to make a statement if they desire
to do so and are expected to be available to respond to appropriate questions at
the meeting.
OTHER MATTERS
As of the date of this Proxy Statement, the Company knows of no matter
other than those set forth herein which will be presented for consideration at
the Annual Meeting of Stockholders. If any other matter or matters are properly
brought before the meeting or any adjournment thereof, it is the intention of
the persons named in the accompanying proxy to vote, or otherwise act, on such
matters in accordance with their judgment.
WALTER A. ENGDAHL
Secretary
Boca Raton, Florida
October 6, 2000
25
<PAGE> 28
EXHIBIT A
SENSORMATIC ELECTRONICS CORPORATION
AUDIT COMMITTEE CHARTER
The Audit Committee (the "Committee"), of the Board of Directors (the
"Board") of Company ("the Company"), will have the oversight responsibility,
authority and specific duties as described below.
Composition
The Committee will be comprised of three or more directors as determined by
the Board. The members of the Committee will meet the independence and
experience requirements of the New York Stock Exchange (NYSE). The members of
the Committee will be appointed annually at the organizational meeting of the
full Board held in November and will be listed in the annual report to
shareholders. One of the members of the Committee will be designated Committee
Chair by the Board.
Responsibility
The Committee is a part of the Board. It's primary function is to assist
the Board in fulfilling its oversight responsibilities with respect to (i) the
financial information to be provided to shareholders and the Securities and
Exchange Commission (SEC); (ii) the systems of internal controls that management
has established; and (iii) the internal and external audit processes. In
addition, the Committee provides an avenue for communication between internal
audit, the Company's independent accountants, financial management and the
Board. The Committee should have a clear understanding with the independent
accountants that they must maintain an open and direct relationship with the
Committee, and that the independent accountants are ultimately accountable to
the Board and the Committee. The Committee will make regular reports to the
Board concerning its activities.
While the Audit Committee has the responsibilities and powers set forth in
this Charter, it is recognized that members of the Committee are not acting as
professional accountants or auditors or experts in the fields of accounting,
auditing or finance, and it is not the duty of the Audit Committee to plan or
conduct audits or to determine that the Company's financial statements are
complete and accurate and are in accordance with generally accepted accounting
principles or to establish or monitor internal controls. These are the
responsibilities of management and the independent accountants. Nor is it the
duty of the Audit Committee to conduct investigations, to resolve disagreements,
if any, between management and the independent accountants or to assure
compliance with laws and regulations and the Company's business conduct
guidelines.
Authority
Subject to the prior approval of the Board, the Committee is granted the
authority to investigate any matter or activity involving financial accounting
and financial reporting, as well as the internal controls of the Company. In
that regard, the Committee may recommend to the Board the retention of external
professionals to perform special reviews or other procedures or to render advice
and counsel in such matters. All employees will be directed to cooperate with
respect thereto as requested by members of the Committee.
Meetings
The Committee is to meet at least four times annually and as many
additional times as the Committee deems necessary. Content of the agenda for
each meeting should be approved by the Committee Chair. The Committee is to meet
in separate executive sessions with the chief financial officer, independent
accountants and internal audit at least once each year and at other times when
deemed appropriate.
Attendance
Committee members will strive to be present at all meetings. As necessary
or desirable, the Committee Chair may request that members of management and
representatives of the independent accountants and internal audit be present at
Committee meetings.
A-1
<PAGE> 29
Specific Duties
In carrying out its oversight responsibilities, the Committee will:
(1) Review and reassess the adequacy of this charter annually and
submit any recommended changes to the Board for its consideration and
approval. This should be done in compliance with applicable NYSE Audit
Committee Requirements.
(2) Review with the Company's management, internal audit and
independent accountants the Company's systems of accounting and financial
reporting controls. Obtain annually in writing from the independent
accountants their letter as to the adequacy of such controls.
(3) Review with the Company's management, internal audit and
independent accountants significant accounting and reporting principles,
practices and procedures applied by the Company in preparing its financial
statements. Discuss with the independent accountants their judgements about
the quality, not just the acceptability, of the Company's accounting
principles used in financial reporting.
(4) Review the scope of internal audit's work plan for the year and
receive summary reports of major findings by internal auditors and review
how management is addressing the conditions reported.
(5) Review the scope and extent of the independent accountants' annual
audit. The Committee's review should include an explanation from the
independent accountants of the factors considered by the accountants in
determining the audit scope, including the major risk factors. The
independent accountants should confirm to the Committee that no limitations
have been placed on the scope or nature of their audit procedures. Review
also the scope of the independent accountants' prospective reviews of
interim quarterly financial results. The Committee will review annually
with management the estimated and actual fees of the independent
accountants for audit and review services and other major engagements.
(6) Inquire as to the independence of the independent accountants and
obtain from the independent accountants, at least annually, a formal
written statement delineating all relationships between the independent
accountants and the Company as contemplated by Independence Standards Board
Standard No. 1, Independence Discussions with Audit Committees. Discuss
with the independent accountants any such disclosed relationships or
services that may impact the objectivity and independence of the
independent accountants, and, if deemed appropriate by the Committee,
recommend that the Board of Directors take appropriate action in response
to the independent accountants' report to satisfy itself of the independent
accountants' independence.
(7) Have a predetermined arrangement with the independent accountants
that they will advise the Committee through its Chair, and also management
of the Company, of any matters identified through procedures followed for
interim quarterly financial statements and required to be brought to the
attention of the Committee under standards for communication with Audit
Committees, and that such notification is to be made prior to the related
earnings press release or, if not practicable, prior to filing of a related
Form 10-Q. Also, receive a written confirmation provided by the independent
accountants at the end of each of the first three quarters of the year that
they have nothing to report to the Committee, if that is the case, or the
written enumeration of required reporting issues.
(8) At the completion of the annual audit, review with management,
internal audit and the independent accountants the following:
- The annual financial statements and related footnotes and financial
information to be included in the Company's annual report to
shareholders and on Form 10-K.
- Results of the audit of the financial statements and the related
report thereon and, if applicable, a report on changes during the
year in accounting principles and their application.
- Significant changes to the audit plan, if any, and any serious
disputes or difficulties with management encountered during the
audit. Inquire about the cooperation received by the independent
accountants during their audit, including access to all requested
records, data and information. Inquire of the independent
accountants whether there have been any disagreements
A-2
<PAGE> 30
with management which, if not satisfactorily resolved, would have
caused them to issue a nonstandard report on the Company's financial
statements.
- Other communications as required to be communicated by the
independent accountants by Statement of Auditing Standards (SAS) 61
as amended by SAS 90 relating to the conduct of the audit. Further,
receive a written communication provided by the independent
accountants concerning their judgment about the quality of the
Company's accounting principles, as outlined in SAS 61 as amended by
SAS 90, and that they concur with management's representation
concerning audit adjustments.
If deemed appropriate after such review and discussion, recommend to the
Board that the financial statements be included in the Company's annual report
on Form 10-K.
(9) After preparation by management and review by internal audit,
independent accountants and counsel, approve the report required under SEC
rules to be included in the Company's annual proxy statement. The charter
is to be published as an appendix to the Company's proxy statement at least
once every three years and to the Company's proxy statement next following
any significant amendment to the charter.
(10) Discuss with the independent accountants the quality of the
Company's financial and accounting personnel and the internal audit
personnel. Also, elicit the comments of management regarding the
responsiveness of the independent accountants to the Company's needs.
(11) Meet with management, internal audit and the independent
accountants to discuss any relevant significant recommendations that the
independent accountants may have, particularly those characterized as
'material'. Typically, such recommendations will be presented by the
independent accountants in the form of a Letter of Comments and
Recommendations to the Committee. The Committee should review responses of
management to the Letter of Comments and Recommendations from the
independent accountants and receive follow-up reports on action taken
concerning the aforementioned recommendations.
(12) Provide advice and recommendations to the Board in the selection,
retention and, where appropriate, the replacement of the Company's
independent accountants.
(13) Review and evaluate the performance of the internal audit
function and its personnel. Review and concur in the appointment and
replacement of the senior internal audit executive or outsourced internal
audit services provider, as the case may be.
(14) Review with management, the Company's General Counsel, internal
audit and the independent accountants the methods used (including the
Company's Code of Conduct) to establish and monitor the Company's policies
with respect to unethical or illegal activities by Company employees that
may have a significant or material impact on the financial statements.
(15) Generally as part of the review of the annual financial
statements, receive an oral report(s), at least annually, from the
Company's general counsel concerning legal and regulatory matters that may
have a material impact on the financial statements.
(16) Review policies and procedures with respect to corporate
officers' expense accounts and perquisites, including their use of Company
assets, and review actual expenses and perquisites of the corporate
officers.
(17) As the Committee may deem appropriate, obtain, weigh and consider
expert advice as to Audit Committee related rules of the NYSE, Statements
on Auditing Standards and other pertinent accounting, legal and regulatory
provisions.
A-3
<PAGE> 31
0854-PS-00
<PAGE> 32
PROXY
SENSORMATIC ELECTRONICS CORPORATION
PROXY - ANNUAL MEETING OF STOCKHOLDERS - NOVEMBER 17, 2000
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned, a stockholder of SENSORMATIC ELECTRONICS CORPORATION, a
Delaware corporation (the "Company"), does hereby appoint GREG THOMPSON
and WALTER A. ENGDAHL, and each of them, the true and lawful attorneys and
proxies, with full power of substitution, for and in the name, place and stead
of the undersigned to vote, as designated on the reverse side, all of the
shares of stock of the Company which the undersigned would be entitled to vote
if personally present at the Annual Meeting of Stockholders of the Company to
be held at the Boca Raton Marriott, 5150 Town Center Circle, Boca Raton,
Florida 33486, on November 17, 2000, at 10 A.M., local time, and at any
adjournment or adjournments thereof.
The undersigned hereby revokes any proxy or proxies heretofore given and
ratifies and confirms all that the proxies appointed hereby, or any of them, or
their substitutes, may lawfully do or cause to be done by virtue hereof. All of
said proxies or their substitutes who shall be present and act at the meeting,
or if only one is present and acts, then that one, shall have and may exercise
all of the powers hereby granted to such proxies. The undersigned hereby
acknowledges receipt of a copy of the Notice of Annual Meeting and Proxy
Statement, both dated October 6, 2000, and a copy of the Annual Report on Form
10-K for the fiscal year ended June 30, 2000.
UNLESS OTHERWISE DIRECTED, THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
RECOMMENDATIONS OF THE BOARD OF DIRECTORS.
[SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE [SEE REVERSE
SIDE] SIDE]
<TABLE>
<S> <C>
[X] Please mark
votes as in
this example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES FOR DIRECTOR NAMED BELOW.
1. ELECTION OF DIRECTORS.
Nominees: (01) Timothy P. Hartman, (02) Per-Olof
Loof and (03) J. Richard Munro
FOR WITHHELD
ALL [ ] [ ] FROM ALL THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM 2.
NOMINEES NOMINEES FOR AGAINST ABSTAIN
2. PROPOSAL TO AMEND THE 1999
STOCK INCENTIVE PLAN. [ ] [ ] [ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM 3.
3. PROPOSAL TO AMEND THE FOR AGAINST ABSTAIN
DIRECTORS STOCK OPTION
PLAN. [ ] [ ] [ ]
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW [ ] 4. To vote with discretionary authority with respect to all other
matters which may come before the meeting.
[ ] _________________________________________________ NOTE: Your signature should appear the same as your name
For, except vote withheld from the above nominee appears hereon. In signing as attorney, executor, administrator,
trustee or guardian, please indicate the capacity in which signing.
When signing as joint tenants, all parties in the joint tenancy
must sign. When a proxy is given by a corporation, it should be
signed by an authorized officer. No postage is required if returned
in the enclosed envelope and mailed in the United States.
Signature: ________________________________ Date: _____________ Signature: ________________________________ Date: _____________
</TABLE>
