<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the quarterly period ended September 30, 1998 Commission file number 1-8591
------------------ -----
SCOTT TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1297376
- ------------------------------------------ -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5875 Landerbrook Drive, Suite 250
Mayfield Heights, Ohio 44124
- ------------------------------------------ -------------------------
(Address of principal executive offices) (Zip Code)
(440) 446-1333
-------------------------------
(Registrant's telephone number)
- --------------------------------------------------------------------------------
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
<TABLE>
<CAPTION>
Class Outstanding as of October 29, 1998
- --------------------------------------------------------------------------------
<S> <C>
Class A Common Stock, par value $.10 per share 13,321,065
Class B Common Stock, par value $.10 per share 4,549,822
</TABLE>
<PAGE> 2
SCOTT TECHNOLOGIES, INC.
------------------------
(FORMERLY FIGGIE INTERNATIONAL INC.)
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION..........................................................................3
ITEM 1. FINANCIAL STATEMENTS........................................................................3
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997................................................3
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997...............................................4
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997.............................................................5
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997................................................7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS...........................................................8
Name Change......................................................................................8
Summary of Significant Accounting Policies.......................................................8
Receivables......................................................................................8
Inventories......................................................................................9
Discontinued Operations..........................................................................9
Income Taxes....................................................................................11
Credit Facility.................................................................................11
Long-Term Debt..................................................................................12
Capital Stock...................................................................................12
Contingent Liabilities..........................................................................14
Extraordinary Item - Early Extinguishment of Debt...............................................15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..................................................................16
Forward-Looking Information.....................................................................16
Results of Operations Summary...................................................................16
Scott Aviation..................................................................................18
Corporate and Unallocated Costs and Expenses....................................................19
Financial Position and Liquidity................................................................19
Factors Affecting the Company's Prospects.......................................................21
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................................23
PART II. OTHER INFORMATION............................................................................23
ITEM 5. OTHER INFORMATION..........................................................................23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K...........................................................24
SIGNATURES.............................................................................................25
EXHIBIT INDEX..........................................................................................26
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCOTT TECHNOLOGIES, INC.
(formerly FIGGIE INTERNATIONAL INC.)
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
September 30, September 30,
1998 1997
------------ ------------
<S> <C> <C>
Net Sales $ 135,375 $ 118,751
Cost of Sales 91,159 80,455
------------ ------------
Gross Profit on Sales 44,216 38,296
------------ ------------
Operating Expenses:
Selling, General and Administrative 18,793 17,595
Research and Development 2,484 2,617
------------ ------------
Total Operating Expenses 21,277 20,212
------------ ------------
Operating Income 22,939 18,084
------------ ------------
Other Expense (Income):
Refinancing Costs 521 393
Interest Expense 9,895 16,118
Interest Income (2,893) (4,019)
Other, Net 2,034 2,237
------------ ------------
Income from Continuing Operations before
Income Tax and Extraordinary Item 13,382 3,355
Income Tax 5,386 991
------------ ------------
Income from Continuing Operations
before Extraordinary Item 7,996 2,364
Discontinued Operations, Net of Tax:
(Loss) Income from Operations (6,954) 8,972
(Loss) on Disposal (5,898) (6,000)
------------ ------------
(12,852) 2,972
(Loss) Income before Extraordinary Item (4,856) 5,336
Extraordinary Item - (Loss) on
Extinguishment of Debt, Net of Tax (1,689) -
------------ ------------
Net (Loss) Income $ (6,545) $ 5,336
============ ============
Weighted Average Shares - Basic 18,435 18,396
Weighted Average Shares - Diluted 18,657 18,629
Per Share Data - Basic EPS:
---------------------------
Income from Continuing Operations $ 0.43 $ 0.13
(Loss) Income from Discontinued Operations (0.70) 0.16
------------ ------------
(Loss) Income Before Extraordinary Item (0.27) 0.29
Extraordinary Item (Loss) (0.09) -
------------ ------------
Net (Loss) Income $ (0.36) $ 0.29
============ ============
Per Share Data - Assuming Dilution:
-----------------------------------
Income from Continuing Operations $ 0.43 $ 0.13
(Loss) Income from Discontinued Operations (0.69) 0.16
------------ ------------
(Loss) Income Before Extraordinary Item (0.26) 0.29
Extraordinary Item (Loss) (0.09) -
------------ ------------
Net (Loss) Income $ (0.35) $ 0.29
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE> 4
SCOTT TECHNOLOGIES, INC.
(formerly FIGGIE INTERNATIONAL INC.)
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
September 30, September 30,
1998 1997
------------ ------------
<S> <C> <C>
Net Sales $ 43,197 $ 38,084
Cost of Sales 29,468 26,051
------------ ------------
Gross Profit on Sales 13,729 12,033
------------ ------------
Operating Expenses:
Selling, General and Administrative 6,577 5,671
Research and Development 800 629
------------ ------------
Total Operating Expenses 7,377 6,300
------------ ------------
Operating Income 6,352 5,733
------------ ------------
Other Expense (Income):
Refinancing Costs 131 131
Interest Expense 2,594 5,400
Interest Income (543) (1,957)
Other, Net 826 729
------------ ------------
Income from Continuing Operations before
Income Tax and Extraordinary Item 3,344 1,430
Income Tax 1,361 462
------------ ------------
Income from Continuing Operations
before Extraordinary Item 1,983 968
Discontinued Operations, Net of Tax:
(Loss) Income from Operations (5,522) 1,256
(Loss) on Disposal (5,898) -
------------ ------------
(11,420) 1,256
(Loss) Income before Extraordinary Item (9,437) 2,224
Extraordinary Item - (Loss) on
Extinguishment of Debt, Net of Tax (44) -
------------ ------------
Net (Loss) Income $ (9,481) $ 2,224
============ ============
Weighted Average Shares - Basic 18,294 18,413
Weighted Average Shares - Diluted 18,506 18,701
Per Share Data - Basic EPS:
---------------------------
Income from Continuing Operations $ 0.11 $ 0.05
(Loss) Income from Discontinued Operations (0.63) 0.07
------------ ------------
(Loss) Income Before Extraordinary Item (0.52) 0.12
Extraordinary Item - -
Net (Loss) Income $ (0.52) $ 0.12
============ ============
Per Share Data - Assuming Dilution:
-----------------------------------
Income from Continuing Operations $ 0.11 $ 0.05
(Loss) Income from Discontinued Operations (0.62) 0.07
------------ ------------
(Loss) Income Before Extraordinary Item (0.51) 0.12
Extraordinary Item - -
------------ ------------
Net (Loss) Income $ (0.51) $ 0.12
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 5
SCOTT TECHNOLOGIES, INC.
(formerly FIGGIE INTERNATIONAL INC.)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 31,359 $ 103,264
Trade Accounts Receivable, less Allowance for
Uncollectible Accounts of $242 in 1998
and $194 in 1997 15,940 12,416
Inventories 23,205 23,398
Prepaid Expenses 554 449
Recoverable Income Taxes - 4,120
Current Deferred Tax Asset 19,600 6,400
Net Assets of Discontinued Operations 23,270 33,376
------------ ------------
Total Current Assets 113,928 183,423
------------ ------------
PROPERTY, PLANT AND EQUIPMENT
Land and Land Improvements 42,937 42,758
Buildings and Leasehold Improvements 13,352 12,942
Machinery and Equipment 16,765 14,445
------------ ------------
73,054 70,145
Accumulated Depreciation (16,755) (14,758)
------------ ------------
Net Property, Plant and Equipment 56,299 55,387
------------ ------------
OTHER ASSETS
Deferred Divestiture Proceeds and Other, Net 26,023 29,324
Prepaid Pension Costs 12,723 12,723
Intangible Assets 1,888 1,953
Cash Surrender Value of Insurance Policies 3,476 3,596
Prepaid Finance Costs 214 759
Deferred Tax Asset 34,699 44,060
Other 2,372 1,589
------------ ------------
Total Other Assets 81,395 94,004
------------ ------------
Total Assets $ 251,622 $ 332,814
============ ============
</TABLE>
5
<PAGE> 6
SCOTT TECHNOLOGIES, INC.
(formerly FIGGIE INTERNATIONAL INC.)
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
LIABILITIES 1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts Payable $ 11,186 $ 15,614
Accrued Insurance Reserves 13,209 11,693
Accrued Compensation 4,165 4,075
Accrued Interest 4,846 3,827
Accrued Environmental Reserve 2,641 3,217
Accrued Liabilities and Expenses 9,640 8,145
Current Portion of Long-Term Debt 284 513
------------ ------------
Total Current Liabilities 45,971 47,084
------------ ------------
Long-Term Debt 98,202 158,920
Non-Current Insurance Reserves 27,713 31,410
Other Non-Current Liabilities 22,924 23,804
------------ ------------
Total Liabilities 194,810 261,218
------------ ------------
STOCKHOLDERS' EQUITY
Preferred Stock, $1.00 Par Value; Authorized,
3,217 Shares; Issued and Outstanding, None - -
Class A Common Stock, $0.10 Par Value;
Authorized, 18,000 Shares; Issued and
Outstanding 1998 - 13,844; 1997 - 13,729 1,384 1,373
Class B Common Stock, $0.10 Par Value;
Authorized, 18,000 Shares; Issued and
Outstanding 1998 - 4,711; 1997 - 4,707 471 471
Treasury Stock, Common Shares at Cost (9,225) -
1998 - 685 Shares; 1997 - 0 Shares
Capital Surplus 110,827 109,871
Accumulated Deficit (46,563) (40,018)
Other Equity (82) (101)
------------ ------------
Total Stockholders' Equity 56,812 71,596
------------ ------------
Total Liabilities and Stockholders' Equity $ 251,622 $ 332,814
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE> 7
SCOTT TECHNOLOGIES, INC.
(formerly FIGGIE INTERNATIONAL INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, September 30,
1998 1997
------------ ------------
<S> <C> <C>
Operating Activities:
Income from Continuing Operations $ 6,307 $ 2,364
Income from Discontinued Operations (12,852) 2,972
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities-
Depreciation and Amortization 3,959 6,254
Other, Net 962 (1,799)
Changes in Operating Assets and Liabilities
Accounts Receivable 3,760 (756)
Inventories 1,771 (11,403)
Prepaid Items 284 (2,299)
Other Assets 3,205 6,976
Accounts Payable (6,252) 358
Accrued Liabilities and Expenses 5,710 15,510
Accrued Income Taxes 130 1,088
Other Liabilities (4,638) (12,163)
------------ ------------
Net Cash Provided by Operating Activities 2,346 7,102
------------ ------------
Investing Activities:
Capital Expenditures for Continuing Operations (6,061) (3,533)
Capital Expenditures for Discontinued Operations (598) (2,248)
Proceeds from Sale of Property, Plant and Equipment 3,194 74
Proceeds from Business Divestitures - 2,005
------------ ------------
Net Cash (Used) by Investing Activities (3,465) (3,702)
------------ ------------
Financing Activities:
Principal Payments on Debt (61,074) (1,607)
Proceeds from Issuing Common Stock 968 669
Payments to Reacquire Common Stock (9,226) (385)
------------ ------------
Net Cash (Used) by Financing Activities (69,332) (1,323)
------------ ------------
Net (Decrease) Increase in Cash and Cash Equivalents (70,451) 2,077
Cash and Cash Equivalents at Beginning of Year 104,243 44,447
------------ ------------
Cash and Cash Equivalents at End of Period $ 33,792 $ 46,524
============ ============
</TABLE>
Cash and Cash Equivalents include cash from Discontinued Operations.
See Notes to Consolidated Financial Statements.
7
<PAGE> 8
SCOTT TECHNOLOGIES, INC. AND SUBSIDIARIES
(formerly FIGGIE INTERNATIONAL INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The financial information included herein has been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission
and properly reflects all adjustments (consisting of normal recurring accruals)
which are, in the opinion of management, necessary to present a fair statement
of the financial results of operations for the periods covered by this report.
The results of operations for the nine months ended September 30, 1998 are not
necessarily indicative of the results to be expected for the entire year.
(1) Name Change:
-----------
Effective May 22, 1998, the Company changed its name from Figgie
International Inc. to Scott Technologies, Inc.
(2) Summary of Significant Accounting Policies:
------------------------------------------
The financial statements have been prepared in accordance with the accounting
policies described in Note 1 of the Notes to Consolidated Financial Statements
appearing in SCOTT TECHNOLOGIES, INC.'s (formerly FIGGIE INTERNATIONAL INC.)
1997 Form 10-K.
(3) Receivables:
-----------
Receivables consist of the following components (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---------- ----------
<S> <C> <C>
U.S. Government
Billed $ 657 $ 1,193
Unbilled - -
---------- ----------
657 1,193
Commercial
Billed 15,525 11,417
Allowance for Uncollectible Accounts (242) (194)
---------- ----------
$ 15,940 $ 12,416
========== ==========
</TABLE>
U.S. Government receivables include amounts derived from contracts on which
the Company performs on a prime contractor or subcontractor basis. Costs
charged by the Company to the U.S. Government in the performance of U.S.
Government contracts are subject to audit. The year 1994 is currently under
audit.
8
<PAGE> 9
(4) Inventories:
-----------
Inventories consist of the following components (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
----------- ------------
<S> <C> <C>
Raw Materials $ 7,899 $ 6,182
Work In Process 1,386 3,146
Finished Goods 14,806 14,594
Inventory Reserves (886) (524)
----------- ------------
Total Inventories $ 23,205 $ 23,398
=========== ============
</TABLE>
(5) Discontinued Operations:
-----------------------
INTERSTATE ELECTRONICS: On October 21, 1998, the Board of Directors announced
that it intends to divest the Interstate Electronics business. As a result, the
Consolidated Statements of Income for 1998 and the Consolidated Balance Sheets
as of September 30, 1998 and December 31, 1997 reflect the Company's Interstate
Electronics Corporation division ("IEC") as a discontinued operation; however,
in the Consolidated Statements of Cash Flows, items relating to discontinued
operations have not been disaggregated as they have in the aforementioned
financial statements. Previously reported 1997 financial information has been
restated to reflect IEC as a discontinued operation and is summarized as follows
(in thousands):
<TABLE>
<CAPTION>
As
Previously As
Reported IEC Restated
-------- -------- --------
<S> <C> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30, 1997:
Net Sales $185,574 $(66,823) $118,751
======== ======== ========
Income from Continuing Operations 3,676 (1,312) 2,364
Income from Discontinued Operations 1,660 1,312 2,972
-------- -------- --------
Net Income $ 5,336 $ - $ 5,336
======== ======== ========
THREE MONTHS ENDED SEPTEMBER 30, 1997:
Net Sales $ 60,154 $(22,070) $ 38,084
======== ======== ========
Income from Continuing Operations 972 (4) 968
Income from Discontinued Operations 1,252 4 1,256
-------- -------- --------
Net Income $ 2,224 $ - $ 2,224
======== ======== ========
</TABLE>
IEC's third quarter results include the following charges: 1) $2.6 million
as a result of expensing previously capitalized costs, 2) $2.5 million to
recognize warranty liabilities and expected losses on contracts, 3) $1.7
million in inventory write-downs to reflect shrinkage, slow moving, and
obsolete inventory, 4) $2.1 million to reflect potential losses relating
to billed and unbilled contracts, 5) $1.0 million to reserve for additional
potential disallowance of costs connected with government contracts for
years subject to audit, and 6) $0.5 million for additional restructuring
charges
9
<PAGE> 10
primarily due to severance.
Loss on Disposal:
- -----------------
For the quarter ended September 30, 1998, the Company recorded a loss of $9.8
million ($5.9 million after tax) on disposal of discontinued operations.
Included in this loss was a $5.0 million addition to the self-insurance accrual
to reflect a more conservative valuation of the liability in light of
historically adverse experience, $3.2 million related to underfunded foreign
pension plans, and $1.6 million loss provision for litigation defense costs
related to discontinued operations.
Prior Divestitures:
- -------------------
Prior to 1998, the Company divested a number of its businesses. The contract
terms under which businesses were divested include representations and
warranties, covenants and indemnification provisions made (a) by the Company to
purchasers of the businesses and (b) by purchasers of the businesses to the
Company. Each transaction has contract terms specific to that transaction. The
extent of representations and warranties made ranged from those qualified by
time, knowledge, and dollar materiality to those representations and warranties
which are unqualified. Covenants require the Company to act, or prevent the
Company from acting, in a variety of ways, such as not competing with the
purchasers of a business. Covenants also require the purchasers to act, or
prevent them from acting, in a variety of ways. The duration of covenants ranges
from those effective for a specified period of time to those which are
indefinite.
Remedies available for breaches of representations and warranties and covenants
range from monetary relief in specific amounts for specific breaches or
violations to unlimited amounts.
Under the contracts, the Company has generally retained liability for events
that occurred prior to sale. The Company believes that it has established
appropriate accruals for losses that may arise, such as workers' compensation,
product liability, general liability, environmental risks and federal and state
tax matters.
The Company has indemnified purchasers and has received indemnifications from
purchasers for a variety of items. In some transactions, a portion of the
purchase price was held back or escrowed at banks to support indemnification
provisions. Such amounts are reflected as the assets of the Company within
deferred divestiture proceeds.
Proceeds and other consideration from divestitures which will be paid to the
Company upon fulfillment of contractual provisions, the passage of time, or the
occurrence of future events have been recorded as deferred divestiture proceeds
classified as non-current assets. Deferred divestiture proceeds consist of cash
held in bank escrow accounts from the sale of the Company's Hartman Electrical
and Safway Steel Products operations, cash held back by purchasers from the sale
of the Company's Waite Hill Insurance and Figgie Financial Services operations,
receivables expected from Safway Steel Products arising
10
<PAGE> 11
from final calculations of the purchase price, a note receivable from the
purchaser of the Taylor Instruments business, a partnership interest in the
entity that acquired Interstate Engineering (a vacuum cleaner manufacturer),
cash due to the Company from future tax benefits under a tax sharing agreement
with an unaffiliated public company, Rawlings Sporting Goods Company, Inc., the
net assets of Willoughby Assurance, Ltd., a dormant reinsurance subsidiary of
the Company, installation contracts in process of completion from the
"Automatic" Sprinkler business, former facilities of discontinued business units
and other items. Deferred divestiture proceeds do not include any contingent
additional amount associated with the Snorkel sale.
Deferred divestiture proceeds include management's best estimates of the amounts
expected to be realized on the collection of deferred proceeds and sale of
residual assets related to discontinued operations. The amounts the Company will
ultimately realize could differ materially from the amounts recorded. The
Company has a reserve of $28.0 million at September 30, 1998 against these
assets, which is presented as a deduction from deferred divestiture proceeds.
(6) Income Taxes:
------------
For the nine-month and three-month periods ended September 30, 1998, the
following income tax provisions (benefits) have been provided (in thousands):
<TABLE>
<CAPTION>
Nine Months Three Months
September 30, 1998 September 30, 1998
------------------ ------------------
<S> <C> <C>
Continuing Operations $ 5,386 $ 1,361
============ ============
Discontinued Operations $ (8,569) $ (7,611)
============ ============
Extraordinary Item $ (1,126) $ (29)
============ ============
</TABLE>
For the period ended September 30, 1998, net federal tax benefit amounts have
increased the deferred tax asset. The current deferred tax asset as of September
30, 1998 reflects the tax benefits the Company expects to utilize in the
succeeding twelve-month period.
(7) Credit Facility:
---------------
As of September 30, 1998, the Company has a $75 million revolving credit loan
and letter of credit facility ("Credit Agreement"). Within the Credit Agreement,
the Company can issue up to $60 million in letters of credit. Borrowings are
available up to $75 million less outstanding letters of credit. At the Company's
option, borrowings bear interest at alternate rates based on (1) the highest of
the U.S. prime rate, the 90 day commercial paper rate, or the Federal Funds rate
plus 50 basis points or (2) LIBOR plus 200 basis points. The facility is secured
by certain accounts receivable, inventory, machinery and equipment and
intangibles. The facility contains various affirmative and negative covenants,
including restrictions on dividends and certain financial covenants. The
facility expires on January 1, 1999.
As of September 30, 1998, $16.1 million of letters of credit were outstanding
11
<PAGE> 12
under the facility, there were no borrowings outstanding ($54.2 million was
available) and all financial covenants were satisfied.
(8) Long-Term Debt:
--------------
Total debt consists of the following components (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Long-Term Debt:
9 7/8% Senior Notes due October 1, 1999 $ 97,647 $ 158,270
Mortgage Notes 839 979
Obligations under Capital Lease - 184
------------ ------------
Total 98,486 159,433
Less - Current Portion (284) (513)
------------ ------------
Long Term Debt $ 98,202 $ 158,920
============ ============
</TABLE>
The 9 7/8% Senior Notes are due October 1, 1999. Interest is payable
semi-annually on April 1 and October 1. During the third quarter of 1998, the
Company purchased in the market $2.0 million of Senior Notes at market prices.
These Senior Notes have been returned to the Indenture Trustee for retirement.
(9) Capital Stock:
-------------
Each share of Class A Common Stock is entitled to one-twentieth of one vote per
share, while each share of Class B Common Stock is entitled to one vote per
share, except, in each case, with respect to shares beneficially owned by
certain persons coming within the definition of a Substantial Stockholder (as
defined in the Company's Restated Certificate of Incorporation, as amended), in
which case the voting rights of such stock are governed by the appropriate
provisions of the Company's Restated Certificate of Incorporation.
The Company's Board of Directors has authorized the Company to purchase up to
three million shares of its common stock. During the quarter ended
September 30, 1998 the Company purchased 522,800 shares of Class A and 161,800
shares of Class B at a cost of $9.2 million on the open market. The total cost
of purchasing the shares is reflected as treasury stock on the Company's Balance
Sheet.
Earnings per share ("EPS") for the three-month and nine-month periods ended
September 30, 1998 and 1997 were calculated using the following share data.
Reconciliation of the numerators and denominators of the basic and diluted EPS
calculation are as follows (in thousands, except per share data):
12
<PAGE> 13
<TABLE>
<CAPTION>
FOR THE THREE-MONTH PERIOD ENDED
- -------------------------------- Income Shares Per Share
SEPTEMBER 30, 1998 Numerator Denominator Amount
- ------------------ --------- ----------- ------
<S> <C> <C> <C>
Basic EPS
Income available to
common stockholders $(9,481) 18,294 $ (0.52)
Effect of dilutive securities
Stock Options 212
Diluted EPS
Income available to
common stockholders $(9,481) 18,506 $ (0.51)
</TABLE>
Options to purchase shares of common stock which were outstanding as of
September 30, 1998 but were not included in the computation of diluted EPS
because the options' exercise price was greater than the average market
price of the common shares are as follows:
<TABLE>
<CAPTION>
Grant Date # of Shares Option Price Expiration Date
---------- ----------- ------------ ---------------
<S> <C> <C> <C>
August 27, 1996 9 $13.50 August 27, 2003
September 22, 1997 200 $13.75 September 22, 2004
April 20, 1998 7 $14.75 April 20, 2005
May 20, 1998 4 $14.75 May 20, 2005
July 1, 1998 15 $14.6875 July 1, 2005
July 7, 1998 70 $15.00 July 7, 2005
July 22, 1998 58 $14.875 July 22, 2005
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE-MONTH PERIOD ENDED
- ------------------------------- Income Shares Per Share
SEPTEMBER 30, 1998 Numerator Denominator Amount
- ------------------ --------- ----------- ------
<S> <C> <C> <C>
Basic EPS
Income available to
common stockholders $(6,545) 18,435 $ (0.36)
Effect of dilutive securities
Stock Options 222
Diluted EPS
Income available to
common stockholders $(6,545) 18,657 $ (0.35)
</TABLE>
Options to purchase shares of common stock which were outstanding as of
September 30, 1998 but were not included in the computation of diluted EPS
because the options' exercise price was greater than the average market
price of the common shares are as follows:
<TABLE>
<CAPTION>
Grant Date # of Shares Option Price Expiration Date
---------- ----------- ------------ ---------------
<S> <C> <C> <C>
September 22, 1997 200 $13.75 September 22, 2004
April 20, 1998 7 $14.75 April 20, 2005
May 20, 1998 4 $14.75 May 20, 2005
July 1, 1998 15 $14.6875 July 1, 2005
July 7, 1998 70 $15.00 July 7, 2005
July 22, 1998 58 $14.875 July 22, 2005
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
FOR THE THREE-MONTH PERIOD ENDED
- -------------------------------- Income Shares Per Share
SEPTEMBER 30, 1997 Numerator Denominator Amount
- ------------------ --------- ----------- ------
<S> <C> <C> <C>
Basic EPS
Income available to
common stockholders $2,224 18,413 $ 0.12
Effect of dilutive securities
Stock Options 288
Diluted EPS
Income available to
common stockholders $2,224 18,701 $ 0.12
</TABLE>
Options to purchase shares of common stock which were outstanding as of
September 30, 1997 but were not included in the computation of diluted EPS
because the options' exercise price was greater than the average market price of
the common shares are as follows:
<TABLE>
<CAPTION>
Grant Date # of Shares Option Price Expiration Date
---------- ----------- ------------ ---------------
<S> <C> <C> <C>
None
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE-MONTH PERIOD ENDED
- ------------------------------- Income Shares Per Share
SEPTEMBER 30, 1997 Numerator Denominator Amount
- ------------------ --------- ----------- ------
<S> <C> <C> <C>
Basic EPS
Income available to
common stockholders $ 5,336 18,396 $ 0.29
Effect of dilutive securities
Stock Options 233
Diluted EPS
Income available to $ 5,336 18,629 $ 0.29
common stockholders
</TABLE>
Options to purchase shares of common stock which were outstanding as of
September 30, 1997 but were not included in the computation of diluted EPS
because the options' exercise price was greater than the average market
price of the common shares are as follows:
<TABLE>
<CAPTION>
Grant Date # of Shares Option Price Expiration Date
---------- ----------- ------------ ---------------
<S> <C> <C> <C>
April 16, 1996 1 $13.1875 April 16, 2003
April 30, 1996 5 $13.00 April 30, 2003
August 27, 1996 9 $13.50 August 27, 2003
September 22, 1997 200 $13.75 September 22, 2004
</TABLE>
(10) Contingent Liabilities:
----------------------
The Company and its subsidiaries are defendants in various lawsuits arising in
the ordinary course of business. In the opinion of management, any liability
with respect to these matters will not have a material adverse effect on the
Company's financial condition, cash flow or results of operations.
The Company has been cooperating with the U.S. Government in a criminal
investigation involving possible improprieties at an Army facility where the
Company's Scott Aviation division was a supplier. The Company has furnished
documents and other requested information and denies any wrongdoing. This
investigation is ongoing and could result in sanctions by the Government which
could affect the Company's ability to obtain future Government contracts.
14
<PAGE> 15
(11) Extraordinary Item - Early Extinguishment of Debt:
-------------------------------------------------
In the third quarter of 1998, the Company paid $2.2 million to extinguish $2.0
million of its 9 7/8% Senior Notes due October 1, 1999. The payments included a
$0.1 million premium for the early retirement of the debt and $0.1 million of
accrued interest. Accordingly, the Company recorded a third quarter
extraordinary after tax loss of $0.1 million on the premiums to extinguish $2.0
million of Senior Notes.
For the nine-month period ended September 30, 1998, the Company paid $64.0
million to extinguish $60.6 million of its 9 7/8% Senior Notes due October 1,
1999. The payments included a $2.7 million premium for the early retirement of
the debt and $0.7 million of accrued interest. For the nine-month period, the
Company recorded an extraordinary after tax loss of $1.7 million on the premiums
to extinguish $60.6 million of Senior Notes.
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION: Information contained in this Report includes
forward-looking statements, which can be identified by the use of forward-
looking terminology such as "believes," "may," "will," "expects," "intends,"
"plans," "anticipates," "estimates" or "continues" or the negative thereof or
other variations thereon or comparable terminology, or by discussions of
strategy. The Company undertakes no obligation to revise these forward-looking
statements to reflect any future events or circumstances. The Company's actual
results, performance or achievements could differ materially from the results
expressed in, or implied by, these forward-looking statements. Factors that
could cause or contribute to such differences are discussed under the caption
"Factors Affecting the Company's Prospects."
RESULTS OF OPERATIONS SUMMARY
- -----------------------------
(in thousands)
<TABLE>
<CAPTION>
1st Qtr. 2nd Qtr. 3rd Qtr. Nine Mos. Nine Mos. 3rd Qtr.
1998 1998 1998 1998 1997 1997
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $ 46,214 $ 45,964 $ 43,197 $ 135,375 118,751 $ 38,084
Cost of Sales 31,311 30,380 29,468 91,159 80,455 26,051
--------- --------- --------- --------- --------- ---------
Gross Profit on Sales 14,903 15,584 13,729 44,216 38,296 12,033
% of Net Sales 32.2% 33.9% 31.8% 32.7% 32.2% 31.6%
Operating Expenses:
Selling, General and
Administrative 6,150 6,066 6,577 18,793 17,595 5,671
Research & Development 891 793 800 2,484 2,617 629
--------- --------- --------- --------- --------- ---------
Total Operating
Expenses 7,041 6,859 7,377 21,277 20,212 6,300
--------- --------- --------- --------- --------- ---------
Operating Income 7,862 8,725 6,352 22,939 18,084 5,733
--------- --------- --------- --------- --------- ---------
% of Net Sales 17.0% 19.0% 14.7% 16.9% 15.2% 15.1%
Other Expense(Income):
Refinancing Costs 259 131 131 521 393 131
Interest Expense 4,216 3,085 2,594 9,895 16,118 5,400
Interest Income (1,441) (909) (543) (2,893) (4,019) (1,957)
Other, Net 542 666 826 2,034 2,237 729
--------- --------- --------- --------- --------- ---------
Income from
Continuing Operations
before Income Tax and
Extraordinary Item 4,286 5,752 3,344 13,382 3,355 1,430
Income Tax 1,712 2,313 1,361 5,386 991 462
--------- --------- --------- --------- --------- ---------
Income from Continuing
Operations before
Extraordinary Item 2,574 3,439 1,983 7,996 2,364 968
Discontinued Operations,
Net of Tax (1,875) 443 (11,420) (12,852) 2,972 1,256
Extraordinary Item -
(Loss) on Extinguish-
ment of Debt, Net
of Tax (80) (1,565) (44) (1,689) - -
--------- --------- --------- --------- --------- ---------
Net Income (Loss) $ 619 $ 2,317 $ (9,481) $ (6,545) $ 5,336 $ 2,224
========= ========= ========= ========= ========= =========
</TABLE>
16
<PAGE> 17
For the first nine months of 1998, Net Sales increased $16.6 million, or 14.0%,
to $135.4 million from Net Sales of $118.8 million for the same period in 1997.
For the third quarter of 1998 Net Sales increased by $5.1 million, or 13.4%, to
$43.2 million from $38.1 million in the third quarter of 1997.
Gross Profit for the nine months ended September 30, 1998 increased by $5.9
million to $44.2 million and represented 32.7% of Net Sales as compared to 32.2%
in 1997. Gross profit for the third quarter of 1998 increased by $1.7 million to
$13.7 million and represented 31.8% of Net Sales as compared to 31.6% in 1997.
Selling, General and Administrative expenses for the nine months improved as a
percentage of Net Sales to 13.9% in 1998, compared to 14.8% in 1997. For the
third quarter, Selling, General and Administrative expenses increased as a
percentage of Net Sales to 15.2% in 1998, compared to 14.9% in 1997. The
increase was related to corporate expense and was due to reversal of certain
balance sheet accruals in the third quarter of 1997, combined with an increase
in expenses in the third quarter of 1998 as a result of the Company's name
change and professional fees.
Operating Income for the nine months amounted to $22.9 million in 1998, as
compared to Operating Income of $18.1 million in 1997. Operating income for the
third quarter of 1998 was $6.4 million compared to $5.7 million in the third
quarter of 1997.
Income from Continuing Operations in the nine months of 1998 increased to $8.0
million compared to $2.4 million in the corresponding period of 1997. Income
from continuing operations for the third quarter of 1998 increased to $2.0
million compared to $1.0 million in the third quarter of 1997. The increases
were attributed primarily to improved results at Scott Aviation and lower
corporate net interest expense.
The loss on discontinued operations for the nine months and third quarter of
1998 included loss from operations and loss on disposal. Loss from operations
represents IEC's net operating results for the nine months and third quarter of
1998. IEC's third quarter results include the following charges: 1) $2.6 million
as a result of expensing previously capitalized costs, 2) $2.5 million to
recognize warranty liabilities and expected losses on contracts, 3) $1.7 million
in inventory write-downs to reflect shrinkage, slow moving, and obsolete
inventory, 4) $2.1 million to reflect potential losses relating to billed and
unbilled contracts, 5) $1.0 million to reserve for additional potential
disallowance of costs connected with government contracts for years subject to
audit, and 6) $0.5 million for additional restructuring charges primarily due to
severance. Loss on disposal for the nine months and third quarter of 1998
include the following items: a $5.0 million addition to the self-insurance
accrual to reflect a more conservative valuation of the liability in light of
historically adverse experience, $3.2 million related to underfunded foreign
pension plans, and $1.6 million loss provision for litigation defense costs
related to discontinued operations.
SEGMENT INFORMATION
- -------------------
The Company has operations in one reporting segment, Scott Aviation. The results
of operations are as follows:
17
<PAGE> 18
SCOTT AVIATION
- --------------
Scott Aviation is a leading manufacturer of life support respiratory products
and consists of two principal business units: Health and Safety; and Aviation
and Government. The two units have benefited from several similarities. Scott
Aviation has used its broad experience and expertise in high pressure gas
regulation and distribution developed from the two product lines to provide
end-users with products that are reliable, light weight, compact in size and
user friendly. Each unit has also benefited from the common use of manufacturing
cell and team technology. In addition, Scott Aviation's uniform quality
assurance program has allowed the units to work jointly to comply with the
rigorous quality requirements of the government, regulatory agencies and
customers.
Scott Aviation's Health and Safety unit manufactures the Scott Aviation Air-
Pak* (a self-contained breathing apparatus), air-purifying products, gas
detection instruments and other life support products for firefighting and
personal protection against environmental and safety hazards. Scott Aviation's
Aviation and Government unit manufactures protective breathing equipment, pilot
and crew oxygen masks, and emergency oxygen for passengers and crew members on
commercial, government and private aircraft and ships.
Results of Operations Summary
- -----------------------------
(in thousands)
<TABLE>
<CAPTION>
1st Qtr. 2nd Qtr. 3rd Qtr. Nine Mos. Nine Mos. 3rd Qtr.
1998 1998 1998 1998 1997 1997
------- ------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Sales $46,214 $45,964 $43,197 $135,375 $118,751 $38,084
Cost of Sales 31,311 30,380 29,468 91,159 80,455 26,051
------- ------- ------- -------- -------- -------
Gross Profit on Sales 14,903 15,584 13,729 44,216 38,296 12,033
% of Net Sales 32.2% 33.9% 31.8% 32.7% 32.2% 31.6%
Operating Expenses:
Selling, General
and Administrative 3,904 3,926 3,948 11,778 11,451 3,921
Research & Development 891 793 800 2,484 2,617 629
------- ------- ------- -------- -------- -------
Total Operating Expenses 4,795 4,719 4,748 14,262 14,068 4,550
------- ------- ------- -------- -------- -------
Operating Income $10,108 $10,865 $ 8,981 $ 29,954 $ 24,228 $ 7,483
------- ------- ------- -------- -------- -------
% of Net Sales 21.9% 23.6% 20.8% 22.1% 20.4% 19.6%
</TABLE>
Discussion of 1998 Compared to 1997:
- ------------------------------------
Net Sales for the nine months ended September 30, 1998 and the third quarter of
1998 increased by approximately 14% and 13% respectively, compared to Net Sales
for the same periods in 1997. The increase for the nine months ended September
30, 1998 compared to the same period in 1997 was due to an increase in the
amount of shipments of oxygen products to aviation/government customers of
approximately $7.2 million, or 12%, and an increase in the amount of shipments
of products, principally Air-Paks, to health and safety customers of
approximately $9.4 million, or 16%. The increase for the third quarter of 1998
compared to the same period in 1997 was due to an increase in the amount of
shipments of oxygen products to aviation/government customers of approximately
$0.8 million, or 4%, and an increase in the amount of shipments of products,
principally Air-Paks, to health and safety customers of approximately $4.3
million, or 23%.
Gross Profit Margin increased for both the nine months ended September 30, 1998
and the third quarter of 1998 due primarily to increased sales volume in the
major product lines.
*Registered or common law trademarks and service marks of SCOTT
TECHNOLOGIES, INC. (formerly FIGGIE INTERNATIONAL INC.) and its
subsidiaries.
18
<PAGE> 19
Selling, General and Administrative expenses increased slightly in dollar
amounts during the nine months and third quarter ended September 30, 1998 due to
increased sales but are lower as a percentage of Net Sales when compared to the
same periods for 1997. Research and Development expenses in 1998 were lower for
the nine months and slightly higher for the third quarter when compared to the
same periods last year.
CORPORATE AND UNALLOCATED COSTS AND EXPENSES
- --------------------------------------------
Results of Operations Summary
- -----------------------------
(in thousands)
<TABLE>
<CAPTION>
1st Qtr. 2nd Qtr. 3rd Qtr. Nine Mos. Nine Mos. 3rd Qtr.
1998 1998 1998 1998 1997 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Selling, General and
Administrative $ 2,246 $ 2,140 $ 2,629 $ 7,015 $ 6,144 $ 1,750
Other Expenses:
Refinancing Costs 259 131 131 521 393 131
Interest Expense 4,216 3,085 2,594 9,895 16,118 5,400
Interest Income (1,441) (909) (543) (2,893) (4,019) (1,957)
Other, Net 542 666 826 2,034 2,237 729
</TABLE>
Discussion of 1998 Compared to 1997:
- ------------------------------------
Selling, General and Administrative expenses have increased $0.9 million for the
first nine months and third quarter of 1998 compared with last year. The
increase for the quarter was related to corporate expense and was due to
reversal of certain balance sheet accruals in the third quarter of 1997,
combined with an increase in expenses in the third quarter of 1998 as a result
of the Company's name change and professional fees.
Interest Expense decreased for the nine months and third quarter of 1998 due to
lower outstanding debt and reduced interest expense on the discounted present
value of insurance reserves.
Interest Income decreased for the nine months and third quarter of 1998 due
primarily to the reduction in the Company's cash position, combined with accrued
interest income arising from negotiated Federal and Foreign tax audits
recognized in the third quarter of 1997.
FINANCIAL POSITION AND LIQUIDITY
- --------------------------------
The Company's Consolidated Statements of Cash Flows contains items relating to
discontinued operations which have not been disaggregated as they have in the
Consolidated Balance Sheet.
At September 30, 1998 Cash and Cash Equivalents for both continuing and
discontinued operations totaled $33.8 million, compared to $104.2 million at
December 31, 1997.
Net Cash provided by Operating Activities was $2.3 million reflecting a net loss
of $6.5 million, depreciation and amortization of $4.0 million and the net cash
provided by other operating activities of $4.8 million.
Net Cash used by Investing Activities was $3.5 million, reflecting capital
expenditures and proceeds from the sale of real estate. Capital Expenditures
were $6.7 million in the first nine months of 1998 for machinery, equipment,
tooling and real estate development costs and are expected to be approximately
$9 million for all of 1998. Proceeds from the sale of real estate were $3.2
million. Capital Expenditures will be funded from internally generated funds and
or credit facilities.
Net Cash used by Financing Activities was $69.3 million, which included $61.1
19
<PAGE> 20
million for principal payments on debt, $9.2 million to repurchase 684,600
shares of common stock at market prices, and $1.0 million in proceeds from the
issuing of common stock in connection with the Company's stock option plan.
Liquidity is provided by the Company's Cash and Cash Equivalents, which totaled
$33.8 million at September 30, 1998, and by the credit facility of which $54.2
million was available at September 30, 1998. In the first nine months of 1998,
the Company used cash to reduce its debt by repurchasing $60.6 million of its 9
7/8% Senior Notes. The repurchasing of the Senior Notes has resulted in lower
interest expense, and to a lesser extent, lower interest income.
The Company expects to continue to focus on internal growth and market expansion
at Scott Aviation; investigate acquisitions; and consider alternative strategies
that may further enhance stockholder value.
The Company's cash balance at September 30, 1998 is available for general
corporate purposes. Those purposes may include investment in the current
operations of the Company, payment of liabilities associated with previously
divested businesses, use as all or a portion of the purchase price of possible
acquisitions, additional repurchases of its 9 7/8% Senior Notes and stock
repurchases. The Company's Board of Directors has authorized the Company to
purchase up to three million shares of its common stock. To date, approximately
685,000 shares have been purchased.
20
<PAGE> 21
FACTORS AFFECTING THE COMPANY'S PROSPECTS
- -----------------------------------------
The prospects of the Company may be affected by a number of factors, including
the matters discussed below:
DEPENDENCE ON GOVERNMENT CONTRACTS - Sales to the U.S. Government
represented approximately 40% of the Company's combined total net sales of
IEC and Scott Aviation in each of the last three years. With the
discontinuance of IEC, these sales represented approximately 10% of Scott
Aviation's sales. The Company expects to continue to derive a portion of
Scott Aviation's revenues from Government contracts. Consequently,
fluctuations in military spending by the U.S. Government could adversely
affect the Company's revenues and profitability. In addition, since these
contracts are the result of competitive bidding processes, there can be no
assurance that the Company will be awarded future contracts, or that once
awarded, the Government will not terminate such contracts at its
convenience. Finally, the Company has been cooperating with the U.S.
Government in a criminal investigation involving possible improprieties at
an Army facility where the Company's Scott Aviation division was a
supplier. The Company has furnished documents and other requested
information and denies any wrongdoing. The investigation could result in
sanctions by the Government which could affect the Company's ability to
obtain future Government contracts.
COMPETITION - The GPS and Displays markets which IEC participates in are
highly competitive, subject to rapid change and significantly affected by
new product introductions. Competition may intensify, particularly as
companies well established in the defense industry increase their focus on
GPS. In addition, the development and commercialization of new types of
displays or position measuring systems could reduce the demand for the
Company's products.
Scott Aviation's Health and Safety unit manufactures the Scott
Aviation Air-Pak** (a self-contained breathing apparatus), air-purifying
products, gas detection instruments and other life support products for
firefighting and personal protection against environmental and safety
hazards. Scott Aviation's Aviation and Government unit which manufactures
protective breathing equipment, pilot and crew oxygen masks, and emergency
oxygen for passengers and crew members on commercial, government and
private aircraft and ships. Both of these manufacturing units participate
in markets which are technology based, industry regulated, and highly
competitive. Failure by Scott Aviation to develop new products and or
remain competitive with changing industry conditions could adversely
affect market share.
Certain competitors in the respective markets have significantly
greater financial, technical and marketing resources. These competitive
factors could adversely affect the Company's financial condition, cash
flow, results of operations or expected benefits from its restructuring
initiatives.
LEVERAGE - As part of the Company's strategy is to grow through
acquisitions, any such future acquisition could involve incurring
significant additional leverage. In addition, the Company's Board has
authorized the Company to purchase up to three million shares of its
common stock on the open market. To date, approximately 685,000 shares
have been purchased. Future purchases of common stock could affect
leverage. The degree to which the Company is leveraged could: (i) impair
the Company's ability to obtain future financing for acquisitions, a
refinancing, or
**Registered or common law trademarks and service marks of
SCOTT TECHNOLOGIES, INC. (formerly FIGGIE INTERNATIONAL INC.)
and its subsidiaries.
21
<PAGE> 22
other purposes; (ii) make it more vulnerable than some of its competitors
in a prolonged economic downturn; and (iii) restrict its ability to
exploit new business opportunities and limit its flexibility to respond to
changing business conditions.
DISCONTINUED OPERATIONS - Since January 1, 1994, the Company has sold
numerous businesses. The contract terms included representations,
warranties, and indemnification provisions made by the Company. Remedies
available for breaches of representations and warranties range from
monetary relief in specific amounts for specific breaches to unlimited
amounts.
The Company has generally retained liability for the conduct of the sold
businesses prior to the date of sale. As a result, the Company is subject
to various known and contingent liabilities, including indemnification
obligations, with respect to its discontinued operations. The Company has
established accruals and reserves for losses that may arise out of
workers' compensation, product liability and general liability claims,
environmental risks, tax matters and other matters. The Company believes
that its accruals and reserves are appropriate and adequate. However, as
these contractual matters may be subject to significant uncertainty and as
litigation is inherently unpredictable, no assurances can be given that
resolution will not have a material adverse effect upon the Company's
financial position, operating results or cash flows or require additional
reserves.
Further, at September 30, 1998, the Company's balance sheet reflected
$26.0 million of deferred divestiture proceeds which is net of a reserve
of $28.0 million. Deferred divestiture proceeds include management's best
estimates of the amounts expected to be realized after the resolution of
the underlying matters. Additionally, at September 30, 1998 the Company's
balance sheet reflected $23.3 million of Net Assets of Discontinued
Operations. This amount represents the net book value of IEC. The Company
expects to realize net proceeds from the sale of IEC in excess of the
carrying value. The amounts the Company will ultimately realize could
differ materially from the amounts recorded.
STRATEGIC PLAN - The Company's strategic plan contemplates continued
development and marketing of new products, international expansion, and
future acquisitions.
The Company expects to continue to make investments in new product
development. There can be no assurance that the Company will be able to
develop and introduce, in a timely manner, new products or enhancements to
its existing products which satisfy customer needs or achieve market
acceptance. To the extent that the Company makes substantial marketing and
R&D investments and such investments do not lead to commercially
successful products, the Company's results of operations could be
adversely affected.
Expansion into international markets will depend on numerous factors which
are beyond the Company's control, including its ability to develop or
acquire additional manufacturing and distribution capabilities outside the
United States. In addition, international expansion may increase the
Company's exposure to certain risks inherent in doing business outside the
United States, such as currency exchange rate fluctuations, compliance
with foreign codes and standards and political risks. If the Company
pursues this strategy through acquisitions, strategic alliances or joint
ventures, any integration of the acquired businesses into the Company's
business would entail expense and management attention. If the Company
pursues this strategy through the establishment of new operations, it will
be subject to
22
<PAGE> 23
the difficulties inherent in starting a new business in foreign
jurisdictions. There can be no assurance that the business and competitive
environment in international markets will be as favorable to the Company
as is the U.S. market currently.
Part of the Company's strategy is to grow through acquisitions. There can
be no assurance, however, that the Company will identify attractive
acquisitions, that such acquisitions will be consummated, or that, if
consummated, any anticipated benefits will be realized from such
acquisitions. In addition, the availability of additional acquisition
financing cannot be assured and, depending on the terms of such additional
acquisitions, could be restricted by the terms of the Credit Facility.
Moreover, the process of integrating acquired operations into the
Company's existing operations may result in unforeseen operating
difficulties and may require significant financial resources that would
otherwise be available for the ongoing development or expansion of the
Company's existing operations. Future acquisitions by the Company would
likely result in amortization expense of goodwill which could have a
material adverse effect on the Company's financial condition and operating
results.
YEAR 2000 ISSUE - The Year 2000 Issue refers to a number of date-related
problems that may affect software applications, including codes imbedded
in chips and other hardware devices. These problems include software
programs that identify a year by its last two digits so that a year
identified as "00" would be recognized as the year "1900" rather than the
year "2000."
The Company is in the process of identifying and assessing the extent to
which its manufacturing equipment, business systems and products could be
affected by the Year 2000 Issue. The Company expects to complete its
assessment of the impact of the Year 2000 Issue and formalize its plan to
resolve any noncompliance issues by the end of the year. As part of its
Year 2000 Issue assessment, the Company is taking into account whether
third parties with which the Company has material relationships, including
the U.S. Government, are Year 2000 compliant. In addition, the Company
will develop contingency strategies, as appropriate, as part of its Year
2000 plan. At this time, the Company cannot assess the extent to which it
will be dependent upon third parties to address such issues and does not
have an estimate of the cost of compliance. To date, the Company's
expenses have been limited to internal costs incurred in the Year 200
Issue assessment process. The Company does not separately track such
internal costs which are principally associated with payroll expenses. To
date, these costs have not been material. Any failure by the Company or
third parties to ensure that its computer systems are Year 2000 compliant
could have a material adverse effect on the Company's operations,
liquidity and financial position. Any failure of the Company's products to
perform could result in claims against the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
PART II. OTHER INFORMATION
Item 5 Other Information
- ------ -----------------
(a) PROPOSED RESTRUCTURING PLAN - The Company has issued a proxy
statement dated November 10, 1998 for a special meeting of its
stockholders to be held on December 15, 1998 at which time,
among other things, a proposal will be considered to amend
Article Fourth of the Charter to eliminate the Corporation's
dual class capital structure and to provide, instead, for a
single, new class of common stock designated as "Common Stock",
23
<PAGE> 24
par value $.10 per share (the "New Common Stock"), consisting of
36,000,000 shares of New Common Stock authorized for issuance,
with each share entitled to one vote, thereby effecting the
reclassification and conversion of each share of Class A Common
Stock and each share of Class B Common Stock as and into one
share of New Common Stock, and to restate the Charter to reflect
the foregoing amendments.
(b) MANAGEMENT CHANGE - Effective November 3, 1998, Robert P.
Collins became the Chairman of the Board, succeeding John P.
Reilly, who served as a director of the Company since 1995 and
had served as the nonemployee Chairman since 1997. Mr. Reilly
continues to serve as a director. On November 6, 1998,
William J. Sickman, Vice President - Corporate Relations, gave
notice of his resignation effective on December 21, 1998.
(c) OWNERSHIP - On May 7, 1998, Harry E. Figgie, Jr., the Company's
founder, and his affiliates sold their interests in the
Corporation to Richard C. Blum & Associates, L.P. ("Blum"). In
connection with Blum's acquisition of the shares, the Board
appointed N. Colin Lind, a managing director of Blum, as a
director of the Company. Blum's acquisition resulted in Blum
owning 1,184,213 shares of Class A Common Stock and 1,503,333 of
Class B Common Stock.
Item 6 Exhibits and Reports on Form 8-K
- ------ --------------------------------
(a) List of Exhibits
10.0 Material Contracts
(i) Management agreement, addendum to June 11, 1997
management agreement, dated as of August 13, 1998, by
and between William J. Sickman and the Company.
(ii) Management agreement, amended and restated management
agreement, dated as of August 13, 1998, by and between
William J. Sickman and the Company.
(iii) Management agreement, second addendum to June 11, 1997
management agreement and first addendum to August 13,
1998 management agreement and amendment to non-qualified
stock option agreement dated August 13, 1998, dated as
of October 30, 1998, by and between William J. Sickman
and the Company.
(iv) Management agreement, dated as of September 10, 1998, by
and between Debra L. Kackley and the Company.
(v) Management agreement, amended and restated management
agreement, dated as of August 17, 1998, by and between
Glen W. Lindemann and the Company.
(vi) Management agreement, dated as of August 25, 1998, by
and between Mark A. Kirk and the Company.
(vii) Amendment No. 5, dated October 8, 1998 and effective
August 14, 1998, to the Credit Agreement between the
Company and General Electric Capital Corporation.
(viii) Amendment No. 6 and Exhibit A, dated October 21, 1998
and effective September 30, 1998, to the Credit
Agreement between the Company and General Electric
Capital Corporation.
27.0 Financial Data Schedule
24
<PAGE> 25
(b) Reports on Form 8-K filed during the quarter - None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, SCOTT TECHNOLOGIES, INC. has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SCOTT TECHNOLOGIES, INC.
By: /s/
------------------------------
Mark A. Kirk
Senior Vice President and
Chief Financial Officer
(Duly Authorized and Principal Accounting Officer)
Date: November 13, 1998
25
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description of Exhibits Page No.
- ------ ------------------------------------------------------------- --------------
<C> <S> <C>
10.0 Material Contracts
(i) Management agreement, addendum to June 11, 1997 27
management agreement, dated as of August 13, 1998, by and
between William J. Sickman and the Company.
(ii) Management agreement, amended and restated manage- 30
ment agreement, dated as of August 13, 1998, by and between
William J. Sickman and the Company.
(iii) Management agreement, second addendum to June 11, 47
1997 management agreement and first addendum to August 13,
1998 management agreement and amendment to non-qualified
stock option agreement dated August 13, 1998, dated as of
October 30, 1998, by and between William J. Sickman and the
Company.
(iv) Management agreement, dated as of September 10, 51
1998, by and between Debra L. Kackley and the Company.
(v) Management agreement, amended and restated manage- 67
ment agreement, dated as of August 17, 1998, by and between
Glen W. Lindemann and the Company.
(vi) Management agreement, dated as of August 25, 1998, 84
by and between Mark A. Kirk and the Company.
(vii) Amendment No. 5, dated October 8, 1998 and effective 101
August 14, 1998, to the Credit Agreement between the Company
and General Electric Capital Corporation.
(viii) Amendment No. 6 and Exhibit A, dated October 21, 1998 103
and effective September 30, 1998, to the Credit Agreement
between the Company and General Electric Capital
Corporation.
27.0 Financial Data Schedule
</TABLE>
26
<PAGE> 1
MATERIAL CONTRACTS
EXHIBIT 10.0 (I)
ADDENDUM
TO
JUNE 11, 1997 MANAGEMENT AGREEMENT
----------------------------------
This ADDENDUM to the Management Agreement executed by and between
William J. Sickman (the "Executive") and Scott Technologies, Inc. (formerly
known as Figgie International Inc. and hereinafter called the "Company") as of
June 11, 1997 (the "Agreement") is entered into as of this 13th day of August,
1998, by and between the Company and the Executive.
WHEREAS, as a result of the occurrence of certain events since the
execution of the Agreement, it is desirable for the Company and the Executive to
acknowledge that certain events have occurred and agree to modify the Agreement
to include certain additional provisions and adjust certain existing provisions
in order to take into account said events;
NOW THEREFORE, in consideration of the foregoing, the Company and the
Executive agree as follows:
(1) As of the date of this Addendum, the Company and the
Executive agree that the Consolidated Revenues of the Company, as shown on the
quarterly financial results distributed to shareholders, have been less than
Seventy-Five Million Dollars for four (4) consecutive calendar quarters.
(2) As of the date of this Addendum, the Executive hereby
rescinds his letter of May 6, 1998 to the Company's Chief Executive Officer (a
copy of which is attached hereto as Exhibit A) regarding the freeze of his
benefits under the Company's Senior Executive Benefits Program.
(3) Effective November 1, 1998 if the Executive has not given
notice of his intent to quit the employ of the Company, the Executive agrees to
the elimination of any and all of his benefits (including any which would be
payable as a result of his death) under the Company's Senior Executive Benefits
Program in exchange for the issuance, on November 1, 1998, of three thousand
seven hundred
27
<PAGE> 2
sixty (3,760) stock options to the Executive pursuant to a Stock Option
Agreement (a copy of which is attached hereto as Exhibit B) under the Key
Employees' Stock Option Plan which options shall have an option price equal to
the value of the Company's Class A Common Stock at the close of business on
October 30, 1998.
(4) Effective as of the date of this Addendum, the Company and
the Executive hereby agree that Section 3.4 of the Agreement shall be deemed to
be modified to read as follows:
"3.4 VOLUNTARY TERMINATION BY THE EXECUTIVE WITH GOOD REASON.
In the event that the Executive terminates his employment with Good
Reason as defined below in this Section 3.4, the Executive will be
entitled to receive the Severance Benefits set forth in Section 3.7
hereof and, if he qualifies therefor, the Severance Pay set forth in
Section 3.8 hereof. For purposes of this Agreement, an Executive shall
be deemed to have terminated his employment for >Good Reason' if his
termination of employment occurs prior to January 1, 1999 and he gives
the Company advance written notice of his termination of employment at
least sixty (60) days prior to his termination of employment and, in
any event, by October 31, 1998."
(5) As of the date of this Addendum, the Company and the
Executive agree that the proposed Amended and Restated Management Agreement for
the Executive (a copy of which is attached hereto as Exhibit C) shall become
effective as of November 1, 1998 unless the Executive provides written notice to
the Company on or before October 31, 1998 of his intention to terminate his
employment with the Company.
(6) This Addendum supersedes any contrary provisions of the
Agreement.
IN WITNESS WHEREOF, the Executive and the Company have executed this
Addendum to the Agreement as of the day and year first above written.
28
<PAGE> 3
SCOTT TECHNOLOGIES, INC.
By: /s/
-----------------
Glen W. Lindemann
And: /s/
-----------------
Debra I. Kackley
/s/
-----------------
William J. Sickman
------------------
29
<PAGE> 1
MATERIAL CONTRACTS
EXHIBIT 10.0 (II)
AMENDED AND RESTATED
MANAGEMENT AGREEMENT
This AMENDED and RESTATED MANAGEMENT AGREEMENT ("Agreement") is
entered into as of this 13th day of August, 1998, by and between Scott
Technologies, Inc. (formerly known as Figgie International Inc. and hereinafter
called the "Company") and William J. Sickman (the "Executive").
WHEREAS, the Executive is presently in the employ of the Company as
Vice President - Corporate Relations of the Company; and
WHEREAS, the Company desires to retain the employment of the Executive
and the Executive desires to continue to serve the Company in such capacity; and
WHEREAS, the Company and the Executive desire to set forth in a written
agreement the terms and provisions of such employment and of certain severance
and other payments to be made to the Executive under certain circumstances;
NOW THEREFORE, effective as provided in Section 1 hereof, in
consideration of the foregoing, the mutual covenants and agreements set forth in
this Agreement and for other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the Company and the Executive
agree as follows:
SECTION 1. TERM OF EMPLOYMENT AND COMPENSATION
-----------------------------------
This Agreement shall become effective November 1, 1998 provided that
the Executive has not prior thereto given notice of his termination of
employment with "Good Reason" as set forth in Section 3.4 of the Management
Agreement between the Company and the Executive dated June 11, 1997 as modified
by an Addendum dated August 13, 1998. If such notice is given prior to November
1, 1998, then
30
<PAGE> 2
this Amended and Restated Management Agreement shall be null and void. The
Company will employ the Executive in accordance with the terms and conditions
set forth herein as of November 1, 1998 and extending for an initial period
ending December 31, 2000 (the "initial period"), subject, however, to earlier
termination as expressly provided herein. The Executive will continue to serve
the Company as Vice President - Corporate Relations or in such other future
capacity as he and the Company might mutually agree and will devote his full
business time and best efforts to the satisfactory discharge of the
responsibilities of his office, performing such other duties as might reasonably
be requested by the Company's Chief Executive Officer or Board of Directors.
During the initial period the Executive will be paid a base salary at an annual
rate of One Hundred Forty-Eight Thousand Seven Hundred Dollars ($148,700.00) in
installments which are no less frequently than monthly, together with such
increases as the Compensation Committee of the Board of Directors shall from
time to time approve.
The initial period will be automatically extended for one (1)
additional year at the end of the initial period, and then again after each
successive year thereafter. However, either party may terminate this Agreement
at the end of the initial period, or at the end of any successive one (1) year
term thereafter, by giving the other party written notice of intent not to
renew, delivered at least three (3) months prior to the end of such initial
period or successive term.
In the event such notice of intent not to renew is properly delivered,
the term of the employment of the Executive shall then become indefinite and can
be terminated by the Company without notice. Similarly, subject to the
provisions of this Agreement relating to nondisclosure of confidential
information and non-interference with employees, customers and suppliers, the
Executive can quit, at any time thereafter, without notice to the Company.
31
<PAGE> 3
SECTION 2. BENEFIT PLANS
-------------
During his employment, the Executive shall be entitled to participate
in all employee benefit plans and perquisites which are maintained or
established by the Company from time to time and which cover the Company's
senior executives provided he satisfies any applicable eligibility requirements
therefor. The Executive acknowledges the right of the Company to amend or
terminate such plans at any time in the exercise of its discretion. The
Executive further acknowledges that the Company may wish to maintain insurance
on his life for its benefit and agrees to submit to any physical examination
which may be required in order to obtain such insurance.
SECTION 3. EXPENSES
--------
The Executive will be reimbursed for all reasonable expenses incurred
by him in performing his duties hereunder provided that such expenses are
incurred and accounted for in accordance with the policies and procedures
established by the Company.
SECTION 4. EMPLOYMENT TERMINATIONS
-----------------------
4.1 TERMINATION DUE TO RETIREMENT OR DEATH. In the event the
Executive's employment is terminated by reason of retirement or death during the
term of this Agreement, the Executive's employment with the Company shall be
deemed terminated as of the effective date of retirement or at the end of the
month in which such death occurs and all benefits will be determined in
accordance with the Company's retirement plans, survivor's benefits, insurance,
Compensation Plan for Executives and other applicable programs then in effect,
except that in the case of the death of the Executive the Company will pay a pro
rata portion of any bonus which would have been payable to the Executive under
Section 4.7a. hereof to his spouse if then living and otherwise to the executor
or administrator of his estate. In no event will the other benefits described in
the remainder of Section 4.7 hereof or the Severance Pay described in Section
4.8 hereof be paid in the event of death and in no event will any of
32
<PAGE> 4
the Severance Benefits and Severance Pay described in Sections 4.7 and 4.8
hereof be paid in the event of retirement. In the event of retirement, the
Executive shall, however, comply with the provisions of Sections 5.1 and 5.2
hereof.
For purposes of this Section 4.1, the determination of whether a
termination qualifies as a retirement will be made in accordance with the then
established rules and definitions of the Company's Retirement Income Plan II
which are applicable to salaried employees of the Company.
4.2 TERMINATION DUE TO DISABILITY. In the event the Executive during
the term of this Agreement becomes, in the opinion of the Company and based upon
reasonable medical opinion, so disabled as to be unable to satisfactorily
perform his duties hereunder, the Company will have the right upon thirty (30)
days written notice to the Executive to terminate the continued active service
of the Executive and the payment of compensation and benefits under this
Agreement, except as provided in this Section 4.2. In such event, the
Executive's benefits will be determined in accordance with the Company's
disability and other applicable plans and programs then in effect, provided,
however, that the Company will pay a pro rata portion of any bonus which would
have been payable to the Executive under Section 4.7a. hereof. In no event will
the other benefits described in the remainder of Section 4.7 hereof or the
Severance Pay described in Section 4.8 hereof be paid in the event of the
disability of the Executive. In the event of disability, the Executive shall,
however, comply with the provisions of Sections 5.1 and 5.2 hereof.
4.3 VOLUNTARY TERMINATION BY THE EXECUTIVE OTHER THAN FOR GOOD REASON.
The Executive may terminate his employment other than for Good Reason as such
term is defined in Section 4.4 hereof at any time by giving the Company written
notice of intent to terminate, delivered at least sixty (60) calendar days prior
to the effective date of such termination. The Company will pay the Executive
his full base salary, at the rate then in effect, through the effective date of
such termination, plus all other
33
<PAGE> 5
benefits to which the Executive has a vested right at that time (including but
not limited to unused vacation time, COBRA benefits and stock option benefits).
If such termination of employment is other than for Good Reason, the Executive
shall not be entitled to the Severance Benefits set forth in Section 4.7 hereof
or the Severance Pay set forth in Section 4.8 hereof. The Executive shall,
however, comply with the provisions of Sections 5.1 and 5.2 hereof.
4.4 VOLUNTARY TERMINATION BY THE EXECUTIVE WITH GOOD REASON. In the
event that the Executive terminates his employment with Good Reason as defined
below in this Section 4.4, the Executive will be entitled to receive the
Severance Benefits set forth in Section 4.7 hereof and, if he qualifies
therefor, the Severance Pay set forth in Section 4.8 hereof.
For purposes of this Agreement, an Executive shall be deemed to have
terminated his employment for "Good Reason" if his termination of employment
occurs:
a. within four (4) months after a Change in Control;
b. within four (4) months after:
i. the Board of Directors of the Company shall fail to
re-elect or shall remove the Executive from the
office then being held by the Executive;
ii. the Chief Executive Officer or the Board of Directors
of the Company shall make a significant negative
change in the nature or scope of the authorities,
powers, functions or duties of the Executive
hereunder;
iii. the Company shall fail to pay when due any
compensation due and owing to the Executive or shall
make a reduction in the Executive's then current base
salary or a material reduction in his benefits and
such failure is not corrected within ten (10) days
after notice thereof to the Company by the Executive;
iv. any pattern of harassment which occurs within the
first twelve (12) months after
34
<PAGE> 6
the execution of this Agreement, which is done with
the approval of the Chief Executive Officer or the
Board of Directors of the Company and which impedes
the Executive in the exercise of his authorities,
powers, functions or duties hereunder in the manner
in which they would normally be exercised by a
similar officer; or
v. the Board of Directors of the Company has given the
Executive written notice of its intention not to
renew this Agreement.
In the event that the Executive shall terminate his employment with
Good Reason, he shall provide the Company with sixty (60) days advance notice of
his date of termination of employment.
4.5 TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE. The Executive
acknowledges that he is, has been and will continue at all times to be an
at-will employee of the Company and as such his employment has been and
continues to be terminable, subject to the terms and conditions of this
Agreement, by either the Executive or the Company at any time upon notice to the
other as provided for herein and for any reason not prohibited by law. However,
if the Company terminates the Executive's employment other than for "Cause" (as
defined in Section 4.6 hereof), the Executive will be entitled to receive the
Severance Benefits set forth in Section 4.7 hereof and, if he qualifies
therefor, the Severance Pay set forth in Section 4.8 hereof.
4.6 TERMINATION BY THE COMPANY FOR CAUSE. Nothing in this Agreement
will be construed to prevent the Company from terminating the Executive's
employment for Cause. As used herein, "Cause" will be determined by the Board of
Directors of the Company in the exercise of good faith and reasonable judgment
and will include (i) Executive's willful failure to perform his duties under
this Agreement within a reasonable period of time after receipt of written
notice from the Board of Directors of the Company setting forth in reasonable
detail the duties which the Executive has failed to perform and the corrective
35
<PAGE> 7
actions expected of him; (ii) a breach of Executive's obligations under Section
5 below; (iii) indictment for, conviction of, or written confession to a crime
against the Company or a felony; or (iv) Executive shall have been found by the
Board of Directors of the Company to have been repeatedly and excessively
abusing alcohol, drugs and/or any other intoxicating or controlled substance.
Upon any such termination all rights, obligations and duties of the parties
hereunder shall immediately cease, except Executive's obligations under Section
5 hereof.
4.7 SEVERANCE BENEFITS. In the event that the Company shall terminate
the employment of the Executive other than for "Cause" as defined in Section 4.6
hereof, or in the event the Executive terminates his employment pursuant to
Section 4.4 hereof with Good Reason, the Company will, upon the effective date
of such termination and in lieu of any other severance which may otherwise be
payable:
a. Pay to the Executive in a cash lump sum a pro rata bonus under
the Bonus Plan with respect to the year in which he is
terminated, which Bonus shall be calculated using the formula
contained in the Bonus Plan based on the actual results of the
Company for such year but without any discretionary adjustment
of the amounts payable to the Executive that might otherwise
be permitted under the Bonus Plan. Such bonus will be paid to
the Executive on the same day as bonuses under the Plan are
paid to the executives of the Company who are still employed
with the Company.
b. Pay for the costs of outplacement services actually used by
the Executive; provided, however, that the total fee paid for
such services will be limited to an amount equal to seventeen
percent (17%) of the Executive's annual base salary rate as of
the effective date of termination of employment.
c. Pay to the Executive a cash lump sum, net of taxes, equal to
twelve (12) months of the monthly car allowance then
applicable to the Executive. Such payment shall be paid to
36
<PAGE> 8
the Executive with thirty (30) days following his termination
of employment.
d. Cause all stock options granted to the Executive pursuant to
the Company's Key Employees' Stock Option Plan (the "Option
Plan"), or the grant of any right under any future stock plan,
to become immediately exercisable in full and to remain fully
exercisable until the earlier of the date of expiration of the
option or one (1) year after his date of termination of
employment.
e. Provide to the Executive tax and/or legal consultation with
respect to the benefits granted hereunder up to a maximum cost
to the Company of Five Thousand Dollars ($5,000.00);
f. Provide assistance to the Executive in obtaining the financing
necessary for the Executive to exercise his stock options
during the period specified in Section 4.7d. hereof; and
g. Continue to be obligated to pay when due all other benefits to
which the Executive has a vested right according to the
provisions of any applicable retirement or other benefit plan
or program.
4.8 SEVERANCE PAY. If the Executive executes the Non-Competition
Agreement attached hereto and delivers such executed Agreement to the Company no
later than thirty (30) days after the date of this Agreement, and if the
employment of the Executive is terminated by the Company other than for "Cause"
as defined in Section 4.6 hereof, or by the Executive pursuant to Section 4.4
hereof with Good Reason, the Executive shall be entitled to Severance Pay as
follows:
a. At the election of the Executive, the Company shall either
continue to pay to the Executive for the twenty-four (24)
months following his termination of employment, his monthly
base salary at the rate in effect as of the date of such
termination in accordance with the Company's normal payroll
practices or make a lump sum payment to the Executive of the
amount due above. Any such lump sum will be payable within
thirty (30)
37
<PAGE> 9
days after the date the Company receives written notice of the
Executive's election to receive the lump sum.
b. In addition, the Company, throughout such twenty-four (24)
month period, will continue the Executive's life insurance and
health care benefits coverage on the same terms and at the
same cost to the Executive as would be applicable to a
similarly situated full-time employee; provided, however, that
in the event the Executive begins to receive comparable life
insurance and health care benefits (determined at the sole
discretion of the Company) from a subsequent employer during
such period, the Company may immediately terminate its life
insurance and health care benefits coverage of the Executive.
Coverage under the Company's health care benefits plan will be
in lieu of health care continuation under the Consolidated
Omnibus Budget Reconciliation Act ("COBRA") for periods such
coverage is in effect under this Agreement.
4.9 VESTING OF STOCK OPTIONS. In the event of a Change in Control the
Committee under the Option Plan will cause all stock options granted to the
Executive pursuant to the Option Plan to become immediately exercisable in full.
Such stock options shall remain fully exercisable until their expiration.
In the event the proceeds from a sale or disposition of any of the
Affiliates which the Company owns on the date of this Agreement are used to
provide a dividend to the stockholders of the Company, then immediately upon the
effective date of such sale or disposition the Company will cause all stock
options granted to the Executive pursuant to the Option Plan to become
immediately exercisable in full and to remain fully exercisable so that the
Executive shall be entitled to become a stockholder of record such that the
Executive shall be entitled to receive the benefits of the dividend.
SECTION 5. COVENANTS
5.1 DISCLOSURE OR USE OF INFORMATION. The Executive will at all times
during and after the term
38
<PAGE> 10
of his employment by the Company keep and maintain the confidentiality of all
Confidential Information and will not at any time either directly or indirectly
use such information for his own benefit or otherwise divulge, disclose or
communicate such information to any person or entity in any manner whatsoever
other than employees or agents of the Company or its Affiliates who have a need
to know such information and then only to the extent necessary to perform their
responsibilities on behalf of the Company or its Affiliates. As used herein,
"Confidential Information" will mean any and all information (excluding
information in the public domain) which relates to the business of the Company
and its Affiliates including without limitation all patents and patent
applications, copyrights applied for, issued to or owned by the Company or any
of its Affiliates, inventions, trade secrets, computer programs, engineering and
technical data, drawings or designs, manufacturing techniques, information
concerning pricing and pricing policies, marketing techniques, suppliers,
methods and manner of operations, and information relating to the identity
and/or location of all past, present and prospective customers of the Company
and its Affiliates.
5.2 CO-OPERATION. During the term of this Agreement and for a period of
twenty-four (24) months following its termination, the Executive will not
attempt to induce any employee of the Company or an Affiliate to terminate his
or her employment with the Company or an Affiliate nor will he take any action
with respect to any of the suppliers or customers of the Company and its
Affiliates which would have or might be likely to have an adverse effect upon
the business of the Company and its Affiliates. Executive hereby agrees not to
make any statement or take any action, directly or indirectly, that will
disparage or discredit the Company and its Affiliates, their Officers, Directors
of the Company, their employees or any of their products, or in any way damage
their reputation or ability to do business or conduct their affairs. Executive
agrees that subsequent to his termination of employment he will, in conjunction
with a Company request, reasonably co-operate with the Company in connection
with transition matters,
39
<PAGE> 11
disputes and litigation matters upon reasonable notice, at reasonable times, and
will be paid or reimbursed for reasonable expenses incurred by the Executive
relating to such matters.
5.3 INJUNCTIVE RELIEF. In the event of a breach or threatened breach of
any of the provisions of this Section 5 by the Executive, the Company will be
entitled to preliminary and permanent injunctive relief, without bond or
security, sufficient to enforce the provisions thereof and the Company will be
entitled to pursue such other remedies at law or in equity as it deems
appropriate.
SECTION 6. MISCELLANEOUS
-------------
6.1 SUCCESSORS. This Agreement is personal to the Executive and will
not be assignable by him without the prior written consent of the Company. This
Agreement may be assigned or transferred to and will be binding upon and inure
to the benefit of any Successor of the Company. As used herein, the term
"Successor" will include any person, firm, corporation or business entity which
acquires all or substantially all of the assets or succeeds to the business of
the Company.
6.2 ENTIRE AGREEMENT. This Agreement supersedes any prior agreements or
understandings, oral or written, between the Executive and the Company with
respect to the subject matter hereof and constitutes the entire agreement of the
parties with respect thereto.
6.3 MODIFICATION. This Agreement will not be varied, altered, modified,
canceled, changed, or in any way amended except by mutual agreement in a written
instrument executed by the Company and the Executive or their legal
representatives.
6.4 TAX WITHHOLDING. The Company may withhold from any benefits payable
under this Agreement all federal, state, city, or other taxes as may be required
pursuant to any law or governmental regulation or ruling.
6.5 GOVERNING LAW. To the extent not preempted by federal law, the
provisions of this Agreement will be construed and enforced in accordance with
the laws of the State of Ohio.
40
<PAGE> 12
6.6 INDEMNIFICATION. The Company has obtained an opinion of Arthur
Andersen LLP that the payments and benefits under this Agreement do not exceed
the maximum amount which can be paid to the Executive without incurring an
excise tax under Section 4999 of the Internal Revenue Code. If the Internal
Revenue Service asserts that the amounts payable to the Executive under this
Agreement nonetheless give rise to an excise tax under Section 4999 of the
Internal Revenue Code and the Executive co-operates with the Company in
appealing the determination of the Internal Revenue Service through whatever
level of administrative or judicial appeals is deemed appropriate by the
Company, the Company shall indemnify the Executive for the amount of such excise
tax, for any interest and penalties applicable thereto, and for any income or
excise taxes payable on such indemnification. The Company shall pay all costs of
challenging the determination that the excise tax applies to payments hereunder
including any administrative costs, court costs, attorney fees, and accounting
fees, whether incurred by the Company or incurred by the Executive.
6.7 DEFINITIONS.
-----------
a. The term "Affiliate" shall mean any entity controlling,
controlled by or under common control with the Company,
including, but not limited to, divisions and subsidiaries of
the Company.
41
<PAGE> 13
b. The term "Change in Control" shall include:
i. the first purchase of shares pursuant to a tender
offer or exchange (other than a tender offer or
exchange by the Company) for twenty-five percent
(25%) or more of the Company's common stock of any
class or any securities convertible into such common
stock other than any purchases prior to the date of
execution of this Agreement by Richard C. Blum &
Associates, L.P. and its limited partnerships and
investment advisory clients;
ii. the receipt by the Company of a Schedule 13D or other
advice after the date of execution of this Agreement
indicating that a person, other than Richard C. Blum
& Associates, L.P. and its limited partnerships and
investment advisory clients, is the "beneficial
owner" (as that term is defined in Rule 13d-3 under
the Securities Exchange Act of 1934) of twenty-five
percent (25%) or more of the Company's common stock
of any class or any securities convertible in such
common stock calculated as provided in paragraph (d)
of said Rule 13d-3;
iii. the receipt by the Company of a Schedule 13D or other
advice after the date of execution of this Agreement
indicating that Richard C. Blum & Associates, L.P.
and/or its limited partnerships and investment
advisory clients, is the "beneficial owner" (as that
term is defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of thirty percent (30%) or more
of the Company's combined common stock including any
securities convertible into such common stock
calculated as provided in paragraph (d) of said Rule
13d-3;
iv. the date of approval by stockholders of the Company
of an agreement providing for any consolidation or
merger of the Company in which the Company will not
be
42
<PAGE> 14
the continuing or surviving corporation or pursuant
to which shares of capital stock, of any class or any
securities convertible into such capital stock, of
the Company would be converted into cash, securities,
or other property, other than a merger of the Company
in which the holders of common stock of all classes
of the Company immediately prior to the merger would
have the same proportion of ownership of common stock
of the surviving corporation immediately after the
merger;
v. the date of the approval by stockholders of the
Company of any sale, lease, exchange, or other
transfer (in one transaction or a series of related
transactions) of all or substantially all the assets
of the Company;
vi. the adoption of any plan or proposal for the
liquidation (but not a partial liquidation) or
dissolution of the Company; or
vii. such other event as the Compensation Committee of the
Board of Directors shall, in its sole and absolute
discretion, deem to be a "Change in Control."
6.8 REPLACEMENT OF EXISTING CONTRACT. If this Agreement becomes
effective pursuant to Section 1 hereof, it will replace the Management Agreement
dated June 11, 1997 between the Company and the Executive and the Addendum to
such Agreement dated August 13, 1998.
IN WITNESS WHEREOF, the Executive and the Company have executed this
Agreement as of the day and year first above written.
SCOTT TECHNOLOGIES, INC.
By: /s/
-----------------
Glen W. Lindemann
And: /s/
-----------------
43
<PAGE> 15
Debra L. Kackley
/s/
-----------------
William J. Sickman
------------------
44
<PAGE> 16
NON-COMPETITION AGREEMENT
In consideration of the promises and covenants of Scott Technologies,
Inc. (formerly known as Figgie International Inc. and hereinafter called
"Scott") contained in the Amended and Restated Management Agreement between the
Executive and Scott including the possible payment of twenty-four (24) months of
Severance Pay to the Executive under certain circumstances, the Executive hereby
agrees that the Executive will not, for a period of two (2) years after his
termination of employment from Scott, directly or indirectly, for himself or for
others, in any state of the United States or in any foreign country where Scott
or any of its Affiliates (as defined below) is then conducting business:
(1) engage, as an employee, partner, or sole proprietor, in
any business segment of any person or entity which
competes, directly or indirectly, with the product lines
of Scott or its Affiliates; or
(2) in connection with any product lines of Scott or its
Affiliates, render advice, consultation, or services to or
otherwise assist any other person or entity which
competes, directly or indirectly, with Scott or any of its
Affiliates with respect to such product lines.
For the purposes of this Agreement, the term "Affiliates" shall mean any entity
controlled by or under common control with Scott during the period the Executive
is employed by Scott or a division or subsidiary of Scott, including, but not
limited to, Scott divisions and subsidiaries.
In the event of a breach or threatened breach of any of the provisions
of this Agreement by the Executive, Scott will be entitled to preliminary and
permanent injunctive relief, without bond or security, sufficient to enforce the
provisions hereof and Scott will be entitled to pursue such other remedies at
law or in equity as it deems appropriate.
The Executive understands that the foregoing restrictions may limit his
ability to engage in certain business pursuits during the period provided for
above, but acknowledges that he will receive sufficiently higher Severance Pay
from Scott than he would otherwise receive to justify such restriction. The
Executive acknowledges that he understands the effect of the provisions of this
Agreement, that he has
45
<PAGE> 17
had reasonable time to consider the effect of these provisions, and that he was
encouraged to and had an opportunity to consult an attorney with respect to
these provisions. Scott and the Executive consider the restrictions contained in
this Agreement to be reasonable and necessary. Nevertheless, if any aspect of
these restrictions is found to be unreasonable or otherwise unenforceable by a
Court of competent jurisdiction, the parties intend for such restrictions to be
modified by such Court so as to be reasonable and enforceable and, as so
modified by the Court, to be fully enforced.
IN WITNESS WHEREOF, the Executive has executed this Agreement as of
this 13th day of August, 1998.
/s/
- -----------------------------
William J. Sickman
46
<PAGE> 1
MATERIAL CONTRACTS
EXHIBIT 10.0 (III)
SECOND ADDENDUM
TO
JUNE 11, 1997 MANAGEMENT AGREEMENT
AND
FIRST ADDENDUM
TO
AUGUST 13, 1998 MANAGEMENT AGREEMENT
AND
AMENDMENT
TO
NON-QUALIFIED STOCK OPTION AGREEMENT DATED AUGUST 13, 1998
These ADDENDA to the Management Agreement executed by and between
William J. Sickman (the "Executive") and Scott Technologies, Inc. (formerly
known as Figgie International Inc. and hereinafter called the "Company") as of
June 11, 1997 (the "1997 Agreement") and the contingent Management Agreement
executed by and between the Executive and the Company as of August 13, 1998 (the
"1998 Agreement") and this AMENDMENT to the Non-Qualified Stock Option Agreement
executed by and between the Executive and the Company as of August 13, 1998 (the
"Option Agreement") is entered into as of this 30th day of October, 1998, by and
between the Company and the Executive.
WHEREAS, the 1998 Agreement and the Option Agreement as currently
written will not become effective if the Executive gives notice to the Company
by October 31, 1998 of his intent to quit the employ of the Company; and
WHEREAS, it is desirable for the Company to extend the date by which
the Executive must give such notice to the Company from October 31, 1998 to
November 16, 1998;
NOW THEREFORE, in consideration of the foregoing, the Company and the
Executive agree as follows:
(1) Effective November 17, 1998 if the Executive has not given
notice of his intent to quit
47
<PAGE> 2
the employ of the Company, the Executive agrees to the elimination of any and
all of his benefits (including any which would be payable as a result of his
death) under the Company's Senior Executive Benefits Program in exchange for
three thousand seven hundred sixty (3,760) stock options pursuant to the Option
Agreement which options shall have an option price equal to the value of the
Company's Class A Common Stock at the close of business on November 16, 1998.
(2) Effective as of October 30, 1998, the Company and the
Executive hereby agree that Section 3.4 of the 1997 Agreement shall be deemed to
be modified to read as follows:
"3.4 VOLUNTARY TERMINATION BY THE EXECUTIVE WITH GOOD REASON.
In the event that the Executive terminates his employment with Good
Reason as defined below in this Section 3.4, the Executive will be
entitled to receive the Severance Benefits set forth in Section 3.7
hereof and, if he qualifies therefor, the Severance Pay set forth in
Section 3.8 hereof. For purposes of this Agreement, an Executive shall
be deemed to have terminated his employment for 'Good Reason' if his
termination of employment occurs prior to December 31, 1998 and he
gives the Company advance written notice of his termination of
employment at least forty-five (45) days prior to his termination of
employment and, in any event, by November 16, 1998."
(3) As of October 30, 1998, the Company and the Executive
agree that the 1998 Agreement shall become effective as of November 17, 1998
unless the Executive provides written notice to the Company on or before
November 16, 1998 of his intention to terminate his employment with the Company
and further agree that the first three (3) sentences of Section 1 and Section
6.8 in its entirety shall be deemed to be modified to read as follows:
"This Agreement shall become effective November 17, 1998
provided that the Executive has not prior thereto given notice of his
termination of employment with 'Good Reason' as set forth in Section
3.4 of the Management Agreement between the Company and the Executive
48
<PAGE> 3
dated June 11, 1997 as modified by Addenda dated August 13, 1998 and
October 30, 1998. If such notice is given prior to November 17, 1998,
then this Amended and Restated Management Agreement shall be null and
void. The Company will employ the Executive in accordance with the
terms and conditions set forth herein as of November 17, 1998 and
extending for an initial period ending December 31, 2000 (the >initial
period'), subject, however, to earlier termination as expressly
provided herein."
"6.8 REPLACEMENT OF EXISTING CONTRACT. If this Agreement
becomes effective pursuant to Section 1 hereof, it will replace the
Management Agreement dated June 11, 1997 between the Company and the
Executive and the Addenda to such Agreement dated August 13, 1998 and
October 30, 1998."
(4) Effective as of October 30, 1998, the Company and the
Executive hereby agree that Section 1(h) of the Option Agreement shall be deemed
to be modified to read as follows:
"(h) The words 'Effective Date' shall mean November 17,
1998."
(5) Effective as of October 30, 1998, the Company and the
Executive hereby agree that Section 2 of the Option Agreement shall be deemed to
be modified to read as follows:
"2. Grant of Option. Effective as of the Effective Date,
subject to all of the terms and provisions of this Agreement, the
Company grants to the Optionee, upon the terms and conditions set forth
hereinafter, the right and option to purchase all or any lesser number
of an aggregate of three thousand seven hundred sixty (3,760) Class A
Common Shares at an Option Price per share equal to the closing sale
price of a Class A Common Share as reported on the NASDAQ National
Market System on November 16, 1998. All of such Class A Common Shares
are intended to be the subject of a non-qualified stock option, and
none of such Class A Common
49
<PAGE> 4
Shares are intended to be the subject of an Incentive Stock Option."
(6) These Addenda and this Amendment supersede any contrary
provisions of the 1997 Agreement, the 1998 Agreement and the Option Agreement.
IN WITNESS WHEREOF, the Executive and the Company have executed these
Addenda to the 1997 and 1998 Agreements and this Amendment to the Option
Agreement as of the day and year first above written.
SCOTT TECHNOLOGIES, INC.
By: /s/
-----------------
Glen W. Lindemann
And: /s/
-----------------
Debra L. Kackley
/s/
-----------------
William J. Sickman
-----------------
50
<PAGE> 1
MATERIAL CONTRACTS
EXHIBIT 10.0 (IV)
MANAGEMENT AGREEMENT
--------------------
This MANAGEMENT AGREEMENT ("Agreement") is entered into as of this 10th
day of September, 1998, by and between Scott Technologies, Inc. (the "Company")
and Debra L. Kackley (the "Executive").
WHEREAS, the Executive is presently in the employ of the Company as
Vice President, General Counsel and Secretary of the Company; and
WHEREAS, the Company desires to retain the employment of the Executive
and the Executive desires to continue to serve the Company in such capacity; and
WHEREAS, the Company and the Executive desire to set forth in a written
agreement the terms and provisions of such employment and of certain severance
and other payments to be made to the Executive under certain circumstances;
NOW THEREFORE, in consideration of the foregoing, the mutual covenants
and agreements set forth in this Agreement and for other good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged, the
Company and the Executive agree as follows:
SECTION 1. TERM OF EMPLOYMENT AND COMPENSATION
-----------------------------------
1.1 EMPLOYMENT. The Company will employ the Executive in accordance
with the terms and conditions set forth herein as of August 10, 1998 and
extending for an initial period ending August 9, 2001 (the "initial period"),
subject, however, to earlier termination as expressly provided herein. The
Executive will continue to serve the Company as Vice President, General Counsel
and Secretary or in such other future capacity as she and the Company might
mutually agree and will devote her full
51
<PAGE> 2
business time and best efforts to the satisfactory discharge of the
responsibilities of her offices, performing such other duties as might
reasonably be requested by the Company's Chief Executive Officer or Board of
Directors.
The initial period will be automatically extended for one (1)
additional year at the end of the initial period, and then again after each
successive year thereafter. However, either party may terminate this Agreement
at the end of the initial period, or at the end of any successive one (1) year
term thereafter, by giving the other party written notice of intent not to
renew, delivered at least three (3) months prior to the end of such initial
period or successive term.
In the event such notice of intent not to renew is properly delivered,
the term of the employment of the Executive shall then become indefinite and can
be terminated by the Company without notice. Similarly, subject to the
provisions of this Agreement relating to nondisclosure of confidential
information and non-interference with employees, customers and suppliers, the
Executive can quit, at any time thereafter, without notice to the Company.
1.2 COMPENSATION. During the initial period the Executive will be paid
a base salary at an annual rate of One Hundred Twenty Thousand Dollars
($120,000.00) in installments which are no less frequently than monthly,
together with such increases as the Compensation Committee of the Board of
Directors shall from time to time approve.
52
<PAGE> 3
SECTION 2. BENEFIT PLANS
-------------
During her employment, the Executive shall be entitled to participate
in all employee benefit plans and perquisites which are maintained or
established by the Company from time to time and which cover the Company's
senior executives provided she satisfies any applicable eligibility requirements
therefor. The Executive acknowledges the right of the Company to amend or
terminate such plans at any time in the exercise of its discretion. The
Executive further acknowledges that the Company may wish to maintain insurance
on her life for its benefit and agrees to submit to any physical examination
which may be required in order to obtain such insurance.
SECTION 3. EXPENSES
--------
The Executive will be reimbursed for all reasonable expenses incurred
by her in performing her duties hereunder provided that such expenses are
incurred and accounted for in accordance with the policies and procedures
established by the Company.
SECTION 4. EMPLOYMENT TERMINATIONS
-----------------------
4.1 TERMINATION DUE TO RETIREMENT OR DEATH. In the event the
Executive's employment is terminated by reason of retirement or death during the
term of this Agreement, the Executive's employment with the Company shall be
deemed terminated as of the effective date of retirement or at the end of the
month in which such death occurs and all benefits will be determined in
accordance with the Company's retirement plans, survivor's benefits, insurance,
Compensation Plan for Executives and other applicable programs then in effect,
except that in the case of the death of the Executive the Company will pay a pro
rata portion of any bonus which would have been payable to the Executive under
Section 4.7a. hereof to her spouse if then living and otherwise to the executor
or administrator of her estate. In no event will the other benefits described in
the remainder of Section 4.7 hereof or the Severance Pay described in Section
4.8 hereof be paid in the event of death and in no event will any of
53
<PAGE> 4
the Severance Benefits and Severance Pay described in Sections 4.7 and 4.8
hereof be paid in the event of retirement. In the event of retirement, the
Executive shall, however, comply with the provisions of Sections 5.1 and 5.2
hereof.
For purposes of this Section 4.1, the determination of whether a
termination qualifies as a retirement will be made in accordance with the then
established rules and definitions of the Company's Retirement Income Plan II
which are applicable to salaried employees of the Company.
4.2 TERMINATION DUE TO DISABILITY. In the event the Executive during
the term of this Agreement becomes, in the opinion of the Company and based upon
reasonable medical opinion, so disabled as to be unable to satisfactorily
perform her duties hereunder, the Company will have the right upon thirty (30)
days written notice to the Executive to terminate the continued active service
of the Executive and the payment of compensation and benefits under this
Agreement, except as provided in this Section 4.2. In such event, the
Executive's benefits will be determined in accordance with the Company's
disability and other applicable plans and programs then in effect, provided,
however, that the Company will pay a pro rata portion of any bonus which would
have been payable to the Executive under Section 4.7a. hereof. In no event will
the other benefits described in the remainder of Section 4.7 hereof or the
Severance Pay described in Section 4.8 hereof be paid in the event of the
disability of the Executive. In the event of disability, the Executive shall,
however, comply with the provisions of Sections 5.1 and 5.2 hereof.
4.3 VOLUNTARY TERMINATION BY THE EXECUTIVE OTHER THAN FOR GOOD REASON.
The Executive may terminate her employment other than for Good Reason as such
term is defined in Section 4.4 hereof at any time by giving the Company written
notice of intent to terminate, delivered at least sixty (60) calendar days prior
to the effective date of such termination. The Company will pay the Executive
her full base salary, at the rate then in effect, through the effective date of
such termination, plus all other
54
<PAGE> 5
benefits to which the Executive has a vested right at that time (including but
not limited to unused vacation time, COBRA benefits and stock option benefits).
If such termination of employment is other than for Good Reason, the Executive
shall not be entitled to the Severance Benefits set forth in Section 4.7 hereof
or the Severance Pay set forth in Section 4.8 hereof. The Executive shall,
however, comply with the provisions of Sections 5.1 and 5.2 hereof.
4.4 VOLUNTARY TERMINATION BY THE EXECUTIVE WITH GOOD REASON. In the
event that the Executive terminates her employment with Good Reason as defined
below in this Section 4.4, the Executive will be entitled to receive the
Severance Benefits set forth in Section 4.7 hereof and, if she qualifies
therefor, the Severance Pay set forth in Section 4.8 hereof.
For purposes of this Agreement, an Executive shall be deemed to have
terminated her employment for "Good Reason" if her termination of employment
occurs:
a. within four (4) months after a Change in Control;
b. within four (4) months after:
i. the Board of Directors of the Company shall fail to
re-elect or shall remove the Executive from the
office then being held by the Executive;
ii. the Chief Executive Officer or the Board of Directors
of the Company shall make a significant negative
change in the nature or scope of the authorities,
powers, functions or duties of the Executive
hereunder;
iii. the Company shall fail to pay when due any
compensation due and owing to the Executive or shall
make a reduction in the Executive's then current base
salary or a material reduction in her benefits and
such failure is not corrected within ten (10) days
after notice thereof to the Company by the Executive;
or
iv. any pattern of harassment which occurs within the
first twelve (12) months after
55
<PAGE> 6
the execution of this Agreement, which is done with
the approval of the Chief Executive Officer or the
Board of Directors of the Company and which impedes
the Executive in the exercise of her authorities,
powers, functions or duties hereunder in the manner
in which they would normally be exercised by a
similar officer.
In the event that the Executive shall terminate her employment with
Good Reason, she shall provide the Company with sixty (60) days advance notice
of her date of termination of employment.
4.5 TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE. The Executive
acknowledges that she is, has been and will continue at all times to be an
at-will employee of the Company and as such her employment has been and
continues to be terminable, subject to the terms and conditions of this
Agreement, by either the Executive or the Company at any time upon notice to the
other as provided for herein and for any reason not prohibited by law. However,
if the Company terminates the Executive's employment other than for "Cause" (as
defined in Section 4.6 hereof), the Executive will be entitled to receive the
Severance Benefits set forth in Section 4.7 hereof and, if she qualifies
therefor, the Severance Pay set forth in Section 4.8 hereof.
4.6 TERMINATION BY THE COMPANY FOR CAUSE. Nothing in this Agreement
will be construed to prevent the Company from terminating the Executive's
employment for Cause. As used herein, "Cause" will be determined by the Board of
Directors of the Company in the exercise of good faith and reasonable judgment
and will include (i) Executive's willful failure to perform her duties under
this Agreement within a reasonable period of time after receipt of written
notice from the Board of Directors of the Company setting forth in reasonable
detail the duties which the Executive has failed to perform and the corrective
actions expected of her; (ii) a breach of Executive's obligations under Section
5 below; (iii) indictment for, conviction of, or written confession to a crime
against the Company or a felony; or (iv) Executive shall
56
<PAGE> 7
have been found by the Board of Directors of the Company to have been repeatedly
and excessively abusing alcohol, drugs and/or any other intoxicating or
controlled substance. Upon any such termination all rights, obligations and
duties of the parties hereunder shall immediately cease, except Executive's
obligations under Section 5 hereof.
4.7 SEVERANCE BENEFITS. In the event that the Company shall terminate
the employment of the Executive other than for "Cause" as defined in Section 4.6
hereof, or in the event the Executive terminates her employment pursuant to
Section 4.4 hereof with Good Reason, the Company will, upon the effective date
of such termination and in lieu of any other severance which may otherwise be
payable:
a. Pay to the Executive in a cash lump sum a pro rata bonus under
the Bonus Plan with respect to the year in which she is
terminated, which bonus shall be calculated using the formula
contained in the Bonus Plan based on the actual results of the
Company for such year but without any discretionary adjustment
of the amounts payable to the Executive that might otherwise
be permitted under the Bonus Plan. Such bonus will be paid to
the Executive on the same day as bonuses under the Bonus Plan
are paid to the executives of the Company who are still
employed with the Company.
b. Pay for the costs of outplacement services actually used by
the Executive; provided, however, that the total fee paid for
such services will be limited to an amount equal to seventeen
percent (17%) of the Executive's annual base salary rate as of
the effective date of termination of employment.
c. Pay to the Executive a cash lump sum, net of taxes, equal to
twelve (12) months of the monthly car allowance then
applicable to the Executive. Such payment shall be paid to the
Executive with thirty (30) days following her termination of
employment.
d. Cause all stock options granted to the Executive pursuant to
the Company's Key
57
<PAGE> 8
Employees' Stock Option Plan (the "Option Plan") or the grant
of any right under any future stock plan, to become
immediately exercisable in full and to remain fully
exercisable until the earlier of the date of expiration of the
option or one (1) year after her date of termination of
employment.
e. Provide to the Executive tax and/or legal consultation with
respect to the benefits granted hereunder up to a maximum cost
to the Company of Five Thousand Dollars ($5,000.00);
f. Provide assistance to the Executive in obtaining the financing
necessary for the Executive to exercise her stock options
during the period specified in Section 4.7d. hereof; and
g. Continue to be obligated to pay when due all other benefits to
which the Executive has a vested right according to the
provisions of any applicable retirement or other benefit plan
or program.
4.8 SEVERANCE PAY. If the Executive executes the Non-Competition
Agreement attached hereto and delivers such executed Agreement to the Company no
later than thirty (30) days after the date of this Agreement, and if the
employment of the Executive is terminated by the Company other than for "Cause"
as defined in Section 4.6 hereof, or by the Executive pursuant to Section 4.4
hereof with Good Reason, the Executive shall be entitled to Severance Pay as
follows:
a. At the election of the Executive, the Company shall either
continue to pay to the Executive for the twenty-four (24)
months following her termination of employment, her monthly
base salary at the rate in effect as of the date of such
termination in accordance with the Company's normal payroll
practices or make a lump sum payment to the Executive of the
amount due above. Any such lump sum will be payable within
thirty (30) days after the date the Company receives written
notice of the Executive's election to receive the lump sum.
58
<PAGE> 9
b. In addition, the Company, throughout such twenty-four (24)
month period, will continue the Executive's life insurance and
health care benefits coverage on the same terms and at the
same cost to the Executive as would be applicable to a
similarly situated full-time employee; provided, however, that
in the event the Executive begins to receive comparable life
insurance and health care benefits (determined at the sole
discretion of the Company) from a subsequent employer during
such period, the Company may immediately terminate its life
insurance and health care benefits coverage of the Executive.
Coverage under the Company's health care benefits plan will be
in lieu of health care continuation under the Consolidated
Omnibus Budget Reconciliation Act ("COBRA") for periods such
coverage is in effect under this Agreement.
4.9 VESTING OF STOCK OPTIONS. In the event of a Change in Control, the
Committee under the Option Plan will cause all stock options granted to the
Executive pursuant to the Option Plan to become immediately exercisable in full.
Such stock options shall remain fully exercisable until their expiration.
In the event the proceeds from a sale or disposition of any of the
Affiliates which the Company owns on the date of this Agreement are used to
provide a dividend to the stockholders of the Company, then immediately upon the
effective date of such sale or disposition the Company will cause all stock
options granted to the Executive pursuant to the Option Plan to become
immediately exercisable in full and to remain fully exercisable so that the
Executive shall be entitled to become a stockholder of record such that the
Executive shall be entitled to receive the benefits of the dividend.
59
<PAGE> 10
SECTION 5. COVENANTS
---------
5.1 DISCLOSURE OR USE OF INFORMATION. The Executive will at all times
during and after the term of her employment by the Company keep and maintain the
confidentiality of all Confidential Information and will not at any time either
directly or indirectly use such information for her own benefit or otherwise
divulge, disclose or communicate such information to any person or entity in any
manner whatsoever other than employees or agents of the Company or its
Affiliates who have a need to know such information and then only to the extent
necessary to perform their responsibilities on behalf of the Company or its
Affiliates. As used herein, "Confidential Information" will mean any and all
information (excluding information in the public domain) which relates to the
business of the Company and its Affiliates including without limitation all
patents and patent applications, copyrights applied for, issued to or owned by
the Company or any of its Affiliates, inventions, trade secrets, computer
programs, engineering and technical data, drawings or designs, manufacturing
techniques, information concerning pricing and pricing policies, marketing
techniques, suppliers, methods and manner of operations, and information
relating to the identity and/or location of all past, present and prospective
customers of the Company and its Affiliates.
5.2 CO-OPERATION. During the term of this Agreement and for a period of
twenty-four (24) months following its termination, the Executive will not
attempt to induce any employee of the Company or an Affiliate to terminate his
or her employment with the Company or an Affiliate nor will she take any action
with respect to any of the suppliers or customers of the Company and its
Affiliates which would have or might be likely to have an adverse effect upon
the business of the Company and its Affiliates. Executive hereby agrees not to
make any statement or take any action, directly or indirectly, that will
disparage or discredit the Company and its Affiliates, their Officers, Directors
of the Company, their employees or any of their products, or in any way damage
their reputation or ability to do business or conduct their affairs.
60
<PAGE> 11
Executive agrees that subsequent to her termination of employment she will, in
conjunction with a Company request, reasonably co-operate with the Company in
connection with transition matters, disputes and litigation matters upon
reasonable notice, at reasonable times, and will be paid or reimbursed for
reasonable expenses incurred by the Executive relating to such matters.
5.3 INJUNCTIVE RELIEF. In the event of a breach or threatened breach of
any of the provisions of this Section 5 by the Executive, the Company will be
entitled to preliminary and permanent injunctive relief, without bond or
security, sufficient to enforce the provisions thereof and the Company will be
entitled to pursue such other remedies at law or in equity as it deems
appropriate.
SECTION 6. MISCELLANEOUS
-------------
6.1 SUCCESSORS. This Agreement is personal to the Executive and will
not be assignable by her without the prior written consent of the Company. This
Agreement may be assigned or transferred to and will be binding upon and inure
to the benefit of any Successor of the Company. As used herein, the term
"Successor" will include any person, firm, corporation or business entity which
acquires all or substantially all of the assets or succeeds to the business of
the Company.
6.2 ENTIRE AGREEMENT. This Agreement supersedes any prior agreements or
understandings, oral or written, between the Executive and the Company with
respect to the subject matter hereof and constitutes the entire agreement of the
parties with respect thereto.
6.3 MODIFICATION. This Agreement will not be varied, altered, modified,
canceled, changed, or in any way amended except by mutual agreement in a written
instrument executed by the Company and the Executive or their legal
representatives.
6.4 TAX WITHHOLDING. The Company may withhold from any benefits payable
under this Agreement all federal, state, city, or other taxes as may be required
pursuant to any law or governmental regulation or ruling.
61
<PAGE> 12
6.5 GOVERNING LAW. To the extent not preempted by federal law, the
provisions of this Agreement will be construed and enforced in accordance with
the laws of the State of Ohio.
6.6 INDEMNIFICATION. If the Internal Revenue Service asserts that the
amounts payable to the Executive under this Agreement give rise to an excise tax
under Section 4999 of the Internal Revenue Code and the Executive co-operates
with the Company in appealing the determination of the Internal Revenue Service
through whatever level of administrative or judicial appeals is deemed
appropriate by the Company, the Company shall indemnify the Executive for the
amount of such excise tax, for any interest and penalties applicable thereto,
and for any income or excise taxes payable on such indemnification. The Company
shall pay all costs of challenging the determination that the excise tax applies
to payments hereunder including any administrative costs, court costs, attorney
fees, and accounting fees, whether incurred by the Company or incurred by the
Executive.
6.7 DEFINITIONS.
-----------
a. The term "Affiliate" shall mean any entity controlling,
controlled by or under common control with the Company,
including, but not limited to, divisions and subsidiaries of
the Company.
b. The term "Change in Control" shall include:
i. the first purchase of shares pursuant to a tender
offer or exchange (other than a tender offer or
exchange by the Company) for twenty-five percent
(25%) or more of the Company's common stock of any
class or any securities convertible into such common
stock other than any purchases prior to the date of
execution of this Agreement by Richard C. Blum &
Associates, L.P. and its limited partnerships and
investment advisory clients;
ii. the receipt by the Company of a Schedule 13D or other
advice after the date of
62
<PAGE> 13
execution of this Agreement indicating that a person,
other than Richard C. Blum & Associates, L.P. and its
limited partnerships and investment advisory clients,
is the "beneficial owner" (as that term is defined in
Rule 13d-3 under the Securities Exchange Act of 1934)
of twenty-five percent (25%) or more of the Company's
common stock of any class or any securities
convertible in such common stock calculated as
provided in paragraph (d) of said Rule 13d-3;
iii. the receipt by the Company of a Schedule 13D or other
advice after the date of execution of this Agreement
indicating that Richard C. Blum & Associates, L.P.
and/or its limited partnerships and investment
advisory clients, is the "beneficial owner" (as that
term is defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of thirty percent (30%) or more
of the Company's combined common stock including any
securities convertible into such common stock
calculated as provided in paragraph (d) of said Rule
13d-3;
iv. the date of approval by stockholders of the Company
of an agreement providing for any consolidation or
merger of the Company in which the Company will not
be the continuing or surviving corporation or
pursuant to which shares of capital stock, of any
class or any securities convertible into such capital
stock, of the Company would be converted into cash,
securities, or other property, other than a merger of
the Company in which the holders of common stock of
all classes of the Company immediately prior to the
merger would have the same proportion of ownership of
common stock of the surviving corporation immediately
after the merger;
v. the date of the approval by stockholders of the
Company of any sale, lease,
63
<PAGE> 14
exchange, or other transfer (in one transaction or a
series of related transactions) of all or
substantially all the assets of the Company;
vi. the adoption of any plan or proposal for the
liquidation (but not a partial liquidation) or
dissolution of the Company; or
vii. such other event as the Compensation Committee of the
Board of Directors shall, in its sole and absolute
discretion, deem to be a "Change in Control."
IN WITNESS WHEREOF, the Executive and the Company have executed this
Agreement as of the day and year first above written.
SCOTT TECHNOLOGIES, INC.
By: /s/
-----------------
Glen W. Lindemann
And: /s/
-----------------
Debra L. Kackley
/s/
-----------------
William J. Sickman
-----------------
64
<PAGE> 15
NON-COMPETITION AGREEMENT
In consideration of the promises and covenants of Scott Technologies,
Inc. (hereinafter called "Scott") contained in the Management Agreement between
the Executive and Scott including the possible payment of twenty-four (24)
months of Severance Pay to the Executive under certain circumstances, the
Executive hereby agrees that the Executive will not, for a period of two (2)
years after her termination of employment from Scott, directly or indirectly,
for himself or for others, in any state of the United States or in any foreign
country where Scott or any of its Affiliates (as defined below) is then
conducting business:
(1) engage, as an employee, partner, or sole proprietor, in
any business segment of any person or entity which
competes, directly or indirectly, with the product lines
of Scott or its Affiliates; or
(2) in connection with any product lines of Scott or its
Affiliates, render advice, consultation, or services to or
otherwise assist any other person or entity which
competes, directly or indirectly, with Scott or any of its
Affiliates with respect to such product lines.
For the purposes of this Agreement, the term "Affiliates" shall mean any entity
controlled by or under common control with Scott during the period the Executive
is employed by Scott or a division or subsidiary of Scott, including, but not
limited to, Scott divisions and subsidiaries.
In the event of a breach or threatened breach of any of the provisions
of this Agreement by the Executive, Scott will be entitled to preliminary and
permanent injunctive relief, without bond or security, sufficient to enforce the
provisions hereof and Scott will be entitled to pursue such other remedies at
law or in equity as it deems appropriate.
The Executive understands that the foregoing restrictions may limit her
ability to engage in certain business pursuits during the period provided for
above, but acknowledges that she will receive sufficiently higher Severance Pay
from Scott than she would otherwise receive to justify such restriction. The
Executive acknowledges that she understands the effect of the provisions of this
Agreement, that she
65
<PAGE> 16
has had reasonable time to consider the effect of these provisions, and that she
was encouraged to and had an opportunity to consult an attorney with respect to
these provisions. Scott and the Executive consider the restrictions contained in
this Agreement to be reasonable and necessary. Nevertheless, if any aspect of
these restrictions is found to be unreasonable or otherwise unenforceable by a
Court of competent jurisdiction, the parties intend for such restrictions to be
modified by such Court so as to be reasonable and enforceable and, as so
modified by the Court, to be fully enforced.
IN WITNESS WHEREOF, the Executive has executed this Agreement as of
this 10th day of September, 1998.
/s/
- ------------------------------
Debra L. Kackley
66
<PAGE> 1
MATERIAL CONTRACTS
EXHIBIT 10.0 (V)
AMENDED AND RESTATED
MANAGEMENT AGREEMENT
This AMENDED and RESTATED MANAGEMENT AGREEMENT ("Agreement") is entered
into as of this 17th day of August, 1998, by and between Scott Technologies,
Inc. (formerly known as Figgie International Inc. and hereinafter called the
"Company") and Glen W. Lindemann (the "Executive").
WHEREAS, the Executive is presently in the employ of the Company as
President and Chief Executive Officer of the Company; and
WHEREAS, the Company desires to retain the employment of the Executive
and the Executive desires to continue to serve the Company in such capacity; and
WHEREAS, the Company and the Executive desire to set forth in a written
agreement the terms and provisions of such employment and of certain severance
and other payments to be made to the Executive under certain circumstances;
NOW THEREFORE, in consideration of the foregoing, the mutual covenants
and agreements set forth in this Agreement and for other good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged, the
Company and the Executive agree as follows:
SECTION 1. TERM OF EMPLOYMENT AND COMPENSATION
-----------------------------------
The Company will employ the Executive in accordance with the terms and
conditions set forth herein as of January 1, 1998 and extending for an initial
period ending December 31, 2000 (the "initial period"), subject, however, to
earlier termination as expressly provided herein. The Executive will continue to
serve the Company as President and Chief Executive Officer or in such other
future capacity
67
<PAGE> 2
as he and the Company might mutually agree and will devote his full business
time and best efforts to the satisfactory discharge of the responsibilities of
his offices, performing such other duties as might reasonably be requested by
the Company's Board of Directors. During the initial period the Executive will
be paid a base salary at an annual rate of Three Hundred Fifty Thousand Dollars
($350,000.00) in installments which are no less frequently than monthly,
together with such increases as the Compensation Committee of the Board of
Directors shall from time to time approve.
The initial period will be automatically extended for one (1)
additional year at the end of the initial period, and then again after each
successive year thereafter. However, either party may terminate this Agreement
at the end of the initial period, or at the end of any successive one (1) year
term thereafter, by giving the other party written notice of intent not to
renew, delivered at least three (3) months prior to the end of such initial
period or successive term.
In the event such notice of intent not to renew is properly delivered,
the term of the employment of the Executive shall then become indefinite and can
be terminated by the Company without notice. Similarly, subject to the
provisions of this Agreement relating to nondisclosure of confidential
information and non-interference with employees, customers and suppliers, the
Executive can quit, at any time thereafter, without notice to the Company.
68
<PAGE> 3
SECTION 2. BENEFIT PLANS
-------------
During his employment, the Executive shall be entitled to participate
in all employee benefit plans and perquisites which are maintained or
established by the Company from time to time and which cover the Company's
senior executives provided he satisfies any applicable eligibility requirements
therefor. The Executive acknowledges the right of the Company to amend or
terminate such plans at any time in the exercise of its discretion. The
Executive further acknowledges that the Company may wish to maintain insurance
on his life for its benefit and agrees to submit to any physical examination
which may be required in order to obtain such insurance.
SECTION 3. EXPENSES
--------
The Executive will be reimbursed for all reasonable expenses incurred
by him in performing his duties hereunder provided that such expenses are
incurred and accounted for in accordance with the policies and procedures
established by the Company.
SECTION 4. EMPLOYMENT TERMINATIONS
-----------------------
4.1 TERMINATION DUE TO RETIREMENT OR DEATH. In the event the
Executive's employment is terminated by reason of retirement or death during the
term of this Agreement, the Executive's employment with the Company shall be
deemed terminated as of the effective date of retirement or at the end of the
month in which such death occurs and all benefits will be determined in
accordance with the Company's retirement plans, survivor's benefits, insurance,
Compensation Plan for Executives and other applicable programs then in effect,
except that in the case of the death of the Executive the Company will pay a pro
rata portion of any bonus which would have been payable to the Executive under
Section 4.7a. hereof to his spouse if then living and otherwise to the executor
or administrator of his estate. In no event will the other benefits described in
the remainder of Section 4.7 hereof or the Severance Pay described in Section
4.8 hereof be paid in the event of death and in no event will any of
69
<PAGE> 4
the Severance Benefits and Severance Pay described in Sections 4.7 and 4.8
hereof be paid in the event of retirement. In the event of retirement, the
Executive shall, however, comply with the provisions of Sections 5.1 and 5.2
hereof.
For purposes of this Section 4.1, the determination of whether a
termination qualifies as a retirement will be made in accordance with the then
established rules and definitions of the Company's Retirement Income Plan II
which are applicable to salaried employees of the Company.
4.2 TERMINATION DUE TO DISABILITY. In the event the Executive during
the term of this Agreement becomes, in the opinion of the Company and based upon
reasonable medical opinion, so disabled as to be unable to satisfactorily
perform his duties hereunder, the Company will have the right upon thirty (30)
days written notice to the Executive to terminate the continued active service
of the Executive as President and Chief Executive Officer and the payment of
compensation and benefits under this Agreement, except as provided in this
Section 4.2. In such event, the Executive's benefits will be determined in
accordance with the Company's disability and other applicable plans and programs
then in effect, provided, however, that the Company will pay a pro rata portion
of any bonus which would have been payable to the Executive under Section 4.7a.
hereof. In no event will the other benefits described in the remainder of
Section 4.7 hereof or the Severance Pay described in Section 4.8 hereof be paid
in the event of the disability of the Executive. In the event of disability, the
Executive shall, however, comply with the provisions of Sections 5.1 and 5.2
hereof.
4.3 VOLUNTARY TERMINATION BY THE EXECUTIVE OTHER THAN FOR GOOD REASON.
The Executive may terminate his employment other than for Good Reason as such
term is defined in Section 4.4 hereof at any time by giving the Company written
notice of intent to terminate, delivered at least sixty (60) calendar days prior
to the effective date of such termination. The Company will pay the Executive
his full base salary, at the rate then in effect, through the effective date of
such termination, plus all other
70
<PAGE> 5
benefits to which the Executive has a vested right at that time (including but
not limited to unused vacation time, COBRA benefits and stock option benefits).
If such termination of employment is other than for Good Reason, the Executive
shall not be entitled to the Severance Benefits set forth in Section 4.7 hereof
or the Severance Pay set forth in Section 4.8 hereof. The Executive shall,
however, comply with the provisions of Sections 5.1 and 5.2 hereof.
4.4 VOLUNTARY TERMINATION BY THE EXECUTIVE WITH GOOD REASON. In the
event that the Executive terminates his employment with Good Reason as defined
below in this Section 4.4, the Executive will be entitled to receive the
Severance Benefits set forth in Section 4.7 hereof and, if he qualifies
therefor, the Severance Pay set forth in Section 4.8 hereof.
For purposes of this Agreement, an Executive shall be deemed to have
terminated his employment for "Good Reason" if his termination of employment
occurs:
a. within four (4) months after a Change in Control;
b. within four (4) months after:
i. the Board of Directors of the Company shall fail to
re-elect or shall remove the Executive from the
office of Chief Executive Officer;
ii. the Board of Directors of the Company shall make a
significant negative change in the nature or scope of
the authorities, powers, functions or duties of the
Executive hereunder;
iii. the Company shall fail to pay when due any
compensation due and owing to the Executive or shall
make a reduction in the Executive's then current base
salary or a material reduction in his benefits and
such failure is not corrected within ten (10) days
after notice thereof to the Company by the Executive;
iv. any pattern of harassment which occurs within the
first twelve (12) months after
71
<PAGE> 6
the execution of this Agreement, which is done with
the approval of the Board of Directors of the Company
and which impedes the Executive in the exercise of
his authorities, powers, functions or duties
hereunder in the manner in which they would normally
be exercised by a Chief Executive Officer; or
v. the Board of Directors of the Company has given the
Executive written notice of its intention not to
renew this Agreement.
In the event that the Executive shall terminate his employment with
Good Reason, he shall provide the Company with sixty (60) days advance notice of
his date of termination of employment.
4.5 TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE. The Executive
acknowledges that he is, has been and will continue at all times to be an
at-will employee of the Company and as such his employment has been and
continues to be terminable, subject to the terms and conditions of this
Agreement, by either the Executive or the Company at any time upon notice to the
other as provided for herein and for any reason not prohibited by law. However,
if the Company terminates the Executive's employment other than for "Cause" (as
defined in Section 4.6 hereof), the Executive will be entitled to receive the
Severance Benefits set forth in Section 4.7 hereof and, if he qualifies
therefor, the Severance Pay set forth in Section 4.8 hereof.
4.6 TERMINATION BY THE COMPANY FOR CAUSE. Nothing in this Agreement
will be construed to prevent the Company from terminating the Executive's
employment for Cause. As used herein, "Cause" will be determined by the Board of
Directors of the Company in the exercise of good faith and reasonable judgment
and will include (i) Executive's willful failure to perform his duties under
this Agreement within a reasonable period of time after receipt of written
notice from the Board of Directors of the Company setting forth in reasonable
detail the duties which the Executive has failed to perform and the corrective
actions expected of him; (ii) a breach of Executive's obligations under Section
5 below; (iii) indictment
72
<PAGE> 7
for, conviction of, or written confession to a crime against the Company or a
felony; or (iv) Executive shall have been found by the Board of Directors of the
Company to have been repeatedly and excessively abusing alcohol, drugs and/or
any other intoxicating or controlled substance. Upon any such termination all
rights, obligations and duties of the parties hereunder shall immediately cease,
except Executive's obligations under Section 5 hereof.
4.7 SEVERANCE BENEFITS. In the event that the Company shall terminate
the employment of the Executive other than for "Cause" as defined in Section 4.6
hereof, or in the event the Executive terminates his employment pursuant to
Section 4.4 hereof with Good Reason, the Company will, upon the effective date
of such termination and in lieu of any other severance which may otherwise be
payable:
a. Pay to the Executive in a cash lump sum a pro rata bonus under
the Bonus Plan with respect to the year in which he is
terminated, which Bonus shall be calculated using the formula
contained in the Bonus Plan based on the actual results of the
Company for such year but without any discretionary adjustment
of the amounts payable to the Executive that might otherwise
be permitted under the Bonus Plan. Such bonus will be paid to
the Executive on the same day as bonuses under the Plan are
paid to the executives of the Company who are still employed
with the Company.
b. Pay for the costs of outplacement services actually used by
the Executive; provided, however, that the total fee paid for
such services will be limited to an amount equal to seventeen
percent (17%) of the Executive's annual base salary rate as of
the effective date of termination of employment.
c. Pay to the Executive a cash lump sum, net of taxes, equal to
twelve (12) months of the monthly car allowance then
applicable to the Executive. Such payment shall be paid to the
Executive with thirty (30) days following his termination of
employment.
73
<PAGE> 8
d. Cause all stock options granted to the Executive pursuant to
the Company's Key Employees' Stock Option Plan (the "Option
Plan"), or the grant of any right under any future stock plan,
to become immediately exercisable in full and to remain fully
exercisable until the earlier of the date of expiration of the
option or one (1) year after his date of termination of
employment.
e. Provide to the Executive tax and/or legal consultation with
respect to the benefits granted hereunder up to a maximum cost
to the Company of Five Thousand Dollars ($5,000.00);
f. Provide assistance to the Executive in obtaining the financing
necessary for the Executive to exercise his stock options
during the period specified in Section 4.7d. hereof; and
g. Continue to be obligated to pay when due all other benefits to
which the Executive has a vested right according to the
provisions of any applicable retirement or other benefit plan
or program.
4.8 SEVERANCE PAY. If the Executive executes the Non-Competition
Agreement attached hereto and delivers such executed Agreement to the Company no
later than thirty (30) days after the date of this Agreement, and if the
employment of the Executive is terminated by the Company other than for "Cause"
as defined in Section 4.6 hereof, or by the Executive pursuant to Section 4.4
hereof with Good Reason, the Executive shall be entitled to Severance Pay as
follows:
a. At the election of the Executive, the Company shall either
continue to pay to the Executive for the twenty-four (24)
months following his termination of employment, his monthly
base salary at the rate in effect as of the date of such
termination in accordance with the Company's normal payroll
practices or make a lump sum payment to the Executive of the
amount due above. Any such lump sum will be payable within
thirty (30) days after the date the Company receives written
notice of the Executive's election to
74
<PAGE> 9
receive the lump sum.
b. In addition, the Company, throughout such twenty-four (24)
month period, will continue the Executive's life insurance and
health care benefits coverage on the same terms and at the
same cost to the Executive as would be applicable to a
similarly situated full-time employee; provided, however, that
in the event the Executive begins to receive comparable life
insurance and health care benefits (determined at the sole
discretion of the Company) from a subsequent employer during
such period, the Company may immediately terminate its life
insurance and health care benefits coverage of the Executive.
Coverage under the Company's health care benefits plan will be
in lieu of health care continuation under the Consolidated
Omnibus Budget Reconciliation Act ("COBRA") for periods such
coverage is in effect under this Agreement.
4.9 VESTING OF STOCK OPTIONS. In the event of a Change in Control the
Committee under the Option Plan will cause all stock options granted to the
Executive pursuant to the Option Plan to become immediately exercisable in full.
Such stock options shall remain fully exercisable until their expiration.
In the event the proceeds from a sale or disposition of any of the
Affiliates which the Company owns on the date of this Agreement are used to
provide a dividend to the stockholders of the Company, then immediately upon the
effective date of such sale or disposition the Company will cause all stock
options granted to the Executive pursuant to the Option Plan to become
immediately exercisable in full and to remain fully exercisable so that the
Executive shall be entitled to become a stockholder of record such that the
Executive shall be entitled to receive the benefits of the dividend.
SECTION 5. COVENANTS
---------
5.1 DISCLOSURE OR USE OF INFORMATION. The Executive will at all times
during and after the term
75
<PAGE> 10
of his employment by the Company keep and maintain the confidentiality of all
Confidential Information and will not at any time either directly or indirectly
use such information for his own benefit or otherwise divulge, disclose or
communicate such information to any person or entity in any manner whatsoever
other than employees or agents of the Company or its Affiliates who have a need
to know such information and then only to the extent necessary to perform their
responsibilities on behalf of the Company or its Affiliates. As used herein,
"Confidential Information" will mean any and all information (excluding
information in the public domain) which relates to the business of the Company
and its Affiliates including without limitation all patents and patent
applications, copyrights applied for, issued to or owned by the Company or any
of its Affiliates, inventions, trade secrets, computer programs, engineering and
technical data, drawings or designs, manufacturing techniques, information
concerning pricing and pricing policies, marketing techniques, suppliers,
methods and manner of operations, and information relating to the identity
and/or location of all past, present and prospective customers of the Company
and its Affiliates.
5.2 CO-OPERATION. During the term of this Agreement and for a period of
twenty-four (24) months following its termination, the Executive will not
attempt to induce any employee of the Company or an Affiliate to terminate his
or her employment with the Company or an Affiliate nor will he take any action
with respect to any of the suppliers or customers of the Company and its
Affiliates which would have or might be likely to have an adverse effect upon
the business of the Company and its Affiliates. Executive hereby agrees not to
make any statement or take any action, directly or indirectly, that will
disparage or discredit the Company and its Affiliates, their Officers, Directors
of the Company, their employees or any of their products, or in any way damage
their reputation or ability to do business or conduct their affairs. Executive
agrees that subsequent to his termination of employment he will, in conjunction
with a Company request, reasonably co-operate with the Company in connection
with transition matters,
76
<PAGE> 11
disputes and litigation matters upon reasonable notice, at reasonable times, and
will be paid or reimbursed for reasonable expenses incurred by the Executive
relating to such matters.
5.3 INJUNCTIVE RELIEF. In the event of a breach or threatened breach of
any of the provisions of this Section 5 by the Executive, the Company will be
entitled to preliminary and permanent injunctive relief, without bond or
security, sufficient to enforce the provisions thereof and the Company will be
entitled to pursue such other remedies at law or in equity as it deems
appropriate.
SECTION 6. MISCELLANEOUS
-------------
6.1 SUCCESSORS. This Agreement is personal to the Executive and will
not be assignable by him without the prior written consent of the Company. This
Agreement may be assigned or transferred to and will be binding upon and inure
to the benefit of any Successor of the Company. As used herein, the term
"Successor" will include any person, firm, corporation or business entity which
acquires all or substantially all of the assets or succeeds to the business of
the Company.
6.2 ENTIRE AGREEMENT. This Agreement supersedes any prior agreements or
understandings, oral or written, between the Executive and the Company with
respect to the subject matter hereof and constitutes the entire agreement of the
parties with respect thereto.
6.3 MODIFICATION. This Agreement will not be varied, altered, modified,
canceled, changed, or in any way amended except by mutual agreement in a written
instrument executed by the Company and the Executive or their legal
representatives.
6.4 TAX WITHHOLDING. The Company may withhold from any benefits payable
under this Agreement all federal, state, city, or other taxes as may be required
pursuant to any law or governmental regulation or ruling.
6.5 GOVERNING LAW. To the extent not preempted by federal law, the
provisions of this Agreement will be construed and enforced in accordance with
the laws of the State of Ohio.
77
<PAGE> 12
6.6 INDEMNIFICATION. The Company has obtained an opinion of Arthur
Andersen LLP that the payments and benefits under this Agreement do not exceed
the maximum amount which can be paid to the Executive without incurring an
excise tax under Section 4999 of the Internal Revenue Code. If the Internal
Revenue Service asserts that the amounts payable to the Executive under this
Agreement nonetheless give rise to an excise tax under Section 4999 of the
Internal Revenue Code and the Executive co-operates with the Company in
appealing the determination of the Internal Revenue Service through whatever
level of administrative or judicial appeals is deemed appropriate by the
Company, the Company shall indemnify the Executive for the amount of such excise
tax, for any interest and penalties applicable thereto, and for any income or
excise taxes payable on such indemnification. The Company shall pay all costs of
challenging the determination that the excise tax applies to payments hereunder
including any administrative costs, court costs, attorney fees, and accounting
fees, whether incurred by the Company or incurred by the Executive.
6.7 DEFINITIONS.
-----------
a. The term "Affiliate" shall mean any entity controlling,
controlled by or under common control with the Company,
including, but not limited to, divisions and subsidiaries of
the Company.
b. The term "Change in Control" shall include:
i. the first purchase of shares pursuant to a tender
offer or exchange (other than a tender offer or
exchange by the Company) for twenty-five percent
(25%) or more of the Company's common stock of any
class or any securities convertible into such common
stock other than any purchases prior to the date of
execution of this Agreement by Richard C. Blum &
Associates, L.P. and its limited partnerships and
investment advisory clients;
78
<PAGE> 13
ii. the receipt by the Company of a Schedule 13D or other
advice after the date of execution of this Agreement
indicating that a person, other than Richard C. Blum
& Associates, L.P. and its limited partnerships and
investment advisory clients, is the "beneficial
owner" (as that term is defined in Rule 13d-3 under
the Securities Exchange Act of 1934) of twenty-five
percent (25%) or more of the Company's common stock
of any class or any securities convertible in such
common stock calculated as provided in paragraph (d)
of said Rule 13d-3;
iii. the receipt by the Company of a Schedule 13D or other
advice after the date of execution of this Agreement
indicating that Richard C. Blum & Associates, L.P.
and/or its limited partnerships and investment
advisory clients, is the "beneficial owner" (as that
term is defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of thirty percent (30%) or more
of the Company's combined common stock including any
securities convertible into such common stock
calculated as provided in paragraph (d) of said Rule
13d-3;
iv. the date of approval by stockholders of the Company
of an agreement providing for any consolidation or
merger of the Company in which the Company will not
be the continuing or surviving corporation or
pursuant to which shares of capital stock, of any
class or any securities convertible into such capital
stock, of the Company would be converted into cash,
securities, or other property, other than a merger of
the Company in which the holders of common stock of
all classes of the Company immediately prior to the
merger would have the same proportion of ownership of
common stock of the surviving corporation immediately
after the merger;
79
<PAGE> 14
v. the date of the approval by stockholders of the
Company of any sale, lease, exchange, or other
transfer (in one transaction or a series of related
transactions) of all or substantially all the assets
of the Company;
vi. the adoption of any plan or proposal for the
liquidation (but not a partial liquidation) or
dissolution of the Company; or
vii. such other event as the Compensation Committee of the Board of
Directors shall, in its sole and absolute discretion, deem to
be a "Change in Control."
6.8 REPLACEMENT OF EXISTING CONTRACT. This Agreement will replace the
Management Agreement dated June 9, 1997 between the Company and the Executive.
80
<PAGE> 15
IN WITNESS WHEREOF, the Executive and the Company have executed this
Agreement as of the day and year first above written.
SCOTT TECHNOLOGIES, INC.
By: /s/
-----------------
Glen W. Lindemann
And: /s/
-----------------
Debra L. Kackley
/s/
-----------------
William J. Sickman
-----------------
81
<PAGE> 16
NON-COMPETITION AGREEMENT
In consideration of the promises and covenants of Scott Technologies,
Inc. (formerly known as Figgie International Inc. and hereinafter called
"Scott") contained in the Amended and Restated Management Agreement between the
Executive and Scott including the possible payment of twenty-four (24) months of
Severance Pay to the Executive under certain circumstances, the Executive hereby
agrees that the Executive will not, for a period of two (2) years after his
termination of employment from Scott, directly or indirectly, for himself or for
others, in any state of the United States or in any foreign country where Scott
or any of its Affiliates (as defined below) is then conducting business:
(1) engage, as an employee, partner, or sole proprietor, in
any business segment of any person or entity which
competes, directly or indirectly, with the product lines
of Scott or its Affiliates; or
(2) in connection with any product lines of Scott or its
Affiliates, render advice, consultation, or services to or
otherwise assist any other person or entity which
competes, directly or indirectly, with Scott or any of its
Affiliates with respect to such product lines.
For the purposes of this Agreement, the term "Affiliates" shall mean any entity
controlled by or under common control with Scott during the period the Executive
is employed by Scott or a division or subsidiary of Scott, including, but not
limited to, Scott divisions and subsidiaries.
In the event of a breach or threatened breach of any of the provisions
of this Agreement by the Executive, Scott will be entitled to preliminary and
permanent injunctive relief, without bond or security, sufficient to enforce the
provisions hereof and Scott will be entitled to pursue such other remedies at
law or in equity as it deems appropriate.
The Executive understands that the foregoing restrictions may limit his
ability to engage in certain business pursuits during the period provided for
above, but acknowledges that he will receive sufficiently higher Severance Pay
from Scott than he would otherwise receive to justify such restriction. The
Executive acknowledges that he understands the effect of the provisions of this
Agreement, that he has
82
<PAGE> 17
had reasonable time to consider the effect of these provisions, and that he was
encouraged to and had an opportunity to consult an attorney with respect to
these provisions. Scott and the Executive consider the restrictions contained in
this Agreement to be reasonable and necessary. Nevertheless, if any aspect of
these restrictions is found to be unreasonable or otherwise unenforceable by a
Court of competent jurisdiction, the parties intend for such restrictions to be
modified by such Court so as to be reasonable and enforceable and, as so
modified by the Court, to be fully enforced.
IN WITNESS WHEREOF, the Executive has executed this Agreement as of
this 17th day of August, 1998.
/s/
- ------------------------------
Glen W. Lindemann
83
<PAGE> 1
MATERIAL CONTRACTS
EXHIBIT 10.0 (VI)
MANAGEMENT AGREEMENT
--------------------
This MANAGEMENT AGREEMENT ("Agreement") is entered into as of this 25th
day of August, 1998, by and between Scott Technologies, Inc. (the "Company") and
Mark A. Kirk (the "Executive").
WHEREAS, the Company wishes to obtain the services of the Executive;
and
WHEREAS, the Executive desires to obtain employment with the Company;
and
WHEREAS, the Company and the Executive desire to set forth in a written
agreement the terms and provisions of such employment and of certain severance
and other payments to be made to the Executive under certain circumstances;
NOW THEREFORE, in consideration of the foregoing, the mutual covenants
and agreements set forth in this Agreement and for other good and valuable
consideration the receipt and sufficiency of which are hereby acknowledged, the
Company and the Executive agree as follows:
SECTION 1. TERM OF EMPLOYMENT AND COMPENSATION
-----------------------------------
1.1 EMPLOYMENT. The Company will employ the Executive in accordance
with the terms and conditions set forth herein as of July 6, 1998 and extending
for an initial period ending July 5, 2001 (the "initial period"), subject,
however, to earlier termination as expressly provided herein. The Executive will
serve the Company as Senior Vice President and Chief Financial Officer or in
such other future capacity as he and the Company might mutually agree and will
devote his full business time and best efforts to the satisfactory discharge of
the responsibilities of his offices, performing such other duties as might
reasonably be requested by the Company's Chief Executive Officer or Board of
Directors.
The initial period will be automatically extended for one (1)
additional year at the end of the initial
84
<PAGE> 2
period, and then again after each successive year thereafter. However, either
party may terminate this Agreement at the end of the initial period, or at the
end of any successive one (1) year term thereafter, by giving the other party
written notice of intent not to renew, delivered at least three (3) months prior
to the end of such initial period or successive term.
In the event such notice of intent not to renew is properly delivered,
the term of the employment of the Executive shall then become indefinite and can
be terminated by the Company without notice. Similarly, subject to the
provisions of this Agreement relating to nondisclosure of confidential
information and non-interference with employees, customers and suppliers, the
Executive can quit, at any time thereafter, without notice to the Company.
1.2 COMPENSATION.
------------
a. In order to obtain the services of the Executive, the
Executive will be paid a hiring bonus of Fifty Thousand
Dollars ($50,000.00). Such bonus will be paid to the Executive
in a lump sum during the first week of his employment with the
Company.
b. During the initial period the Executive will be paid a base
salary at an annual rate of Two Hundred Thousand Dollars
($200,000.00) in installments which are no less frequently
than monthly, together with such increases as the Compensation
Committee of the Board of Directors shall from time to time
approve.
c. In addition to the hiring bonus described in a. above, the
Executive will be paid a guaranteed 1998 bonus of Fifty
Thousand Dollars ($50,000.00) under the Company's Bonus Plan.
Such bonus payment will be paid to the Executive in a lump sum
on the same day as bonuses under the Bonus Plan are paid to
the executives of the Company who are still employed with the
Company.
85
<PAGE> 3
SECTION 2. BENEFIT PLANS
-------------
During his employment, the Executive shall be entitled to participate
in all employee benefit plans and perquisites which are maintained or
established by the Company from time to time and which cover the Company's
senior executives provided he satisfies any applicable eligibility requirements
therefor. The Executive acknowledges the right of the Company to amend or
terminate such plans at any time in the exercise of its discretion. The
Executive further acknowledges that the Company may wish to maintain insurance
on his life for its benefit and agrees to submit to any physical examination
which may be required in order to obtain such insurance.
SECTION 3. EXPENSES
--------
The Executive will be reimbursed for all reasonable expenses incurred
by him in performing his duties hereunder provided that such expenses are
incurred and accounted for in accordance with the policies and procedures
established by the Company.
SECTION 4. EMPLOYMENT TERMINATIONS
-----------------------
4.1 TERMINATION DUE TO RETIREMENT OR DEATH. In the event the
Executive's employment is terminated by reason of retirement or death during the
term of this Agreement, the Executive's employment with the Company shall be
deemed terminated as of the effective date of retirement or at the end of the
month in which such death occurs and all benefits will be determined in
accordance with the Company's retirement plans, survivor's benefits, insurance,
Compensation Plan for Executives and other applicable programs then in effect,
except that in the case of the death of the Executive the Company will pay a pro
rata portion of any bonus which would have been payable to the Executive under
Section 4.7a. hereof to his spouse if then living and otherwise to the executor
or administrator of his estate. In no event will the other benefits described in
the remainder of Section 4.7 hereof or the Severance Pay described in Section
4.8 hereof be paid in the event of death and in no event will any of
86
<PAGE> 4
the Severance Benefits and Severance Pay described in Sections 4.7 and 4.8
hereof be paid in the event of retirement. In the event of retirement, the
Executive shall, however, comply with the provisions of Sections 5.1 and 5.2
hereof.
For purposes of this Section 4.1, the determination of whether a
termination qualifies as a retirement will be made in accordance with the then
established rules and definitions of the Company's Retirement Income Plan II
which are applicable to salaried employees of the Company.
4.2 TERMINATION DUE TO DISABILITY. In the event the Executive during
the term of this Agreement becomes, in the opinion of the Company and based upon
reasonable medical opinion, so disabled as to be unable to satisfactorily
perform his duties hereunder, the Company will have the right upon thirty (30)
days written notice to the Executive to terminate the continued active service
of the Executive and the payment of compensation and benefits under this
Agreement, except as provided in this Section 4.2. In such event, the
Executive's benefits will be determined in accordance with the Company's
disability and other applicable plans and programs then in effect, provided,
however, that the Company will pay a pro rata portion of any bonus which would
have been payable to the Executive under Section 4.7a. hereof. In no event will
the other benefits described in the remainder of Section 4.7 hereof or the
Severance Pay described in Section 4.8 hereof be paid in the event of the
disability of the Executive. In the event of disability, the Executive shall,
however, comply with the provisions of Sections 5.1 and 5.2 hereof.
4.3 VOLUNTARY TERMINATION BY THE EXECUTIVE OTHER THAN FOR GOOD REASON.
The Executive may terminate his employment other than for Good Reason as such
term is defined in Section 4.4 hereof at any time by giving the Company written
notice of intent to terminate, delivered at least sixty (60) calendar days prior
to the effective date of such termination. The Company will pay the Executive
his full base salary, at the rate then in effect, through the effective date of
such termination, plus all other
87
<PAGE> 5
benefits to which the Executive has a vested right at that time (including but
not limited to unused vacation time, COBRA benefits and stock option benefits).
If such termination of employment is other than for Good Reason, the Executive
shall not be entitled to the Severance Benefits set forth in Section 4.7 hereof
or the Severance Pay set forth in Section 4.8 hereof. The Executive shall,
however, comply with the provisions of Sections 5.1 and 5.2 hereof.
4.4 VOLUNTARY TERMINATION BY THE EXECUTIVE WITH GOOD REASON. In the
event that the Executive terminates his employment with Good Reason as defined
below in this Section 4.4, the Executive will be entitled to receive the
Severance Benefits set forth in Section 4.7 hereof and, if he qualifies
therefor, the Severance Pay set forth in Section 4.8 hereof.
For purposes of this Agreement, an Executive shall be deemed to have
terminated his employment for "Good Reason" if his termination of employment
occurs:
a. within four (4) months after a Change in Control;
b. within four (4) months after:
i. the Board of Directors of the Company shall fail to
re-elect or shall remove the Executive from the
office then being held by the Executive;
ii. the Chief Executive Officer or the Board of Directors
of the Company shall make a significant negative
change in the nature or scope of the authorities,
powers, functions or duties of the Executive
hereunder;
iii. the Company shall fail to pay when due any
compensation due and owing to the Executive or shall
make a reduction in the Executive's then current base
salary or a material reduction in his benefits and
such failure is not corrected within ten (10) days
after notice thereof to the Company by the Executive;
or
iv. any pattern of harassment which occurs within the
first twelve (12) months after
88
<PAGE> 6
the execution of this Agreement, which is done with
the approval of the Chief Executive Officer or the
Board of Directors of the Company and which impedes
the Executive in the exercise of his authorities,
powers, functions or duties hereunder in the manner
in which they would normally be exercised by a
similar officer.
In the event that the Executive shall terminate his employment with
Good Reason, he shall provide the Company with sixty (60) days advance notice of
his date of termination of employment.
4.5 TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE. The Executive
acknowledges that he is, has been and will continue at all times to be an
at-will employee of the Company and as such his employment has been and
continues to be terminable, subject to the terms and conditions of this
Agreement, by either the Executive or the Company at any time upon notice to the
other as provided for herein and for any reason not prohibited by law. However,
if the Company terminates the Executive's employment other than for "Cause" (as
defined in Section 4.6 hereof), the Executive will be entitled to receive the
Severance Benefits set forth in Section 4.7 hereof and, if he qualifies
therefor, the Severance Pay set forth in Section 4.8 hereof.
4.6 TERMINATION BY THE COMPANY FOR CAUSE. Nothing in this Agreement
will be construed to prevent the Company from terminating the Executive's
employment for Cause. As used herein, "Cause" will be determined by the Board of
Directors of the Company in the exercise of good faith and reasonable judgment
and will include (i) Executive's willful failure to perform his duties under
this Agreement within a reasonable period of time after receipt of written
notice from the Board of Directors of the Company setting forth in reasonable
detail the duties which the Executive has failed to perform and the corrective
actions expected of him; (ii) a breach of Executive's obligations under Section
5 below; (iii) indictment for, conviction of, or written confession to a crime
against the Company or a felony; or (iv) Executive shall
89
<PAGE> 7
have been found by the Board of Directors of the Company to have been repeatedly
and excessively abusing alcohol, drugs and/or any other intoxicating or
controlled substance. Upon any such termination all rights, obligations and
duties of the parties hereunder shall immediately cease, except Executive's
obligations under Section 5 hereof.
4.7 SEVERANCE BENEFITS. In the event that the Company shall terminate
the employment of the Executive other than for "Cause" as defined in Section 4.6
hereof, or in the event the Executive terminates his employment pursuant to
Section 4.4 hereof with Good Reason, the Company will, upon the effective date
of such termination and in lieu of any other severance which may otherwise be
payable:
a. Pay to the Executive in a cash lump sum a pro rata bonus under
the Bonus Plan with respect to the year in which he is
terminated, which bonus shall be calculated using the formula
contained in the Bonus Plan based on the actual results of the
Company for such year but without any discretionary adjustment
of the amounts payable to the Executive that might otherwise
be permitted under the Bonus Plan. Such bonus will be paid to
the Executive on the same day as bonuses under the Bonus Plan
are paid to the executives of the Company who are still
employed with the Company.
b. Pay for the costs of outplacement services actually used by
the Executive; provided, however, that the total fee paid for
such services will be limited to an amount equal to seventeen
percent (17%) of the Executive's annual base salary rate as of
the effective date of termination of employment.
c. Pay to the Executive a cash lump sum, net of taxes, equal to
twelve (12) months of the monthly car allowance then
applicable to the Executive. Such payment shall be paid to the
Executive with thirty (30) days following his termination of
employment.
d. Cause all stock options, other than the Special Stock Option,
granted to the Executive
90
<PAGE> 8
pursuant to the Company's Key Employees' Stock Option Plan
(the "Option Plan") or the grant of any right under any future
stock plan, to become immediately exercisable in full and to
remain fully exercisable until the earlier of the date of
expiration of the option or one (1) year after his date of
termination of employment.
e. Provide to the Executive tax and/or legal consultation with
respect to the benefits granted hereunder up to a maximum cost
to the Company of Five Thousand Dollars ($5,000.00);
f. Provide assistance to the Executive in obtaining the financing
necessary for the Executive to exercise his stock options
during the period specified in Section 4.7d. hereof; and
g. Continue to be obligated to pay when due all other benefits to
which the Executive has a vested right according to the
provisions of any applicable retirement or other benefit plan
or program.
4.8 SEVERANCE PAY. If the Executive executes the Non-Competition
Agreement attached hereto and delivers such executed Agreement to the Company no
later than thirty (30) days after the date of this Agreement, and if the
employment of the Executive is terminated by the Company other than for "Cause"
as defined in Section 4.6 hereof, or by the Executive pursuant to Section 4.4
hereof with Good Reason, the Executive shall be entitled to Severance Pay as
follows:
a. At the election of the Executive, the Company shall either
continue to pay to the Executive for the twenty-four (24)
months following his termination of employment, his monthly
base salary at the rate in effect as of the date of such
termination in accordance with the Company's normal payroll
practices or make a lump sum payment to the Executive of the
amount due above. Any such lump sum will be payable within
thirty (30) days after the date the Company receives written
notice of the Executive's election to receive the lump sum.
91
<PAGE> 9
b. In addition, the Company, throughout such twenty-four (24)
month period, will continue the Executive's life insurance and
health care benefits coverage on the same terms and at the
same cost to the Executive as would be applicable to a
similarly situated full-time employee; provided, however, that
in the event the Executive begins to receive comparable life
insurance and health care benefits (determined at the sole
discretion of the Company) from a subsequent employer during
such period, the Company may immediately terminate its life
insurance and health care benefits coverage of the Executive.
Coverage under the Company's health care benefits plan will be
in lieu of health care continuation under the Consolidated
Omnibus Budget Reconciliation Act ("COBRA") for periods such
coverage is in effect under this Agreement.
4.9 VESTING OF STOCK OPTIONS. In the event of a Change in Control, the
Committee under the Option Plan will cause all stock options granted to the
Executive pursuant to the Option Plan to become immediately exercisable in full.
Such stock options shall remain fully exercisable until their expiration.
In the event the proceeds from a sale or disposition of any of the
Affiliates which the Company owns on the date of this Agreement are used to
provide a dividend to the stockholders of the Company, then immediately upon the
effective date of such sale or disposition the Company will cause all stock
options, other than the Special Stock Option, granted to the Executive pursuant
to the Option Plan to become immediately exercisable in full and to remain fully
exercisable so that the Executive shall be entitled to become a stockholder of
record such that the Executive shall be entitled to receive the benefits of the
dividend. In the event a Change in Control occurs after the date such a dividend
is provided and the Executive exercises his Special Stock Option, the Company
will pay an amount in cash to the Executive equal to the dividend which would
have been paid to him if he had
92
<PAGE> 10
been a stockholder of record at the time such a dividend was paid to
stockholders of the Company.
SECTION 5. COVENANTS
---------
5.1 DISCLOSURE OR USE OF INFORMATION. The Executive will at all times
during and after the term of his employment by the Company keep and maintain the
confidentiality of all Confidential Information and will not at any time either
directly or indirectly use such information for his own benefit or otherwise
divulge, disclose or communicate such information to any person or entity in any
manner whatsoever other than employees or agents of the Company or its
Affiliates who have a need to know such information and then only to the extent
necessary to perform their responsibilities on behalf of the Company or its
Affiliates. As used herein, "Confidential Information" will mean any and all
information (excluding information in the public domain) which relates to the
business of the Company and its Affiliates including without limitation all
patents and patent applications, copyrights applied for, issued to or owned by
the Company or any of its Affiliates, inventions, trade secrets, computer
programs, engineering and technical data, drawings or designs, manufacturing
techniques, information concerning pricing and pricing policies, marketing
techniques, suppliers, methods and manner of operations, and information
relating to the identity and/or location of all past, present and prospective
customers of the Company and its Affiliates.
5.2 CO-OPERATION. During the term of this Agreement and for a period of
twenty-four (24) months following its termination, the Executive will not
attempt to induce any employee of the Company or an Affiliate to terminate his
or her employment with the Company or an Affiliate nor will he take any action
with respect to any of the suppliers or customers of the Company and its
Affiliates which would have or might be likely to have an adverse effect upon
the business of the Company and its Affiliates. Executive hereby agrees not to
make any statement or take any action, directly or indirectly, that will
disparage or discredit the Company and its Affiliates, their Officers, Directors
of the Company, their employees or any
93
<PAGE> 11
of their products, or in any way damage their reputation or ability to do
business or conduct their affairs. Executive agrees that subsequent to his
termination of employment he will, in conjunction with a Company request,
reasonably co-operate with the Company in connection with transition matters,
disputes and litigation matters upon reasonable notice, at reasonable times, and
will be paid or reimbursed for reasonable expenses incurred by the Executive
relating to such matters.
5.3 INJUNCTIVE RELIEF. In the event of a breach or threatened breach of
any of the provisions of this Section 5 by the Executive, the Company will be
entitled to preliminary and permanent injunctive relief, without bond or
security, sufficient to enforce the provisions thereof and the Company will be
entitled to pursue such other remedies at law or in equity as it deems
appropriate.
94
<PAGE> 12
SECTION 6. MISCELLANEOUS
-------------
6.1 SUCCESSORS. This Agreement is personal to the Executive and will
not be assignable by him without the prior written consent of the Company. This
Agreement may be assigned or transferred to and will be binding upon and inure
to the benefit of any Successor of the Company. As used herein, the term
"Successor" will include any person, firm, corporation or business entity which
acquires all or substantially all of the assets or succeeds to the business of
the Company.
6.2 ENTIRE AGREEMENT. This Agreement supersedes any prior agreements or
understandings, oral or written, between the Executive and the Company with
respect to the subject matter hereof and constitutes the entire agreement of the
parties with respect thereto.
6.3 MODIFICATION. This Agreement will not be varied, altered, modified,
canceled, changed, or in any way amended except by mutual agreement in a written
instrument executed by the Company and the Executive or their legal
representatives.
6.4 TAX WITHHOLDING. The Company may withhold from any benefits payable
under this Agreement all federal, state, city, or other taxes as may be required
pursuant to any law or governmental regulation or ruling.
6.5 GOVERNING LAW. To the extent not preempted by federal law, the
provisions of this Agreement will be construed and enforced in accordance with
the laws of the State of Ohio.
6.6 INDEMNIFICATION. If the Internal Revenue Service asserts that the
amounts payable to the Executive under this Agreement give rise to an excise tax
under Section 4999 of the Internal Revenue Code and the Executive co-operates
with the Company in appealing the determination of the Internal Revenue Service
through whatever level of administrative or judicial appeals is deemed
appropriate by the Company, the Company shall indemnify the Executive for the
amount of such excise tax, for any interest and penalties applicable thereto,
and for any income or excise taxes payable on such
95
<PAGE> 13
indemnification. The Company shall pay all costs of challenging the
determination that the excise tax applies to payments hereunder including any
administrative costs, court costs, attorney fees, and accounting fees, whether
incurred by the Company or incurred by the Executive.
6.7 DEFINITIONS.
-----------
a. The term "Affiliate" shall mean any entity controlling,
controlled by or under common control with the Company,
including, but not limited to, divisions and subsidiaries of
the Company.
b. The term "Change in Control" shall include:
i. the first purchase of shares pursuant to a tender
offer or exchange (other than a tender offer or
exchange by the Company) for twenty-five percent
(25%) or more of the Company's common stock of any
class or any securities convertible into such common
stock other than any purchases prior to the date of
execution of this Agreement by Richard C. Blum &
Associates, L.P. and its limited partnerships and
investment advisory clients;
ii. the receipt by the Company of a Schedule 13D or other
advice after the date of execution of this Agreement
indicating that a person, other than Richard C. Blum
& Associates, L.P. and its limited partnerships and
investment advisory clients, is the "beneficial
owner" (as that term is defined in Rule 13d-3 under
the Securities Exchange Act of 1934) of twenty-five
percent (25%) or more of the Company's common stock
of any class or any securities convertible in such
common stock calculated as provided in paragraph (d)
of said Rule 13d-3;
iii. the receipt by the Company of a Schedule 13D or other
advice after the date of execution of this Agreement
indicating that Richard C. Blum & Associates, L.P.
96
<PAGE> 14
and/or its limited partnerships and investment
advisory clients, is the "beneficial owner" (as that
term is defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of thirty percent (30%) or more
of the Company's combined common stock including any
securities convertible into such common stock
calculated as provided in paragraph (d) of said Rule
13d-3;
iv. the date of approval by stockholders of the Company
of an agreement providing for any consolidation or
merger of the Company in which the Company will not
be the continuing or surviving corporation or
pursuant to which shares of capital stock, of any
class or any securities convertible into such capital
stock, of the Company would be converted into cash,
securities, or other property, other than a merger of
the Company in which the holders of common stock of
all classes of the Company immediately prior to the
merger would have the same proportion of ownership of
common stock of the surviving corporation immediately
after the merger;
v. the date of the approval by stockholders of the
Company of any sale, lease, exchange, or other
transfer (in one transaction or a series of related
transactions) of all or substantially all the assets
of the Company;
vi. the adoption of any plan or proposal for the
liquidation (but not a partial liquidation) or
dissolution of the Company; or
vii. such other event as the Compensation Committee of the
Board of Directors shall, in its sole and absolute
discretion, deem to be a "Change in Control."
c. The term "Special Stock Option" shall mean the option to
purchase all or a lesser number of Twenty Thousand (20,000)
Class A Common Shares of the Company in the event of
97
<PAGE> 15
the occurrence of a Change in Control prior to July 6, 1999
which was granted to the Executive pursuant to the Company's
Option Plan.
IN WITNESS WHEREOF, the Executive and the Company have executed this
Agreement as of the day and year first above written.
SCOTT TECHNOLOGIES, INC.
By: /s/
-----------------
Glen W. Lindemann
And: /s/
-----------------
Debra L. Kackley
/s/
-----------------
William J. Sickman
-----------------
98
<PAGE> 16
NON-COMPETITION AGREEMENT
In consideration of the promises and covenants of Scott Technologies,
Inc. (hereinafter called "Scott") contained in the Management Agreement between
the Executive and Scott including the possible payment of twenty-four (24)
months of Severance Pay to the Executive under certain circumstances, the
Executive hereby agrees that the Executive will not, for a period of two (2)
years after his termination of employment from Scott, directly or indirectly,
for himself or for others, in any state of the United States or in any foreign
country where Scott or any of its Affiliates (as defined below) is then
conducting business:
(1) engage, as an employee, partner, or sole proprietor, in
any business segment of any person or entity which
competes, directly or indirectly, with the product lines
of Scott or its Affiliates; or
(2) in connection with any product lines of Scott or its
Affiliates, render advice, consultation, or services to or
otherwise assist any other person or entity which
competes, directly or indirectly, with Scott or any of its
Affiliates with respect to such product lines.
For the purposes of this Agreement, the term "Affiliates" shall mean any entity
controlled by or under common control with Scott during the period the Executive
is employed by Scott or a division or subsidiary of Scott, including, but not
limited to, Scott divisions and subsidiaries.
In the event of a breach or threatened breach of any of the provisions
of this Agreement by the Executive, Scott will be entitled to preliminary and
permanent injunctive relief, without bond or security, sufficient to enforce the
provisions hereof and Scott will be entitled to pursue such other remedies at
law or in equity as it deems appropriate.
The Executive understands that the foregoing restrictions may limit his
ability to engage in certain business pursuits during the period provided for
above, but acknowledges that he will receive sufficiently higher Severance Pay
from Scott than he would otherwise receive to justify such restriction. The
Executive acknowledges that he understands the effect of the provisions of this
Agreement, that he has
99
<PAGE> 17
had reasonable time to consider the effect of these provisions, and that he was
encouraged to and had an opportunity to consult an attorney with respect to
these provisions. Scott and the Executive consider the restrictions contained in
this Agreement to be reasonable and necessary. Nevertheless, if any aspect of
these restrictions is found to be unreasonable or otherwise unenforceable by a
Court of competent jurisdiction, the parties intend for such restrictions to be
modified by such Court so as to be reasonable and enforceable and, as so
modified by the Court, to be fully enforced.
IN WITNESS WHEREOF, the Executive has executed this Agreement as of
this 25th day of August, 1998.
/s/
- ------------------------
Mark A. Kirk
100
<PAGE> 1
MATERIAL CONTRACTS
EXHIBIT 10.0 (VII)
AMENDMENT NO. 5
AMENDMENT NO. 5 (this "Amendment"), dated as of October 8, 1998, and effective
as of August 14, 1998 pursuant to Section 3 hereof, between General Electric
Capital Corporation (AGE Capital"), as lender ("Lender") and agent ("Agent")
under the Credit Agreement referred to below and Scott Technologies, Inc.,
formerly known as Figgie International, Inc. ("Borrower").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Borrower and GE Capital, as Lender and as Agent, have entered
into a Credit Agreement, dated as of December 19, 1995 (as heretofore amended,
the "Credit Agreement"; the terms defined in the Credit Agreement being used
herein as therein defined, unless otherwise defined herein); and
WHEREAS, Borrower, wishes to amend, Section 6.14 (Restricted Payments)
of the Credit Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereby agree as follows:
SECTION 1. Amendment to Credit Agreement.
-----------------------------
(a) AMENDMENT TO SECTION 6.14(b). Section 6.14(b) is hereby amended to
delete the reference to A$2,000,000" therein and to substitute in lieu thereof
the reference to A$15,000,000".
SECTION 2. REPRESENTATIONS AND WARRANTIES. Borrower represents and
warrants to Agent and Lenders as follows:
(a) All of the representations and warranties of Borrower contained in
the Credit Agreement and in the other Loan Documents are, after giving effect to
this Amendment, true and correct on the date hereof as though made on such date,
except to the extent that any such representation or warranty expressly relates
to an earlier date, for changes permitted or contemplated by the Credit
Agreement or as otherwise disclosed in writing to Agent and Lenders. No Default
or Event of Default has occurred and is continuing or would result from the
transactions contemplated hereby.
(b) The execution, delivery and performance by Borrower of this
Amendment have been duly authorized by all necessary or proper corporate action
and do not require the consent or approval of any Person which has not been
obtained.
(c) This Amendment has been duly executed and delivered by Borrower and
each of this Amendment and the Credit Agreement as amended hereby constitutes a
legal, valid and binding obligation of Borrower, enforceable against Borrower in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization and other laws of general applicability relating or affecting
creditors' rights and to general equity principles.
101
<PAGE> 2
SECTION 3. EFFECTIVENESS. This Amendment shall become effective as of
August 14, 1998, provided that each of the following conditions has been
satisfied on the date hereof, including the delivery to Agent of each of the
documents set forth below in form and substance satisfactory to Agent:
(a) Counterparts of this Agreement duly executed by Borrower, each
Lender and Agent.
(b) All of the representations and warranties of Borrower contained in
Section 2 hereof shall be true and correct.
SECTION 4. GOVERNING LAW. This Amendment shall be governed by,
construed and enforced in accordance with the laws of the State of New York,
without regard to conflict of laws principles thereof.
SECTION 5. COUNTERPARTS. This Amendment may be executed in any number
of counterparts, which shall, collectively and separately, constitute one
agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed as of the date first above written.
SCOTT TECHNOLOGIES, INC.
(formerly known as FIGGIE
INTERNATIONAL, INC.)
By: /s/
--------------------------
Name: Douglas A. Dimond
Title: Assistant Treasurer
GENERAL ELECTRIC CAPITAL CORPORATION,
as Agent and Lender
By: /s/
--------------------------
Name: Charles D. Chiodo
Title: Senior Vice President
GE Capital Commercial Finance,Inc.
Being duly authorized
102
<PAGE> 1
MATERIAL CONTRACTS
EXHIBIT 10.0 (VIII)
AMENDMENT NO. 6
AMENDMENT NO. 6 (this "Amendment"), dated as of October 21, 1998, and effective
as of September 30, 1998 pursuant to Section 3 hereof, between General Electric
Capital Corporation (AGE Capital"), as lender ("Lender") and agent ("Agent")
under the Credit Agreement referred to below and Scott Technologies, Inc.,
formerly known as Figgie International, Inc. ("Borrower").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Borrower and GE Capital, as Lender and as Agent, have entered
into a Credit Agreement, dated as of December 19, 1995 (as heretofore amended,
the "Credit Agreement"; the terms defined in the Credit Agreement being used
herein as therein defined, unless otherwise defined herein); and
WHEREAS, Borrower, wishes to amend, Schedule 6.8 of the Credit
Agreement;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereby agree as follows:
SECTION 1. Amendment to Credit Agreement.
-----------------------------
AMENDMENT TO SCHEDULE 6.8. The first page of Schedule 6.8 is hereby
deleted in its entirety and a new first page attached hereto as Exhibit
A is substituted therefor.
SECTION 2. REPRESENTATIONS AND WARRANTIES. Borrower represents and
warrants to Agent and Lenders as follows:
(a) All of the representations and warranties of Borrower contained in
the Credit Agreement and in the other Loan Documents are, after giving effect to
this Amendment, true and correct on the date hereof as though made on such date,
except to the extent that any such representation or warranty expressly relates
to an earlier date, for changes permitted or contemplated by the Credit
Agreement or as otherwise disclosed in writing to Agent and Lenders. No Default
or Event of Default has occurred and is continuing or would result from the
transactions contemplated hereby.
(b) The execution, delivery and performance by Borrower of this
Amendment have been duly authorized by all necessary or proper corporate action
and do not require the consent or approval of any Person which has not been
obtained.
(c) This Amendment has been duly executed and delivered by Borrower and
each of this Amendment and the Credit Agreement as amended hereby constitutes a
legal, valid and binding obligation of Borrower, enforceable against Borrower in
accordance with its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization and other laws of general applicability relating or affecting
creditors' rights and to general equity principles.
103
<PAGE> 2
SECTION 3. EFFECTIVENESS. This Amendment shall become effective as of
September 30, 1998, provided that each of the following conditions has been
satisfied on the date hereof, including the delivery to Agent of each of the
documents set forth below in form and substance satisfactory to Agent:
(a) Counterparts of this Agreement duly executed by Borrower, each
Lender and Agent.
(b) All of the representations and warranties of Borrower contained in
Section 2 hereof shall be true and correct.
SECTION 4. GOVERNING LAW. This Amendment shall be governed by,
construed and enforced in accordance with the laws of the State of New York,
without regard to conflict of laws principles thereof.
SECTION 5. COUNTERPARTS. This Amendment may be executed in any number
of counterparts, which shall, collectively and separately, constitute one
agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed as of the date first above written.
SCOTT TECHNOLOGIES, INC.
(formerly known as FIGGIE INTERNATIONAL,
INC.)
By: /s/
--------------------------
Name: Douglas A. Dimond
Title: Assistant Treasurer
GENERAL ELECTRIC CAPITAL CORPORATION,
as Agent and Lender
By: /s/
--------------------------
Name: Charles D. Chiodo
Title: Senior Vice President
GE Capital Commercial Finance, Inc.
Being duly authorized
104
<PAGE> 3
Exhibit A
SCHEDULE 6.8
------------
SALE OF ASSETS
--------------
The following business units have been classified as discontinued operations and
are to be divested:
-All assets and liabilities which comprise or are used in the business
of Hartman Electrical Systems, a division of Figgie International Inc.
-All assets and liabilities which comprise or are used in the business
of Interstate Engineering, a division of Figgie International.
-All assets and liabilities which comprise or are used in the business
of Figgie Natural Resources, a division of Figgie International Inc.
-All assets and liabilities which comprise or are used in the business
of Interstate Electronics Inc., a subsidiary of Figgie International
Inc.
The excess or idle real property which is described on Exhibit 1, as attached
hereto.
The excess or idle equipment which is described on Exhibit 2, as attached
hereto. All net proceeds from the winding up of the affairs of business units
which had previously been substantially divested and discontinued. [See Exhibit
3]
105
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 31,359
<SECURITIES> 0
<RECEIVABLES> 16,182
<ALLOWANCES> 242
<INVENTORY> 23,205
<CURRENT-ASSETS> 113,928
<PP&E> 73,054
<DEPRECIATION> 16,755
<TOTAL-ASSETS> 251,622
<CURRENT-LIABILITIES> 45,971
<BONDS> 98,202
0
0
<COMMON> 1,855
<OTHER-SE> 54,957
<TOTAL-LIABILITY-AND-EQUITY> 251,622
<SALES> 135,375
<TOTAL-REVENUES> 135,375
<CGS> 91,159
<TOTAL-COSTS> 112,436
<OTHER-EXPENSES> 2,555
<LOSS-PROVISION> 50
<INTEREST-EXPENSE> 7,002
<INCOME-PRETAX> 13,382
<INCOME-TAX> 5,386
<INCOME-CONTINUING> 7,996
<DISCONTINUED> (12,852)
<EXTRAORDINARY> (1,689)
<CHANGES> 0
<NET-INCOME> (6,545)
<EPS-PRIMARY> (0.36)
<EPS-DILUTED> (0.35)
</TABLE>
