<PAGE> 1
SCHEDULE 14A
(RULE 14a)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
SCOTT TECHNOLOGIES, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
SAME
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3). |_| Fee computed on table below per Exchange Act Rules
14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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SCOTT TECHNOLOGIES, INC.
5875 LANDERBROOK DRIVE, SUITE 250
MAYFIELD HEIGHTS, OHIO 44124
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 15, 1998
To the Stockholders of Scott Technologies, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of the holders of Class A
Common Stock, par value $.10 per share (the "Class A Common Stock"), and the
holders of Class B Common Stock, par value $.10 per share (the "Class B Common
Stock"), of Scott Technologies, Inc. (the "Corporation") will be held at the
Corporation's executive offices at 5875 Landerbrook Drive, Mayfield Heights,
Ohio, on December 15, 1998, at 1:00 p.m. local time, to consider and approve the
following proposals (each, a "Proposal"):
1. to amend Article Fourth of the Corporation's Amended and Restated
Certificate of Incorporation (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," 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 (such
actions hereinafter sometimes referred to as the "Restructuring Plan"),
and to restate the Charter to reflect the foregoing amendments;
2. to amend Article Sixth of the Charter (the "Substantial Stockholder
Provision") to eliminate the voting limitations imposed generally upon
any stockholder who beneficially owns more than 20% of the outstanding
voting shares of any class of stock (a "Substantial Stockholder") and
make certain conforming changes, and to restate the Charter to reflect
the foregoing amendments;
3. to amend Section 2 of Article 2 of the Corporation's Amended and
Restated Bylaws (the "Bylaws") to lengthen the notice period before a
stockholders' meeting for the nomination of directors by stockholders;
4. to amend Article Fourth of the Charter to eliminate certain
unnecessary provisions regarding previously outstanding shares of
preference stock and the terms of convertible and redeemable stock, and
to restate the Charter to reflect the foregoing amendments; and
5. to amend the Scott Technologies, Inc. Key Employees' Stock Option
Plan (the "Option Plan") to increase the number of shares authorized
for issuance under the Option Plan from 1,500,000 shares to 3,000,000
shares and to revise certain other provisions of the Option Plan.
The complete text of the Charter, restated to reflect the amendments to be
adopted pursuant to the Charter amendment Proposals, is set forth in Appendix A
to the accompanying Proxy Statement. The complete text of Section 2(c) of
Article 2 of the Bylaws, reflecting the amendment to be adopted pursuant to the
Bylaws amendment Proposal, is set forth in Appendix B to the accompanying Proxy
Statement.
<PAGE> 3
Holders of shares of Class A Common Stock and holders of shares of
Class B Common Stock of record at the close of business on October 30, 1998 (the
"Record Date") are entitled to notice of and to vote at the Special Meeting and
any adjournment thereof.
Approval of Proposal 1 (the Restructuring Plan) requires the
affirmative vote of a majority of the votes of the holders of the outstanding
shares of Class A Common Stock and Class B Common Stock, voting together as a
single class, and the affirmative vote of a majority of the holders of the
outstanding shares of Class A Common Stock and the holders of the outstanding
shares of Class B Common Stock, each voting as a separate class. Approval of
each of Proposals 2 (elimination of the Substantial Stockholder Provision) and 4
(elimination of unnecessary provisions regarding preference, convertible and
redeemable stock) requires the affirmative vote of a majority of the votes of
the holders of the outstanding shares of Class A Common Stock and Class B Common
Stock, voting together as a single class. Approval of each of Proposals 3
(lengthening of the notice period for stockholder nomination of directors in the
Bylaws) and 5 (amendments of the Option Plan) requires the affirmative vote of a
majority of the votes of the holders of the shares of Class A Common Stock and
Class B Common Stock, present in person or represented by proxy at the Special
Meeting, voting together as a single class. THE ADOPTION OF PROPOSAL 2
(ELIMINATION OF THE SUBSTANTIAL STOCKHOLDER PROVISION) IS CONDITIONAL UPON THE
ADOPTION OF PROPOSAL 1 (THE RESTRUCTURING PLAN). ACCORDINGLY, IF THE
STOCKHOLDERS DO NOT APPROVE PROPOSAL 1, THE SUBSTANTIAL STOCKHOLDER PROVISION
WILL NOT BE ELIMINATED, EVEN IF THE STOCKHOLDERS VOTE IN FAVOR OF PROPOSAL 2.
The Board of Directors (the "Board") has unanimously approved the
Proposals (except that N. Colin Lind recused himself from Board action on
Proposal 2 because he serves on the Board as the designee of Richard C. Blum &
Associates, L.P., a Substantial Stockholder as defined in the Substantial
Stockholder Provision). The Board urges you to vote your shares FOR each of the
Proposals, regardless of the number of shares you hold. Richard C. Blum &
Associates, L.P., which can vote 8.9% of the shares of Class A Common Stock and
23.7% of the shares of Class B Common Stock as of the Record Date, has indicated
that it intends to vote in favor of all of the Proposals.
By Order of the Board of Directors
Glen W. Lindemann
President and Chief Executive Officer
Mayfield Heights, Ohio
November 10, 1998
YOUR VOTE IS IMPORTANT. A FAILURE TO VOTE WILL HAVE THE EFFECT OF A VOTE AGAINST
PROPOSALS 1, 2 AND 4. PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND
PROMPTLY RETURN IT IN THE ENCLOSED ENVELOPE. THE GIVING OF SUCH PROXY DOES NOT
AFFECT YOUR RIGHT TO REVOKE IT LATER OR TO VOTE YOUR SHARES IN PERSON IN THE
EVENT YOU ATTEND THE MEETING.
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SCOTT TECHNOLOGIES, INC.
5875 LANDERBROOK DRIVE, SUITE 250
MAYFIELD HEIGHTS, OHIO 44124
PROXY STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 15, 1998
MAILED ON NOVEMBER 10, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
VOTING RIGHTS............................................................................................2
BACKGROUND AND SUMMARY OF PROPOSALS TO AMEND THE CHARTER TO
ELIMINATE THE CORPORATION'S DUAL CLASS CAPITAL STRUCTURE
AND THE SUBSTANTIAL STOCKHOLDER PROVISION.......................................................4
The Restructuring Plan..........................................................................5
The Substantial Stockholder Provision...........................................................7
The Stockholders' Rights Plan...................................................................8
Summary of Anti-Takeover Provisions That Will Remain in the Charter and Bylaws.................10
PROPOSAL 1 -- PROPOSAL TO ADOPT THE RESTRUCTURING PLAN.................................................13
Description of the Restructuring Plan..........................................................13
Comparison of Capital Stock Before and After the Restructuring Plan Is Effective...............14
Ownership of Certain Beneficial Owners of Common Stock Before and After the
Restructuring Plan Is Effective............................................................14
Reasons for and Advantages and Possible Disadvantages of the Restructuring Plan................18
Impact of the Restructuring Plan on the Nasdaq Listing and the Corporation's
Operations and Capitalization..............................................................19
Federal Income Tax Consequences................................................................20
Investment Banker's Opinion....................................................................21
Surrender of Stock Certificates Not Required...................................................23
PROPOSAL 2 -- PROPOSAL TO ELIMINATE THE
SUBSTANTIAL STOCKHOLDER PROVISION.........................................................23
PROPOSAL 3 -- PROPOSAL TO LENGTHEN THE ADVANCE NOTICE PERIOD
FOR THE NOMINATION OF DIRECTORS BY STOCKHOLDERS...........................................26
PROPOSAL 4 -- PROPOSAL TO ELIMINATE CERTAIN UNNECESSARY
PREFERENCE, CONVERTIBLE AND REDEEMABLE STOCK PROVISIONS...................................27
PROPOSAL 5 -- PROPOSAL TO AMEND THE SCOTT TECHNOLOGIES, INC.
KEY EMPLOYEES' STOCK OPTION PLAN..........................................................28
The Proposed Amendments........................................................................28
Summary of the Option Plan.....................................................................29
</TABLE>
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<TABLE>
<S> <C>
EXECUTIVE AND DIRECTOR COMPENSATION.....................................................................35
Executive Compensation.........................................................................35
Compensation of Directors......................................................................37
Retirement Plans...............................................................................38
Employment and Severance Agreements............................................................40
RECENT DEVELOPMENTS.....................................................................................44
CERTAIN DEADLINES FOR 1999 ANNUAL MEETING...............................................................45
OTHER MATTERS...........................................................................................45
APPENDICES
Appendix A: Amended and Restated Certificate of Incorporation (marked to show changes)
Appendix B: Amended and Restated Article 2 of the Bylaws (marked to show changes)
Appendix C: Summary of the Rights Plan
Appendix D: Investment Banker's Opinion
Appendix E: Amended and Restated Scott Technologies, Inc. Key Employees' Stock Option Plan
(marked to show changes)
</TABLE>
ii
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SCOTT TECHNOLOGIES, INC.
5875 LANDERBROOK DRIVE, SUITE 250
MAYFIELD HEIGHTS, OHIO 44124
PROXY STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 15, 1998
MAILED ON NOVEMBER 10, 1998
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Scott Technologies, Inc. (the
"Corporation") to be used at a Special Meeting of the holders of shares of Class
A Common Stock, par value $.10 per share (the "Class A Common Stock"), and the
holders of shares of Class B Common Stock, par value $.10 per share (the "Class
B Common Stock"), of the Corporation to be held on December 15, 1998 and any
adjournment thereof. The time and place of the Special Meeting are stated in the
Notice of Special Meeting of Stockholders which accompanies this Proxy
Statement. The purpose of the Special Meeting is to consider and approve five
proposals (each, sometimes hereinafter referred to as "Proposal") which provide
for certain amendments to the Corporation's Amended and Restated Certificate of
Incorporation (the "Charter"), the Corporation's Amended and Restated Bylaws
(the "Bylaws") and the Corporation's Key Employee Stock Option Plan (the "Option
Plan").
The Board of Directors (the "Board") has fixed the close of business on
October 30, 1998 as the record date (the "Record Date") for determining the
stockholders of the Corporation entitled to notice of and to vote at the Special
Meeting and any adjournment thereof.
The expense of soliciting proxy/voting instruction cards ("proxies"),
including the costs of preparing, assembling and mailing the Notice, Proxy
Statement and proxy, will be borne by the Corporation. In addition to the use of
the mail, proxies may be solicited personally or by telephone, facsimile or
telegraph. The Corporation may pay persons holding shares for others their
expenses in sending the proxy material to their principals, and solicitation of
proxies may also be made on behalf of the Board by Morrow & Company for a fee of
$7,500 plus reasonable expenses.
The Proposals to be considered at the Special Meeting are the
following:
Proposal 1 -- the amendment of 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,"
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 (such actions hereinafter sometimes referred to as the
"Restructuring Plan"), and to restate the Charter to reflect the foregoing
amendments;
Proposal 2 -- the amendment of Article Sixth of the Charter (the
"Substantial Stockholder Provision") to eliminate the voting limitations imposed
generally upon any stockholder who beneficially owns more than 20% of the
outstanding voting shares of any class of stock (a "Substantial Stockholder")
and make certain conforming changes, and to restate the Charter to reflect the
foregoing amendments;
Proposal 3 -- the amendment of Section 2 of Article 2 of the Bylaws to
lengthen the notice period before a stockholders' meeting for the nomination of
directors by stockholders;
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Proposal 4 -- the amendment of Article Fourth of the Charter to
eliminate certain unnecessary provisions regarding previously outstanding shares
of preference stock and the terms of convertible and redeemable stock, and to
restate the Charter to reflect the foregoing amendments; and
Proposal 5 -- the amendment of the Option Plan to increase the number
of shares authorized for issuance under the Option Plan from 1,500,000 shares to
3,000,000 shares and to revise certain other provisions of the Option Plan.
If any other matters properly come before the Special Meeting or any
adjournment thereof, the proxies will be voted on such matters in the discretion
of the proxy holders. The Delaware General Corporation Law (the "DGCL") provides
that, unless otherwise stated in the proxy and unless the proxy is coupled with
an interest, a stockholder may revoke a proxy previously given at any time prior
to its exercise. A stockholder who has given a proxy may revoke it at any time
before it is voted by delivering to any of the persons named as proxies, or to
the Corporation addressed to the Secretary, an instrument revoking the proxy, by
appearing at the Special Meeting and voting in person, or by executing a
later-dated proxy which is timely delivered before or at the Special Meeting.
VOTING RIGHTS
Only stockholders as of the Record Date are entitled to notice of and
to vote at the Special Meeting. The proxy will also serve to instruct the
trustees of the Scott Technologies, Inc. Stock Ownership Trust and Plan (the
"ESOP"), the Scott Technologies, Inc. 401(k) Savings Plan for Salaried
Employees, the Scott Technologies, Inc. 401(k) Savings Plan for Hourly Employees
and the Scott Technologies, Inc. 401(k) Savings Plan for Bargaining Unit
Employees on how to vote any shares of the Corporation's common stock held by
the plans. The number of shares printed on the proxy accompanying this Proxy
Statement includes, when applicable, shares allocated to the participant in any
such plan.
As of the Record Date, the Corporation had outstanding 13,321,065
shares of Class A Common Stock and 4,549,822 shares of Class B Common Stock.
Except as discussed below, on each matter to be presented, the holders of issued
and outstanding shares of Class A Common Stock are entitled to 1/20 of one vote
for each share held by them. Except as discussed below, on each matter to be
presented, the holders of issued and out standing shares of Class B Common Stock
are entitled to one vote for each share held by them.
Section (c)(1) of Article Sixth of the Charter, the Substantial
Stockholder Provision, places limitations on the ability of a person coming
within the definition of a Substantial Stockholder (other than any employee
stock ownership or similar plan of the Corporation or a trustee with respect
thereto) to vote shares of the Corporation's voting stock beneficially owned by
that person. A Substantial Stockholder is defined as any beneficial owner of
more than a "threshold percentage" -- generally 20% -- of the outstanding shares
of any class of voting stock of the Corporation. If a stockholder's percentage
of shares of a class of voting stock of the Corporation increases above the
threshold applicable to it as a result of purchases, redemptions or other
acquisitions of shares of the class by the Corporation or decreases below the
threshold applicable to it as a result of an issuance of shares of a class by
the Corporation or a reduction in beneficial ownership by the stockholder, then
the stockholder's threshold percentage is adjusted to equal the percentage of
outstanding shares of the class held immediately after such event, but never
below 20%. A Substantial Stockholder is entitled to 1/20 of one vote for each
share of Class A Common Stock beneficially owned and one vote for each share of
Class B Common Stock beneficially owned up to the Substantial Stockholder's
threshold percentage of each class, and 1/100 of such vote for each share
beneficially owned in excess of such threshold percentage
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for each class. Thus, a Substantial Stockholder beneficially owning shares in
excess of the applicable threshold percentage would be entitled to 1/2000 of one
vote for each such share of Class A Common Stock and 1/100 of one vote for each
such share of Class B Common Stock. In addition, a Substantial Stockholder may
exercise a maximum percentage of the voting power of each class equal to his
threshold percentage for that class plus 5%. The excess shares beneficially
owned above the threshold percentage plus 5% cannot be voted by the Substantial
Stockholder. The aggregate voting power of a Substantial Stockholder, so
limited, is allocated proportionately among the record holders of the shares
beneficially owned by the Substantial Stockholder.
As of the Record Date, Richard C. Blum & Associates, L.P. ("Blum L.P.")
and the members of the group reporting on Schedule 13D with Blum L.P.
(collectively referred to herein as "Blum") were a Substantial Stockholder as a
result of their beneficial ownership of shares of Class B Common Stock in excess
of the applicable threshold percentage, 20.7% as of the Record Date. As of the
Record Date, Blum beneficially owned 1,503,333 shares of Class B Common Stock.
N. Colin Lind, a managing director of Blum L.P., serves on the Board as a
designee of Blum L.P. The Corporation expects to enter into an agreement with
Blum L.P. relating to Mr. Lind or, if he is not available, Jeffrey W. Ubben,
another managing director of Blum L.P., serving as a director on the Board for
as long as Blum beneficially owns a specified percentage of the Corporation's
voting power.
As a result of the application of the Substantial Stockholder
Provision, Blum is entitled to vote at the Special Meeting 947,934 shares of
Class B Common Stock, or 23.7% of the Class B Common Stock, rather than the
1,503,333 shares of Class B Common Stock, or 33.0% of the Class B Common Stock,
that Blum beneficially owned as of the Record Date. Each record holder of
shares beneficially owned by Blum will be entitled to a proportionate number of
votes equal to the number of shares held of record by such person multiplied by
a fraction, the numerator of which is 947,934 and the denominator of which is
1,503,333.
Blum's reduced voting power reduces the aggregate number of votes that
the holders of outstanding shares of Class B Common Stock may vote as of the
Record Date from 4,549,822 votes, if there were no Substantial Stockholder, to
3,994,423 votes. As of the Record Date, an aggregate of 666,053 votes are
entitled to be cast by the holders of shares of Class A Common Stock. The total
number of votes of both classes of the Corporation's stock entitled to be cast
as of the Record Date is 4,660,476.
The holders of a majority of the votes entitled to be cast as of the
Record Date must be present in person or represented by proxy in order to
constitute a quorum for the holding of the Special Meeting. In addition, a
majority of the holders of the outstanding shares of each of Class A Common
Stock and Class B Common Stock must be present in person or represented by proxy
as of the Record Date with respect to Proposal 1 (the Restructuring Plan) to
constitute a quorum entitled to vote on that Proposal. Approval of Proposal 1
(the Restructuring Plan) requires the affirmative vote of a majority of the
votes of the holders of the outstanding shares of Class A Common Stock and Class
B Common Stock, voting together as a single class, and the holders of the
outstanding shares of Class A Common Stock and the holders of the outstanding
shares of Class B Common Stock, each voting as a separate class. The affirmative
vote of a majority of the votes of the holders of the outstanding shares of
Class A Common Stock and Class B Common Stock, voting together as a single
class, is required for the approval of Proposal 2 (elimination of the
Substantial Stockholder Provision) and Proposal 4 (elimination of unnecessary
provisions regarding preference, convertible and redeemable stock). The adoption
of Proposal 2 is conditional upon the approval of Proposal 1. Accordingly, if
the stockholders do not approve Proposal 1, the Substantial Stockholder
Provision will not be eliminated, even if the stockholders vote in favor of
Proposal 2. The affirmative vote of a majority of the votes of the holders of
Class A Common Stock and Class B Common Stock, present in person or represented
by proxy, voting
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together as a single class, is required for the approval of Proposal 3
(lengthening of the notice period for stockholder nomination of directors in the
Bylaws) and Proposal 5 (amendments to the Option Plan).
No appraisal or dissenters' rights are available under the DGCL or the
Charter to stockholders who vote against the amendments to the Charter because
these amendments were approved by the affirmative vote of two-thirds of the
Board, and all of the members of the Board acting on the amendments were then
and are now continuing directors. A "continuing director" is a person who was a
director on July 18, 1983 or who was thereafter elected by the stockholders or
appointed by the Board prior to the date a person became a Substantial
Stockholder, or who was designated before his initial election or appointment as
a director as a continuing director by a majority of the whole Board, provided a
majority of the whole Board consisted of continuing directors, or by a majority
of the continuing directors, if a majority of the whole Board did not consist of
continuing directors.
Shares entitled to vote represented by proxies which are properly
executed and returned before the Special Meeting will be voted at the Special
Meeting as directed therein. If no vote is specified therein, the shares will be
voted "FOR" the adoption of each of the Proposals. Shares represented by proxies
which are marked "ABSTAIN" will be considered to be in person or represented by
proxy at the Special Meeting for quorum purposes and, accordingly, will have the
effect of a negative vote because approval of the Proposals requires the
affirmative vote of either a majority of the votes of the holders of outstanding
shares or a majority of the votes of the holders present in person or
represented by proxies. In addition, where brokers are prohibited from
exercising discretionary authority for beneficial owners who have not provided
voting instructions (commonly referred to as "broker non-votes"), those shares
will have the effect of a vote "AGAINST" Proposals 1, 2 and 4, each of which
requires the affirmative vote of a majority of the votes of the holders of the
outstanding shares of Class A Common Stock and Class B Common Stock, but will
have no effect on the outcome of Proposals 3 and 5.
BACKGROUND AND SUMMARY OF PROPOSALS TO AMEND THE CHARTER
TO ELIMINATE THE CORPORATION'S DUAL CLASS CAPITAL STRUCTURE AND
THE SUBSTANTIAL STOCKHOLDER PROVISION
In 1983, the Corporation reorganized from an Ohio company into a
Delaware company. In connection with that reorganization, the Corporation's
stockholders approved the Charter, containing several differences from the
Corporation's old Ohio certificate of incorporation, including the provisions of
Article Fourth, which provides for two classes of common stock (the "dual class
capital structure"), and Article Sixth, which, among other things, restrict the
voting power of a Substantial Stockholder.
At that time, the Corporation was controlled by its founder and
then-Chairman of the Board of Directors, President and Chief Executive Officer,
Harry E. Figgie, Jr. As explained in the 1983 proxy statement, the dual class
capital structure with disparate voting rights was designed to enable the
directors and officers of the Corporation and Harry E. Figgie, Jr., his family
and affiliates, through their ownership of the higher voting stock (the Class B
Common Stock), to maintain sufficient voting power to elect all of the directors
of the Corporation, cause the Corporation to merge or prevent it from being
acquired, and cause or prevent other significant actions. The terms of the Class
A Common Stock were designed to make such shares an attractive financial
investment that could be used by the Corporation to raise capital in the public
markets or as consideration for acquisitions of businesses or assets, without
significantly reducing the voting power of the holders of Class B Common Stock,
including Mr. Figgie.
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<PAGE> 10
In May 1994, Mr. Figgie retired from the Corporation, and since then he
has not been an officer or a director of the Corporation. In May 1998, Mr.
Figgie and the members of his family sold their shares of Class A Common Stock
and Class B Common Stock to Blum. Also in May 1998, the Board appointed N. Colin
Lind as a director of the Corporation. Mr. Lind is the designee of Blum L.P.
The Board has evaluated the Charter and Bylaws in light of the
Corporation's current ownership structure and the current practices of other
publicly-held companies. Based upon this evaluation, the Board unanimously
determined that it is in the best interests of the Corporation's stockholders to
eliminate the dual class capital structure, eliminate the Substantial
Stockholder Provision and approve the other Proposals described in this Proxy
Statement. (N. Colin Lind recused himself from Board action on the Substantial
Stockholder Provision because he is the Board designee of Blum L.P., a
Substantial Stockholder of the Corporation.) In conjunction with consideration
of these matters, the Board also considered and conditionally approved a Stock-
holders' Rights Plan (the "Rights Plan"). Final adoption by the Board of the
Rights Plan is conditional upon stockholder approval of the Restructuring Plan
and the elimination of the Substantial Stockholder Provision.
This Proxy Statement describes the provisions of the Charter and Bylaws
that the Board is proposing to amend and the anti-takeover provisions that the
Board has determined to retain. The proposed amendments to the Charter are
reflected in the text of the Charter that is set forth in Appendix A to this
Proxy Statement (the "Restated Charter"). The proposed amendments to Article 2
of the Bylaws are reflected in the text of Article 2 of the Bylaws that is set
forth in Appendix B hereto. A summary of the Rights Plan is set forth in
Appendix C hereto.
THE RESTRUCTURING PLAN
The Restructuring Plan will eliminate the Corporation's dual class
capital structure through the amendment of the Charter to provide for one class
of common stock designated as "Common Stock," par value $.10 per share (the New
Common Stock), and the reclassification and conversion of each outstanding share
and each share held in treasury of Class A Common Stock and each outstanding
share and each share held in treasury of Class B Common Stock as and into one
share of New Common Stock. The conversion ratio of one share of New Common Stock
for one share of Class B Common Stock will decrease the relative voting power of
the holders of Class B Common Stock, but will provide the holders of Class B
Common Stock with a premium of 3.1% over the average market price of a share of
Class B Common Stock over the last five years, based upon the average market
price of a share of Class A Common Stock over the last five years.
Implementation of the Restructuring Plan will increase the voting power of the
holders of Class A Common Stock.
Article Fourth of the Charter authorizes the issuance of two classes of
common stock, identified as Special Common Stock or Class A Common Stock and
Common Stock or Class B Common Stock, having the following terms:
Dividend Rights. Cash dividends on shares of Class A Common Stock must
be declared and paid at the same time as cash dividends are declared
and paid on shares of Class B Common Stock and must be paid in an
amount per share at least equal to the amount of the dividend per share
declared and paid on shares of Class B Common Stock.
Voting Rights. Holders of shares of Class A Common Stock have 1/20 of
one vote for each share, and holders of shares of Class B Common Stock
have one vote for each share. The holders of shares of
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Class A Common Stock and Class B Common Stock vote together as a single
class on the election of directors and for all other purposes except as
otherwise provided by the DGCL.
Rights Upon Liquidation. The rights of the holders of shares of Class A
Common Stock and of Class B Common Stock are the same in the event of
the liquidation, dissolution or winding up of the Corporation.
All other rights, powers and limitations with respect to the shares of Class A
Common Stock and Class B Common Stock are the same.
In October 1996, the Board considered the possibility of eliminating
the Corporation's dual class capital structure. Several of the Corporation's
major holders of Class B Common Stock had expressed significant support for a
single class capital structure, but others observed that such a restructuring
should be implemented only as part of the Corporation's overall reassessment of
its corporate strategy. In October 1996, the Board considered several
alternative methods for establishing a single class capital structure: an
amendment to the Charter to provide conversion rights to holders of Class B
Common Stock; an offer to exchange shares of Class B Common Stock for shares of
Class A Common Stock; and a restructuring through a Charter amendment that would
result in one new class of common stock. It decided not to make any changes in
its capital structure at that time, however, because of its ongoing reassessment
of the Corporation's corporate strategy.
At a meeting in May 1998, the Board concluded that it was an
appropriate time to re-evaluate a simplification of the Corporation's dual class
capital structure. The Corporation had completed an evaluation of strategic
options, determined that the Corporation and its stockholders would be best
served by the implementation of a growth strategy as an independent company and
obtained stockholder approval of the change in the Corporation's name from
Figgie International Inc. to Scott Technologies, Inc., in view of the
Corporation's strategic focus to rebuild the Corporation's business around its
Scott Aviation division. (Consistent with this strategy, the Corporation
announced on October 22, 1998 that it intends to divest its subsidiary,
Interstate Electronics Corporation.) The Board, therefore, authorized management
to retain an investment banking firm to study the elimination of the dual class
capital structure.
In July 1998, the Board reviewed the three alternative methods for
establishing a single class capital structure considered by the Board in October
1996. In addition, the Board asked management to study and report on other
possible amendments to the Corporation's anti-takeover protections contained in
the Charter and Bylaws. On July 23, 1998, the Corporation issued a press release
announcing that the Corporation had retained the investment banking firm of Duff
& Phelps, LLC ("Duff & Phelps") to assist in the examination of a possible
restructuring and, if the Board decided to proceed with a restructuring plan, to
provide a fairness opinion as to the fairness of the transaction, from a
financial standpoint, to the holders of Class A Common Stock and the holders of
Class B Common Stock.
Since that time, Duff & Phelps has studied the benefits and drawbacks
of eliminating the Corporation's dual class capital structure and made
recommendations as to an appropriate range for a conversion ratio of the Class A
Common Stock and the Class B Common Stock into a new class of common stock. In
addition, the Corporation has prepared an analysis of the impact of a single
class capital structure on the Corporation's anti-takeover protection, and
provided an analysis of other Charter or Bylaws amendments or other actions that
the Board could consider in updating the Corporation's anti-takeover strategy.
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On September 8, 1998, the Board discussed the anti-takeover provisions
of the Charter and Bylaws and determined that the elimination of the
Corporation's dual class capital structure would not adversely affect the
Corporation's anti-takeover protection. In addition, it considered the
elimination of the Substantial Stockholder Provision, the adoption of a
stockholders' rights plan and the continued appropriateness of the other
anti-takeover provisions of the Charter and Bylaws. The Board determined that it
would not propose to eliminate any of the other anti-takeover provisions because
of the supermajority vote required for their amendment, the Board's ability to
waive the provisions, or the continued appropriateness of the provisions.
On September 23, 1998, the Board considered and unanimously approved
all of the Proposals now being presented for stockholder approval (except that
N. Colin Lind recused himself from the Board action on Proposal 2 because he is
the Board designee of Blum L.P., a Substantial Stockholder). Representatives of
Duff & Phelps formally presented their analyses on the change to one class of
common stock. (For a discussion of Duff & Phelps' analyses, see "Investment
Banker's Opinion" under the heading, "PROPOSAL 1 -- PROPOSAL TO ADOPT THE
RESTRUCTURING PLAN.") In addition, the Board considered and condition ally
approved the Rights Plan.
The Board took into account Duff & Phelps' presentation in determining
to adopt the Restructuring Plan. The Restructuring Plan provides for 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. Duff &
Phelps orally advised the Board at the September 23 meeting that the one-for-one
conversion ratio would be fair to both the holders of Class A Common Stock and
the holders of Class B Common Stock, from a financial standpoint, and agreed to
deliver to the Board their written opinion to that effect dated as of the date
of this Proxy Statement. Duff & Phelps' written opinion is set forth in Appendix
D hereto.
The Board is not proposing the Restructuring Plan in response to any
actual or potential takeover offer with respect to the Corporation. The Board
does not know of any such takeover offer.
THE SUBSTANTIAL STOCKHOLDER PROVISION
Article Sixth of the Charter limits the voting rights of a Substantial
Stockholder to its threshold percentage, generally 20%, plus a specified
additional amount. The Substantial Stockholder Provision, like the Corporation's
dual class capital structure, was adopted in 1983 at a time when the Figgie
family controlled the Corporation. The Corporation explained in the 1983 proxy
statement that the purpose of the Substantial Stockholder Provision was "to
complete the protections for the corporation and its stockholders by ensuring
that, even if the acquiror does not intend a second-stage transaction with the
corporation, the acquiror will not be in a position to take control of the
corporation since its voting power, except in certain circumstances, will be
limited to 15% of the total voting power of a particular class regardless of the
number of shares which it owns." (As originally adopted, the Substantial
Stockholder Provision generally limited the voting rights of holders of 10% of a
class of common stock and provided that the Substantial Stockholder could not
cast more than 15% of the votes of the class. The 10% threshold percentage was
increased to the current 20%, with a maximum vote of 25%, in 1992. )
The Board recommends eliminating the Substantial Stockholder Provision.
Although the Substantial Stockholder Provision is an extremely effective
anti-takeover provision, and the DGCL has no provision that is comparable to it,
it is the Board's view that the Substantial Stockholder Provision was more
appropriate for the Corporation when the Corporation was a family-controlled
business. The Board believes that, under the present circumstances, a more
appropriate mechanism for preserving its role in considering and acting upon any
proposed change in control is the Rights Plan, as discussed below.
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The elimination of the Substantial Stockholder Provision is conditioned
upon the approval of the Restructuring Plan. Accordingly, if the stockholders do
not approve the Restructuring Plan, the Substantial Stockholder Provision will
not be eliminated, even if the stockholders vote in favor of eliminating the
Substantial Stockholder Provision.
THE STOCKHOLDERS' RIGHTS PLAN
In conjunction with its consideration of the Restructuring Plan
(Proposal 1) and the elimination of the Substantial Stockholder Provision
(Proposal 2) at its September 23, 1998 meeting, the Board considered and
conditionally approved the Rights Plan. The Board's final approval of the Rights
Plan, however, is contingent upon the stockholders' approval of the
Restructuring Plan and the elimination of the Substantial Stockholder Provision
and will not be final until the Restructuring Plan becomes effective. Although
stockholder approval of the Rights Plan is not required, the conditional
adoption of the Rights Plan by the Board should be taken into account by the
stockholders when considering Proposals 1 and 2. The following discussion is not
a complete description of the Rights Plan. A "Summary of the Rights Plan" is set
forth in Appendix C hereto.
The Board conditionally approved the Rights Plan because it believes
that the Rights Plan would provide more flexible anti-takeover protection than
the protections afforded by the Corporation's dual class capital structure and
the Substantial Stockholder Provision that the Rights Plan would replace. The
Rights Plan is designed to deter coercive takeover tactics and to encourage any
third party interested in acquiring the Corporation to negotiate first with the
Board. In this regard, the Rights Plan, like the Substantial Stockholder
Provision, provides protection to current management and directors by deterring
takeover attempts that management and the Board do not approve. Directors and
officers will continue to be bound by their fiduciary duties under Delaware law
to consider fully any takeover bid, however.
Unlike most stockholders' rights plans which have terms of ten years,
the Rights Plan has a term of five years which the Board can renew for
additional five-year terms if, prior to the expiration of the rights, it submits
such renewal to a vote of the stockholders and a majority of the holders of the
New Common Stock present in person or represented by proxy do not vote against
such a renewal. Upon each five-year renewal of the term of the Rights Plan, if
any, the Board will examine the adequacy of the price required to exercise the
rights (the "Purchase Price") and, if deemed to be appropriate by the Board,
amend the Purchase Price.
Under the Rights Plan, otherwise known as a "poison pill," the Board
will, after the Restructuring Plan is effective, declare a dividend to all
holders of New Common Stock of one "right" for each share of New Common Stock
then outstanding. Each right will initially entitle its registered holder to
purchase from the Corporation 1/100 of one share of a new series of preference
stock of the Corporation (which is intended to be the economic equivalent of the
New Common Stock) at an initial price of $35.00 (the "Purchase Price"). The
rights will be evidenced by, and will not be separate from, the certificates for
the New Common Stock, and will not be exercisable or separately transferable
until the "Distribution Date," that is, the earlier of (i) ten business days
following a determination by the Board that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired, or obtained the right
to acquire, beneficial ownership of 15% or more of the outstanding shares of New
Common Stock (the "Stock Acquisition Date"), or (ii) ten business days following
the commencement of a tender offer or exchange offer that would result in a
person or group beneficially owning 15% or more of the outstanding shares of New
Common Stock. Until the Distribution Date, (i) the rights will be evidenced by
the certificates for shares of New Common Stock, (ii) certificates for shares of
New Common Stock issued after the date the rights are declared will contain a
notation incorporating the Rights Plan by reference and (iii) the surrender for
transfer of any certificates for shares of New Common
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Stock outstanding will also constitute the transfer of the rights associated
with the shares of New Common Stock represented by such certificates.
Under the Rights Plan, shares of common stock continuously owned by a
holder of more than 5% of the Corporation's outstanding shares of Class A Common
Stock or Class B Common Stock as of September 23, 1998 will be excluded from
future calculations of such holder's beneficial ownership for the purpose of
determining whether such person has crossed the "Acquiring Person" threshold
(but not for any other purposes), provided that, prior to final adoption of the
Rights Plan, such person certifies to the Corporation such person's ownership as
of September 23, 1998 and enters into an agreement with the Corporation in which
such person agrees, among other things, not to enter into a proxy contest with
the Corporation or seek to acquire control of the Corporation or be a member of
a group intending to do one of those things. Blum L.P. and certain affiliates
of Blum L.P. have entered into such a standstill agreement with the Corporation,
which will enable it to acquire beneficial ownership of up to 30% of the
outstanding shares of New Common Stock before it is considered to be an
Acquiring Person, based upon the number of shares of Class A Common Stock and
Class B Common Stock outstanding on the Record Date. As of September 23, 1998,
six additional persons have reported beneficial ownership of more than 5% of the
shares of Class A Common Stock or Class B Common Stock. (See "PROPOSAL 1 --
PROPOSAL TO ADOPT THE RESTRUCTURING PLAN -- Ownership of Principal Stockholders
Before and After the Restructuring Plan Is Effective.") These persons and any
others that beneficially owned more than 5% of the outstanding shares of Class A
Common Stock or Class B Common Stock as of September 23, 1998 may enter into
standstill agreements with the Corporation if they want the shares that they
owned as of September 23, 1998 to be excluded from the calculation of share
ownership for purposes of the Acquiring Person threshold. If these persons enter
into standstill agreements with the Corporation, their beneficial ownership of
shares of New Common Stock as and into which such persons' shares of Class A
Common Stock or Class B Common Stock are reclassified and converted will be
excluded for the purpose of determining whether such persons are Acquiring
Persons.
The Rights Plan contains "flip-in," "flip-over" and "exchange"
provisions. Under the "flip-in" provision, ten business days after the
acquisition by a third party of 15% of the outstanding shares of the New Common
Stock (the "Triggering Event"), the holder of a right (other than the person
causing the Triggering Event, all of whose rights will be deemed to be null and
void) will have the right to receive, upon exercise of the right at the Purchase
Price, New Common Stock (or, if there are insufficient shares of New Common
Stock, cash or other securities) having a value equal to two times the Purchase
Price. Under the "flip-over" provision, if, after a Triggering Event, the
Corporation merges with or sells 50% or more of its assets to another person
(the "Acquiror"), the holder of a right (other than the person causing the
Triggering Event, all of whose rights will be deemed to be null and void) will
be entitled to exercise the right at the Purchase Price to purchase common
stock or other assets of the Acquiror having a value equal to two times the
Purchase Price. In lieu of requiring payment of the Purchase Price upon exercise
of the rights, the holders of the rights can be permitted to simply exchange the
rights for shares of New Common Stock or other assets of the Corporation, in the
event of a "flip-in," or common stock or other assets of the Acquiror, in the
event of a "flip-over," in either case having a value equal to the Purchase
Price.
The Rights Plan provides that the Board can redeem the rights in whole,
but not in part, for an amount equal to $.001 per right at any time prior to ten
days following the Stock Acquisition Date. Such ten-day redemption period can be
extended by the Board so long as the rights are still redeemable. This gives the
Board the flexibility to consider and approve a transaction that is in the best
interests of the Corporation and its stockholders. In addition, the Rights Plan
provides that the rights will expire automatically, without payment of a
redemption amount, upon the acquisition of the Corporation pursuant to a tender
offer or an exchange offer for all of the outstanding shares of New Common Stock
at a price or for consideration and on
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terms determined by a majority of the Board, after receiving advice from one or
more nationally recognized investment banking firms, to be in the best interests
of the Corporation and its stockholders.
Other than certain provisions relating to the principal economic terms
of the rights, any of the provisions of the Rights Plan can be amended by the
Board at any time until a Distribution Date has occurred. After the Distribution
Date, the provisions of the Rights Agreement can be amended by the Board in
order to cure any ambiguity, make changes that do not adversely affect the
interests of holders of rights (excluding the interests of any Acquiring
Person), or shorten or lengthen any time period under the Rights Agreement;
provided, however, that no amendment to adjust the time period governing
redemption can be made at such time as the rights are not redeemable.
SUMMARY OF ANTI-TAKEOVER PROVISIONS THAT WILL REMAIN IN THE CHARTER AND BYLAWS
The Board has determined that the Corporation's dual class capital
structure and the Substantial Stockholder Provision are not essential elements
of the Corporation's overall anti-takeover strategy, having taken into account
the contingent adoption of the Rights Plan and continuing effect of various
anti-takeover provisions of the Charter and Bylaws. The following discussion
summarizes the anti-takeover provisions that will remain in the Charter and
Bylaws.
1. Supermajority Vote for Transactions with Related Parties --
Section(b)(1) of Article Sixth of the Charter. This provision requires
the holders of the outstanding shares of Class A Common Stock and Class
B Common Stock entitled to vote, voting together as a single class (the
"eligible votes"), to approve by the affirmative vote of 80% of the
votes they are entitled to cast, a merger with, a transfer of all or
substantially all of the assets to and certain other transactions with
any related company or affiliate or associated person thereof
(collectively, the "Related Person"), provided a stockholder vote on
the transaction would be required under Ohio law. Ohio law requires
stockholder approval of a merger with, or a transfer of all or
substantially all of the assets to, any person. In addition, Ohio law
requires stockholder approval of business combinations and certain
transactions with holders of 10% or more of the voting power of a
company's shares, except under certain circumstances. Section (b)(1) of
Article Sixth of the Charter was designed to ensure that a Related
Person cannot determine the result of a stockholder vote on a merger or
other corporate transaction without offering to the minority
stockholders terms sufficient to induce 80% of the eligible votes to
approve the transactions. An amendment of this provision would require
approval of 80% of the eligible votes.
2. Minimum Price and Prohibited Transactions -- Section (b)(2) of
Article Sixth of the Charter. The minimum price provision requires a
Related Person which receives the requisite approval to complete a
transaction with the Corporation to pay a stockholder who does not
affirmatively vote for the transaction a price per share equal to not
less than the highest price per share paid by the Related Person (or,
if the Related Person did not buy shares of the same class held by the
stockholder, the highest market price of the shares of the class held
by the stockholder on any day on which the Related Person did purchase
shares), plus the excess of such price over the lower of the market
price per share immediately prior to the purchases of such stock by the
Related Person or the lowest price per share paid by the Related Person
(or, if the Related Person did not buy shares of the same class held by
the stockholder, the lowest market price on any day on which the
Related Person did purchase shares). The prohibited transaction
provision prohibits a merger with, transfer of assets to and certain
other transactions with a Related Person which, after becoming a
Related Person: (a) acquired shares from the Corporation, except upon
conversion or pursuant to a dividend or stock split; (b) received
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loans or other financial assistance from the Corporation; (c) was
responsible for any material change in the Corporation's business,
equity capital structure or dividend practices; or (d) was responsible
for any change in the Charter or Bylaws or membership of the Board or
committees thereof.
These provisions were designed to ensure that any takeover offer will
be presented first to the Board so that it may negotiate the best
possible terms in the interests of the Corporation and all of its
stockholders. The prohibited transaction provision is intended to
prohibit a Related Person from engaging in activities with, or relating
to, the Corporation which could adversely affect the fairness of the
price paid to the stockholders in a transaction between the Related
Person and the Corporation. These provisions do not apply to a
transaction that a majority of the whole Board (the number of directors
if there were no vacancy) approves by a two-thirds vote, provided a
majority of the directors acting on such matter consists of continuing
directors. An amendment of these provisions would require the
affirmative vote of 95% of the eligible votes.
3. Board Evaluation of a Proposed Transaction -- Section (b) of Article
Sixth of the Charter. This provision permits the Board to take into
account the following factors when evaluating whether a merger, a sale
of substantially all of the assets and certain other transactions are
in the best interests of the Corporation: (a) the best interests of all
stockholders, taking into account the consideration being offered not
only in relation to the current market price but also in relation to
the Board's estimate of the future value of the Corporation as an
independent entity; and (b) such other factors as it determines to be
relevant, including the social, legal, and economic effects of the
transaction on the employees, suppliers, customers and business of the
Corporation.
This provision is intended to provide the Board the flexibility to
consider any appropriate factors in evaluating a transaction. An
amendment of this provision would require the affirmative vote of 80%
of the eligible votes, unless two-thirds of the whole Board approve the
amendment and a majority of the directors acting on the amendment
consists of continuing directors.
4. Appraisal Rights -- Section (d) of Article Sixth of the Charter.
This provision provides appraisal rights for holders of the
Corporation's voting shares in connection with stockholder votes on any
amendments to the Charter, mergers, consolidations and sales of all or
substantially all of the assets of the Corporation, unless two-thirds
of the whole Board approve the amendment or the transaction and a
majority of the directors acting on the matter consists of continuing
directors. This provision is designed to ensure fair treatment of
minority stockholders in a second-stage merger or other transaction. An
amendment of this provision would require the affirmative vote of 80%
of the eligible votes, unless two-thirds of the whole Board approve the
amendment and a majority of the directors acting on the amendment
consists of continuing directors.
5. Blank-Check Preference Stock -- Division I of Article Fourth of the
Charter. This provision provides for "blank-check" preference stock,
which enables the Board to issue preference stock and establish the
terms of such preference stock, including convertible or redeemable
preference stock, without the need for stockholder approval.
"Blank-check" preference stock gives the Board broad discretion to
establish voting, dividend, conversion and other rights for the stock
if and when it is eventually issued. Such broad authority provides
flexibility to the Board to raise additional capital or to issue the
stock in connection with the implementation of certain defenses, such
as the Rights Plan. (See "-- The Stockholders' Rights Plan.") An
amendment of this provision requires the affirmative vote of a
majority of the eligible votes.
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6. Limitation on Action by Written Consent -- Article Fifth of the
Charter. Article Fifth provides that stockholders may act by written
consent only if such consent is unanimous, unless the action has been
recommended to the stockholders by two-thirds of the whole Board and a
majority of the directors making the recommendation consists of
continuing directors. This provision is intended to preclude a person
other than the Board from avoiding the delay related to the holding of
a meeting of stockholders by obtaining the consent of a majority of the
votes of the stockholders. An amendment of this provision would require
the affirmative vote of 80% of the eligible votes, unless two-thirds of
the whole Board approve the amendment and a majority of the directors
acting on the amendment consists of continuing directors.
7. Limitation on Right to Call Special Meeting -- Section 1(b) of
Article I of the Bylaws. Section 1(b) of Article I of the Bylaws
prohibits a stockholder from calling a special meeting. The DGCL does
not provide stockholders with the right to call a special meeting
unless such right is otherwise provided by the company. An amendment of
this provision would require the affirmative vote of 80% of the
eligible votes, unless two-thirds of the whole Board approve the
amendment and a majority of the directors acting on the amendment
consists of continuing directors.
8. Board Structure -- Sections 2(a) and (b) and Section 3 of Article II
of the Bylaws. Sections 2(a) and (b) and Section 3 of Article II of the
Bylaws provide for a classified Board consisting of not less than five
nor more than 11 directors divided into three classes, each of which
must be as nearly equal to one-third of the total number of directors
as possible and one of which is elected each year to a three-year term.
Section 3 of Article II of the Bylaws also provides that directors may
only be removed for cause, and describes procedures for and the effects
of resignations from the Board and the effects of vacancies on the
Board. These provisions make it more difficult for a raider to seize
control of the Corporation immediately, because only one of the three
classes of directors stands for election in any one year and directors
may only be removed for cause. An amendment of this provision would
require the affirmative vote of 80% of the eligible votes, unless
two-thirds of the whole Board approve the amendment and a majority of
the directors acting on the amendment consists of continuing directors.
9. Stockholder Nomination of Directors -- Section 2(c) of Article II of
the Bylaws. The Board is proposing to amend this provision to lengthen
the period before a stockholders' meeting by which a stockholder must
notify the Corporation of the stockholder's intent to nominate an
individual for election to the Board. See "PROPOSAL 3 -- PROPOSAL TO
LENGTHEN THE NOTICE PERIOD FOR THE NOMINATION OF DIRECTORS BY
STOCKHOLDERS."
10. Provisions Requiring A Supermajority Vote for Amendment -- Article
Eighth of the Charter. Article Eighth of the Charter provides that 80%
of the eligible votes of the Corporation must approve any amendment to
the provisions of the Charter described above in items 3, 4 and 6,
Article Eighth itself and the provisions of the Bylaws described above
in items 7, 8 and 9. This provision makes more difficult the repeal or
amendment of the Corporation's anti-takeover provisions. The
supermajority vote is not required, however, if two-thirds of the whole
Board approve the amendment and a majority of the directors acting on
the amendment consists of continuing directors.
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PROPOSAL 1
PROPOSAL TO ADOPT THE RESTRUCTURING PLAN
DESCRIPTION OF THE RESTRUCTURING PLAN
On September 23, 1998, the Board unanimously approved the Restructuring
Plan, which consists of the following components:
Amendments to Article Fourth. Article Fourth will be amended to
eliminate provisions relating to Class A Common Stock and Class B
Common Stock, to provide for a single class of New Common Stock
designated as "Common Stock" and to provide for 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.
Currently, the Charter provides for two classes of common stock, the
Class A Common Stock and the Class B Common Stock, and authorizes the
issuance of 18,000,000 shares of each. The number of authorized shares
of New Common Stock will be 36,000,000. The amended and restated
Article Fourth is included in the Restated Charter, which is set forth
in Appendix A hereto. As of the Record Date, the Corporation had
outstanding 13,321,065 shares of Class A Common Stock and 4,549,822
shares of Class B Common Stock. Given the one-for-one conversion ratio
in the Restructuring Plan, there will be no increase in the total
number of shares of common stock outstanding due to the Restructuring
Plan.
Filing the Restated Charter. The Restated Charter (reflecting all
amendments adopted pursuant to stockholder action at the Special
Meeting) will be filed with the Secretary of State of the State of
Delaware on the day of the Special Meeting or as soon thereafter as
practicable. The Restructuring Plan will become effective at the close
of business (5:00 p.m. EST) on the date of such filing (the "Effective
Date").
Conversion Ratio and Reclassification and Conversion of Shares. As of
the Effective Date, each outstanding share or share held in treasury of
Class A Common Stock and each outstanding share or share held in
treasury of Class B Common Stock will be reclassified as and converted
into one share of New Common Stock. For all purposes, certificates
representing shares of Class A Common Stock and Class B Common Stock
will be deemed to be certificates representing shares of New Common
Stock.
Nasdaq National Market Listing. The New Common Stock will be listed on
the Nasdaq National Market under the symbol "SCTT." The Nasdaq National
Market listing of Class A Common Stock and Class B Common Stock as
SCTTA and SCTTB, respectively, will be eliminated upon listing of the
New Common Stock.
Conditions to Implementation of the Restructuring Plan. Implementation
of the Restructuring Plan requires the affirmative vote of a majority
of the votes of holders of the outstanding shares of Class A Common
Stock and Class B Common Stock, voting together as a single class, and
the affirmative vote of a majority of the votes of the holders of the
outstanding shares of Class A Common Stock and Class B Common Stock,
each voting as a separate class.
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COMPARISON OF CAPITAL STOCK BEFORE AND AFTER THE RESTRUCTURING PLAN IS EFFECTIVE
The existing rights, powers and limitations of Class A Common Stock and
Class B Common Stock are set forth in Article Fourth of the Charter. The rights,
powers and limitations of the New Common Stock that will be issued pursuant to
the Restructuring Plan will be set forth in the amended and restated Article
Fourth of the Restated Charter. The following summary should be read in
conjunction with, and is qualified in its entirety by reference to, the Restated
Charter set forth in Appendix A hereto:
Dividend Rights. Cash dividends on shares of Class A Common Stock must
be declared and paid at the same time as cash dividends are declared
and paid on shares of Class B Common Stock and must be paid in an
amount per share at least equal to the amount of the dividend per share
declared and paid on shares of Class B Common Stock. Between 1989 and
1994 (when the Corporation stopped paying dividends), the Corporation
paid dividends in the same amounts on the shares of Class A Common
Stock and Class B Common Stock. Prior to 1989, cash dividends paid to
the holders of Class A Common Stock were in amounts that were higher
than the cash dividends paid to the holders of Class B Common Stock.
Cash dividends will be paid on shares of New Common Stock if, when and
as declared by the Board out of funds legally available therefor.
Voting Rights. Holders of shares of Class A Common Stock have 1/20 of
one vote for each share, and holders of shares of Class B Common Stock
have one vote for each share. Holders of shares of Class A Common Stock
and Class B Common Stock vote together as a single class on the
election of directors and for all other purposes, except as otherwise
provided by the DGCL. As amended pursuant to the Restructuring Plan,
Article Fourth will provide for one vote for each share of New Common
Stock. This change will increase the voting power of each of the
holders of shares of Class A Common Stock, will decrease the relative
voting power of each of the holders of shares of Class B Common Stock
and the voting power of the Class B Common Stock as a class, and will
eliminate the rights of the holders of shares of Class A Common Stock
and Class B Common Stock to separate class votes, such as the separate
class votes required with respect to the Restructuring Plan.
Rights Upon Liquidation. The rights of the holders of shares of Class A
Common Stock and shares of Class B Common Stock are the same in the
event of the liquidation, dissolution or winding up of the Corporation.
These rights will not be affected by the Restructuring Plan. Each
stockholder's proportionate equity interest in the Corporation will be
unchanged.
Authorized Number of Shares. Article Fourth currently authorizes
18,000,000 shares of Class A Common Stock and 18,000,000 shares of
Class B Common Stock. The Restated Charter will authorize 36,000,000
shares of New Common Stock.
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF COMMON STOCK BEFORE AND AFTER THE
RESTRUCTURING PLAN IS EFFECTIVE
The following table sets forth information, as of October 26, 1998
(excepted as specified below) and on an as-adjusted basis to give effect to the
Restructuring Plan, with respect to persons that are known to the Corporation to
be the beneficial owners of 5% or more of the Class A Common Stock or Class B
Common Stock. For purposes of this table, and as used elsewhere in this Proxy
Statement, the term "beneficial owner" means any person who, directly or
indirectly, has or shares the power to vote, or to direct the voting of, a share
or the power to dispose of, or to direct the disposition of, a share or has the
right to acquire beneficial ownership of a share within 60 days. Any stockholder
named in this table which enters into a standstill
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agreement with the Corporation prior to the Board's final adoption of the Rights
Plan will agree, among other things, not to enter into a proxy contest with the
Corporation or seek to acquire control of the Corporation or be a member of a
group intending to do one of those things, in exchange for the Corporation's
agreement to retain in the Rights Plan a provision which excludes the shares
beneficially owned by the stockholder as of September 23, 1998 from future
calculations of such person's beneficial ownership for the purpose of deter-
mining whether such person has crossed the "Acquiring Person" threshold in the
Rights Plan. As of the date of this Proxy Statement, Blum is the only
stockholder that has entered into such an agreement. In all other respects,
except as otherwise indicated, the Corporation believes that each beneficial
owner listed below exercises sole voting and dispositive power over its shares.
<TABLE>
<CAPTION>
CURRENT BENEFICIAL OWNERSHIP IMPACT OF
AND TOTAL VOTING POWER RESTRUCTURING PLAN
------------------------------------------------ ----------------------
AMOUNT OF
BENEFICIAL PERCENT OF
PERCENT OF OWNERSHIP NEW COMMON
AMOUNT OF TOTAL OF NEW STOCK AND
NAME AND ADDRESS OF BENEFICIAL PERCENT OF VOTING COMMON VOTING
BENEFICIAL OWNER OWNERSHIP CLASS(1) POWER(2) STOCK POWER(3)
- ------------------------------------- ------------ ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
CLASS A COMMON STOCK
NewSouth Capital Management, Inc.
1000 Ridgeway Loop Road, Suite 233
Memphis, TN 38120 1,660,388(4) 12.5% 1.8% 1,660,388 9.3%
Reich & Tang Asset Management, L.P.
600 Fifth Avenue
New York, NY 10020 1,657,000(5) 12.4% 1.8% 1,657,000 9.3%
Richard C. Blum & Associates, L.P.
909 Montgomery Street, Suite 400
San Francisco, CA 94133 1,184,213(6) 8.9% 1.3% 1,184,213 6.6%
J.O. Hambro & Partners Limited
10 Park Place
London SW1A 1LP England 848,200(7) 6.4% .1% 848,200 4.7%
CLASS B COMMON STOCK
Richard C. Blum & Associates, L.P.
909 Montgomery Street, Suite 400
San Francisco, CA 94133 1,503,333(6) 33.0% (8) 32.3%(8) 1,503,333 8.4%
Wilmington Trust Corporation
1100 North Market Street
Wilmington, DE 19890 876,282(9) 19.3% 18.8% 876,282 4.9%
Mentor Partners L.P.
500 Park Avenue
New York, NY 10022 433,300(10) 9.5% 9.3% 433,300 2.4%
The Goldman Sachs Group, L.P. 337,388(11) 7.4% 7.2% 337,388 1.9%
85 Broad Street
New York, NY 10004
</TABLE>
15
<PAGE> 21
- ------------------
(1) Based upon the number of shares outstanding as of the Record Date.
(2) Based upon the total voting power of shares outstanding as of the
Record Date as adjusted by the Substantial Stockholder Provision.
(3) Based upon the number of shares of New Common Stock into which the
shares of Class A Common Stock and Class B Common Stock outstanding on
the Record Date would be reclassified as and converted into as of the
Effective Date.
(4) This amount, as reflected in a report on Schedule 13G dated February
12, 1998 and as of December 31, 1997, consists of 1,542,888 shares as
to which the reporting person claims sole voting power; 117,500 shares
as to which the reporting person claims shared voting power; and
1,660,388 shares as to which the reporting person claims sole
dispositive power. The reporting person does not claim any shared
dispositive power.
(5) This amount, as reflected in a report on Schedule 13G dated February
12, 1998 and as of February 12, 1998, consists of 1,657,000 shares as
to which the reporting person claims shared voting and dispositive
power. The reporting person does not claim any sole voting or
dispositive power.
(6) Blum L.P. is the general partner of three limited partnerships and has
shared investment and voting discretion over five investment advisory
accounts that own these shares. Such partnerships and investment
accounts have shared voting and dispositive power over the shares and
reported their ownership as a group on a report on Schedule 13D.
(7) This amount, as reflected in a report on Schedule 13G dated May 18,
1998 and as of May 6, 1998, filed by J.O. Hambro Capital Management
("Hambro"), Christopher Harwood Bernard Mills, J.O. Hambro & Company
Limited and J.O. Hambro Asset Management Limited, as a group, consists
of 848,200 shares as to which the reporting persons claim shared voting
and dispositive power. The reporting persons do not claim any sole
voting or dispositive power. The Schedule 13G reports that, pursuant to
agreement, Hambro and Christopher Harwood Bernard Mills have the shared
right to transfer or vote the shares owned by two investment trust
companies. In addition, pursuant to agreement, Hambro Partners has the
right to transfer shares owned by an investment company which is
managed by an investment manager that has the right to transfer and
vote the shares. The investment company and investment manager also
filed as part of the group.
(8) As a result of the Substantial Stockholder Provision, Blum's voting
power is limited to 23.7% of the outstanding shares of Class B Stock
that can be voted.
(9) This amount, as reflected in a report on Schedule 13G dated February 6,
1998 and as of December 31, 1997, filed by Wilmington Trust Corporation
("WT Corporation") and its wholly-owned subsidiary, Wilmington Trust
Company ("WT Company"), consists of 244,622 shares as to which WT
Corporation and WT Company claim sole voting and dispositive power and
631,577 shares as to which WT Corporation and WT Company claim shared
voting and dispositive power.
(10) This amount, as reflected in a report on Schedule 13D/A dated December
28, 1995 and as of December 27, 1995, consists of 433,300 shares as to
which the reporting person claims sole voting and dispositive power.
The reporting person does not claim any shared voting or dispositive
power.
(11) This amount, as reflected in a report on Amendment No. 1 to Schedule
13G dated February 14, 1998 and as of December 31, 1997, filed by The
Goldman Sachs Group, L.P., and its wholly-owned subsidiary, Goldman
Sachs & Co., consists of 337,388 shares as to which the reporting
persons claim shared voting and dispositive power. Goldman Sachs Trust
on behalf of Goldman Sachs Small Cap Value Fund, whose ownership is
also reflected on the Schedule 13G, claims shared voting and
dispositive power. The reporting persons do not claim any sole voting
or dispositive power.
16
<PAGE> 22
The following table sets forth information, as of October 26, 1998
(except as specified below) and on an as-adjusted basis to give effect to the
Restructuring Plan, with respect to the beneficial ownership of shares of Class
A Common Stock and Class B Common Stock of each director and each current and
former executive officer named (the "Named Executive Officers") by the
Corporation in the Summary Compensation Table included in this Proxy Statement
and, by the directors and current executive officers of the Corporation, as a
group, based upon information furnished to the Corporation by such persons.
Except as otherwise indicated, the Corporation believes that each beneficial
owner listed below exercises sole voting and dispositive power.
<TABLE>
<CAPTION>
AMOUNT OF BENEFICIAL
OWNERSHIP AS OF IMPACT OF
OCTOBER 26, 1998(1) RESTRUCTURING PLAN
-------------------------------------------------------------- ----------------------
AMOUNT OF
BENEFICIAL PERCENT-
OWNERSHIP AGE OF
PERCENT- PERCENT- OF NEW NEW
NAME OF BENEFICIAL CLASS A AGE OF CLASS B AGE OF COMMON COMMON
OWNER COMMON STOCK CLASS COMMON STOCK CLASS STOCK(2) STOCK
- ------------------------- ------------ --------- ------------ ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Robert P. Collins ....... 0 * 300 * 300 *
N. Colin Lind ........... 1,184,213(3) 8.9% 1,503,333(3) 33.0% 2,687,546 15.0%
Glen W. Lindemann ....... 85,579(4)(5) * 1,374(4) * 86,953 *
Frank N. Linsalata ...... 5,000 * 0 * 5,000 *
F. Rush McKnight ........ 1,315(6) * 6,580(6) * 7,895 *
Harrison Nesbit, II ..... 53(7) * 562(7) 615 *
John P. Reilly .......... 320,582(8) 2.4% 237 * 320,819 1.8%
William J. Sickman ...... 38,136(4)(9) * 851(4) * 38,987 *
Steven L. Siemborski .... 111,482(4)(10) * 483(4) * 111,965 *
All Current Directors and
Executive Officers as a
Group (10 persons) .... 1,647,875(3)(4) 12.4% 1,513,237(3)(4) 33.3% 3,161,112 17.7%
</TABLE>
- ------------------
* Less than 1.0%.
(1) The shares shown include 454,001 shares of Class A Common Stock with
respect to which certain current and former executive officers have a right
to acquire beneficial ownership within 60 days.
(2) Based upon the number of shares of New Common Stock into which the shares
of Class A Common Stock and Class B Common Stock outstanding on the Record
Date would be reclassified as and converted into as of the Effective Date.
(3) Mr. Lind disclaims beneficial ownership of these shares except to the
extent of his pecuniary interest in the shares as to which he has shared
voting and dispositive power. The shares are owned by three limited
partnerships of which Blum L.P. is the general partner and by five
investment advisory accounts for which Blum L.P. has investment and voting
discretion. Mr. Lind is an officer and limited partner of Blum L.P. and a
director of the general partner of Blum L.P. See also note 6 to the
preceding table.
17
<PAGE> 23
(4) These amounts include shares of Class A Common Stock and Class B Common
Stock held by the ESOP which are subject to certain pass-through voting and
tendering rights. Participants in this plan are entitled to instruct the
trustee of the plan (the "Trustee"), on a confidential basis, on how to
vote and how to respond to a tender or exchange offer for shares allocated
to their accounts. Under the trust agreement, shares for which no
instructions are received can be voted or tendered by the Trustee. The
numbers of shares of Class A Common Stock and Class B Common Stock held by
the ESOP which have been allocated to the directors and Named Executive
Officers and the current directors and executive officers as a group as of
June 30, 1998 are as follows: Mr. Lindemann-- 1,378 shares of Class A
Common Stock and 1,374 shares of Class B Common Stock; Mr. Sickman -- 929
shares of Class A Common Stock and 851 shares of Class B Common Stock; Mr.
Siemborski-- 644 shares of Class A Common Stock and 483 shares of Class B
Common Stock; and all current directors and executive officers as a group--
2,951 shares of Class A Common Stock and 2,708 shares of Class B Common
Stock.
(5) This amount includes 74,001 shares that may be acquired beneficially within
60 days by exercising stock options.
(6) These amounts do not include 75 shares of Class A Common Stock and 75
shares of Class B Common Stock owned by Mr. McKnight's wife.
(7) These amounts do not include 248 shares of Class A Common Stock and 2
shares of Class B Common Stock owned by Mr. Nesbit's wife.
(8) This amount includes 300,000 shares that may be acquired beneficially
within 60 days by exercising a stock option.
(9) This amount includes 32,000 shares that may be acquired beneficially within
60 days by exercising stock options.
(10) This amount includes 48,000 shares that may be acquired beneficially within
60 days by exercising stock options. On March 9, 1998, Mr. Siemborski was
granted an option to purchase 23,000 shares. Upon Mr. Siemborski's
resignation from the Corporation on March 31, 1998, the Stock Option
Committee approved the immediate vesting of all option grants and extended
the period the options can be exercised to March 31, 1999.
The Board named Robert P. Collins as Chairman of the Board, effective
November 3, 1998. Mr. Collins succeeded John P. Reilly, who has served on the
Board since 1995 and had held the position of nonemployee Chairman of the Board
since 1997. Mr. Reilly continues to serve as a member of the Board. On November
5, 1998, the Board granted to Mr. Collins an option to purchase 186,335 shares
of Class A Common Stock at an exercise price of $14.4375. See "RECENT
DEVELOPMENTS." The Corporation expects to enter into an employment agreement
with Mr. Collins in the near future. See "EXECUTIVE AND DIRECTOR COMPENSATION --
Employment and Severance Agreements."
REASONS FOR AND ADVANTAGES AND POSSIBLE DISADVANTAGES OF THE RESTRUCTURING PLAN
The Corporation adopted its dual class capital structure in 1983. In
view of the fact that the Corporation is no longer a family-controlled business,
and having considered the analyses and recommendations of Duff & Phelps, the
Board has determined that the benefits of the elimination of the dual class
capital structure far outweigh any disadvantages that might result from such
action.
The elimination of the Corporation's dual class capital structure will
simplify the Corporation's capital structure, thereby providing greater
flexibility and efficiency in raising capital and issuing additional stock if,
when and to the extent desired by the Corporation. It also conforms the
Corporation's capital structure with that of most other publicly held
corporations, which the Board believes may generate more extensive analyst
coverage and investor interest. Among publicly held companies, there has been a
trend away from dual class capital structures, consistent with policies of the
major exchanges and Nasdaq in favor of one-share, one-vote
18
<PAGE> 24
common stock capitalization. In addition, the single class capital structure
will reduce the administrative costs associated with the dual classes of common
stock, will simplify the Corporation's voting procedures and will provide more
liquidity to the holders of shares of Class B Common Stock and, to a lesser
extent, Class A Common Stock.
In establishing the one-for-one conversion ratio for both the Class A
Common Stock and the Class B Common Stock, the Board took into account Duff &
Phelps' analyses of the conversion ratios in other reclassifications and in
acquisitions. The Board decided to use a one-for-one conversion ratio in the
Restructuring Plan because most of the conversion ratios analyzed by Duff &
Phelps were one-for-one, notwithstanding the fact that the higher voting stock
generally traded at an average price higher than the average price of the lower
voting stock, and a one-for-one conversion ratio is simpler to implement than a
different conversion ratio. Since the Corporation announced on October 7, 1998
that it had filed a preliminary proxy statement with the Securities and Exchange
Commission (the "SEC") relating to a proposal to reclassify and convert each
outstanding share of common stock into one share of a new class of common stock,
the differences between the daily market price of shares of Class A Common Stock
and Class B Common Stock have been reduced considerably. With respect to the
holders of Class B Common Stock, the conversion ratio of one share of New Common
Stock for one share of Class B Common stock will provide the holders of Class B
Common Stock with a premium of 3.1% over the average market price of a share of
Class B Common Stock over the last five years, in recognition of the decrease in
the relative voting power of the Class B Common Stock. With respect to the
holders of Class A Common Stock, implementation of the Restructuring Plan will
increase their voting power from 1/20 of one vote for each share to one vote for
each share.
The Restructuring Plan will eliminate the anti-takeover protection that
the dual class capital structure provides to the Corporation. Nevertheless, the
Board believes that the Corporation's other anti-takeover protections and the
Rights Plan will provide appropriate protection for the Corporation and all of
its stockholders. In addition, implementation of the Restructuring Plan may
delay a transaction that would be accounted for under the pooling-of-interests
method of accounting. The Corporation is not currently contemplating any such
transaction.
The Restructuring Plan may also have disadvantages for the holders of
shares of Class A Common Stock and Class B Common Stock. With respect to the
holders of shares of Class B Common Stock, the Restructuring Plan will reduce
their voting power as a group because the holders of Class A Common Stock will
obtain shares of New Common Stock which will entitle the holders to one vote per
share. In addition, the conversion ratio in the Restructuring Plan for the
conversion of a share of Class B Common Stock into one share of New Common Stock
is the same conversion ratio as that applicable to a share of Class A Common
Stock, despite the fact that the relative voting power of each of the holders of
shares of Class B Common Stock will be reduced. Nevertheless, based upon the
fact that the average market price of a share of Class B Common Stock for the
five years ended July 31, 1998 was 3.1% lower than the average market price of a
share of Class A Common Stock for the same period, the one-for-one conversion
ratio will in fact provide the holders of shares of Class B Common Stock with a
slight premium in recognition of the decrease in their voting power.
IMPACT OF THE RESTRUCTURING PLAN ON THE NASDAQ LISTING AND THE CORPORATION'S
OPERATIONS AND CAPITALIZATION
The shares of Class A Common Stock and the shares of Class B Common
Stock are both quoted on the Nasdaq National Market. After the implementation of
the Restructuring Plan, the shares of New Common Stock will be quoted on the
Nasdaq National Market.
19
<PAGE> 25
The Corporation expects that the Restructuring Plan will have no impact
on operations. In addition, the Restructuring Plan involves no increase in the
total number of shares of common stock authorized in the Charter. The
Corporation currently has no plans to effect a secondary offering of shares of
New Common Stock following implementation of the Restructuring Plan. However,
the Restated Charter will provide for sufficient authorized shares of New Common
Stock such that the Board could effect such a secondary offering without seeking
additional stockholder approval for such action.
FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of certain of the federal income tax
consequences of the Restructuring Plan. This discussion is based upon the
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the
United States Department of the Treasury Regulations promulgated thereunder and
rulings and court decisions as of the date hereof, all of which are subject to
change, possibly retroactively.
The discussion is included for general information purposes only. No
rulings from the Internal Revenue Service with respect to the tax consequences
of the Restructuring Plan to the Corporation's stockholders or to the
Corporation will be sought.
The reclassification and conversion by the Corporation of the Class A
Common Stock and Class B Common Stock as and into New Common Stock will be
treated as a tax-free exchange under Section 1036 of the Code and as a tax-free
recapitalization under Section 368(a)(1)(E) of the Code. As a result of such
treatment, the following tax consequences will apply:
(i) No gain or loss will be recognized for federal income tax
purposes by the Corporation's stockholders upon the reclassification and
conversion of their shares of Class A Common Stock and Class B Common Stock as
and into New Common Stock.
(ii) The basis for the shares reclassified as and converted into
shares of New Common Stock will be the same as the aggregate basis of the Class
A Common Stock and Class B Common Stock held by a stockholder before the
Restructuring Plan became effective.
(iii) The holding period of the shares reclassified as and converted
into shares of New Common Stock will include the periods during which the Class
A Common Stock and Class B Common Stock were held by a stockholder before the
Restructuring Plan became effective, provided such shares were held by such
stockholder as a capital asset at the time the Restructuring Plan became
effective.
(iv) No gain or loss will be recognized for federal income tax
purposes by the Corporation upon the reclassification and conversion of shares
of Class A Common Stock and Class B Common Stock as and into shares of New
Common Stock.
BECAUSE CERTAIN TAX CONSEQUENCES OF THE RESTRUCTURING PLAN MAY VARY DEPENDING
UPON THE PARTICULAR CIRCUMSTANCES OF EACH STOCKHOLDER, EACH HOLDER OF THE
CORPORATION'S CLASS A COMMON STOCK AND CLASS B COMMON STOCK IS URGED TO CONSULT
SUCH HOLDER'S OWN TAX ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO
SUCH HOLDER OF THE RESTRUCTURING PLAN (INCLUDING THE APPLICATION AND EFFECT OF
FOREIGN, STATE AND LOCAL INCOME AND OTHER TAX LAWS).
20
<PAGE> 26
INVESTMENT BANKER'S OPINION
The Board retained Duff & Phelps in July 1998 to act as its financial
advisor and to render an opinion as to the fairness of the Restructuring Plan,
from a financial point of view, to the holders of Class A Common Stock and Class
B Common Stock. On September 23, 1998, representatives of Duff & Phelps formally
presented to the Board their findings on the change to a single class of common
stock. In determining to propose the Restructuring Plan, the Board considered
the analyses performed by Duff & Phelps which are described below. Based upon
Duff & Phelps' analyses, the Board determined to set a conversion ratio under
the Restructuring Plan of one share of New Common Stock for each share of Class
A Common Stock and Class B Common Stock. On September 23, 1998, Duff & Phelps
also orally advised the Board that the con version ratio of one share of New
Common Stock for each share of Class A Common Stock and Class B Common Stock was
fair, from a financial point of view, to the holders of each of the Class A
Common Stock and the Class B Common Stock. Duff & Phelps has now delivered its
written opinion, dated November 10, 1998, the full text of which is set forth in
Appendix D hereto and sets forth certain assumptions made, certain procedures
followed and certain matters considered by Duff & Phelps. The discussion of the
opinion in this Proxy Statement is qualified in its entirety by reference to the
full text of such written opinion attached hereto.
Stockholders are encouraged to read Duff & Phelps' opinion in its entirety.
Analysis of Historical Reclassification Transactions. Duff & Phelps identified
and analyzed 25 reclassification transactions occurring among publicly traded
companies over the years 1991 to 1998 (the "Reclassification Transaction
Analysis"). In each reclassification transaction, two classes of stock of a
single company with differential voting rights were reclassified as and
converted into a single class of common stock. For each of the companies
identified for the Reclassification Transaction Analysis, Duff & Phelps examined
the number of new shares received in the reclassification for each share of the
higher voting stock and the number of new shares received in the
reclassification for each share of the lower voting stock (the ratio of new
shares received per share of higher voting stock to the shares received per
lower voting stock is referred to herein as the "conversion ratio"). Of the 25
transactions examined in the Reclassification Transaction Analysis, 18
transactions exhibited a conversion ratio of 1.00; two companies exhibited
conversion ratios of approximately 1.01; three transactions exhibited conversion
ratios of 1.06 to 1.15; and the remaining two transactions exhibited conversion
ratios of 1.26 and 1.50, respectively. Duff & Phelps then examined the his-
torical trading prices of the publicly traded shares of each of the companies
completing a reclassification to determine the percentage by which the price per
share of the company's higher voting stock exceeded the price per share of the
company's lower voting stock (such percentage is referred to herein as the
"Trading Premium;" a negative Trading Premium is sometimes referred to herein as
the "Trading Discount"). Of the 25 reclassification transactions examined,
insufficient data was available to analyze the historical Trading Premium of ten
transactions. Of the remaining 15 reclassification transactions, one
demonstrated a five-year average monthly Trading Discount of approximately 2%,
one demonstrated a five-year average monthly Trading Premium of 0%, and 13
demonstrated five-year average monthly Trading Premiums ranging from
approximately 1% to 26%. The indicated conversion ratio demonstrated by each
reclassification transaction appears to be unrelated to the respective five-year
average historical Trading Premium or Discount.
Analysis of Historical Acquisitions of Dual Class Public Companies. Duff &
Phelps identified and analyzed 19 acquisition transactions occurring between
1994 and 1998 or currently pending of public companies with two classes of
common stock with different voting rights ("Acquisition Transaction Analysis").
For each of the transactions in the Acquisition Transaction Analysis, the
consideration paid to the holders of each class of stock was examined to
determine the percentage by which the price per share paid to holders of higher
voting shares exceeded the price per share paid to holders of lower voting
shares (the "Transaction Premium"). Of the 19 transactions examined, 18
demonstrated no Transaction Premium. One transaction, which had not been
21
<PAGE> 27
completed at the time of the analysis, demonstrated a proposed Transaction
Premium of 10%. Of the 19 acquisition transactions examined, insufficient data
was available to analyze the historical Trading Premium of 12 transactions. Of
the remaining seven transactions, one demonstrated a five-year average monthly
Trading Discount of less than 1% and six demonstrated a five-year average
monthly Trading Premium ranging from 1% to 26%. The one transaction that has a
proposed Transaction Premium of 10% demonstrated a five-year average monthly
Trading Premium of approximately 5%. The indicated Transaction Premium
demonstrated by the historical acquisitions for which trading data was available
appears to be unrelated to the respective five-year average monthly Trading
Premium or Trading Discount.
Analysis of Dual Class Publicly Traded Companies. Duff & Phelps identified and
analyzed a group of companies which, as of the time of the analysis,
demonstrated two or more classes of publicly traded common stock with different
voting rights ("Public Company Analysis"). Based upon a search of companies
listed on the New York Stock Exchange, the American Stock Exchange, the Nasdaq
National Market and the Nasdaq small cap listings, an initial group of 67
companies was identified. A subset of 46 companies ("Comparable Companies") was
determined from the initial group of 67 after eliminating some companies on the
basis of minimum market capitalization, minimum trading volume, and
differential dividends between classes of stock. In the Public Company Analysis,
Duff & Phelps determined the average Trading Premium or Trading Discount
exhibited by each of the Comparable Companies over a five-year period ended July
31, 1998. Of the 46 Comparable Companies examined: four companies demonstrated
a five-year average Trading Discount of 1% to 7%; 26 companies demonstrated a
five-year average Trading Discount or Trading Premium of between a Trading
Discount of 1% and a Trading Premium of 5%; five companies demonstrated a
five-year average Trading Premium of between 5% and 9%; and 11 companies
demonstrated a five-year average Trading Premium greater than 9%. This analysis
suggests that various factors, including the greater liquidity of the shares of
one class of common stock, offset the impact of the higher voting rights of a
class of common stock on the market price of the shares of that class of stock.
Analysis of the Historical Trading Activity of the Corporation's Capital Stock.
Duff & Phelps analyzed the historical trading activity of the Class A Common
Stock and Class B Common Stock. This included an examination of the average
Trading Premium or Trading Discount exhibited by the Corporation's stock based
on monthly closing prices over the five-year period from August 1, 1993 to July
31, 1998 and daily closing prices over the period from April 23, 1998 to August
15, 1998. The average Trading Discount for each of the periods described above
was 3.1% and 2.3%, respectively. For the five-year period ended July 31, 1998,
the average monthly trading volume of the Corporation's Class A Common Stock was
approximately 1,492,000 shares and the average monthly trading volume of the
Corporation's Class B Common Stock was approximately 157,000 shares. This
analysis suggests that various factors, including the greater liquidity of the
shares of Class A Common Stock, offset the impact of the higher voting rights
of the Class B Common Stock on the market price of the shares of Class B Common
Stock. Since the conversion ratio was initially disclosed to the public in the
Corporations' preliminary proxy statement filed on October 6, 1998, the daily
closing prices of the Class A Common Stock and the Class B Common Stock have
generally converged, and there has been no systematic Trading Discount or
Trading Premium.
Potential Earnings Dilution Analysis. Duff & Phelps performed an analysis of
potential dilution to earnings per share of the Class A Common Stock and Class B
Common Stock if the reclassification and conversion of shares were to occur at a
conversion ratio of greater than 1.00. Since the Board has determined that under
the Restructuring Plan the reclassification and conversion of shares would occur
at a conversion ratio of 1.00, there would be no dilution to earnings per share
as a result of the Restructuring Plan.
22
<PAGE> 28
For purposes of its opinion and in connection with its review of the
Restructuring Plan, Duff & Phelps, among other things: reviewed a draft of this
Proxy Statement, which describes the Restructuring Plan; discussed the current
operations and future outlook of the Corporation with the Corporation's
management; met with the Board to discuss the Corporation, the proposed
Restructuring Plan and the results of Duff & Phelps' reviews and analyses;
reviewed the Corporation's annual reports on Form 10-K for the years ended 1994
to 1997; reviewed the Corporation's quarterly reports on Form 10-Q for the
period ended June 30, 1998; reviewed the Corporation's Charter; reviewed the
market prices and trading activity of the Class A Common Stock and Class B
Common Stock; reviewed the market prices and trading activity of the capital
stock of other companies with two classes of publicly traded stock; reviewed the
terms of transactions in which two classes of capital stock of public companies
were converted into a single class of capital stock; reviewed the terms of
transactions in which public companies with two classes of capital stock were
acquired; and performed such other reviews and analyses as it deemed necessary.
In addition, Duff & Phelps performed a separate engage ment with respect to the
advisability and the structure of the Rights Plan.
SURRENDER OF STOCK CERTIFICATES NOT REQUIRED
After the Restructuring Plan is effective, certificates representing
shares of Class A Common Stock and Class B Common Stock will automatically be
deemed to represent an equal number of shares of New Common Stock, and no action
will be required on the part of stockholders to exchange their certificates
representing shares of Class A Common Stock and Class B Common Stock. Any
stockholder who wishes to exchange old certificates for new certificates
representing shares of New Common Stock should contact National City Bank,
Corporate Trust Operations, Third Floor, North Annex, 4100 West 150th Street,
Cleveland, Ohio 44135-1385 (1-800-622-6757).
THE BOARD OF DIRECTORS CONSIDERS THIS PROPOSAL TO BE IN THE BEST INTERESTS OF
THE CORPORATION AND ALL OF ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS A VOTE
FOR APPROVAL OF THE RESTRUCTURING PLAN AND RESTATEMENT OF THE CHARTER TO REFLECT
SUCH APPROVAL.
PROPOSAL 2
PROPOSAL TO ELIMINATE THE
SUBSTANTIAL STOCKHOLDER PROVISION
The Board recommends the elimination of the Substantial Stockholder
Provision if the stockholders approve the elimination of the Corporation's dual
class capital structure. The Board believes that the Substantial Stockholder
Provision is extremely restrictive and is not necessary to protect the
Corporation from takeovers provided the Corporation implements the Restructuring
Plan and the Rights Plan.
The Substantial Stockholder Provision places limitations on the ability
of certain persons coming within the definition of a "Substantial Stockholder"
to vote shares of the Corporation beneficially owned by them. A Substantial
Stockholder is defined as any beneficial owner of more than a "threshold
percentage" -- generally 20% -- of the total number of outstanding voting shares
of any class of stock of the Corporation. A "beneficial owner" is anyone which
has or shares, directly or indirectly, the power to vote or dispose of shares.
Also, a person is deemed to be a "beneficial owner" of shares beneficially owned
by affiliates, or shares beneficially owned by any other person with which the
person or its affiliates acts as a partnership, limited partnership, syndicate
or other group pursuant to an agreement, arrangement or understanding
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concerning the acquiring, voting, holding or disposing of shares by such group.
Thus, a group of persons which has an agreement, arrangement or understanding
concerning the acquiring, holding, voting or disposing of shares would be deemed
to be a single stockholder which beneficially owns the aggregate number of
shares held by the individual members of the group. If such aggregate number of
shares exceeds 20% of the total number of outstanding voting shares of any class
of stock (or such other threshold percentage applicable to the group), the group
would be deemed to be a "Substantial Stockholder."
Certain exceptions from the definition of beneficial ownership are set
forth in the Substantial Stockholder Provision. These include an exception for
the attribution of beneficial ownership among directors and officers of the
Corporation solely by reason of their acting in their capacities as such, for
shares held under employee stock ownership and similar plans and for the
trustees thereof solely by reason of their capacities as such.
The threshold percentage for any stockholder, including a group under
the definition of Substantial Stockholder, is 20% of the total number of
outstanding voting shares of any class of stock. If a stockholder's percentage
of voting shares increases above the threshold applicable to it as a result of
purchases, redemptions or other acquisitions of voting shares by the
Corporation, or decreases below the threshold applicable to it as a result of an
issuance of voting shares by the Corporation or reduction in beneficial
ownership by the stockholder, the stockholder's threshold percentage will be
adjusted to equal the percentage of outstanding voting shares held immediately
after such event, but never less than 20%.
Once a person is determined to be a Substantial Stockholder, any shares
of any class or series of stock held in excess of its threshold percentage are
entitled to 1/100 of the vote per share to which such shares would otherwise be
entitled. In addition, a Substantial Stockholder is limited to casting a maximum
number of votes equal to its threshold percentage plus 5% -- generally 25% -- of
the total number of votes (after deducting votes that the Substantial
Stockholder is prevented from casting) of the class or series entitled to be
cast on a matter. This latter limitation prevents a Substantial Stockholder's
voting power from increasing beyond the additional 5% as a result of the lower
number of votes entitled to be cast by all of the stockholders of that class.
A simple example of the application of the Substantial Stockholder
Provision to a stockholder with a 20% threshold percentage and a 25% limit
illustrates its operation. For purposes of the example, it is assumed that the
Corporation has outstanding 1,000 voting shares of a particular class of stock,
all with one vote each. If a stockholder were to acquire 700 shares of such
class, he would become a Substantial Stockholder because he would hold more than
200 voting shares, 20% of the number of outstanding voting shares. As a
Substantial Stockholder, he would be entitled to 200 votes for his first 200
shares (20% of the outstanding class) and, due to the limitation on voting
rights for shares held in excess of 20% of the class (1/100 of the vote per
share), an additional five votes for his remaining 500 shares. These 205 votes
would be out of a total of 505 votes then entitled to be cast (that is, 205
votes by the Substantial Stockholder, and 300 votes by other holders of such
class of stock, assuming none of the other holders beneficially owned more than
20% of the total number of outstanding voting shares). Then, as these 205 votes
would constitute 41% of the total number of votes of the class of stock, the
provision which generally limits the Substantial Stockholder to not more than
25% of the total number of votes entitled to be cast by such class would limit
the Substantial Stockholder to 100 votes out of a total of 400 votes entitled to
be cast by holders of the class of stock. By comparison, another stockholder of
the Corporation which holds 100 shares would have 10% of the total voting power
before application of the Substantial Stockholder Provision, but would have 25%
of the total voting power after the voting power of the Substantial Stockholder
is reduced. Thus, any such reduction in the proportionate voting power of a
Substantial Stockholder has the effect of increasing the proportionate voting
power of all of the other stockholders of that class.
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In addition to eliminating the Substantial Stockholder Provision, the
amendments to Article Sixth of the Charter will include certain conforming
amendments. In this regard, the definition of continuing directors will be
revised to delete the reference to a Substantial Stockholder and to provide that
the directors as of December 15, 1998 are continuing directors.
The Board believes that the Substantial Stockholder Provision is more
restrictive than necessary to protect the Corporation from takeovers as long as
the Corporation's dual class capital structure is eliminated and the Rights Plan
is adopted. This is especially true since the Board cannot waive the provisions
of the Substantial Stockholder Provision. In order to continue to protect the
Corporation from abusive takeovers after the dual class capital structure and
the Substantial Stockholder Provision are eliminated, the Board adopted the
Rights Plan subject to effectiveness of the Restructuring Plan and the
elimination of the Substantial Stockholder Provision. The Board believes that
the Rights Plan will appropriately protect the interests of all of the
stockholders.
THE BOARD HAS MADE THE ELIMINATION OF THE SUBSTANTIAL STOCKHOLDER
PROVISION CONDITIONAL UPON THE APPROVAL OF THE RESTRUCTURING PLAN. The Board
believes that the Substantial Stockholder Provision should be retained if the
dual class capital structure is retained. If the dual class structure is
retained and the Substantial Stockholder Provision is eliminated, a raider could
acquire a controlling voting interest in the Corporation through the acquisition
of shares of Class B Common Stock for an aggregate price substantially lower
than would be required if the Corporation had only one class of common stock. If
the stockholders approve the Restructuring Plan and vote against the elimination
of the Substantial Stockholder Provision, the Board will implement the
Restructuring Plan, but will not adopt the Rights Plan.
If the Restructuring Plan is implemented, the voting power of the
Corporation's principal stockholder, Blum, which is a Substantial Stockholder,
will decrease from 8.9% of the outstanding shares of Class A Common Stock and
23.7% of the outstanding shares of Class B Common Stock as of the Record Date,
or 25.0% of the votes eligible to be cast, to 15.0% of the outstanding shares of
New Common Stock based upon the one-for-one conversion ratio and the outstanding
shares as of the Record Date. See "PROPOSAL 1 -- PROPOSAL TO ADOPT THE
RESTRUCTURING PLAN -- Ownership of Principal Stockholders Before and After the
Restructuring Plan Is Effective." In addition, if the Substantial Stockholder
Provision is eliminated, Blum will be able to acquire beneficial ownership of
additional shares of New Common Stock and have full voting power over those
shares, except that the provisions of the Rights Plan will, in effect, preclude
it from acquiring beneficial ownership of shares of New Common Stock that will
result in Blum becoming an Acquiring Person as defined in the Rights Plan. The
Rights Plan provides that the shares owned by a person who beneficially owns
more than 5% of the shares of Class A Common Stock or Class B Common Stock as of
September 23, 1998 will be excluded from the determination as to whether such
person is an acquiring person if the person has entered into a standstill
agreement with the Corporation prior to the final adoption of the Rights Plan.
See "BACKGROUND AND SUMMARY OF PROPOSALS TO AMEND THE CHARTER TO ELIMINATE THE
DUAL CLASS CAPITAL STRUCTURE AND THE SUBSTANTIAL STOCKHOLDER PROVISION -- The
Stockholders' Rights Plan." Since Blum L.P. and certain affiliates of Blum L.P.
have entered into such a standstill agreement with the Corporation, the
elimination of the Substantial Stockholder Provision will enable Blum to have
full voting power over up to 30.0% of the outstanding shares of New Common
Stock.
If the Restructuring Plan is implemented but the elimination of the
Substantial Stockholder Provision is not approved by the stockholders, the Board
will not adopt the Rights Plan. In that case, Blum will be unable
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to exercise full voting power over any shares of New Common Stock that it
beneficially owns in excess of the 20% threshold percentage.
THE BOARD OF DIRECTORS CONSIDERS THIS PROPOSAL TO BE IN THE BEST INTERESTS OF
THE CORPORATION AND ALL OF ITS STOCKHOLDERS AND RECOMMENDS A VOTE FOR APPROVAL
OF THE ELIMINATION OF THE SUBSTANTIAL STOCKHOLDER PROVISION AND RESTATEMENT OF
THE CHARTER TO REFLECT SUCH APPROVAL.
PROPOSAL 3
PROPOSAL TO LENGTHEN THE ADVANCE NOTICE PERIOD
FOR THE NOMINATION OF DIRECTORS BY STOCKHOLDERS
Section 2 of Article 2 of the Bylaws , as set forth in Appendix B
hereto, provides that written notice of a stockholder's intent to nominate an
individual for election to the Board at the Corporation's annual meeting of
stockholders must be filed with the Secretary of the Corporation not later than
10 days after notice for that meeting is sent to stockholders, or at least 21
days prior to the date fixed for holding the meeting at which the nomination is
intended to be made, whichever is later. This notice must include: (i) the name
and residence of the stockholder; (ii) proof that the stockholder is a holder of
record of the voting shares of the Corporation; (iii) consent of the nominee to
serve if elected; (iv) a description of all arrangements and understandings
between the stockholder and the nominee, and (v) any information on the nominee
which would need to be included in a proxy statement filed under the proxy rules
of the SEC. The advance notice is not required if the nomination is permitted by
the affirmative vote of two-thirds of the whole Board, provided that a majority
of the directors acting on the matter consists of continuing directors.
The Board proposes to amend this provision to lengthen the advance
notice period to 45 days prior to the anniversary of the mailing date of the
Corporation's proxy statement for the previous annual meeting. This would
provide a deadline of approximately 70 to 85 days prior to the anniversary of
the date of the previous annual meeting. The amendment of the notice provision
would provide the Board with time to consider the qualifications of a proposed
nominee before a proxy statement is mailed. The amendment would also make the
Corporation's advance notice provision similar to that of many other public
companies. Finally, such an amendment would be consistent with recent action
taken by the SEC to amend Rule 14a-4(c). The SEC's recently adopted amendment to
Rule 14a-4(c) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), takes the position that a reasonable deadline for a stockholder
to give notice to a company of the stockholder's intent to raise a matter from
the floor at an annual meeting of stockholders is 45 days prior to the
anniversary of the mailing date of the proxy statement for the previous annual
meeting.
The Proposal to lengthen the notice period for the nomination of
directors by stockholders will strengthen the anti-takeover protection provided
by this provision. The advance notice provision may impede an attempt to take
control of the board of directors and inhibit stockholders from participating in
the nominating process even if they have no intention of controlling the
Corporation. This provision was first adopted by the Corporation's stockholders
in 1983 when the Corporation reorganized from an Ohio corporation to a Delaware
corporation. The Corporation explained in the proxy statement relating to the
reorganization that the advance notice provision would provide the Board with
enough time for it to formulate its views with respect to a stockholder's
nominee prior to the stockholders' meeting at which the nominee was to be
nominated. In addition, the 1983 proxy statement noted that the advance notice
provision would enable the Board to institute litigation or take other
appropriate steps to prevent the nominee from being elected or
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serving if such action were thought to be necessary or desirable in the best
interests of the Corporation and its stockholders.
THE BOARD OF DIRECTORS CONSIDERS THIS PROPOSAL TO BE IN THE BEST INTERESTS OF
THE CORPORATION AND ALL OF ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS A VOTE
FOR APPROVAL OF THE AMENDMENT TO LENGTHEN THE NOTICE PERIOD FOR STOCKHOLDER
NOMINATION OF DIRECTORS.
PROPOSAL 4
PROPOSAL TO ELIMINATE CERTAIN UNNECESSARY
PREFERENCE, CONVERTIBLE AND REDEEMABLE STOCK PROVISIONS
The Board has approved eliminating certain provisions of Article Fourth
of the Charter because these provisions are unnecessary. A copy of the Restated
Charter, marked to show such proposed amendments, is set forth in Appendix A
hereto.
The last sentence of Division I of Article Fourth refers to shares of
certain series of preference stock that are no longer outstanding. Therefore,
this sentence is unnecessary and the Board proposes to eliminate it.
Division IV describes the conversion terms of any convertible shares
issued by the Corporation. Division V describes the redemption terms of any
shares issued by the Corporation that are redeemable. These provisions were
included in the charter of the Corporation's predecessor Ohio company which
provided for certain specific series of convertible and redeemable preference
stock and for additional series of preference stock having such terms and
conditions as were established by resolution of the Board. At the time of the
Corporation's formation in 1983, the Charter retained the "blank check"
preference stock provision, authorized for issuance the number of the
outstanding shares of the specific series of preference stock and provided that
no shares of the specific series of convertible and redeemable preference stock
could be reissued after they were redeemed. In 1985, the Corporation's
stockholders approved an amendment to the Charter to eliminate the provisions
related to those previously outstanding shares of preference stock. That
amendment, however, did not address the related provisions of Divisions IV and V
of Article Fourth. The Board recommends eliminating these provisions because
they are unnecessary. If the Corporation decides in the future to issue
convertible or redeemable preference stock, the Board has the authority under
the "blank check" preference stock provisions of Division I of Article Fourth of
the Charter to specify the conversion and redemption terms in the resolution
establishing the terms of the preference stock.
THE BOARD OF DIRECTORS CONSIDERS THIS PROPOSAL TO BE IN THE BEST INTERESTS OF
THE CORPORATION AND ALL OF ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS A VOTE
FOR APPROVAL OF THE ELIMINATION OF THE UNNECESSARY PREFERENCE STOCK, CONVERTIBLE
STOCK AND REDEEMABLE STOCK PROVISIONS AND RESTATEMENT OF THE CHARTER TO REFLECT
SUCH APPROVAL.
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PROPOSAL 5
PROPOSAL TO AMEND THE SCOTT TECHNOLOGIES, INC.
KEY EMPLOYEES' STOCK OPTION PLAN
On September 23, 1998, the Board approved, subject to stockholder
approval, amendments to the Option Plan to increase the number of shares
authorized for issuance pursuant to the terms of the Option Plan from 1,500,000
to 3,000,000 and revise the provisions relating to transferability of options, a
change in control of the Corporation, amendments of the terms of an option and
the provisions referring to Class A Common Stock. A marked copy of the Option
Plan as proposed for amendment (the "Amended Plan") is set forth in Appendix E
hereto. The Amended Plan has been prepared on the assumption that Proposals 1
(the Restructuring Plan) and 2 (the elimination of the Substantial Stockholder
Provision) will be adopted. In the event that both of these Proposals are not
adopted, the Amended Plan will be modified accordingly.
THE PROPOSED AMENDMENTS
The Option Plan provides for grants to selected key employees of the
Corporation and its subsidiaries of options to purchase not more than an
aggregate of 1,500,000 shares of Class A Common Stock. As of the date hereof,
the Corporation has only 3,760 shares remaining for option grants under the
Option Plan. This number is not sufficient for the Stock Option Committee to
provide appropriate incentives to its management, including its new Chairman of
the Board, or even to continue to grant options in amounts that are consistent
with its recent practices. Since the purpose of the Option Plan is to provide to
key employees additional incentives which are intended to enhance the
Corporation's ability to attract and retain key employees and align employees'
economic interests with those of the Corporation's stockholders, the Board
concluded that it was in the best interests of the Corporation and all of its
stockholders that the Option Plan be amended to authorize 1,500,000 additional
shares for issuance pursuant to the terms of the Option Plan.
The Stock Option Committee expects to grant Robert P. Collins, in
connection with his appointment as Chairman of the Board, an option to purchase
149,665 shares of Class A Common Stock (New Common Stock if the Restructuring
Plan is adopted) if the proposed amendments to the Option Plan are adopted. The
option is expected to be granted at an exercise price per share equal to the
closing sale price of a share of Class A Common Stock on the effective date of
the governing stock option agreement, which will be the date that the
stockholders approve the proposed amendments to the Option Plan. The option is
expected to be exercisable with respect to 37,416 shares upon the first
anniversary of the date of grant and, as to the remaining shares, upon the fifth
anniversary of the date of grant, except that it will be exercisable earlier
based upon certain market prices of the Corporation's shares of Class A Common
Stock (New Common Stock if the Restructuring Plan is adopted) to be specified at
the time of the grant. (On November 5, 1998, the closing price of a share of
Class A Common Stock was $14.4375.) The Stock Option Committee also expects to
continue to grant options as a component of key employees' total compensation
consistent with its practice since the adoption of the Option Plan in 1994.
In order to provide some estate planning flexibility to executives, the
Board also concluded that the Option Plan should be amended to authorize the
Stock Option Committee to permit nonqualified stock options to be transferred,
in the Stock Option Committee's discretion, for estate planning purposes and to
specify when the transferee must exercise the option after the original
optionee's termination of employment. This amendment will provide flexibility to
the Stock Option Committee to appropriately permit transfers of options. The
Code does not permit incentive stock options to be transferred other than upon
the death of an Optionee.
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In addition, the Board concluded that the Option Plan should be amended
to require the automatic acceleration of the vesting of outstanding options upon
the acquisition by a person of 50% or more of the votes of the Corporation's
outstanding shares of common stock in a transaction with the Corporation
accounted for under the pooling-of-interests method of accounting. If the Rights
Plan is not finalized because of the failure of stockholders to approve both
Proposals 1 and 2, the 50% amount will be reduced to 20%, consistent with the
terms of the Substantial Stockholder Provision. In all other types of changes in
control of the Corporation, as defined in the Option Plan, the Stock Option
Committee will continue to have the discretion to accelerate the vesting of
outstanding options. This amendment is necessary because the
pooling-of-interests method of accounting could not be used by the Corporation
if the Stock Option Committee exercised the authority it has under the existing
Option Plan to accelerate the vesting of options upon a change in control. An
automatic acceleration of the vesting of options upon a change in control is
consistent with the rules applicable to the pooling-of-interests method,
however.
The Board recommends revising the provisions of the definition of
"change in control" to refer to votes rather than shares and to make the
percentage amounts used in the definition "20%" other than with respect to a
pooling transaction. These amendments clarify that a change in control is based
upon control rather than numbers of shares.
The Board also recommends that the Option Plan be amended to authorize
the Stock Option Committee to rescind options granted after the effective date
of the Option Plan amendments to the extent necessary to enable the Corporation
to be a party to a business combination that is to be accounted for under the
pooling-of-interests method of accounting, provided that the optionee is given a
written opinion from the Corporation's independent accountants that the option
must be rescinded in order for the transaction to be accounted for under the
pooling-of-interests method. Section 7(d) now authorizes the Stock Option
Committee to terminate options upon stockholder approval of a change in control.
This provision could not be used, however, to terminate stock options when
necessary for the Corporation to use the pooling-of-interests method to account
for a business combination in which it issues shares to the shareholders of
another company. In addition, Section 7(d) could not be used by the Stock Option
Committee to terminate options before the stockholders approve the change in
control of the Corporation.
Finally, the Board recommends that the Option Plan be amended to refer
to the New Common Stock rather than the Class A Common Stock, if the
Restructuring Plan becomes effective. If it does not, the references to Class A
Common Stock will be retained in the Option Plan.
SUMMARY OF THE OPTION PLAN
The following is a brief description of the material features of the
Scott Technologies, Inc. Key Employees' Stock Option Plan. Such description is
qualified in its entirety by reference to the Option Plan, as proposed to be
amended, a marked copy of which is set forth in Appendix E hereto.
General. The Option Plan provides for the grant to key employees of
nonqualified stock options and "incentive stock options" within the meaning of
Section 422 of the Code. The Option Plan also provides for the granting of stock
appreciation rights that give the employee the right to elect a payment equal to
the appreciation of the stock value over the exercise price. The Option Plan is
intended to provide flexibility with respect to the terms and conditions of
stock awards to executives and other key employees.
Administration of the Option Plan. The Stock Option Committee is authorized to
administer and interpret the Option Plan and from time to time to adopt any
rules and regulations for carrying out the Option Plan that it
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may deem to be advisable. It has the authority: (i) to select the key employees
to whom options are granted; (ii) to determine the number of shares of common
stock which are subject to any option; (iii) to determine the time or times when
options are granted; (iv) to determine the exercise price of common stock
subject to an option; (v) to determine the time or times when each option
becomes exercisable and the duration of the exercise period; (vi) to determine
at the time of the granting of an option under the Option Plan whether and to
what extent such option is an incentive stock option entitled to the benefits of
Section 422 of the Code; (vii) to determine whether stock appreciation rights
are made part of any option grant, the method of valuing the stock appreciation
rights and whether the stock appreciation rights are exercisable in lieu of or
in addition to the related option; (viii) to prescribe the form of the option
agreements to be entered into under the Option Plan and to set the provisions of
such option agreements; (ix) to adopt, amend and rescind such rules and regu-
lations as, in the Stock Option Committee's opinion, are advisable in the
administration of the Option Plan; and (x) to construe and interpret the Option
Plan, the rules and regulations thereunder and the instruments evidencing
options granted under the Option Plan and to make all other determinations
deemed necessary or advisable for the administration of the Option Plan. In
addition, if the Proposal to amend the Option Plan is approved, the Stock Option
Committee will have the authority to authorize a transfer of an option,
establish the terms of such transfer and rescind an option to the extent
necessary for the Corporation to be a party to a pooling-of-interests
transaction.
Employees Eligible for Options. The Option Plan provides that options may be
granted from time to time in the discretion of the Stock Option Committee only
to such key employees of the Corporation or of a subsidiary of the Corporation
whose initiative and efforts contribute or may be expected to contribute to the
Corporation's growth and future success, including key employees who may also be
members of the Board. A key employee is defined by the Option Plan as any person
determined by the Stock Option Committee to be a high level executive officer or
other valuable managerial or technical employee of the Corporation or a
subsidiary of the Corporation. Currently, approximately 35 employees may be
considered to meet the definition of "key employee." Members of the Stock Option
Committee are not eligible to participate in the Option Plan, or to receive
options under it, while serving on the Stock Option Committee or for the year
prior to serving on the Stock Option Committee. A key employee who renounces in
writing any right to receive options under the Option Plan will not be eligible
to receive any options under the Option Plan. The Stock Option Committee may
grant more than one option, with or without stock appreciation rights, to the
same employee. No option may be granted to any employee during any period of
time when he or she is on a leave of absence.
Shares Subject to the Option Plan. The aggregate number of shares of common
stock for which options may be granted under the Option Plan is 1,500,000. The
proposed amendment would increase the total number of shares available for
issuance under the Option Plan by 1,500,000 to 3,000,000. Either treasury or
authorized and unissued shares, or both, in such amount or amounts, within the
maximum limits of the Option Plan, as the Stock Option Committee shall from time
to time determine, may be so issued. All shares of common stock which are the
subject of any lapsed, expired or terminated options may be made available for
regrants under the Option Plan to any eligible employee. In the event a stock
appreciation right is granted, the exercise of which is in lieu of exercise of
an option, and such stock appreciation right is thereafter exercised in whole or
in part, then such option or the portion thereof to which the duly exercised
stock appreciation right relates shall be deemed to have been exercised, and the
shares of common stock which otherwise would have been issued upon exercise of
such option, to the extent not used in payment for the stock appreciation right,
may generally be made available for regrants under the Option Plan.
In the event that the outstanding shares of common stock should be
increased or decreased or changed into or exchanged for a different number or
kind of shares of capital stock of the Corporation or of another corporation,
appropriate adjustments reflecting such changes will be made with respect to
both the number of
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shares for which options may be granted in the future and the number and the
exercise price for shares already subject to existing options.
Option Provisions. The exercise price per share of common stock which is the
subject of an incentive stock option under the Option Plan is determined by the
Stock Option Committee at the time of grant but cannot be less than 100% of the
fair market value of a share of common stock on the date such option is granted.
If the employee to whom an incentive stock option is granted is at the time of
the grant an owner of more than 10% of the total combined voting power of all
classes of the stock of the Corporation (a "Ten-Percent Stockholder"), the
exercise price per share will not be less than 110% of the fair market value of
a share of common stock on the date the option is granted. The exercise price
per share under each option granted pursuant to the Option Plan which is not an
incentive stock option is determined by the Stock Option Committee at the time
of grant and may be above or below the fair market value of the common stock on
the date such option is granted.
The Stock Option Committee determines when each option is to expire,
but no option may be exercisable for a period of more than ten years from the
date of grant. No incentive stock option granted to an employee who is a
Ten-Percent Stockholder at the time of the grant may be exercisable after the
expiration of five years from the date of grant.
Currently, only the key employee to whom an option is granted may
exercise the option, except where a guardian or other legal representative has
been duly appointed for the employee and except as otherwise provided in the
case of the employee's death and no option is transferable otherwise than by the
last will and testament of the employee to whom it is granted or, if the
employee dies intestate, by the applicable laws of descent and distribution or
to the extent approved by the Stock Option Committee pursuant to a qualified
domestic relations order as defined by the Code. The proposed amendments would
permit the Stock Option Committee, in its discretion, to provide for
transferability of an option for estate planning purposes. No option may be
pledged or hypothecated, nor may any option be subject to execution, attachment
or similar process.
The Stock Option Committee may, in its discretion, either make any
option immediately exercisable or require that, prior to the exercise of any
option, the optionee must have been an employee for a specified period of time
after the date of such option grant. Each option is subject to such additional
restrictions or conditions with respect to the right to exercise and the time
and method of exercise as the Stock Option Committee may prescribe. Upon
satisfaction of any such conditions, the option may be exercised in whole or in
part at any time during the option period, but this right of exercise shall be
limited to whole shares, unless the Stock Option Committee determines otherwise.
Options are exercised by the optionee giving written notice to the Corporation
of the optionee's exercise of the option and the number of shares with respect
to which the option is exercised, accompanied by full payment of the purchase
price either in cash or, with the consent of the Stock Option Committee, in
whole or in part in shares of common stock of the Corporation having a fair
market value on the date the option is exercised equal to that portion of the
purchase price for which payment in cash is not made. A dissolution or
liquidation of the Corporation will cause each outstanding option to terminate,
although each optionee will have the right during the period prescribed in the
option agreement prior to such dissolution or liquidation, to exercise his
option in whole or in part.
Certain provisions regarding a "change in control" of the Corporation
are discussed above in connection with the description of the proposed
amendments. In summary, the Stock Option Committee has the right to accelerate
the vesting of options upon a change in control. The term "change in control" is
currently defined in the Option Plan to include: (i) the first purchase of
shares pursuant to a tender offer or exchange (other than a tender offer or
exchange by the Corporation) for 10% or more of the common stock
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of any class or any securities convertible into such common stock; (ii) the
receipt by the Corporation of a Schedule 13D or other advice indicating that a
person is the "beneficial owner" (as that term is defined in Rule 13d-3 under
the Exchange Act) of 20% or more of the common stock calculated as provided in
paragraph (d) of Rule 13d-3; (iii) the date of approval by stockholders of the
Corporation of an agreement providing for any consolidation or merger of the
Corporation in which the Corporation 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 Corporation would be
converted into cash, securities, or other property, other than a merger of the
Corporation in which the holders of common stock of all classes immediately
prior to the merger would have the same proportion of ownership of common stock
of the surviving corporation immediately after the merger; (iv) the date of the
approval by stockholders of the Corporation 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 Corporation; (v) the adoption of any plan
or proposal for the liquidation (but not a partial liquidation) or dissolution
of the Corporation; or (vi) such other event as the Stock Option Committee
shall, in its discretion, deem to be a "change in control." Under the proposed
amendments, options will automatically accelerate upon the acquisition by a
person of 50% or more of the votes of the outstanding shares in a transaction to
be accounted for under the pooling-of-interests method.
If an optionee ceases to be an employee of the Corporation or any of
its subsidiaries, the optionee shall be able to exercise an option during the
following periods (but not beyond the original term of the option): (i) three
months after the date the optionee ceased to be an employee if the reason for
the optionee's cessation as an employee was other than his death or disability;
or (ii) one year after the date the optionee ceased to be an employee if the
reason for the optionee's cessation as an employee was his disability. If an
optionee dies prior to the expiration of an option, the optionee's estate, or
the person designated in his last will and testament, or the person to whom the
option is transferred by the applicable laws of descent and distribution, shall
be able to exercise the option during the one-year period after the date the
optionee ceased to be an employee if either (A) the optionee died while he was
an employee of the Corporation or any of its subsidiaries or (B) the optionee
died within three months after ceasing to be an employee of the Corporation or
any of its subsidiaries. The proposed amendments regarding transfers of options
for estate planning purposes would authorize the Stock Option Committee to
specify when a transferee could exercise an option after the initial optionee's
termination of employment.
Notwithstanding the foregoing, the Stock Option Committee may in its
discretion provide in the option for shorter or longer periods in which the
option can be exercised after the optionee's cessation as an employee or provide
that the option shall not be exercisable at all after the optionee's cessation
as an employee of the Corporation or any of its subsidiaries. However, no period
of exercise with respect to an option may be extended beyond the original
expiration date of the option.
Stock Appreciation Rights. The Stock Option Committee may provide, at the time
of the grant of a stock option and upon such terms and conditions as it deems
appropriate, that an optionee may have the right with respect to all or a
portion of the option granted to him to elect in lieu of exercising such option
to surrender such option in exchange for the consideration described below.
Alternatively, the Stock Option Committee may provide, at the time of the grant
of a stock option and upon such terms and conditions as it deems appropriate,
that an optionee may have the right with respect to all or a portion of the
option granted to him to receive the consideration set forth below upon
exercising such option in addition to any shares of common stock purchased upon
exercise thereof. Stock appreciation rights must be specifically granted by the
Stock Option Committee; however, the Stock Option Committee will have no
authority to grant stock appreciation rights except in connection with the grant
of a stock option pursuant to the Option Plan, and no optionee shall be entitled
to such rights solely as a result of the grant of an option. Stock appreciation
rights, if granted, may
32
<PAGE> 38
be exercised either with respect to all or a portion of the option to which they
relate. Stock appreciation rights are not transferrable separate from the option
to which they relate and are subject to all of the restrictions on transfer
applicable to such option. Stock appreciation rights are exercisable only at
such times and by such persons as are specified in the option agreement
governing the stock option to which they relate.
Stock appreciation rights will provide an optionee with the right to
receive a percentage, not greater than 100%, of the excess over the exercise
price, if any, of the fair market value of the shares of common stock covered by
the option, as determined by the Stock Option Committee as of the date of
exercise of the stock appreciation right, in the manner provided for in the
Option Plan. Such amount will be payable in one or more of the following
manners, as determined by the Stock Option Committee: (i) in cash; (ii) in
shares of common stock having a fair market value equal to such amount; or (iii)
in a combination of cash and shares of common stock. If payment is made in whole
or in part in shares of common stock, such payment will reduce the number of
shares available for the grant of options under the Plan.
In no event may any optionee exercise any stock appreciation rights
granted under the Option Plan unless such optionee is then permitted to exercise
the option or the portion thereof with respect to which such stock appreciation
rights relate. If the governing option agreement provides that exercise of the
stock appreciation rights is in lieu of the exercise of the option, then (i)
upon the exercise of any stock appreciation rights, the option or that portion
thereof to which the stock appreciation rights relate will be canceled, and (ii)
upon the exercise of the option or that portion thereof to which the stock
appreciation rights relate, the stock appreciation rights will be canceled. If
the option agreement provides that exercise of the stock appreciation rights is
in addition to exercise of the option, then (i) upon the exercise of any stock
appreciation rights, the option or that portion thereof to which the stock
appreciation rights relate will be deemed to be exercised and (ii) upon the
exercise of the option, the stock appreciation rights corresponding thereto will
be deemed to be exercised to the extent the option is exercised. The terms of
any stock appreciation rights granted under the Option Plan will be incorporated
into the option agreement which governs the option with respect to which the
stock appreciation rights are granted, and will be on such terms as the Stock
Option Committee may prescribe. The granting of an option or stock appreciation
right will impose no obligation upon the optionee to exercise such option or
right and the Corporation's obligation to satisfy stock appreciation rights will
not be funded or secured in any manner.
Limitations on Grant of Stock Options. No individual key employee will be
granted options for, or stock appreciation rights with respect to, more than
750,000 shares of common stock in any five-year period. During the calendar year
in which any incentive stock options granted under the Option Plan first become
exercisable by an optionee, the aggregate fair market value of the shares of
common stock which are subject to such incentive stock options (determined as of
the date the incentive stock options were granted) may not exceed the sum of
$100,000.
Amendments to the Plan. Subject to the approval of the Board, the Stock Option
Committee may at any time amend, modify, suspend or terminate the Option Plan.
In no event, however, without the approval of stockholders, may any action of
the Stock Option Committee or the Board result in: (i) amending, modifying or
altering the eligibility requirements; (ii) increasing or decreasing, except as
set forth in "Shares Subject to the Option Plan" above, the maximum number of
shares as to which options may be granted; (iii) decreasing the minimum option
price per share at which options may be granted under the Option Plan; (iv)
extending either the maximum period during which an option is exercisable or the
date on which the Option Plan shall terminate; (v) changing the requirements
relating to the Stock Option Committee; or (vi) making any other change which
would cause any options granted under the Option Plan as incentive stock options
not to qualify as such options within the meaning of Section 422 of the Code,
except to conform the Option Plan and the
33
<PAGE> 39
option agreements to changes in the Code or governing law. The proposed
amendments would permit the Stock Option Committee to terminate an option when
necessary for a transaction to be accounted for under the pooling-of-interests
accounting method.
Termination of the Plan. The Option Plan will terminate on October 19, 2004. All
options outstanding at the time of termination of the Option Plan will continue
in full force and effect according to their terms and the terms and conditions
of the Option Plan.
Federal Income Tax Consequences
Incentive Stock Options. With respect to an incentive stock option, the optionee
will realize no income for Federal income tax purposes upon the grant or
exercise of the option, but the difference between the option price and the fair
market value of the shares at the date of exercise will constitute an item of
tax preference which may be subject to the alternative minimum tax.
If no disposition of shares acquired through the exercise of incentive
stock options is made by the optionee within one year after the exercise, or
within two years after the grant of the option, any amount realized by the
optionee in the event of a sale of the optionee's shares which is in excess of
the optionee's cost will be taxed as a long-term capital gain. Sixty percent of
such net capital gain realized on the disposition of the shares is an item of
tax preference which may be subject to the alternative minimum tax. The
alternative minimum tax is paid only if it exceeds the regular tax.
The Corporation is entitled to no deduction for Federal income tax
purposes, either in connection with the granting of an incentive stock option or
upon its exercise. If, however, the optionee disposes of the optionee's shares
within the one-year or two-year periods mentioned above, the optionee will be
required to include in the optionee's income, as compensation, the excess of the
fair market value of the shares at the date of exercise or, in certain cases, if
less, the amount realized on disposition, over the option price, and the
Corporation will be entitled to a tax deduction in the year of disposition of
the shares equal to any amount which the optionee is required to treat as
compensation income.
Nonqualified Stock Option. With respect to a nonqualified stock option, an
optionee will not realize income upon the granting of such an option; however,
in any year in which an optionee exercises a part or all of such option, the
excess, if any, of the fair market value of the shares at the date of exercise
over the option price will be taxed as compensation at ordinary income tax
rates, the Corporation will be entitled to a tax deduction for the same amount
in the same year. Under Section 162(m) of the Code, the Corporation is not
entitled to deduct remuneration paid to any one of the five highest paid
executives in excess of $1,000,000. The Corporation believes that nonqualified
stock options under the Option Plan will not be subject to the $1,000,000 limit.
THE BOARD OF DIRECTORS CONSIDERS THIS PROPOSAL TO BE IN THE BEST INTERESTS OF
THE CORPORATION AND ALL OF ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS A VOTE
FOR APPROVAL OF THE AMENDMENTS TO THE SCOTT TECHNOLOGIES, INC. KEY EMPLOYEES'
STOCK OPTION PLAN.
34
<PAGE> 40
EXECUTIVE AND DIRECTOR COMPENSATION
EXECUTIVE COMPENSATION
Summary of Compensation. The following table shows information concerning the
annual and long-term compensation earned during the last three fiscal years by
the persons who served as the Corporation's chief executive officer ("CEO")
during 1997 and each of the Corporation's other executive officers during 1997
whose total annual salary and bonus exceeded $100,000 (the "Named Executive
Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATiON COMPENSATION
----------------------------------------- ---------------------------------------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL COMPENSA- AWARD(S) OPTIONS/ COMPENSA-
POSITION DURING 1997 YEAR SALARY BONUS TION(1) (S) SARs(#) TION(2)
- ---------------------- ---- ------ ----- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
John P. Reilly(3)
Chairman, CEO and
President 1997 $41,667 -- -- -- -- $33,407
1996 500,000 $300,000 -- -- -- 38,241
1995 500,000 250,000 $67,198 $165,000 500,000 38,178
Glen W. Lindemann(4)
President and CEO 1997 221,417 203,800 -- -- 220,000 28,219
Steven L. Siemborski(5)
Senior Vice President
and Chief Financial
Officer 1997 350,000 200,000 482,813 -- 62,500 14,420
1996 350,000 182,000 344,531 -- -- 21,290
1995 350,000 108,000 448,124 -- -- 16,179
William J. Sickman(6) 1997 141,917 30,000 -- -- 50,000 5,010
Vice President -
Corporate Relations
</TABLE>
- ------------------
(1) The amounts indicated with respect to Mr. Siemborski represent the
difference between the fair market values of the 37,500 shares of Class
A Common Stock acquired by Mr. Siemborski in each of 1997, 1996 and
1995 and the prices paid by Mr. Siemborski for those shares.
(2) (a) Includes the discounted value of the benefit to each of the Named
Executive Officers of the premium paid by the Corporation during 1997
for one or more split-dollar insurance policies under which the
executive receives an interest in the cash surrender value of the
policy at the time when the ownership of the policy is split between
the executive and the Corporation. The Named Executive Officers paid a
portion of the premium based upon a rate for term life insurance. The
amounts reflected in the table for split-dollar insurance are as
follows: John P. Reilly -- $33,407; Glen W. Lindemann -- $26,619;
Steven L. Siemborski -- $12,820; and William J. Sickman -- $3,580.
35
<PAGE> 41
(b) Includes the Corporation's contribution of the following amounts
under the Corporation's 401(k) plans: Glen W. Lindemann -- $1,600;
Steven L. Siemborski -- $1,600; and William J. Sickman -- $1,430.
(3) Mr. Reilly resigned as CEO and President of the Corporation on January
24, 1997 and served as the non-employee Chairman of the Board until
November 3, 1998. He continues to serve as a member of the Board.
(4) Mr. Lindemann became President and CEO of the Corporation on September
22, 1997. Prior to that time, he served as a member of the Office of
the Chairman of the Board between January 24, 1997 and September 22,
1997 and President of the Corporation's Scott Aviation division.
(5) Mr. Siemborski resigned from the Corporation on March 31, 1998.
(6) Mr. Sickman became an executive officer of the Corporation on February
1, 1997, and on November 6, 1998, gave notice of his resignation
effective on December 21, 1998.
Stock Options. The following table provides information related to options for
shares of Class A Common Stock granted to the Named Executive Officers during
1997:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER % OF POTENTIAL REALIZABLE VALUE AT
OF SECU- TOTAL ASSUMED ANNUAL RATES OF STOCK
RITIES OPTIONS PRICE APPRECIATION
UNDER- GRANTED FOR OPTION TERM(1)
LYING TO EM- EXERCISE --------------------------------
OPTIONS PLOYEES OR BASE
GRANTED IN PRICE GRANT EXPIRA-
NAME # FISCAL YEAR ($/SHARE) DATE TION DATE 0% 5% 10%
- ------------------ -------- ---------- --------- ------ --------- --- --- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John P. Reilly -- -- -- -- -- 0 -- --
Glen W
Lindemann(2) 20,000 3.8 12.375 02/04/97 02/03/04 0 $ 100,757 $ 234,808
200,000 38.2 13.75 09/22/97 09/21/04 0 1,119,526 2,608,972
Steven L.
Siemborski(3) 25,000 4.8 12.375 02/04/97 02/03/04 0 125,947 293,509
37,500 7.2 1.00 09/16/97 11/01/97 0 N/A N/A
William J.
Sickman(4) 50,000 9.6 12.375 02/04/97 02/03/04 0 251,893 587,019
All Optionees 523,000 100% Various Various Various N/A
</TABLE>
- ------------------
(1) The dollar amounts under these columns are the results of calculations at
assumed annual rates of stock price appreciation of 0%, 5% and 10%. These
assumed rates of growth were selected by the SEC for illustration purposes
only. They are not intended to forecast possible future appreciation, if
any, of the Corporation's stock price. Since optionees received options
with an exercise
36
<PAGE> 42
price equal to the market value on the date of grant, no gain is possible
without an increase in stock prices, which will benefit all stockholders.
A 0% gain in stock price will result in a 0% benefit to such optionees.
(2) Mr. Lindemann's option to purchase 20,000 shares of Class A Common Stock
is scheduled to vest in 1/3 cumulative installments on each of February 4,
1998, 1999, and 2000. Mr. Lindemann's option to purchase 200,000 shares of
Class A Common Stock is scheduled to vest in 1/5 cumulative installments
on each of September 22, 1998, 1999, 2000, 2001 and 2002.
(3) Mr. Siemborski's option to purchase 25,000 shares of Class A Common Stock
is scheduled to vest in 1/3 cumulative installments on each of February 4,
1998, 1999 and 2000. The option for 37,500 shares of Class A Common Stock
was granted pursuant to Mr. Siemborski's employment agreement dated July
1, 1994. The option was immediately exercisable. On March 9, 1998, Mr.
Siemborski was granted an option to purchase 23,000 shares of Class A
Common Stock. Upon Mr. Siemborski's resignation from the Corporation on
March 31, 1998, the Stock Option Committee approved the immediate vesting
of all option grants and extended the period the options can be exercised
to March 31, 1999.
(4) Mr. Sickman's option to purchase 50,000 shares of Class A Common Stock is
scheduled to vest in 1/5 cumulative installments on each of February 4,
1998, 1999, 2000, 2001 and 2002.
The following table provides information related to any stock options
for shares of Class A Common Stock exercised by the Named Executive Officers
during 1997 and certain information about unexercised options held by the Named
Executive Officers at December 31, 1997:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURI-
TIES UNDERLYING VALUE OF UNEXER-
UNEXERCISED OPTIONS CISED IN-THE-MONEY
AT FY-END OPTIONS AT FY-END
SHARES ACQUIRED VALUE (#) ($)
ON EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
- ----------------------- --------------- -------- ------------------- ---------------------
<S> <C> <C> <C> <C>
John P. Reilly.......... 0 0 200,000 / 0 $1,325,000/ 0
Glen W. Lindemann....... 0 0 16,667 /235,333 75,334/$66,666
Steven L. Siemborski.... 37,500 $482,813 0 / 25,000 0/ 18,750
William J. Sickman...... 0 0 13,344 / 62,656 59,337/ 79,163
</TABLE>
COMPENSATION OF DIRECTORS
Effective April 1, 1998, the directors, except for those who are also
employees of the Corporation, receive an annual stipend of $15,000, an
attendance fee of $1,000 for each meeting of the Board and $750 for each
telephonic meeting of the Board. In addition, the non-employee members of the
Audit Committee and the Management Development and Compensation Committees
receive $3,000 per year, and an attendance fee of $500 for each separate meeting
(including telephonic meetings). Non-employee members of the Nominating
Committee and the Stock Option Committee receive an attendance fee of $500 for
each meeting (including
37
<PAGE> 43
telephonic meetings). The directors also receive travel and lodging expenses in
connection with their attendance at Board and committee meetings.
At the Annual Meeting of Stockholders in May 1998, the stockholders
approved the Directors' Stock Option Plan pursuant to which the nonemployee
directors receive nonqualified options to purchase shares of Class A Common
Stock at an exercise price equal to the fair market value of a share of Class A
Common Stock on the grant date. The Directors' Stock Option Plan provides for
the grant of options for 2,500 shares of Class A Common Stock on July 1, 1998
and for the grant of options for 2,500 shares of Class A Common Stock each July
1 thereafter.
The Corporation has agreed to pay a death benefit, in the amount of
$200,000, to the estate of each director, other than a director who is also an
employee, upon his death. This benefit is provided to a director while in office
and after retirement if he retired after the latter of his service as a director
for five years or his 65th birthday. A director who does not stand for
re-election because he is age 72 or older or a director who does not stand for
re-election and who was a director in 1976, is designated a "Director Emeritus,"
is entitled to attend Board meetings, is reimbursed for his travel expenses
incurred in attending such Board meetings and is paid the annual fee to which
directors are entitled for a period ending upon the earlier of his death or the
third anniversary of the date upon which he ceased to be a director.
RETIREMENT PLANS
Retirement Income Plan II. All of the executive officers of the Corporation are
currently accruing retirement income credits under, or will accrue such credits
upon their satisfaction of the eligibility requirements set forth in, the
Salaried Employee Retirement Income Provisions of the Scott Technologies, Inc.
Retirement Income Plan II (the "Salaried Provisions"), a defined benefit pension
plan. The Salaried Provisions cover the salaried employees of the Corporation.
Directors who are not employees are not entitled to receive retirement benefits
under the Salaried Provisions.
In general, the Salaried Provisions, as amended effective July 31,
1993, provide that salaried employees accrue dollar units of retirement income
credits for each calendar year of participation in the Salaried Provisions on
the basis of their "Annual Pensionable Earnings." To receive full benefits under
the Salaried Provisions, employees must contribute 2% of their "Annual
Pensionable Earnings" over their "Covered Compensation." The following table
sets forth the percentage Annual Pensionable Earnings which is accrued as a
retirement income credit under the Salaried Provisions based upon 1997
compensation:
<TABLE>
<CAPTION>
ANNUAL PENSIONABLE EARNINGS(1)
---------------------------------
0-100% OVER 100% OF
OF COVERED COVERED
COMPENSATION(2) COMPENSATOIN(2)
-------------- -----------------
<S> <C> <C>
Retirement Income Credit................ 0.7% 1.2%
</TABLE>
- ------------------
(1) "Annual Pensionable Earnings" includes cash salaries and bonuses received
by the participant but excludes any such earnings in excess of $160,000 for
calendar year 1997 and thereafter (plus any increase for cost-of-living as
shall be prescribed by the Secretary of the Treasury pursuant to Sections
401(a)(17) and 415(d) of the Code).
38
<PAGE> 44
(2) "Covered Compensation" means the average of the contributions and benefit
bases in effect under Section 230 of the Social Security Act for each such
calendar year in the 35 calendar years ending immediately prior to each
such calendar year. For calendar year 1998, Covered Compensation equals
$29,304.
Generally, any salaried employee of the Corporation is eligible to
participate in the Salaried Provisions after the earlier of the completion of
one year of service or attainment of age 40. A participant becomes vested in the
Salaried Provisions five years after the participant's hire date. Upon reaching
normal retirement at age 65, each participant is generally entitled to receive
an annual retirement benefit for life equal to the total of the retirement
income credits accrued by him during his period of participation. Such benefit
is not subject to any deduction for Social Security benefits. A reduced annual
retirement income benefit may be payable to a retired employee under other
actuarially equivalent forms of pay-out provided for in the Salaried Provisions.
The Salaried Provisions also contain provisions for early retirement and
preretirement death benefits payable to spouses and dependent children of
certain deceased participants.
As of December 31, 1997, the annual benefits payable upon retirement
under the Salaried Provisions, including accrued benefits from the predecessor
plan to the Salaried Provisions, to the Named Executive Officers are stated
below. In determining such benefits, the executives' earnings were estimated
through 1997 and were assumed not to exceed $160,000 after 1998. Covered
Compensation ($29,304 for 1998) was assumed not to increase after 1998, the
maximum allowable employer-funded benefit under the Code (which is the greater
of $130,000 or the accrued benefit as of December 31, 1982) was assumed to
continue to retirement and the executives were assumed to continue working until
at least age 65 and to be fully vested. Based upon the preceding assumptions,
the annual benefits payable to such persons, including benefits payable as a
result of voluntary contributions and the accrued benefits from the predecessor
plan to the Salaried Provisions, are as follows: Mr. Reilly -- $0 (as a result
of Mr. Reilly's resignation); Mr. Lindemann -- $15,478; Mr. Siemborski -- $0 (as
a result of Mr. Siemborski's resignation); and Mr. Sickman -- $9,595.
Senior Executive Benefits Program. The following table shows the annual benefits
upon retirement at age 65 for various combinations of compensation for 1997 and
credited service which may be payable under the Corporation's Senior Executive
Benefits Program (the "SEBP") to the Named Executive Officers who may receive
benefits under the SEBP. These amounts are paid in addition to the amounts
payable under the Salaried Provisions discussed above.
39
<PAGE> 45
PENSION PLAN TABLE
<TABLE>
<CAPTION>
ANNUAL BENEFIT FOR YEARS OF CREDITED SERVICE SHOWN(1)
----------------------------------------------------------------------------------------------
REMUNERATION(2) 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- --------------- -------------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
$125,000 $ 16,390 $ 36,664 $ 29,854 $ 23,044 $ 16,233 $ 9,423
150,000 24,224 48,414 40,104 31,794 23,483 15,173
175,000 33,857 62,864 53,954 45,044 36,133 27,223
200,000 44,690 79,114 70,204 61,294 52,383 43,473
225,000 55,524 95,364 86,454 77,544 68,633 59,723
250,000 66,357 111,614 102,704 93,794 84,883 75,973
300,000 88,024 144,144 135,204 117,383 117,383 108,473
350,000 109,690 176,614 167,704 158,794 149,883 149,883
400,000 131,357 209,114 200,204 191,294 182,383 173,473
450,000 153,024 241,614 232,704 214,883 214,883 214,883
500,000 174,690 274,114 265,204 256,294 247,383 238,473
</TABLE>
- ------------------
(1) Annual benefits are computed on the basis of 100% joint and survivor
benefits. The annual benefits reflected in the table constitute 65% of
final covered remuneration prorated for service less than 15 years, less
assumed Social Security benefits of $24,156 and less assumed amounts of
benefits payable under the Salaried Provisions. The benefits under the
Salaried Provisions have been calculated based upon the assumptions that
the amount of Covered Compensation, as defined in the Salaried Provisions,
remains fixed for all years of participation and the amount of Annual
Pensionable Earnings, as defined in the Salaried Provisions, is limited to
amounts that do not exceed $160,000. (See the description of the Salaried
Provisions set forth above. Accrual under the Salaried Provisions for years
prior to 1997 may be less than as assumed.) The gross annual benefits will
be increased by 10% of the final covered remuneration for a participant in
the SEBP as of February 18, 1987 or a person hired prior to February 18,
1987 who completes 20 years of service. The annual benefits will be reduced
by Social Security benefits and any retirement or deferred compensation
plans of other employers.
(2) Consists of base salary and bonus received for 1997.
As of December 31, 1997, the number of credited years of service for
Mr. Sickman, the only Named Executive Officer who may receive benefits under the
SEBP, was nine years.
In April 1998, the Board approved a new retirement plan for senior
executives which provides to them the benefits under the Salaried Provisions
that they would have received if the Salaried Provisions covered compensation
equal to more than the amount specified by the Secretary of the Treasury of the
United States ($160,000 for calendar year 1997). The new plan covers all excess
earnings beginning on January 1, 1998.
EMPLOYMENT AND SEVERANCE AGREEMENTS
The Corporation expects to enter into an employment agreement (the
"Management Agreement") with Robert P. Collins. The Management Agreement will
provide for Mr. Collins' employment as Chairman of the Board, effective on
November 3, 1998, for a one-year period and automatic extensions for successive
one-year terms thereafter unless either the Corporation or Mr. Collins
terminates the Management Agreement after the initial one-year period or at the
end of any successive one-year term thereafter. During the initial one-year
period, Mr. Collins will receive an annual base salary of $200,000 and will be
required to devote 25% of his time to the discharge of his duties as Chairman of
the Board. Mr. Collins will not be entitled to participate in
40
<PAGE> 46
any of the Corporation's employee benefit plans or receive any perquisites,
except that he will be entitled to reimbursement for reasonable expenses
incurred in performing his duties. In the event that Mr. Collins becomes
disabled, the Corporation will have the right to terminate Mr. Collins'
continued active service as Chairman of the Board and the payment of
compensation due under the Management Agreement. The Corporation expects that
the Management Agreement will provide for a grant to Mr. Collins of an option to
purchase 149,665 shares of Class A Common Stock (New Common Stock if the
Restructuring Plan is adopted) pursuant to the Option Plan, at an exercise price
per share equal to the closing sale price of a share of Class A Common Stock on
the effective date of the governing stock option agreement, which will be the
date that the stockholders approve the proposed amendments to the Option Plan
including an increase in the number of shares available for issuance (Proposal
5). The option is expected to be exercisable as to 37,416 shares upon the first
anniversary of the date of grant and, as to the remaining shares, upon the fifth
anniversary of the date of grant, except that it will be exercisable earlier
based upon certain specified market prices of the Corporation's shares of Class
A Common Stock (New Common Stock if the Restructuring Plan is adopted) to be
specified at the time of the grant. The option will expire seven years from the
date of the grant.
The Corporation entered into an amended and restated management
agreement dated August 17, 1998 (the "Restated Agreement") with Glen W.
Lindemann, which replaced the amended and restated management agreement dated
June 9, 1997 which it had entered into with Mr. Lindemann previously. The
Restated Agreement provides for Mr. Lindemann's employment as President and
Chief Executive Officer of the Corporation from January 1, 1998 to December 31,
2000, and automatic extensions for successive one-year terms thereafter unless
either the Corporation or Mr. Lindemann terminates the Restated Agreement on
December 31, 2000 or at the end of any successive one-year term thereafter. Mr.
Lindemann will receive an annual base salary of $350,000 during the initial term
of the Restated Agreement, plus any increases that the Compensation Committee of
the Board may approve. Provided that he satisfies any applicable eligibility
requirements, Mr. Lindemann is entitled to participate in all employee benefit
plans and receive any perquisites provided to senior executives, and will be
reimbursed for all reasonable expenses incurred by him in performing his
duties. If Mr. Lindemann's employment terminates due to his retirement or death,
his benefits will be determined in accordance with the Corporation's retirement
and other applicable programs then in effect. In addition, in the event Mr.
Lindemann dies, the Corporation will pay to his spouse or the executor or
administrator of his estate a pro-rata portion of any bonus which would have
been payable to him. In the event Mr. Lindemann becomes disabled, the
Corporation can terminate his continued active service as President and Chief
Executive Officer and the payment of any compensation and benefits due under the
Restated Agreement. In such event, the Corporation will pay Mr. Lindemann's
benefits in accordance with the Corporation's disability and other applicable
plans and programs then in effect. If Mr. Lindemann voluntarily terminates his
employment without good reason (as defined in the Restated Agreement), the
Corporation will pay his full base salary plus all other benefits to which he
has a vested right through the effective date of termination. Mr. Lindemann may,
in lieu of receiving any other severance payment, receive the following
severance benefits if he voluntarily terminates his employment with good reason
or the Corporation terminates his employment other than for cause (as defined in
the Restated Agreement): (i) a pro-rata bonus calculated under the Corporation's
Bonus Plan for the year in which employment is terminated; (ii) payment for the
cost of outplacement services in an amount equal to up to 17% of his annual base
salary; (iii) payment, net of taxes, of the equivalent of 12 months of the
applicable monthly car allowance; (iv) immediate exercisability of all stock
options, which will remain fully exercisable until the earlier of their
expiration or one year after the date of termination; (v) assistance in
obtaining the necessary financing to exercise the stock options; (vi) tax and/or
legal consultation in connection with the benefits granted under the Restated
Agreement, in an amount up to $5,000; and (vii) continued payment of all other
benefits to which Mr. Lindemann has a vested right according to any applicable
retirement or other benefit program. Having executed a non-competition
agreement, Mr. Lindemann will be eligible to receive severance pay in the amount
of his monthly base salary in effect on
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the date of termination by Mr. Lindemann with good reason or by the Corporation
other than for cause, as well as life insurance and health care benefits (unless
comparable benefits are provided by a subsequent employer), for 24 calendar
months following the date of his termination. The Corporation has agreed to
indemnify Mr. Lindemann for the amount of any excise tax payable under the
Restated Agreement, as well as costs incurred in appealing a determination of
the Internal Revenue Service as to the applicability of such excise tax. In the
event of a change in control (as defined in the Restated Agreement), all stock
options granted to Mr. Lindemann will become immediately exercisable and will
remain so until their expiration. In the event the Corporation uses the proceeds
from a sale or disposition of any of the Corporation's affiliates (as defined in
the Restated Agreement) to provide a dividend to the stockholders of the
Corporation, the stock options granted to Mr. Lindemann pursuant to the Option
Plan will become immediately exercisable in full upon the effective date of such
sale or disposition, so that Mr. Lindemann will be entitled to receive the
dividend if he exercises the option.
The Corporation entered into an amended and restated management
agreement dated June 11, 1997 (the "1997 Agreement") with William J. Sickman. On
November 6, 1998, Mr. Sickman gave notice of his resignation effective on
December 21, 1998. The 1997 Agreement provides for Mr. Sickman's employment as
Vice President -- Corporate Relations for a three-year term, and automatic
extensions for successive one-year terms thereafter unless either the
Corporation or Mr. Sickman terminates the 1997 Agreement at the end of the
initial three-year term or at the end of any successive one-year term
thereafter. If Mr. Sickman's employment is terminated due to his retirement or
death, his benefits will be determined in accordance with the Corporation's
retirement and benefits plans then in effect. In the event Mr. Sickman becomes
disabled, the Corporation can terminate Mr. Sickman's 1997 Agreement (but not
Mr. Sickman's employment), and Mr. Sickman's benefits will be determined in
accordance with the Corporation's disability and other applicable plans then in
effect. If the Corporation terminates Mr. Sickman's employment other than for
cause (as defined in the 1997 Agreement) or Mr. Sickman terminates his
employment for good reason (as defined in the 1997 Agreement and the Addendum
described below), the Corporation will, at Mr. Sickman's election, either
continue to pay Mr. Sickman his monthly base salary then in effect for 24 full
calendar months following the date of such termination or make a lump-sum
payment to Mr. Sickman of the amount due. In addition, the Corporation will make
a payment to Mr. Sickman of an amount equal to 12 months of the monthly vehicle
allowance payments being received at the time of termination; will pay a
performance bonus, pro-rated for the current year up to the date of termination;
and all options previously granted to Mr. Sickman pursuant to the Option Plan
will become immediately vested and the period to exercise such options will be
extended to the earlier of one year from the date of termination or the
expiration date of the grant. The Corporation also will be obligated to continue
to provide Mr. Sickman with his life insurance and health care benefits (unless
com parable benefits are provided by a subsequent employer) for 24 months on the
same terms and at the same cost as provided to a similarly situated full-time
employee; the period of severance will be counted towards vesting in the SEBP;
and Mr. Sickman will be entitled to outplacement services in an amount equal to
up to 17% of his annual base salary. In the event of any termination, the
Corporation will be obligated to pay when due all other benefits to which Mr.
Sickman has a vested right.
The Corporation and Mr. Sickman entered into an addendum to the 1997
Agreement dated August 13, 1998, and modified on October 30, 1998 (the
"Addendum"). The Addendum provides that effective November 16, 1998, if Mr.
Sickman has not given notice of his intent to terminate his employment, Mr.
Sickman's benefits under the SEBP will be eliminated in exchange for the
issuance, on that date, of an option to purchase 3,760 shares of Class A Common
Stock under the Option Plan at an exercise price equal to the fair market value
of a share of Class A Common Stock at the close of business on November 16,
1998. The Addendum modifies the 1997 Agreement to provide that Mr. Sickman's
termination of his employment for "good reason" will include his termination of
employment prior to December 31, 1998 if Mr. Sickman
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<PAGE> 48
gives the Corporation advance written notice at least 45 days prior to
termination and, in any event, by November 16, 1998. Mr. Sickman has so notified
the Corporation. The Addendum further provides that a restated management
agreement will become effective as of November 16, 1998 unless Mr. Sickman
provides written notice on or before November 16, 1998 of his intention to
terminate his employment.
The Corporation entered into an employment agreement dated January 1,
1995 (the "Executive Agreement") with John P. Reilly. The Executive Agreement
provided for Mr. Reilly's employment as CEO of the Corporation at an annual base
salary of $500,000. In addition, the Executive Agreement provided Mr. Reilly the
following: (i) a guaranteed lump-sum payment for 1995 of $250,000 (which was
paid) if he remained an employee of the Corporation until April 30, 1996; (ii)
the right (which was exercised) to acquire 30,000 shares of Class A Common Stock
pursuant to the terms of the Corporation's Restricted Stock Plan for Employees;
and (iii) an option to purchase 500,000 shares of Class A Common Stock pursuant
to the Option Plan, at an option price equal to the fair market value of such
stock as determined under the Option Plan, exercisable not later than the
seventh anniversary of the date of issuance (which was granted). In addition,
the Executive Agreement entitled Mr. Reilly to participate in the Corporation's
regular bonus and benefit plans for senior executives. In the event of Mr.
Reilly's death or disability (as defined in the Executive Agreement), Mr.
Reilly's employment would be deemed to be terminated, except that the
Corporation would be required to pay a pro-rata portion of any guaranteed
payment or bonus otherwise payable. If the Corporation terminated Mr. Reilly's
employment without good cause (as defined in the Executive Agreement), then the
Corporation would be required to pay Mr. Reilly's base salary for the greater of
(i) two years or (ii) the remainder of the term of the Executive Agreement. The
Executive Agreement would have terminated on January 1, 1998, subject to
automatic extensions for successive one-year periods unless the Corporation or
Mr. Reilly had given notice of termination. Mr. Reilly resigned from the
Corporation on January 24, 1997 at which time the Executive Agreement was
terminated.
The Corporation entered into an employment agreement dated July 1, 1994
(the "Employment Contract") with Steven L. Siemborski, who left the Corporation
on March 31, 1998. The Employment Contract provided for Mr. Siemborski's
employment as Senior Vice President and Chief Financial Officer of the
Corporation at an annual base salary of $350,000. In addition, the Employment
Contract provided Mr. Siemborski the following: (i) a special $50,000 transition
payment (which was paid in 1994), an incentive bonus of $25,000 for reducing
financial consulting fees by 50% during his first four months of employment
(which was paid on June 30, 1995) and an additional incentive bonus of $50,000
for reducing such financial consulting fees to zero by June 30, 1995 (which was
paid on June 30, 1995) during the first year of the Employment Contract; (ii)
the greater of a bonus of $50,000 or the bonus payable to him with respect to
the 1995 calendar year under the regular bonus programs of the Corporation
during the second year of the Employment Contract (which was paid); and (iii) a
discretionary bonus under the regular bonus programs of the Corporation during
the third and fourth years of the Employment Contract. Mr. Siemborski also
received the right to purchase 150,000 shares of the Corporation's common stock,
the class to be determined by the Stock Option Committee, for $1.00 per share in
four annual increments of 37,500 shares exercisable between July 1 and the
following November 1, beginning in 1994 (Mr. Siemborski has exercised fully his
right to acquire shares of Class A Common Stock). In addition, Mr. Siemborski
was given the right to participate in other benefit plans provided by the
Corporation, and to be reimbursed for all reasonable expenses incurred while
performing his duties under the Employment Contract. Further, the Employment
Contract provided that, in the event Mr. Siemborski's employment was terminated
due to death or disability (as defined in the Employment Contract), Mr.
Siemborski would have been entitled to the pro-rata portion of any bonus which
would have been payable during the second, third and fourth years of the
Employment Contract and to his stock purchase rights under the Employment
Contract. The Employment Contract also provided that in the event Mr.
Siemborski's employment was terminated by the Corporation without good cause (as
defined in the
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Employment Contract) or by Mr. Siemborski for good reason (as defined in the
Employment Contract), Mr. Siemborski would have been entitled to his stock
purchase rights under the Employment Contract and to severance pay based upon
the date of termination of his employment as follows: (i) if employment was
terminated during the first year of the Employment Contract, a proportional
amount of $400,000 with respect to the year of his termination and $400,000,
$350,000 and $350,000 for each of the succeeding three years, respectively; (ii)
if employment was terminated during the second year of the Employment Contract,
a proportional amount of $400,000 with respect to that year and $350,000 for
each of the next succeeding two years; or (iii) if employment was terminated
during the third year of the Employment Contract, a proportional amount of
$350,000 with respect to that year and $350,000 for the succeeding year.
RECENT DEVELOPMENTS
Since the Corporation's Annual Meeting of May 20, 1998, several changes
have occurred with respect to the management, ownership and future operations of
the Corporation.
Management. Effective November 3, 1998, Robert P. Collins became the
Chairman of the Board, succeeding John P. Reilly, who has served as a director
of the Corporation since 1995 and had served as the nonemployee Chairman since
1997. Mr. Reilly continues to serve as a director. On November 5, 1998, the
Board granted Mr. Collins an option to purchase 186,335 shares of Class A Common
Stock (New Common Stock if the Restructuring Plan is adopted) at an exercise
price of $14.4375 per share. The option will become exercisable as to 46,584
shares of Class A Common Stock on the first anniversary of the date of grant and
as to the remaining shares on the fifth anniversary of the date of grant, except
that the option will be become exercisable earlier in the following three
stages: 46,584 shares if the market price of the shares of Class A Common Stock
is at least $18.00 for a period of 20 consecutive trading days, an additional
46,584 shares if the market price of the shares of Class A Common Stock is at
least $24.00 for 20 consecutive trading days, and the remaining 46,583 shares if
the market price of the shares of Class A Common Stock is at least $30.00 for 20
consecutive trading days. The Corporation expects to enter into an employment
agreement with Mr. Collins in the near future. See "EXECUTIVE AND DIRECTOR
COMPENSATION -- Employment and Severance Agreements." On November 6, 1998,
William J. Sickman, Vice President -- Corporate Relations, gave notice of his
resignation effective on December 21, 1998.
Ownership. On May 7, 1998, Harry E. Figgie, Jr., the Corporation's
founder, and his affiliates sold their interests in the Corporation to Blum. In
connection with Blum's acquisition of the shares, the Board appointed N. Colin
Lind, a managing director of Blum L.P., as a director of the Corporation. Blum's
acquisition of the shares of Class B Common Stock from the Figgie group
resulted in Blum meeting the definition of a Substantial Stockholder.
Accordingly, Blum's rights to vote the shares of Class B Common Stock are
restricted pursuant to the Substantial Stockholder Provision. See, "VOTING
RIGHTS," "BACKGROUND AND SUMMARY OF PROPOSALS TO AMEND THE CHARTER TO ELIMINATE
THE CORPORATION'S DUAL CLASS CAPITAL STRUCTURE AND THE SUBSTANTIAL STOCKHOLDER
PROVISION," "PROPOSAL 1 -- PROPOSAL TO ADOPT THE RESTRUCTURING PLAN" and
"PROPOSAL 2 -- PROPOSAL TO ELIMINATE THE SUBSTANTIAL STOCKHOLDER PROVISION."
The Rights Plan that the Board expects to adopt if the Restructuring
Plan and the elimination of the Substantial Stockholder Provision are adopted
excludes from the calculation of beneficial ownership shares owned by any holder
of more than 5% of the Corporation's outstanding shares of Class A Common Stock
or Class B Common Stock as of September 23, 1998 that enters into an agreement
with the Corporation in which the holder agrees, among other things, not to
enter into a proxy contest with the Corporation or to seek to
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acquire control of the Corporation or be a member of a group intending to do one
of those things. As of the date hereof, the Corporation has entered into such an
agreement only with Blum L.P. and certain affiliates of Blum L.P. See
"BACKGROUND AND SUMMARY OF PROPOSALS TO AMEND THE CHARTER TO ELIMINATE THE
CORPORATION'S DUAL CLASS CAPITAL STRUCTURE AND THE SUBSTANTIAL STOCKHOLDER
PROVISION -- The Stockholders' Rights Plan." The Corporation expects to enter
into agreements with Blum L.P. in which the Corporation agrees to use its best
efforts (1) to ensure that N. Colin Lind or, if he is not available, Jeffrey W.
Ubben, another managing director of Blum L.P., serves as a director on the Board
for as long as Blum beneficially owns at least a specified percentage of the
Corporation's voting power, except that the Corporation would have the right to
terminate its obligations under such agreement beginning one year after the
effective date of the agreement, and (2) to file, upon the request of Blum L.P.
made at any time after May 7, 2000, up to two registration statements for
underwritten offerings by Blum of its shares of Class A Common Stock and Class B
Common Stock ( New Common Stock if the Restructuring Plan is adopted), provided
that such a filing would not be inconsistent with the Corporation's interests,
in exchange for Blum's agreement to sell its shares of Class A Common Stock and
Class B Common Stock (New Common Stock if the Restructuring Plan is adopted)
generally only pursuant to such registration statements as long as Blum
beneficially owns more than 5% of the Corporation's voting power.
Structure of the Corporation. On October 22, 1998, the Corporation
announced its intention to divest its Interstate Electronics subsidiary. The
Corporation expects to engage an investment banking firm to assist in
identifying and evaluating opportunities relating to this divestiture. The
divestiture decision is consistent with the Board's strategic plan to focus the
Corporation's business around its Scott Aviation subsidiary.
CERTAIN DEADLINES FOR 1999 ANNUAL MEETING
Any stockholder proposal submitted to the Corporation pursuant to SEC
Rule 14a-8 under the Exchange Act for inclusion in the Corporation's proxy
statement and proxy relating to the Corporation's 1999 Annual Meeting of
Stockholders must be received by the Corporation no later than December 17,
1998. If Proposal 3 (Proposal to lengthen the notice period for the nomination
of directors by stockholders) is adopted, any stockholder intending to nominate
an individual for election to the Board at the Corporation's 1999 Annual Meeting
of Stockholders must provide written notice to the Corporation not later than
March 3, 1999. If the Corporation does not receive notice of any other non-Rule
14a-8 matter that a stockholder wishes to raise at the Annual Meeting in 1999 by
March 3, 1999, the proxy holders will retain discretionary authority to vote
proxies on such matters if they are raised at the 1999 Annual Meeting of
Stockholders. If Proposal 3 is not adopted, any stockholder intending to
nominate an individual for election to the Board at the Corporation's 1999
Annual Meeting of Stockholders must provide written notice to the Corporation
not later than ten days after the notice for that meeting is sent to
stockholders, or at least 21 days prior to the date fixed for the meeting,
whichever is later.
OTHER MATTERS
To the extent that information contained in this Proxy Statement is
within the knowledge of persons other than the management of the Corporation,
the Corporation has relied on such persons for the accuracy and completeness
thereof.
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You are urged to sign, date and return your proxy promptly to make
certain your shares will be voted at the Special Meeting. For your convenience,
a return envelope is enclosed requiring no additional postage if mailed in the
United States.
By Order of the Board of Directors
Glen W. Lindemann
President and Chief Executive Officer
Dated: November 10, 1998
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APPENDIX A
[marked to show changes]
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
[FIGGIE INTERNATIONAL INC.]
SCOTT TECHNOLOGIES, INC.
Pursuant to Sections 242 and 245 of the General
Corporation Law of the State of Delaware
SCOTT TECHNOLOGIES, INC., a corporation organized and existing under
the General Corporation Law of the State of Delaware, does hereby certify:
1. The name of the corporation is Scott Technologies, Inc. (the
"Corporation"). The Corporation was originally incorporated under the name
Figgie International Inc. on May 11, 1983.
2. Pursuant to Sections 242 and 245 of the General Corporation Law of
the State of Delaware, this Restated Certificate of Incorporation was duly
adopted and hereby restates and integrates and further amends the provisions of
the Amended and Restated Certificate of Incorporation of this Corporation as
follows:
ARTICLE FIRST: The name of the Corporation is [Figgie International
Inc.] Scott Technologies, Inc. (hereinafter the "Corporation").
ARTICLE SECOND: The registered office of the Corporation is to be
located at the Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, in the County of New Castle, in the State of Delaware. The name of
its registered agent at that address is The Corporation Trust Company.
ARTICLE THIRD: The purpose or purposes for which the Corporation is
formed are:
(a) to manufacture, purchase or otherwise acquire, hold, own,
use, mortgage, sell, lease, pledge, assign, exchange or otherwise
dispose of merchandise and property of any and every class or
description;
(b) to acquire all or any part of the good will, rights,
property and business of any corporation, association, partnership,
firm, trustee, syndicate, combination, organization, person or entity,
domestic or foreign, heretofore or hereafter engaged in any business
and to pay for the same in cash or in shares or obligations of the
Corporation or otherwise, and to hold, utilize, enjoy, and in any
manner dispose of the whole or any part of the rights and property so
acquired in the State of Delaware or any other state, territory or
country, provided such business is not prohibited by the laws of the
State of Delaware;
(c) to guarantee the obligations of and to aid in any manner
any corporation, association, firm or individual, in which, or in the
welfare of which, the Corporation shall have any interest,
Language indicated as being shown by strike out in the typeset document is
enclosed in brackets "[" and "]" in the electronic format.
<PAGE> 53
direct or indirect, and to aid or participate in the reorganization,
consolidation or merger of any corporation, association or firm in
which, or in the welfare of which, the Corporation shall have any
interest; and
(d) to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of
Delaware.
Each purpose specified in any clause or paragraph of this Article is an
independent purpose and shall not be limited by reference to or inference from
the terms of any other clause or paragraph of this Certificate of Incorporation.
ARTICLE FOURTH: The number of shares which the Corporation is
authorized to issue is thirty-nine million two hundred seventeen thousand four
hundred and ninety-five (39,217,495), of which shares
(a) three million two hundred seventeen thousand four hundred
and ninety-five (3,217,495) shall be preferred stock designated as
Preference Stock with a par value of one dollar ($1.00) per share
(hereinafter called the "Preference Stock"); and
(b) [eighteen] thirty-six million [(18,000,000)](36,000,000)
shall be common stock designated as [Special Common Stock or Class A]
Common Stock with a par value of ten cents ($.10)[(10 cents)
(hereinafter called the "Special Common Stock"); and
(c) eighteen million (18,000,000) shall be common stock designated as Common
Stock or Class B Common Stock with a par value of ten cents (10 cents)] per
share (hereinafter called the "Common Stock").
The terms of each class of stock are set forth in the following
Divisions.
DIVISION I
The terms of the Preference Stock are as follows:
(A) Authority of Board of Directors to Create Series. The Board of
Directors of the Corporation is hereby expressly granted authority, to the full
extent now or hereafter permitted herein and by the laws of the State of
Delaware, at any time or from time to time, by resolution or resolutions, to
create one or more series of the Preference Stock, to fix the authorized number
of shares of any series (which number of shares may vary as between series and
be changed from time to time by like action), and to fix the terms of such
series, including but not limited to, the following:
(1) the designation of such series, which may be by
distinguishing number, letter, or title;
(2) the rate or rates at which shares of such series shall be
entitled to receive dividends, the periods in respect of which
dividends are payable, the conditions upon, and times of payment of,
such dividends, the relationship and preference, if any, of such
dividends to dividends payable on any other class or classes or any
other series of stock, whether such dividends shall be cumulative and,
if cumulative, the date or dates from which such dividends shall
accumulate, and the other terms and conditions applicable to dividends
upon shares of such series;
Language indicated as being shown by strike out in the typeset document is
enclosed in brackets "[" and "]" in the electronic format.
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(3) the rights of the holders of the shares of such series in
case the Corporation be liquidated, dissolved, or wound up (which may
vary depending upon the time, manner, or voluntary or involuntary
nature or other circumstances of such liquidation, dissolution, or
winding up) and the relationship and preference, if any, of such rights
to rights of holders of shares of stock of any other class or classes
or any other series of stock;
(4) the right, if any, to redeem shares of such series at the
option of the Corporation, including any limitation of such right, and
the amount or amounts to be payable in respect of the shares of such
series in case of such redemption[)], and the manner, effect, and other
terms and conditions of any such redemption thereof;
(5) the obligation, if any, of the Corporation to purchase,
redeem, or retire shares of such series and/or to maintain a fund for
such purpose, and the amount or amounts to be payable from time to time
for such purpose or into such fund, or the number of shares to be
purchased, redeemed or retired, the per share purchase price or prices,
and the other terms and conditions of any such obligation or
obligations;
(6) the voting rights, if any, full, special, or limited, to
be given the shares of such series, including without limiting the
generality of the foregoing, the right, if any, as a series or in
conjunction with other series or classes, to elect one or more members
of the Board of Directors either generally or at certain times or under
certain circumstances, and restrictions, if any, on particular
corporate acts without a specified vote or consent of holders of such
shares (such as, among others, restrictions on modifying the terms of
such series or of the Preference Stock, restricting the permissible
terms of other series or the permissible variations between series of
the Preference Stock, authorizing or issuing additional shares of the
Preference Stock, creating debt, or creating any class of stock ranking
prior to or on a parity with the Preference Stock or any series thereof
as to dividends, or assets remaining for distribution to the
stockholders in the event of the liquidation, dissolution, or winding
up of the Corporation);
(7) the right, if any, to exchange or convert the shares of
such series into shares of any other series of the Preference Stock or
into shares of any other class of stock of the Corporation, and the
rate or basis, time, manner, terms, and conditions of exchange or
conversion or the method by which the same shall be determined; and
(8) the other special rights, if any, and the qualifications,
limitations, or restrictions thereof, of the shares of such series.
The Board of Directors shall fix the terms of each such series by
resolution or resolutions adopted at any time prior to the issuance of the
shares thereof, and the terms of each such series may, subject only to
restrictions, if any, imposed by this Certificate of Incorporation or by
applicable law, vary from the terms of other series to the extent determined by
the Board of Directors from time to time and provided in the resolution or
resolutions fixing the terms of the respective series of the Preference Stock.
Shares of any series of the Preference Stock, whether provided for
herein or by resolution or resolutions of the Board of Directors, which have
been redeemed (whether through the operation of a sinking fund or otherwise) or
which, if convertible or exchangeable, have been converted into or exchanged for
shares of stock of any other class or classes, or which have been purchased or
otherwise acquired by the Corporation, shall have the status of authorized and
unissued shares of the Preference Stock of the same series and may be
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reissued as a part of the series of which they were originally a part or may be
reclassified and reissued as part of a new series of the Preference Stock to be
created by resolution or resolutions of the Board of Directors or as part of any
other series of the Preference Stock, all subject to the conditions or
restrictions on issuance set forth herein or in the resolution or resolutions
adopted by the Board of Directors providing for the issue of any series of the
Preference Stock. [Notwithstanding the foregoing, shares of the Preference
Stock, Second Series, Convertible, and of the Preference Stock, Third Series,
Convertible, which shall have been converted into Common Stock shall be
permanently retired and shall not be reissued.]
DIVISION II
The terms of the [Special] Common Stock are as follows:
(A) Dividend Rights. After unpaid cumulative dividends on all the
outstanding shares of [preferred stock] Preference Stock for all prior fiscal
years and also the full dividend on such shares for the current quarter year
dividend period shall have been declared and paid or set aside in accordance
with the terms thereof, cash dividends may be paid upon the [Special] Common
Stock out of any funds lawfully available for dividends under the laws of the
State of Delaware, if, when, and as declared by the Board of Directors of the
Corporation in its discretion. [No cash dividends shall be declared and paid,
per share, on the Common Stock unless at the same time a cash dividend is
declared and paid, per share, on the Special Common Stock in an amount at least
equal to the corresponding dividend declared and paid, per share, on the Common
Stock.]
(B) Voting Rights. The holders of the [Special] Common Stock shall,
subject to the provisions of the [Certificate of Incorporation and the] Bylaws
of the Corporation and of the statutes of the State of Delaware relating to the
fixing of a record date and other matters, be entitled to one [twentieth of one
(1/20)](1) vote for each share of [Special] Common Stock held by them,
respectively, for the election of directors and for all other purposes.
(C) Liquidation. In the event of the liquidation, dissolution, or
winding up of the Corporation, whether voluntary or involuntary, after there
shall have been paid or set apart for the holders of shares of the [preferred
stock] Preference Stock the full preferential amounts to which they are
entitled, the holders of the [Special Common Stock and of the] Common Stock
shall be entitled to receive pro rata, to the exclusion of the holders of shares
of the [preferred stock] Preference Stock, the assets of the Corporation
remaining for distribution to its stockholders.
The consolidation or merger of the Corporation into or with any other
corporation or corporations shall not be deemed a liquidation, dissolution, or
winding up within the meaning of the preceding paragraph.
[DIVISION III
The terms of the Common Stock are as follows:
(A) Dividend Rights. Subject to the express terms of (i) the preferred stock set
forth in Division I hereof and (ii) the Special Common Stock, set forth in
Division II hereof, cash dividends may be paid upon the Common Stock out of any
funds lawfully available for dividends under the laws of the State of Delaware,
if, when, and as declared by the Board of Directors of the Corporation in its
discretion.
Language indicated as being shown by strike out in the typeset document is
enclosed in brackets "[" and "]" in the electronic format.
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[(B) Voting Rights. The holders of the Common Stock shall, subject to the
provisions of the Certificate of Incorporation and the Bylaws of the Corporation
and of the statutes of the State of Delaware relating to the fixing of a record
date and other matters, be entitled to one vote for each share of Common Stock
held by them, respectively, for the election of directors and for all other
purposes.
(C) Liquidation. In the event of the liquidation, dissolution, or winding up of
the Corporation, whether voluntary or involuntary, after there shall have been
paid or set apart for the holders of shares of the preferred stock the full
preferential amounts to which they are entitled, the holders of the Common Stock
and of the Special Common Stock shall be entitled to receive pro rata, to the
exclusion of the holders of shares of the preferred stock, the assets of the
Corporation remaining for distribution to its stockholders.
The consolidation or merger of the Corporation into or with any other
corporation or corporations shall not be deemed a liquidation, dissolution, or
winding up within the meaning of the preceding paragraph.
DIVISION IV
(A) General. Unless otherwise provided herein or by the Board of Directors
pursuant hereto, the provisions of this Division IV shall apply to any class,
or, if the class is divided into series, any series, of shares designated in
this Certificate of Incorporation, or designated hereafter by the Board of
Directors pursuant to the provisions hereof, as convertible into shares of the
common stock of the Corporation.
The term "common stock" when used in this Division IV of this Article Fourth
with reference to shares into which shares of Convertible Stock (as defined
herein) are convertible shall mean exclusively the Special Common Stock and the
Common Stock authorized by this Certificate of Incorporation and any shares into
which such shares may thereafter have been changed, and, when otherwise used in
this Division IV, shall include also shares of the Corporation of any other
class, whether now or hereafter authorized, which rank or are entitled to a
participation as to assets or dividends substantially on a parity with such
shares or other class of shares into which such shares may have been changed.
The holder of any shares of any class, or, if the class is divided into series,
any series, convertible into common stock (referred to in this Division IV as
"Convertible Stock"), at his option, at any time or from time to time, may
convert all or any shares of Convertible Stock held by him into shares of common
stock, at the rate, for the price and upon such other terms as are set forth in
the terms of the class or series contained herein, in any amendment hereto, or
in any resolution of the Board of Directors. In the event that any shares of
Convertible Stock shall be called for redemption, the right of conversion as to
the shares called for redemption shall expire at the close of business on the
fifth day preceding the redemption date (whether or not such preceding day is a
Sunday or a holiday), notwithstanding any earlier deposit by the Corporation of
funds reserved for such redemption. In the event of any voluntary liquidation,
dissolution or winding up of the Corporation, all conversion rights of the
holders of Convertible Stock shall terminate on the date fixed by resolution of
the Board of Directors of the Corporation, such date so fixed to be no later
than 10 days prior to such liquidation, dissolution or winding up or earlier
than 30 days after notice of such resolution shall have been mailed to the
holders of record of the Convertible Stock at their respective addresses then
appearing on the books of the Corporation.
Each holder of Convertible Stock desiring to exercise his right of conversion
shall deliver written notice of his election to convert such shares and shall
surrender the certificate therefor (properly endorsed or assigned for transfer
if the Board of Directors of the Corporation shall so require) to the
Corporation or its transfer agent for the Convertible Stock. Upon receipt by the
Corporation of any such notice of election to convert shares of
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Convertible Stock, and upon surrender of the certificate therefor, the
Corporation shall, as soon as practicable, execute and deliver to the holder of
the shares of Convertible Stock being converted a certificate or certificates
for the number of full shares of common stock sufficient for such conversion.
For all purposes, the rights of the holder of such Convertible Stock, as such
holder, shall cease and the person or persons in whose name or names the
certificates for shares of common stock are issuable upon such conversion shall
be deemed to have become the record holder or holders of such shares at the
close of business on the day on which delivery of such notice or the surrender
of the certificate for such shares (whichever shall last occur) shall be made.
No fractions of shares of common stock shall be issued upon conversion of
Convertible Stock. If any fraction of a share would, except for the provisions
of this paragraph, be issuable on the conversion of any shares of Convertible
Stock, the Corporation shall make adjustment therefor by payment in cash in
respect of such fraction on the basis of the then existing conversion price of
the shares of common stock.
The Corporation shall reserve and set apart and have at all times a number of
authorized but unissued shares of common stock or other shares or securities
deliverable upon conversion of Convertible Stock sufficient to enable it at any
time to fulfill its obligation with respect to the conversion of all outstanding
shares of Convertible Stock.
(B) Adjustments. (1) Except as otherwise hereinafter provided, whenever the
Corporation shall issue shares of common stock in excess of the number of shares
of common stock theretofore issued and outstanding without receiving therefor a
consideration per share at least equal to the conversion price per share of
common stock applicable to a class or series of Convertible Stock in effect
immediately prior to such issue, then, upon such issue, the conversion price per
share of common stock with respect to such class or series of Convertible Stock
shall be adjusted to the price obtained by:
(i) multiplying the number of shares of common stock constituting issued and
outstanding shares immediately prior to the issue of such additional shares of
common stock by the conversion price applicable to such class or series of
Convertible Stock then in effect;
(ii) adding to the product the total amount of consideration, if any, received
by the Corporation for the issuance of such additional shares of common stock;
and
(iii) dividing the sum so obtained by the total number of shares of common stock
constituting issued and outstanding shares immediately after the issue of such
additional shares of common stock, disregarding in the quotient so obtained
fractions of one cent.
(2) No adjustment in the initial conversion prices of any shares of Convertible
Stock shall be made by reason of the issuance of any shares upon the exercise of
any warrants, options or conversion rights outstanding at the date of issuance
of such Convertible Stock.
(3) For the purpose of making the computations described in paragraph (1) of
this section (B), the following provisions shall be applicable:
(i) Shares of common stock issued as a stock dividend and shares of common stock
issued to change or replace issued shares of common stock shall, except for any
money or other property also received by the Corporation therefor, be deemed to
have been issued for a consideration of no value.
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(ii) Shares of common stock issued for money or in extinguishment of debts or
obligations of the Corporation shall be deemed to have been issued for a
consideration equal to the money received by the Corporation and the amount of
any debt or obligation so extinguished, plus such reasonable commissions and
discounts for the underwriting or marketing thereof as may have been deducted
from the money which otherwise would have been received by the Corporation or
from the amount of the debt or obligations which otherwise would have been
extinguished.
(iii) Shares of common stock issue for property other than cash shall be deemed
to have been issued for a consideration equal to the fair value of such property
as determined by the Board of Directors of the Corporation.
(iv) In case the Corporation, after the issuance of any shares of Convertible
Stock of the class, or, if the class is divided into series, the series, with
respect to which an adjustment is being determined pursuant to these provisions
of Division IV, shall in any manner issue or sell any shares of stock or
obligations (other than Convertible Stock of the class, or, if the class is
divided into series, the series, with respect to which an adjustment is being
determined pursuant to these provisions of Division IV) which, at the option of
the holder thereof, may be converted into or may be replaced by shares of common
stock at a price less than the conversion price applicable to such Convertible
Stock in effect immediately prior to the issue or sale of such convertible
shares of stock or obligations, such issue or sale shall be deemed to be an
issue or sale (as of the date of the issue or sale of such convertible shares of
stock or obligations) of the maximum number of shares of common stock necessary
to effect the conversion or replacement of all such convertible shares of stock
or obligations and the amount received by the Corporation as the consideration
for the issue or sale of such convertible shares of stock or obligations plus
the total amount of additional consideration, if any, payable to the Corporation
on conversion or replacement shall be deemed to be consideration actually
received for the issue or sale of such shares of common stock, and such shares
of common stock shall be deemed to constitute issued common stock as of said
date; provided, however, that no further adjustment of the initial conversion
prices shall be made upon the actual issuance of any common stock to effect such
conversion or replacement; and provided further that if such convertible shares
of stock or obligations shall be retired by the Corporation or otherwise
canceled without the issuance of any common stock to effect the conversion or
replacement above provided, a computation as aforesaid shall again be made in
the same manner as though the convertible shares of stock or obligations, to the
extent so retired or cancelled, had not been issued or sold.
(v) In case the Corporation, after the issuance of any shares of Convertible
Stock of the class, or, if the class is divided into series, the series, with
respect to which an adjustment is being determined pursuant to these provisions
of Division IV, shall grant any right, option or warrant to subscribe for or
purchase any common stock (other than treasury shares) at a price less than the
conversion price applicable to such Convertible Stock in effect immediately
prior to the granting of such option, right or warrant, such grant shall, except
as otherwise provided in paragraph (2) of this section (B), be deemed to be an
issue (as of the date of granting of such right, option or warrant) of the
maximum number of shares of common stock issuable upon the exercise of such
right, option or warrant, and the amount, if any, received by the Corporation as
the consideration for the granting of such right, option or warrant plus the
total amount of additional consideration, if any, payable to the Corporation
upon the exercise of such right, option or warrant shall be deemed to be
consideration actually received for the issue of such common stock, and such
shares of common stock shall be deemed to constitute issued common stock as of
said date; provided, however, that no further adjustment of the conversion price
shall be made upon the actual issuance of any shares of common stock upon the
exercise of any such right, option or warrant; and provided further that if any
such rights, options, or warrants shall be terminated or shall expire without
being fully exercised, a computation as aforesaid shall again be made in the
same manner as though the rights, options or warrants, to the extent that they
remain unexercised, had not been granted.
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(vi) Common stock issued upon conversion of Convertible Stock shall be deemed to
have been issued for a consideration equal to the conversion price in effect at
the time of issuance thereof.
(4) In the event that shares of any class (other than common stock) are issued
by way of a stock dividend on outstanding shares of common stock, then, in
addition to any common stock receivable upon exercise of the conversion rights
of Convertible Stock, the holder of a share of Convertible Stock entitled to
receive a specified number of shares of the first mentioned class were such
share of Convertible Stock converted immediately prior to the declaration and
issuance of the stock dividend shall, upon such exercise of the conversion
rights of the Convertible Stock, be entitled to receive such specified number of
shares of the first mentioned class and/or any shares of any class issued
successively thereon as a stock dividend and/or any shares issued successively
upon any exchange, replacement, subdivision or combination thereof. No
adjustment in the conversion price shall be made merely by virtue of the
happening of any event specified in this paragraph (4).
(5) In case the outstanding common stock shall be subdivided into a greater or
combined into a lesser number of shares of common stock (whether with or without
par value), the conversion price shall be decreased or increased, as the case
may be, to an amount which shall bear the same relation to the conversion price
in effect immediately prior to such subdivision or combination as the total
number of shares of common stock outstanding immediately prior to such
subdivision or combination shall bear to the total number of shares of common
stock outstanding immediately after such subdivision or combination.
(6) Upon conversion of any shares of Convertible Stock no adjustment shall be
made for any dividends on the shares of Convertible Stock or for any dividends
on the shares into which the shares of Convertible Stock are converted.
(7) In the event that the Corporation shall effect any capital reorganization or
reclassification of its stock or shall consolidate or merge with or into any
other company or shall sell all or substantially all of its property as an
entirety, lawful provision shall be made as a part of the terms of such
transaction that the holders of Convertible Stock may then or thereafter receive
in lieu of each share of common stock otherwise issuable to them upon conversion
of such Convertible Stock (but at the conversion price which would otherwise be
in effect at the time of conversion and with the same protection against
dilution, all as herein provided), the same kind and amount of stock (and other
securities and assets, if any) as may be issuable or distributable upon such
transaction with respect to each outstanding share of common stock, and after
such transaction the conversion rights of the holders of such Convertible Stock
shall be merely to receive such stock (and other securities and assets, if any).
The foregoing provisions shall similarly apply to successive transactions of a
similar nature by any such successor or purchaser.
(8) No adjustment of any conversion price shall be made unless such adjustment,
together with any other adjustments not yet made by reason of this proviso,
would result in a change of at least 25 cents in the conversion price in effect,
but any such adjustments which are not made by reason of this proviso shall be
deemed to have been made for the purpose of making the computations prescribed
in paragraph (1) of this section (B) and shall, accordingly, be carried forward
and taken into account in any subsequent adjustment of the conversion price.
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DIVISION V
(A) General. Unless otherwise provided herein or by the Board of Directors
pursuant hereto, the provisions of this Division V shall apply to any shares of
stock designated in this Certificate of Incorporation or designated hereafter by
the Board of Directors pursuant to the provisions hereof, as subject to
redemption.
(B) Method of Redemption. At least 30 days' prior written notice shall be given
to the holders of record of the shares of stock to be called for redemption,
which notice shall be given by mail, addressed to the record holders thereof, at
their respective addresses, as shown on the books of the Corporation. Said
notice so mailed shall specify the redemption price and the place at which and
the date, which date shall not be a legal holiday in the City of Cleveland, Ohio
(or in Milwaukee, Wisconsin, in the case of the Serial Preference Stock, First
Series, 6%), on which the shares called for redemption will be redeemed and
shall specify the shares called for redemption. If less than all of the
outstanding shares of the Serial Preference Stock or of the Preference Stock,
Second Series, Convertible, and the Preference Stock, Third Series, Convertible,
are to be redeemed, the shares to be redeemed shall be chosen by lot or pro
rata, as the Board of Directors may determine. If such notice of redemption
shall have been duly given in the manner herein provided, and if the funds
necessary for such redemption shall, on or before the redemption date, have been
set aside and shall be and shall continue to be available therefor, then, on and
after such redemption date all such shares so called for redemption shall no
longer be deemed to be outstanding, the right of the holders thereof to receive
dividends thereon shall cease, and thereafter the holders of such shares shall
have no right in or with respect to the Corporation, its assets or business,
other than to receive, upon surrender of the certificate or certificates for
such shares, the redemption price, plus all accrued and unpaid dividends to the
date fixed for redemption without interest.]
* * *
Effective at the time of the filing with the Secretary of State of the
State of Delaware of this Restated Certificate of Incorporation of the
Corporation, (i) each share of the Corporation's Class A Common Stock, par value
$.10 per share ("Class A Common Stock"), issued and outstanding or held in
treasury immediately prior to such time shall, without any action on the part of
the respective holders thereof, be reclassified as and converted into one share
of Common Stock and each stock certificate that, immediately prior to the time
of such filing, represented shares of the Corporation's Class A Common Stock
shall, from and after such time and without the necessity of presenting the same
for exchange, represent the number of shares of Common Stock into which the
shares of Class A Common Stock represented by such stock certificate were
reclassified pursuant hereto, and (ii) each share of the Corporation's Class B
Common Stock, par value $.10 per share ("Class B Common Stock"), issued and
outstanding or held in treasury immediately prior to such time shall, without
any action on the part of the respective holders thereof, be reclassified as and
converted into one share of Common Stock, and each stock certificate that,
immediately prior to the time of such filing, represented shares of the
Corporation's Class B Common Stock shall, from and after such time and without
the necessity of presenting the same for exchange, represent the number of
shares of Common Stock into which the shares of Class B Common Stock represented
by such stock certificate were reclassified pursuant hereto.
ARTICLE FIFTH: No action required or permitted to be taken at any
annual or special meeting of the stockholders of the Corporation may be taken
without a meeting except by the unanimous written consent of the stockholders
entitled to vote thereon; provided, however, that such action may be taken by
less than the unanimous written consent of the stockholders if it has been
recommended to them for their approval by the affirmative vote of two-thirds
(2/3) of the whole board, but only if a majority of the members of the Board of
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Directors acting upon such matter shall be continuing directors, as these terms
are defined in section (a) of Article Sixth.
ARTICLE SIXTH: (a) Except as otherwise specifically provided in section
(b) of this Article Sixth, the following definitions shall apply to this Article
Sixth and to this Certificate of Incorporation generally:
(1) An "affiliate" of a specified person shall mean a person
that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the
person specified.
(2) "Beneficial ownership" shall be determined pursuant to
Rule 13d-3 of the General Rules and Regulations under the Securities
Exchange Act of 1934 (or any successor rule or statutory provision),
or, if said Rule 13d-3 shall be rescinded and there shall be no
successor rule or statutory provision thereto, pursuant to said Rule
13d-3 as in effect at July 18, 1983; provided, however, that a person
shall, in any event, also be deemed the "beneficial owner" of any
voting shares:
(A) which such person or any of its affiliates
beneficially owns, directly or indirectly; or
(B) which such person or any of its affiliates has
(i) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to
any agreement, arrangement or understanding (but shall not be
deemed to be the beneficial owner of any voting shares solely
by reason of an agreement, arrangement, or understanding with
this Corporation to effect any transaction which is described
in any one or more of clauses (i) through (iv) of section
(b)(1)(A) of this Article Sixth) or upon the exercise of
conversion rights, exchange rights, warrants, or options or
otherwise, or (ii) sole or shared voting or investment power
with respect thereto pursuant to any agreement, arrangement,
understanding, relationship or otherwise (but shall not be
deemed to be the beneficial owner of any voting shares solely
by reason of a revocable proxy granted for a particular
meeting of stockholders, pursuant to a public solicitation of
proxies for such meeting, with respect to shares of which
neither such person nor any such affiliate is otherwise deemed
the beneficial owner); or
(C) which are beneficially owned, directly or
indirectly, by any person with which such first mentioned
person or any of its affiliates acts as a partnership, limited
partnership, syndicate or other group pursuant to any
agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares of
capital stock of this Corporation;
and provided further, however, that (1) no director or officer of this
Corporation (or any affiliate of such director or officer) shall,
solely by reason of any or all of such directors or officers acting in
their capacities as such, be deemed, for any purposes hereof, to
beneficially own any voting shares beneficially owned by any other such
director or officer (or any affiliate thereof), and (2) neither any
employee stock ownership or similar plan of this Corporation or any
subsidiary nor any trustee with respect thereto (or any affiliate of
such trustee) shall, solely by reason of such capacity of such trustee,
be deemed, for any purposes hereof, to beneficially own any voting
shares held under any such plan. [For purposes of computing the
percentage beneficial ownership of voting shares of any class of a
person in order to determine whether such person is a substantial
stockholder (as defined herein), the
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outstanding voting shares of such class shall include shares deemed
owned by such person through application of this subsection but shall
not include any other voting shares of such class which may be issuable
by this Corporation pursuant to any agreement, or upon exercise of
conversion rights, warrants or options, or otherwise. For all other
purposes, the] The outstanding voting shares shall include only voting
shares then outstanding and shall not include any voting shares which
may be issuable by this Corporation pursuant to any agreement, or upon
the exercise of conversion rights, warrants or options, or otherwise.
(3) "Continuing director" shall mean a person who was a member
of the Board of Directors at [July 18, 1983 or who was thereafter
elected by the stockholders or appointed by the Board of Directors of
this Corporation prior to the date as of which a substantial
stockholder then in question, if any, became a substantial
stockholder,] December 15, 1998 or who was designated (before his
initial election or appointment as a director) as a continuing director
by a majority of the whole board, but only if a majority of the whole
board shall then consist of continuing directors, or, if a majority of
the whole board shall not then consist of continuing directors, by a
majority of the then continuing directors.
(4) A "person" shall mean any individual, firm, corporation,
or other entity.
(5) "Subsidiary" shall mean any corporation of which 50% or
more of each class of equity security (as defined in Rule 3a11-1 of the
General Rules and Regulations under the Securities Exchange Act of
1934, as in effect at July 18, 1983) is owned, directly or indirectly,
by this Corporation.
[(6) "Substantial stockholder" shall mean any person, other
than this Corporation or any subsidiary (as defined in this section
(a)), who is the beneficial owner, directly or indirectly, of more than
the applicable threshold percentage (as defined and adjusted herein) of
the total number of outstanding voting shares of any class of this
Corporation (determined solely on the basis of the total number of
voting shares of such class so beneficially owned without giving effect
to the number or percentage of votes entitled to be cast in respect of
such shares). This threshold percentage shall never be less than
20.00%, and it shall be 20.00%, as to any person with respect to any
class, except that it shall be adjusted in any of the following
circumstances:
(A) If any person, other than this Corporation or any subsidiary, beneficially
owns more than 10% of the total outstanding voting shares at July 18, 1983, then
the threshold for such person shall be adjusted to be the percentage owned at
that time.
(B) If the percentage of beneficial ownership of any person, other than this
Corporation or any subsidiary, of the total outstanding voting shares of any
class is increased above or decreased below the threshold percentage applicable
to such person with respect to such class as a result of any reduction of or
increase in the total number of outstanding voting shares of such class, then
the threshold for such person with respect to such class shall be adjusted
upward or downward to reflect the percentage increase or decrease in beneficial
ownership solely attributable to such reduction of or increase in the total
number of outstanding voting shares of such class.
(C) If the threshold percentage of beneficial ownership of any person, other
than this Corporation or any subsidiary, of the total outstanding voting shares
of any class is greater than 20.00% and such person's net
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beneficial ownership of voting shares of such class decreases, then his
threshold with respect to such class shall be adjusted downward to reflect such
decreased beneficial ownership.
(D) If any person, other than a person who was a substantial stockholder on July
1, 1985 and other than this Corporation or any subsidiary, beneficially owned
more than 10% of the total outstanding voting shares of any class on July 1,
1985, then the threshold for such person with respect to such class shall be
adjusted to be the percentage owned at that time.
(E) If any person, other than this Corporation or any subsidiary, was a
substantial stockholder at the time of effectiveness of the amendment to the
Restated Certificate of Incorporation of which this subsection (a)(6)(E) is a
part, then the threshold percentage for such person of any class of which such
person beneficially owned in excess of his applicable threshold percentage at
that date shall be adjusted to equal such threshold percentage multiplied by a
fraction the numerator of which is the total number of outstanding voting shares
and the denominator of which is the number of outstanding voting shares of such
class at that date, and if the percentage of beneficial ownership of such person
of the total outstanding voting shares of such class is thereafter increased or
decreased as a result of any reduction of or increase in the total number of
outstanding voting shares of such class subsequent to such date, then the
threshold for such person shall be adjusted upward or downward to reflect the
percentage increase or decrease in beneficial ownership solely attributable to
such reduction of or increase in the total number of outstanding voting shares
of such class.]
(6) "Voting shares" shall mean shares of capital stock of this
Corporation entitled to vote generally in the election of directors.
(7) "Whole board" shall mean the total number of directors
which this Corporation would have if there were no vacancies.
(b) Except as otherwise provided in this section (b), the provisions
and requirements of this section shall be in addition to any requirements of law
and the other provisions of this Certificate of Incorporation. However, the
provisions and requirements of this section, except for those set forth in
subsection (1), shall not apply to any transaction which has received the
affirmative vote of two-thirds (2/3) of the whole board, but only if a majority
of the members of the Board of Directors acting upon such matter shall be
continuing directors. It is hereby declared to be a proper corporate purpose,
reasonably calculated to benefit stockholders, for the Board of Directors to
base the response of the Corporation to any transaction within the scope of this
section (b), generally including certain majority share acquisitions or
combinations, mergers or consolidations, or dispositions of assets, on the Board
of Directors' evaluation of what is in the best interests of the Corporation,
and for the Board of Directors, in evaluating what is in the best interests of
the Corporation, to consider (i) the best interests of all the stockholders,
taking into account, among other factors, not only the consideration being
offered in any such transaction in relation to the then current market price,
but also in relation to the then-current value of the Corporation in a freely
negotiated transaction and in relation to the Board of Directors' estimate of
the future value of the corporation as an independent entity; and (ii) such
other factors as the Board of Directors determines to be relevant, including,
among other factors, the social, legal, and economic effects of any such
transaction upon employees, suppliers, customers, and business of the
Corporation.
(1) If a stockholder vote would be required by the Ohio
General Corporation Law if this Corporation were incorporated under the
laws of the State of Ohio, then the stockholders of the Corporation
shall be entitled to such vote, and the affirmative vote of the holders
of shares entitling
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them to exercise 80% of the voting power of the Corporation, given in
person or by proxy at a meeting called for the purpose, shall be
necessary:
(A) to approve (i) the lease, sale, exchange,
transfer or other disposition by the Corporation of all, or
substantially all, of its assets or business to a related
company or an affiliate of a related company, or (ii) the
consolidation of the Corporation with or its merger into a
related company or an affiliate of a related company, or (iii)
the merger into the Corporation or a subsidiary of the
Corporation of a related company or an affiliate of a related
company, or (iv) a combination or majority share acquisition
in which the Corporation is the acquiring corporation and its
voting shares are issued or transferred to a related company
or an affiliate of a related company or to stockholders of a
related company or an affiliate of a related company or an
associated person; or
(B) to approve any agreement, contract, or other
arrangement with a related company or an affiliate of a
related company or an associated person providing for any of
the transactions described in paragraph (A) above; or
(C) to effect any amendment of this Certificate of
Incorporation which changes the provisions of this subsection
(1).
For the purpose of this subsection (1), (i) a "related
company" in respect of a given transaction shall be any person,
partnership, corporation or firm which, together with its affiliates
and associated persons, owns of record or beneficially, directly or
indirectly, in excess of 5% of the shares of any outstanding class of
shares of the Corporation entitled to vote upon such transaction, as of
the record date used to determine the shareholders of the Corporation
entitled to vote upon such transaction; (ii) an "affiliate" of a
related company shall be any individual, joint venture, trust,
partnership or corporation which, directly or indirectly, through one
or more intermediaries, controls, or is controlled by, or is under
common control with, the related company; (iii) an "associated person"
of a related company shall be any officer or director or any beneficial
owner, directly or indirectly, of 10% or more of any class of equity
security of such related company or any of its affiliates; and (iv) the
terms "combination," "majority share acquisition," and "acquiring
corporation" shall have the same meaning as that contained in section
1701.01 of the Ohio General Corporation Law or any similar provision
hereafter enacted.
The determination of the Board of Directors of the
Corporation, based on information known to the Board of Directors and
made in good faith, shall be conclusive as to whether any person,
partnership, corporation or firm is a related company or affiliate or
associated person as defined in this subsection (1).
(2) The terms "related company," "affiliate," "combination,"
"majority share acquisition," "acquiring corporation," and "associated
person" shall have the same meanings in this subsection (2) as are
ascribed to such terms in subsection (1).
(A) In the event that the requisite corporate action
has been taken in accordance with the other provisions of this
Certificate of Incorporation and in accordance with the laws
of the State of Delaware to approve the adoption of or to
authorize:
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(i) the lease, sale, exchange, transfer or other
disposition by the Corporation of all or
substantially all of its assets or business to a
related company or an affiliate of a related company
or an associated person of a related company; or
(ii) any combination or a majority share
acquisition or other transaction in which the
Corporation is the acquiring corporation and its
voting shares are issued or transferred to a related
company or an affiliate of a related company or to
stockholders of a related company or of an affiliate
of a related company or to an associated person of a
related company; or
(iii) any transaction proposed by or receiving the
favorable vote of any related company, affiliate of a
related company or an associated person of a related
company, the effect of which would be to cause the
involuntary surrender of the covered stock (as
defined in paragraph (B)) of the Corporation held by
any stockholder of the Corporation who is not a
related company or an affiliate of a related company
or an associated person of a related company; or
(iv) any agreement, contract, or other arrangement
with a related company or an affiliate of a related
company or an associated person of a related company
providing for any of the transactions described in
(i) through (iii) above;
then in such event the provisions of paragraph (B) below shall
be satisfied prior to the consummation of any transaction
described in clauses (i) through (iv) above.
(B) Any cash or the fair market value of any property to be
received per share of any class or series of covered stock held by each
covered stockholder of the Corporation who does not affirmatively vote
to approve such transaction described in clauses (i) through (iv) of
paragraph (A) above shall not be less than:
(i) the highest price per share (including
brokerage commissions, soliciting dealers' fees,
dealer management compensation, cost of newspaper
advertisements, printing expenses, and attorneys'
fees and other expenses) paid by such related company
or an affiliate of such related company or an
associated person of such related company in
acquiring such class or series of shares of covered
stock of the Corporation, or, if no shares of that
class or series of covered stock were acquired by
such person, the highest market price per share of
such class or series for any day on which such person
acquired any of the covered stock of the Corporation,
plus;
(ii) an amount which exceeds such price per share
by the same amount by which such price per share
exceeds the lower of:
(a) the market price per share of such class
or series of covered stock of the Corporation
immediately prior to the com-
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<PAGE> 66
mencement of the acquisition of any of such
class or series of covered stock of the
Corporation by such related company, affiliate
of such related company or an associated person
of such related company; or
(b) the lowest price per share paid for any
share of such class or series of covered stock
of the Corporation by such related company,
affiliate of such related company or an
associated person of such related company, or,
if no shares of that class or series of covered
stock were acquired by such person, the lowest
market price per share of such class or series
for any day on which such person acquired any
of the covered stock of the Corporation.
In the event that the terms of any transaction covered by the
provisions of paragraph (A) above do not provide for any cash or
property to be received by the holders of the issued and outstanding
covered stock of the Corporation, then any covered stockholder of the
Corporation who, by reason of such transaction is entitled to exercise
his statutory appraisal rights under Delaware law, as expanded in
section (d) of this Article Sixth, shall, upon the proper exercise of
appraisal rights, receive cash per share of covered stock which shall
not be less than the amount derived by application of the formula set
forth in this paragraph (B). In the event that the requisite corporate
action to be taken to approve the adoption of or to authorize any
transaction covered by the provisions of paragraph (A) above requires a
vote of any of the stockholders of the Corporation, the phrase "covered
stockholder of the Corporation" as used in this paragraph (B) shall
mean such holder of shares of [Special Common Stock or] Common Stock or
such other stock as is designated in this Certificate of Incorporation
or by the Board of Directors in the resolution or resolutions fixing
the terms of such stock (the "covered stock") as is registered as such
on the books of the Corporation as of the record date set to determine
those stockholders who are entitled to vote upon such transaction. In
the event that such requisite corporate action does not require a vote
of any of the stockholders of the Corporation, such phrase shall mean
such holder of shares of covered stock as is registered as such on the
books of the Corporation as of the date on which such requisite
corporate action is taken. In either of such events, the provisions of
this paragraph (B) shall apply only with respect to shares of covered
stock owned by such covered stockholder on such record date or date on
which such requisite corporate action is taken, whichever is
applicable.
(C) The Corporation shall not enter into any of the
transactions covered by the provisions of paragraph (A) above if such
related company or an affiliate of such related company or an
associated person of such related company from and after the date on
which it first became such shall have:
(i) acquired any newly issued or treasury shares
of the Corporation's capital stock directly or
indirectly from the Corporation (except upon
conversion of convertible securities or as a result
of a pro rata stock dividend or stock split);
(ii) received the benefit directly or indirectly
(except proportionately as a stockholder) of any
loans, advances, guarantees, pledges or other
financial assistance or tax credits provided by the
Corporation;
Language indicated as being shown by strike out in the typeset document is
enclosed in brackets "[" and "]" in the electronic format.
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<PAGE> 67
(iii) made any material change in the Corporation's
business, equity capital structure or dividend
practices;
(iv) made, caused, or brought about directly or
indirectly, any change in the Corporation's
Certificate of Incorporation or Bylaws; or
(v) made, caused, or brought about, directly or
indirectly, any change in the membership of the
Corporation's Board of Directors or Committees
thereof.
(D) The determination of a majority of the whole board, but
only if a majority of the whole board shall then consist of continuing
directors, or, if a majority of the whole board shall not then consist
of continuing directors, a majority of the then continuing directors,
based on information known to it and made in good faith shall be
conclusive as to (i) whether any transaction is included within the
provisions of this subsection (2), and (ii) the fair market value of
any property to be received by each covered stockholder pursuant to the
provisions of paragraph (B) of this subsection (2).
(E) No amendment of this Certificate of Incorporation shall
amend, alter, repeal, or change the effect of any of the provisions of
this subsection (2) unless such amendment shall receive the affirmative
vote of (i) the holders of then outstanding voting shares entitling the
holders thereof to cast at least 95% of the votes entitled to be cast
by the holders of all of the then outstanding voting shares entitled to
vote thereon and (ii) the holders of voting shares entitled to cast at
least 55% of the votes entitled to be cast thereon by the stockholders
who are not as of the record date fixed for such vote a related
company, affiliate of a related company or an associated person of a
related company.
(c)(1)[For purposes of this subsection (c)(1), "threshold percentage"
shall be the percentage determined under subsection (a)(6) of this Article Sixth
for the purpose of determining whether a person is a substantial stockholder.
(A) So long as a substantial stockholder beneficially owns voting shares of any
class or series in excess of his threshold percentage applicable to such class
or the class of which such series is a part in relation to the total number of
outstanding shares of such class or series, the record holders of such shares
shall have limited voting rights on any matter requiring their vote or consent.
With respect to such excess shares of each such class or series, the record
holders in the aggregate shall be entitled to cast only one one-hundredth
(1/100) of the vote per share to which a holder of such share would otherwise be
entitled. The aggregate voting power of such record holders, so limited, for all
shares of such class or series beneficially owned by the substantial stockholder
shall be allocated proportionately among such record holders. For each such
record holder, this allocation shall be accomplished by multiplying the
aggregate voting power of the outstanding shares of the class or series
beneficially owned by the substantial stockholder by a fraction whose numerator
is the number of shares of the class or series owned of record by such record
holder and whose denominator is the total number of shares of such class or
series beneficially owned by the substantial stockholder.
(B) In no event shall such substantial stockholder and the record owner(s) of
all voting shares of any class or series beneficially owned by such substantial
stockholder collectively be entitled or permitted to cast, by virtue of their
beneficial or record ownership of voting shares of any class or series
beneficially owned by such substantial stockholder, in excess of the applicable
threshold percentage plus 5% of the total number of votes which the holders of
all then outstanding voting shares of such class or series would (after giving
effect to the
Language indicated as being shown by strike out in the typeset document is
enclosed in brackets "[" and "]" in the electronic format.
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<PAGE> 68
provisions of paragraph (A)) be entitled to cast. If the provisions of
the preceding sentence shall have the effect of reducing the total number of
votes which any substantial stockholder and the record owner(s) of voting shares
of any class or series beneficially owned by such substantial stockholder shall
be entitled to cast, such reduction shall be effected, and the number of votes
which such record owner(s) shall be entitled to cast (by reason of this
paragraph (B)) shall be determined, in accordance with the provisions of
paragraph (A).
(2)] A majority of the whole board, but only if a majority of the whole board
shall then consist of continuing directors, or, if a majority of the whole board
shall not then consist of continuing directors, a majority of the then
continuing directors, shall have the power to construe and apply the provisions
of this section and to make all determinations necessary or desirable to
implement such provisions, including but not limited to matters with respect to
(A) the number of voting shares beneficially owned by any person, (B) whether a
person is an affiliate of another, (C) whether a person has an agreement,
arrangement, or understanding with another as to the matters referred to in the
definition of beneficial ownership, (D) the application of any other definition
or operative provision of the section to the given facts, or (E) any other
matter relating to the applicability or effect of this section.
[(3) A majority of the whole board shall have the right to demand, but
only if a majority of the whole board shall then consist of continuing
directors, or, if a majority of the whole board shall not then consist of
continuing directors, a majority of the then continuing directors shall have the
right to demand, that any person who is reasonably believed to be a substantial
stockholder (or holds of record voting shares beneficially owned by any
substantial stockholder) supply the Corporation with complete information as to
(A) the record owner(s) of all shares beneficially owned by such person who is
reasonably believed to be a substantial stockholder, (B) the number of, and
class or series of, shares beneficially owned by such person who is reasonably
believed to be a substantial stockholder and held of record by each such record
owner and the number(s) of the stock certificate(s) evidencing such shares, and
(C) any other factual matter relating to the applicability or effect of this
section, as may reasonably be requested of such person, and such person shall
furnish such information within 10 days after the receipt of such demand.
(4) Except as otherwise provided by law or expressly provided in this subsection
(4), the presence, in person or by proxy, of the holders of record of shares of
capital stock of the Corporation entitling the holders thereof to cast a
majority of votes (after giving effect, if required, to the provisions of this
section), entitled to be cast by the holders of shares of capital stock of the
Corporation entitled to vote shall constitute a quorum at all meetings of the
stockholders, and every reference in this Certificate of Incorporation to a
majority or other proportion of capital stock (or the holders thereof) for
purposes of determining any quorum requirement or any requirement for
stockholder consent or approval shall be deemed to refer to such majority or
other proportion of the votes (or the holders thereof) then entitled to be cast
in respect of such capital stock.
(5)](2) Any constructions, applications, or determinations made by the Board of
Directors or by the continuing directors, as the case may be, pursuant to this
section in good faith and on the basis of such information and assistance as was
then reasonably available for such purpose shall be conclusive and binding upon
the Corporation and its stockholders.[, including any substantial stockholder.
(6) Nothing contained in this section shall be construed to relieve any
substantial stockholder from any fiduciary obligation imposed by law.]
(d) To the maximum extent permissible under section 262(c) of the
Delaware General Corporation Law or any successor section or sections, the
holders of voting shares of the Corporation shall be entitled to the statutory
appraisal rights permitted therein as to an amendment to this Certificate of
Incorporation, any
Language indicated as being shown by strike out in the typeset document is
enclosed in brackets "[" and "]" in the electronic format.
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<PAGE> 69
merger or consolidation in which the Corporation is a constituent corporation,
or the sale of all or substantially all of the assets of the Corporation, but
only if such amendment or transaction requires the approval of the stockholders;
provided, however, that this section of this Article Sixth shall not apply to
any transaction which has received the affirmative vote of two-thirds (2/3) of
the whole board, but only if a majority of the members of the Board of Directors
acting upon such matter shall be continuing directors.
ARTICLE SEVENTH: A director of the Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation law, or (iv) for any transaction from which the director derived an
improper personal benefit. If the Delaware General Corporation Law is hereafter
amended to permit a corporation to further eliminate or limit the liability of a
director of a corporation, then the liability of a director of the Corporation,
in addition to the circumstances in which a director is not personally liable as
set forth in the preceding sentence, shall be further eliminated or limited to
the fullest extent permitted by the Delaware General Corporation Law as so
amended. Any amendment, repeal, or modification of this Article Seventh shall
not adversely affect any right or protection of a director of the Corporation
for any act or omission occurring prior to the date when such amendment, repeal,
or modification became effective.
ARTICLE EIGHTH: The Corporation reserves the right to amend, alter,
change, or repeal any provision contained in this Certificate of Incorporation,
in the manner now or hereafter prescribed by statute or by this Certificate of
Incorporation, and all rights conferred on stockholders herein are granted
subject to this reservation. In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is authorized to adopt, amend, and
repeal the Bylaws of the Corporation. Notwithstanding the foregoing, any
amendment, alteration, change, or repeal of the provisions set forth in Article
Fifth and Sixth of this Certificate of Incorporation, except for sections (b)(1)
and (b)(2) of Article Sixth, which must be amended as provided therein; sections
1(b), 1(e), and 1(g) of Article I, sections 2 and 3 of Article II, and Article
IX of the Bylaws; and this Article Eighth shall, in addition to any other vote
or approval required by law or by this Certificate of Incorporation, require the
affirmative vote of the holders of then outstanding voting shares entitling the
holders thereof to cast at least 80% of the votes entitled to be cast by the
holders of all of the then outstanding voting shares; provided, however, that
this sentence shall not apply to, and such 80% vote shall not be required for,
any amendment, alteration, change, or repeal declared advisable by the Board of
Directors by the affirmative vote of two-thirds (2/3) of the whole board and
submitted to the stockholders for their consideration, but only if a majority of
the members of the Board of Directors acting upon such matter shall be
continuing directors, as these terms are defined in section (a) of Article
Sixth.
ARTICLE NINTH: In the event any provision (or portion thereof) of this
Certificate of Incorporation shall be found to be invalid, prohibited, or
unenforceable for any reason, the remaining provisions (or portions thereof) of
this Certificate shall be deemed to remain in full force and effect, and shall
be construed as if such invalid, prohibited, or unenforceable provision had been
stricken herefrom or otherwise rendered inapplicable, it being the intent of the
Corporation and its stockholders that each such remaining provision (or portion
thereof) of this Certificate remain, to the fullest extent permitted by law,
applicable and enforceable as to all stockholders, notwithstanding any such
finding.
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<PAGE> 70
IN WITNESS WHEREOF, Scott Technologies, Inc. has caused this Restated
Certificate of Incorporation to be signed by Glen W. Lindemann, its President,
and attested by Debra L. Kackley, its Secretary, this ____ day of
_______________, 1998.
SCOTT TECHNOLOGIES, INC.
By:
-----------------------------
Glen W. Lindemann
ATTEST:
- --------------------------
Debra L. Kackley
<PAGE> 71
APPENDIX B
[marked to show changes]
AMENDED AND RESTATED ARTICLE II OF THE
BYLAWS OF SCOTT TECHNOLOGIES, INC.
DIRECTORS
* * *
SECTION 2. Number, Classification, and Election of Directors.
* * *
(c) Election. The directors of the appropriate class shall be elected
at the annual meeting of stockholders, or if not so elected, at a special
meeting of stockholders called for that purpose. At any meeting of stockholders
at which directors are to be elected, only persons nominated as candidates shall
be eligible for election, and the candidates receiving the greatest number of
votes entitled to be cast by the holders of all issued and outstanding shares
shall be elected.
Directors of the Corporation need not be residents of Delaware or
stockholders. No person shall be appointed or elected a director of the
Corporation unless:
(1) such person is elected to fill a vacancy in the Board of
Directors pursuant to section 3(d) of this Article II;
(2) such person is nominated for election as a director of the
Corporation by the Board of Directors or a committee thereof; or
(3) in the case of a nomination to be made by a stockholder of
the Corporation at an annual or special meeting of the stockholders, except in
the case of a nomination for which proxies are being solicited under applicable
regulations of the Securities and Exchange Commission, or a nomination permitted
by the affirmative vote of two-thirds (2/3) of the "whole board," but only if a
majority of the members of the Board of Directors acting upon the matter are
"continuing directors" (as these terms are defined in section (a) of Article
Sixth of the Certificate of Incorporation), written notice of a stockholder's
intent to make a nomination at a meeting of stockholders is filed with the
Secretary of the Corporation [not later than 10 days after the Notice to
Stockholders for that meeting is sent to stockholders, or at least 21 days prior
to the date fixed for holding the meeting at which the nomination is intended to
be made, whichever is later] at least 45 days prior to the anniversary of the
mailing date of the Corporation's proxy statement for the previous annual
meeting. Such notice of intent to nominate must contain or be accompanied by the
following information, which shall be accurate and current as of the date of
such notice[, or as of a date no earlier than 60 days prior to the meeting at
which the nomination is intended to be made, whichever is later]:
(A) the name and residence of the stockholder of the
Corporation who intends to make the nomination;
(B) a representation that the stockholder is a holder
of record of the voting shares of the Corporation and intends to appear in
person or by proxy at the meeting to nominate the person or persons specified in
the notice;
Language indicated as being shown by strike out in the typeset document is
enclosed in brackets "[" and "]" in the electronic format.
<PAGE> 72
(C) such information regarding each nominee as would
have been required to be included in a proxy statement filed pursuant to the
Securities and Exchange Commission's proxy rules had the Board of Directors of
the Corporation nominated or intended to nominate each nominee;
(D) a description of all arrangements or
understandings among the nominating stockholder and each nominee and any other
person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder; and
(E) the consent of each nominee to serve as a
director of the Corporation if so elected.
<PAGE> 73
APPENDIX C
SUMMARY OF THE RIGHTS PLAN
On September 23, 1998 the Board of Directors of Scott
Technologies, Inc. (the "Company") approved, contingent upon approval by the
Company's stockholders of amendments to the Company's Amended and Restated
Certificate of Incorporation (the "Charter") eliminating the dual class common
stock structure and the substantial stockholder provision at the special meeting
of stockholders (the "Special Meeting"), a Rights Agreement dated as of the date
of the effectiveness of the Charter amendments (the "Rights Agreement"). If the
Rights Agreement is approved, the Board will, on the date of the effectiveness
of the Charter amendments, declare a dividend distribution of one Right for each
outstanding share of Common Stock, $.001 par value (each, a "Common Share") of
the Company to stockholders of record at the close of business on the effective
date of the Charter amendments (the "Record Date"). Each Right would entitle the
registered holder to purchase from the Company one one-hundredth of a share (a
"Preferred Share Fraction") of the Series A Junior Participating Preferred
Shares, par value $1.00 per share (the "Preferred Shares") of the Company, or a
combination of securities and assets of equivalent value, at a per unit,
adjustable Purchase Price of $35. The description and terms of the Rights would
be set forth in the Rights Agreement.
Initially, ownership of the Rights would be evidenced by the
Common Share certificates representing shares then outstanding, and no separate
Rights Certificates would be distributed. The Rights would separate from the
Common Shares on the "Distribution Date," the earlier of (i) ten (10) business
days following a determination by the Board of Directors that a person or group
of affiliated or associated persons (an "Acquiring Person"(1) had acquired, or
obtained the right to acquire, beneficial ownership of 15% or more of the
outstanding Common Shares (the "Stock Acquisition Date"), or (ii) ten (10)
business days following the commencement of a tender offer or exchange offer
that would result in a person or group beneficially owning 15% or more of the
outstanding Common Shares. Until the Distribution Date, (i) the Rights would be
evidenced by the Common Share certificates, (ii) new Common Share certificates
issued after the Record Date would contain a notation incorporating the Rights
Agreement by reference and (iii) the surrender for transfer of any certificates
for Common Shares outstanding would also constitute the transfer of the Rights
associated with the Common Shares represented by such certificate.
The Rights would not be exercisable until the Distribution
Date and would expire at the close of business on the date that is five years
after the Record Date (or, subject to Section 27 of the Rights Agreement, such
later date that would be no more than five years thereafter unless, prior to
such date, (A) a majority of the members of the Board of Directors had voted to
amend the Rights Agreement to extend the effectiveness of the Rights Agreement
for an additional five year period and to provide for a new Purchase Price, and
(B) such extension had been submitted to a vote of the stockholders of the
Company and such extension had not been rejected by a negative vote of a
majority of a quorum of the votes of stockholders who were then eli-
- ----------
1 Common Shares continuously owned by holders of more than 5% of the
Corporation's outstanding shares of Class A Common Stock or Class B Common
Stock since September 23, 1998 will be excluded from future calculations of
their share ownership for the purposes of determining whether any such
person has become an Acquiring Person provided that, prior to final
adoption of the Rights Agreement, each such person enters into an agreement
with the Company in which such person certifies to the Company such
person's stock ownership as of September 23, 1998 and agrees, among other
things, not to enter into a proxy contest with the Company or seek to
acquire the Company in a hostile takeover.
<PAGE> 74
gible to vote on such a matter) or unless earlier redeemed by the Company as
described below or unless a transaction under Section 13(d) of the Rights
Agreement had occurred.
As soon as practicable after the Distribution Date, Rights
Certificates would be mailed to holders of record of the Common Shares as of the
close of business on the Distribution Date and, thereafter, the separate Rights
Certificates alone would represent the Rights. Except as otherwise determined by
the Board of Directors, only Common Shares issued after the Record Date and
prior to the Distribution Date would be issued with Rights.
Except in the circumstances described below, after the
Distribution Date each Right would be exercisable for a Preferred Share
Fraction. Each Preferred Share Fraction would carry voting and dividend rights
that would be intended to produce the equivalent of one Common Share. The voting
and dividend rights of the Preferred Shares would be subject to adjustment in
the event of dividends, subdivisions and combinations with respect to the Common
Shares of the Company. In lieu of issuing certificates for Preferred Share
Fractions which would be less than an integral multiple of one Preferred Share
(i.e., 100 Preferred Share Fractions), the Company would pay cash representing
the current market value of the Preferred Share Fractions.
In the event that at any time following the Stock Acquisition
Date, (i) the Company were the surviving corporation in a merger with an
Acquiring Person and its Common Shares remained outstanding, (ii) a Person
became the beneficial owner of more than 15% of the then outstanding Common
Shares other than pursuant to a tender offer or exchange offer that provided
fair value to all stockholders and therefore had been deemed to be a "Qualifying
Offer," (iii) an Acquiring Person engaged in one or more "self-dealing"
transactions as set forth in the Rights Agreement, or (iv) during such time as
there were an Acquiring Person an event occurred that resulted in such Acquiring
Person's ownership interest being increased by more than 1% (e.g., a reverse
stock split), each holder of a Right would thereafter have the right to receive,
upon exercise, Common Shares (or, in certain circumstances, cash, property or
other securities of the Company) having a value equal to two times the exercise
price of the Right. In lieu of requiring payment of the Purchase Price upon
exercise of the Rights following any such event, the Company could permit the
holders simply to surrender the Rights, in which event they would be entitled to
receive Common Shares (and other property, as the case may be) with a value of
50% of what could be purchased by payment of the full Purchase Price.
Notwithstanding any of the foregoing, following the occurrence of any of the
events set forth in clauses (i), (ii), (iii) or (iv) of this paragraph, all
Rights that were, or (under certain circumstances specified in the Rights
Agreement) had been, beneficially owned by any Acquiring Person who was involved
in the transaction giving rise to any such event would be null and void.
However, Rights would not be exercisable following the occurrence of any of the
events set forth above until such time as the Rights were no longer redeemable
by the Company as set forth below.
For example, at an exercise price of $35 per Right, each Right
not otherwise voided following an event set forth in the preceding paragraph
would entitle its holder to purchase $70 worth of Common Shares (or other
consideration, as noted above) for $35. Assuming that the Common Shares had a
per share value of $10 at such time, the holder of each valid Right would be
entitled to purchase seven Common Shares for $35. Alternatively, the Company
could permit the holder to surrender each Right in exchange for three and a half
Common Shares (with a value of $35) without the payment of any consideration
other than the surrender of the Right.
In the event that, at any time following the Stock Acquisition
Date, (i) the Company were acquired in a merger or other business combination
transaction in which the Company were not the surviving corporation (other than
a merger that is described in or that follows a Qualifying Offer), or (ii) 50%
or more
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<PAGE> 75
of the Company's assets or earning power were sold or transferred, each holder
of a Right (except Rights that previously had been voided as set forth above)
would thereafter have the right to receive, upon exercise, common shares of the
acquiring company having a value equal to two times the exercise price of the
Right. Again, provision would be made to permit surrender of the Rights in
exchange for one-half of the value otherwise purchasable. The events set forth
in this paragraph and in the second preceding paragraph would be referred to as
the "Triggering Events."
The Purchase Price payable, and the number of Preferred Share
Fractions or other securities or property issuable upon exercise of the Rights
would be subject to adjustment from time to time to prevent dilution (i) in the
event of a stock dividend on, or a subdivision, combination or reclassification
of, the Preferred Shares, (ii) if holders of the Preferred Shares were granted
certain rights or warrants to subscribe for Preferred Shares or convertible
securities at less than the current market price of the Preferred Shares, or
(iii) upon the distribution to holders of the Preferred Shares of evidences of
indebtedness or assets (excluding regular quarterly dividends) or of
subscription rights or warrants (other than those referred to above).
With certain exceptions, no adjustment in the Purchase Price
would be required until cumulative adjustments amounted to at least 1% of the
Purchase Price. No Preferred Share Fractions would be issued and, in lieu
thereof, an adjustment in cash would be made based on the market price of the
Preferred Shares on the last trading date prior to the date of the exercise.
At any time until ten (10) days following the Stock
Acquisition Date, the Company could redeem the Rights in whole, but not in part,
at a price of $.001 per Right. That ten (10) day redemption period could be
extended by the Board of Directors so long as the Rights were still redeemable.
Immediately upon the action of the Board of Directors ordering redemption of the
Rights, the Rights would terminate and the only right of the holders of Rights
would be to receive the $.001 redemption price.
Until a Right were exercised, the holder thereof, as such,
would have no rights as a stockholder of the Company, including, without
limitation, the right to vote or to receive dividends. While the distribution of
the Rights would not be taxable to stockholders or to the Company, stockholders
could, depending upon the circumstances, recognize taxable income in the event
that the Rights became exercisable for Preferred Shares (or Common Shares or
other consideration) of the Company or for common shares of the acquiring
company as set forth above.
Other than those provisions relating to the principal economic
terms of the Rights, any of the provisions of the Rights Agreement could be
amended by the Board of Directors of the Company prior to the Distribution Date.
After the Distribution Date, the provisions of the Rights Agreement could be
amended by the Board in order to cure any ambiguity, to make changes that did
not adversely affect the interests of holders of Rights (excluding the interests
of any Acquiring Person), or to shorten or lengthen any time period under the
Rights Agreement; PROVIDED, however, that no amendment to adjust the time period
governing redemption could be made at such time as the Rights were not
redeemable.
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<PAGE> 76
APPENDIX D
[Duff & Phelps, LLC Letterhead]
November 10, 1998
Board of Directors
Scott Technologies, Inc.
5875 Landerbrook Drive, Suite 250
Mayfield Heights, Ohio 44124
Gentlemen:
Duff & Phelps, LLC ("Duff & Phelps") has been engaged by Scott Technologies,
Inc. (together with its predecessor companies, referred to as "Scott" or the
"Company") as financial advisor to the board of directors of the Company
("Board"). Specifically, Duff & Phelps has been engaged to determine if a
Proposed Reclassification (as defined below) is fair to the shareholders of
Scott from a financial point of view.
It is our understanding that the Company is currently capitalized with Class A
Common Stock, Par value $0.10 per share ("Class A Common Stock") and Class B
Common Stock, Par value $0.10 per share ("Class B Common Stock"). It is our
further understanding that Scott is considering an amendment to the Company's
Certificate of Incorporation such that each share of Class A Common Stock and
each share of Class B Common Stock would be converted into one share of a single
class of a common stock (the "Proposed Reclassification"). We understand that
the Proposed Reclassification will be submitted to the shareholders of the Class
A Common Stock and shareholders of the Class B Common Stock (collectively, the
"Shareholders") for approval at a Special Meeting of the Shareholders.
For purposes of our opinion and in connection with our review of the Proposed
Reclassification, we have, among other things:
1. Reviewed a draft of the proxy statement (the "Proxy Statement") of the
Company dated as of September 18, 1998, which describes the Proposed
Reclassification;
2. discussed the current operations and future outlook of Scott with
Company management;
3. met with the Board to discuss the Company, the Proposed
Reclassification and the results of our reviews and analyses;
4. reviewed the Company's Form 10-K's for the years ended 1994 to 1997;
5. reviewed the Company's Form 10-Q for the period ended June 30, 1998;
<PAGE> 77
Board of Directors
Scott Technologies, Inc.
November 10, 1998
Page 2
6. reviewed the Company's Amended and Restated Certificate of
Incorporation;
7. reviewed the market prices and trading activity of the Class A Common
Stock and Class B Common Stock;
8. reviewed the market prices and trading activity of the capital stock of
other companies with two classes of publicly traded stock;
9. reviewed the terms of transactions in which two classes of capital
stock of public companies were converted into a single class of capital
stock;
10. reviewed the terms of transactions in which public companies with two
classes of capital stock were acquired; and
11. performed such other review and analyses as we deemed necessary.
In connection with our opinion, with your permission and without any independent
verification, we have relied on the accuracy and completeness of all the
financial and other information reviewed by us, furnished, or otherwise
communicated to us by the Company or obtained by us from publicly available
sources. We have not made an independent valuation or appraisal of the assets or
liabilities of the Company and have not been furnished with such valuation or
appraisal. Any inaccuracies in the information on which we relied could
materially affect our opinion.
Duff & Phelps has to date received fees from the Company for its services and
expects to receive additional fees upon the completion of the Proposed
Reclassification. In a separate engagement to the evaluation described herein,
Duff & Phelps has advised the Company with respect to the structuring of a
shareholders rights plan.
In rendering this opinion, we have assumed that the Proposed Reclassification
occurs on terms that are described in the Proxy Statement. Nonetheless, it
should be recognized that we are not making any recommendation as to whether the
shareholders of the Class A Common Stock or the shareholders of the Class B
Common Stock should vote in favor of the Proposed Reclassification or any other
matter described in the Proxy Statement.
Based upon the foregoing, it is our opinion that the Proposed Reclassification
is fair to the shareholders of the Class A Common Stock and the shareholders of
the Class B Common Stock from a financial point of view.
Respectfully submitted,
/s/ Duff & Phelps, LLC
<PAGE> 78
APPENDIX E
[marked to show changes]
AMENDED AND RESTATED
SCOTT TECHNOLOGIES, INC.
KEY EMPLOYEES' STOCK OPTION PLAN
Scott Technologies, Inc. hereby [adopts a stock option plan for the
benefit of certain persons and subject to the terms and provisions] amends and
restates its Key Employees' Stock Option Plan as set forth below.
1. Definitions. The following terms shall have the meanings set forth below
whenever used in this instrument:
(a) The word "Board" shall mean the Board of Directors of the Company.
(b) The word "Code" shall mean the United States Internal Revenue Code
of 1986, as amended, or successor provisions of future United States
revenue laws (Title 26 of the United States Code).
(c) The word "Committee" shall mean the Stock Option Committee of the
Board.
(d) The words "Common Stock" shall mean the [Class A] Common stock,
$0.10 par value, of the Company.
(e) The word "Company" shall mean Scott Technologies, Inc., a Delaware
corporation, and any successor thereto which shall maintain this Plan.
(f) The word "Disability" shall mean the Optionee's inability to engage
in substantial gainful activity for the Company by reason of any medically
determinable physical or mental impairment which can be expected to result
in death or which has lasted or can be expected to last for a continuous
period of not less than 12 months, as determined by the Committee pursuant
to written certification of such Disability from a physician acceptable to
the Committee.
(g) The words "Incentive Stock Option" shall mean any option which
qualifies as an Incentive Stock Option under the terms of Section 422 of
the Code.
(h) The words "Key Employee" shall mean any person who is determined by
the Committee to be a high-level executive officer or other valuable
managerial or technical employee of either the Company or any Subsidiary.
(i) The word "Optionee" shall mean any Employee to whom a stock option
has been granted pursuant to this Plan.
(j) The word "Plan" shall mean this instrument, the Scott Technologies,
Inc. Key Employees' Stock Option Plan, as [it is] originally [adopted]
executed, as amended and restated herein and as it may be amended
hereafter.
(k) The word "Subsidiary" shall mean any corporation at least 50% of
the common stock of which is owned directly or indirectly by the Company.
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enclosed in brackets "[" and "]" in the electronic format
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(l) The words "Substantial Stockholder" shall mean any Employee who
owns directly and through attribution more than 10% of the total combined
voting power of all classes of stock of either the Company or any
Subsidiary. Ownership shall be determined in accordance with Section 424(d)
of the Code and lawful applicable regulations.
(m) The words "Transferee" shall mean any person to whom a stock option
which is not an Incentive Stock Option has been transferred pursuant to
Subsection 7(c).
2. Purpose of the Plan. The purpose of the Plan is to provide Key Employees
of the Company and its Subsidiaries with greater incentive to serve and promote
the interests of the Company and its stockholders. The premise of the Plan is
that, if such persons acquire a proprietary interest in the business of the
Company or increase such proprietary interest as they may already hold, then the
incentive of such persons to work toward the Company's continued success will be
commensurately increased. Accordingly, the Company will, from time to time
during the effective period of the Plan, grant to such Employees as may be
selected to participate in the Plan options to purchase Common Stock on the
terms and subject to the conditions set forth in the Plan. Options may be either
Incentive Stock Options or non-qualified stock options.
3. Effective [Date of the Plan.] Dates. The Plan [shall become] originally
became effective on October 20, 1994. This amendment and restatement of the Plan
shall become effective on December 15, 1998, subject to approval of a majority
of the votes of the holders of [Class A Common Stock and holders of Class B] all
classes of Common Stock present in person or represented by proxy at a duly
constituted meeting of [the] stockholders of the Company voting together and not
as separate classes. In the event that the foregoing condition is not satisfied
within twelve (12) months after the date this amendment and restatement of the
Plan is adopted, this amendment and restatement of the Plan and any options
granted hereunder after December 15, 1998 shall be null and void. If, however,
this amendment and restatement of the Plan is [so] approved, subject to the
provisions of Section 11, no further stockholder approval shall be required with
respect to the granting of any options pursuant to the Plan. This amendment and
restatement of the Plan shall not affect any options granted under the Plan
prior to December 15, 1998.
4. Administration of the Plan. The Plan shall be administered by the
Committee. The Committee shall consist of no fewer than two (2) members, who
shall be designated by and be members of the Board. Each member of the Committee
shall be a "disinterested person" within the meaning of Rule 16b-3 promulgated
under the Securities Exchange Act of 1934 or any amendment of or successor to
such rule as may be in effect from time to time and shall be an "outside
director" as defined pursuant to Section 162(m) of the Code. A majority of the
Committee shall constitute a quorum, and the acts of a majority of the members
present at any meeting at which a quorum is present, or acts approved in writing
by all of the members, shall be acts of the Committee. Subject to the terms and
conditions of the Plan, the Committee shall have full and final authority in its
absolute discretion:
(a) To select the Key Employees to whom options will be granted;
(b) To determine the number of shares of Common Stock subject to any
option;
(c) To determine the time or times when options will be granted;
(d) To determine the option price of shares of Common Stock subject to
an option;
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(e) To determine the time or times when each option may be exercised
and the duration of the exercise period;
(f) To determine at the time of grant of an option whether and to what
extent such option is an Incentive Stock Option under Section 422 of the
Code and regulations thereunder as the same or any successor statute or
regulations may at the time be in effect;
(g) To determine whether stock appreciation rights shall be made part
of any option grant pursuant to Section 8 hereof, the method of valuing the
stock appreciation rights and whether the stock appreciation rights may be
exercised in lieu of or in addition to the related option;
(h) To prescribe the form of the option agreements governing the
options which are granted under the Plan and to set the provisions of such
option agreements as the Committee may deem necessary or desirable provided
such provisions are not contrary to the terms and conditions of either the
Plan or, where the option is an Incentive Stock Option, Section 422 of the
Code and regulations thereunder as the same or any successor statute or
regulations may at, the time be in effect;
(i) To adopt, amend and rescind such rules and regulations as, in the
Committee's opinion, may be advisable in the administration of the Plan;[
and ]
(j) To construe and interpret the Plan, the rules and regulations and
the instruments evidencing options granted under the Plan and to make all
other determinations deemed necessary or advisable for the administration
of the Plan[.];
(k) To authorize the transfer to a Transferee of an option which is not
an Incentive Stock Option;
(l) To determine the time or times when an option may be exercised by a
Transferee and the duration of the exercise period; and
(m) To rescind option grants to the extent necessary to enable the
Company to be a party to a business combination which is to be accounted
for under the pooling-of-interests method of accounting.
Any decision made or action taken by the Committee in connection with the
administration, interpretation, or implementation of the Plan and of its rules
and regulations, shall, to the extent permitted by law, be conclusive and
binding upon all Optionees under the Plan and upon any person claiming under or
through such an Optionee. Neither the Committee nor any of its members shall be
liable for any act taken by the Committee pursuant to the Plan. No member of the
Committee shall be liable for the act of any other member.
5. Persons Eligible for Options. Subject to the restrictions herein
contained, options may be granted from time to time in the discretion of the
Committee only to such Key Employees, as designated by the Committee, whose
initiative and efforts contribute or may be expected to contribute to the
continued growth and future success of the Company and/or its subsidiaries.
Notwithstanding the preceding sentence, a Key Employee who renounces in writing
any right he may have to receive stock options under the Plan shall not be
eligible to receive any stock options under the Plan. No option shall be granted
to any Key Employee during any period of time when he is on leave of absence.
The Committee may grant more than one option, with or without stock appreciation
rights, to the same Key Employee.
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6. Shares Subject to the Plan. Subject to the provisions of Section 8
concerning payment for stock appreciation rights in shares of Common Stock and
subject to the provisions of the next succeeding paragraph of this Section 6,
the aggregate number of shares of Common Stock for which options may be granted
under the Plan shall be [1,500,000] 3,000,000 shares of Common Stock. Either
treasury or authorized and unissued shares of Common Stock, or both, in such
amounts, within the maximum limits of the Plan, as the Committee shall from time
to time determine, may be so issued. All shares of Common Stock which are the
subject of any lapsed, expired or terminated options may be made available for
reoffering under the Plan to any Key Employee. If an option granted under this
Plan is exercised pursuant to the terms and conditions determined by the
Committee under Subsection 7(d), any shares of Common Stock which are the
subject thereof shall not thereafter be available for reoffering under the Plan
to any Employee. If a stock appreciation right granted in conjunction with an
option pursuant to Section 8 can only be exercised in lieu of exercise of the
related option, and the stock appreciation right is thereafter exercised in
whole or in part, then the option or the portion thereof with respect to which
the stock appreciation right was exercised shall be deemed to have been
exercised and the shares of Common Stock which otherwise would have been issued
upon exercise of such option, to the extent not used in payment for the stock
appreciation right, may be made available for reoffering under the Plan to any
Key Employee, except as provided in Subsection 7(f).
In the event that subsequent to the date of adoption of the Plan by the
Board the outstanding shares of Common Stock are, as a result of a stock split,
stock dividend, combination or exchange of shares, exchange for other
securities, reclassification, reorganization, redesignation, merger,
consolidation, recapitalization, spin-off, split-off, split-up or other such
change (including, without limitation, any transaction described in Section
424(a) of the Code) or a special dividend or other distribution to the Company's
stockholders, increased or decreased or changed into or exchanged for a
different number or kind of shares of stock or other securities of the Company,
then (i) there shall automatically be substituted for each share of Common Stock
subject to an unexercised option granted under the Plan and each share of Common
Stock available for additional grants of options under the Plan the number and
kind of shares of stock or other securities into which each outstanding share of
Common Stock shall be exchanged, (ii) the option price per share of Common Stock
or unit of securities shall be increased or decreased proportionately so that
the aggregate purchase price for the securities subject to the option shall
remain the same as immediately prior to such event, and (iii) the Committee
shall make such other adjustments to the securities subject to options, the
provisions of the Plan, and option agreements as may be appropriate or
equitable, in order to prevent dilution or enlargement of option rights and in
compliance with the provisions of Section 424(a) of the Code to the extent
applicable and any such adjustment shall be final, binding and conclusive as to
each Optionee. Any such adjustment may, in the discretion of the Committee,
provide for the elimination of fractional shares.
7. Option Provisions.
(a) Option Price. The option price per share of Common Stock which is
the subject of an Incentive Stock Option under the Plan shall be determined
by the Committee at the time of grant but shall not be less than one
hundred percent (100%) of the fair market value of a share of Common Stock
on the date the Incentive Stock Option is granted; provided, however, that
if an Employee to whom an Incentive Stock Option is granted is at the time
of the grant a Substantial Stockholder, the option price per share of
Common Stock shall be determined by the Committee but shall never be less
than one hundred ten percent (110%) of the fair market value of a share of
Common Stock on the date the option is granted. The option price per share
of Common Stock under each option granted pursuant to the Plan which is not
an Incentive Stock Option shall be determined by the Committee at the time
of grant, and may be above or below the fair market value of a share of
Common Stock on the date the option is granted. Such fair market value
shall be determined in accordance with procedures to be established by the
Committee. The date on which
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the Committee approves the granting of an option shall be deemed for all
purposes hereunder the date on which the option is granted.
(b) Period of Option. The Committee shall determine when each option is
to expire but no option shall be exercisable after ten (10) years have
elapsed from the date upon which the option is granted; provided, however,
that no Incentive Stock Option granted to a person who is a Substantial
Stockholder at the time of the grant of such option shall be exercisable
after five (5) years have elapsed from the date upon which the option is
granted. Each option shall be subject to earlier termination as provided in
Subsection 7(e) hereunder.
(c) Limitation on Exercise and Transfer of Option. Except as otherwise
provided in the event of an Optionee's death or the transfer of the option
as set forth below, only the Optionee may exercise an option, provided that
a guardian or other legal representative who has been duly appointed for
such Optionee may exercise an option on behalf of the Optionee. [No] Except
as otherwise provided below, no option granted hereunder shall be
transferable other than (i) by the Last Will and Testament of the Optionee
or, if the Optionee dies intestate, by the applicable laws of descent and
distribution, or (ii), to the extent approved by the Committee, pursuant to
a qualified domestic relations order as defined by the Code or the rules
thereunder. An option granted hereunder which is not an Incentive Stock
Option may be transferred to a Transferee in the discretion of the
Committee for estate planning purposes. No option granted hereunder may be
pledged or hypothecated, nor shall any such option be subject to execution,
attachment or similar process,
(d) Conditions Governing Exercise of Option. The Committee may, in its
absolute discretion, either require that, prior to the exercise of any
option granted hereunder, the Optionee shall have been an employee for a
specified period of time after the date such option was granted, or make
any option granted hereunder immediately exercisable. Each option shall be
subject to such additional restrictions or conditions with respect to the
right to exercise and the time and method of exercise as shall be
prescribed by the Committee. Upon satisfaction of any such conditions, the
option may be exercised in whole or in part at any time during the option
period, but this right of exercise shall be limited to whole shares, unless
the Committee shall otherwise provide. Options shall be exercised by the
Optionee or any Transferee giving written notice to the Secretary of the
Company at its principal office, by certified mail, return receipt
requested, of the [Optionee's] exercise of the option and the number of
shares with respect to which the option is being exercised, accompanied by
full payment of the purchase price either in cash or, with the consent of
the Committee, in whole or in part in shares of Common Stock having a fair
market value on the date the option is exercised equal to that portion of
the purchase price for which payment in cash is not made. Such notice shall
be deemed delivered when deposited in the mails. Notwithstanding anything
in the foregoing to the contrary, in the event [of ]that a person becomes
the "beneficial owner" (as that term is defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of shares
of Common Stock or any security convertible into Common Stock having
aggregate votes equal to fifty percent (50%) of the voting power of all
classes of common stock and of all classes of securities convertible into
such common stock calculated as provided in paragraph (d) of said Rule
13d-3 in a transaction with the Company accounted for under the
pooling-of-interests method of accounting, all outstanding options shall be
immediately exercisable. In addition, in the event of other transactions
considered to be a "change in control," the Committee shall have the
authority and power: (i) to cause all outstanding options to be immediately
exercisable notwithstanding any vesting limitation otherwise previously
imposed on such options; and (ii) to accelerate the termination date of all
such options. Thereafter, upon the exercise of the power in subparagraph
(i) above, an Optionee or any Transferee may exercise any and all
outstanding options (in whole or in part),
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whether or not such options are by their terms fully exercisable at such
time). The term "change in control" shall include, but not be limited to:
(i) the first purchase of shares pursuant to a tender offer or exchange
(other than a tender offer or exchange by the Company) for [ten percent
(10%) or more of the Company's common stock of any class or any] shares of
Common Stock or any security convertible into Common Stock having aggregate
votes equal to twenty percent (20%) of the voting power of all of the
Company's outstanding shares of common stock or of all classes of
securities convertible into such common stock; (ii) the receipt by the
Company of a Schedule 13D or other advice indicating that a person is the
"beneficial owner" (as that term is defined in Rule [l3d-3 under the
Securities Exchange Act of 1934) of ]13d-3 under the Exchange Act) of
shares of Common Stock or any security convertible into Common Stock having
aggregate votes equal to twenty percent (20%) [or more of the Company's
Common Stock] of the voting power of all classes of common stock and of all
classes of securities convertible into such common stock calculated as
provided in paragraph (d) of said Rule [13d-3] 13-d; (iii) 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; (iv) 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; (v) the adoption of any plan
or proposal for the liquidation (but not a partial liquidation) or
dissolution of the Company; or (vi) such other event as the Committee
shall, in its sole and absolute discretion, deem to be a "change in
control." The manner of application and interpretation of the foregoing
provisions shall be determined by the Committee in its sole and absolute
discretion.
(e) Termination of Employment, Etc. If an Optionee ceases to be an
employee of the Company or any of its Subsidiaries, his or her [Option]
option or the option held by his or her transferee shall be exercisable as
follows:
(i) [the Optionee] such option shall be [able to exercise an option]
exercisable during the three (3) months after the date the Optionee
ceased to be an employee of the Company or any of its Subsidiaries (but
not beyond the original term of the option) if the reason for the
Optionee's cessation as an employee was other than his death or his
Disability; [or]
(ii) [the Optionee] such option shall be [able to exercise an option]
exercisable during the one (1) year after the date the Optionee ceased
to be an employee of the Company or any of its Subsidiaries (but not
beyond the original term of the option) if the reason for the
Optionee's cessation as an employee was the Optionee's Disability; or
(iii) [the Optionee's estate, or the person designated in the
Optionee's Last Will and Testament, or the person to whom the option
was transferred by the applicable laws of descent and distribution
shall be able to exercise an Option] such option shall be exercisable
during the one (1) year after the date the Optionee ceased to be an
employee of the Company or any of its Subsidiaries (but not beyond the
original term of the option) if either (A) the reason for the
Optionee's cessation as an employee was his death or (B) the Optionee
died within three (3) months after ceasing to be an employee of the
Company or any of its Subsidiaries.
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Notwithstanding the foregoing to the contrary, the Committee may in its
discretion provide in the option for shorter or longer periods in which the
[Option] option can be exercised after the Optionee's cessation as an employee
or provide that the [Option] option shall not be exercisable at all after the
Optionee's cessation as an employee of the Company or any of its Subsidiaries.
However, no period of exercise with respect to an option may be extended beyond
the original expiration date of the option.
An Optionee's employment shall not be deemed to have terminated while he or
she is on a temporary military, sick or other bona fide leave of absence from
the Company or a Subsidiary approved in writing by the Company, such as a leave
of absence as is described in Section 1.421-7(h) of the Federal Income Tax
Regulations or any lawful successor regulations thereto; provided, however, that
the Committee may impose such terms and conditions with respect to such leaves
as it deems proper as are consistent with such regulations.
(f) Limitations on Grant of Stock Options. During the calendar year in
which any Incentive Stock Options granted by the Company or any Subsidiary
first become exercisable by any Optionee, the aggregate fair market value
of the shares of Common Stock which are subject to such Incentive Stock
Options (determined as of the date the Incentive Stock Options were
granted) shall not exceed the sum of One Hundred Thousand Dollars
($100,000.00). Options which are not designated as Incentive Stock Options
shall not be subject to the limitation described in the preceding sentence
but are subject to a separate limitation so that the number of shares with
respect to which [Options] options may be granted to an Optionee in any
five-year period will not exceed 750,000.
(g) Prohibition of Alternative Options. It is intended that Employees
may be granted, simultaneously or from time to time, Incentive Stock
Options or other stock options, but no Employees shall be granted
alternative rights in Incentive Stock Options and other stock options so as
to prevent options granted as Incentive Stock Options under the Plan from
qualifying as such within the meaning of Section 422 of the Code.
(h) Waiver by Committee of Conditions Governing Exercise of Option. The
Committee may, in its discretion, waive any restrictions or conditions set
forth in an option agreement concerning an Optionee's right to exercise any
option and/or the time and method of exercise.
8. Stock Appreciation Rights. The Committee may provide, at the time of the
grant of a stock option and upon such terms and conditions as it deems
appropriate, that an Optionee shall have the right with respect to all or a
portion of the options granted to him to elect to surrender such options in
exchange for the consideration set forth in this Section 8 in lieu of exercising
such options. Alternatively, the Committee may provide, at the time of the grant
of a stock option and upon such terms and conditions as it deems appropriate,
that an Optionee shall have the right with respect to all or a portion of the
options granted to him to receive the consideration set forth in this Section 8
upon exercising such options in addition to any Common Shares purchased upon
exercise thereof. Stock appreciation rights must be specifically granted by the
Committee; provided, however, the Committee shall have no authority to grant
stock appreciation rights except in connection with the grant of a stock option
pursuant to the Plan, and no Optionee shall be entitled to such rights solely as
a result of the grant of an option to him. Stock appreciation rights, if
granted, may be exercised either with respect to all or a portion of the option
to which they relate. Stock appreciation rights shall not be transferable
separate from the option with respect to which they were granted [and], shall be
subject to all of the restrictions on transfer applicable to the said options
and, if the stock option to which they relate are transferred pursuant to
Subsection 7(c) hereof, must be transferred simultaneously to the Transferee of
the related option. Stock appreciation rights shall be exercisable only at such
times and by such persons as are specified in the option agreement governing the
stock option with respect to which the stock appreciation rights were
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granted. A stock appreciation right shall provide that an Optionee or Transferee
shall have the right to receive a percentage, not greater than One Hundred
Percent (100%), of the excess over the option price, if any, of the fair market
value of the shares of Common Stock covered by the option, as determined by the
Committee as of the date of exercise of the stock appreciation right, in the
manner provided for herein. Such amount shall be payable in one or more of the
following manners, as shall be determined by the Committee;
(a) in cash;
(b) in shares of Common Stock having a fair market value equal to such
amount; or
(c) in a combination of cash and Common Stock.
If payment is made in whole or in part in shares of Common Stock, such payment
shall thereby reduce the number of shares available for the grant of options
under this Plan.
In no event may any Optionee or Transferee exercise any stock appreciation
rights granted hereunder unless such [Optionee] person is then permitted to
exercise the option or the portion thereof with respect to which such stock
appreciation rights relate. If the option agreement [with the Optionee] provides
that exercise of the stock appreciation right shall be in lieu of exercise of
the option, then (i) upon the exercise of any stock appreciation rights, the
option or that portion thereof to which the stock appreciation rights relate
shall be cancelled, and (ii) upon the exercise of the option or that portion
thereof to which the stock appreciation rights relate, the stock appreciation
rights shall be cancelled, and the option agreement governing such option shall
be deemed amended as appropriate without any further action by the Committee [or
the Optionee]. If the option agreement [with the Optionee] provides that
exercise of the stock appreciation right shall be in addition to exercise of the
option, then (i) upon the exercise of any stock appreciation rights, the option
or that portion thereof to which the stock appreciation rights relate shall be
deemed exercised and (ii) upon the exercise of the option, the stock
appreciation rights corresponding thereto shall be deemed exercised to the
extent the option is exercised. The terms of any stock appreciation rights
granted hereunder shall be incorporated into the option agreement which governs
the option with respect to which the stock appreciation rights are granted, and
shall be such terms as the Committee shall prescribe which are not inconsistent
with this Plan. The granting of an option or stock appreciation right shall
impose no obligation upon the Optionee or Transferee to exercise such option or
right. The Company's obligation to satisfy stock appreciation rights shall not
be funded or secured in any manner.
9. Investment Representation, Approvals and Listing. The Committee may
condition its grant of any option hereunder upon receipt of an investment
representation from the [Optionee] person exercising the option which shall be
substantially similar to the following:
["Optionee] "The undersigned agrees that any shares of [Class A]
Common Stock of Scott Technologies, Inc. which [Optionee] the
undersigned may acquire by virtue of the exercise of this option shall
be acquired for investment purposes only and not with a view to
distribution or resale; provided, however, that this restriction shall
become inoperative in the event the shares of [Class A] Common Stock of
Scott Technologies, Inc. which are subject to this option shall be
registered under the Securities Act of 1933, as amended, or in the
event Scott Technologies, Inc. is otherwise satisfied that the offer or
sale of the shares of [Class A] Common Stock which are subject to this
option may lawfully be made without registration under the Securities
Act of 1933, as amended."
Language indicated as being shown by strike out in the typeset document is
enclosed in brackets "[" and "]" in the electronic format
8
<PAGE> 86
The Company shall not be required to issue any certificates for shares of Common
Stock upon the exercise of an option or a stock appreciation right granted under
the Plan prior to (i) obtaining any approval from any governmental agency which
the Committee shall, in its sole discretion, determine to be necessary or
advisable, (ii) the admission of such shares of Common Stock to listing on any
national securities exchange on which the shares of Common Stock may be listed,
(iii) completion of any registration or other qualification of the shares of
Common Stock under any state or federal law or ruling or regulations of any
governmental body which the Committee shall, in its sole discretion, determine
to be necessary or advisable, or the determination by the Committee, in its sole
discretion, that any registration or other qualification of the shares of Common
Stock is not necessary or advisable, and (iv) obtaining an investment
representation from the Optionee in the form set forth above or in such other
form as the Committee, in its sole discretion, shall determine to be adequate.
10. General Provisions.
(a) Option Agreements Need Not Be Identical. The form and substance of
option agreements and grants of stock appreciation rights, whether granted
at the same or different times, need not be identical.
(b) No Right To Be Employed, Etc. Nothing in the Plan or in any option
agreement shall confer upon any Optionee any right to continue in the
employ of the Company or a Subsidiary, or to serve as a member of the
Board, or to be entitled to receive any remuneration or benefits not set
forth in the Plan or such option agreement, or to interfere with or limit
either the right of the Company or a Subsidiary to terminate his or her
employment at any time or the right of the stockholders of the Company to
remove him or her as a member of the Board with or without cause.
(c) Optionee Does Not Have Rights Of Stockholder. Nothing contained in
the Plan or in any option agreement shall be construed as entitling any
Optionee or Transferee to any rights of a stockholder as a result of the
grant of an option until such time as shares of Common Stock are actually
issued to such [Optionee] person pursuant to the exercise of an option or
stock appreciation right.
(d) Successors In Interest. The Plan shall be binding upon the
successors and assigns of the Company.
(e) No Liability Upon Distribution Of Shares. The liability of the
Company under the Plan and any distribution of Common Stock made hereunder
is limited to the obligations set forth herein with respect to such
distribution and no term or provision of the Plan shall be construed to
impose any liability on the Company or the Committee in favor of any person
with respect to any loss, cost or expense which the person may incur in
connection with or arising out of any transaction in connection with the
Plan, including, but not limited to, any liability to any Federal, state,
or local tax authority and/or any securities regulatory authority.
(f) Taxes. Appropriate provisions shall be made for all taxes required
to be withheld and/or paid in connection with the options or the exercise
thereof, and the transfer of shares of Common Stock pursuant thereto, under
the applicable laws or other regulations of any governmental authority,
whether Federal, state or local and whether domestic or foreign.
(g) Use Of Proceeds. The cash proceeds received by the Company from the
issuance of shares of Common Stock pursuant to the Plan will be used for
general corporate purposes, or in such other manner as the Board of
Directors deems appropriate.
Language indicated as being shown by strike out in the typeset document is
enclosed in brackets "[" and "]" in the electronic format
9
<PAGE> 87
(h) Expenses. The expenses of administering the Plan shall be home by
the Company.
(i) Captions. The captions and section numbers appearing in the Plan
are inserted only as a matter of convenience. They do not define, limit,
construe or describe the scope or intent of the provisions of the Plan.
(j) Number. The use of the singular or plural herein shall not be
restrictive as to number and shall be interpreted in all cases as the
context may require.
(k) Gender. The use of the feminine, masculine or neuter pronoun shall
not be restrictive as to gender and shall be interpreted in all cases as
the context may require.
11. Amendments [to the Plan and Option]. The Committee is authorized to
interpret the Plan and from time to time adopt any rules and regulations for
carrying out the Plan that it may deem advisable. Subject to the approval of the
Board, the Committee may at any time amend, modify, suspend or terminate the
Plan. In no event, however, without the approval of the Company's stockholders,
shall any action of the Committee or the Board result in:
(a) Amending, modifying or altering the eligibility requirements
provided in Section 5 hereof-,
(b) Increasing or decreasing, except as provided in Section 6 hereof,
the maximum number of shares for which options may be granted;
(c) Decreasing the minimum option price per share at which options may
be granted under the Plan, as provided in Section 7(a) hereof;
(d) Extending either the maximum period during which an option is
exercisable as provided in Section 7(b) hereof or the date on which the
Plan shall terminate as provided in Section 12 hereof;
(e) Changing the requirements relating to the Committee; or
(f) Making any other change which would cause any option granted under
the Plan as an Incentive Stock Option not to qualify as an Incentive Stock
Option within the meaning of Section 422 of the Code;
except as necessary to conform the Plan and the option agreements to changes in
the Code or other governing law. No option may be granted during any suspension
of this Plan or after this Plan has terminated and no amendment, suspension or
termination shall, without the Optionee's consent, alter or impair any of the
rights or obligations under an option theretofore granted to such Optionee under
this Plan except that the Committee may rescind an option granted after December
15, 1998 to an Optionee to the extent necessary for the Company to use the
pooling-of-interests method of accounting to account for a business combination.
No such rescission shall take effect unless the Optionee is provided a written
opinion from the Company's independent accountants to the effect that such
rescission is necessary to obtain pooling-of-interests accounting and specifying
the extent to which his option must be rescinded.
12. Termination of the Plan. The Plan shall terminate on October 19, 2004,
and thereafter no options shall be granted under the Plan. All options
outstanding at the time of termination of the Plan shall continue in full force
and effect according to the terms of the option agreements governing such
options and the terms and conditions of the Plan.
Language indicated as being shown by strike out in the typeset document is
enclosed in brackets "[" and "]" in the electronic format
<PAGE> 88
13. Governing Law. The Plan shall be governed by and construed in
accordance with the laws of the State of Delaware and any applicable federal
law.
14. Venue. The venue of any claim brought hereunder by an Employee shall be
Cleveland, Ohio.
15. Changes in Governing Rules and Regulations. All references herein to
the Code or sections thereof, or to rules and regulations of the Department of
Treasury or of the Securities and Exchange Commission, shall mean and include
the Code sections thereof and such rules and regulations as are now in effect or
as they may be subsequently amended, modified, substituted or superseded.
10
<PAGE> 89
[SCOTT TECHNOLOGIES LOGO]
FORMERLY KNOWN AS
[FIGGIE INTERNATIONAL LOGO]
DETACH HERE
- --------------------------------------------------------------------------------
SCOTT TECHNOLOGIES, INC.
[SCOTT TECHNOLOGIES LOGO] PROXY CARD/VOTING INSTRUCTION CARD
CLASS A COMMON STOCK/CLASS B COMMON STOCK
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE SPECIAL
MEETING OF STOCKHOLDERS ON DECEMBER 15, 1998.
YOUR VOTE IS IMPORTANT! A FAILURE TO VOTE IN PERSON OR BY RETURNING
THIS PROXY CARD PROPERLY EXECUTED WILL HAVE THE EFFECT OF A VOTE
AGAINST PROPOSALS 1, 2 AND 4. PLEASE SIGN AND DATE ON THE REVERSE
SIDE OF THIS CARD.
P The undersigned hereby appoints William Sickman, Debra Kackley and
R Mark Kirk, and each of them, proxies, with full power of
O substitution to appear on behalf of the undersigned and to vote all
X shares of Class A Common Stock and Class B Common Stock of the
Y undersigned at the Special Meeting of Stockholders to be held at
the executive office of Scott Technologies, Inc., 5875 Landerbrook
Drive, Mayfield Heights, Ohio, on Tuesday, December 15, 1998, at
1:00 p.m. local time, and at any adjournment thereof, upon all
Proposals described in the Proxy Statement furnished herewith,
subject to any directions indicated on the reverse side of this
card, hereby revoking any and all proxies heretofore given.
The proxies will vote "FOR" amendments to the Amended and Restated
Certificate of Incorporation (the "Charter") to effect the
Restructuring Plan and thereby reclassify and convert each share of
Class A Common Stock and Class B Common Stock as and into one share
of new "Common Stock," "FOR" amendments to the Charter to eliminate
the voting limitations imposed upon a Substantial Stockholder (as
defined in the Charter), "FOR" an amendment to the Corporation's
Bylaws to lengthen the notice period for the nomination of
directors by stockholders, "FOR" amendments to the Charter to
delete certain unnecessary provisions regarding preference stock
and the terms of convertible and redeemable stock, and "FOR"
amendments to the Scott Technologies, Inc. Key Employees' Stock
Option Plan to increase the number of shares authorized for
issuance and to revise certain other provisions, if the applicable
box on this proxy card is not marked.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE
PROPOSALS.
1. Approval of amendments to Article Fourth of the Charter to
effect the Restructuring Plan and thereby reclassify and convert
each share of Class A Common Stock and Class B Common Stock as
and into one share of new "Common Stock," and to restate the
Charter to reflect the foregoing amendments.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Approval of amendments to Article Sixth of the Charter to
eliminate the voting limitations imposed upon a Substantial
Stockholder, and to restate the Charter to reflect the foregoing
amendments.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of an amendment to Section 2 of Article 2 of the Bylaws
to lengthen the notice period for the nomination of directors by
stockholders.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Approval of amendments to Article Fourth of the Charter to
delete certain unnecessary provisions regarding preference stock
and the terms of convertible and redeemable stock, and to
restate the Charter to reflect the foregoing amendments.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. Approval of amendments to the Scott Technologies, Inc. Key
Employees' Stock Option Plan to increase the number of shares
authorized for issuance and to revise certain other provisions.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be signed on the reverse side)
<PAGE> 90
DETACH HERE
- --------------------------------------------------------------------------------
(Continued from reverse side)
THE ADOPTION OF PROPOSAL 2 (ELIMINATION OF THE SUBSTANTIAL
STOCKHOLDER PROVISION) IS CONDITIONED UPON THE ADOPTION OF PROPOSAL
1 (THE RESTRUCTURING PLAN). ACCORDINGLY, IF THE STOCKHOLDERS DO NOT
APPROVE PROPOSAL 1, THE SUBSTANTIAL STOCKHOLDER PROVISION WILL NOT
BE ELIMINATED, EVEN IF THE STOCKHOLDERS VOTE IN FAVOR OF PROPOSAL 2.
DATE:_______________ , 1998
---------------------------
Signature
---------------------------
Signature (if jointly held)
Please sign and return this
Proxy Card so that your
shares can be represented
at the meeting. If signing
for a corporation or
partnership or as agent,
attorney or fiduciary,
indicate the capacity in
which you are signing. If
you do attend the meeting
and decide to vote by
ballot, such vote will
supersede this proxy.
[] MARK HERE IF YOU PLAN TO ATTEND THE MEETING.
[] MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT.
PLEASE RETURN THIS CARD PROMPTLY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE OR OTHERWISE TO
P.O. BOX 92301, CLEVELAND, OH 44197-1200, SO THAT YOUR SHARES CAN
BE REPRESENTED AT THE MEETING.
<PAGE> 91
[SCOTT TECHNOLOGIES LOGO]
FORMERLY KNOWN AS
[FIGGIE INTERNATIONAL LOGO]
THE PINK STRIPED CARD IS FOR YOUR SHARES HELD IN THE 401K/ESOP
(EMPLOYEE STOCK OPTION PLAN).
DETACH HERE
- --------------------------------------------------------------------------------
SCOTT TECHNOLOGIES, INC.
[SCOTT TECHNOLOGIES LOGO] PROXY CARD/VOTING INSTRUCTION CARD
CLASS A COMMON STOCK/CLASS B COMMON STOCK
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE SPECIAL
MEETING OF STOCKHOLDERS ON DECEMBER 15, 1998.
YOUR VOTE IS IMPORTANT! A FAILURE TO VOTE IN PERSON OR BY RETURNING
THIS PROXY CARD PROPERLY EXECUTED WILL HAVE THE EFFECT OF A VOTE
AGAINST PROPOSALS 1, 2 AND 4. PLEASE SIGN AND DATE ON THE REVERSE
SIDE OF THIS CARD.
P The undersigned hereby appoints William Sickman, Debra Kackley and
R Mark Kirk, and each of them, proxies, with full power of
O substitution to appear on behalf of the undersigned and to vote all
X shares of Class A Common Stock and Class B Common Stock of the
Y undersigned at the Special Meeting of Stockholders to be held at
the executive office of Scott Technologies, Inc., 5875 Landerbrook
Drive, Mayfield Heights, Ohio, on Tuesday, December 15, 1998, at
1:00 p.m. local time, and at any adjournment thereof, upon all
Proposals described in the Proxy Statement furnished herewith,
subject to any directions indicated on the reverse side of this
card, hereby revoking any and all proxies heretofore given.
The proxies will vote "FOR" amendments to the Amended and Restated
Certificate of Incorporation (the "Charter") to effect the
Restructuring Plan and thereby reclassify and convert each share of
Class A Common Stock and Class B Common Stock as and into one share
of new "Common Stock," "FOR" amendments to the Charter to eliminate
the voting limitations imposed upon a Substantial Stockholder (as
defined in the Charter), "FOR" an amendment to the Corporation's
Bylaws to lengthen the notice period for the nomination of
directors by stockholders, "FOR" amendments to the Charter to
delete certain unnecessary provisions regarding preference stock
and the terms of convertible and redeemable stock, and "FOR"
amendments to the Scott Technologies, Inc. Key Employees' Stock
Option Plan to increase the number of shares authorized for
issuance and to revise certain other provisions, if the applicable
box on this proxy card is not marked.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE
PROPOSALS.
1. Approval of amendments to Article Fourth of the Charter to
effect the Restructuring Plan and thereby reclassify and convert
each share of Class A Common Stock and Class B Common Stock as
and into one share of new "Common Stock," and to restate the
Charter to reflect the foregoing amendments.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Approval of amendments to Article Sixth of the Charter to
eliminate the voting limitations imposed upon a Substantial
Stockholder, and to restate the Charter to reflect the foregoing
amendments.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of an amendment to Section 2 of Article 2 of the Bylaws
to lengthen the notice period for the nomination of directors by
stockholders.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. Approval of amendments to Article Fourth of the Charter to
delete certain unnecessary provisions regarding preference stock
and the terms of convertible and redeemable stock, and to
restate the Charter to reflect the foregoing amendments.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. Approval of amendments to the Scott Technologies, Inc. Key
Employees' Stock Option Plan to increase the number of shares
authorized for issuance and to revise certain other provisions.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be signed on the reverse side)
<PAGE> 92
DETACH HERE
- --------------------------------------------------------------------------------
(Continued from reverse side)
THE ADOPTION OF PROPOSAL 2 (ELIMINATION OF THE SUBSTANTIAL
STOCKHOLDER PROVISION) IS CONDITIONED UPON THE ADOPTION OF PROPOSAL
1 (THE RESTRUCTURING PLAN). ACCORDINGLY, IF THE STOCKHOLDERS DO NOT
APPROVE PROPOSAL 1, THE SUBSTANTIAL STOCKHOLDER PROVISION WILL NOT
BE ELIMINATED, EVEN IF THE STOCKHOLDERS VOTE IN FAVOR OF PROPOSAL 2.
DATE:_______________ , 1998
---------------------------
Signature
---------------------------
Signature (if jointly held)
Please sign and return this
Proxy Card so that your
shares can be represented
at the meeting. If signing
for a corporation or
partnership or as agent,
attorney or fiduciary,
indicate the capacity in
which you are signing. If
you do attend the meeting
and decide to vote by
ballot, such vote will
supersede this proxy.
[] MARK HERE IF YOU PLAN TO ATTEND THE MEETING.
[] MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT.
PLEASE RETURN THIS CARD PROMPTLY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE OR OTHERWISE TO
P.O. BOX 92301, CLEVELAND, OH 44197-1200, SO THAT YOUR SHARES CAN
BE REPRESENTED AT THE MEETING.
