<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------
FIRST ALERT, INC.
(NAME OF SUBJECT COMPANY)
FIRST ALERT, INC.
(NAME OF PERSON FILING STATEMENT)
------------------------
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
CUSIP NO. 31846N 10 2
(CUSIP NUMBER OF CLASS OF SECURITIES)
------------------------
B. JOSEPH MESSNER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
FIRST ALERT, INC.
3901 LIBERTY STREET ROAD
AURORA, ILLINOIS 60504
(630) 851-7330
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICE AND COMMUNICATIONS
ON BEHALF OF THE PERSON FILING STATEMENT)
With copy to:
DAVID C. CHAPIN, ESQ.
ROPES & GRAY
ONE INTERNATIONAL PLACE
BOSTON, MA 02110
(617) 951-7000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is First Alert, Inc., a Delaware
corporation (the 'Company'). The address of the principal executive offices of
the Company is 3901 Liberty Street Road, Aurora, Illinois 60504. The title of
the class of equity securities to which this Schedule relates is the Company's
Common Stock, par value $0.01 per share (the 'Common Stock').
ITEM 2. TENDER OFFER OF THE BIDDER
This Schedule relates to the tender offer by Sentinel Acquisition Corp., a
Delaware corporation (the 'Purchaser'), and a wholly owned indirect subsidiary
of Sunbeam Corporation, a Delaware corporation ('Parent'), to purchase all of
the outstanding shares of Common Stock at the purchase price of $5.25 per share
of Common Stock, net to the tendering holder, in cash (without interest
thereon), on the terms and subject to the conditions set forth in the Offer to
Purchase dated March 6, 1998 (the 'Offer to Purchase') and the related Letter of
Transmittal (which together constitute the 'Offer'). The Offer is disclosed in a
Tender Offer Statement on Schedule 14D-1 dated March 6, 1998. According to the
Offer to Purchase, the principal executive offices of the Purchaser and Parent
are located at 1615 South Congress Avenue, Suite 200, Delray Beach, Florida
33445.
The Offer is being made pursuant to the Agreement and Plan of Merger, dated
as of February 28, 1998 (the 'Merger Agreement'), among the Company, Parent and
the Purchaser. A copy of the Merger Agreement is filed as Exhibit 1 to this
Schedule and is incorporated herein by reference in its entirety. The Merger
Agreement provides that following the completion of the Offer, the Purchaser
will be merged with and into the Company, with the Company continuing as a
wholly owned subsidiary of Parent (the 'Merger'). In the Merger, all remaining
shares of Common Stock not purchased in the tender offer (other than shares of
Common Stock owned by the Company or any subsidiary of the Company, shares of
Common Stock owned by Parent, the Purchaser or any subsidiary of Parent or the
Purchaser, and shares of Common Stock held by stockholders who perfect any
available appraisal rights under Delaware General Corporation Law) will be
converted into the right to receive $5.25 per share in cash or such higher
price, if any, as is paid in the Offer.
ITEM 3. IDENTITY AND BACKGROUND
(a) Identity.
The name and business address of the Company, which is the person filing
this Schedule, are set forth in Item 1 above.
(b) Contracts
Except as otherwise described in this Schedule or in the exhibits or
annexes hereto, to the knowledge of the Company, as of the date hereof, there
are no material contracts, agreements, arrangements or understandings, or any
actual or potential conflicts of interest, between the Company or its affiliates
and (i) the Company or its executive officers, directors or affiliates, or (ii)
the Purchaser, Parent or their executive officers, directors or affiliates.
Information with respect to certain contracts, agreements, arrangements or
understandings between the Company and certain of its directors, executive
officers and affiliates is set forth in the Company's Proxy Statement, dated
April 7, 1997, for its 1997 Annual Meeting of Stockholders (the 'Proxy
Statement'). A copy of the Proxy Statement is attached hereto as Exhibit 2, and
the relevant portions thereof are incorporated herein by reference.
AGREEMENTS WITH PARENT
The Merger Agreement
The following is a summary of certain provisions of the Merger Agreement, a
copy of which is attached hereto as Exhibit 1 and incorporated by reference
herein. All references to and summaries of the Merger Agreement herein are
qualified in their entirety by reference to the Merger Agreement. Capitalized
terms not otherwise defined below shall have the meanings set forth in the
Merger Agreement.
The Offer. The Merger Agreement provides for the commencement of the Offer
as promptly as practicable, but in no event later than five business days from
the date of public announcement of the Merger Agreement,
<PAGE>
ITEM 3. IDENTITY AND BACKGROUND--(CONTINUED)
subject to the Merger Agreement not having been terminated prior thereto in
accordance with its terms. The obligation of the Purchaser to accept for payment
and pay for Shares tendered pursuant to the Offer is subject to the satisfaction
or waiver of the conditions described below under '--Conditions to the Offer'
(the 'Conditions'). The Purchaser and the Company have agreed that the Purchaser
shall not decrease the Offer Price, decrease the number of Shares sought, amend
any other condition of the Offer in any manner adverse to the holders of the
Shares (other than with respect to insignificant changes or amendments), or
impose additional conditions, without the written consent of the Company. The
Merger Agreement provides that if on the initial scheduled expiration date of
the Offer all Conditions are not satisfied or waived, the Purchaser may extend
the expiration date, but not beyond June 1, 1998. In addition, the Offer Price
may be increased, and the Offer may be extended to the extent required by law.
The Purchaser will, on the terms and subject to the prior satisfaction or waiver
of the Conditions, accept for payment and pay for Shares validly tendered as
promptly as practicable, but if, immediately prior to the initial expiration
date of the Offer, the Shares validly tendered and not withdrawn pursuant to the
Offer equal less than 90% of the outstanding Shares, the Purchaser may extend
the Offer for a period not to exceed ten business days, notwithstanding that all
Conditions to the Offer are satisfied as of such expiration date of the Offer.
The Merger Agreement provides that if all Conditions are not satisfied on the
initial expiration date of the Offer, the Purchaser will extend (and re-extend)
the Offer through April 30, 1998 to provide time to satisfy such Conditions.
Conditions to the Offer. The Merger Agreement provides that the Purchaser
shall not be required to accept for payment or pay for, and may delay the
acceptance for payment of, or the payment for, any tendered Shares, and may
terminate or amend the Offer as to any Shares not then paid for, if (i) there
shall not have been validly tendered and not withdrawn prior to the expiration
of the Offer such number of Shares which, when added to the Shares, if any,
beneficially owned by Parent, would constitute at least 50.1% of the Shares
outstanding on a fully diluted basis (the 'Minimum Condition'), (ii) any
applicable waiting period under the HSR Act has not expired or terminated, or
(iii) at any time on or after the date of the Merger Agreement and before the
time of payment for any such Shares, any of the following events shall occur and
be continuing:
(a) there shall have been any action taken, or any statute, rule,
regulation, judgment, order or injunction promulgated, entered, enforced,
enacted, issued or deemed applicable to the Offer or the Merger by any domestic
or foreign Federal or state governmental regulatory or administrative agency or
authority or court or legislative body or commission which directly or
indirectly (l) prohibits, or imposes any material limitations on, Parent's or
the Purchaser's ownership or operation (or that of any of their respective
Subsidiaries or affiliates) of all or a material portion of their or the
Company's businesses or assets, or compels Parent or the Purchaser or their
respective Subsidiaries and affiliates to dispose of or hold separate any
material portion of the business or assets of the Company or Parent and their
respective Subsidiaries, in each case taken as a whole, (2) prohibits, or makes
illegal, the acceptance for payment, payment for or purchase of Shares or the
consummation of the Offer, the Merger or the other transactions contemplated by
the Merger Agreement, (3) results in the delay in or restricts the ability of
the Purchaser, or renders the Purchaser unable, to accept for payment, pay for
or purchase some or all of the Shares, (4) imposes material limitations on the
ability of the Purchaser or Parent effectively to exercise full rights of
ownership of the Shares, including, without limitation, the right to vote the
Shares purchased by it on all matters properly presented to the Company's
stockholders, or (5) otherwise materially adversely affects the consolidated
financial condition, businesses or results of operations of the Company and its
Subsidiaries, taken as a whole;
(b) there shall have occurred (1) any general suspension of trading in, or
limitation on prices for, securities on the New York Stock Exchange or in the
NASDAQ National Market System, (2) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States (whether or not
mandatory), (3) a commencement of a war, armed hostilities or other
international or national calamity directly or indirectly involving the United
States, (4) any material limitation (whether or not mandatory) by any foreign or
United States governmental authority on the extension of credit by banks or
other financial institutions, (5) a change in general financial bank or capital
market conditions which has a material adverse effect the ability of financial
institutions in the United States to extend credit or syndicate loans, or (6) in
the case of any of the foregoing existing at the time of the commencement of the
Offer, a material acceleration or worsening thereof;
2
<PAGE>
ITEM 3. IDENTITY AND BACKGROUND--(CONTINUED)
(c) (1) the representations and warranties of the Company set forth in the
Merger Agreement shall not be true and correct in any material respect as of the
date of the Merger Agreement and as of consummation of the Offer as though made
on or as of such date (unless made as of a certain date), (2) the Company shall
have failed to comply with its covenants and agreements under the Merger
Agreement in all material respects or (3) there shall have occurred any events
or changes which have had or which are reasonably likely to have a Material
Adverse Effect on the Company and its Subsidiaries taken as a whole;
(d) the Company's Board of Directors shall have withdrawn, or modified or
changed in a manner adverse to Parent or the Purchaser (including by amendment
of the Schedule 14D-9) its recommendation of the Offer, the Merger Agreement, or
the Merger, or recommended another proposal or offer, or the Board of Directors
of the Company, upon request of the Purchaser, shall fail to reaffirm such
approval or recommendation or shall have resolved to do any of the foregoing;
(e) the Merger Agreement shall have terminated in accordance with its
terms; or
(f) the Company shall not have obtained a waiver to the provision in its
Financing Agreement that an event of default shall occur and exist thereunder as
a result of the purchase of the Shares in a number equal to or greater than the
Minimum Condition pursuant to the Offer.
The Merger Agreement provides that the foregoing conditions are for the
sole benefit of Parent and the Purchaser and may be waived by Parent or the
Purchaser, in whole or in part at any time and from time to time in the sole
discretion of Parent or the Purchaser. The failure by Parent or the Purchaser at
any time to exercise any of the foregoing rights shall not be deemed a waiver of
any such right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
Representations and Warranties. In the Merger Agreement, the Company has
made customary representations and warranties to Parent and the Purchaser with
respect to, among other things, corporate organization, capital stock, options
or other rights to acquire Shares, authority to enter into the Merger Agreement,
required consents, no conflicts between the Merger Agreement and subject
applicable laws or agreements to which the Company or its assets may be subject,
financial statements, public filings, conduct of business, employee benefit
plans, ERISA, intellectual property, labor and employment matters, compliance
with laws, tax matters, litigation, environmental matters, material contracts,
brokers' and finders' fees, title to properties, absence of liens, votes
required to approve the Merger Agreement, undisclosed liabilities, product
liability, disclosures in proxy statement and tender offer documents and the
absence of material adverse changes.
In the Merger Agreement, each of Parent and the Purchaser has made
customary representations and warranties to the Company with respect to, among
other things, corporate organization, authority to enter into the Merger
Agreement, required consents, no conflicts between the Merger Agreement and the
Certificate of Incorporation and By-laws of Parent and the Purchaser or laws
applicable to Parent or the Purchaser, availability of funds to consummate the
Offer and the Merger, brokers' fees, disclosures in proxy statement and tender
offer documents and no prior activities by the Purchaser.
The Merger. The Merger Agreement provides that following consummation of
the Offer, subject to the approval and adoption of the Merger Agreement and the
Merger by the affirmative vote of the holders of a majority of the outstanding
shares of Common Stock entitled to vote thereon (if then required by the
Delaware General Corporation Law), approval by certain regulatory authorities
and compliance with certain other covenants and conditions, the Purchaser will
be merged with and into the Company, at which time the separate corporate
existence of the Purchaser will cease and the Company will continue as the
Surviving Corporation. Following consummation of the Merger, the Company, as the
Surviving Corporation, will be a wholly owned subsidiary of Parent.
Conditions to the Merger. The respective obligations of Parent and the
Purchaser, on the one hand, and the Company, on the other hand, to effect the
Merger are subject to the satisfaction of each of the following
conditions, any and all of which may be waived in whole or in part by the
Company, Parent or the Purchaser, as the case may be, to the extent permitted by
applicable law: (i) each party to the Merger Agreement shall have performed in
all material respects its respective obligations under the Merger Agreement
required to be performed by it prior to the Effective Time; (ii) all
representations and warranties contained in the Merger Agreement shall have been
true and correct in all material respects at the time made and shall be true and
correct
3
<PAGE>
ITEM 3. IDENTITY AND BACKGROUND--(CONTINUED)
in all material respects as of the Effective Time as though made on and as of
such date; (iii) the Merger Agreement shall have been approved and adopted by
the requisite vote of the stockholders of the Company, if required by applicable
law and the Certificate of Incorporation of the Company, in order to consummate
the Merger; (iv) no statute, rule, order, decree or regulation shall have been
enacted or promulgated by any government or any governmental agency or authority
of competent jurisdiction which prohibits the consummation of the Merger; (v)
there shall be no order or injunction of a court or other governmental authority
of competent jurisdiction in effect precluding, restraining, enjoining or
prohibiting consummation of the Merger; (vi) Parent, the Purchaser or their
affiliates shall have purchased Shares pursuant to the Offer; and (vii) the
employees and the directors of the Company shall have consented to the treatment
of Options in the Merger Agreement.
The Company Board. Promptly upon the purchase of and payment for any Shares
by Parent or any of its subsidiaries pursuant to the Offer, Parent shall be
entitled to designate such number of directors, rounded up to the next whole
number, on the Company Board such that the percentage of its designees on the
Company Board shall equal the percentage of the outstanding Shares beneficially
owned by Parent and its affiliates. In furtherance thereof, the Company shall,
upon request of the Purchaser, use its best efforts promptly to cause Parent's
designees to be so elected to the Company's Board, and in furtherance thereof,
to the extent necessary, increase the size of the Company Board. At such time,
the Company shall also cause persons designated by Parent to constitute at least
the same percentage (rounded up to the next whole number) as is on the Company
Board of (i) each committee of the Company, and (ii) each committee (or similar
body) of the Company Board. Notwithstanding the foregoing Parent, the Purchaser
and the Company have agreed to use their respective reasonable best efforts to
ensure that at least two of the members of the Board shall, at all times prior
to the Effective Time be, Continuing Directors. The term 'Continuing Director'
means (i) any member of the Company Board on February 28, 1998, (ii) any member
of the Company Board who is unaffiliated with, and not a designee or nominee of
Parent or the Purchaser, or (iii) any successor of a Continuing Director who is
(A) unaffiliated with, and not a designee or nominee, of Parent or the
Purchaser, and (B) recommended to succeed a Continuing Director by a majority of
the Continuing Directors then on the Company Board, and in each case under this
clause (iii), who is not an employee of the Company. The Company shall promptly
take all actions required pursuant to Section 14(f) of the Exchange Act and Rule
14f-1 promulgated thereunder in order to fulfill its obligations, including
mailing to stockholders the information required by Section 14(f) and Rule
14f-1, as is necessary to enable Parent's designees to be elected to the Company
Board. Parent or the Purchaser will supply the Company any information with
respect to either of them and their nominees, officers, directors and affiliates
required by such Section 14(f) and Rule 14f-1.
From and after the time, if any, that Parent's designees constitute a
majority of the Company Board, any amendment or modification of the Merger
Agreement, any amendment to the Certificate of Incorporation or By-laws of the
Company inconsistent with the Merger Agreement, any termination of the Merger
Agreement by the Company, any extension of time for performance of any of the
obligations of Parent or the Purchaser under the Merger Agreement, any waiver of
any condition to the Company's obligations under the Merger Agreement or any of
the Company's rights under the Merger Agreement or other action by the Company
under the Merger Agreement may be effected only by the action of a majority of
the Continuing Directors of the Company, which action shall be deemed to
constitute the action of any committee specifically designated by the Company
Board to approve the actions and transactions contemplated by the Merger
Agreement and the full Company Board.
Stockholders' Meeting; Proxy Statement. If required by applicable law in
order to consummate the Merger, the Company, acting through the Company Board,
shall, in accordance with applicable law: (i) duly call, give notice of, convene
and hold a special meeting of its stockholders (the 'Special Meeting') as
promptly as practicable following the acceptance for payment and purchase of
Shares by the Purchaser pursuant to the Offer for the purpose of considering and
taking action upon the approval of the Merger and the adoption of the Merger
Agreement; (ii) prepare and file with the Commission a preliminary proxy or
information statement in accordance with the Exchange Act relating to the Merger
and the Merger Agreement and use its best efforts (x) to obtain and furnish the
information required to be included by the Exchange Act and the Commission in
the Proxy Statement (as defined below) and, after consultation with Parent, to
respond promptly to any comments made by the Commission with respect to the
preliminary proxy or information statement and cause a definitive proxy or
4
<PAGE>
ITEM 3. IDENTITY AND BACKGROUND--(CONTINUED)
information statement, including any amendment or supplement thereto (the 'Proxy
Statement') to be mailed to its stockholders, provided that no amendment or
supplement to the Proxy Statement will be made by the Company without
consultation with Parent and its counsel and (y) to obtain the necessary
approvals of the Merger and the Merger Agreement by its stockholders; and (iii)
include in the Proxy Statement the recommendation of the Company Board that
stockholders of the Company vote in favor of the approval of the Merger and the
adoption of Company Agreement. Parent has agreed to vote, or cause to be voted,
all of the Shares then owned by it, the Purchaser or any of its other
subsidiaries and affiliates in favor of the approval of the Merger and the
adoption of the Merger Agreement.
Options. The Merger Agreement provides that, immediately prior to the
Effective Time of the Merger, each then outstanding option to purchase Shares
(in each case, an 'Option'), whether or not then exercisable, shall be canceled
by the Company and in consideration of such cancellation and except to the
extent that Parent or the Purchaser and the holder of any such Option otherwise
agree, the Company (or, at Parent's option, the Purchaser) shall pay to the
holders of Options an amount in respect thereof equal to the product of (A) the
excess, if any, of the Offer Price over the exercise price of each such Option
and (B) the number of Shares previously subject to the Option immediately prior
to its cancellation (such payment to be net of withholding taxes and without
interest). If required, the Company shall cause the Company's employees and
directors to consent to the transactions, no later than the Effective Time. All
stock option or other equity based plans maintained with respect to the Shares
('Option Plans') shall terminate as of the Effective Time and the provisions in
any other Benefit Plan providing for the issuance, transfer or grant of any
capital stock of the Company or any interest in respect of any capital stock of
the Company shall be deleted as of the Effective Time, and the Company shall use
its best efforts to ensure that following the Effective Time no holder of an
Option or any participant in any Option Plan shall have any right thereunder to
acquire any capital stock of the Company, Parent or the Surviving Corporation.
Interim Operations; Covenants. Pursuant to the Merger Agreement, the
Company has agreed that, until the acquisition of Shares pursuant to the Offer,
except as specifically contemplated by the Merger Agreement, the Company shall
and shall cause its subsidiaries to carry on their respective businesses in the
ordinary course and use all reasonable best efforts consistent with good
business judgment to preserve intact their current business organizations, keep
available the services of their current officers and key employees and preserve
their relationships consistent with past practice with desirable customers,
suppliers, licensors, licensees, distributors and others having business
dealings with them to the end that their goodwill and ongoing businesses shall
be unimpaired in all material respects at the Effective Time. Without limiting
the generality of the foregoing, the Company has covenanted and agreed that,
except as expressly contemplated by the Merger Agreement or the schedules
thereto, after the date of the Merger Agreement and prior to the Effective Date:
(i) neither the Company nor any of its subsidiaries shall, directly or
indirectly, amend its Certificate of Incorporation or By-laws or similar
organizational documents;
(ii) neither the Company nor any of its subsidiaries shall: (i)(A)
declare, set aside or pay any dividend or other distribution payable in
cash, stock or property with respect to the Company's capital stock or that
of its subsidiaries, except that a wholly-owned subsidiary of the Company
may declare and pay a dividend or make advances to its parent or the
Company or (B) redeem, purchase or otherwise acquire directly or indirectly
any of the Company's capital stock or that of its subsidiaries; (ii) issue,
sell, pledge, dispose of or encumber any additional shares of, or
securities convertible into or exchangeable for, or options, warrants,
calls, commitments or rights of any kind to acquire, any shares of capital
stock of any class of the Company or its subsidiaries, other than Shares
issued upon the exercise of Options outstanding on the date of the Merger
Agreement in accordance with the Option Plans as in effect on the date the
Merger Agreement; or (iii) split, combine or reclassify the outstanding
capital stock of the Company or of any of the subsidiaries of the Company;
(iii) except as permitted by the Merger Agreement, neither the Company
nor any of its subsidiaries shall acquire or agree to acquire (A) by
merging or consolidating with, or by purchasing a substantial portion of
the assets of, or by any other manner, any business or any corporation,
partnership, joint venture, association or other business organization or
division thereof (including entities which are subsidiaries of the Company
or any of the Company's subsidiaries) or (B) any assets, including real
estate, except (x)
5
<PAGE>
ITEM 3. IDENTITY AND BACKGROUND--(CONTINUED)
purchases in the ordinary course of business consistent with past practice
or (y) expenditures consistent with the Company's current capital budget
previously provided to Parent (the 'Capital Budget');
(iv) neither the Company nor any of its subsidiaries shall make any
new capital expenditure or expenditures, other than capital expenditures
not to exceed, in the aggregate, the amounts provided for capital
expenditures in the Capital Budget;
(v) neither the Company nor any of its subsidiaries shall, except in
the ordinary course of business and except as otherwise permitted by the
Merger Agreement, amend or terminate any material contract or agreement set
forth in the SEC Documents to which the Company or any subsidiary is a
party where such amendment or termination would have a Material Adverse
Affect, or waive, release or assign any material rights or claims;
(vi) neither the Company nor any of its subsidiaries shall transfer,
lease, license, sell, mortgage, pledge, dispose of, or encumber any
property or assets other than in the ordinary course of business and
consistent with past practice;
(vii) neither the Company nor any of its subsidiaries shall: (i) enter
into any employment or severance agreement with or, except in accordance
with the existing written policies of the Company, grant any severance or
termination pay to any officer, director or key employee of the Company or
any its subsidiaries; or (ii) hire or agree to hire any new or additional
key employees or officers;
(viii) neither the Company nor any of its subsidiaries shall, except
as required to comply with applicable law or expressly provided in the
Merger Agreement, (A) adopt, enter into, terminate or amend any Benefit
Plan or other arrangement for the current or future benefit or welfare of
any director, officer or current or former employee, except to the extent
necessary to coordinate any such Benefit Plans with the terms of the Merger
Agreement, (B) increase in any manner the compensation or fringe benefits
of, or pay any bonus to, any director, officer or employee (except for
normal increases or bonuses in the ordinary course of business consistent
with past practice to employees other than directors, officers or senior
management personnel and that, in the aggregate, do not result in a
significant increase in benefits or compensation expense to the Company and
its subsidiaries relative to the level in effect prior to such action (but
in no event shall the aggregate amount of all such increases exceed 3% of
the aggregate annualized compensation expense of the Company and its
subsidiaries reported in the most recent audited financial statements of
the Company included in the SEC Documents)), (C) pay any benefit not
provided for under any Benefit Plan, (D) grant any awards under any bonus,
incentive, performance or other compensation plan or arrangement or Benefit
Plan (including the grant of stock options, stock appreciation rights,
stock based or stock related awards, performance units or restricted stock,
or the removal of existing restrictions in any Benefit Plans or agreements
or awards made thereunder) or (E) take any action to fund or in any other
way secure the payment of compensation or benefits under any employee plan,
agreement, contract or arrangement or Benefit Plan;
(ix) neither the Company nor any of its subsidiaries shall: (i) incur
or assume any long-term debt, or except in the ordinary course of business,
incur or assume any short-term indebtedness in amounts not consistent with
past practice; (ii) incur or modify any material indebtedness or other
liability except as set forth in the applicable schedule to the Merger
Agreement; (iii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the
obligations of any other person, except in the ordinary course of business
and consistent with past practice; (iv) make any loans, advances or capital
contributions to, or investments in, any other person (other than to wholly
owned subsidiaries of the Company or customary loans or advances to
employees in accordance with past practice); (v) settle any claims other
than in the ordinary course of business, in accordance with past practice,
and without admission of liability; or (vi) enter into any material
commitment or transaction;
(x) neither the Company nor any of its subsidiaries shall change any
of the accounting methods used by it unless required by GAAP;
(xi) neither the Company nor any of its subsidiaries shall make any
Tax election or settle or compromise any material Tax liability;
6
<PAGE>
ITEM 3. IDENTITY AND BACKGROUND--(CONTINUED)
(xii) neither the Company nor any of its subsidiaries shall pay,
discharge or satisfy any claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction of any such claims, liabilities or
obligations, in the ordinary course of business and consistent with past
practice, of claims, liabilities or obligations reflected or reserved
against in, or contemplated by, the consolidated financial statements (or
the notes thereto) of the Company and its consolidated subsidiaries; or,
except in the ordinary course of business consistent with past practice,
waive the benefits of, or agree to modify in any manner, any
confidentiality, standstill or similar agreement to which the Company or
any of its subsidiaries is a party; and
(xiii) neither the Company nor any of its subsidiaries will enter into
an agreement, contract, commitment or arrangement to do any of the
foregoing, or to authorize, recommend, propose or announce an intention to
do any of the foregoing.
In addition, pursuant to the Merger Agreement, the Company shall not, and
shall not permit any of its subsidiaries to, take any action that would result
in (i) any of its representations and warranties set forth in the Merger
Agreement that are qualified as to materiality becoming untrue, (ii) any of such
representations and warranties that are not so qualified becoming untrue in any
material respect or (iii) subject to the Company's right to take action
specifically permitted by the provisions of the Merger Agreement described under
'--Negotiations' below, any of the conditions to the Offer not being satisfied.
Access; Confidentiality. Pursuant to the Merger Agreement, upon reasonable
notice, the Company shall (and shall cause each of its subsidiaries to) afford
to the officers, employees, accountants, counsel, financing sources and other
representatives of Parent, access, during normal business hours during the
period prior to the Effective Time, to all its properties, books, contracts,
commitments and records, and, during such period, the Company shall (and shall
cause each of its subsidiaries to) furnish promptly to Parent (a) a copy of each
report, schedule, registration statement and other document filed or received by
it during such period pursuant to the requirements of Federal or state
securities Laws and (b) all other information concerning its business,
properties and personnel as Parent may reasonably request. Except as otherwise
agreed to by the Company, unless and until Parent and the Purchaser shall have
purchased at least a majority of the outstanding Shares pursuant to the Offer,
Parent will be bound by the terms of a confidentiality agreement with the
principal stockholders of the Company, dated February 16, 1998.
Reasonable Efforts; Notification. Upon the terms and subject to the
conditions set forth in the Merger Agreement, each of the parties has agreed to
use all reasonable efforts to take, or cause to be taken, all actions, and to
do, or cause to be done, and to assist and cooperate with the other parties in
doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the Offer and the Merger,
and the other transactions contemplated by the Merger Agreement, including (i)
the obtaining of all necessary actions or nonactions, waivers, consents and
approvals from any Governmental Entity and the making of all necessary
registrations and filings (including filings with any Governmental Entity, if
any) and the taking of all reasonable steps as may be necessary to obtain an
approval or waiver from, or to avoid an action or proceeding by, any
Governmental Entity, (ii) the obtaining of all necessary consents, approvals or
waivers from third parties, (iii) the defending of any lawsuits or other legal
proceedings, whether judicial or administrative, challenging the Merger
Agreement or the consummation of any of the transactions contemplated by the
Merger Agreement, including seeking to have any stay or temporary restraining
order entered by any court or other Governmental Entity vacated or reversed, and
(iv) the execution and delivery of any additional instruments necessary to
consummate the transactions contemplated by, and to fully carry out the purposes
of, the Merger Agreement; provided, however, that in connection with any filing
or submission or other action required to be made or taken by any party to
effect the Merger and all other transactions contemplated by the Merger
Agreement, the Company shall not without the prior written consent of Parent
commit to any divestiture transaction and Parent shall not be required to divest
or hold separate or otherwise take or commence to take any action that, in the
reasonable discretion of Parent, limits its freedom of action with respect to,
or its ability to retain, the Company or any of its affiliates or any material
portion of the assets of the Company. In connection with and without limiting
the foregoing, the Merger Agreement provides that the Company and the Company
Board shall (i) take all action necessary to ensure that no state takeover
statute or similar statute or regulation is or becomes applicable to the Offer,
the Merger, the Merger Agreement or any of the other transactions
7
<PAGE>
ITEM 3. IDENTITY AND BACKGROUND--(CONTINUED)
contemplated by the Merger Agreement and (ii) if any state takeover statute or
similar statute or regulation becomes applicable to the Offer, the Merger or the
Merger Agreement or any other transaction contemplated by the Merger Agreement,
take all action necessary to ensure that the Offer, the Merger and the other
transactions contemplated by the Merger Agreement may be consummated as promptly
as practicable on the terms contemplated by the Merger Agreement and otherwise
to minimize the effect of such statute or regulation on the Offer, the Merger,
the Merger Agreement and the other transactions contemplated by the Merger
Agreement.
Pursuant to the Merger Agreement, each of the Company, Parent and the
Purchaser has agreed to provide prompt notice to the other of (i) any of their
representations or warranties contained in the Merger Agreement becoming untrue
or inaccurate in any respect (including in the case of representations or
warranties receiving knowledge of any fact, event or circumstance which may
cause any representation qualified as to the knowledge to be or become untrue or
inaccurate in any respect) or (ii) the failure by them to comply with or satisfy
in any material respect any covenant, condition or agreement to be complied with
or satisfied by them under the Merger Agreement; provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under the Merger Agreement.
Negotiations. Pursuant to the Merger Agreement, the Company has agreed that
it shall not, nor shall it permit any of its subsidiaries to, nor shall it
authorize (and shall use its best efforts not to permit) any officer, director
or employee of, or any investment banker, attorney or other advisor or
representative of, the Company or any of its subsidiaries to, (i) solicit or
initiate, or knowingly encourage the submission of, any Takeover Proposal (as
defined below) or (ii) participate in any discussions or negotiations regarding,
or furnish to any person any information with respect to, or take any other
action to knowingly facilitate the making of any proposal that constitutes, or
may reasonably be expected to lead to, any Takeover Proposal; provided, however,
that, prior to the acceptance for payment of Shares pursuant to the Offer, if in
the reasonable determination of the Company Board, after receiving advice from
outside legal counsel to the Company, such failure to act would be inconsistent
with its fiduciary duties to the Company's stockholders under applicable law,
the Company may, in response to an unsolicited Takeover Proposal, and subject to
compliance with the last paragraph of this section entitled 'Negotiations,' (A)
furnish information with respect to the Company to any person pursuant to a
confidentiality agreement with terms and conditions similar to the
Confidentiality Agreement and (B) participate in negotiations regarding such
Takeover Proposal. For purposes of the Merger Agreement, 'Takeover Proposal'
means (i) any bona fide proposal or offer from any Person relating to any direct
or indirect acquisition or purchase of all or a substantial part of the assets
of the Company or any of its subsidiaries or of any class of equity securities
of the Company or any of its subsidiaries or any tender offer or exchange offer
that if consummated would result in any person beneficially owning shares of any
class of equity securities of the Company or any of its subsidiaries, or any
merger, consolidation, business combination, sale of substantially all of the
assets, recapitalization, liquidation, dissolution or similar transaction
involving the Company or any of its subsidiaries other than the transactions
contemplated by the Merger Agreement, or any other transaction the consummation
of which would reasonably be expected to impede, interfere with, prevent or
materially delay the Offer or the Merger or which would reasonably be expected
to dilute materially the benefits to Parent of the transactions contemplated by
the Merger Agreement which (ii) the Company Board reasonably determines in good
faith (based on advice of its financial advisors) is more favorable to all of
the Company's stockholders from a financial point of view than the Offer and the
Merger (taking into account any improvements to the Offer and the Merger
proposed in writing by Parent).
Pursuant to the Merger Agreement, the Company has agreed that neither the
Company Board nor any committee thereof shall (i) withdraw or modify, or propose
to withdraw or modify, in a manner adverse to Parent or the Purchaser, the
approval or recommendation by the Company Board or any such committee of the
Offer, the Merger Agreement or the Merger, (ii) approve or recommend, or propose
to approve or recommend, any Takeover Proposal or (iii) enter into any agreement
with respect to any Takeover Proposal. Notwithstanding the foregoing, in the
event that prior to the time of acceptance by the Purchaser for payment of
Shares in the Offer if in the reasonable determination of the Company Board, and
after receiving advice from outside legal counsel to the Company, failure to do
so would be inconsistent with its fiduciary duties to the Company's stockholders
under applicable law, the Company Board may (subject to the terms of this and
the following sentences) withdraw or modify its approval or recommendation of
the Offer, the Merger Agreement or the Merger, approve
8
<PAGE>
ITEM 3. IDENTITY AND BACKGROUND--(CONTINUED)
or recommend a Takeover Proposal, or enter into an agreement with respect to a
Takeover Proposal, in each case at any time following delivery by the Company to
Parent of written notice (a 'Notice of Takeover Proposal') advising Parent that
the Company Board has received a Takeover Proposal, and specifying the material
terms and conditions of such Takeover Proposal and identifying the Person making
such Takeover Proposal unless the Takeover Proposal by its terms prohibits
disclosure.
Pursuant to the Merger Agreement, the Company has agreed that, in addition
to the obligations of the Company set forth in the immediately preceding
paragraph, the Company shall advise Parent of any request for information, and
the material terms and conditions of such request and the identity of the Person
making any such Takeover Proposal if allowed by the Takeover Proposal or
inquiry, and (ii) the Company will keep Parent fully informed of the status and
details (including amendments or proposed amendments) of any such request or
inquiry.
Indemnification. The Merger Agreement provides that the Certificate of
Incorporation and By-Laws of the Surviving Corporation shall contain the
provisions with respect to indemnification and exculpation set forth in the
Certificate of Incorporation and By-Laws of the Company, which provisions shall
not be amended, repealed or otherwise modified for a period of six years from
the Effective Time in any manner that would adversely affect the rights
thereunder of individuals who at the Effective Time were directors, officers,
employees or agents of the Company, unless such modification is required by law.
Pursuant to the Merger Agreement the Company shall, to the fullest extent
permitted under applicable law or under the Company's Certificate of
Incorporation or By-Laws and regardless of whether the Merger becomes effective,
indemnify and hold harmless, and, after the Effective Time, the Surviving
Corporation shall, to the fullest extent permitted under applicable law or under
the Surviving Corporation's Certificate of Incorporation or By-Laws, indemnify
and hold harmless, each present and former director, officer or employee of the
Company or any of its subsidiaries (collectively, the 'Indemnified Parties')
against any costs or expenses (including attorneys' fees), judgments, fines,
losses, claims, damages and liabilities incurred in connection with, and amounts
paid in settlement of, any claim, action, suit, proceeding or investigation,
whether civil, criminal, administrative or investigative and wherever asserted,
bought or filed, (x) arising out of or pertaining to the transactions
contemplated by the Merger Agreement or (y) otherwise with respect to any acts
or omissions or alleged acts or omissions occurring at or prior to the Effective
Time, to the same extent as provided in the respective Certificate of
Incorporation or By-Laws of the Company or its subsidiaries as in effect on the
date of the Merger Agreement, in each case for a period of six years after the
date of the Merger Agreement. In the event of any such claim, action, suit,
proceeding or investigation (whether arising before or after the Effective
Time), (i) any counsel retained by the Indemnified Parties for any period after
the Effective Time must be reasonably satisfactory to the Surviving Corporation,
(ii) after the Effective Time, the Surviving Corporation shall pay the
reasonable fees and expenses of such counsel, promptly after statements therefor
are received, and (iii) the Surviving Corporation will cooperate in the defense
of any such matter; provided, however, that the Surviving Corporation shall not
be liable for any settlement effected without its written consent (which consent
shall not be unreasonably withheld or delayed); and provided, further, that, in
the event that any claim or claims for indemnification are asserted or made
within such six-year period, all rights to indemnification in respect of any
such claim or claims shall continue until the disposition of any and all such
claims. The Indemnified Parties as a group may retain only one law firm to
represent them with respect to any single action unless there is, under
applicable standards of professional conduct, a conflict on any significant
issue between the positions of any two or more Indemnified Parties. These
indemnity agreements shall extend, on the same terms to, and shall inure to the
benefit of and shall be enforceable by, each person or entity who controls, or
in the past controlled, any present or former director, officer or employee of
the Company or any of its subsidiaries. For a period of six years after the
Effective Time, Parent shall cause the Surviving Corporation to maintain in
effect, if available, directors' and officers' liability insurance covering
those persons who are currently covered by the Company's directors' and
officers' liability insurance policy (a copy of which has been made available to
Parent) on terms (including the amounts of coverage and the amounts of
deductibles, if any) that are comparable to the terms now applicable to
directors and officers of Parent, or, if more favorable to the Company's
directors and officers, the terms now applicable to them under the Company's
current policies; provided, however, that in no event shall Parent or the
Surviving Corporation be required to expend in excess of 200% of the annual
premium currently paid by the Company for such coverage; and provided further,
that if the
9
<PAGE>
ITEM 3. IDENTITY AND BACKGROUND--(CONTINUED)
premium for such coverage exceeds such amount, Parent or the Surviving
Corporation shall purchase a policy with the greatest coverage available for
such 200% of the annual premium.
Termination. The Merger Agreement may be terminated and the Merger
contemplated thereby may be abandoned at any time prior to the Effective Time,
whether before or after approval of matters presented in connection with the
Merger by the stockholders of the Company:
(a) By the mutual written consent of Parent and the Company; provided,
however, that if Parent shall have designated a majority of the directors
pursuant to the applicable provisions of the Merger Agreement, such consent of
the Company may only be given if approved by the Continuing Directors.
(b) By either Parent or the Company: (i) if the Offer shall have expired
without any Shares being purchased therein by June 1, 1998; provided, however,
that the right to terminate the Merger Agreement under this clause (b)(i) shall
not be available to any party whose failure to fulfill any obligation under the
Merger Agreement has been the cause of, or resulted in, the failure of Parent or
the Purchaser, as the case may be, to purchase the Shares pursuant to the Offer
on or prior to such date; or (ii) if any Governmental Entity shall have issued
an order, decree or ruling or taken any other action (which order, decree,
ruling or other action the parties hereto shall use their reasonable efforts to
lift), in each case permanently restraining, enjoining or otherwise prohibiting
the transactions contemplated by the Merger Agreement and such order, decree,
ruling or other action shall have become final and non-appealable.
(c) By the Company Board: (i) if the Company has approved a Takeover
Proposal in accordance with the provisions of the Merger Agreement described
under '--Negotiations' above, provided the Company has complied with all
provisions thereof, including the notice provisions therein, and that it makes
simultaneous payment of the Termination Fee (as defined under '--Termination
Fee' below); or (ii) if, prior to the purchase of the Shares pursuant to the
Offer, Parent or the Purchaser breaches or fails in any material respect to
perform or comply with any of its covenants and agreements contained in the
Merger Agreement or breaches its representations and warranties in any material
respect; or (iii) if Parent or the Purchaser shall have terminated the Offer or
the Offer expires without Parent or the Purchaser, as the case may be,
purchasing any Shares pursuant thereto; provided that the Company may not
terminate the Merger Agreement pursuant to this clause (c) (iii) if the Company
is in material breach of the Merger Agreement; or (iv) if Parent, the Purchaser
or any of their affiliates shall have failed to commence the Offer on or prior
to five business days following the date of the initial public announcement of
the Offer; provided, that the Company may not terminate the Merger Agreement
pursuant to this clause (c)(iv) if the Company is in material breach the Merger
Agreement.
(d) By Parent or the Purchaser: (i) if prior to the purchase of the Shares
pursuant to the Offer, the Company Board shall have withdrawn, or modified or
changed in a manner adverse to Parent or the Purchaser its approval or
recommendation of the Offer, the Merger Agreement or the Merger or shall have
approved a Takeover Proposal in accordance with the provisions of the Merger
Agreement described under '--Negotiations' above; or (ii) if Parent or the
Purchaser shall have terminated the Offer without Parent or the Purchaser
purchasing any Shares thereunder, provided that Parent or the Purchaser may not
terminate the Merger Agreement pursuant to this clause (d)(ii) if Parent or the
Purchaser is in material breach of the Merger Agreement; or (iii) if, due to an
occurrence that if occurring after the commencement of the Offer would result in
a failure to satisfy any of the conditions set forth above under '--Conditions
to the Offer,' Parent, the Purchaser or any of their affiliates shall have
failed to commence the Offer on or prior to five business days following the
date of the initial public announcement of the Offer.
Termination Fee. Pursuant to the Merger Agreement, the Company shall pay,
or cause to be paid, in same day funds to Parent the amount of $3,750,000 (the
'Termination Fee') upon demand if
(i) Parent or the Purchaser terminates the Merger Agreement under
clause (d)(i) described above under '--Termination', or
(ii) the Company terminates the Merger Agreement pursuant to clause
(c)(i) described above under '--Termination' prior to any termination
of the Merger Agreement, a Takeover Proposal shall have been made and
within nine months after the termination of the Merger Agreement a
transaction constituting a Takeover Proposal is consummated or the Company
enters into an agreement with respect to or approves or recommends a
Takeover Proposal (whether or not related to a Takeover Proposal made prior
to any termination of the Merger Agreement);
10
<PAGE>
ITEM 3. IDENTITY AND BACKGROUND--(CONTINUED)
provided, that no payment shall be made if the Merger Agreement has been
terminated pursuant to clause (b)(i), (c)(ii), (c)(iii) or (c)(iv) described
above under '--Termination'; and provided further, that if a Takeover Proposal
(whether or not related to a Takeover Proposal made prior to any termination of
the Merger Agreement) is made at a lower price per share than the Offer Price,
then the Company shall only pay in same day funds to the Purchaser the amount of
Parent's and the Purchaser's documented expenses (not to exceed $500,000) in
connection with the Merger Agreement and the transactions contemplated thereby.
Confidentiality Agreement
The Thomas H. Lee Company (the 'THL Co.'), the Company's principal
stockholder, and Parent entered into a Confidentiality Agreement dated February
16, 1998 (the 'Confidentiality Agreement'). The following is a summary of
certain provisions of the Confidentiality Agreement. This summary does not
purport to be complete and is qualified in its entirety by reference to the
complete text of the Confidentiality Agreement, a copy of which is filed as
Exhibit 4 to this Schedule and is incorporated herein by reference. Capitalized
terms not otherwise defined below shall have the meanings set forth in the
Confidentiality Agreement.
The Confidentiality Agreement contains customary provisions pursuant to
which, among other matters, Parent has agreed, subject to certain exceptions, to
keep confidential, as more fully described therein, certain nonpublic,
confidential, information concerning the Company which is furnished to Parent by
or on behalf of the Company (the 'Evaluation Material'), and to use the
Evaluation Material solely for the purpose of evaluating a possible transaction
involving the Company and Parent and not in any way detrimental to the Company.
Parent has also agreed in the Confidentiality Agreement to certain
standstill provisions for a period of two years from the date thereof, with
respect to certain actions involving or leading to a transaction with the
Company without the prior written consent of the Company's Board of Directors.
Parent has also agreed in the Confidentiality Agreement that until the earlier
of (i) the acquisition of the Company by Parent and (ii) two years from the date
of the Confidentiality Agreement, it shall not initiate or maintain contact
(except for contacts in the ordinary course of business) with any officer,
director, employee, supplier, distributor, broker or customer of the Company
concerning its operations, assets, prospects or finances, except with the
express written consent of the Company.
Parent has further agreed in the Confidentiality Agreement that, for a
period of two years from the date of the Confidentiality Agreement, unless
Parent receives the prior written consent of the Company, Parent will not,
directly or indirectly solicit for employment or hire any person who is
currently employed in a senior management position by the Company, except as
such employment may be accomplished pursuant to the consummation of a
transaction with the Company as contemplated by the Confidentiality Agreement or
pursuant to general solicitations of employment through advertisements or
similar means not directed towards employees of the Company or towards a class
of persons who only could be employed by the Company.
AGREEMENTS WITH AFFILIATES
Stock Sale Agreement
On February 28, 1998, Parent and certain stockholders affiliated with the
THL Co. (such stockholders being, the 'Major Stockholders') entered into a Stock
Sale Agreement (the 'Stock Sale Agreement'). The following is a summary of
certain provisions of the Stock Sale Agreement. This summary does not purport to
be complete and is qualified in its entirety by reference to the complete text
of the Stock Sale Agreement, a copy of which is filed as Exhibit 5 hereto and is
incorporated herein by reference.
Pursuant to the Stock Sale Agreement, each Major Stockholder has agreed
that in the event that within nine months following the date of the Stock Sale
Agreement the Major Stockholders shall sell, transfer or otherwise commit to
dispose of any or all of the shares of Common Stock owned by such Major
Stockholders to any party other than Parent or an affiliate of Parent (a 'Sale')
and realize a Profit (as defined below) from such Sale, then the Major
Stockholders shall pay to Parent an amount equal to the Profit. Such amount
shall be paid to Parent promptly following the receipt of proceeds by the Major
Stockholders or their affiliates from such Sale. The term
11
<PAGE>
ITEM 3. IDENTITY AND BACKGROUND--(CONTINUED)
'Profit' shall mean the excess, if any, of (a) the aggregate consideration
received by the Major Stockholders or their affiliates in connection with the
Sale over (b) the number of shares of Common Stock sold, transferred or disposed
of in connection with the Sale multiplied by the Offer Price (as defined in the
Merger Agreement). Notwithstanding the foregoing, the Major Stockholders will
not have any obligation to pay the Profit to Parent unless Parent is entitled to
the Termination Fee pursuant to the Merger Agreement.
Management Agreement
On July 31, 1992, the Company and the THL Co. entered into a Management
Agreement pursuant to which the Company engaged the THL Co. to provide
consulting and management advisory services to the Company for a period of five
years, renewable on a year-to-year basis thereafter. The terms of the Management
Agreement are summarized in the Proxy Statement filed as Exhibit 2 to this
Schedule, the relevant portions of which are incorporated herein by reference.
The Management Agreement provides that in consideration of the consulting
services, the Company pays an annual fee to the THL Co. of $180,000 plus
expenses. Management of the Company believes that this Management Agreement is
on terms no less favorable to the Company than could have been obtained from an
independent third party.
Shareholders' Agreement and Registration Rights Agreement.
In connection with the acquisition by the Company's wholly-owned
subsidiary, BRK Brands, Inc., of substantially all of the assets of the BRK
Electronics Division of Pittway Corporation, effective as of July 31, 1992, the
Company entered into a Shareholders' Agreement (the 'Shareholders' Agreement')
and a Registration Rights Agreement (the 'Registration Rights Agreement') with
the initial investors in the Company (the 'Initial Shareholders'). The terms of
the Shareholders' Agreement and the Registration Rights Agreement are summarized
in the Proxy Statement filed as Exhibit 2 to this Schedule, the relevant
portions of which are incorporated herein by reference. In accordance with the
terms of the Shareholders' Agreement, the Initial Shareholders and Malcolm
Candlish are obligated to vote their shares of Common Stock to elect a Board of
Directors of the Company consisting of up to two directors designated by the
ML-Lee Acquisition Funds, two directors designated by Thomas H. Lee Equity
Partners, L.P. ('Equity Partners') and three directors designated by affiliates
of the THL Co. (other than the ML-Lee Acquisition Funds and Equity Partners).
Pursuant to the Registration Rights Agreement, Equity Partners, the ML-Lee
Acquisition Funds and their respective affiliates holding in the aggregate
twenty-five percent (25%) of the shares of Common Stock subject to the
Registration Rights Agreement may require the Company to effect the registration
of shares of Common Stock held by the Initial Shareholders for sale to the
public on three occasions, subject to certain conditions and limitations. In
addition, under the terms of the Registration Rights Agreement, if the Company
proposes to register any of its securities under the Securities Act of 1933, as
amended, whether for its own account or otherwise, the Initial Shareholders are
entitled to notice of such registration and are entitled to include their shares
therein, subject to certain conditions and limitations. All fees, costs and
expenses of any registration effected on behalf of the Initial Shareholders
under the Registration Rights Agreement (other than underwriting discounts and
commissions) will be paid by the Company.
OTHER AGREEMENTS
Certain Employment Agreements
On September 18, 1996, the Company entered into an Employment Agreement
with B. Joseph Messner. The following is a summary of certain provisions of such
agreement. This summary does not purport to be complete and is qualified in its
entirety by reference to the complete text of such agreement, a copy of which is
filed as Exhibit 8 to this Schedule and is incorporated herein by reference.
Mr. Messner's agreement provides for a three-year term of employment with
additional consecutive one-year terms after September 30, 1999, unless
terminated by either the Company or Mr. Messner, during which Mr. Messner will
serve as President and Chief Executive Officer of the Company in consideration
of a specified annual base salary, which may be increased from time to time. In
addition to a base salary, Mr. Messner is also
12
<PAGE>
ITEM 3. IDENTITY AND BACKGROUND--(CONTINUED)
eligible to receive incentive payments as the Company's Board of Directors may
determine from time to time and certain other employment benefits.
Mr. Messner's agreement also provides that upon his termination without
cause, as defined in the agreement, Mr. Messner is entitled to receive as
severance the greater of (i) the balance of salary payments due under the
agreement or (ii) two years' salary as in effect on the effective date of
termination, and upon his termination as a result of the Company's election not
to renew the agreement, Mr. Messner is entitled to receive as severance his
salary for twelve months from the date on which the Company delivered written
notice of its election not to renew the agreement; in either case, Mr. Messner's
severance will be subject to reduction on a dollar-for-dollar basis by any
compensation received by Mr. Messner if he obtains other employment during such
period, unless he is terminated in connection with a change of control, as
defined in the agreement, in which event his severance payments will not be
subject to such reduction. Subject to certain limitations, Mr. Messner also
continues to participate in medical benefit plans and to receive other fringe
benefits during the severance period. The agreement also provides that during
the period of employment, and for a period of twelve months following
termination, whether such termination is due to a voluntary termination by Mr.
Messner or otherwise, Mr. Messner will not, directly or indirectly, engage in
certain specified activities relating to the Company or the business thereof. In
addition, the agreement places certain restrictions upon Mr. Messner's ability
to communicate confidential information concerning the Company to third parties.
The Company and Malcolm Candlish entered into an Employment Agreement dated
as of January 1, 1997, which provides for a three-year term of employment in
consideration of an annual base salary of $100,000 per year. The following is a
summary of certain provisions of such agreement. This summary does not purport
to be complete and is qualified in its entirety by reference to the complete
text of such agreement, a copy of which is filed as Exhibit 9 to this Schedule
and is incorporated herein by reference.
In addition to the base salary, Mr. Candlish is eligible to receive
incentive payments as the Company's Board of Directors may determine from time
to time and certain other employment benefits. During the term of the agreement,
Mr. Candlish will perform such duties as he may be directed to perform by the
Board of Directors of the Company from time to time, including serving as
Chairman of the Board of the Company. Mr. Candlish's agreement also provides
that during the period of employment and for a period of twelve months following
the later of the date of termination of his employment and the date of
termination of salary payments thereunder, Mr. Candlish will not, directly or
indirectly, engage in certain specified activities relating to the Company or
the business thereof. In addition, the agreement places certain restrictions
upon Mr. Candlish's ability to communicate confidential information concerning
the Company to third parties.
Non-Competition Agreements
Each of B. Joseph Messner and Michael A. Rohl has entered into a
Noncompetition Agreement with the Company dated as of February 27, 1998
(collectively, the 'Noncompetition Agreements'). The following is a summary of
certain provisions of the Noncompetition Agreements. This summary does not
purport to be complete and is qualified in its entirety by reference to the
complete text of the Noncompetition Agreements, copies of which are filed as
Exhibits 10 and 11 hereto and are incorporated herein by reference.
Each of the Noncompetition Agreements takes effect if the Company
terminates the employment of such executive for reasons other than 'cause' or
such executive terminates his employment for 'good reason' within two years
after a 'change of control' (as such terms are defined in the Noncompetition
Agreement). The consummation of the Offer will constitute a 'change of control'
for this purpose. Each Noncompetition Agreement provides that during the
five-year period following such a termination of employment (the 'Noncompetition
Period'), the executive will not engage in or participate in, directly or
indirectly, any business which competes with the Company anywhere in the world
where the Company or any of its divisions, subsidiaries or affiliates then
conduct business. A business is considered to compete with the Company if it
engages directly or indirectly in the business of designing, manufacturing,
marketing, distributing or selling (1) residential smoke detectors which are not
capable of being monitored by an alarm control panel, (2) fire extinguishers,
(3) carbon monoxide detectors or (4) any other products which the Company is
developing, designing, manufacturing, marketing, distributing or selling during
the executive's employment with the
13
<PAGE>
ITEM 3. IDENTITY AND BACKGROUND--(CONTINUED)
Company. In addition, during the Noncompetition Period, each of the executives
will not solicit, or attempt to solicit, any officer, director, consultant,
executive or employee of the Company or any of its divisions, subsidiaries or
affiliates to leave his or her engagement with the Company or such division,
subsidiary or affiliate, nor will he call upon, solicit, divert or attempt to
solicit or divert any customers or suppliers (or potential customers or
suppliers) of the Company or any of its divisions, subsidiaries or affiliates
(other than customers or suppliers with respect to a business which does not
compete with the Company). In consideration for such noncompetition and
nonsolicitation covenants, the Company will make a cash payment of $1,000,000 to
Mr. Messner and a cash payment of $300,000 to Mr. Rohl, in each case within 10
days following the date of the commencement of such executive's Noncompetition
Period.
Salary Continuation Arrangements
Each of Mark A. Devine, Douglas H. Kellam, Edward J. Tyranski and Mark K.
Welch has entered into a letter agreement with the Company concerning the
continuation of salary payments (collectively, the 'Salary Continuation
Agreements'). The following is a summary of certain provisions of the Salary
Continuation Agreements. This summary does not purport to be complete and is
qualified in its entirety by reference to the complete text of the Salary
Continuation Agreements, copies of which are filed as Exhibits 12, 13, 14 and 15
hereto and are incorporated herein by reference.
On April 15, 1997, Mr. Kellam was given extended salary continuation
benefits by BRK Brands, Inc. ('BRK'), a subsidiary of the Company, consisting of
up to one year of base salary plus continuation of any life, accident,
disability, health and dental insurance plans and other similar fringe benefits
for the same period. The benefits continue after termination until Mr. Kellam
becomes employed, dies, becomes incapacitated or has received one year of
payments. These benefits are payable to Mr. Kellam if his employment with BRK is
terminated without cause attributable to him.
On February 27, 1998, Messrs. Devine, Tyranski and Welch were given
extended salary continuation benefits by BRK consisting of up to one year of
base salary plus continuation of any life, accident, disability, health and
dental insurance plans and other similar fringe benefits for the same period.
The benefits continue after termination until Mr. Devine, Tyranski or Welch
respectively, becomes employed, dies, becomes incapacitated or has received one
year of payments. These benefits are payable to these individuals if their
employment with BRK is terminated without cause attributable to them.
Termination Benefits Agreement
On July 5, 1995, BRK Brands, Inc. and Michael A. Rohl entered into a
Termination Benefits Agreement which agreement was amended on September 26, 1997
(as amended, the 'Termination Benefits Agreement'). The following is a summary
of certain provisions of the Termination Benefits Agreement. This summary does
not purport to be complete and is qualified in its entirety by reference to the
complete text of the Termination Benefits Agreement, a copy of which is filed as
Exhibit 16 to this Schedule and is incorporated herein by reference.
The Termination Benefits Agreement with Mr. Rohl provides for severance
benefits intended to operate as an incentive for him to continue to be employed
by the Company and to refrain from activities contrary to the interests of the
Company and its affiliates. The Termination Benefits Agreement provides for the
continuance of base salary and other current employee benefits in the event Mr.
Rohl's employment is terminated under certain conditions. Such salary payments
are to continue for a minimum of three months, and thereafter shall continue
until such time as Mr. Rohl becomes employed, dies, becomes incapacitated or has
received a total of one year of payments. In addition, Mr. Rohl shall continue
to participate in any life, accident, disability, health and dental insurance
plans and other similar fringe benefits for a period of six months from the date
of termination unless he becomes employed prior to the end of such six month
period in which event his participation in the foregoing benefit plans will
terminate on such earlier date as he becomes eligible for coverage under any
benefit plan offered by virtue of his new employment. The agreement also
provides that during the period of employment and for a period of one year
following termination, Mr. Rohl will not, without the prior written consent of
the Company, directly or indirectly, engage in certain specified activities
relating to the Company or the business
14
<PAGE>
ITEM 3. IDENTITY AND BACKGROUND--(CONTINUED)
thereof. In addition, the agreement places certain restrictions upon Mr. Rohl's
ability to communicate confidential information concerning the Company to third
parties.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) Recommendation
THE BOARD OF DIRECTORS OF THE COMPANY (THE 'BOARD'), BY THE UNANIMOUS VOTE
OF ALL DIRECTORS, HAS DETERMINED THAT THE OFFER AND THE MERGER ARE FAIR TO, AND
IN THE BEST INTERESTS OF, THE COMPANY AND ITS STOCKHOLDERS AND HAS APPROVED THE
MERGER AGREEMENT, THE OFFER AND THE MERGER. THE BOARD UNANIMOUSLY RECOMMENDS
THAT THE STOCKHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER ALL THEIR
SHARES OF COMMON STOCK PURSUANT TO THE OFFER. The Board's determination and
recommendation were made at the Board's February 28, 1998 meeting at which all
of the Company's directors were present by telephonic conference.
The Board's recommendation is based in part on the verbal opinions
delivered by each of Salomon Brothers Inc and Smith Barney Inc. (collectively
doing business as 'Salomon Smith Barney') and NationsBanc Montgomery Securities
LLC ('NationsBanc Montgomery Securities'), financial advisors to the Company, on
February 28, 1998, that, as of such date, the consideration to be received by
the stockholders of the Company in the Offer and the Merger was fair from a
financial point of view to the stockholders of the Company. Each of Salomon
Smith Barney and NationsBanc Montgomery Securities subsequently confirmed its
opinion in a written opinion dated February 28, 1998 following the Board
meeting. The full text of each of the opinions, which sets forth the assumptions
made, the matters considered and the limitations on the review undertaken by
each of the financial advisors, is attached as Annex I (and filed as Exhibits 6
and 7, respectively) to this Schedule and is incorporated herein by reference.
A copy of the letter to the Company's stockholders communicating the
Board's recommendation is filed as Exhibit 3 to this Schedule and is
incorporated herein by reference.
(b) Background for the Recommendation
Following its regularly scheduled Board meeting on February 5, 1998,
several members of the Company's Board of Directors discussed informally the
possibility of and the prospects for selling the Company. At that time, no
proposals or expressions of interest in any business combination involving the
Company had been received. It was the consensus of the Directors participating
in this discussion that it was unlikely that any proposal adequately valuing the
Company could be obtained at that time through any sales process.
On February 9, 1998, a representative of Morgan Stanley & Co. ('Morgan
Stanley'), the investment bank retained by Parent, contacted a member of the
Board of the Company, who is also a representative of the THL Co., to discuss
Parent's interest in the Company and in another company in which the THL Co. had
a significant equity interest.
On February 11, 1998, representatives of Morgan Stanley and Parent met with
three members of the Board of Directors of the Company who are also affiliated
with the THL Co. Morgan Stanley expressed Parent's serious interest in a
possible business combination involving the Company.
On February 12, 1998, after the Company publicly announced an adverse jury
verdict awarding $16.9 million, a Company representative called Morgan Stanley
to explain the jury verdict and to confirm Parent's interest in light of the
verdict. After Parent confirmed its interest in continuing discussions
concerning an acquisition of the Company, on February 17, 1998, B. Joseph
Messner, President and Chief Executive Officer of the Company, legal advisors to
the Company and insurance advisors to the Company discussed the jury verdict
with Parent and its advisors. This call was followed on February 18, 1998 by a
meeting between representatives of Parent and the insurance advisors to the
Company to discuss the Company's financial exposure, and ability to obtain
insurance, with respect to the subject matter of the jury verdict.
On February 16, Parent agreed, pursuant to the terms of a Confidentiality
Agreement, among other things, to treat as confidential certain information
provided to it by or on behalf of the Company.
15
<PAGE>
ITEM 4. THE SOLICITATION OR RECOMMENDATION--(CONTINUED)
On February 19, 1998, Mr. Messner met in New York City with Parent and
Morgan Stanley to discuss the business and financial affairs of the Company and
the possible strategic impact a transaction would have on Parent.
On February 20, 1998, Morgan Stanley contacted one of the Company's
Directors and indicated Parent's desire to discuss in more detail a proposal for
the acquisition of the Company. The Director indicated that he would have to
discuss any proposal with the full Board of Directors of the Company and that a
representative of the Board of Directors would then get back to Morgan Stanley.
On February 22, 1998, the Board of Directors of the Company conducted a
telephonic Board meeting with all Directors participating, other than David
Harkins. Legal counsel to the Company was also present. Company counsel advised
the Board of Directors with respect to its duties in considering any proposal.
The Board resolved to form a Special Committee consisting of Directors who were
not employees of the Company and were not affiliated with the THL Co. (the
'Special Committee') to consider Parent's proposal. The Board then resolved to
approve the engagement of financial advisors and special legal counsel to advise
the Special Committee on behalf of the Company with respect to the proposal.
After the meeting on the 22nd, the Special Committee engaged Salomon Smith
Barney and NationsBanc Montgomery Securities to act as financial advisors to the
Special Committee. On February 23, 1998, the Special Committee hired special
legal counsel to advise the Special Committee with respect to the proposal.
Salomon Smith Barney commenced discussions with Morgan Stanley on February
22, 1998. Morgan Stanley communicated the Parent's proposal to acquire all
equity securities of the Company at a price of $4.50 per share, payable one-half
in cash and one-half in equity securities of Parent.
On February 24th, the Special Committee's financial advisors visited the
Company to conduct due diligence in connection with determining the fairness of
a potential transaction between Parent and the Company. Mr. Messner, several
executive officers of the Company and certain legal advisors to the Company were
present. In addition, discussions continued between the Company's financial
advisors and Parent's financial advisors on February 23rd and 24th, and on the
evening of February 24th, Parent modified its offer to $5.00 per share, one-half
payable in cash and one-half payable in equity securities of Parent. The Special
Committee's financial advisors responded by indicating that Parent should
consider an all cash offer at a higher price.
On February 25, 1998, Parent's representatives visited the Company's
facilities and discussions continued regarding possible synergies between Parent
and the Company. Late in the afternoon, the Board of Directors of the Company
conducted a telephonic meeting to discuss the status of the proposal. Mr.
Messner and the Special Committee's financial advisors updated the Special
Committee and the Board of Directors on the current terms of the proposal and
informed the Special Committee and the Board of Directors that on February 25th
and 26th Parent's advisors were conducting extensive due diligence on the
Company.
On February 26, 1998, discussions continued between the Special Committee's
financial advisors and Parent's financial advisors regarding the terms of the
transaction, including the price payable to stockholders. Parent modified its
proposal to an all cash tender offer at $5.00 per share.
While negotiations regarding price were continuing, legal, accounting and
business due diligence was carried out by representatives of Parent at the
facilities of the Company and its accountants. On the same day, Parent's legal
advisors delivered proposed drafts of transaction documents to the Special
Committee's legal counsel. The draft documents contemplated a tender offer by
the Purchaser, a wholly-owned indirect subsidiary of Parent, for all outstanding
shares of the Company to be followed by a merger of the Purchaser with and into
the Company. Early in the evening of February 26, 1998, the Special Committee
and the other members of the Board of Directors of the Company convened by
telephone and were briefed on the status of the proposal. The Special Committee
and the other members of the Board of Directors decided to meet in person on
February 27, 1998. Late in the evening of February 26, 1998, special legal
counsel to the Special Committee furnished comments to Parent's counsel
regarding the transaction documents.
On the morning of February 27, 1998, the Special Committee and the full
Board of Directors of the Company convened, with all directors present in
person, except Mr. Messner who participated by telephone. For
16
<PAGE>
ITEM 4. THE SOLICITATION OR RECOMMENDATION--(CONTINUED)
several hours, the members of the Special Committee and the Board of Directors
discussed the status of the proposal and were advised by special legal counsel
as to their responsibilities to stockholders. The financial advisors described
in detail their respective financial analyses with respect to the fairness of
the proposal. The Board of Directors agreed to reconvene the next day.
During the day of February 27th, Parent continued its legal due diligence
and the Company and its financial advisors continued discussions regarding the
fairness of the potential transaction. After the meeting, negotiations proceeded
between advisors and counsel of Parent and the Special Committee. Late in the
evening, Parent proposed to purchase, in a tender offer, all outstanding shares
of the Company at a price of $5.25, net to the seller in cash.
The Special Committee and the Board of Directors of the Company reconvened
by telephone on the morning of February 28, 1998. The Company's financial
advisors verbally presented their respective opinions as to the fairness of the
transaction and after discussion, the Special Committee voted to recommend to
the Company's Board of Directors approval of the transaction. After further
discussion, the Company's Board of Directors approved the transaction on the
terms presented at the meeting and authorized the Company, with the assistance
and advice of special legal counsel to the Special Committee, to complete the
negotiation and execution of a definitive agreement. The Special Committee and
the Board of Directors also approved, for purposes of Section 203 of the
Delaware General Corporation Law, the Stock Sale Agreement. After the meeting,
documentation of the transaction was completed and a definitive agreement was
executed on the evening of February 28, 1998.
On March 2, 1998, each of the Company and Parent publicly announced the
execution of a definitive agreement between the companies. A copy of the Press
Release issued by the Company on March 2, 1998 is filed as Exhibit 17 to this
Schedule and is incorporated herein by reference.
(c) Factors Considered by the Board
In determining to approve the Merger Agreement and recommend to the
Company's stockholders that they accept the Offer and tender their Common Stock
pursuant thereto, the Board of Directors considered the background described
above and a number of factors, including, without limitation, the following:
(i) The familiarity of the Board with the Company's business,
operations, financial conditions and prospects and the competitive
environment for residential safety products companies generally.
(ii) The views expressed by management of the Company regarding the
financial condition, results of operations, business and prospects of the
Company if the Company were to remain independent, including the risks
associated with product litigation exposure and the possibility of adverse
product standards and regulatory changes, as well as the fact that the
Company had incurred operating losses during its two most recent fiscal
years.
(iii) The structuring of the transaction with Parent as a tender offer
to be followed by a merger would (a) enable stockholders to receive their
cash consideration sooner than they would pursuant to a one-step merger;
and (b) reduce the likelihood of a disruption in the operations of the
business.
(iv) The recent trading price of the shares of Common Stock and that
the $5.25 per share of Common Stock to be paid in the Offer and as the
consideration in the Merger represents a premium of approximately 72% over
the $3 1/8 closing sale price for the shares of Common Stock on NASDAQ on
February 27, 1998, the last trading day prior to the public announcement of
the execution of the Merger Agreement.
(v) The presentations of Salomon Smith Barney and NationsBanc
Montgomery Securities to the Board on February 27, 1998 and February 28,
1998 and oral opinions rendered to the Board on February 28, 1998 (which
opinions were each subsequently confirmed by delivery of a written opinion
dated February 28, 1998) to the effect that, as of such date and based upon
and subject to certain matters stated in such opinion, the $5.25 per share
cash consideration to be received by the Company's stockholders in the
Offer and the Merger was fair, from a financial point of view, to such
stockholders. The full text of each of the Salomon Smith Barney Opinion and
NationsBanc Montgomery Securities Opinion, which sets forth the assumptions
17
<PAGE>
ITEM 4. THE SOLICITATION OR RECOMMENDATION--(CONTINUED)
made, the matters considered and limitations on the review undertaken by
Salomon Smith Barney and NationsBanc Montgomery Securities, respectively,
is attached as Annex I (and filed as Exhibits 6 and 7, respectively) to
this Schedule, and is incorporated herein by reference. Each of the Salomon
Smith Barney Opinion and NationsBanc Montgomery Securities Opinion is
directed only to the fairness, from a financial point of view, of the cash
consideration to be received by the Company's stockholders in the Offer and
the Merger and is not intended to constitute, and does not constitute, a
recommendation as to whether any stockholder should tender shares of Common
Stock pursuant to the Offer. Holders of Common Stock are urged to read each
of the Salomon Smith Barney Opinion and NationsBanc Montgomery Securities
Opinion in its entirety.
(vi) The views expressed by management and the Special Committee's
financial advisors and the Board's conclusion that it was not likely that
any other party would consider a transaction that was more favorable to the
Company and its stockholders.
(vii) The terms and conditions of the Merger Agreement (considered in
conjunction with the terms and conditions of the Stock Sale Agreement),
including (A) the provision permitting the Board under certain
circumstances to furnish information to, and negotiate with, a third party
making an unsolicited bona fide Takeover Proposal (see Item 3(b)--'The
Merger Agreement--Negotiations'), (B) the provision permitting the Board
under certain circumstances to terminate the Merger Agreement in order to
accept a Takeover Proposal from a third party on prior written notice to
Parent and upon paying Parent a fee of $3.75 million (including expenses),
which amount would not, in the Board's view after consulting with Salomon
Smith Barney and NationsBanc Montgomery Securities, preclude the
possibility of such a Takeover Proposal although it might deter some
potential Takeover Proposals and/or reduce the price per share of Common
Stock payable by a Third Party in a Takeover Proposal (see Item 3(b)--'The
Merger Agreement-- Negotiations,' '--Termination,' and '--Termination Fees'
and Item 4(b)--'Background and Reasons for the Recommendation'), (C) the
fact that Parent, a financially substantive entity (rather than a 'shell'
company), is a counterparty to the Merger Agreement, and (D) the conditions
to the Offer and the Merger (see Item 3(b)--'The Merger
Agreement--Conditions to the Offer').
(viii) The transactions contemplated by the Merger Agreement provided
for an all cash payment to stockholders, with no financing condition.
The foregoing discussion of the information and factors discussed by the
Board of Directors is not meant to be exhaustive but includes all material
factors considered by the Board. The Board did not quantify or attach any
particular weight to the various factors that it considered in reaching its
determination that the Offer and the Merger is in the best interest of the
stockholders.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
Pursuant to an engagement letter dated as of February 23, 1998 (the
'Salomon Engagement Letter'), the Company has retained Salomon Smith Barney to
render financial advisory and investment banking services to the Special
Committee of the Board of Directors of the Company in connection with a possible
sale of the Company or an interest in the Company to another corporation or
other business entity (a 'Transaction'). For such financial advisory and
investment banking services, the Company agreed to pay Salomon Smith Barney .50%
of the Aggregate Consideration payable in connection with the transaction. For
purposes of this transaction, Aggregate Consideration is deemed to include the
aggregate amount payable to the Company or its stockholders in connection with
the transaction, plus the amount of indebtedness (i) existing on the Company's
balance sheet as of the time of the transaction or (ii) retired or repaid in
connection with or in anticipation of the transaction. In addition, the Company
has agreed to reimburse Salomon Smith Barney for its reasonable out-of-pocket
expenses (including reasonable fees and disbursements) and to indemnify Salomon
Smith Barney against certain liabilities relating to or arising out of services
performed by it as financial advisor to the Special Committee of the Board of
Directors of the Company in connection with a Transaction.
Pursuant to an engagement letter dated as of February 27, 1998 (the
'NationsBanc Montgomery Securities Engagement Letter'), the Company has retained
NationsBanc Montgomery Securities to render to the Special
18
<PAGE>
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED--(CONTINUED)
Committee of the Board of Directors of the Company with respect to the fairness
from the financial point of view to the Company's stockholders of the
consideration to be received by them in connection with the sale of the Company
to Parent. For such services, the Company agreed to pay NationsBanc Montgomery
Securities a fee of .50% of the total consideration of the transaction. For
purposes of this transaction, the total consideration is deemed to include the
sum of the cash, market value of marketable equity securities or interests, fair
value of unmarketable equity securities or interests, face amount of straight
and convertible debt instruments or obligations issued or issuable from, and the
amount of any indebtedness of the acquired party assumed directly or indirectly
by, an acquiring party in connection with a potential transaction and fair value
of future payment obligations arising in connection with the transaction. In
addition, the Company has agreed to reimburse NationsBanc Montgomery Securities
for its reasonable out-of-pocket expenses (including reasonable fees and
disbursements) and to indemnify NationsBanc Montgomery Securities against
certain liabilities relating to or arising out of services performed by it as
financial advisor to the Special Committee of the Board of Directors of the
Company in connection with the sale of the Company to Parent.
Neither the Company nor any person acting on its behalf currently intends
to employ, retain or compensate any other person to make solicitations or
recommendations to security holders on their behalf concerning the Offer.
Neither the Company nor any person acting on its behalf currently intends
to employ, retain or compensate any other person to make solicitations or
recommendations to security holders on their behalf concerning the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) Transactions in Securities
To the knowledge of the Company, with the exception of (i) the award of
options to purchase 10,824 shares of Common Stock on January 2, 1998 to each of
John R. Albers and Albert L. Prillaman, (ii) the award of options to purchase
100,000, 25,000, 40,000, 25,000, 25,000 and 40,000 shares of Common Stock on
February 5, 1998 to Messrs. Devine, Kellam, Messner, Rohl, Tyranski and Welch,
respectively, and (iii) the purchase of 40,000 shares of Common Stock by Mr.
Albers on January 29, 1998 (following the sale on December 18, 1997 of 40,000
shares of Common Stock for which transactions Mr. Albers paid the Company $3,125
for short swing profit on January 30, 1998), no transactions in the Common Stock
have been effected during the past 60 days by the Company or by any executive
officer, director, affiliate or subsidiary of the Company.
(b) Intent to Tender
To the knowledge of the Company, all of its executive officers, directors,
affiliates or subsidiaries currently intend to tender pursuant to the Offer all
shares of Common Stock that are held of record or beneficially owned by such
persons other than Mr. Albers who would be subject to short swing profit
liability under Section 16(b) of the Securities Exchange Act of 1934, as amended
if he tendered his shares of Common Stock. Mr. Albers intends to vote in favor
of the Merger upon successful completion of the Offer, if a stockholder vote is
necessary.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) Negotiations
Except as set forth in this Schedule, no negotiation is being undertaken or
is underway by the Company in response to the Offer which relates to or would
result in: (i) an extraordinary transaction, such as a merger or reorganization,
involving the Company or any subsidiary thereof, (ii) a purchase, sale or
transfer of a material amount of assets by the Company or any subsidiary
thereof; (iii) a tender offer for or other acquisition of securities by or of
the Company; or (iv) any material change in the present capitalization or
dividend policy of the Company.
19
<PAGE>
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT
COMPANY--(CONTINUED)
(b) Transactions and Other Matters
Except as set forth in this Schedule, there are no transactions, Board
resolutions, agreements in principle or signed contracts in response to the
Offer that relate to or would result in one or more of the events referred to in
Item 7 (a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
The Information Statement attached hereto as Annex II is being furnished in
connection with the contemplated designation by Parent, pursuant to the Merger
Agreement, of certain persons to be appointed to the Board of Directors of the
Company other than at a meeting of the Company's stockholders following the
purchase by Purchaser of the number of shares of Common Stock pursuant to the
Offer necessary to satisfy the Minimum Condition.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 1 -- Agreement and Plan of Merger, dated as of February 28, 1998, among
the Company, Parent and the Purchaser.
Exhibit 2 -- The Company's Proxy Statement on Schedule 14A, filed on April 7,
1997.
Exhibit 3 -- Letter to stockholders of the Company dated March 6, 1998.*
Exhibit 4 -- Confidentiality Agreement, dated as of February 16, 1998, between
the Company and Parent.
Exhibit 5 -- Stock Sale Agreement, dated as of February 28, 1998, among Parent
and certain stockholders of the Company listed on the signature
pages thereto.
Exhibit 6 -- Opinion of Salomon Smith Barney dated February 28, 1998.*
Exhibit 7 -- Opinion of NationsBanc Montgomery Securities dated February 28,
1998.*
Exhibit 8 -- Employment Agreement, dated September 18, 1996, between B. Joseph
Messner and the Company.
Exhibit 9 -- Employment Agreement, dated January 1, 1997, between Malcolm
Candlish and the Company.
Exhibit 10 -- Noncompetition Agreement, dated February 27, 1998, between B.
Joseph Messner and the Company.
Exhibit 11 -- Noncompetition Agreement, dated February 27, 1998, between Michael
A. Rohl and the Company.
Exhibit 12 -- Letter Agreement, dated April 15, 1997, between Douglas H. Kellam
and the Company.
Exhibit 13 -- Letter Agreement, dated February 27, 1998, between Mark A. Devine
and the Company.
Exhibit 14 -- Letter Agreement, dated February 27, 1998, between Mark K. Welch
and the Company.
Exhibit 15 -- Letter Agreement, dated February 27, 1998, between Edward J.
Tyranski and the Company.
Exhibit 16 -- Termination Benefits Agreement, dated July 5, 1995, between BRK
Brands, Inc. and Michael A. Rohl, as amended by an agreement dated
September 26, 1997.
Exhibit 17 -- Press Release issued by the Company dated March 2, 1998.
- ------------------
* Copy attached to, or enclosed with, copies of this Schedule mailed to
stockholders.
20
<PAGE>
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
FIRST ALERT, INC.
BY: /s/ B. JOSEPH MESSNER
-------------------------------------
B. Joseph Messner
President and Chief Executive Officer
Dated: March 6, 1998
21
<PAGE>
ANNEX I
SALOMON SMITH BARNEY
212-816-6000
A Member of TravelersGroup [logo]
February 28, 1998
Board of Directors
First Alert, Inc.
3901 Liberty Street Road
Aurora, Illinois 60504-8122
Members of the Board:
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the holders of shares of common stock, par
value $0.01 per share (the "Company Common Stock"), of First Alert, Inc. (the
"Company") of the consideration to be received by such holders in the proposed
acquisition of the Company by Sunbeam Corporation ("Acquiror") pursuant to the
Agreement and Plan of Merger, dated as of February 28, 1998 (the "Agreement"),
by and among the Company, Acquiror and Sentinel Acquisition Corp., a wholly
owned subsidiary of Acquiror ("Acquisition Corp.").
As more specifically set forth in the Agreement, Acquisition Corp. will
commence a tender offer (the "Proposed Tender Offer") to purchase all of the
outstanding shares of Company Common Stock for a price of $5.25 per share in
cash (the "Offer Price"). Following consummation of the Proposed Tender Offer,
Acquisition Corp. will be merged with and into the Company (the "Proposed
Merger" and, together with the Proposed Tender Offer, the "Proposed
Transaction") and each then outstanding share of Company Common Stock (other
than shares held by Acquiror, Acquisition Corp. or any of their subsidiaries
or shares as to which appraisal rights have been properly exercised under
applicable law) will be converted in the Proposed Merger into the right to
receive, in cash, the Offer Price (or such higher price as may be paid for
each share of Company Common Stock in the Proposed Tender Offer). We
understand that certain holders of Company Common Stock have agreed to
surrender to Acquiror any amount received upon a sale of shares of Company
Common Stock in excess of the Offer Price.
In connection with rendering our opinion, we have reviewed and analyzed
material bearing upon the financial and operating condition and prospects of
the Company including, among other things, the following: (i) a draft version
of the Agreement; (ii) certain publicly available information concerning the
Company, including the Annual Reports on Form 10-K of the Company for each of
the years in the three year period ended December 31, 1996 and the Quarterly
Reports on Form 10-Q of the Company for the quarters ended March 31, 1997,
June 30, 1997 and September 30, 1997, respectively; (iii) certain other
internal information, primarily financial in nature (including projections,
forecasts and analyses
I-1
<PAGE>
Board of Directors
First Alert, Inc.
February 28, 1998
Page 2
prepared by or on behalf of the Company's management), concerning the business
and operations of the Company furnished to us by the Company for purposes of
our analysis; (iv) certain publicly available information concerning the
trading of, and the trading market for, the Company Common Stock; (v) certain
publicly available information with respect to certain other companies that we
believe to be comparable to the Company and the trading markets for certain of
such other companies, securities; and (vi) certain publicly available
information concerning the nature and terms of certain other transactions that
we consider relevant to our inquiry. We have also considered such other
information, financial studies, analyses, investigations and financial,
economic and market criteria that we deemed relevant. We have also met with
certain officers and employees of the Company to discuss the foregoing as well
as other matters we believe relevant to our inquiry.
In our review and analysis and in arriving at our opinion, we have
assumed and relied upon the accuracy and completeness of all of the financial
and other information provided to us or publicly available and have neither
attempted independently to verify nor assumed any responsibility for verifying
any of such information and have further relied upon the assurances of members
of management of the Company that they are not aware of any facts that would
make any of such information inaccurate or misleading. We have not conducted a
physical inspection of any of the properties or facilities of the Company, nor
have we made or obtained or assumed any responsibility for making or obtaining
any independent evaluations or appraisals of any of such properties or
facilities, nor have we been furnished with any such evaluations or
appraisals. With respect to projections, we have, upon the advice and consent
of management of the Company, assumed that such projections were reasonably
prepared on bases reflecting the best currently available estimates and
judgment of the Company's management as to the future financial performance of
the Company and we express no view with respect to such projections or the
assumptions on which they were based. We have also assumed that the definitive
Agreement will not, when executed, contain any terms or conditions that differ
materially from the terms and conditions contained in the draft of such
document we have reviewed and that the Proposed Acquisition will be
consummated in a timely manner and in accordance with the terms of the
Agreement.
In conducting our analysis and arriving at our opinion as expressed
herein, we have considered such financial and other factors as we have deemed
appropriate under the circumstances including, among others, the following: (i)
the historical and current financial position and results of operations of the
Company; (ii) the business prospects of the Company; (iii) the historical and
current market for the Company Common Stock and for the equity securities of
certain other companies that we believe to be comparable to the Company; and
(iv) the nature and terms of certain other acquisition transactions that we
believe to be relevant. We have also taken into account our assessment of
general economic, market and financial conditions as well as our experience in
connection with similar transactions and securities valuation generally. Our
opinion necessarily is based upon conditions as they exist
I-2
<PAGE>
Board of Directors
First Alert, Inc.
February 28, 1998
Page 3
and can be evaluated on the date hereof and we assume no responsibility to
update or revise our opinion based upon circumstances or events occurring
after the date hereof. Our opinion is, in any event, limited to the fairness,
from a financial point of view, of the consideration to be received by the
holders of the Company Common Stock in the Proposed Transaction and does not
address the Company's underlying business decision to effect the Proposed
Transaction or constitute a recommendation to any holder of Company Common
Stock as to whether such holder should tender shares of the Company Common
Stock in the Proposed Tender Offer or as to how such holder should vote with
respect to the Proposed Merger, if such a vote is taken.
As you are aware, Salomon Brothers Inc and Smith Barney Inc.
(collectively doing business as "Salomon Smith Barney"), are acting as
financial advisor to the Independent Committee of the Board of Directors of the
Company in connection with the Proposed Transaction and will receive a fee for
their services, a substantial portion of which is contingent upon consummation
of the Proposed Transaction. In addition, in the ordinary course of our
business, Salomon Smith Barney may actively trade the debt and equity
securities of the Company for its own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities. Salomon Smith Barney and its affiliates (including Travelers
Group Inc.) may have other business relationships with the Company or Acquiror.
This opinion is intended solely for the benefit and use of the Company
(including its management and directors) in considering the transaction to
which it relates and may not be used for any other purpose or reproduced,
disseminated, quoted or referred to at any time, in any manner or for any
purpose, without the prior written consent of Salomon Smith Barney.
Based upon and subject to the foregoing, we are of the opinion as
investment bankers that the consideration to be received by the holders of the
Company Common Stock in the Proposed Transaction is fair, from a financial
point of view, to such holders.
Very truly yours,
/s/ Salomon Smith Barney
-----------------------------------
SALOMON SMITH BARNEY
I-3
<PAGE>
NationsBanc Montgomery Securities
February 28, 1998
Special Committee of the Board of Directors
First Alert, Inc.
3901 Liberty Street Road
Aurora, IL 60504-8122
ATTN: John R. Albers
Albert L. Prillaman
Gentlemen:
We understand that First Alert, Inc., a Delaware corporation ("Seller"),
Sunbeam Corporation, a Delaware corporation ("Parent"), and Sentinel
Acquisition Corp., a Delaware corporation ("Buyer"), propose to enter into an
Agreement and Plan of Merger dated as of February 28, 1998 (the "Merger
Agreement"). Pursuant to the Merger Agreement, we understand that Buyer will
make a cash tender offer (the "Offer") for each outstanding share of the
common stock, $ .01 par value per share, of Seller ("Seller Common Stock") at
a price per share of $5.25 (the "Consideration") and that thereafter Buyer
will be merged into Seller in a transaction in which each outstanding share of
Seller Common Stock (other than shares held by Buyer or Parent) will be
converted into the Consideration (the "Merger"). The terms and conditions of
the Offer and the Merger are set forth in more detail in the Merger Agreement.
You have asked us for our opinion as investment bankers as to whether the
Consideration to be received by the stockholders of Seller (other than Buyer
or Parent) pursuant to the Offer and the Merger is fair to such stockholders
from a financial point of view, as of the date hereof. As you are aware, we
were not retained to nor did we advise Seller with respect to alternatives to
the Offer or the Merger or Seller's underlying decision to proceed with or
effect the Offer or the Merger. Further, we were not requested to nor did we
solicit or assist Seller in soliciting indications of interest from third
parties for all or any part of Seller.
In connection with our opinion, we have, among other things: (i) reviewed
certain publicly available financial and other data with respect to Seller,
including the consolidated financial statements for recent years and interim
periods to December 31, 1997 and certain other relevant financial and
operating data relating to Seller made available to us from published sources
and from the internal records of Seller; (ii) reviewed the financial terms and
conditions of the Merger Agreement; (iii) reviewed certain publicly
NationsBanc Montgomery Securities LLC
600 Montgomery Street San Francisco, California 94111 (415) 627-2000
- --------------------------------------------------------------------------------
NationsBank
I-4
<PAGE>
NationsBanc Montgomery Securities
First Alert, Inc.
February 28, 1998
Page 2
available information concerning the trading of, and the trading market for,
Seller Common Stock and (iv) compared Seller from a financial point of view
with certain other companies in the home security and consumer durables
industries which we deemed to be relevant; (v) considered the financial terms,
to the extent publicly available, of selected recent business combinations of
companies in the home security and consumer durables industries which we
deemed to be comparable, in whole or in part, to the Offer and the Merger;
(vi) prepared a discounted cash flow analysis and compared these results to
the Consideration; (vii) reviewed and discussed with representatives of the
management of Seller certain information of a business and financial nature
regarding Seller, furnished to us by them, including financial forecasts and
related assumptions of Seller; (viii) made inquiries regarding and discussed
the Offer and the Merger and the Merger Agreement and other matters related
thereto with Seller's counsel; and (ix) performed such other analyses and
examinations as we have deemed appropriate.
In connection with our review, we have not assumed any obligation
independently to verify the foregoing information and have relied on its being
accurate and complete in all material respects. With respect to the financial
forecasts for Seller provided to us by Seller management, upon their advice
and with your consent we have assumed for purposes of our opinion that the
forecasts have been reasonably prepared on bases reflecting the best available
estimates and judgments of management at the time of preparation as to the
future financial performance of Seller and that they provide a reasonable
basis upon which we can form our opinion. We have also assumed that there have
been no material changes in Seller's assets, financial condition, results of
operations, business or prospects since the dates of its last financial
statements made available to us. We have relied on advice of counsel and
independent accountants to Seller as to all legal and financial reporting
matters with respect to Seller and the Merger Agreement, including the legal
status and financial reporting of litigation involving Seller. We have assumed
that the Offer and the Merger will be consummated in a manner that complies in
all respects with the applicable provisions of the Securities Exchange Act of
1934 and all other applicable federal and state statutes, rules and
regulations. In addition, we have not assumed responsibility for making an
independent evaluation, appraisal or physical inspection of any of the assets
or liabilities (contingent or otherwise) of Seller, nor have we been furnished
with any such appraisals. Finally, our opinion is based on economic, monetary
and market and other conditions as
I-5
<PAGE>
NationsBanc Montgomery Securities
First Alert, Inc.
February 28, 1998
Page 3
in effect on, and the information made available to us as of, the date hereof.
Accordingly, although subsequent developments may affect this opinion, we have
not assumed any obligation to update, revise or reaffirm this opinion.
We have further assumed with your consent that the Offer and the Merger
will be consummated in accordance with the terms described in the Merger
Agreement, without any further amendments thereto, and without waiver by
Seller of any of the conditions to its obligations thereunder.
We have been retained solely for the purposes of rendering an opinion to
the Special Committee of the Board of Directors of Seller as to the fairness
to the stockholders of Seller from a financial point of view of the
Consideration and will receive a fee for our services, the payment of which is
contingent on consummation of the Offer and the Merger. In addition, one of
our affiliates is a senior lender to Seller.
Based upon the foregoing and in reliance thereon, it is our opinion as
investment bankers that the Consideration to be received by the stockholders
of Seller pursuant to the Offer and the Merger is fair to such stockholders
from a financial point of view, as of the date hereof.
This opinion is directed to the Special Committee of the Board of
Directors of Seller in its consideration of the Offer and the Merger and is
not a recommendation to any stockholder as to whether such stockholder should
accept the Offer or how such stockholder should vote with respect to the
Merger. Further, this opinion addresses only the financial fairness of the
Consideration to the stockholders and does not address the relative merits of
the Offer and the Merger and any alternatives to the Offer and the Merger,
Seller's underlying decision to proceed with or effect the Offer and the
Merger, or any other aspect of the Offer or the Merger. This opinion may not
be used or referred to by Parent, Buyer or Seller, or quoted or disclosed to
any person in any manner, without our prior written consent, which consent is
hereby given to the inclusion of this opinion in any proxy statement or tender
offer statement filed with the Securities and Exchange Commission in
connection with the Merger Agreement.
Very truly yours,
/s/ NationsBanc Montgomery Securities LLC
-------------------------------------------
NATIONSBANC MONTGOMERY SECURITIES LLC
I-6
<PAGE>
ANNEX II
FIRST ALERT, INC.
3901 LIBERTY STREET ROAD
AURORA, IL 60504
INFORMATION STATEMENT PURSUANT TO SECTION 14(F) OF THE SECURITIES EXCHANGE ACT
OF 1934 AND RULE 14F-1
NO VOTE OR OTHER ACTION OF STOCKHOLDERS OF FIRST ALERT, INC. IS REQUIRED IN
CONNECTION WITH THIS INFORMATION STATEMENT. NO PROXIES ARE BEING SOLICITED AND
YOU ARE REQUESTED NOT TO SEND A PROXY TO FIRST ALERT, INC.
This Information Statement is being mailed on or about March 6, 1998 as
part of the Company's Solicitation/Recommendation Statement on Schedule 14D-9
(the 'Schedule 14D-9') to the holders of shares of Common Stock, par value $0.01
per share (the 'Common Stock'), of First Alert, Inc., a Delaware corporation
(the 'Company'). Capitalized terms used and not otherwise defined herein shall
have the meanings set forth in the Schedule 14D-9. This Information Statement is
being furnished in connection with the possible designation by Sunbeam
Corporation, a Delaware corporation ('Parent'), and the direct parent of
Sentinel Acquisition Corp., a Delaware corporation ('Purchaser') of persons (the
'Purchaser Designees') to the Board of Directors of the Company (the 'Board').
Such designation is to be made pursuant to an Agreement and Plan of Merger dated
as of February 28, 1998 (the 'Merger Agreement') among the Company, Parent and
Purchaser.
The Merger Agreement provides that, promptly upon the purchase by Parent or
any of its subsidiaries of shares of Common Stock pursuant to the Offer, and
from time to time thereafter, Parent shall be entitled to designate such number
of directors, rounded up to the next whole number, of the Board such that the
percentage of its designees on the Board shall equal the percentage of the
outstanding shares of Common Stock beneficially owned by Parent and its
affiliates, and the Company shall, upon request of the Purchaser, use its best
efforts promptly to cause the Purchaser's designees to be so elected to the
Company's Board, and in furtherance thereof, to the extent necessary, to
increase the size of the Board.
The information contained in this Information Statement concerning the
Parent, the Purchaser and the Purchaser Designees has been furnished to the
Company by such persons, and the Company assumes no responsibility for the
accuracy or completeness of such information.
GENERAL
The issued and outstanding voting securities of the Company as of March 2,
1998 consisted of 24,335,112 shares of Common Stock. The holders of the Common
Stock of the Company are entitled to one vote for each share of such stock held
of record by them.
RIGHT TO DESIGNATE DIRECTORS
The Merger Agreement provides that, promptly upon the purchase of and
payment for any shares of Common Stock by Parent or any of its subsidiaries
pursuant to the Offer, Parent shall be entitled to designate such number of
directors, rounded up to the next whole number, of the Board such that the
percentage of its designees on the Board shall equal the percentage of the
outstanding shares of Common Stock beneficially owned by Parent and its
affiliates, and the Company shall, upon request of the Purchaser, use its best
efforts promptly to cause Purchaser's designees to be so elected and shall
increase the size of the Board as is necessary to enable such number of
Purchaser's designees to be so elected. At such time, the Company shall also
cause persons designated by Parent to constitute at least the same percentage,
rounded up to the next whole number, as is on the Company's Board of each
committee (or similar body) of the Company's Board. The Company and the Parent
shall use their respective reasonable best efforts to ensure that at least two
of the members of the Board shall, at all times prior to the effective date of
the Merger, be Continuing Directors (as defined below). From and after the time
that Purchaser's designees constitute a majority of the Company's Board, any
amendment or
II-1
<PAGE>
modification of the Merger Agreement, any amendment to the Certificate of
Incorporation or Bylaws of the Company inconsistent with the Merger Agreement,
any termination of the Merger Agreement by the Company, any extension of time
for performance of any of the obligations of Parent or the Purchaser under the
Merger Agreement, any waiver of any condition to the Company's obligations under
the Merger Agreement or any of the Company's rights under the Merger Agreement
or other action by the Company under the Merger Agreement may be effected only
by the action of a majority of the Continuing Directors of the Company, which
action shall be deemed to constitute the action of any committee specifically
designated by the Board to approve the actions and transactions contemplated
under the Merger Agreement and the full Board. Under the Merger Agreement,
'Continuing Director' means (i) any member of the Board as of February 28, 1998,
(ii) any member of the Board who is unaffiliated with, and not a designee or
nominee, of Parent or Purchaser, or (iii) any successor of a Continuing Director
who is (A) unaffiliated with, and not a designee or nominee, of Parent or
Purchaser and (B) recommended to succeed a Continuing Director by a majority of
the Continuing Directors then on the Board, and in each case under clause (iii),
who is not an employee of the Company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information concerning the persons known to
the Company to be the beneficial owners, as of December 31, 1997 and within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934 (the 'Exchange
Act'), of more than 5% of the outstanding shares of Common Stock.
AMOUNT BENEFICIALLY PERCENT OF
NAME OF BENEFICIAL OWNER OWNED(1) CLASS
- ------------------------------------- --------------------- ----------
Thomas H. Lee Equity Partners, 8,324,492 34.2%
L.P.(2) ...........................
c/o Thomas H. Lee Company ('THL
Co.')
75 State Street
Boston, Massachusetts 02109
ML-Lee Acquisition Funds(3) ......... 4,339,998 17.8%
c/o Merrill Lynch & Co.
World Financial Center
South Tower
New York, New York 10080
- ------------------
(1) According to Schedules 13G filed with the Securities and Exchange Commission
on or before February 14, 1997. The Company believes that there have not
been any changes in the number of shares of Common Stock beneficially owned
by Thomas H. Lee Equity Partners, L.P. and ML-Lee Acquisition Funds.
(2) Each of the THL Equity Advisors Limited Partnership ('Equity Advisors'), the
general partner of Thomas H. Lee Equity Partners, L.P. ('Equity Partners');
THL Equity Trust, the general partner of Equity Advisors; David V. Harkins,
as Trustee of THL Equity Trust; and Anthony J. DiNovi and Scott A. Schoen,
as officers of THL Equity Trust, may be deemed to be beneficial owners of
the 8,324,492 shares of Common Stock held by Equity Partners. Each of Equity
Advisors, THL Equity Trust, Mr. Harkins, Mr. DiNovi, and Mr. Schoen
maintains a principal business address c/o THL Co., 75 State Street, Boston,
Massachusetts 02109.
(3) Represents 2,281,524 shares held of record by the ML-Lee Acquisition Fund
II, L.P. ('Fund II') and the ML-Lee Acquisition Fund (Retirement Accounts)
II, L.P. (the 'Retirement Fund', and, together with Fund II, the 'ML-Lee
Acquisition Funds') and 2,058,474 shares held of record by Fund II. Each of:
Thomas H. Lee Advisors II, L.P. ('Advisors II'), the investment advisor of
each of Fund II and the Retirement Fund; T.H. Lee Mezzanine II ('Mezzanine
II'), a general partner of Advisors II; David V. Harkins, as a Trustee of
THL Equity Trust; and Anthony J. DiNovi and Scott A. Schoen, as officers of
Mezzanine II, may be deemed to be beneficial owners of 4,339,998 shares of
Common Stock held in the aggregate by Fund II and the Retirement Fund. Each
of Advisors II and Mezzanine II maintains its principal address c/o THL Co.,
75 State Street, Boston, Massachusetts 02109.
II-2
<PAGE>
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding beneficial ownership,
as of December 31, 1997, and within the meaning of Rule 13d-3 under the Exchange
Act, of shares of Common Stock by directors of the Company, the Company's Chief
Executive Officer (the 'CEO') and each of the four most highly compensated
officers (other than the CEO) (based on salary and bonus amounts paid during the
12-month period ended December 31, 1997) and the directors and executive
officers as a group. Since the table reflects beneficial ownership determined
pursuant to the applicable rules of the Securities and Exchange Commission, (the
'SEC'), the information is not necessarily indicative of beneficial ownership
for any other purpose.
<TABLE>
<CAPTION>
AMOUNT
BENEFICIALLY PERCENT OF
NAME OF BENEFICIAL OWNER OWNED(1) CLASS
- --------------------------------------------------------------------------------------- ------------ ----------
<S> <C> <C>
John R. Albers......................................................................... 10,803(2) *
Malcolm Candlish....................................................................... 983,082(3) 4.0%
Mark A. Devine......................................................................... 20,375(4) *
Anthony J. DiNovi...................................................................... 35,550(5) *
David V. Harkins....................................................................... 130,918(6) *
Douglas H. Kellam...................................................................... 0 *
B. Joseph Messner...................................................................... 100,000(7) *
Albert L. Prillaman.................................................................... 2,000 *
Michael A. Rohl........................................................................ 31,050(8) *
Scott A. Schoen........................................................................ 87,034(9) *
Edward J. Tyranski..................................................................... 0 *
All directors and executive officers as a group (12) persons........................... 1,400,812(10) 6.7%
</TABLE>
- ------------------
* Represents beneficial ownership of less than 1%.
(1) In February 1997, the Company gave holders of options to purchase an
aggregate of 928,202 shares (including Messrs. Devine, Messner and Rohl)
the opportunity to exchange such options for options to purchase the same
number of shares at $3.19 per share. The vesting and other provisions of
such options remained unchanged, except that the options now vest over four
equal annual installments commencing in February 1998.
(2) Includes 10,803 shares of Common Stock which Mr. Albers has the right to
acquire within sixty days pursuant to the First Alert, Inc. Non-Qualified
Stock Option Plan for Non-Employee Directors (the 'Non-Employee Director
Plan'). Mr. Albers maintains his principal business address c/o Fairfield
Enterprises, Inc., 9400 North Central Expressway, Suite 1250, L.B. 103,
Dallas, Texas 75231.
(3) Includes 624,082 shares of Common Stock which Mr. Candlish has the right to
acquire within sixty days pursuant to the Company's 1992 Stock Option Plan
(the '1992 Stock Option Plan') and the Company's 1994 Stock Option Plan
(the '1994 Stock Option Plan'). Mr. Candlish maintains his principal
business address c/o First Alert, Inc., 3901 Liberty Street Road, Aurora,
Illinois 60504.
(4) Includes 19,875 shares of Common Stock which Mr. Devine has the right to
acquire within 60 days pursuant to the 1994 Stock Option Plan. Mr. Devine
maintains his principal business address c/o First Alert, Inc., 3901
Liberty Street Road, Aurora, Illinois 60504.
(5) Mr. DiNovi also may be deemed to be the beneficial owner of the 8,324,492
shares of Common Stock held by Equity Partners and the 4,339,998 shares of
Common Stock held, in the aggregate, by the Retirement Fund and Fund II, by
virtue of his position as an officer of each of THL Equity Trust and
Mezzanine II. Mr. DiNovi disclaims beneficial ownership of such shares. Mr.
DiNovi maintains his principal business address c/o THL Co., 75 State
Street, Boston, Massachusetts 02109.
(Footnotes continued on next page)
II-3
<PAGE>
(Footnotes continued from previous page)
(6) Mr. Harkins also may be deemed to be the beneficial owner of the 8,324,492
shares of Common Stock held by Equity Partners and the 4,339,998 shares of
Common Stock held, in the aggregate, by the Retirement Fund and Fund II, by
virtue of his position as a Trustee and officer of each of THL Equity Trust
and Mezzanine II. Mr. Harkins also may be deemed to own beneficially 12,400
shares of Common Stock held by his children. Mr. Harkins disclaims
beneficial ownership of all such shares. Mr. Harkins maintains his
principal business address c/o THL Co., 75 State Street, Boston,
Massachusetts 02109.
(7) Includes 75,000 shares of Common Stock which Mr. Messner has the right to
acquire within 60 days pursuant to the 1994 Stock Option Plan and apart
from any Company stock option plan. Mr. Messner maintains his principal
business address c/o First Alert, Inc., 3901 Liberty Street Road, Aurora,
Illinois 60504.
(8) Includes 28,550 shares of Common Stock which Mr. Rohl has the right to
acquire within sixty days pursuant to the 1994 Stock Option Plan. Mr. Rohl
maintains his principal business address c/o First Alert, Inc., 3901
Liberty Street Road, Aurora, Illinois 60504.
(9) Mr. Schoen also may be deemed to be the beneficial owner of the 8,324,492
shares of Common Stock held by Equity Partners and the 4,339,998 shares of
Common Stock held, in the aggregate, by the Retirement Fund and Fund II, by
virtue of his position as an officer of each of THL Equity Trust and
Mezzanine II. Mr. Schoen disclaims beneficial ownership of such shares. Mr.
Schoen also may be deemed to hold an additional 6,000 shares of Common
Stock as a result of such shares being held in trust for the benefit of his
children and an additional 15,460 shares of Common Stock held by other
members of his immediate family. Mr. Schoen disclaims beneficial ownership
of all such additional shares. Mr. Schoen maintains his principal business
address c/o THL Co., 75 State Street, Boston, Massachusetts 02109.
(10) Includes shares beneficially owned by Messrs. Albers, Candlish, Devine,
DiNovi, Harkins, Kellam, Messner, Prillaman, Rohl, Schoen, Tyranski and
Mark K. Welch, Vice President--Sales of the Company. In addition, the
shares of Common Stock held by Equity Partners and the ML-Lee Acquisition
Funds may be deemed beneficially owned by Messrs. DiNovi, Harkins and
Schoen by virtue of their affiliation with Equity Partners and the ML-Lee
Acquisition Funds; however, each of Messrs. DiNovi, Harkins and Schoen
disclaim such beneficial ownership.
II-4
<PAGE>
THE BOARD OF DIRECTORS
PURCHASER DESIGNEES
Parent has informed the Company that each of the Purchaser Designees listed
below has consented to act as a director. To the best knowledge of the Company,
none of the Purchaser Designees or their associates beneficially owns any equity
securities of the Company or has been involved in any transaction with the
Company or any of its directors or executive officers that is required to be
disclosed pursuant to the rules and regulations of the SEC.
It is expected that, upon assuming office, the Purchaser Designees will
thereafter constitute at least a majority of the Board of the Company.
Parent may designate the following individuals to the Board of the Company.
Each such individual's name, age as of the date hereof, current principal
occupation or employment and five-year employment history is set forth below.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AGE AND FIVE-YEAR EMPLOYMENT HISTORY
- --------------------------- --- ------------------------------------------------------------------------------
<S> <C> <C>
Albert J. Dunlap........... 60 Director of Parent. Chairman of the Board of Directors and Chief Executive
Officer of Parent since July 18, 1996. Director, Chairman of the Board of
Directors, Chief Executive Officer and President of Purchaser. Chairman and
Chief Executive Officer of Scott Paper Company from April 1994 to December
1995. Managing Director and Chief Executive Officer of Consolidated Press
Holdings Limited (an Australian media, chemicals and agricultural operation)
from 1991 to 1993.
Russell A. Kersh........... 44 Director of Parent. Director, Chief Financial Officer and Treasurer of
Purchaser. Vice Chairman and Chief Financial Officer of Parent since February
1, 1998. Prior to that date, he served as Executive Vice President, Finance
and Administration since July 22, 1996. Executive Vice President, Finance and
Administration of Scott Paper Company from June 1994 to December 1995. Served
as the Chief Operating Officer of Addidas America from January 1993 to May
1994.
David C. Fannin............ 52 Executive Vice President, General Counsel and Secretary of Parent since
January 1994. Director, Executive Vice President, General Counsel and
Secretary of Purchaser. Partner in the law firm of Wyatt, Tarrant and Combs
from 1979 until 1993.
Peter A. Langerman......... 42 Director of Parent. Chairman of the Board of Parent from May 22, 1996 until
July 18, 1996. Senior Vice President of Franklin Mutual Advisers, Inc., a
registered investment advisor and a wholly owned subsidiary of Franklin
Resources, Inc., a diversified financial services organization, since November
1996. Senior Vice President of Heine Securities Corporation, an investment
advisory service company, from 1986 to November 1996. Mr. Langerman has been a
Director of Franklin Mutual Series Fund Inc. (previously Mutual Series Fund
Inc.) since 1988 and a Director of Metallurg Inc. a metal and related
materials manufacturer since 1997.
Charles M. Elson........... 38 Director of Parent. Professor of Law at Stetson University College of Law
since 1990 and serves as Of Counsel to the law firm of Holland & Knight (since
May 1995). Member of the American Law Institute and the Advisory Counsel and
Commissions on Director Compensation and Director
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AGE AND FIVE-YEAR EMPLOYMENT HISTORY
- --------------------------- --- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Professionalism of the National Association of Corporate Directors. Mr. Elson
is Trustee of Talledega College and a Salvatori Fellow of the Heritage
Foundation. Mr. Elson is a director of Circon Corporation (a medical product
manufacturer).
</TABLE>
CURRENT DIRECTORS
The Board of Directors is divided into three classes, with each class as
nearly equal in number as possible. One class is elected each year for a term of
three years. The following table sets forth the name, age as of the date hereof,
term and current principal occupation or employment and employment history for
the seven members currently serving on the Company's Board of Directors.
<TABLE>
<CAPTION>
DIRECTOR PRESENT PRINCIPAL OCCUPATION OR
NAME AGE SINCE EMPLOYMENT AND FIVE-YEAR EMPLOYMENT HISTORY
- --------------------------- --- -------- --------------------------------------------------------------------
<S> <C> <C> <C>
John R. Albers............. 66 1995 John R. Albers has served as a director of the Company since July
1995. Mr. Albers has also served as a member of the Company's
Compensation Committee since July 1995. From May 1995 to present,
Mr. Albers has served as Chief Executive Officer and President of
Fairfield Enterprises, Inc., a holding company. From 1988 to March
1995, Mr. Albers served as Chairman, President and Chief Executive
Officer of Dr. Pepper/Seven-Up Companies, Inc., a beverage
manufacturer. Mr. Albers is also a director of AmerUs Life Insurance
Company and AMAL.
Malcolm Candlish........... 62 1992 Malcolm Candlish joined the Company as a director in August 1992 and
was elected Chairman of the Board in October 1992 and Chief
Executive Officer in December 1992. Mr. Candlish served as Chief
Executive Officer until September 18, 1996. He also served as
President of the Company from April 1, 1996 to September 18, 1996.
Prior to his employment with the Company, Mr. Candlish was Chairman,
Chief Executive Officer and President of Sealy, Inc., a bedding
manufacturer, from 1989 until October 1992. From 1983 until 1989,
Mr. Candlish was employed with Beatrice Companies, a conglomerate,
as President and Chief Executive Officer of Samsonite Luggage
Company, a luggage manufacturer and, from 1977 until 1983, Mr.
Candlish was employed by the Wilson Sporting Goods subsidiary of
Pepsi Co., Inc. in various executive positions. Mr. Candlish also
serves as a director of AmerUs Life Insurance Company and The Black
& Decker Corporation.
Anthony J. DiNovi.......... 35 1992 Anthony J. DiNovi has served as a director of the Company since July
1992. Mr. DiNovi has also served on the Company's Audit Committee
since October 1992 and the Company's Compensation Committee since
July 1995. Mr. DiNovi has been employed by Thomas H. Lee Company, an
investment firm, since 1988 and currently serves as a Managing
Director. Mr. DiNovi also serves as a Vice President of Thomas H.
Lee Advisors I ('Advisors I') and T.H. Lee Mezzanine II ('Mezzanine
II'), an affiliate of the ML-Lee Acquisition Funds, and as a
director of Safelite Glass Corp., The Learning Company, Inc., Fisher
Scientific International Inc. and various private corporations.
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
DIRECTOR PRESENT PRINCIPAL OCCUPATION OR
NAME AGE SINCE EMPLOYMENT AND FIVE-YEAR EMPLOYMENT HISTORY
- --------------------------- --- -------- --------------------------------------------------------------------
<S> <C> <C> <C>
David V. Harkins........... 57 1992 David V. Harkins has served as a director of the Company since July
1992. Mr. Harkins has also served as Chairman of the Company's
Compensation Committee and as a member of the Company's Audit
Committee since October 1992. Mr. Harkins has been employed by
Thomas H. Lee Company, an investment firm, since 1986 and currently
serves as a Senior Managing Director. Mr. Harkins has been Chairman
and director of National Dentex Corporation, an operator of dental
laboratories, since 1983. Mr. Harkins also serves as Senior Vice
President and Trustee of Advisors I and Mezzanine II, an affiliate
of the ML-Lee Acquisition Funds, and as a director of Stanley
Furniture Company, Inc., Fisher Scientific International Inc.,
Syratech Corporation, Freedom Securities Corporation and various
private corporations.
B. Joseph Messner.......... 45 1996 B. Joseph Messner joined the Company as the President, Chief
Executive Officer and a director on September 18, 1996. Prior to his
employment with the Company, Mr. Messner served as president of
Bushnell Corporation, formerly the Sports Optics Division of Bausch
& Lomb, Inc. from 1989 to November 1995. In the period from 1981
through 1988, he held other positions with Bausch & Lomb, Inc.
including Vice President and Controller of the Eyewear Division and
Corporate Director of Finance. Mr. Messner also serves as a director
of Totes, Inc.
Albert L. Prillaman........ 52 1997 Albert L. Prillaman currently serves as Chairman, Chief Executive
Officer and President of Stanley Furniture Company, Inc.
('Stanley'), a furniture manufacturer. Mr. Prillaman has been
President and Chief Executive Officer of Stanley since December 1985
and Chairman of the Board of Stanley since September 1988. Before
such time, Mr. Prillaman served in various executive capacities with
Stanley and its predecessor company since 1969. Mr. Prillaman also
is a director of MainStreet BankGroup Incorporated.
Scott A. Schoen............ 39 1992 Scott A. Schoen has served as a director of the Company since July
1992. Mr. Schoen has also served as a member of the Company's
Compensation Committee and Chairman of the Company's Audit Committee
since October 1992. Mr. Schoen has been employed by Thomas H. Lee
Company, an investment firm, since 1986 and currently serves as a
Managing Director. Mr. Schoen is a trustee of THL Equity Trust III,
the general partner of THL Equity Advisors Limited Partnership III,
which is the general partner of Thomas H. Lee Equity Fund III, L.P.
Mr. Schoen also serves as a Vice President of Advisors I and Thomas
H. Lee Advisors II, L.P. and as a director of Signature Brands USA,
Inc., Rayovac Corporation, Syratech Corporation, TransWestern
Communications Company, Inc., Anchor Advanced Products, Inc. and
various private corporations.
</TABLE>
II-7
<PAGE>
DIRECTORS MEETINGS AND COMMITTEES
During the fiscal year ended December 31, 1996, there were six meetings of
the Board of Directors of the Company. All of the directors then in office
attended at least 75% of the aggregate of (i) the total number of meetings of
the Board of Directors during which they served as director and (ii) the total
number of meetings held by committees of the Board of Directors on which they
served. The Board of Directors does not have a Nominating Committee. Directors
of the Company who are not employees of the Company and who are not affiliates
of significant investors in the Company receive an annual retainer of $13,000
and a fee of $2,000 for each Board meeting attended or $500 for each Board
meeting in which the director participates by telephone. Such directors also
receive annual retainer fees of an aggregate of $2,000 for service as a member
of one or more Board committees and fees for each Board committee meeting
attended, not held in conjunction with a full Board meeting, of $1,000 or $500
for each committee meeting in which the director participates by telephone.
Pursuant to the Non-Employee Director Plan, qualifying directors receive
approximately one half of their compensation as directors in the form of options
to acquire shares of Common Stock of the Company. No director received
compensation for serving as such, except that in 1996 Mr. Albers earned $13,250,
Mr. Peter M. Wood1, earned $11,250 in cash and each received options to purchase
4,347 shares of Common Stock under the Non-Employee Director Plan, and Messrs.
Candlish and Messner received compensation as employees of BRK Brands, Inc., the
principal subsidiary of the Company. See 'Employment Agreements' and 'Certain
Relationships and Related Transactions--Management Agreement.' In addition to
the amounts set forth above, during 1996, Mr. Albers earned $3,000 and Mr. Wood
earned $1,000 for their individual participation in the screening of candidates
for President of the Company. During 1996, BRK Brands, Inc. also reimbursed the
travel expenses of Messrs. Albers, DiNovi, Harkins, Schoen and Wood in the
amounts of approximately $100, $9,200, $8,800, $8,500 and $4,800, respectively,
in connection with their attending meetings of the Board of Directors of the
Company.
The Board of Directors has a Compensation Committee whose present members
are Messrs. Albers, DiNovi, Harkins and Schoen. The Compensation Committee
determines the compensation to be paid to key officers of subsidiaries of the
Company and generally administers certain aspects of the Company's stock option
plans. During fiscal year 1996, there were three meetings of the Compensation
Committee.
The Company also has an Audit Committee whose present members are Messrs.
DiNovi, Harkins, Prillaman2 and Schoen. The Audit Committee reviews with the
Company's independent auditors the scope of the audit for the year, the results
of the audit when completed and the independent auditors' fee for services
performed. The Audit Committee also recommends independent auditors to the Board
of Directors and reviews with management various matters related to its internal
accounting controls. During fiscal year 1996, there were two meetings of the
Audit Committee.
- ------------------
(1) Mr. Wood was a director of the Board of Directors until his term expired on
May 6, 1997.
(2) Mr. Prillaman joined the Audit Committee on May 6, 1997.
II-8
<PAGE>
OTHER EXECUTIVE OFFICERS
The following table sets forth the name, position and office held with the
Company for the following persons who may be deemed executive officers of the
Company and who are not also serving on the Company's Board of Directors. Unless
otherwise noted, each executive officer has maintained the same position and
office with the Company during the past five years.
<TABLE>
<CAPTION>
NAME AGE PRESENT POSITION AND OFFICE WITH THE COMPANY
- --------------------------- --- ------------------------------------------------------------------------------
<S> <C> <C>
Mark A. Devine............. 40 Mr. Devine has been Vice President--Engineering of the Company since 1996.
From 1987 until June 1992, Mr. Devine served as Manager of Quality Control of
the BRK Electronics Division of Pittway Corporation, ('Pittway'). When the
Company, through its wholly-owned subsidiary BRK Brands, Inc. ('BRK') acquired
substantially all of the assets of Pittway in June 1992, Mr. Devine served in
the same position with BRK until June 1994. In June 1994, he was appointed
Plant Manager of Fire Extinguishing Operations of BRK.
Douglas H. Kellam.......... 39 Mr. Kellam has been Vice President--Marketing since April 1997. Prior to his
employment with the Company, Mr. Kellam served as Vice President-- Marketing
and Sales for the soft drink division of Austin, Nichols & Co. from 1995 to
November 1996, and spent the seven years prior to that in brand management
with the North American Pepsi Cola marketing division.
Michael A. Rohl............ 38 Mr. Rohl has been Vice President and Chief Financial Officer of the Company
since May 1996. He began his employment with the Company in October 1993 as
Corporate Controller. From September 1992 through October 1993, Mr. Rohl
served as Senior Manager, Finance for Motorola Nortel Communications and prior
to that as a Senior Audit Manager with Deloitte & Touche.
Edward J. Tyranski......... 55 Mr. Tyranski has been Vice President--Operations since March 1997. Prior to
his employment with the Company, Mr. Tyranski served as Executive Vice
President of North American Operations for The Thermos Company beginning in
1994. Mr. Tyranski's prior experience includes positions with Allied Signal
Corporation in 1994, Vice President of Worldwide Manufacturing Operations of
Remington Products from 1989 to 1993, various positions at Timex Corporation
from 1981 to 1989 (departing as VP Manufacturing and General Manager of
European Operations), Warner-Lambert Company from 1978 to 1981, and General
Electric from 1965 to 1978.
Mark K. Welch.............. 40 Mr. Welch has been Vice President--Sales since October 1997. Prior to his
employment with the Company, Mr. Welch served as President (Founder) of Elite
Appliances LLC/Pillsbury Kitchen Appliances since August 1995. From February
1994 through July 1995, Mr. Welch served as Vice President Sales and Marketing
of Windmere Corporation. From February 1985 to January 1994 Mr. Welch worked
in the sales division of Black & Decker, Household Products, departing as
National Sales Manager, Wal-Mart Team.
</TABLE>
II-9
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for the fiscal years ending December 31, 1994,
1995 and 1996, the cash compensation paid by the Company and its subsidiaries,
to the Company's CEO and each of the four most highly compensated executive
officers of the Company and its subsidiaries (other than the CEO) at the end of
1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION OTHER SECURITIES ALL OTHER
--------------------------- ANNUAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($)(1) COMPENSATION OPTIONS(#) ($)
- -------------------------------------- ---- ------------ ----------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Malcolm Candlish...................... 1996 $325,000 $ 0 $ 64,081(2) 50,000 $4,425(3)
Chairman of the Board 1995 400,000 0 77,277(2) 45,000 6,524(4)
1994 291,667 180,000 60,866(2) 165,334 5,768(5)
B. Joseph Messner(6).................. 1996 84,231 0 11,319(7) 500,000 532(8)
President and Chief Executive 1995 0 0 0 0 0
Officer 1994 0 0 0 0 0
William K. Brouse (9)................. 1996 128,769 0 0 37,000 6,659(10)
Vice President--Sales 1995 120,461 0 0 8,000 6,889(11)
1994 109,083 33,600 0 30,000 5,995(12)
Fred W. Higgenbottom (13)............. 1996 134,239 0 0 37,000 6,592(14)
Vice President--Operations 1995 127,343 0 0 8,000 9,021(15)
1994 93,503 34,500 0 50,000 4,106(16)
Michael A. Rohl....................... 1996 112,384 0 0 23,000 6,069(17)
Vice President and Chief 1995 99,885 5,000 0 4,000 3,687(18)
Financial Officer 1994 95,583 18,017 0 37,200 0
Richard F. Timmons (19)............... 1996 122,769 0 0 37,000 7,156(20)
Vice President--Marketing 1995 114,885 0 0 8,000 5,097(21)
1994 104,083 32,100 0 40,002 5,232(22)
</TABLE>
- ------------------
(1) Salary and bonus amounts are presented in the year earned; however, the
payment of such amounts may have occurred in other years.
(2) Represents reimbursement of commuting expenses.
(3) Represents $2,521 contributed by BRK pursuant to BRK's Retirement Savings
Plan--401(k) (the '401(k) Plan') and $1,904 of insurance premiums.
(4) Represents $4,620 contributed by BRK pursuant to the 401(k) Plan and $1,904
of insurance premiums.
(5) Represents $4,620 contributed by BRK pursuant to the 401(k) Plan and $1,148
of insurance premiums.
(6) Mr. Messner became President and Chief Executive Officer of the Company on
September 18, 1996. See discussion of Mr. Messner's Employment Agreement in
'Employment Agreements'.
(7) Represents reimbursement of commuting and other expenses.
(8) Represents $532 for personal use of a Company car.
(9) Mr. Brouse resigned his position as an executive officer of the Company on
July 25, 1997.
(10) Represents $3,556 contributed by BRK pursuant to the 401(k) Plan, $148 of
insurance premiums and $2,955 for personal use of a Company car.
(11) Represents $4,620 contributed by BRK pursuant to the 401(k) Plan, $125 of
insurance premiums and $2,144 for personal use of a Company car.
(12) Represents $3,513 contributed by BRK pursuant to the 401(k) Plan, $96 of
insurance premiums and $2,386 for personal use of a Company car.
(13) Mr. Higgenbottom resigned his position as an executive officer of the
Company on December 10, 1996.
(Footnotes continued on next page)
II-10
<PAGE>
(Footnotes continued from previous page)
(14) Represents $2,509 contributed by BRK pursuant to the 401(k) Plan, $132 of
insurance premiums and $3,951 for personal use of a Company car.
(15) Represents $4,620 contributed by BRK pursuant to the 401(k) Plan, $127 of
insurance premiums and $4,274 for personal use of a Company car.
(16) Represents $62 of insurance premiums and $4,044 for personal use of a
Company car.
(17) Represents $3,372 contributed by BRK pursuant to the 401(k) Plan and $2,697
for personal use of a Company car.
(18) Represents $3,687 contributed by BRK pursuant to the 401(k) Plan.
(19) Mr. Timmons resigned his position as an executive officer of the Company on
January 17, 1997.
(20) Represents $3,620 contributed by BRK pursuant to the 401(k) Plan, $132 of
insurance premiums and $3,404 for personal use of a Company car.
(21) Represents $3,378 contributed by BRK pursuant to the 401(k) Plan, $17 of
insurance premiums and $1,702 for personal use of a Company car.
(22) Represents $3,528 contributed by BRK pursuant to the 401(k) Plan, $4 of
insurance premiums and $1,700 for personal use of a Company car.
STOCK OPTIONS
The following table contains information concerning the grant of stock
options during 1996 to the Company's executives listed in the Summary
Compensation Table above.
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------
PERCENT
OF
NUMBER TOTAL POTENTIAL REALIZABLE
OF OPTIONS VALUE AT ASSUMED
SECURITIES GRANTED ANNUAL RATES OF STOCK
UNDERLYING TO PRICE APPRECIATION FOR
OPTIONS EMPLOYEES EXERCISE OPTION TERM
GRANTED IN FISCAL PRICE EXPIRATION ----------------------
NAME (#)(1) YEAR(%) ($/SH)(7) DATE 5%
- -------------------------------------- ---------- --------- --------- ---------- ----------------------
<S> <C> <C> <C> <C> <C>
Malcolm Candlish...................... 50,000(1) 4.9% $7.94 2/09/06 $ 249,595
B. Joseph Messner..................... 500,000(3) 49.3% $6.06 9/18/06 1,906,350
William K. Brouse (4)................. 12,000(1) 1.2% $7.94 2/09/06 59,903
25,000(2) 2.5% $6.69 4/04/06 105,143
Fred W. Higgenbottom (5).............. 12,000(1) 1.2% $7.94 2/09/06 59,903
25,000(2) 2.5% $6.69 4/04/06 105,143
Michael A. Rohl....................... 10,000(1) 1.0% $7.94 2/09/06 49,919
13,000(2) 1.3% $6.69 4/04/06 54,674
Richard F. Timmons (6)................ 12,000(1) 1.2% $7.94 2/09/06 59,903
25,000(2) 2.5% $6.69 4/04/06 105,143
<CAPTION>
NAME 10%
- -------------------------------------- ----------------------
<S> <C>
Malcolm Candlish...................... $ 632,515
B. Joseph Messner..................... 4,831,050
William K. Brouse (4)................. 151,804
266,455
Fred W. Higgenbottom (5).............. 151,804
266,455
Michael A. Rohl....................... 126,503
138,557
Richard F. Timmons (6)................ 151,804
266,455
</TABLE>
- ------------------
(1) On February 9, 1996, the Company granted options to acquire a total of
258,000 shares of Common Stock at an exercise price of $7.9375 per share to
certain employees, including options to Messrs. Candlish, Brouse,
Higgenbottom, Rohl and Timmons for 50,000, 12,000, 12,000, 10,000 and 12,000
shares, respectively. The options were not exercisable during the first
twelve months after the date of grant and, thereafter, the options become
exercisable as to 25% of the shares covered thereby on each anniversary of
the date of grant.
(2) On April 4, 1996, the Company granted options to acquire 222,500 shares of
Common Stock at an exercise price of $6.6875 per share to certain employees
on the same terms, except price, as the options previously granted under the
1994 Stock Option Plan, as discussed above, including options to Messrs.
Brouse, Higgenbottom, Rohl and Timmons for 25,000, 25,000, 13,000 and 25,000
shares, respectively.
(Footnotes continued on next page)
II-11
<PAGE>
(Footnotes continued from previous page)
(3) On September 18, 1996, the Company granted to Mr. Messner options to
purchase an aggregate of 500,000 shares with the following terms: (i)
options to purchase 186,000 shares of Common Stock at an exercise price of
$6.0625 per share under the 1994 Stock Option Plan, and options to purchase
114,000 shares of Common Stock at an exercise price of $6.0625 per share
apart from any Company stock option plan, all of which options vest in equal
annual installments over four years following the date of grant and which
accelerate and become immediately exercisable upon the occurrence of a
change of control of the Company (as defined in Mr. Messner's Employment
Agreement); and (ii) options to purchase 200,000 shares of Common Stock
apart from any Company stock option plan, which options vest only if a
change of control of the Company occurs prior to December 31, 1997.
(4) Mr. Brouse resigned his position as an executive officer of the Company on
July 25, 1997.
(5) Mr. Higgenbottom resigned his position as an executive officer of the
Company on December 10, 1996.
(6) Mr. Timmons resigned his position as an executive officer of the Company on
January 17, 1997.
(7) In February 1997, the Company gave holders of options to purchase an
aggregate of 928,202 shares (including Mr. Messner and Mr. Rohl), the
opportunity to exchange such options for options to purchase the same number
of shares at $3.19 per share. The vesting and other provisions of such
options remained unchanged, except that the options now vest over four equal
annual installments commencing in February 1998.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the Company's
executives listed in the Summary Compensation Table above, concerning the
exercise of options during the year ended December 31, 1996 and unexercised
options held as of the end of the fiscal year:
AGGREGATE OPTION EXERCISES
AND YEAR-END OPTION VALUES AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT 12/31/96(#) OPTIONS AT 12/31/96(1)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- ------------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Malcolm Candlish............... 0 0 413,915 246,417 $ 563,868 $ 140,968
B. Joseph Messner.............. 0 0 0 500,000 0 0
William K. Brouse(2)........... 0 0 96,998 78,000 140,964 35,242
Fred W. Higgenbottom(3)........ 0 0 0 0 0 0
Michael A. Rohl................ 0 0 19,600 44,600 0 0
Richard F. Timmons(4).......... 0 0 93,999 81,001 126,867 31,718
</TABLE>
- ------------------
(1) The amounts set forth represent the difference, if positive, between the
fair market value of the shares of Common Stock underlying the options at
December 31, 1996 ($3.375 per share) and the exercise price of the options
($1.613 for options under the 1992 Stock Option Plan, $8.50, $13.50, $7.94,
$6.69 and $6.06 for options under the 1994 Stock Option Plan and $6.06 for
options granted apart from any Company stock option plan), multiplied by the
applicable number of shares of Common Stock for which options have been
granted.
(2) Mr. Brouse resigned his position as an executive officer of the Company on
July 25, 1997 and consequently all of the unexercisable options granted to
him under the 1992 Stock Option Plan and the 1994 Stock Option Plan have
terminated, pursuant to the terms of each such stock option plan.
(3) Mr. Higgenbottom resigned his position as an executive officer of the
Company on December 10, 1996 and consequently all of the options granted to
him under the 1994 Stock Option Plan have terminated, pursuant to the terms
of such stock option plan.
(4) Mr. Timmons resigned his position as an executive officer of the Company on
January 17, 1997 and consequently all of the unexercisable options granted
to him under the 1992 Stock Option Plan and the 1994 Stock Option Plan have
terminated, pursuant to the terms of each such stock option plan.
II-12
<PAGE>
PENSION PLANS
The Company's pension plan (the 'Pension Plan') is a non-contributory
defined benefit plan that provides for fixed benefits to employees and their
survivors in the event of retirement after certain age and service requirements
have been met. Normal retirement age under the Pension Plan is 65. There is no
maximum number of years of service that may be considered under the Pension Plan
formula.
The following table illustrates the estimated annual benefits payable,
without any offset for social security benefits, upon retirement pursuant to the
Pension Plan for specified renumeration and years of participating service and
assuming retirement at normal retirement age. The Company does not have any
supplemental pension program so no such benefits are reflected in the table.
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------------------
RENUMERATION 15 20 25 30 35
- ----------------------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 75,000............................................. $ 14,846 $ 19,794 $ 24,743 $ 29,691 $ 34,640
$100,000............................................. 21,783 29,044 36,305 43,566 50,827
$125,000............................................. 28,721 38,294 47,868 57,441 67,015
$150,000............................................. 35,658 47,544 59,430 71,316 83,202
$175,000............................................. 42,596 56,794 70,993 85,191 99,390
$200,000............................................. 49,533 66,044 82,555 99,066 115,577
$225,000............................................. 56,471 75,294 94,118 112,941 131,765
$250,000............................................. 63,408 84,544 105,680 126,816 147,952
$300,000............................................. 77,283 103,044 128,805 154,566 180,327
$400,000............................................. $105,033 $140,044 $175,055 $210,066 $245,077
</TABLE>
Messrs. Candlish, Messner and Rohl, respectively, had 5, 1 and 3 years of
credited service under the Pension Plan as of December 31, 1997. As of the same
date, Messrs. Brouse, Higgenbottom and Timmons had left the Company's employ.
Mr. Higgenbottom had no vested benefits under the Pension Plan when he left.
Messrs. Brouse and Timmons had earned vested deferred benefits under the Pension
Plan. As of the time they left the Company's employ, Messrs. Brouse and Timmons
each had 12 years of credited service under the Pension Plan. 'Renumeration'
means average base salary, prior to reduction for any pre-tax contributions made
to a 401(k) savings plan, plus incentive compensation ('Bonus' as displayed in
the Summary Compensation Table). The basis on which benefits are computed is (i)
the straight life annuity method for single participants with all payments
ceasing at death and (ii) the joint and 50% surviving spouse annuity method for
married participants.
EMPLOYMENT AGREEMENTS
On September 18, 1996, the Company entered into an Employment Agreement
with B. Joseph Messner. Such agreement provides for a three-year term of
employment with additional consecutive one-year terms after September 30, 1999,
unless terminated by either the Company or Mr. Messner, during which Mr. Messner
will serve as President and Chief Executive Officer of the Company in
consideration of a specified annual base salary, which may be increased from
time to time. In addition to a base salary, Mr. Messner is also eligible to
receive incentive payments as the Company's Board of Directors may determine
from time to time and certain other employment benefits.
Mr. Messner's agreement also provides that upon his termination without
cause, as defined in the agreement, Mr. Messner is entitled to receive as
severance the greater of (i) the balance of salary payments due under the
agreement or (ii) two years' salary as in effect on the effective date of
termination, and upon his termination as a result of the Company's election not
to renew the agreement, Mr. Messner is entitled to receive as severance his
salary for twelve months from the date on which the Company delivered written
notice of its election not to renew the agreement; in either case, Mr. Messner's
severance will be subject to reduction on a dollar-for-dollar basis by any
compensation received by Mr. Messner if he obtains other employment during such
period, unless he is terminated in connection with a change of control, as
defined in the agreement, in which event his severance payments will not be
subject to such reduction. Subject to certain limitations, Mr. Messner also
continues to participate in medical benefit plans and to receive other fringe
benefits during the severance period.
The agreement also provides that during the period of employment, and for a
period of twelve months following termination, whether such termination is due
to a voluntary termination by Mr. Messner or otherwise,
II-13
<PAGE>
Mr. Messner will not, directly or indirectly, engage in certain specified
activities relating to the Company or the business thereof. In addition, the
agreement places certain restrictions upon Mr. Messner's ability to communicate
confidential information concerning the Company to third parties.
The Company and Malcolm Candlish entered into an Employment Agreement dated
as of January 1, 1997, which provides for a three-year term of employment in
consideration of an annual base salary of $100,000 per year. In addition to the
base salary, Mr. Candlish is eligible to receive incentive payments as the
Company's Board of Directors may determine from time to time and certain other
employment benefits. During the term of this agreement, Mr. Candlish will
perform such duties as he may be directed to perform by the Board of Directors
of the Company from time to time, including serving as Chairman of the Board of
the Company. Mr. Candlish's agreement also provides that during the period of
employment and for a period of twelve months following the later of the date of
termination of his employment and the date of termination of salary payments
thereunder, Mr. Candlish will not, directly or indirectly, engage in certain
specified activities relating to the Company or the business thereof. In
addition, the agreement places certain restrictions upon Mr. Candlish's ability
to communicate confidential information concerning the Company to third parties.
NON-COMPETITION AGREEMENTS
Each of B. Joseph Messner and Michael A. Rohl has entered into a
Noncompetition Agreement with the Company dated as of February 27, 1998
(collectively, the 'Noncompetition Agreements'). Each of the Noncompetition
Agreements takes effect if the Company terminates the employment of such
executive for reasons other than 'cause' or such executive terminates his
employment for 'good reason' within two years after a 'change of control' (as
such terms are defined in the Noncompetition Agreement). The consummation of the
Offer will constitute a 'change of control' for this purpose. Each
Noncompetition Agreement provides that during the five-year period following
such a termination of employment (the 'Noncompetition Period'), the executive
will not engage in or participate in, directly or indirectly, any business which
competes with the Company anywhere in the world where the Company or any of its
divisions, subsidiaries or affiliates then conduct business. A business is
considered to compete with the Company if it engages directly or indirectly in
the business of designing, manufacturing, marketing, distributing or selling (1)
residential smoke detectors which are not capable of being monitored by an alarm
control panel, (2) fire extinguishers, (3) carbon monoxide detectors or (4) any
other products which the Company is developing, designing, manufacturing,
marketing, distributing or selling during the executive's employment with the
Company. In addition, during the Noncompetition Period, each of the executives
will not solicit, or attempt to solicit, any officer, director, consultant,
executive or employee of the Company or any of its divisions, subsidiaries or
affiliates to leave his or her engagement with the Company or such division,
subsidiary or affiliate, nor will he call upon, solicit, divert or attempt to
solicit or divert any customers or suppliers (or potential customers or
suppliers) of the Company or any of its divisions, subsidiaries or affiliates
(other than customers or suppliers with respect to a business which does not
compete with the Company). In consideration for such noncompetition and
nonsolicitation covenants, the Company will make a cash payment of $1,000,000 to
Mr. Messner and a cash payment of $300,000 to Mr. Rohl, in each case within 10
days following the date of the commencement of such executive's Noncompetition
Period.
SALARY CONTINUATION ARRANGEMENTS
On April 15, 1997, Douglas H. Kellam was given extended salary continuation
benefits by BRK consisting of up to one year of base salary plus continuation of
any life, accident, disability, health and dental insurance plans and other
similar fringe benefits for the same period. The benefits continue after
termination until Mr. Kellam becomes employed, dies, becomes incapacitated or
has received one year of payments. These benefits are payable to Mr. Kellam if
his employment with BRK is terminated without cause attributable to him.
On February 27, 1998, Messrs. Mark A. Devine, Edward J. Tyranski and Mark
K. Welch were given extended salary continuation benefits by BRK consisting of
up to one year of base salary plus continuation of any life, accident,
disability, health and dental insurance plans and other similar fringe benefits
for the same period. The benefits continue after termination until Mr. Devine,
Tyranski or Welch respectively, becomes employed, dies, becomes incapacitated or
has received one year of payments. These benefits are payable to these
individuals if their employment with BRK is terminated without cause
attributable to them.
II-14
<PAGE>
TERMINATION BENEFITS AGREEMENT
On July 5, 1995, BRK and Michael A. Rohl entered into a Termination
Benefits Agreement which agreement was amended on September 26, 1997 (as
amended, the 'Termination Benefits Agreement'). The Termination Benefits
Agreement with Mr. Rohl provides for severance benefits intended to operate as
an incentive for him to continue to be employed by the Company and to refrain
from activities contrary to the interests of the Company and its affiliates. The
Termination Benefits Agreement provides for the continuance of base salary and
other current employee benefits in the event Mr. Rohl's employment is terminated
under certain conditions. Such salary payments are to continue for a minimum of
three months, and thereafter shall continue until such time as Mr. Rohl becomes
employed, dies, becomes incapacitated or has received a total of one year of
payments. In addition, Mr. Rohl shall continue to participate in any life,
accident, disability, health and dental insurance plans and other similar fringe
benefits for a period of six months from the date of termination unless he
becomes employed prior to the end of such six month period in which event his
participation in the foregoing benefit plans will terminate on such earlier date
as he becomes eligible for coverage under any benefit plan offered by virtue of
his new employment. The agreement also provides that during the period of
employment and for a period of one year following termination, Mr. Rohl will
not, without the prior written consent of the Company, directly or indirectly,
engage in certain specified activities relating to the Company or the business
thereof. In addition, the agreement places certain restrictions upon Mr. Rohl's
ability to communicate confidential information concerning the Company to third
parties.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management Agreement
On July 31, 1992, the Company and THL Co. entered into a Management
Agreement (the 'Management Agreement') pursuant to which the Company engaged THL
Co. to provide consulting and management advisory services to the Company for a
period of five years, renewable on a year-to-year basis thereafter. The
Management Agreement provides that in consideration of the consulting services,
the Company pays an annual fee to THL Co. of $180,000 plus expenses. Management
believes that this Management Agreement is on terms no less favorable to the
Company than could have been obtained from an independent third party.
Shareholders' Agreement and Registration Rights Agreement.
In connection with the acquisition by BRK of substantially all of the
assets of Pittway, effective as of July 31, 1992, the Company entered into a
Shareholders' Agreement (the 'Shareholders' Agreement') and a Registration
Rights Agreement (the 'Registration Rights Agreement') with the initial
investors in the Company (the 'Initial Shareholders'). In accordance with the
terms of the Shareholders' Agreement, the Initial Shareholders and Malcolm
Candlish are obligated to vote their shares of Common Stock to elect a Board of
Directors of the Company consisting of up to two directors designated by the
ML-Lee Acquisition Funds, two directors designated by Equity Partners and three
directors designated by affiliates of THL Co. (other than the ML-Lee Acquisition
Funds and Equity Partners).
Pursuant to the Registration Rights Agreement, Equity Partners, the ML-Lee
Acquisition Funds and their respective affiliates holding in the aggregate
twenty-five percent (25%) of the shares of Common Stock subject to the
Registration Rights Agreement may require the Company to effect the registration
of shares of Common Stock held by the Initial Shareholders for sale to the
public on three occasions, subject to certain conditions and limitations. In
addition, under the terms of the Registration Rights Agreement, if the Company
proposes to register any of its securities under the Securities Act of 1933, as
amended, whether for its own account or otherwise, the Initial Shareholders are
entitled to notice of such registration and are entitled to include their shares
therein, subject to certain conditions and limitations. All fees, costs and
expenses of any registration effected on behalf of the Initial Shareholders
under the Registration Rights Agreement (other than underwriting discounts and
commissions) will be paid by the Company.
II-15
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Albers, DiNovi, Harkins and Schoen served as members of the
Compensation Committee during the 1997 fiscal year.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of its outstanding
Common Stock to file reports of ownership and changes in ownership with the SEC.
Officers, directors and greater than ten percent stockholders are required by
the SEC to furnish the Company with copies of all Section 16(a) forms that they
file.
Based solely on copies of such forms furnished, as provided above, and
certificates from officers, directors and persons owning greater than ten
percent of the Company's Common Stock, the Company believes that during fiscal
year 1997 there was compliance with all Section 16(a) filing requirements
applicable to its officers, directors and persons owning greater than ten
percent of the Company's Common Stock.
II-16
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
1 -- Agreement and Plan of Merger, dated as of February 28, 1998, among
the Company, Parent and the Purchaser.
2 -- The Company's Proxy Statement on Schedule 14A, filed on April 7,
1997.
3 -- Letter to stockholders of the Company dated March 6, 1998.
4 -- Confidentiality Agreement, dated as of February 16, 1998, between
the Company and Parent.
5 -- Stock Sale Agreement, dated as of February 28, 1998, among Parent
and certain stockholders of the Company listed on the signature
pages thereto.
6 -- Opinion of Salomon Smith Barney dated February 28, 1998.
7 -- Opinion of NationsBanc Montgomery Securities dated February 28,
1998.*
8 -- Employment Agreement, dated September 18, 1996, between B. Joseph
Messner and the Company.
9 -- Employment Agreement, dated January 1, 1997, between Malcolm
Candlish and the Company.
10 -- Noncompetition Agreement, dated February 27, 1998, between B.
Joseph Messner and the Company.
11 -- Noncompetition Agreement, dated February 27, 1998, between Michael
A. Rohl and the Company.
12 -- Letter Agreement, dated April 15, 1997, between Douglas H. Kellam
and the Company.
13 -- Letter Agreement, dated February 27, 1998, between Mark A. Devine
and the Company.
14 -- Letter Agreement, dated February 27, 1998, between Mark K. Welch
and the Company.
15 -- Letter Agreement, dated February 27, 1998, between Edward J.
Tyranski and the Company.
16 -- Termination Benefits Agreement, dated July 5, 1995, between BRK
Brands, Inc. and Michael A. Rohl, as amended by an agreement dated
September 26, 1997.
17 -- Press Release issued by the Company dated March 2, 1998.
<PAGE>
Exhibit 1
--------------------------------------------------
AGREEMENT AND PLAN OF MERGER
by and among
SUNBEAM CORPORATION
SENTINEL ACQUISITION CORP.
and
FIRST ALERT, INC.
dated as of
February 28, 1998
--------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE I
THE OFFER AND MERGER
Section 1.1 The Offer ...................................... 1
Section 1.2 Company Actions ................................ 3
Section 1.3 SEC Documents .................................. 4
Section 1.4 Directors ...................................... 5
Section 1.5 The Merger ..................................... 7
Section 1.6 Effective Time ................................. 8
Section 1.7 Closing ........................................ 8
Section 1.8 Stockholders' Meeting .......................... 8
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock .................... 10
Section 2.2 Exchange of Certificates ....................... 11
Section 2.3 Dissenters' Rights ............................. 12
Section 2.4 Transfer of Shares After the
Effective Time............................... 13
Section 2.5 Company Stock Plans ............................ 13
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1 Representations and Warranties of
the Company .................................. 14
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
PARENT AND THE PURCHASER
Section 4.1 Representations and Warranties of
Parent and the Purchaser ..................... 31
ARTICLE V
COVENANTS
Section 5.1 Interim Operations of the
Company ...................................... 33
Section 5.2 Access; Confidentiality ........................ 38
Section 5.3 Reasonable Efforts; Notification ............... 38
i
<PAGE>
Section 5.4 No Solicitation ................................ 40
Section 5.5 Publicity ...................................... 42
Section 5.6 Transfer Taxes ................................. 42
Section 5.7 State Takeover Laws ............................ 42
Section 5.8 Indemnification and Insurance .................. 42
ARTICLE VI
CONDITIONS
Section 6.1 Conditions to Each Party's Obligation
to Effect the Merger ......................... 45
ARTICLE VII
TERMINATION
Section 7.1 Termination .................................... 46
Section 7.2 Effect of Termination .......................... 48
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Fees and Expenses .............................. 48
Section 8.2 Amendment and Modification...................... 49
Section 8.3 Nonsurvival of Representations and
Warranties ................................... 49
Section 8.4 Notices ........................................ 50
Section 8.5 Interpretation ................................. 50
Section 8.6 Counterparts ................................... 51
Section 8.7 Entire Agreement; No Third Party
Beneficiaries; Rights of Ownership............ 51
Section 8.8 Severability.................................... 51
Section 8.9 Governing Law................................... 51
Section 8.10 Assignment...................................... 51
SECTION 8.11 Enforcement..................................... 52
SECTION 8.12 Extension; Waiver............................... 52
SECTION 8.13 Procedure for Termination,
Amendment, Extension or Waiver................. 52
SECTION 8.14 Certain Undertakings of Parent.................. 53
SECTION 8.15 Company Disclosure Schedule..................... 53
SECTION 8.16 Definitions..................................... 53
Annex A Certain Conditions of the Offer
ii
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
AGREEMENT AND PLAN OF MERGER, dated as of February 28, 1998,
by and among SUNBEAM CORPORATION, a Delaware corporation ("Parent"), SENTINEL
ACQUISITION CORP., a Delaware corporation and a wholly-owned Subsidiary of
Parent (the "Purchaser"), and FIRST ALERT, INC., a Delaware corporation (the
"Company").
WHEREAS, the respective Boards of Directors of Parent, the
Purchaser and the Company have unanimously determined that it is fair to and in
the best interests of their respective stockholders for Parent to acquire the
Company pursuant to a Merger (as defined below) in which Purchaser (or a
wholly-owned Subsidiary thereof) shall be merged with and into the Company upon
the terms and subject to the conditions set forth in this Agreement;
WHEREAS, in furtherance thereof, Parent proposes that the
Purchaser make an offer to purchase for cash the outstanding Shares (as defined
below) at a price of $5.25 per Share, net to the seller;
WHEREAS, concurrently with the execution and delivery of this
Agreement, certain stockholders of the Company have entered into a Stock Sale
Agreement (the "Stock Sale Agreement") with Parent pursuant to which, subject to
the terms and conditions specified therein, such stockholders are willing to pay
to Purchaser the proceeds upon the sale of certain Shares owned by such
stockholders after the date of this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the
covenants and agreements set forth herein, the parties hereto agree as follows:
ARTICLE I
THE OFFER AND MERGER
Section 1.1 The Offer. Subject to this Agreement not having
been terminated in accordance with the provisions of Section 7.1 hereof, as
promptly as practicable (but in no event later than five business days after the
public announcement of the execution hereof), the Purchaser shall commence
(within the meaning of Rule 14d-2 under the Securities Exchange Act of 1934, as
<PAGE>
amended (the "Exchange Act")) a tender offer (the "Offer") for all of the
outstanding shares of Common Stock, par value $.01 per share (the "Shares"), of
the Company at a price of $5.25 per Share, net to the seller in cash (such
price, or such higher price per Share as may be paid in the Offer, being
referred to herein as the "Offer Price"), subject to the conditions set forth in
Annex A hereto.
The obligations of the Purchaser to commence the Offer and to
accept for payment and to pay for any Shares validly tendered on or prior to the
expiration of the Offer and not withdrawn shall be subject only to the
conditions set forth in Annex A hereto. The Offer shall be made by means of an
offer to purchase (the "Offer to Purchase") containing the terms set forth in
this Agreement and the conditions set forth in Annex A hereto.
The Purchaser shall not decrease the Offer Price or decrease
the number of Shares sought or amend any other condition of the Offer in any
manner adverse to the holders of the Shares (other than with respect to
insignificant changes or amendments and subject to the penultimate sentence of
this Section 1.1) or impose additional conditions without the written consent of
the Company, provided, however, that if on the initial scheduled expiration date
of the Offer, which shall be 20 business days after the date the Offer is
commenced, all conditions to the Offer shall not have been satisfied or waived,
the Purchaser may, from time to time, in its sole discretion, extend the
expiration date provided, however, that the expiration date of the Offer may not
be extended beyond June 1, 1998. In addition, the Offer Price may be increased,
and the Offer may be extended to the extent required by law in connection with
such increase in each case without the consent of the Company. The Purchaser
shall, on the terms and subject to the prior satisfaction or waiver of the
conditions of the Offer, accept for payment and pay for Shares validly tendered
as promptly as practicable; provided, however, that if, immediately prior to the
initial expiration date of the Offer, the Shares validly tendered and not
withdrawn pursuant to the Offer equal less than 90% of the outstanding Shares,
the Purchaser may extend the Offer for a period not to exceed ten business days,
notwithstanding that all conditions to the Offer are satisfied as of such
expiration date of the Offer. The Purchaser agrees that if all conditions set
2
<PAGE>
forth in Annex A are not satisfied on the initial expiration date of the Offer,
the Purchaser shall extend (and re-extend) the Offer through April 30, 1998 to
provide time to satisfy such conditions.
Section 1.2 Company Actions.
(a) The Company hereby approves of and consents to
the Offer and represents that the Board of Directors, at a meeting duly called
and held, has (i) unanimously determined that each of the Agreement, the Offer
and the Merger (as defined in Section 1.5) are fair to and in the best interests
of the stockholders of the Company, (ii) unanimously approved the Stock Sale
Agreement, the Offer, the acquisition of Shares pursuant to the Offer and the
Merger for purposes of Section 203 of the DGCL (the "Section 203 Approval"),
(iii) received the opinions of Salomon Smith Barney and NationsBanc Montgomery
Securities, financial advisors to the Company, to the effect that the Offer
Price to be received by holders of Shares pursuant to the Offer and the Merger
is fair to the stockholders of the Company from a financial point of view, (iv)
approved this Agreement and the transactions contemplated hereby, including the
Offer and the Merger (collectively, the "Transactions") and (v) resolved to
recommend that the stockholders of the Company accept the Offer, tender their
Shares thereunder to the Purchaser and approve and adopt this Agreement and the
Merger. The Company has been advised by each of its directors and by each
executive officer who as of the date hereof is actually aware (to the knowledge
of the Company) of the Transactions contemplated hereby that each such Person
either intends to tender pursuant to the Offer all Shares owned by such Person
or vote all Shares owned by such Person in favor of the Merger.
(b) In connection with the Offer, the Company will
promptly furnish or cause to be furnished to the Purchaser mailing labels,
security position listings and any available listing or computer file containing
the names and addresses of all holders of record of the Shares as of a recent
date, and shall furnish the Purchaser with such additional information
(including, but not limited to, updated lists of holders of the Shares and their
addresses, mailing labels and lists of security positions) and assistance as the
Purchaser or its agents may reasonably request in communicating the Offer to the
3
<PAGE>
record and beneficial holders of the Shares. Subject to the requirements of
applicable Law, and except for such steps as are necessary to disseminate the
Offer Documents and any other documents necessary to consummate the Merger,
Purchaser and its affiliates and associates shall hold in confidence the
information contained in any such labels, listings and files, will use such
information only in connection with the Offer and the Merger, and, if this
Agreement shall be terminated, will deliver to the Company all copies of such
information in their possession.
Section 1.3 SEC Documents.
(a) As soon as practicable on the date the Offer is
commenced, Parent and the Purchaser shall file with the United States Securities
and Exchange Commission (the "SEC") a Tender Offer Statement on Schedule 14D-1
in accordance with the Exchange Act with respect to the Offer (together with all
amendments and supplements thereto and including the exhibits thereto, the
"Schedule 14D-1" and the Schedule 14D-1 together with all amendments,
supplements and exhibits thereto, including the Offer to Purchase, being
collectively the "Offer Documents"). Concurrently with the commencement of the
Offer, the Company shall file with the SEC a Solicitation/Recommendation
Statement on Schedule 14D-9 in accordance with the Exchange Act (together with
all amendments and supplements thereto and including the exhibits thereto, the
"Schedule 14D-9"), which shall, subject to the fiduciary duty of the Board under
applicable law, contain the recommendation referred to in clause (iv) of Section
1.2(a) hereof.
(b) Parent and the Purchaser will take all steps
necessary to ensure that the Offer Documents, and the Company will take all
steps necessary to ensure that the Schedule 14D-9, will comply in all material
respects with the provisions of applicable Federal and state securities Laws
and, on the date filed with the SEC and on the date first published, sent or
given to the Company's stockholders, shall not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, except that Parent and
the Purchaser make no representation with respect to information furnished by
the Company for inclusion in the Offer Documents and the Company makes no
representa-
4
<PAGE>
tion with respect to information furnished by Parent or the Purchaser for
inclusion in the Schedule 14D-9. The information supplied in writing by the
Company for inclusion in the Offer Documents and by Parent or the Purchaser for
inclusion in the Schedule 14D-9 will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Each of Parent and the
Purchaser will take all steps necessary to cause the Offer Documents, and the
Company will take all steps necessary to cause the Schedule 14D-9, to be filed
with the SEC and to be disseminated to holders of the Shares, in each case as
and to the extent required by applicable Federal and state securities Laws. Each
of Parent and the Purchaser, on the one hand, and the Company, on the other
hand, will promptly correct any information provided by it for use in the Offer
Documents and the Schedule 14D-9 if and to the extent that it shall have become
false and misleading in any material respect and the Purchaser will take all
steps necessary to cause the Offer Documents, and the Company will take all
steps necessary to cause the Schedule 14D-9, as so corrected to be filed with
the SEC and to be disseminated to holders of the Shares, in each case as and to
the extent required by applicable Federal and state securities Laws. Parent and
its counsel shall be given a reasonable opportunity to review and comment upon
the Schedule 14D-9 and all amendments and supplements thereto prior to their
filing with the SEC or dissemination to stockholders of the Company. The Company
agrees to provide in writing Parent and its counsel with any comments the
Company or its counsel may receive from the SEC or its staff with respect to the
Schedule 14D-9 promptly after the receipt of such comments and shall provide
Parent and its counsel an opportunity to participate, including by way of
discussions with the SEC or its staff, in the response of the Company to such
comments.
Section 1.4 Directors.
(a) Promptly upon the purchase of and payment for
any Shares by Parent or any of its Subsidiaries pursuant to the Offer, Parent
shall be entitled to
5
<PAGE>
designate such number of directors, rounded up to the next whole number, on the
Board of Directors such that the percentage of its designees on the Board shall
equal the percentage of the outstanding Shares beneficially owned by Parent and
its affiliates. In furtherance thereof, the Company shall, upon request of the
Purchaser, use its best efforts promptly to cause Parent's designees to be so
elected to the Company's Board, and in furtherance thereof, to the extent
necessary, increase the size of the Board of Directors. At such time, the
Company shall also cause Persons designated by Parent to constitute at least the
same percentage (rounded up to the next whole number) as is on the Company's
Board of Directors of (i) each committee of the Company's Board of Directors,
and (ii) each committee (or similar body) of the Board of Directors.
Notwithstanding the provisions of this Section 1.4, the parties hereto shall use
their respective reasonable best efforts to ensure that at least two of the
members of the Board shall, at all times prior to the Effective Time (as defined
in Section 1.6 hereof) be, Continuing Directors (as defined below). For purposes
hereof, the term "Continuing Director" shall mean (i) any member of the Board as
of the date hereof, (ii) any member of the Board who is unaffiliated with, and
not a designee or nominee of Parent or Purchaser, or (iii) any successor of a
Continuing Director who is (A) unaffiliated with, and not a designee or nominee,
of Parent or Purchaser, and (B) recommended to succeed a Continuing Director by
a majority of the Continuing Directors then on the Board, and in each case under
clause (iii), who is not an employee of the Company. The Company shall promptly
take all actions required pursuant to Section 14(f) of the Exchange Act and Rule
14f-1 promulgated thereunder in order to fulfill its obligations under this
Section 1.4(a), including mailing to stockholders the information required by
such Section 14(f) and Rule 14f-1 (or, at Parent's request, furnishing such
information to Parent for inclusion in the Offer Documents initially filed with
the SEC and distributed to the stockholders of the Company) as is necessary to
enable Parent's designees to be elected to the Company's Board of Directors.
Parent or the Purchaser will supply the Company any information with respect to
either of them and their nominees, officers, directors and affiliates required
by such Section 14(f) and Rule 14f-1. The provisions of this Section 1.4(a) are
in addition to and shall not limit any rights which the Purchaser, Parent or
6
<PAGE>
any of their affiliates may have as a holder or beneficial owner of Shares as a
matter of law with respect to the election of directors or otherwise.
(b) From and after the time, if any, that Parent's
designees constitute a majority of the Company's Board of Directors, any
amendment or modification of this Agreement, any amendment to the Certificate of
Incorporation or Bylaws inconsistent with this Agreement, any termination of
this Agreement by the Company, any extension of time for performance of any of
the obligations of Parent or the Purchaser hereunder, any waiver of any
condition to the Company's obligations hereunder or any of the Company's rights
hereunder or other action by the Company hereunder may be effected only by the
action of a majority of the Continuing Directors of the Company, which action
shall be deemed to constitute the action of any committee specifically
designated by the Board of Directors to approve the actions and Transactions
contemplated hereby and the full Board of Directors.
Section 1.5 The Merger. Subject to the terms and conditions
of this Agreement, at the Effective Time (as defined in Section 1.6 hereof), the
Company and the Purchaser shall consummate a merger (the "Merger") pursuant to
which (a) the Purchaser (or a wholly-owned Subsidiary thereof) shall be merged
with and into the Company and the separate corporate existence of the Purchaser
(or a wholly-owned Subsidiary thereof) shall thereupon cease and (b) the Company
shall be the surviving corporation in the Merger (sometimes hereinafter referred
to as the "Surviving Corporation") and shall continue to be governed by the Laws
of the State of Delaware. In the event a wholly-owned Subsidiary of the
Purchaser rather than the Purchaser is merged with and into the Company in the
Merger, references herein to the Purchaser with respect to the Merger shall be
deemed to be references to such wholly-owned Subsidiary of the Purchaser.
Pursuant to the Merger, (x) the Restated Certificate of
Incorporation of the Company (the Certificate of Incorporation"), as in effect
immediately prior to the Effective Time, shall be the initial certificate of
incorporation of the Surviving Corporation and (y) the by-laws of the Company
(the "By-laws"), as in effect immediately prior to the Effective Time, shall be
the initial By-laws of the Surviving Corporation, each until
7
<PAGE>
thereafter changed or amended as provided therein or by applicable law. The
Merger shall have the effects specified in the Delaware General Corporation Law
(the "DGCL").
The directors and officers of the Purchaser at the Effective
Time shall be the initial directors and officers, respectively, of the Surviving
Corporation, in each case until their respective successors are duly elected and
qualified.
Section 1.6 Effective Time. Parent, the Purchaser and the
Company will cause a certificate of merger, or, if applicable, a certificate of
ownership and merger (as applicable, the "Certificate of Merger"), to be
executed and filed on the date of the Closing (as defined in Section 1.7) (or on
such other date as Parent and the Company may agree) with the Secretary of State
of Delaware (the "Secretary of State") as provided in the DGCL. The Merger shall
become effective on the date on which the Certificate of Merger has been duly
filed with the Secretary of State or such time as is agreed upon by the parties
and specified in the Certificate of Merger, and such time is hereinafter
referred to as the "Effective Time."
Section 1.7 Closing. The closing of the Merger (the
"Closing") shall take place at 10:00 a.m., local time, on a date to be specified
by the parties, which shall be no later than the second business day after
satisfaction or waiver of all of the conditions set forth in Article VI hereof
and, in the event that Purchaser determines to extend the Offer for up to ten
business days as provided for in Section 1.1 hereof, no later than the second
business day after the earlier of the completion of such ten business day period
or 90% of the outstanding Shares have been validly tendered and not withdrawn
pursuant to the Offer (the "Closing Date"), at the offices of Skadden, Arps,
Slate, Meagher & Flom LLP, New York, New York, unless another date or place is
agreed to in writing by the parties hereto.
Section 1.8 Stockholders' Meeting.
(a) If required by applicable law in order to
consummate the Merger, the Company, acting
8
<PAGE>
through its Board of Directors, shall, in accordance with applicable law:
(i) duly call, give notice of, convene and
hold a special meeting of its stockholders (the "Special Meeting") as
promptly as practicable following the acceptance for payment and
purchase of Shares by the Purchaser pursuant to the Offer for the
purpose of considering and taking action upon the approval of the
Merger and the adoption of this Agreement;
(ii) prepare and file with the SEC a
preliminary proxy or information statement in accordance with the
Exchange Act relating to the Merger and this Agreement and use its best
efforts (x) to obtain and furnish the information required to be
included by the Exchange Act and the SEC in the Proxy Statement (as
hereinafter defined) and, after consultation with Parent, to respond
promptly to any comments made by the SEC with respect to the
preliminary proxy or information statement and cause a definitive proxy
or information statement, including any amendment or supplement thereto
(the "Proxy Statement") to be mailed to its stockholders, provided that
no amendment or supplement to the Proxy Statement will be made by the
Company without consultation with Parent and its counsel and (y) to
obtain the necessary approvals of the Merger and this Agreement by its
stockholders; and
(iii) include in the Proxy Statement the
recommendation of the Board that stockholders of the Company vote in
favor of the approval of the Merger and the adoption of this Agreement.
(b) Parent shall vote, or cause to be voted, all of
the Shares then owned by it, the Purchaser or any of its other Subsidiaries and
affiliates in favor of the approval of the Merger and the adoption of this
Agreement.
9
<PAGE>
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock. As of the Effective
Time, by virtue of the Merger and without any action on the part of the holders
of any Shares or any shares of capital stock of the Purchaser:
(a) Purchaser Capital Stock. Each issued and
outstanding share of capital stock of the Purchaser shall be converted into and
become one fully paid and nonassessable share of common stock of the Surviving
Corporation.
(b) Cancellation of Treasury Stock and Purchaser-
Owned Stock. All Shares that are owned by the Company or any Subsidiary of the
Company and any Shares owned by Parent, the Purchaser or any Subsidiary of
Parent or the Purchaser shall be cancelled and retired and shall cease to exist
and no consideration shall be delivered in exchange therefor.
(c) Exchange of Shares. Each issued and outstanding
Share (other than Shares to be cancelled in accordance with Section 2.1(b) and
any Shares which are held by stockholders exercising appraisal rights pursuant
to Section 262 of the DGCL ("Dissenting Stockholders")) shall be converted into
the right to receive the Offer Price in cash, payable to the holder thereof,
without interest (the "Merger Consideration"), upon surrender of the certificate
formerly representing such Share in the manner provided in Section 2.2. All such
Shares, when so converted, shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to exist, and each holder
of a certificate representing any such Shares shall cease to have any rights
with respect thereto, except the right to receive the Merger Consideration
therefor upon the surrender of such certificate in accordance with Section 2.2,
without interest, or the right, if any, to receive payment from the Surviving
Corporation of the "fair value" of such Shares as determined in accordance with
Section 262 of the DGCL.
10
<PAGE>
Section 2.2 Exchange of Certificates.
(a) Paying Agent. Prior to the Effective Time,
Parent shall designate a bank or trust company to act as agent for the holders
of the Shares in connection with the Merger (the "Paying Agent") to receive the
funds to which holders of the Shares shall become entitled pursuant to Section
2.1(c). Parent shall, from time to time, make available to the Paying Agent
funds in amounts and at times necessary for the payment of the Merger
Consideration as provided herein. All interest earned on such funds shall be
paid to Parent.
(b) Exchange Procedures. As soon as reasonably
practicable after the Effective Time, the Paying Agent shall mail to each holder
of record of a certificate or certificates, which immediately prior to the
Effective Time represented outstanding Shares (the "Certificates"), whose Shares
were converted pursuant to Section 2.1 into the right to receive the Merger
Consideration (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Paying Agent and shall be in such
form and have such other provisions as Parent and the Company may reasonably
specify) and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for payment of the Merger Consideration. Upon surrender
of a Certificate for cancellation to the Paying Agent or to such other agent or
agents as may be appointed by Parent, together with such letter of transmittal,
duly executed, the holder of such Certificate shall be entitled to receive in
exchange therefor the Merger Consideration for each Share formerly represented
by such Certificate and the Certificate so surrendered shall forthwith be
cancelled. If payment of the Merger Consideration is to be made to a Person
other than the Person in whose name the surrendered Certificate is registered,
it shall be a condition of payment that the Certificate so surrendered shall be
properly endorsed or shall be otherwise in proper form for transfer and that the
Person requesting such payment shall have paid any transfer and other taxes
required by reason of the payment of the Merger Consideration to a Person other
than the registered holder of the Certificate surrendered or shall have
established to the satisfaction of the Surviving Corporation that such tax
either has been paid or is not appli-
11
<PAGE>
cable. Until surrendered as contemplated by this Section 2.2, each Certificate
shall be deemed at any time after the Effective Time to represent only the right
to receive the Merger Consideration in cash as contemplated by this Section 2.2.
The right of any stockholder to receive the Merger Consideration shall be
subject to and reduced by any applicable withholding obligation.
(c) Transfer Books; No Further Ownership Rights in
the Shares. At the Effective Time, the stock transfer books of the Company shall
be closed and thereafter there shall be no further registration of transfers of
the Shares on the records of the Company. From and after the Effective Time, the
holders of Certificates evidencing ownership of the Shares outstanding
immediately prior to the Effective Time shall cease to have any rights with
respect to such Shares, except as otherwise provided for herein or by applicable
law. If, after the Effective Time, Certificates are presented to the Surviving
Corporation for any reason, they shall be cancelled and exchanged as provided in
this Article II.
(d) Termination of Fund; No Liability. At any time
following six months after the Effective Time, the Surviving Corporation shall
be entitled to require the Paying Agent to deliver to it any funds (including
any interest received with respect thereto) which had been made available to the
Paying Agent and which have not been disbursed to holders of Certificates, and
thereafter such holders shall be entitled to look to the Surviving Corporation
(subject to abandoned property, escheat or other similar Laws) only as general
creditors thereof with respect to the Merger Consideration payable upon due
surrender of their Certificates, without any interest thereon. Notwithstanding
the foregoing, none of Parent, the Surviving Corporation or the Paying Agent
shall be liable to any holder of a Certificate for Merger Consideration
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
Section 2.3 Dissenters' Rights. Notwithstanding anything in
this Agreement to the contrary, if any Dissenting Stockholder shall demand to be
paid the "fair value" of such holder's Shares, as provided in Section 262 of the
DGCL, such Shares shall not be converted into or be exchangeable for the right
to receive the Merger
12
<PAGE>
Consideration except as provided in this Section 2.3 and the Company shall give
the Parent notice thereof and the Parent shall have the right to participate in
all negotiations and proceedings with respect to any such demands. Neither the
Company nor the Surviving Corporation shall, except with the prior written
consent of the Parent, voluntarily make any payment with respect to, or settle
or offer to settle, any such demand for payment. If any Dissenting Stockholder
shall fail to perfect or shall have effectively withdrawn or lost the right to
dissent, the Shares held by such Dissenting Stockholder shall thereupon be
treated as though such Shares had been converted into the Merger Consideration
pursuant to Section 2.1.
Section 2.4 Transfer of Shares After the Effective Time. No
transfer of Shares shall be made on the stock transfer books of the Surviving
Corporation at or after the Effective Time.
Section 2.5 Company Stock Plans. (a) Immediately prior to
the Effective Time, each then outstanding option to purchase shares (in each
case, an Option), whether or not then exercisable, shall be cancelled by the
Company and in consideration of such cancellation and except to the extent that
Parent or the Purchaser and the holder of any such Option otherwise agree, the
Company (or, at Parent's option, the Purchaser) shall pay to such holders of
Options an amount in respect thereof equal to the product of (A) the excess, if
any, of the Offer Price over the exercise price of each such Option and (B) the
number of Shares previously subject to the Option immediately prior to its
cancellation (such payment to be net of withholding taxes and without interest).
If required, the Company shall cause the Company's employees and directors to
consent to the transactions contemplated by this Section 2.5, no later than the
Effective Time.
(b) All stock option or other equity based plans
maintained with respect to the Shares ("Option Plans") shall terminate as of the
Effective Time and the provisions in any other Benefit Plan providing for the
issuance, transfer or grant of any capital stock of the Company or any interest
in respect of any capital stock of the Company shall be deleted as of the
Effective Time, and the Company shall use its best efforts to ensure that
following the Effective Time no holder of an
13
<PAGE>
Option or any participant in any Option Plan shall have any right thereunder to
acquire any capital stock of the Company, Parent or the Surviving Corporation.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1 Represenatations and Warranties of the Company.
The Company represents and warrants to Parent and the Purchaser as follows:
(a) Organization, Standing and Corporate Power. Each
of the Company and each of its Subsidiaries is a corporation duly organized,
validly existing and in good standing under the Laws of the jurisdiction in
which it is organized and has the requisite corporate power and authority to
carry on its business as now being conducted. Each of the Company and its
Subsidiaries is duly qualified as a foreign corporation or licensed to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
or licensing necessary, other than in such jurisdictions where the failure to be
so qualified or licensed (individually or in the aggregate) would not have a
Material Adverse Effect on the Company. The Company has made available to Parent
complete and correct copies of the Certificate of Incorporation of the Company
and By-laws of the Company, in each case as amended to the date of this
Agreement, and has delivered the certificates of incorporation and by-laws or
other organizational documents of its Subsidiaries, in each case as amended to
the date of this Agreement, other than Subsidiaries which are incorporated in a
jurisdiction other than a State of the United States. The respective
certificates of incorporation and by-laws or other organizational documents of
the Subsidiaries of the Company do not contain any provision limiting or
otherwise restricting the ability of the Company to control such Subsidiaries.
(b) Subsidiaries. The list of Subsidiaries of the
Company filed by the Company with its most recent Report on Form 10-K is a true
and accurate list of all the Subsidiaries of the Company which are required to
be set forth therein. All the outstanding shares of capital stock of each
Subsidiary are owned by the Company
14
<PAGE>
or by another wholly owned Subsidiary of the Company, free and clear of all
Liens, except as set forth in Schedule 3.1(b) of the Company Disclosure
Schedule. There are no other companies in which the Company has a direct or
indirect ownership interest.
(c) Capital Structure. The authorized capital stock
of the Company consists of 30,000,000 Shares and 1,000,000 shares of preferred
stock, par value $.01 per share (the Preferred Shares"). As of the date hereof,
(i) 24,335,112 Shares and no Preferred Shares were issued and outstanding and
(ii) 1,929,698 shares were reserved for issuance upon exercise of outstanding
Options. Except as set forth above, as of the date of this Agreement: (i) no
shares of capital stock or other voting securities of the Company are issued,
reserved for issuance or outstanding; (ii) there were no stock appreciation
rights, restricted stock grant or contingent stock grants and there are no other
outstanding contractual rights to which the Company is a party the value of
which is based on the value of Shares; (iii) all outstanding shares of capital
stock of the Company are, and all shares which may be issued will be, when
issued, duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights; and (iv) there are no bonds, debentures, notes or
other indebtedness of the Company having the right to vote (or convertible into,
or exchangeable for, securities having the right to vote) on any matters on
which stockholders of the Company may vote. Except as set forth above, as of the
date of this Agreement, there are no outstanding securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any kind
to which the Company or any of its Subsidiaries is a party or by which any of
them is bound obligating the Company or any of its Subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock or other voting securities of the Company or of any of its
Subsidiaries or obligating the Company or any of its Subsidiaries to issue,
grant, extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking. There are not any outstanding
contractual obligations of the Company or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any shares of capital stock of the Company or any of
its Subsidiaries.
15
<PAGE>
(d) Authority; Noncontravention; Company Action. The
Company has the requisite corporate power and authority to enter into this
Agreement and, subject to approval of this Agreement by the holders of a
majority of the outstanding Shares, to consummate the Merger contemplated by
this Agreement. The execution and delivery of this Agreement by the Company and
the consummation by the Company of the Transactions contemplated by this
Agreement have been duly authorized by all necessary corporate action on the
part of the Company, subject, in the case of the Merger, to approval of this
Agreement by the holders of a majority of the outstanding Shares. This Agreement
has been duly executed and delivered by the Company and, assuming this Agreement
constitutes the valid and binding obligation of Parent and the Purchaser,
constitutes the valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms, except that (i) such enforcement may
be subject to bankruptcy, insolvency, reorganization, moratorium or other
similar Laws now or hereafter in effect relating to creditors' rights generally
and (ii) the remedy of specific performance and injunctive relief may be subject
to equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought. Except as set forth in Schedule 3.1(d) of
the Company Disclosure Schedule, the execution and delivery of this Agreement do
not, and the consummation of the Transactions contemplated by this Agreement
(including the changes in the composition of the Board of Directors of the
Company) and compliance with the provisions of this Agreement will not, conflict
with, or result in any violation of, or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to loss of a material benefit under, or result
in the creation of any lien or other encumbrance upon any of the properties or
assets of the Company or any of its Subsidiaries under, (i) the Certificate of
Incorporation, as amended, or By-laws of the Company or the comparable charter
or organizational documents of any of its Subsidiaries, (ii) any loan or credit
agreement note, bond, mortgage, indenture, lease or other agreement, instrument,
permit, concession, franchise or license applicable to the Company or any of its
Subsidiaries or their respective properties or assets (including all agreements
described pursuant to Section 3.1(t)) or (iii) any judgment, order, decree,
statute, law, ordinance, rule or
16
<PAGE>
regulation applicable to the Company or any of its Subsidiaries or their
respective properties or assets, other than, in the case of clauses (ii) or
(iii), any such conflicts, violations, defaults, rights or Liens that
individually or in the aggregate would not (x) impair in any material respect
the ability of the Company to perform its obligations under this Agreement, (y)
prevent or impede, in any material respect, the consummation of any of the
Transactions contemplated by this Agreement or (z) impair, prevent or impede
materially the conduct of the Company's business substantially as now conducted.
No consent, approval, order or authorization of, or registration, declaration or
filing with, any Federal, state or local government or any court, administrative
or regulatory agency or commission or other governmental authority or agency,
domestic or foreign (a "Governmental Entity") or any other party, is required by
the Company or any of its Subsidiaries in connection with the execution and
delivery of this Agreement by the Company or the consummation by the Company of
the Transactions contemplated by this Agreement, except for (i) if required, the
filing of a premerger notification and report form by the Company under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (ii) the filing with the SEC of (x) the Schedule 14D-9, (y) a Proxy
Statement and (z) such reports under Section 13(a) of the Exchange Act as may be
required in connection with this Agreement and the Transactions contemplated by
this Agreement, (iii) the filing of the Certificate of Merger with the Secretary
of State and appropriate documents with the relevant authorities of other states
in which the Company is qualified to do business, (iv) as may be required by any
applicable state securities or "blue sky" Laws, and (v) such other consents,
approvals, orders, authorizations, registrations, declarations and filings the
failure of which to be obtained or made would not, individually or in the
aggregate, (x) impair, in any material respect, the ability of the Company to
perform its obligations under this Agreement, (y) prevent or significantly delay
the consummation of the Transactions contemplated by this Agreement or (z)
impair, prevent or impede materially the conduct of the Company's business
substantially as now conducted.
(e) SEC Documents; Financial Statements. The Company
has filed all reports, proxy statements, forms, and other documents required to
be filed with the
17
<PAGE>
SEC under the Securities Act and the Exchange Act since December 31, 1995 (the
"SEC Documents"). As of their respective dates, (i) the SEC Documents complied
in all material respects with the requirements of the Securities Act of 1933
(the "Securities Act"), or the Exchange Act, as the case may be, and the rules
and regulations of the SEC promulgated thereunder applicable to such SEC
Documents, and (ii) none of the SEC Documents contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Documents are true and complete
and comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto) and fairly present the consolidated
financial position of the Company and its consolidated Subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). Except as set forth in Schedule 3.1(e) of
the Company Disclosure Schedule and except as set forth in the SEC Documents
filed and publicly available prior to the date of this Agreement, and except for
liabilities and obligations incurred in the ordinary course of business
consistent with past practice since the date of the most recent consolidated
balance sheet included in the SEC Documents filed and publicly available prior
to the date of this Agreement, neither the Company nor any of its Subsidiaries
has any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) required by generally accepted accounting principles to
be set forth on a consolidated balance sheet of the Company and its consolidated
Subsidiaries or in the notes thereto.
(f) Information Supplied. None of the information
supplied or to be supplied by the Company expressly for inclusion or
incorporation by reference in (i) the Offer Documents or (ii) the Proxy
Statement, will, and in the case of the Offer Documents, at the time the Offer
Documents are filed with the SEC and first
18
<PAGE>
published, sent or given to the Company's stockholders, or, in the case of the
Proxy Statement, on the date the Proxy Statement is first mailed to the
Company's stockholders and at the time of the meeting of the Company's
stockholders held to vote on approval and adoption of this Agreement, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not false or
misleading. The Proxy Statement will comply as to form in all material respects
with the Exchange Act and the rules and regulations thereunder, except that no
representation or warranty is made by the Company with respect to statements
made or incorporated by reference therein based on information supplied by
Parent or the Purchaser for inclusion or incorporation by reference therein.
(g) Absence of Certain Changes or Events. Except as
set forth in SEC Documents or Schedule 3.1(g) of the Company Disclosure
Schedule, since September 28, 1997, the Company and its Subsidiaries have
conducted their respective businesses only in the ordinary course, and (i) there
has not been any Material Adverse Change in the Company and (ii) neither the
Company nor any of its Subsidiaries has taken any of the actions contemplated by
Section 5.1.
(h) Litigation. Except as set forth in SEC documents
or Schedules 3.1(h) and 3.1(x) of the Company Disclosure Schedule or to the
extent reserved for as reflected on the Company's financial statements for the
year ended December 31, 1996, there are (i) no suits, actions or proceedings
pending or, to the knowledge of the Company, threatened against the Company or
any of its Subsidiaries that, individually or in the
19
<PAGE>
aggregate, would reasonably be expected to have a Material Adverse Effect, (ii)
no complaints, lawsuits, charges or other proceedings pending or, to the
knowledge of the Company, threatened in any forum by or on behalf of any present
or former employee of the Company or any of its Subsidiaries, any applicant for
employment or classes of the foregoing alleging breach of any express or implied
contract of employment, any law or regulation governing employment or the
termination thereof or other discriminatory, wrongful or tortious conduct in
connection with the employment relationship that, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect, (iii)
no judgments, decrees, injunctions or orders of any Governmental Entity or
arbitrator outstanding against the Company that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect on the
Company; and (iv) none of the Intellectual Property is subject to any order,
writ, judgment, injunction, decree, determination or award that has, or would
reasonably be expected to have a Material Adverse Effect on the Company.
(i) Absence of Changes in Benefit Plans; SEC
Disclosure. Except as disclosed in Schedule 3.1(i) of the Company Disclosure
Schedule, there has not been any adoption or amendment by the Company or any of
its Subsidiaries or any ERISA Affiliate (as defined in Section 3.1(j) hereof) of
any Benefit Plan (as defined in Section 3.1(j) hereof) since September 28, 1997.
Except as disclosed in Schedule 3.1(i) of the Company Disclosure Schedule,
neither the Company nor any of its Subsidiaries has any formal plan or
commitment to create any additional Benefit Plan or modify or change any
existing Benefit Plan that would affect any employee or terminated employee of
the Company or a Subsidiary of the Company. All employment, consulting,
severance, termination, change in control or indemnification agreements,
arrangements or understandings between the Company or any of its Subsidiaries
and any current or former officer or director of the Company or any of its
Subsidiaries which are required to be disclosed in the SEC Documents have been
disclosed therein.
(j) Employee Benefits; ERISA. (i) Schedule 3.1(j) of
the Company Disclosure Schedule contains a true and complete list of each
material bonus, deferred compensation, incentive compensation, stock purchase,
stock option, severance or termination pay, health insurance, supplemental
unemployment benefits, profit-sharing, pension, or retirement plan, program,
agreement or arrangement, and each other employee benefit plan, program,
agreement or arrangement, other than a non-material fringe benefit plan,
sponsored, maintained or contributed to or required to be contributed to (at any
time during the past six years) by the Company or any of its Subsidiaries or by
any trade or business, whether or not incorporated (an "ERISA Affiliate"), that
is a member of a "controlled group" within the meaning of
20
<PAGE>
section 4001 of the Employee Retirement Income Security Act of 1974, as amended,
and the rules and regulations promulgated thereunder ("ERISA") of which the
Company or a Subsidiary is a member or which is under "common control" within
the meaning of Section 4001 of ERISA, with the Company or a Subsidiary, for the
benefit of any employee or terminated employee of the Company, its Subsidiaries
or any ERISA Affiliate, whether formal or informal (the "Benefit Plans").
(ii) With respect to each Benefit Plan, the Company
has delivered a true and complete copy thereof (including all amendments
thereto), as well as true and complete copies of the two most recent annual
reports, if required under ERISA, with respect thereto; the two most recent
actuarial reports, if required under ERISA, with respect thereto; the two most
recent reports prepared with respect thereto in accordance with Statement of
Financial Accounting Standards No. 87, Employer's Accounting for Pensions; the
most recent Summary Plan Description, together with each Summary of Material
Modifications, if required under ERISA with respect thereto; if the Benefit Plan
is funded through a trust or any third party funding vehicle, the trust or other
funding agreement (including all amendments thereto) and the latest financial
statements thereof; and the most recent determination letter received from the
Internal Revenue Service with respect to each Benefit Plan that is intended to
be qualified under section 401 of the Internal Revenue Code of 1986, as from
time to time amended (the "Code").
(iii) No liability to the Pension Benefit Guaranty
Corporation ("PBGC") under Title IV of ERISA has been incurred by the Company,
its Subsidiaries or any ERISA Affiliate since the effective date of ERISA that
has not been satisfied in full, and no condition exists that presents a material
risk to the Company, its Subsidiaries or any ERISA Affiliate of incurring a
liability under such Title, other than liability for premiums due the PBGC
(which premiums have been paid when due). Each Benefit Plan has been operated
and administered in all material respects in accordance with its terms and
applicable law, including but not limited to ERISA and the Code.
21
<PAGE>
(iv) The PBGC has not instituted proceedings to
terminate any Benefit Plan and no condition exists that presents a material risk
that such proceedings will be instituted.
(v) With respect to each Benefit Plan that is
subject to Section 302 of the Code or Title IV of ERISA, the present value of
accrued benefits under such plan, based upon the actuarial assumptions used for
funding purposes in the most recent actuarial report prepared by such plan's
actuary with respect to such plan did not exceed, as of its latest valuation
date, the then current value of the assets of such plan allocable to such
accrued benefits.
(vi) Neither the Company, nor any Subsidiary of the
Company, nor any trust created thereunder, nor any trustee or administrator
thereof has engaged in a transaction in connection with which the Company or any
Subsidiary of the Company, any such trust, or any trustee or administrator
thereof, or any party dealing with any Benefit Plan or any such trust could be
subject to either a civil penalty assessed pursuant to section 409 or 502(i) of
ERISA or a tax imposed pursuant to section 4975 or 4976 of the Code.
(vii) No Benefit Plan is a "multiemployer pension
plan," as such term is defined in section 3(37) of ERISA.
(viii) Each Benefit Plan which is intended to be
"qualified" within the meaning of section 401(a) of the Code is so qualified and
the trusts maintained thereunder are exempt from taxation under section 501(a)
of the Code and, to the knowledge of the Company, no event has occurred to cause
the loss of such qualified or exempt status.
(ix) No Benefit Plan provides health, death or
medical benefits (whether or not insured) with respect to current or former
employees of the Company or its Subsidiaries beyond their retirement or other
termination of service (other than (a) coverage mandated by applicable law or
(b) benefits the full cost of which is borne by the current or former employee
(or his beneficiary).
22
<PAGE>
(x) Except as set forth in Section 3.1(j) of the
Company Disclosure Schedule, the consummation of the Transactions contemplated
by this Agreement, alone, will not (a) entitle any current or former employee or
officer of the Company or any Subsidiary to severance pay, unemployment
compensation or any other payment, (b) accelerate the time of payment or
vesting, or increase the amount of compensation due any such employee or
officer, (c) result in any prohibited transaction described in section 406 of
ERISA or section 4975 of the Code for which an exemption is not available, or
(d) require the Company or any ERISA Affiliate to fund or make any payments to
any trust or other funding vehicle in respect of any Benefit Plan.
(xi) There are no pending, threatened or, to the
knowledge of the Company, anticipated claims by or on behalf of any Benefit
Plan, by any employee or beneficiary covered under any such Benefit Plan, or
otherwise involving any such Benefit Plan (other than routine claims for
benefits).
(xii) No Benefit Plan of the Company or its
Subsidiaries or other arrangement authorizes grants of either stock appreciation
rights or restricted stock of the Company and there are no outstanding stock
appreciation rights or restricted stock of the Company.
(xiii) Except as set forth in Schedule 3.1(j) of the
Company Disclosure Schedule, no material Benefit Plan is not subject to ERISA
pursuant to Section 4(b)(4) of ERISA.
(i) Taxes. (i) Each of the Company and each of its
Subsidiaries has timely filed (or has had timely filed on its behalf) all Tax
Returns required to be filed by it, and all such Tax Returns are true, complete
and correct in all material respects. Each of the Company and each of its
Subsidiaries has paid (or has had paid on its behalf) all Taxes (whether or not
shown as due on such Tax Returns), or the most recent financial statements
contained in the SEC Documents reflect adequate reserves in accordance with
generally accepted accounting principles for all Taxes not yet paid.
(ii) Except as set forth in Schedule 3.1(k) of the
Company Disclosure Schedule, (A) no defi-
23
<PAGE>
ciencies for any Taxes have been threatened, proposed, asserted or assessed
against the Company or any of its Subsidiaries, (B) no governmental authority is
conducting an audit with respect to Taxes or any Tax Return of the Company or
any of its Subsidiaries, (C) no extension or waiver of the statute of
limitations with respect to Taxes or any Tax Return has been granted by the
Company or any of its Subsidiaries, which remains in effect, (D) none of the
Company or any of its Subsidiaries is a party to any arrangement to allocate,
share or indemnify another party for Taxes, and (E) there are no liens for
material Taxes upon the assets of the Company or any of its Subsidiaries, except
for liens for Taxes not yet due.
(iii) As used in this Agreement, "Taxes" shall
include (A) any Federal, state, local or foreign net income, gross income,
receipts, windfall profit, severance, property, production, sales, use, license,
excise, franchise, employment, payroll, withholding, alternative or add-on
minimum, ad valorem, transfer, stamp or environmental tax, or any other tax,
custom, duty, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest or penalty, addition to tax or additional
amount imposed by any governmental authority, and (B) any liability for the
payment of amounts with respect to payments of a type described in clause (A) as
a result of being a member of an affiliated, consolidated, combined or unitary
group, or as a result of any obligation under a Tax sharing arrangement or a Tax
indemnity arrangement. As used in this Agreement, "Tax Returns" shall mean all
returns, reports, or statements required to be filed with respect to any Tax
(including any attachments thereto), including, without limitation, any
information return, claim for refund, amended return or declaration of estimated
Tax.
(l) No Excess Parachute Payments. Except as set forth
in Section 3.1(l) of the Company Disclosure Schedule, no amounts payable as a
result of the Transactions contemplated by this Agreement under the Benefit
Plans or any other plans or arrangements will constitute a "parachute payment"
to a "disqualified individual" as those terms are defined in section 280G of the
Code, without regard to whether such payment is reasonable
24
<PAGE>
compensation for personal services performed or to be performed in the future.
(m) Compliance with Applicable Laws. Except as set
forth in Schedule 3.1(m) of the Company Disclosure Schedule, to the knowledge of
the Company, the Company and each of its Subsidiaries have complied and are
presently complying in all material respects with all applicable laws (whether
statutory or otherwise), rules, regulations, orders, ordinances, judgments or
decrees of all governmental authorities (Federal, state, local or otherwise)
(collectively, "Laws"), including, but not limited to, the Federal Occupational
Safety and Health Act, the Federal Consumer Product Safety Act, the rules and
regulations of the Nuclear Regulatory Commission, and all Laws relating to the
safe conduct of business and environmental protection and conservation, the
Civil Rights Act of 1964 and Executive Order 11246 concerning equal employment
opportunity obligations of Federal contractors and any applicable health,
sanitation, fire, safety, labor, zoning and building Laws and ordinances, and
neither the Company nor any of its Subsidiaries has received notification of any
asserted present or past failure to so comply, except such non-compliance that
has not and will not prevent the Company from carrying on its business
substantially as now conducted or might reasonably be expected to result in a
Material Adverse Effect.
(ii) Each of the Company and its Subsidiaries has
in effect all material Federal, state, local and foreign governmental approvals,
authorizations, certificates, filings, franchises, licenses, notices, permits
and rights, including all authorizations under Environmental Laws ("Permits"),
necessary for it to own, lease or operate its properties and assets and to carry
on its business substantially as now conducted, there are no appeals nor any
other actions pending to revoke any such Permits, and there has occurred no
material default or violation under any such Permits.
(iii) To the knowledge of the Company, each of the
Company and its Subsidiaries is, and has been, and each of the Company's former
Subsidiaries, while a Subsidiary of the Company, was in compliance in all
material respects with all applicable Environmental Laws, except such
non-compliance that has not and will
25
<PAGE>
not prevent the Company from carrying on its business substantially as now
conducted or might reasonably be expected to result in a Material Adverse
Effect. To the knowledge of the Company, as of the date of this Agreement, there
are no circumstances or conditions that would be reasonably likely to prevent or
interfere with compliance by the Company or its Subsidiaries in the future with
Environmental Laws (or Permits issued thereunder) in effect as of the date of
this Agreement, except such circumstances or conditions that have not and will
not prevent the Company from carrying on its business substantially as now
conducted or might reasonably be expected to result in a Material Adverse
Effect.
(iv) Except as set forth on Schedule 3.1(m)(iv) of
the Company Disclosure Schedule, neither the Company nor any Subsidiary of the
Company has received any written claim, demand, notice, complaint, court order,
administrative order or request for information from any Governmental Entity or
private party, alleging violation of, or asserting any noncompliance with or
liability under or potential liability under, any Environmental Laws, except for
matters which are no longer threatened or pending and for which the Company or
its Subsidiaries are not subject to further requirements pursuant to an
administrative or court order, judgment, or a settlement agreement.
(v) To the knowledge of the Company, during the
period of ownership or operation by the Company and its Subsidiaries of any of
their respective current or previously owned or leased properties, there have
been no Releases of Hazardous Material in, on, under or affecting such
properties and none of the Company or its Subsidiaries have disposed of any
Hazardous Material or any other substance in a manner that has led, or could
reasonably be anticipated to lead to a Release except in each case for those
which individually or in the aggregate are not reasonably likely to have a
Material Adverse Effect. Prior to the period of ownership or operation by the
Company and its Subsidiaries of any of their respective current or previously
owned or leased properties, to the knowledge of the Company, no Hazardous
Material was generated, treated, stored, disposed of, used, handled or
manufactured at, or transported shipped or disposed of from, such current or
previously owned or leased properties, and there were no Releases of Hazardous
Material
26
<PAGE>
in, on, under or affecting any such property, except in each case for those
which individually or in the aggregate would not be reasonably likely to have a
Material Adverse Effect.
(vi) Except for leases entered into in the ordinary
course of business, as to which no notice of a claim for indemnity or
reimbursement has been received by the Company, and except as set forth on
Schedule 3.1(m)(vii) of the Company Disclosure Schedule, to the knowledge of the
Company, neither the Company nor any of its Subsidiaries has entered into any
agreement that may require it to pay to, reimburse, guarantee, pledge, defend,
indemnify, or hold harmless any Person for or against any Environmental
Liabilities and Costs.
(vii) Neither the Company nor any of its
Subsidiaries has treated, stored or disposed of "hazardous waste", as that term
is defined in the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et
seq., analogous state Laws, or the regulations promulgated thereunder, such that
the Company or any of its Subsidiaries would be required to obtain a permit
under said Laws for such treatment, storage or disposal and the failure to
obtain such permit would have a Material Adverse Effect.
(n) The Section 203 Approval is valid and in full
force and effect. Section 203 of the DGCL will not apply to the Stock Sale
Agreement, the Offer, the acquisition of Shares pursuant to the Offer or the
Merger. No other state takeover statute or similar statute or regulation applies
or purports to apply to the Offer, the Merger or the other Transactions
contemplated hereby.
(o) Voting Requirements. The affirmative vote of the
holders of a majority of all the Shares entitled to vote approving this
Agreement is the only vote of the holders of any class or series of the
Company's capital stock necessary to approve this Agreement and the Transactions
contemplated by this Agreement.
(p) Brokers. No broker, investment banker, financial
advisor or other Person, other than Salomon Smith Barney and NationsBanc
Montgomery Securities, the fees and expenses of which will be paid by the
27
<PAGE>
Company, is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the Transactions contemplated by
this Agreement based upon arrangements made by or on behalf of the Company. The
Company has provided Parent true and correct copies of all agreements between
the Company and each of Salomon Smith Barney and NationsBanc Montgomery
Securities, including, without limitations, any fee arrangements.
(q) Opinion of Financial Advisor. The Company has
received an opinions of Salomon Smith Barney and NationsBanc Montgomery
Securities, to the effect that, as of the date of this Agreement, the
consideration to be received in the Offer and the Merger by the Company's
stockholders is fair to the Company's stockholders from a financial point of
view, and a complete and correct signed copy of such opinion has been, or
promptly upon receipt thereof will be, delivered to Parent. Company has been
authorized by Salomon Smith Barney and NationsBanc Montgomery Securities to
permit the inclusion of such opinion in its entirety in the Offer Documents and
the Schedule 14D-9 and the Proxy Statement, so long as such inclusion is in form
and substance reasonably satisfactory to Salomon Smith Barney, NationsBanc
Montgomery Securities and their respective counsel.
(r) Intellectual Property. Except as set forth on
Schedule 3.1(r) of the Company Disclosure Schedule, the Company and/or its
Subsidiaries owns, or is licensed or otherwise possesses legally enforceable
rights to use all patents, trademarks (registered or unregistered), trade names,
service marks and copyrights and applications therefor (collectively,
"Intellectual Property Rights") that are used in the business of the Company and
its Subsidiaries as currently conducted except as would not have a Material
Adverse Effect. Each of the Company and each of its Subsidiaries owns or has
sufficient unrestricted right to use the Intellectual Property Rights in order
to allow it to conduct, and continue to conduct, its business as currently
conducted in all material respects, and the consummation of the Transactions
contemplated hereby will not alter or impair such ability in any respect. To the
knowledge of the Company, there are no pending oppositions, cancellations,
invalidity proceedings, interferences or re-examination proceedings with respect
to the Intellectual Property
28
<PAGE>
Rights that are reasonably likely to have a Material Adverse Effect. Neither the
Company nor any of its Subsidiaries has received any written notice from any
other Person pertaining to or challenging the right of the Company or any of its
Subsidiaries to use any of the Intellectual Property Rights. Except as set forth
in Section 3.1(r) of the Company Disclosure Schedule, neither the Company nor
any of its Subsidiaries has made any claim of a violation or infringement by
others of its rights to or in connection with the Intellectual Property Rights
which is still pending.
(s) Title to Properties. Each of the Company and
each of its Subsidiaries has sufficiently good and valid title to, or an
adequate leasehold interest in, its material properties and assets (including
the real property) in order to allow it to conduct, and continue to conduct, its
business as currently conducted in all material respects.
(t) Contracts; Debt Instruments. Except as set forth
in the SEC Documents or Schedule 3.1(t) of the Company Disclosure Schedule,
there are no (i) agreements of the Company or any of its Subsidiaries containing
an unexpired covenant not to compete or similar restriction applying to the
Company or any of its Subsidiaries, (ii) interest rate, currency or commodity
hedging, swap or similar derivative transactions to which the Company is a party
or (iii) other contracts or amendments thereto that would be required to be
filed as an exhibit to a Form 10-K filed by the Company with the SEC as of the
date of this Agreement. Except to the extent set forth in the SEC Documents or
Schedule 3.1(t) of the Company Disclosure Schedule, to the knowledge of the
Company, there are no existing defaults (or circumstances or events that, with
the giving of notice or lapse of time or both would become defaults) of the
Company or any of its Subsidiaries (or, to the knowledge of the Company, any
other party thereto) under any of the agreements set forth in Schedule 3.1(t) of
the Company Disclosure Schedule.
(u) Labor Relations. Except to the extent set forth
in the SEC Documents or Schedule 3.1(u) of the Company Disclosure Schedule, (i)
to the knowledge of the Company, the Company and each of its Subsidiaries is,
and has at all times been, in material compliance
29
<PAGE>
with all applicable Laws respecting employment and employment practices, terms
and conditions of employment, wages, hours of work and occupational safety and
health, and are not engaged in any unfair labor practices as defined in the
National Labor Relations Act or other applicable law, ordinance or regulation,
except where the failure to comply would not be reasonably likely to cause a
Material Adverse Effect on the Company; (ii) there is no labor strike, slowdown,
stoppage or lockout actually pending, or to the knowledge of the Company
threatened against or affecting the Company or any of its Subsidiaries; (iii)
the Company or any of its Subsidiaries is not a party to or bound by any
collective bargaining or similar agreement with any labor organization. There
are no employment contracts or severance agreements with any employees of the
Company or any of its Subsidiaries, except as set forth in the SEC Documents or
in Schedule 3.1(j) of the Company Disclosure Schedule.
(v) Products Liability. As used in this subsection
3.1(v), the term "Product" shall mean any product designed, manufactured,
shipped, sold, marketed, distributed and/or otherwise introduced into the stream
of commerce by or on behalf of the Company or any of its Subsidiaries,
including, without limitation, any product sold in the United States by the
Company or any of its Subsidiaries as the distributor, agent, or pursuant to any
other contractual relationship with a non-U.S. manufacturer; and the term
"Defect" shall mean a defect or impurity of any kind, whether in design,
manufacture, processing, or otherwise, including, without limitation, any
dangerous propensity associated with any reasonably foreseeable use of a
Product, or the failure to warn of the existence of any defect, impurity, or
dangerous propensity. Except as set forth in Schedule 3.1(v) of the Company
Disclosure Schedule, (i) as of the date of this Agreement, there is no claim,
action, suit or proceeding pending before any Governmental Entity in which a
Product is alleged to have a Defect; (ii) nor, to the knowledge of the Company
and its Subsidiaries, as of the date of this Agreement, is any such claim,
action, suit or proceeding threatened or is there any valid basis for any such
claim, action, suit or inquiry, proceeding; (iii) nor, to the knowledge of the
Company and its Subsidiaries, would any such claim, action, suit or proceeding
referred to in clause (i) or (ii) of this Section 3.1(v), if adversely
determined, have, individually or in
30
<PAGE>
the aggregate, a Material Adverse Effect on the Company or any of its
Subsidiaries.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
PARENT AND THE PURCHASER
Section 4.1 Representations and Warranties of Parent and the
Purchaser. Parent and the Purchaser represent and warrant to the Company as
follows:
(a) Organization, Standing and Corporate Power. Each
of Parent and the Purchaser is a corporation duly organized, validly existing
and in good standing under the Laws of the jurisdiction in which each is
incorporated and has the requisite corporate power and authority to carry on its
business as now being conducted. Each of Parent and the Purchaser is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed
(individually or in the aggregate) would not have a Material Adverse Effect on
Parent.
(b) Authority; Noncontravention. Parent and the
Purchaser have the requisite corporate power and authority to enter into this
Agreement and to consummate the Transactions contemplated by this Agreement. The
execution and delivery of this Agreement by Parent and the Purchaser and the
consummation by Parent and the Purchaser of the Transactions contemplated by
this Agreement have been duly authorized by all necessary corporate action on
the part of Parent and the Purchaser, as applicable. This Agreement has been
duly executed and delivered by Parent and the Purchaser and, assuming this
Agreement constitutes the valid and binding obligation of the Company,
constitutes a valid and binding obligation of each such party, enforceable
against each such party in accordance with its terms, except that (i) such
enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium
or other similar Laws now or hereafter in effect relating to creditors' rights
generally and (ii) the remedy of specific performance and
31
<PAGE>
injunctive relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought. The execution and
delivery of this Agreement do not, and the consummation of the Transactions
contemplated by this Agreement will not, conflict with, or result in any
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to loss of a material benefit under, or result in the creation
of any lien upon any of the properties or assets of Parent under, (i) the
certificate of incorporation or by-laws of Parent or the Purchaser, (ii) any
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Parent or the Purchaser or their respective properties or assets, other than,
in the case of clause (ii), any such conflicts, violations, defaults, rights or
Liens that individually or in the aggregate would not (x) impair in any material
respect the ability of Parent and the Purchaser to perform their respective
obligations under this Agreement or (y) prevent or impede the consummation of
any of the Transactions contemplated by this Agreement. No consent, approval,
order or authorization of, or registration, declaration or filing with, any
Governmental Entity is required by Parent or the Purchaser in connection with
the execution and delivery of this Agreement or the consummation by Parent or
the Purchaser, as the case may be, of any of the Transactions contemplated by
this Agreement, except for (i) if required, the filing of a premerger
notification and report form under the HSR Act, (ii) the filing with the SEC of
(x) the Offer Documents and (y) such reports under the Exchange Act as may be
required in connection with this Agreement and the Transactions contemplated by
this Agreement, (iii) the filing of the Certificate of Merger with the Secretary
of State and appropriate documents with the relevant authorities of other states
in which the Company is qualified to do business, (iv) as may be required by an
applicable state securities or "blue sky" Laws, and (v) such other consents,
approvals, orders, authorizations, registrations, declarations and filings the
failure of which to be obtained or made would not, individually or in the
aggregate, (x) impair, in any material respect, the ability of Parent to perform
its obligations under this Agreement or (y) prevent or significantly delay the
consummation of the Transactions contemplated by this Agreement.
32
<PAGE>
(c) Information Supplied. None of the information
supplied or to be supplied by Parent or the Purchaser expressly for inclusion or
incorporation by reference in the Offer Documents, the Schedule 14D-1, the
Schedule 14D-9 or the Proxy Statement will, in the case of the Offer Documents,
the Schedule 14D-1 or the Schedule 14D-9, at the time they are filed with the
SEC and first published, sent or given to the Company's stockholders or, in the
case of the Proxy Statement, on the date the Proxy Statement is first mailed to
the Company's stockholders and at the time of the meeting of the Company's
stockholders held to vote on approval and adoption of this Agreement, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
(d) Interim Operations of the Purchaser. The
Purchaser was formed solely for the purpose of engaging in the Transactions
contemplated hereby and has not engaged in any business activities or conducted
any operations other than in connection with the Transactions contemplated
hereby.
(e) Financing. Prior to the expiration of the Offer,
Purchaser will have all funds necessary for the purchase of the Shares pursuant
to the Offer. Prior to the Effective Time, Purchaser will have all funds
necessary to consummate the Merger and to consummate all other transactions
contemplated hereunder.
(f) Brokers. No broker, investment banker, financial
advisor or other Person, other than Morgan Stanley & Co. Incorporated, the fees
and expenses of which will be paid by the Parent, is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in connection
with the Transactions contemplated by this Agreement based upon arrangements
made by or on behalf of the Parent or the Purchaser.
ARTICLE V
COVENANTS
Section 5.1 (a) Interim Operations of the Company. Until the
acquisition of the Shares pursuant
33
<PAGE>
to the Offer, except as specifically contemplated by this Agreement, the Company
shall and shall cause its Subsidiaries to carry on their respective businesses
in the ordinary course and use all reasonable best efforts consistent with good
business judgment to preserve intact their current business organizations, keep
available the services of their current officers and key employees and preserve
their relationships consistent with past practice with desirable customers,
suppliers, licensors, licensees, distributors and others having business
dealings with them to the end that their goodwill and ongoing businesses shall
be unimpaired in all material respects at the Effective Time. Without limiting
the generality of the foregoing, the Company covenants and agrees that, except
(i) as expressly contemplated by this Agreement, (ii) as set forth in Section
5.1 of the Company Disclosure Schedule or (iii) as agreed in writing by Parent,
after the date hereof and prior to the Effective Date:
(i) neither the Company nor any of its Subsidiaries
shall, directly or indirectly, amend its Certificate of Incorporation or By-laws
or similar organizational documents;
(ii) neither the Company nor any of its Subsidiaries
shall: (i)(A) declare, set aside or pay any dividend or other distribution
payable in cash, stock or property with respect to the Company's capital stock
or that of its Subsidiaries, except that a wholly-owned Subsidiary of the
Company may declare and pay a dividend or make advances to its parent or the
Company or (B) redeem, purchase or otherwise acquire directly or indirectly any
of the Company's capital stock or that of its Subsidiaries; (ii) issue, sell,
pledge, dispose of or encumber any additional shares of, or securities
convertible into or exchangeable for, or options, warrants, calls, commitments
or rights of any kind to acquire, any shares of capital stock of any class of
the Company or its Subsidiaries, other than Shares issued upon the exercise of
Options outstanding on the date hereof in accordance with the Option Plans as in
effect on the date hereof; or (iii) split, combine or reclassify the outstanding
capital stock of the Company or of any of the Subsidiaries of the Company;
(iii) except as permitted by this Agreement, neither
the Company nor any of its Subsidiaries
34
<PAGE>
shall acquire or agree to acquire (A) by merging or consolidating with, or by
purchasing a substantial portion of the assets of, or by any other manner, any
business or any corporation, partnership, joint venture, association or other
business organization or division thereof (including entities which are
Subsidiaries of the Company or any of the Company's Subsidiaries) or (B) any
assets, including real estate, except (x) purchases in the ordinary course of
business consistent with past practice or (y) expenditures consistent with the
Company's current capital budget previously provided to Parent (the "Capital
Budget");
(iv) neither the Company nor any of its Subsidiaries
shall make any new capital expenditure or expenditures, other than capital
expenditures not to exceed, in the aggregate, the amounts provided for capital
expenditures in the Capital Budget;
(v) neither the Company nor any of its Subsidiaries
shall, except in the ordinary course of business and except as otherwise
permitted by this Agreement, amend or terminate any material contract or
agreement set forth in the SEC Documents to which the Company or any Subsidiary
is a party where such amendment or termination would have a Material Adverse
Affect, or waive, release or assign any material rights or claims;
(vi) neither the Company nor any of its Subsidiaries
shall transfer, lease, license, sell, mortgage, pledge, dispose of, or encumber
any property or assets other than in the ordinary course of business and
consistent with past practice;
(vii) neither the Company nor any of its Subsidiaries
shall: (i) enter into any employment or severance agreement with or, except in
accordance with the existing written policies of the Company, grant any
severance or termination pay to any officer, director or key employee of the
Company or any its Subsidiaries; or (ii) hire or agree to hire any new or
additional key employees or officers;
(viii) neither the Company nor any of its
Subsidiaries shall, except as required to comply with applicable law or
expressly provided in this Agreement, (A) adopt, enter into, terminate or amend
any Benefit
35
<PAGE>
Plan or other arrangement for the current or future benefit or welfare of any
director, officer or current or former employee, except to the extent necessary
to coordinate any such Benefit Plans with the terms of this Agreement, (B)
increase in any manner the compensation or fringe benefits of, or pay any bonus
to, any director, officer or employee (except for normal increases or bonuses in
the ordinary course of business consistent with past practice to employees other
than directors, officers or senior management personnel and that, in the
aggregate, do not result in a significant increase in benefits or compensation
expense to the Company and its Subsidiaries relative to the level in effect
prior to such action (but in no event shall the aggregate amount of all such
increases exceed 3% of the aggregate annualized compensation expense of the
Company and its Subsidiaries reported in the most recent audited financial
statements of the Company included in the SEC Documents)), (C) pay any benefit
not provided for under any Benefit Plan, (D) grant any awards under any bonus,
incentive, performance or other compensation plan or arrangement or Benefit Plan
(including the grant of stock options, stock appreciation rights, stock based or
stock related awards, performance units or restricted stock, or the removal of
existing restrictions in any Benefit Plans or agreements or awards made
thereunder) or (E) take any action to fund or in any other way secure the
payment of compensation or benefits under any employee plan, agreement, contract
or arrangement or Benefit Plan;
(ix) neither the Company nor any of its Subsidiaries
shall: (i) incur or assume any long-term debt, or except in the ordinary course
of business, incur or assume any short-term indebtedness in amounts not
consistent with past practice; (ii) incur or modify any material indebtedness or
other liability except as set forth in Schedule 5.1 of the Company Disclosure
Schedule; (iii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations of
any other Person, except in the ordinary course of business and consistent with
past practice; (iv) make any loans, advances or capital contributions to, or
investments in, any other Person (other than to wholly owned Subsidiaries of the
Company or customary loans or advances to employees in accordance with past
practice); (v) settle any claims other than in the ordinary course of business,
in accor-
36
<PAGE>
dance with past practice, and without admission of liability; or (vi) enter into
any material commitment or transaction;
(x) neither the Company nor any of its Subsidiaries
shall change any of the accounting methods used by it unless required by GAAP;
(xi) neither the Company nor any of its Subsidiaries
shall make any Tax election or settle or compromise any material Tax liability;
(xii) neither the Company nor any of its Subsidiaries
shall pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction of any such claims, liabilities or
obligations, in the ordinary course of business and consistent with past
practice, of claims, liabilities or obligations reflected or reserved against
in, or contemplated by, the consolidated financial statements (or the notes
thereto) of the Company and its consolidated subsidiaries; or, except in the
ordinary course of business consistent with past practice, waive the benefits
of, or agree to modify in any manner, any confidentiality, standstill or similar
agreement to which the Company or any of its Subsidiaries is a party; and
(xiii) neither the Company nor any of its
Subsidiaries will enter into an agreement, contract, commitment or arrangement
to do any of the foregoing, or to authorize, recommend, propose or announce an
intention to do any of the foregoing.
(b) Other Actions. The Company shall not, and shall
not permit any of its Subsidiaries to, take any action that would result in (i)
any of its representations and warranties set forth in this Agreement that are
qualified as to materiality becoming untrue, (ii) any of such representations
and warranties that are not so qualified becoming untrue in any material respect
or (iii) any of the conditions to the Offer set forth in Annex A not being
satisfied (subject to the Company's right to take action specifically permitted
by Section 5.4).
37
<PAGE>
Section 5.2 Access; Confidentiality. Upon reasonable notice,
the Company shall (and shall cause each of its Subsidiaries to) afford to the
officers, employees, accountants, counsel, financing sources and other
representatives of Parent, access, during normal business hours during the
period prior to the Effective Time, to all its properties, books, contracts,
commitments and records, and, during such period, the Company shall (and shall
cause each of its Subsidiaries to) furnish promptly to the Parent (a) a copy of
each report, schedule, registration statement and other document filed or
received by it during such period pursuant to the requirements of Federal or
state securities Laws and (b) all other information concerning its business,
properties and personnel as Parent may reasonably request. Except as otherwise
agreed to by the Company, unless and until Parent and the Purchaser shall have
purchased at least a majority of the outstanding Shares pursuant to the Offer,
Parent will be bound by the terms of a confidentiality agreement with the
principal stockholders of the Company, dated February 16, 1998 (the
"Confidentiality Agreement").
Section 5.3 Reasonable Efforts; Notification. (a) Upon the
terms and subject to the conditions set forth in this Agreement, each of the
parties agrees to use all reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and cooperate with the
other parties in doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the Offer and
the Merger, and the other Transactions contemplated by this Agreement, including
(i) the obtaining of all necessary actions or nonactions, waivers, consents and
approvals from any Governmental Entity and the making of all necessary
registrations and filings (including filings with any Governmental Entity, if
any) and the taking of all reasonable steps as may be necessary to obtain an
approval or waiver from, or to avoid an action or proceeding by, any
Governmental Entity, (ii) the obtaining of all necessary consents, approvals or
waivers from third parties, (iii) the defending of any lawsuits or other legal
proceedings, whether judicial or administrative, challenging this Agreement or
the consummation of any of the Transactions contemplated by this Agreement,
including seeking to have any stay or temporary restraining order entered by any
court or other
38
<PAGE>
Governmental Entity vacated or reversed, and (iv) the execution and delivery of
any additional instruments necessary to consummate the Transactions contemplated
by, and to fully carry out the purposes of, this Agreement; provided, however,
that in connection with any filing or submission or other action required to be
made or taken by any Party to effect the Merger and all other Transactions
contemplated hereby, the Company shall not without the prior written consent of
Parent commit to any divestiture transaction and Parent shall not be required to
divest or hold separate or otherwise take or commence to take any action that,
in the reasonable discretion of Parent, limits its freedom of action with
respect to, or its ability to retain, the Company or any of its affiliates or
any material portion of the assets of the Company. In connection with and
without limiting the foregoing, the Company and its Board of Directors shall (i)
take all action necessary to ensure that no state takeover statute or similar
statute or regulation is or becomes applicable to the Offer, the Merger, this
Agreement or any of the other Transactions contemplated by this Agreement and
(ii) if any state takeover statute or similar statute or regulation becomes
applicable to the Offer, the Merger or this Agreement or any other transaction
contemplated by this Agreement, take all action necessary to ensure that the
Offer, the Merger and the other Transactions contemplated by this Agreement may
be consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute or regulation on
the Offer, the Merger, this Agreement and the other Transactions contemplated by
this Agreement.
(b) Each of the Company, Parent and Purchaser shall
give prompt notice to the other of (i) any of their representations or
warranties contained in this Agreement becoming untrue or inaccurate in any
respect (including in the case of representations or warranties receiving
knowledge of any fact, event or circumstance which may cause any representation
qualified as to the knowledge to be or become untrue or inaccurate in any
respect) or (ii) the failure by them to comply with or satisfy in any material
respect any covenant, condition or agreement to be complied with or satisfied by
them under this Agreement; provided, however, that no such notification shall
affect the representations, warranties, covenants or agreements of the parties
or the
39
<PAGE>
conditions to the obligations of the parties under this Agreement.
Section 5.4 No Solicitation. (a) The Company shall not, nor
shall it permit any of its Subsidiaries to, nor shall it authorize (and shall
use its best efforts not to permit) any officer, director or employee of, or any
investment banker, attorney or other advisor or representative of, the Company
or any of its Subsidiaries to, (i) solicit or initiate, or knowingly encourage
the submission of, any Takeover Proposal or (ii) participate in any discussions
or negotiations regarding, or furnish to any Person any information with respect
to, or take any other action to knowingly facilitate the making of any proposal
that constitutes, or may reasonably be expected to lead to, any Takeover
Proposal; provided, however, that, prior to the acceptance for payment of Shares
pursuant to the Offer, if in the reasonable determination of the Board of
Directors, after receiving advice from outside legal counsel to the Company,
such failure to act would be inconsistent with its fiduciary duties to the
Company's stockholders under applicable law, the Company may, in response to an
unsolicited Takeover Proposal, and subject to compliance with Section 5.4(c),
(A) furnish information with respect to the Company to any Person pursuant to a
confidentiality agreement with terms and conditions similar to the
Confidentiality Agreement and (B) participate in negotiations regarding such
Takeover Proposal. For purposes of this Agreement, "Takeover Proposal" means (i)
any bona fide proposal or offer from any Person relating to any direct or
indirect acquisition or purchase of all or a substantial part of the assets of
the Company or any of its Subsidiaries or of any class of equity securities of
the Company or any of its Subsidiaries or any tender offer or exchange offer
that if consummated would result in any Person beneficially owning shares of any
class of equity securities of the Company or any of its Subsidiaries, or any
merger, consolidation, business combination, sale of substantially all of the
assets, recapitalization, liquidation, dissolution or similar transaction
involving the Company or any of its Subsidiaries other than the Transactions
contemplated by this Agreement, or any other transaction the consummation of
which would reasonably be expected to impede, interfere with, prevent or
materially delay the Offer or the Merger or which would reasonably be expected
to dilute materially the benefits to Parent
40
<PAGE>
of the Transactions contemplated hereby which (ii) the Company's Board of
Directors reasonably determines in good faith (based on advice of its financial
advisors) is more favorable to all of the Company's stockholders from a
financial point of view than the Offer and the Merger (taking into account any
improvements to the Offer and the Merger proposed in writing by Parent).
(b) Except as set forth in this Section 5.4(b),
neither the Board of Directors of the Company nor any committee thereof shall
(i) withdraw or modify, or propose to withdraw or modify, in a manner adverse to
Parent or the Purchaser, the approval or recommendation by the Board of
Directors or any such committee of the Offer, this Agreement or the Merger, (ii)
approve or recommend, or propose to approve or recommend, any Takeover Proposal
or (iii) enter into any agreement with respect to any Takeover Proposal.
Notwithstanding the foregoing, in the event that prior to the time of acceptance
by the Purchaser for payment of Shares in the Offer if in the reasonable
determination of the Board of Directors, and after receiving advice from outside
legal counsel to the Company, failure to do so would be inconsistent with its
fiduciary duties to the Company's stockholders under applicable law, the Board
of Directors may (subject to the terms of this and the following sentences)
withdraw or modify its approval or recommendation of the Offer, this Agreement
or the Merger, approve or recommend a Takeover Proposal, or enter into an
agreement with respect to a Takeover Proposal, in each case at any time
following delivery by the Company to Parent of written notice (a "Notice of
Takeover Proposal") advising Parent that the Board of Directors has received a
Takeover Proposal, and specifying the material terms and conditions of such
Takeover Proposal and identifying the Person making such Takeover Proposal
unless the Takeover Proposal by its terms prohibits disclosure.
(c) In addition to the obligations of the Company set
forth in paragraph (b) (i) the Company shall advise Parent of any request for
information, and the material terms and conditions of such request and the
identity of the Person making any such Takeover Proposal if allowed by the
Takeover Proposal or inquiry, and (ii) the Company will keep Parent fully
informed of the status and details (including amendments or proposed amendments)
of any such request or inquiry.
41
<PAGE>
Section 5.5 Publicity. The initial press release with
respect to the execution of this Agreement shall be a joint press release
acceptable to Parent and the Company. Thereafter, so long as this Agreement is
in effect, neither the Company, Parent nor any of their respective affiliates
shall issue or cause the publication of any press release or other announcement
with respect to the Merger, this Agreement or the other Transactions
contemplated hereby without the prior consultation of the other party.
Section 5.6 Transfer Taxes. All liability for transfer or
other similar Taxes arising out of or related to the Offer and the Merger or the
consummation of any other transaction contemplated by this Agreement, and due to
the property owned by the Company or any of its Subsidiaries or affiliates
("Transfer Taxes") shall be borne by the Company, and the Company shall file or
cause to be filed all Tax Returns relating to such Transfer Taxes which are due,
and, to the extent appropriate or required by law, the stockholders of the
Company shall cooperate with respect to the filing of such Tax Returns.
Section 5.7 State Takeover Laws. Notwithstanding any other
provision in this Agreement, in no event shall the Section 203 Approval be
withdrawn, revoked or modified by the Board of Directors of the Company. If any
state takeover statute other than Section 203 of the DGCL becomes or is deemed
to become applicable to the Stock Sale Agreement, the Offer, the acquisition of
Shares pursuant to the Offer or the Merger, the Company shall take all action
necessary to render such statute inapplicable to all of the foregoing.
Section 5.8 Indemnification and Insurance.
(a) The Certificate of Incorporation and By-Laws of
the Surviving Corporation shall contain the provisions with respect to
indemnification and exculpation set forth in the Certificate of Incorporation
and By-Laws of the Company, which provisions shall not be amended, repealed or
otherwise modified for a period of six years from the Effective Time in any
manner that would adversely affect the rights thereunder of individuals who at
the Effective Time were directors, officers, employees or agents of the Company,
unless such modification is required by law.
42
<PAGE>
(b) The Company shall, to the fullest extent
permitted under applicable law or under the Company's Certificate of
Incorporation or By-Laws and regardless of whether the Merger becomes effective,
indemnify and hold harmless, and, after the Effective Time, the Surviving
Corporation shall, to the fullest extent permitted under applicable law or under
the Surviving Corporation's Certificate of Incorporation or By-Laws, indemnify
and hold harmless, each present and former director, officer or employee of the
Company or any of its Subsidiaries (collectively, the "Indemnified Parties")
against any costs or expenses (including attorneys' fees), judgments, fines,
losses, claims, damages and liabilities incurred in connection with, and amounts
paid in settlement of, any claim, action, suit, proceeding or investigation,
whether civil, criminal, administrative or investigative and wherever asserted,
bought or filed, (x) arising out of or pertaining to the transactions
contemplated by this Agreement or (y) otherwise with respect to any acts or
omissions or alleged acts or omissions occurring at or prior to the Effective
Time, to the same extent as provided in the respective Certificate of
Incorporation or By-Laws of the Company or the Subsidiaries as in effect on the
date hereof, in each case for a period of six years after the date hereof. In
the event of any such claim, action, suit, proceeding or investigation (whether
arising before or after the Effective Time), (i) any counsel retained by the
Indemnified Parties for any period after the Effective Time must be reasonably
satisfactory to the Surviving Corporation, (ii) after the Effective Time, the
Surviving Corporation shall pay the reasonable fees and expenses of such
counsel, promptly after statements therefor are received, and (iii) the
Surviving Corporation will cooperate in the defense of any such matter;
provided, however, that the Surviving Corporation shall not be liable for any
settlement effected without its written consent (which consent shall not be
unreasonably withheld or delayed); and provided, further, that, in the event
that any claim or claims for indemnification are asserted or made within such
six-year period, all rights to indemnification in respect of any such claim or
claims shall continue until the disposition of any and all such claims. The
Indemnified Parties as a group may retain only one law firm to represent them
with respect to any single action unless there is, under applicable standards of
professional conduct, a conflict on any significant issue between the
43
<PAGE>
positions of any two or more Indemnified Parties. The indemnity agreements of
Parent and the Surviving Corporation in this Section 5.8(b) shall extend, on the
same terms to, and shall inure to the benefit of and shall be enforceable by,
each person or entity who controls, or in the past controlled, any present or
former director, officer or employee of the Company or any of its Subsidiaries.
(c) For a period of six years after the Effective
Time, Parent shall cause the Surviving Corporation to maintain in effect, if
available, directors' and officers' liability insurance covering those persons
who are currently covered by the Company's directors' and officers' liability
insurance policy (a copy of which has been made available to Parent) on terms
(including the amounts of coverage and the amounts of deductibles, if any) that
are comparable to the terms now applicable to directors and officers of Parent,
or, if more favorable to the Company's directors and officers, the terms now
applicable to them under the Company's current policies; provided, however, that
in no event shall Parent or the Surviving Corporation be required to expend in
excess of 200% of the annual premium currently paid by the Company for such
coverage; and provided further, that if the premium for such coverage exceeds
such amount, Parent or the Surviving Corporation shall purchase a policy with
the greatest coverage available for such 200% of the annual premium.
(d) From and after the Effective Time, Parent shall
guarantee the obligations of the Surviving Corporation under this Section 5.8.
(e) This Section shall survive the consummation of
the Merger at the Effective Time, is intended to benefit the Company, the
Surviving Corporation and the Indemnified Parties, shall be binding on all
successors and assigns of the Surviving Corporation and shall be enforceable by
the Indemnified Parties. In the event that Parent or Surviving Corporation or
any of their successors or assigns (i) consolidates or merges into any other
person or entity and shall not be the continuing or surviving corporation or
entity in such consolidation or merger or (ii) transfers all or substantially
all of its properties and assets to any person or entity, then and in such case,
proper provisions shall be
44
<PAGE>
made so that the successors and assigns of Parent or the Surviving Corporation
(as the case may be) assume the obligations of Parent and the Surviving
Corporation set forth in this Section.
ARTICLE VI
CONDITIONS
Section 6.1 Conditions to Each Party's Obligation to Effect
the Merger. The respective obligation of each party to effect the Merger shall
be subject to the satisfaction on or prior to the Closing Date of each of the
following conditions, any and all of which may be waived in whole or in part by
the Company, Parent or the Purchaser, as the case may be, to the extent
permitted by applicable law:
(a) Prior Performance. Each party shall have
performed in all material respects its respective obligations under this
Agreement required to be performed by it prior to the Effective Time;
(b) Representations and Warranties. All
representations and warranties contained in this Agreement shall have been true
and correct in all material respects at the time made and shall be true and
correct in all material respects as of the Effective Time as though made on and
as of such date;
(c) Stockholder Approval. This Agreement shall have
been approved and adopted by the requisite vote of the stockholders of the
Company, if required by applicable law and the Certificate of Incorporation, in
order to consummate the Merger;
(d) Statutes; Consents. No statute, rule, order,
decree or regulation shall have been enacted or promulgated by any government or
any governmental agency or authority of competent jurisdiction which prohibits
the consummation of the Merger;
(e) Injunctions. There shall be no order or
injunction of a court or other governmental authority of competent jurisdiction
in effect precluding, restraining, enjoining or prohibiting consummation of the
Merger;
45
<PAGE>
(f) Purchase of Shares in Offer. Parent, the
Purchaser or their affiliates shall have purchased Shares pursuant to the Offer;
and
(g) Option Plan. The employees and the directors of
the Company shall have consented to the transactions contemplated in Section
2.5.
ARTICLE VII
TERMINATION
Section 7.1 Termination. This Agreement may be terminated
and the Merger contemplated herein may be abandoned at any time prior to the
Effective Time, whether before or after approval of matters presented in
connection with the Merger by the stockholders of the Company:
(a) By the mutual written consent of Parent and the
Company; provided, however, that if Parent shall have a majority of the
directors pursuant to Section 1.4, such consent of the Company may only be given
if approved by the Continuing Directors.
(b) By either of Parent or the Company:
(i) if the Offer shall have expired without any
Shares being purchased therein by June 1, 1998; provided, however, that
the right to terminate this Agreement under this Section 7.1(b)(i)
shall not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in,
the failure of Parent or the Purchaser, as the case may be, to purchase
the Shares pursuant to the Offer on or prior to such date; or
(ii) if any Governmental Entity shall have issued
an order, decree or ruling or taken any other action (which order,
decree, ruling or other action the parties hereto shall use their
reasonable efforts to lift), in each case permanently restraining,
enjoining or otherwise prohibiting the Transactions contemplated by
this Agreement and such order,
46
<PAGE>
decree, ruling or other action shall have become final and
non-appealable.
(c) By the Board of Directors of the Company:
(i) if the Company has approved a Takeover Proposal
in accordance with Section 5.4(b), provided the Company has complied
with all provisions thereof, including the notice provisions therein,
and that it makes simultaneous payment of the Expenses and the
Termination Fee; or
(ii) if, prior to the purchase of the Shares
pursuant to the Offer, Parent or the Purchaser breaches or fails in any
material respect to perform or comply with any of its covenants and
agreements contained herein or breaches its representations and
warranties in any material respect; or
(iii) if Parent or the Purchaser shall have
terminated the Offer or the Offer expires without Parent or the
Purchaser, as the case may be, purchasing any Shares pursuant thereto;
provided that the Company may not terminate this Agreement pursuant to
this Section 7.1(c)(iii) if the Company is in material breach of this
Agreement; or
(iv) if Parent, the Purchaser or any of their
affiliates shall have failed to commence the Offer on or prior to five
business days following the date of the initial public announcement of
the Offer; provided, that the Company may not terminate this Agreement
pursuant to this Section 7.1(c)(iv) if the Company is in material
breach of this Agreement.
(d) By Parent or the Purchaser:
(i) if prior to the purchase of the Shares pursuant
to the Offer, the Board of Directors of the Company shall have
withdrawn, or modified or changed in a manner adverse to Parent or the
Purchaser its approval or recommendation of the Offer, this Agreement
or the Merger or shall have approved
47
<PAGE>
a Takeover Proposal in accordance with Section 5.4(b); or
(ii) if Parent or the Purchaser shall have
terminated the Offer without Parent or the Purchaser purchasing any
Shares thereunder, provided that Parent or the Purchaser may not
terminate this Agreement pursuant to this Section 7.1(d)(ii) if Parent
or the Purchaser is in material breach of this Agreement; or
(iii) if, due to an occurrence that if occurring
after the commencement of the Offer would result in a failure to
satisfy any of the conditions set forth in Annex A hereto, Parent, the
Purchaser, or any of their affiliates shall have failed to commence the
Offer on or prior to five business days following the date of the
initial public announcement of the Offer.
Section 7.2 Effect of Termination. In the event of
termination of this Agreement by either the Company or Parent or Purchaser as
provided in Section 7.1, this Agreement shall forthwith become void and have no
effect, without any liability or obligation on the part of Parent, the Purchaser
or the Company, other than the provisions of Section 3.1(p), 4.1(f), the last
sentence of Section 5.2, this Section 7.2 and Article VIII and except to the
extent that such termination results from the wilful and material breach by a
party of any of its representations, warranties, covenants or agreements set
forth in this Agreement.
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Fees and Expenses. (a) Except as provided below,
all fees and expenses incurred in connection with the Offer, the Merger, this
Agreement and the Transactions contemplated hereby shall be paid by the party
incurring such fees or expenses, whether or not the Offer or the Merger is
consummated.
(b) The Company shall pay, or cause to be paid, in
same day funds to Parent the amount of
48
<PAGE>
$3,750,000 (the "Termination Fee") upon demand if (i) Parent or the Purchaser
terminates this Agreement under Section 7.1(d)(i), (ii) the Company terminates
this Agreement pursuant to Section 7.1(c)(i) or (iii) prior to any termination
of this Agreement, a Takeover Proposal shall have been made and within nine
months after the termination of this Agreement a transaction constituting a
Takeover Proposal is consummated or the Company enters into an agreement with
respect to, or approves or recommends a Takeover Proposal (whether or not
related to a Takeover Proposal made prior to any termination of this Agreement),
provided, that no payment shall be made if this Agreement has been terminated
pursuant to Section 7.1(b)(i), 7.1(c)(ii), 7.1(c)(iii) or 7.1(c)(iv) hereof and;
provided, further, that if a Takeover Proposal (whether or not related to a
Takeover Proposal made prior to any termination of the Agreement) is made at a
lower price per share than the Offer Price, than the Company shall only pay in
same day funds to the Purchaser the amount of Parent's and Purchaser's
documented expenses (not to exceed $500,000) in connection with this Agreement
and the transactions contemplated thereby.
Section 8.2 Amendment and Modification. Subject to
applicable law, this Agreement may be amended, modified and supplemented in any
and all respects, whether before or after any vote of the stockholders of the
Company contemplated hereby, by written agreement of the parties hereto (which
in the case of the Company shall include approvals as contemplated in Section
1.4(b)), at any time prior to the Closing Date with respect to any of the terms
contained herein; provided, however, that after the approval of this Agreement
by the stockholders of the Company, no such amendment, modification or
supplement shall reduce the amount or change the form of the Merger
Consideration or otherwise adversely affect the rights of stockholders.
Section 8.3 Nonsurvival of Representations and Warranties.
None of the representations and warranties in this Agreement or in any schedule,
instrument or other document delivered pursuant to this Agreement shall survive
the Effective Time. This Section 8.3 shall not limit any covenant or agreement
of the parties which by its terms contemplates performance after the Effective
Date of the Merger.
49
<PAGE>
Section 8.4 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given upon receipt, and shall
be given to the parties at the following addresses (or at such other address for
a party as shall be specified by like notice):
(a) if to Parent or the Purchaser, to:
Sunbeam Corporation
1615 South Congress Avenue
Suite 200
Delray Beach, FL 33445
Attention: General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
Attention: Blaine V. Fogg, Esq.
(b) if to the Company, to:
First Alert, Inc.
3901 Liberty Street Road
Aurora, Illinois 60504
Attention: General Counsel
with a copy to:
Ropes & Gray
One International Place
Boston, MA 02110
Attention: David C. Chapin, Esq.
Section 8.5 Interpretation. When a reference is made in this
Agreement to Sections, such reference shall be to a Section of this Agreement
unless otherwise indicated. Whenever the words "include", "includes" or
"including" are used in this Agreement they shall be deemed to be followed by
the words "without limitation". As used in this Agreement, the term
"affiliate(s)" shall have the meaning set forth in Rule l2b-2 of the Exchange
Act.
50
<PAGE>
Section 8.6 Counterparts. This Agreement may be executed in
two or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when two or more counterparts have been
signed by each of the parties and delivered to the other parties.
Section 8.7 Entire Agreement; No Third Party Beneficiaries;
Rights or Ownership. This Agreement and the Confidentiality Agreement (including
the documents and the instruments referred to herein and therein): (a)
constitute the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, and (b) except as provided in Section 5.6 and Section 5.8
is not intended to confer upon any Person other than the parties hereto any
rights or remedies hereunder.
Section 8.8 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated unless the economic or legal substance of the
Transactions is affected in an adverse way to any party.
Section 8.9 Governing Law. This Agreement shall be governed
by and construed in accordance with the Laws of the State of Delaware without
giving effect to the principles of conflicts of law thereof.
Section 8.10 Assignment. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties, except that the Purchaser may assign, in
its sole discretion, any or all of its rights, interests and obligations
hereunder to Parent or to any direct or indirect wholly owned Subsidiary of
Parent. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns.
51
<PAGE>
SECTION 8.11 Enforcement. The parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of the
United States located in the State of Delaware or in Delaware state court, this
being in addition to any other remedy to which they are entitled at law or in
equity. In addition, each of the parties hereto (a) consents to submit itself to
the personal jurisdiction of any Federal court located in the State of Delaware
or any Delaware state court in the event any dispute arises out of this
Agreement or any of the Transactions contemplated by this Agreement, (b) agrees
that it will not attempt to deny or defeat such personal jurisdiction by motion
or other request for leave from any such court and (c) agrees that it will not
bring any action relating to this Agreement or any of the Transactions
contemplated by this Agreement in any court other than a Federal or state court
sitting in the State of Delaware.
SECTION 8.12 Extension; Waiver. At any time prior to the
Effective Time, the parties may (a) extend the time for the performance of any
of the obligations or other acts of the other parties, (b) waive any
inaccuracies in the representations and warranties of the other parties
contained in this Agreement or in any document delivered pursuant to this
Agreement or (c) subject to the proviso of Section 8.2, waive compliance by the
other parties with any of the agreements or conditions contained in this
Agreement. Any agreement on the part of a party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party. The failure of any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a waiver of those
rights.
SECTION 8.13 Procedure for Termination, Amendment, Extension
or Waiver. A termination of this Agreement pursuant to Section 7.1, an amendment
of this Agreement pursuant to Section 8.2 or an extension or waiver pursuant to
Section 8.12 shall, in order to be effective, require in the case of Parent, the
Purchaser or the Company, action by its Board of Directors or the duly
52
<PAGE>
authorized designee of its Board of Directors; provided, however, that in the
event that Purchaser's designees are appointed or elected to the Board of
Directors of the Company as provided in Section 1.4, after the acceptance for
payment of Shares pursuant to the Offer and prior to the Effective Time, except
as otherwise contemplated by this Agreement the affirmative vote of a majority
of the Continuing Directors of the Company shall be required by the Company to
amend this Agreement by the Company.
SECTION 8.14 Certain Undertakings of Parent. Parent shall
perform, or cause to be performed, any obligation of Purchaser under this
Agreement which shall have been breached by Purchaser.
SECTION 8.15 Company Disclosure Schedule. Notwithstanding
anything to the contrary contained herein, and without regard to the execution
of this Agreement by the parties hereto, this Agreement shall not be effective
and have no force and effect unless (i) within 12 hours of its execution by the
parties hereto, the definitive Company Disclosure Schedule is delivered by the
Company to Parent and (ii) Parent, within 12 hours after such delivery, delivers
written notice to the Company that it is satisfied with the matters contained
therein. Anything which is disclosed in one section of the Company Disclosure
Schedule shall be deemed disclosed for other sections thereof, as long as such
disclosure is reasonably apparent to a reader of the entire Company Disclosure
Schedule.
SECTION 8.16 Definitions. For purposes of this Agreement:
"Benefit Plans" has the meaning assigned thereto in Section 3.1(j).
"By-laws" means the by-laws of has the meaning assigned thereto in Section 1.5.
"Certificate of Incorporation" has the meaning assigned thereto in Section 1.5.
"Certificate of Merger" has the meaning assigned thereto in Section 1.6.
53
<PAGE>
"Certificates" has the meaning assigned thereto in Section 2.2.
"Closing" has the meaning assigned thereto in Section 1.7.
"Closing Date" has the meaning assigned thereto in Section 1.7.
"Code" means the Internal Revenue Code of 1986.
"Company" means First Alert, Inc.
"Continuing Director" has the meaning assigned thereto in Section 1.4.
"Defect" has the meaning assigned thereto in Section 3.1(v).
"DGCL" means the Delaware General Corporation Law.
"Dissenting Stockholders" has the meaning assigned thereto in Section 2.1(c).
"Effective Time" has the meaning assigned thereto in Section 1.6.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended,
and the rules and regulations promulgated thereunder.
"Environmental Laws" means all foreign, Federal, state and local Laws,
regulations, rules and ordinances relating to pollution or protection of the
environment, including, without limitation, Laws relating to Releases or
threatened Releases of Hazardous Materials into the indoor or outdoor
environment (including, without limitation, ambient air, surface water,
groundwater, land, surface and subsurface strata) or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, Release,
transport or handling of Hazardous Materials, and all Laws and regulations with
regard to recordkeeping, notification, disclosure and reporting requirements
respecting Hazardous Materials, and all Laws relating to endangered or
threatened species of fish, wildlife and plants and the management or use of
natural resources.
54
<PAGE>
"Environmental Liabilities and Costs" means all liabilities, obligations,
responsibilities, obligations to conduct cleanup, losses, damages, deficiencies,
punitive damages, consequential damages, treble damages, costs and expenses
(including, without limitation, all reasonable fees, disbursements and expenses
of counsel, expert and consulting fees and costs of investigations and
feasibility studies and responding to government requests for information or
documents), fines, penalties, restitution and monetary sanctions, interest,
direct or indirect, known or unknown, absolute or contingent, past, present or
future, resulting from any claim or demand, by any Person or entity, whether
based in contract, tort, implied or express warranty, strict liability, joint
and several liability, criminal or civil statute, including any Environmental
Law, or arising from environmental, health or safety conditions, or the Release
or threatened Release of Hazardous Materials into the environment.
"ERISA Affiliate" has the meaning assigned thereto in Section 3.1(j).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Financing Agreement" means the Financing and Security Agreement among First
Alert, Inc., BRK Brands, Inc., BRK Brands Europa LTD. and NationsBank, N.A.
dated May 14, 1997.
"Governmental Entity" has the meaning assigned thereto in Section 3.1(d).
"Hazardous Materials" means all substances defined as hazardous substances in
the National Oil and Hazardous Substances Pollution Contingency Plan, 40 C.F.R.
ss. 300.5, or substances defined as hazardous substances, hazardous materials,
toxic substances, hazardous wastes, pollutants or contaminants, under any
Environmental Law, or substances regulated under any Environmental Law,
including, but not limited to, petroleum (including crude oil or any fraction
thereof), asbestos, and polychlorinated biphenyls.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
55
<PAGE>
"Indemnified Parties" has the meaning assigned thereto in Section 5.8(b).
"Intellectual Property Rights" has the meaning assigned thereto in Section
3.1(r).
"Laws" has the meaning assigned thereto in Section 3.1(m).
"Lien" means any conditional sale agreement, default of title, easement,
encroachment, encumbrance, hypothecation, infringement, lien, mortgage, pledge,
reservation, restriction, security interest, title retention or other security
arrangement, or any adverse right or interest, charge or claim of any nature
whatsoever of, on, or with respect to any asset, property or property interest;
provided, however, that the term "Lien" shall not include
(i) liens for water and sewer charges and current Taxes not yet due and
payable or being contested in good faith;
(ii) mechanics', carriers', workers', repairers', materialmens',
warehousemens' and other similar liens arising or incurred in the ordinary
course of business; or
(iii) all liens approved in writing by the other party hereto.
"Material Adverse Change" or "Material Adverse Effect" means, when used in
connection with the Company or Parent, any change or effect (or any development
that, insofar as can reasonably be foreseen, is likely to result in any change
or effect) that is materially adverse to the business, properties, assets,
financial condition or results of operations of such party and its Subsidiaries
taken as a whole, other than any such changes or effects (i) set forth or
contemplated by the Company Disclosure Schedule (but not any supplement or
amendment thereto); or (ii) set forth or described in the SEC Documents.
"Merger" has the meaning assigned thereto in Section 1.5.
"Merger Consideration" has the meaning assigned thereto in Section 2.1.
"Minimum Condition" has the meaning assigned thereto in Annex A.
56
<PAGE>
"Notice of Takeover Proposal" has the meaning assigned thereto in Section
5.4(b).
"Offer" has the meaning assigned thereto in Section 1.1.
"Offer Documents" has the meaning assigned thereto in Section 1.3.
"Offer Price" has the meaning assigned thereto in Section 1.1.
"Offer to Purchase" has the meaning assigned thereto in Section 1.1.
"Option Plans" has the meaning assigned thereto in Section 2.5(b).
"Option" has the meaning assigned thereto in Section 2.5.
"Parent" means Sunbeam Corporation.
"Paying Agent" has the meaning assigned thereto in Section 2.2(a).
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permits" has the meaning assigned thereto in Section 3.1(m)(ii).
"Person" means an individual, corporation, partnership, joint venture,
association, trust, unincorporated organization or other entity.
"Product" has the meaning assigned thereto in Section 3.1(v).
"Proxy Statement" has the meaning assigned thereto in Section 1.8.
"Purchaser" means Sentinel Acquisition, Inc.
"Release" means any release, spill, emission, discharge, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration into
the indoor or outdoor environment (including, without limitation, ambient air,
surface water, groundwater, and surface or subsurface strata) or into or out of
any property, in-
57
<PAGE>
cluding the movement of Hazardous Materials through or in the air, soil, surface
water, groundwater or property.
"Schedule 14D-1" has the meaning assigned thereto in Section 1.3.
"Schedule 14D-9" has the meaning assigned thereto in Section 1.3.
"SEC" means the United States Securities and Exchange Commission.
"SEC Documents" has the meaning assigned thereto in Section 3.1(e).
"Secretary of State" means the Secretary of State of Delaware.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" has the meaning assigned thereto in Section 1.1.
"Special Meeting" has the meaning assigned thereto in Section 1.8.
a "Subsidiary" of any Person means any corporation, partnership, joint venture
or other entity in which such Person (i) owns, directly or indirectly, 50% or
more of the outstanding voting securities or equity interests, (ii) is entitled
to elect at least a majority of the Board of Directors or similar governing
body, or (iii) is a general partner.
"Surviving Corporation" means First Alert, Inc. after the Merger.
"Takeover Proposal" has the meaning assigned thereto in Section 5.4(a).
"Tax Returns" has the meaning assigned thereto in Section 3.1(k)(iv).
"Taxes" has the meaning assigned thereto in Section 3.1(k)(iv).
58
<PAGE>
"Termination Fee" has the meaning assigned thereto in Section 8.1(b).
"Transactions" has the meaning assigned thereto in Section 1.2(a).
"Transfer Taxes" has the meaning assigned thereto in Section 5.6.
59
<PAGE>
IN WITNESS WHEREOF, Parent, the Purchaser and the Company have
caused this Agreement to be signed by their respective officers thereunto duly
authorized as of the date first written above.
SUNBEAM CORPORATION
By: /s/ David C. Fannin
---------------------------------
David C. Fannin
Executive Vice President
and General Counsel
SENTINEL ACQUISITION CORP.
By: /s/ David C. Fannin
---------------------------------
Executive Vice President
and General Counsel
FIRST ALERT, INC.
By: /s/ B. Joseph Messner
---------------------------------
President and
Chief Executive Officer
<PAGE>
ANNEX A
Certain Conditions of the Offer. Notwithstanding any other
provisions of the Offer, and in addition to (and not in limitation of) the
Purchaser's rights to extend and amend the Offer at any time in its sole
discretion (subject to the provisions of the Merger Agreement), the Purchaser
shall not be required to accept for payment or, subject to any applicable rules
and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act
(relating to the Purchaser's obligation to pay for or return tendered Shares
promptly after termination or withdrawal of the Offer), pay for, and may delay
the acceptance for payment of or, subject to the restriction referred to above,
the payment for, any tendered Shares, and may terminate or amend the Offer as to
any Shares not then paid for, if (i) there shall not have been validly tendered
and not withdrawn prior to the expiration of the Offer such number of Shares
which, when added to the Shares, if any, beneficially owned by Parent, would
constitute at least 50.1% of the Shares outstanding on a fully diluted basis
(the "Minimum Condition"), (ii) any applicable waiting period under the HSR Act
has not expired or terminated, or (iii) at any time on or after the date of the
Merger Agreement and before the time of payment for any such Shares, any of the
following events shall occur and be continuing:
(a) there shall have been any action taken, or any
statute, rule, regulation, judgment, order or injunction promulgated, entered,
enforced, enacted, issued or deemed applicable to the Offer or the Merger by any
domestic or foreign Federal or state governmental regulatory or administrative
agency or authority or court or legislative body or commission which directly or
indirectly (l) prohibits, or imposes any material limitations on, Parent's or
the Purchaser's ownership or operation (or that of any of their respective
Subsidiaries or affiliates) of all or a material portion of their or the
Company's businesses or assets, or compels Parent or the Purchaser or their
respective Subsidiaries and affiliates to dispose of or hold separate any
material portion of the business or assets of the Company or Parent and their
respective Subsidiaries, in each case taken as a whole, (2) prohibits, or makes
illegal, the acceptance for payment, payment for or purchase of Shares or the
consummation of the Offer, the Merger or the other transactions
A-1
<PAGE>
contemplated by the Merger Agreement, (3) results in the delay in or restricts
the ability of the Purchaser, or renders the Purchaser unable, to accept for
payment, pay for or purchase some or all of the Shares, (4) imposes material
limitations on the ability of the Purchaser or Parent effectively to exercise
full rights of ownership of the Shares, including, without limitation, the right
to vote the Shares purchased by it on all matters properly presented to the
Company's stockholders, or (5) otherwise materially adversely affects the
consolidated financial condition, businesses or results of operations of the
Company and its Subsidiaries, taken as a whole;
(b) there shall have occurred (1) any general
suspension of trading in, or limitation on prices for, securities on the New
York Stock Exchange or in the NASDAQ National Market System, (2) a declaration
of a banking moratorium or any suspension of payments in respect of banks in the
United States (whether or not mandatory), (3) a commencement of a war, armed
hostilities or other international or national calamity directly or indirectly
involving the United States, (4) any material limitation (whether or not
mandatory) by any foreign or United States governmental authority on the
extension of credit by banks or other financial institutions, (5) a change in
general financial bank or capital market conditions which has a material adverse
effect the ability of financial institutions in the United States to extend
credit or syndicate loans, or (6) in the case of any of the foregoing existing
at the time of the commencement of the Offer, a material acceleration or
worsening thereof;
(c) (1) the representations and warranties of the
Company set forth in the Merger Agreement shall not be true and correct in any
material respect as of the date of the Merger Agreement and as of consummation
of the Offer as though made on or as of such date (unless made as of a certain
date), (2) the Company shall have failed to comply with its covenants and
agreements under the Merger Agreement in all material respects or (3) there
shall have occurred any events or changes which have had or which are reasonably
likely to have a Material Adverse Effect on the Company and its Subsidiaries
taken as a whole;
A-2
<PAGE>
(d) the Company's Board of Directors shall have
withdrawn, or modified or changed in a manner adverse to Parent or the Purchaser
(including by amendment of the Schedule 14D-9) its recommendation of the Offer,
the Merger Agreement, or the Merger, or recommended another proposal or offer,
or the Board of Directors of the Company, upon request of the Purchaser, shall
fail to reaffirm such approval or recommendation or shall have resolved to do
any of the foregoing;
(e) the Merger Agreement shall have terminated in
accordance with its terms; or
(f) the Company shall not have obtained a waiver to
the provision in its Financing Agreement that an event of default shall occur
and exist thereunder as a result of the purchase of the Shares in a number equal
to or greater than the Minimum Condition pursuant to the Offer.
which in the sole judgment of Parent or the Purchaser, in any such case, and
regardless of the circumstances (including any action or inaction by Parent or
the Purchaser) giving rise to such condition makes it inadvisable to proceed
with the Offer and/or with such acceptance for payment of or payments for
Shares.
The foregoing conditions are for the sole benefit of Parent
and the Purchaser may be waived by Parent or the Purchaser, in whole or in part
at any time and from time to time in the sole discretion of Parent or the
Purchaser. The failure by Parent or the Purchaser at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right and each
such right shall be deemed an ongoing right which may be asserted at any time
and from time to time.
<PAGE>
Exhibit 2
FIRST ALERT, INC.
NOTICE OF
1997 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 6, 1997
To Our Stockholders:
The 1997 Annual Meeting of Stockholders of First Alert, Inc. will be held
on Tuesday, May 6, 1997, beginning at 10:30 a.m., in the Regency Ballroom of the
Hilton Hotel, 3003 Corporate West Drive, Lisle, Illinois, for the following
purposes:
1. To elect three directors, to serve for a term of three years as more
fully described in the accompanying Proxy Statement.
2. To consider and act upon a proposal to ratify, confirm and approve the
First Alert, Inc. 1997 Stock Option Plan.
3. To consider and act upon a proposal to ratify, confirm and approve the
selection of Price Waterhouse LLP as the independent public accountants of the
Company for fiscal year 1997.
4. To consider and act upon any other business which may properly come
before the meeting.
The Board of Directors has fixed the close of business on March 18, 1997,
as the record date for the meeting. Only stockholders of record on that date are
entitled to notice of and to vote at the meeting.
PLEASE COMPLETE AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE MEETING IN PERSON.
By order of the Board of Directors
/s/ HALDON K. GRANT
-------------------
HALDON K. GRANT
Secretary
Aurora, Illinois
April 7, 1997
1
<PAGE>
FIRST ALERT, INC.
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of First Alert, Inc. (the "Company") for use
at the 1997 Annual Meeting of Stockholders to be held on Tuesday, May 6, 1997,
at the time and place set forth in the notice of the meeting, and at any
adjournments thereof. The approximate date on which this Proxy Statement and
form of proxy are first being sent to stockholders is April 7, 1997.
If the enclosed proxy is properly executed and returned, it will be voted
in the manner directed by the stockholder. If no instructions are specified with
respect to any particular matter to be acted upon, proxies will be voted in
favor thereof. Any person signing the enclosed form of proxy has the power to
revoke it by voting in person at the meeting, or by giving written notice of
revocation to the Secretary of the Company at any time before the proxy is
exercised.
The holders of a majority in interest of all Common Stock issued,
outstanding and entitled to vote are required to be present in person or be
represented by proxy at the meeting in order to constitute a quorum for the
transaction of business. The election of the nominees for director will be
decided by plurality vote. The affirmative vote of the holders of at least a
majority of the shares of Common Stock voting in person or by proxy at the
meeting are required to approve all other matters listed in the notice of the
meeting.
The Company will bear the cost of the solicitation. It is expected that the
solicitation will be made primarily by mail, but regular employees or
representatives of the Company (none of whom will receive any extra compensation
for their activities) may also solicit proxies by telephone, telecopier and in
person and arrange for brokerage houses and other custodians, nominees and
fiduciaries to send proxies and proxy materials to their principals at the time
expense of the Company.
The Company's principal executive offices are located at 3901 Liberty
Street Road, Aurora, Illinois 60504-8122, telephone number (630) 851-7330.
RECORD DATE AND VOTING SECURITIES
Only stockholders of record at the close of business on March 18, 1997 are
entitled to notice of and to vote at the meeting. On that date, the Company had
outstanding and entitled to vote 24,183,116 shares of Common Stock, par value
$.01 per share ("Company Common Stock" or "Common Stock"). Each outstanding
share of Company Common Stock entitles the record holder to one vote.
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table shows, as of March 18, 1997, any person who is known by
the Company to be the beneficial owner of more than five percent of any class of
voting securities of the Company. For purposes of this Proxy Statement,
beneficial ownership is defined in accordance with Rule 13d-3 ("Rule 13d-3")
under the Securities Exchange Act of 1934, as amended, and means generally the
power to vote or dispose of the securities, regardless of any economic interest
therein. See "Security Ownership of Directors and Officers" for information
concerning the beneficial ownership of voting securities of the Company by
directors and executive officers of the Company.
2
<PAGE>
<TABLE>
<CAPTION>
Amount and
Nature of
Name and Address Beneficial Percent
of Beneficial Owner Ownership(1) of Class
------------------- ------------ --------
<S> <C> <C>
Thomas H. Lee Equity Partners, L.P. ............................................ 8,324,492(2) 34.4%
c/o Thomas H. Lee Company 75 State Street Boston,
Massachusetts 02109
ML-Lee Acquisition Funds........................................................ 4,339,998(3) 17.9%
c/o Merrill Lynch & Co., Inc. World Financial Center South
Tower New York, New York 10080
</TABLE>
- --------------------
(1) According to Schedules 13G filed with the Securities and Exchange
Commission on or before February 14, 1997. All of the shares included in
this table are subject to the terms of the Shareholders' Agreement
described under "Compensation Committee Interlocks and Insider
Participation -- Certain Relationships and Related Transactions."
(2) In addition, each of the THL Equity Advisors Limited Partnership ("Equity
Advisors"), the general partner of Thomas H. Lee Equity Partners, L.P.
("Equity Partners"); THL Equity Trust, the general partner of Equity
Advisors; David V. Harkins, as Trustee of THL Equity Trust; and Scott A.
Schoen and Anthony J. DiNovi, as officers of THL Equity Trust, may be
deemed to be beneficial owners of the 8,324,492 shares of Common Stock held
by Equity Partners. Each of Equity Advisors, THL Equity Trust, Mr. Harkins,
Mr. Schoen and Mr. DiNovi maintains a principal business address c/o Thomas
H. Lee Company ("THL Co."), 75 State Street, Boston, Massachusetts 02109.
(3) Represents 2,281,524 shares held of record by the ML-Lee Acquisition Fund,
L.P. ("Fund I"), the ML-Lee Acquisition Fund II, L.P. ("Fund II") and the
ML-Lee Acquisition Fund (Retirement Accounts) II, L.P. (the "Retirement
Fund", and, together with Fund II, the "ML-Lee Acquisition Funds") and
2,058,474 shares held of record by Fund II. Each of: Thomas H. Lee Advisors
II, L.P. ("Advisors II"), the investment advisor of each of Fund II and the
Retirement Fund; T.H. Lee Mezzanine II ("Mezzanine II"), a general partner
of Advisors II; David V. Harkins, as a Trustee of THL Equity Trust; and
Scott A. Schoen and Anthony J. DiNovi, as officers of Mezzanine II, may be
deemed to be beneficial owners of 4,339,998 shares of Common Stock held in
the aggregate by Fund II and the Retirement Fund. Each of Advisors II and
Mezzanine II maintains its principal address c/o THL Co., 75 State Street,
Boston, Massachusetts 02109. The ML-Lee Acquisition Funds maintains its
principal address c/o Merrill Lynch & Co., World Financial Center, South
Tower, New York, New York 10080.
SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS
The following information is furnished as of March 18, 1997, with respect
to Common Stock of the Company beneficially owned within the meaning of Rule
13d-3 by (i) each director of the Company and each nominee; (ii) each Named
Executive Officer (as defined herein); and (iii) all directors and executive
officers of the Company as a group. All of the shares included in this table,
other than those owned by Messrs. Albers, Messner, Rohl and Wood, are subject to
the terms of the Shareholders' Agreement described under "Compensation Committee
Interlocks and Insider Participation -- Certain Relationships and Related
Transactions."
3
<PAGE>
Amount
Nature of
Name and Address Beneficial Percent
of Beneficial Owner Ownership of Class
------------------- --------- --------
John R. Albers....................................... 44,347 (1) *
William K. Brouse.................................... 161,498 (2) *
Malcolm Candlish..................................... 837,998 (3) 3.4%
Anthony J. DiNovi.................................... 35,550 (4) *
David V. Harkins..................................... 130,918 (5) *
B. Joseph Messner.................................... 25,000 *
Michael A. Rohl...................................... 34,900 (6) *
Scott A. Schoen...................................... 87,034 (7) *
Peter M. Wood........................................ 6,347 (8) *
All directors and executive officers as a
group (10 persons).................................. 1,365,092 (9) 5.5%
- --------------------
* Represents beneficial ownership of less than 1%.
(1) Includes 4,347 shares of Common Stock which Mr. Albers has the right to
acquire within sixty days pursuant to the First Alert, Inc. Non-Qualified
Stock Option Plan for Non-Employee Directors (the "Non-Employee Director
Plan"). Mr. Albers maintains his principal business address c/o First
Alert, Inc., 3901 Liberty Street Road, Aurora, Illinois 60504.
(2) Includes 109,498 shares of Common Stock which Mr. Brouse has the right to
acquire within sixty days pursuant to the First Alert, Inc. 1992 Stock
Option Plan (the "1992 Stock Option Plan") and the First Alert, Inc. 1994
Stock Option Plan (the "1994 Stock Option Plan"). Mr. Brouse is also a
joint trustee with respect to a trust which includes 3,000 shares of Common
Stock. Mr. Brouse disclaims any beneficial ownership of such shares. Mr.
Brouse maintains his principal business address c/o First Alert, Inc., 3901
Liberty Street Road, Aurora, Illinois 60504.
(3) Includes 478,998 shares of Common Stock which Mr. Candlish has the right to
acquire within sixty days pursuant to the 1992 Stock Option Plan and the
1994 Stock Option Plan. Mr. Candlish maintains his principal business
address c/o First Alert, Inc., 3901 Liberty Street Road, Aurora, Illinois
60504.
(4) Mr. DiNovi also may be deemed to be the beneficial owner of the 8,324,492
shares of Common Stock held by Equity Partners and the 4,339,998 shares of
Common Stock held, in the aggregate, by the Retirement Fund and Fund II, by
virtue of his positions as an officer of each of THL Equity Trust and
Mezzanine II. Mr. DiNovi disclaims beneficial ownership of such shares. Mr.
DiNovi maintains his principal business address c/o THL Co., 75 State
Street, Boston, Massachusetts 02109.
(5) Mr. Harkins also may be deemed to be the beneficial owner of the 8,324,492
shares of Common Stock held by Equity Partners and the 4,339,998 shares of
Common Stock held, in the aggregate, by the Retirement Fund and the Fund
II, by virtue of his position as a Trustee and officer of each of THL
Equity Trust and Mezzanine II. Mr. Harkins also may be deemed to
beneficially own 12,400 shares of Common Stock held by his children. Mr.
Harkins disclaims beneficial ownership of all such shares. Mr. Harkins
maintains his principal business address c/o THL Co., 75 State Street,
Boston, Massachusetts 02109.
(6) Includes 32,400 shares of Common Stock which Mr. Rohl has the right to
acquire within sixty days pursuant to the 1994 Stock Option Plan. Mr. Rohl
maintains his principal business address c/o First Alert, Inc., 3901
Liberty Street Road, Aurora, Illinois 60504.
(7) Mr. Schoen also may be deemed to be the beneficial owner of the 8,324,492
shares of Common Stock held by Equity Partners and the 4,339,998 shares of
Common Stock held, in the aggregate, by the Retirement Fund and the Fund
II, by virtue of his
4
<PAGE>
position as an officer of each of THL Equity Trust and Mezzanine II.
Mr. Schoen disclaims beneficial ownership of such shares. Mr. Schoen also may be
deemed to hold an additional 6,000 shares of Common Stock as a result of such
shares being held in trust for the benefit of his children and an additional
15,460 shares of Common Stock held by other members of his immediate family. Mr.
Schoen disclaims beneficial ownership of all such additional shares. Mr. Schoen
maintains his principal business address c/o THL Co., 75 State Street, Boston,
Massachusetts 02109.
(8) Includes 4,347 shares of Common Stock which Mr. Wood has the right to
acquire within sixty days pursuant to the Non- Employee Director Plan. Mr.
Wood maintains his principal business address c/o First Alert, Inc., 3901
Liberty Street Road, Aurora, Illinois 60504.
(9) Includes shares beneficially owned by Messrs. Albers, Brouse, Candlish,
Mark A. Devine, Vice President -- Engineering of the Company, DiNovi,
Harkins, Messner, Rohl, Schoen and Wood (including 1,000 shares of Common
Stock Mr. Devine has the right to acquire within sixty days pursuant to the
1994 Stock Option Plan). In addition, the shares of Common Stock held by
Equity Partners and the ML-Lee Acquisition Funds may be deemed beneficially
owned by Messrs. DiNovi, Harkins and Schoen by virtue of their affiliation
with Equity Partners and the ML-Lee Acquisition Funds; however, each of
Messrs. DiNovi, Harkins and Schoen disclaims such beneficial ownership.
ITEM 1 -- ELECTION OF DIRECTORS
The Board of Directors is divided into three classes, with each class as
nearly equal in number as possible. One class is elected each year for a term of
three years. It is proposed that the nominees listed below, whose terms expire
at the Annual Meeting, be elected to serve a term of three years and until their
successors are duly elected and qualified or until they sooner die, resign or
are removed. The Company presently has a Board of Directors of seven members.
Each of the nominees, except Mr. Albert L. Prillaman, is a current director of
the Company. One current director of the Company whose term expires at the
Annual Meeting, Mr. Peter M. Wood, is not standing for reelection at the Annual
Meeting.
The persons named in the accompanying proxy will vote, unless authority is
withheld, for the election of the nominees named below. If such nominees should
become unavailable for election, the persons named in the accompanying proxy
will vote for such substitutes as the Board of Directors may recommend. The
nominees are not related to any other executive officer of the Company or its
subsidiaries.
<TABLE>
<CAPTION>
Year First
Elected a Position With the Company or Principal
Name of Director Age Director Occupation During the Past Five Years
- ---------------- --- -------- -------------------------------------
<S> <C> <C> <C>
Directors Standing for Election
Nominated for a term ending in 2000:
Malcolm Candlish.................. 61 1992 Malcolm Candlish joined the Company as a director in August 1992 and
was elected Chairman of the Board in October 1992 and Chief Executive
Officer in December 1992. Mr. Candlish served as Chief Executive
Officer until September 18, 1996. He also served as President of the
Company from April 1, 1996 to September 18, 1996. Prior to his
employment with the Company, Mr. Candlish was Chairman, Chief Executive
Officer and President of Sealy, Inc., a bedding manufacturer, from 1989
until October 1992. From 1983 until 1989, Mr. Candlish was employed
with Beatrice Companies, a conglomerate, as President and Chief
Executive Officer of Samsonite Luggage Company, a luggage manufacturer
and, from 1977 until 1983, Mr. Candlish was employed by the Wilson
Sporting Goods subsidiary of PepsiCo., Inc. in various executive
positions. Mr. Candlish also serves as a director of AmerUs Life
Insurance Company and The Black & Decker Corporation.
David V. Harkins.................. 56 1992 David V. Harkins has served as a director of the Company since July
1992. Mr. Harkins has also served as Chairman of the Company's
Compensation Committee and as a member of the Company's Audit Committee
since October 1992. Mr. Harkins has been employed by THL Co., an
investment company, since 1986 and currently serves as a Senior
Managing Director. Mr. Harkins has been Chairman and director of
National Dentex Corporation, an operator of dental laboratories, since
1983. Mr. Harkinsalso serves as Senior Vice President and Trustee of
Thomas H. Lee Advisors I, L.P. ("Advisors I") and Mezzanine II,
affiliates of the Fund II and the Retirement Fund, respectively, and as
a director of Stanley Furniture Company, Inc., HomeSide Lending, Inc.
and various private corporations.
</TABLE>
5
<PAGE>
<TABLE>
<S> <C> <C> <C>
Albert L. Prillaman............... 51 Nominee Albert L. Prillaman currently serves as Chairman, Chief Executive
Officer and President of Stanley Furniture Company, Inc. ("Stanley"), a
furniture manufacturer. Mr. Prillaman has been President and Chief
Executive Officer of Stanley since December 1985 and Chairman of the
Board of Stanley since September 1988. Before such time, Mr. Prillaman
served in various executive capacities with Stanley and its predecessor
company since 1969. Mr. Prillaman also is a director of Main street
BankGroup Incorporated.
Directors Continuing in Office
Serving a term ending in 1998:
John R. Albers.................... 65 1995 John R. Albers has served as a director of the Company since July 1995.
Mr. Albers has also served as a member of the Company's Compensation
Committee since July 1995. From May 1995 to present, Mr. Albers has
served as Chief Executive Officer and President of Fairfield
Enterprises, Inc., a holding company. From 1988 to March 1995, Mr.
Albers served as Chairman, President and Chief Executive Officer of Dr.
Pepper/Seven-Up Companies, Inc., a beverage manufacturer. Mr. Albers is
also a director of AmerUs Life Insurance Company and Recovery
Engineering, Inc.
Anthony J. DiNovi................. 34 1992 Anthony J. DiNovi has served as a director of the Company since July
1992. Mr. DiNovi has also served on the Company's Audit Committee since
October 1992 and the Company's Compensation Committee since July 1995.
Mr. DiNovi has been employed by THL Co., an investment company, since
1988 and currently serves as a Managing Director. Mr. DiNovi also
serves as a Vice President of Advisors I and Mezzanine II, affiliates
of the ML Acquisition Funds, and as a director of Safelite Glass Corp.
and various private corporations.
</TABLE>
6
<PAGE>
<TABLE>
<S> <C> <C> <C>
Serving a term ending in 1999:
B. Joseph Messner................. 44 1996 B. Joseph Messner joined the Company as the President, Chief Executive
Officer and a director on September 18, 1996. Prior to his employment
with the Company, Mr. Messner served as president of Bushnell
Corporation, formerly the Sports Optics Division of Bausch & Lomb, Inc.
from 1989 to November, 1995. In the period from 1981 through 1988, he
held other positions with Bausch & Lomb, Inc. including Vice President
and Controller of the Eyewear Division and Corporate Director of
Finance. Mr. Messner also serves as a director of Totes, Inc.
Scott A. Schoen................... 38 1992 Scott A. Schoen has served as a director of the Company since July
1992. Mr. Schoen has also served as a member of the Company's
Compensation Committee and Chairman of the Company's Audit Committee
since October 1992. Mr. Schoen has been employed by THL Co., an
investment company, since 1986 and currently serves as a Managing
Director. Mr. Schoen also serves as a Vice President of Advisors I and
Mezzanine II, affiliates of THL Co., and as a director of Health o
meter Products, Inc., Rayovac Corporation, LaSalle Re Holdings, Inc.
and various private corporations.
</TABLE>
INFORMATION CONCERNING THE BOARD OF DIRECTORS
During fiscal 1996, there were six meetings of the Board of Directors of
the Company. All of the directors attended at least 75% of the aggregate of (i)
the total number of meetings of the Board of Directors during which they served
as director and (ii) the total number of meetings held by committees of the
Board of Directors on which they served. The Board of Directors does not have a
Nominating Committee. Directors of the Company who are not employees of the
Company and who are not affiliates of significant investors in the Company
receive an annual retainer of $13,000 and a fee of $2,000 for each Board meeting
attended or $500 for each Board meeting in which the director participates by
telephone. Such directors also receive annual retainer fees of an aggregate of
$2,000 for service as a member of one or more Board committees and fees for each
Board committee meeting attended, not held in conjunction with a full Board
meeting, of $1,000 or $500 for each committee meeting in which the director
participates by telephone. Pursuant to the Non-Employee Director Plan,
qualifying directors receive approximately one half of their compensation as
directors in the form of options to acquire Common Stock of the Company. No
director received compensation for serving as such, except that in 1996 Mr.
Albers earned $13,250 and Mr. Wood earned $11,250 in cash and each received
options to purchase 4,347 shares of Common Stock under the Non-Employee Director
Plan; and Messrs. Candlish and Messner received compensation as employees of BRK
Brands, Inc., the principal subsidiary of the Company. See "Compensation
Committee Interlocks and Insider Participation -- Certain Relationships and
Related Transactions -- Employment Agreements" and "-- Management Agreement." In
addition to the amounts set forth above, during 1996, Mr. Albers earned $3,000
and Mr. Wood earned $1,000 for their individual participation in the screening
of candidates for President of the Company. During 1996, BRK Brands, Inc. also
reimbursed the travel expenses of Messrs. Albers, DiNovi, Harkins, Schoen and
Wood in the amount of approximately $100, $9,200, $8,800, $8,500 and $4,800,
respectively, in connection with their attending meetings of the Board of
Directors of the Company.
The Board of Directors has a Compensation Committee whose present members
are John R. Albers, Anthony J. DiNovi, David V. Harkins and Scott A. Schoen. The
Compensation Committee determines the compensation to be paid to key officers of
subsidiaries of the Company and generally administers the Company's stock option
plans. During fiscal year 1996, there were three meetings of the Compensation
Committee.
The Company also has an Audit Committee whose present members are Anthony
J. DiNovi, David V. Harkins, Scott A. Schoen and Peter M. Wood. The Audit
Committee reviews with the Company's independent auditors the scope of the audit
for the year, the results of the audit when completed and the independent
auditors' fee for services performed. The Audit Committee also recommends
independent auditors to the Board of Directors and reviews with management
various matters related to its internal accounting controls. During fiscal 1996,
there were two meetings of the Audit Committee.
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Compensation Committee") of the Board of
Directors has furnished the following report on executive compensation.
7
<PAGE>
Executive Compensation Philosophy
Under the supervision of the Compensation Committee, the Company has
developed and implemented executive compensation policies, plans and programs
which seek to enhance the profitability and value of the Company. The primary
objective is to align closely the financial interests of the Company's
executives with those of its stockholders. The Compensation Committee believes
that equity ownership by management is beneficial in conforming management and
stockholder interests in the enhancement of stockholder value.
The Compensation Committee's philosophy is to integrate management pay with
the achievement of annual financial performance goals. The compensation package
for each officer is designed to recognize individual initiative and achievement.
In establishing compensation, the Compensation Committee incorporates a number
of factors to promote both long and short-term performance of the Company. These
factors include earnings, market share growth, cost control efforts, balance
sheet strength and organizational developments. The compensation for individual
executives is based on both company and personal goals, with varying weight
being given to individual factors for particular executives.
The Compensation Committee believes that the Company's overall executive
compensation package enables the Company to obtain and retain the services of
top executives. The Company operates with a small team of top executives which
is given significant and extensive responsibilities. These executives' duties
encompass overall strategic policy of the Company and day-to-day activities in
sales, customer communications, product development, marketing, manufacturing,
engineering and other similar activities. The compensation package is intended
to reflect these broad responsibilities.
The Company's compensation package for its executive officers consists of
base salary, incentive payments, stock option grants and, for certain executive
officers, other benefits.
Base Salary
The Compensation Committee sets base salary at the minimum level deemed
sufficient to attract and retain qualified executives. By restricting the role
of base salary in the compensation package, more of an executive's compensation
can be paid in the form of incentives which encourage and reward performance.
The base salaries of individual executives are set in light of the
responsibilities of the position held and the experience of the individual, with
a recognition of the Company's requirements for the top executives to perform
many varied tasks.
Annual Incentive Payments
The Compensation Committee establishes company performance targets based on
certain financial objectives of the Company each year providing for potential
incentive payments under a current management incentive plan. Executive officers
are eligible to receive cash incentives based upon the achievement of such
predetermined performance targets and the executive officer's individual
performance, as determined by the Chief Executive Officer of the Corporation and
approved by the Compensation Committee. Special awards may also be granted as
determined by the Chief Executive Officer and approved by the Compensation
Committee.
Long-Term Incentives
In 1992, the Company adopted the 1992 Stock Option Plan to provide
employees with options to acquire Company Common Stock. All nonqualified stock
options under the 1992 Stock Option Plan are granted at an option price as
determined by the Board of Directors or any committee thereof.
In 1994, the Company adopted the 1994 Stock Option Plan to provide
employees with options to acquire Company Common Stock. Under the 1994 Stock
Option Plan, incentive stock options and nonqualified stock options may be
granted to key employees and consultants of the Company and its subsidiaries. To
date, all options granted under the 1994 Stock Option Plan have been granted at
an exercise price equal to the fair market value on the date immediately prior
to the date of grant.
8
<PAGE>
The Board of Directors or a committee thereof awarded stock options under
the Company's 1994 Stock Option Plan to executive officers during 1996. Stock
options are designed to provide an incentive to the Company's executive officers
and other key employees to increase the market value of the Company's Common
Stock, thus linking company performance and stockholder value to executive
compensation.
On March 31, 1997, the Board of Directors approved, subject to stockholder
approval, the adoption of the First Alert, Inc. 1997 Stock Option Plan in order
to provide key employees and consultants with options to acquire Company Common
Stock.
Chief Executive Officer Compensation
Mr. Messner has entered into an executive employment agreement with the
Company. Mr. Messner's base salary was fixed at the rate of $300,000 in 1996.
Also during 1996, Mr. Messner received stock option grants as explained below.
In 1996, Mr. Messner received a grant of 500,000 stock options of which
options to purchase 186,000 shares were granted pursuant to the provisions of
the 1994 Stock Option Plan and options to purchase 314,000 shares were granted
apart from any Company stock option plan. The Compensation Committee believes
that it is important for Mr. Messner as President and Chief Executive Officer of
the Company to have a meaningful stock interest in the Company. By receiving a
significant portion of his total compensation in the form of stock, Mr. Messner
has additional incentives to maximize stockholder value.
COMPENSATION COMMITTEE
John R. Albers
Anthony J. DiNovi
David V. Harkins
Scott A. Schoen
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
Messrs. Albers, DiNovi, Harkins and Schoen served as members of the
Compensation Committee during fiscal 1996.
Certain Relationships and Related Transactions
Employment Agreements. On September 18, 1996, the Company entered into an
Executive Employment Agreement with B. Joseph Messner. Such agreement provides
for a three (3) year term with additional consecutive one-year terms after
September 30, 1999, unless affirmatively terminated by either the Company or Mr.
Messner, during which Mr. Messner will serve as President and Chief Executive
Officer of the Company in consideration of a specified annual base salary
(currently $300,000 per year), which may be increased from time to time. In
addition to a base salary, Mr. Messner is also eligible to receive incentive
payments as the Company's Board of Directors may determine from time to time and
certain other employment benefits. No incentive payment was earned in 1996.
Such agreement with Mr. Messner provides that upon his death, disability or
termination without cause, as defined in the agreement, Mr. Messner is entitled
to receive as severance the greater of (i) the balance of salary payments due
under the agreement or (ii) one year's salary as in effect on the effective date
of termination, payable in twelve monthly installments and reduced by any
statutorily-mandated severance, change-of-control or other similar payment to
Mr. Messner. Subject to certain limitations, Mr. Messner also continues to
participate in medical, dental and life insurance plans and to receive other
fringe benefits during the severance period.
The agreement also provides that during the period of employment, and for a
period of twelve (12) months following termination, if such termination is due
to a voluntary termination by Mr. Messner or his election not to renew the
agreement, or for cause by the Company, Mr. Messner will not, directly or
indirectly, engage in certain specified activities relating to the Company or
the business
9
<PAGE>
thereof. In addition, the agreement places certain restrictions upon Mr.
Messner's ability to communicate confidential information concerning the Company
to third parties.
The Company and Malcolm Candlish are entering into an Executive Employment
Agreement effective as of January 1, 1997, which provides for a three (3) year
term in consideration of an annual base salary of $100,000 per year. In addition
to the base salary, Mr. Candlish also is eligible to receive incentive payments
as the Company's Board of Directors may determine from time to time and certain
other employment benefits. During the term of this agreement, Mr. Candlish will
perform such duties as he may be directed to perform by the Board of Directors
of the Company from time to time, including serving as Chairman of the Board of
the Company. The agreement also provides that during the period of employment
and for a period of twelve months following the later of the date of termination
of his employment and the date of termination of salary payments thereunder, Mr.
Candlish will not, directly or indirectly, engage in certain specified
activities relating to the Company or the business thereof. In addition, the
agreement places certain restrictions upon Mr. Candlish's ability to communicate
confidential information concerning the Company to third parties.
Management Agreement. On July 31, 1992, the Company and THL Co. entered
into a Management Agreement pursuant to which the Company engaged THL Co. to
provide consulting and management advisory services to the Company for a period
of five years, renewable on a year-to-year basis thereafter. In consideration of
the consulting services, the Company pays an annual fee to THL Co. of $180,000
plus expenses. Management believes that this Management Agreement is on terms no
less favorable to the Company than could have been obtained from an independent
third party.
Shareholders' Agreement and Registration Rights Agreement. In connection
with the acquisition by the Company's wholly-owned subsidiary, BRK Brands, Inc.,
of substantially all of the assets of the BRK Electronics Division of Pittway
Corporation, effective as of July 31, 1992, the Company entered into a
Shareholders' Agreement (the "Shareholders' Agreement") and a Registration
Rights Agreement (the "Registration Rights Agreement") with the initial
investors in the Company (the "Initial Shareholders"). In accordance with the
terms of the Shareholders' Agreement, the Initial Shareholders and Mr. Candlish
are obligated to vote their shares of Common Stock to elect a Board of Directors
of the Company consisting of up to two directors designated by the ML-Lee
Acquisition Funds, two directors designated by Equity Partners and three
directors designated by affiliates of THL Co. (other than the ML-Lee Acquisition
Funds and Equity Partners).
Pursuant to the Registration Rights Agreement, Equity Partners, the ML-Lee
Acquisition Funds and their respective affiliates holding in the aggregate
twenty-five percent (25%) of the shares of Common Stock subject to the
Registration Rights Agreement may require the Company to effect the registration
of shares of Common Stock held by the Initial Shareholders for sale to the
public on three occasions, subject to certain conditions and limitations. In
addition, under the terms of the Registration Rights Agreement, if the Company
proposes to register any of its securities under the Securities Act of 1933, as
amended, whether for its own account or otherwise, the Initial Shareholders are
entitled to notice of such registration and are entitled to include their shares
therein, subject to certain conditions and limitations. All fees, costs and
expenses of any registration effected on behalf of the Initial Shareholders
under the Registration Rights Agreement (other than underwriting discounts and
commissions) will be paid by the Company.
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid to the Company's Chief Executive Officer and each of the Company's four
most highly compensated executive officers (other than the Chief Executive
Officer) whose total annual salary and incentive payments exceeded $100,000 for
all services rendered in all capacities to the Company and its subsidiaries for
the Company's fiscal year ended December 31, 1996 (the "Named Executive
Officers").
10
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and Annual Compensation Other Annual All Other
Principal Position Year Salary(1) Incentives(1) Compensation Compensation
- ------------------------------------------------------- ---- --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Malcolm Candlish....................................... 1996 $ 325,000 $ 0 $ 64,081(2) $ 4,425(3)
Chairman of the Board 1995 400,000 0 77,277(2) 6,524(4)
1994 291,667 180,000 60,866(2) 5,768(5)
B. Joseph Messner(6)................................... 1996 84,231 0 11,319(7) 532(8)
President and Chief Executive Officer 1995 0 0 0 0
1994 0 0 0 0
William K. Brouse...................................... 1996 128,769 0 0 ---
Vice President - Sales 1995 120,461 0 0 6,889(10)
1994 109,083 33,600 0 5,995(11)
Fred W. Higgenbottom(12)............................... 1996 134,239 0 0 6,592(13)
Vice President - Operations 1995 127,343 0 0 9,021(14)
1994 93,503 34,500 0 4,106(15)
Michael A. Rohl........................................ 1996 112,384 0 0 6,069(16)
Vice President and Chief Financial Officer 1995 99,885 5,000 0 3,687(17)
1994 95,583 18,017 0 0
Richard F. Timmons(18)................................. 1996 122,769 0 0 7,156(19)
Vice President - Marketing 1995 114,885 0 0 5,097(20)
1994 104,083 32,100 0 5,232(21)
</TABLE>
- --------------------
(1) Salary and bonus amounts are presented in the year earned; however, the
payment of such amounts may have occurred in other years.
(2) Represents reimbursement of commuting expenses.
(3) Represents $2,521 contributed by BRK Brands, Inc. ("BRK") pursuant to
BRK's Retirement Savings Plan-- 401(k) (the "401(k) Plan") and $1,904 of
insurance premiums.
(4) Represents $4,620 contributed by BRK pursuant to the 401(k) Plan and
$1,904 of insurance premiums.
(5) Represents $4,620 contributed by BRK pursuant to the 401(k) Plan and
$1,148 of insurance premiums.
(6) Mr. Messner became President and Chief Executive Officer of the Company on
September 18, 1996. See discussion of Mr. Messner's Executive Employment
Agreement in "Compensation Committee Interlocks and Insider Participation
-- Employment Agreements."
(7) Represents reimbursement of commuting and other expenses.
(8) Represents $532 for personal use of a Company car.
(9) Represents $3,556 contributed by BRK pursuant to the 401(k) Plan, $148 of
insurance premiums and $2,955 for personal use of a Company car.
(10) Represents $4,620 contributed by BRK pursuant to the 401(k) Plan, $125 of
insurance premiums and $2,144 for personal use of a Company car.
11
<PAGE>
(11) Represents $3,513 contributed by BRK pursuant to the 401(k) Plan, $96 of
insurance premiums and $2,386 for personal use of a Company car.
(12) Mr. Higgenbottom resigned his position as an executive officer of the
Company on December 10, 1996.
(13) Represents $2,509 contributed by BRK pursuant to 401(k) Plan, $132 of
insurance premiums and $3,951 for personal use of a Company car.
(14) Represents $4,620 contributed by BRK pursuant to the 401(k) Plan, $127 of
insurance premiums and $4,274 for personal use of a Company car.
(15) Represents $62 of insurance premiums and $4,044 for personal use of a
Company car.
(16) Represents $3,372 contributed by BRK pursuant to the 401(k) Plan and
$2,697 for personal use of a Company car.
(17) Represents $3,687 contributed by BRK pursuant to the 401(k) Plan.
(18) Mr. Timmons resigned his position as an executive officer of the Company
on January 17, 1997.
(19) Represents $3,620 contributed by BRK pursuant to the 401(k) Plan, $132 of
insurance premiums and $3,404 for personal use of a Company car.
(20) Represents $3,378 contributed by BRK pursuant to the 401(k) Plan, $17 of
insurance premiums and $1,702 for personal use of a Company car.
(21) Represents $3,528 contributed by BRK pursuant to the 401(k) Plan, $4 of
insurance premiums and $1,700 for personal use of a Company car.
Grants of Stock Options
On February 9, 1996, the Company granted options to acquire a total of
258,000 shares of Common Stock at an exercise price of $7.9375 per share to
certain employees, including options to Messrs. Candlish, Brouse, Higgenbottom,
Rohl and Timmons for 50,000, 12,000, 12,000, 10,000 and 12,000 shares,
respectively. The options were not exercisable during the first twelve months
after the date of grant and, thereafter, the options become exercisable as to
25% of the shares covered thereby on each anniversary of the date of grant. On
April 4, 1996, the Company granted options to acquire 222,500 shares of Common
Stock at an exercise price of $6.6875 per share to certain employees on the same
terms, except price, as the options previously granted under the 1994 Stock
Option Plan, as discussed above, including options to Messrs. Brouse,
Higgenbottom, Rohl and Timmons for 25,000, 25,000, 13,000 and 25,000 shares,
respectively. On September 18, 1996, the Company granted to Mr. Messner options
to purchase an aggregate of 500,000 shares with the following terms: (i) options
to purchase 186,000 shares of Common Stock at an exercise price of $6.0625 per
share under the 1994 Stock Option Plan, and options to purchase 114,000 shares
of Common Stock at an exercise price of $6.0625 per share apart from any Company
stock option plan, all of which options vest in equal annual installments over
four years following the date of grant and which accelerate and become
immediately exercisable upon the occurrence of a change of control of the
Company (as defined in Mr. Messner's Executive Employment Agreement); and (ii)
options to purchase 200,000 shares of Common Stock apart from any Company stock
option plan, which options vest only if a change of control of the Company
occurs prior to December 31, 1997. In February 1997, the Company gave the
holders of options to purchase an aggregate of 928,202 shares (including Mr.
Messner) the opportunity to exchange such options for options to purchase the
same number of shares at $3.19 per share. The vesting and other provisions of
such options remain unchanged, except that the options which vest over time will
now vest over four equal annual installments commencing in February 1998.
12
<PAGE>
1996 OPTION GRANTS
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------
Potential Realizable
% of Total Value at Assumed
Options Annual Rates of Stock Price
Granted Appreciation for Option Term
Option to Employees Exercise Expiration ----------------------------
Name Grants in 1996 Price Date 5% 10%
- ---- ------ --------- ------- ------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Malcolm Candlish .............................. 50,000 4.9% $ 7.94 2/09/06 $ 249,595 $ 632,515
Chairman of the Board
B. Joseph Messner ............................. 500,000 49.3% $ 6.06 9/18/06 $1,906,350 $4,831,050
President and Chief Executive Officer
William K. Brouse ............................. 12,000 1.2% $ 7.94 2/09/06 $ 59,903 $ 151,804
Vice President - Sales 25,000 2.5% $ 6.69 $ 105,143 $ 266,455
Fred W. Higgenbottom .......................... 12,000 1.2% $ 7.94 2/09/06 $ 59,903 $ 151,804
Vice President - Operations 25,000 2.5% $ 6.69 $ 105,143 $ 266,455
Michael A. Rohl ............................... 10,000 1.0% $ 7.94 2/09/06 $ 49,919 $ 126,503
Vice President and Chief Financial Officer 13,000 1.3% $ 6.69 4/04/06 $ 54,674 $ 138,557
Richard F. Timmons ............................ 12,000 1.2% $ 7.94 2/09/06 $ 59,903 $ 151,804
Vice President - Marketing 25,000 2.5% $ 6.69 $ 105,143 $ 266,455
</TABLE>
Stock Option Exercises and December 31, 1996 Stock Option Value
Set forth in the table below is information concerning the value of stock
options held at December 31, 1996 by the Named Executive Officers of the
Company. None of the Named Executive Officers exercised any stock options
during the year ended December 31, 1996.
AGGREGATE OPTION EXERCISES IN LAST FISCAL
YEAR AND OPTION VALUES AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
Value of Unexercised
In-The-Money Options
Number of Unexercised at December 31, 1996(1)
Shares Acquired Value Options at December 31, 1996 --------------------------
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Malcolm Candlish............................. 0 0 413,915 246,417 $ 563,868 $ 140,968
Chairman of the Board
B. Joseph Messner............................ 0 0 0 500,000 0 0
President and Chief Executive Officer
William K. Brouse............................ 0 0 96,998 78,000 140,964 35,242
Vice President - Sales
Fred W. Higgenbottom(2)...................... 0 0 0 0 0 0
Vice President - Operations
Michael A. Rohl.............................. 0 0 19,600 44,600 0 0
Vice President and Chief Financial Officer
Richard F. Timmons(3)........................ 0 0 93,999 81,001 126,867 31,718
Vice President - Marketing
</TABLE>
13
<PAGE>
- --------------------
(1) The amounts set forth represent the difference, if positive, between the
fair market value of the Common Stock underlying the options at December
31, 1996 ($3.375 per share) and the exercise price of the options ($1.613
for options under the 1992 Stock Option Plan and $8.50, $13.50, $7.94,
$6.69 and $6.06 for options under the 1994 Stock Option Plan and $6.06 for
options granted apart from any Company stock option plan), multiplied by
the applicable number of shares for which options have been granted.
(2) Mr. Higgenbottom resigned his position as an executive officer of the
Company on December 10, 1996 and consequently all of the options granted to
him under the 1994 Stock Option Plan have terminated, pursuant to the terms
of such stock option plan.
(3) Mr. Timmons resigned his position as an executive officer of the Company on
January 17, 1997 and consequently all of the unexercisable options granted
to him under the 1992 Stock Option Plan and the 1994 Stock Option Plan have
been terminated, pursuant to the terms of each such stock option plan.
PERFORMANCE GRAPH
The graph set forth below compares the change in the Company's cumulative
total stockholder return on its Common Stock (as measured by dividing (i) the
sum of (a) the cumulative amount of dividends for the period indicated, assuming
dividend reinvestment, and (b) the difference between the Company's share price
at the end of the period and March 28, 1994, the date the Company's Common Stock
commenced trading on The Nasdaq National Market; by (ii) the share price at
March 28, 1994) with the cumulative total return of The Nasdaq Stock Market
(U.S.) Index and the cumulative total return of the Nasdaq Non-Financial Stocks
Index (assuming the investment of $100 in the Company's Common Stock, the Nasdaq
Stock Market (U.S.) Index and the Nasdaq Non-Financial Stocks Index on March
28, 1994, and reinvestment of all dividends). During 1995 and 1996, the Company
paid no dividends.
The NASDAQ
Measurement Period First Alert, The NASDAQ Stock Non-Financial
(Fiscal Year Covered) Inc. Market Stocks Index
3/28/94 100 100 100
3/31/94 102 96 96
6/30/94 149 92 89
9/30/94 217 99 97
12/31/94 165 98 97
3/31/95 117 107 105
6/30/95 168 122 122
9/30/95 177 137 136
12/31/95 97 139 135
3/31/96 76 145 142
6/30/96 45 157 154
9/30/96 66 163 158
12/31/96 38 171 164
ITEM 2 -- APPROVAL OF THE FIRST ALERT, INC. 1997 STOCK OPTION PLAN
General
There will be presented at the Annual Meeting a proposal to approve the
First Alert, Inc. 1997 Stock Option Plan (the "1997 Stock Option Plan"), which
was adopted by the Board of Directors on March 31, 1997. The purpose of the 1997
Stock Option Plan is to attract and retain key employees of and consultants to
the Company, to provide an incentive for them to achieve long-range performance
goals, and to enable them to participate in the long-term growth of the Company.
Under the 1997 Stock Option Plan, incentive stock options may be granted to
employees and officers of the Company or any present or future subsidiary and
non-qualified stock options may be granted to employees and officers of, and
consultants to the Company or any present or future subsidiary.
The Board of Directors recommends that the stockholders approve the
adoption of the 1997 Stock Option Plan. The affirmative vote of the holders of
at least a majority of the Common Stock voting in person or by proxy at the
meeting will be required for the approval of the 1997 Stock Option Plan. Set
forth below is a summary of the principal provisions of the 1997 Stock Option
Plan, the full text of which is set forth in Annex 1 to this Proxy Statement.
14
<PAGE>
Administration
At the discretion of the Board of Directors, the 1997 Stock Option Plan
shall be administered by either the full Board of Directors or a committee of
the Board of Directors consisting of two or more members of the Company's Board
of Directors (the "Stock Option Administrator"). The members of the Stock Option
Administrator (if the full Board of Directors is not serving in this capacity)
are appointed by the Board of Directors and the Board of Directors may from time
to time appoint a member or members of the Stock Option Administrator in
substitution for or in addition to the member or members then in office and may
fill vacancies on the Stock Option Administrator however caused.
Eligibility
Subject to the provisions of the 1997 Stock Option Plan, the Stock Option
Administrator has the authority to select optionees and to determine the terms
of the options granted, including (i) the number of shares subject to each
option (ii) when the option becomes exercisable, (iii) the exercise price of the
option (which in the case of an incentive stock option cannot be less than the
fair market value of the Common Stock on the date of grant, or at least 110% of
the fair market value in the case of employees or officers holding 10% of the
total combined voting power of the Company), (iv) the duration of the option
(which in the case of an incentive stock option granted to employees or officers
holding 10% of the total combined voting power of the Company cannot be in
excess of five (5) years), and (v) the time, manner and form of payment upon
exercise of an option. Options designated as non-qualified options may be
granted to officers, key employees and key consultants engaged to provide
services to the Company or any of its subsidiaries. Directors who are not
otherwise employees of the Company or a subsidiary are not eligible to be
granted options pursuant to the 1997 Stock Option Plan.
In determining the eligibility of an individual to be granted an option, as
well as in determining the number of shares to be granted to any individual, the
Stock Option Administrator takes into account the position and responsibilities
of the individual being considered, the nature and value to the Company or its
subsidiaries of the individual's service and accomplishments, his or her present
and potential contribution to the success of the Company or its subsidiaries,
and such other factors as the Stock Option Administrator deems relevant.
Terms of Options
The total number of shares of authorized but unissued shares of Common
Stock for which options may be granted under the 1997 Stock Option Plan may not
exceed 1,300,000 shares, subject to adjustment described below. The maximum
number of shares of Common Stock with respect to which an option may be granted
to an employee in any taxable year of the Company may not exceed 1,300,000
shares. Options granted under the 1997 Stock Option Plan are exercisable at such
times and during such period as is set forth in the Option Agreement (as such
term is defined herein), but cannot have a term in excess of ten (10) years from
the date of grant. The Stock Option Administrator is entitled to accelerate the
date of exercise of any installment of any option except that, without the
consent of the optionee, the Stock Option Administrator shall not accelerate the
exercise date of any installment of any incentive stock option if such
acceleration would violate the annual vesting limitation contained in Section
422(d) of the Internal Revenue Code of 1986, as amended (the "Code"). Each
option will be evidenced by an option agreement (the "Option Agreement") duly
executed on behalf of the Company and by the optionee to whom such option is
granted. The Option Agreement may contain such provisions and conditions as may
be determined by the Stock Option Administrator, including the acceleration of
vesting in connection with any event or circumstance specified therein. The
option exercise price for options designated as non-qualified stock options
granted under the 1997 Stock Option Plan is determined by the Stock Option
Administrator. The option exercise price for incentive stock options granted
under the 1997 Stock Option Plan shall be no less than the fair market value of
the Company Common Stock at the time the option is granted. Options granted
under the 1997 Stock Option Plan may provide for the payment of the exercise
price by delivery of cash or a check payable to the Company or shares of Company
Common Stock owned by the optionee having a fair market value equal in amount to
the exercise price of the options being exercised, or any combination thereof.
The right of any optionee to exercise an option granted under the 1997
Stock Option Plan is not assignable or transferable by such optionee otherwise
than by will or the laws of descent and distribution or (solely with respect
to non-qualified stock options) pursuant to a qualified domestic relations
order, and any option shall be exercisable during the lifetime of such
optionee only by him or her.
15
<PAGE>
Termination or Amendment of the 1997 Stock Option Plan
Unless sooner terminated, each option shall terminate ten (10) years from
the date of the granting thereof. The Board of Directors may at any time
terminate the 1997 Stock Option Plan or make such modification or amendment to
it as the Board of Directors deems advisable; provided, however, that the Board
of Directors may not, without stockholder approval, increase the maximum number
of shares for which options may be granted or change the designation of the
class of persons eligible to receive options under the 1997 Stock Option Plan or
make any other change in the 1997 Stock Option Plan which requires stockholder
approval under applicable law or regulations or any applicable rule or
regulation of any stock exchange or over-the-counter market on which the
Company's Common Stock is listed. The Stock Option Administrator may terminate,
amend or modify any outstanding option without the consent of the optionee;
provided, however, that without the consent of the optionee, the Stock Option
Administrator shall not change the number of shares subject to an option, or the
exercise price or term thereof.
Recapitalization; Reorganization
The 1997 Stock Option Plan provides that the number and kind of shares as
to which options may be granted thereunder, and as to which outstanding options
then unexercised shall be exercisable, shall be adjusted to prevent dilution in
the event of any reorganization or recapitalization (except as may be provided
in any Option Agreement), reclassification, stock subdivision, combination of
shares or dividends payable in capital stock. Upon dissolution or liquidation of
the Company, all options granted under the 1997 Stock Option Plan shall
terminate immediately prior to the consummation of such proposed action or at
such other time and subject to such other conditions as shall be determined by
the Stock Option Administrator.
Tax Effects
Options granted under the 1997 Stock Option Plan are intended to be either
incentive stock options, as defined in Section 422 of the Code, or nonqualified
stock options.
Incentive Stock Options. Except as provided below with respect to the
alternative minimum tax, the optionee will not recognize taxable income upon the
grant or exercise of an incentive stock option. If the optionee holds the shares
of Common Stock received pursuant to the exercise of the option for at least one
year after the date of exercise and for at least two years after the option is
granted, the optionee will recognize long-term capital gain or loss upon the
disposition of the Common Stock measured by the difference between the option
exercise price (the stock's basis) and the amount received for such shares upon
disposition.
In the event that the optionee disposes of the Common Stock prior to the
expiration of the required holding periods (a "disqualifying disposition"), the
optionee generally will realize ordinary income equal to the difference between
the exercise price and the lower of the fair market value of the Common Stock at
the date of the option exercise or the sale price of the Common Stock. The basis
in the Common Stock acquired upon exercise of the option will equal the amount
of income recognized by the optionee plus the option exercise price. Upon
eventual disposition of the Common Stock, the optionee will recognize long-term
or short-term capital gain or loss, depending on the holding period of the
Common Stock and the difference between the amount realized by the optionee upon
disposition of the Common Stock and the optionee's basis in the Common Stock.
For alternative minimum tax purposes, the excess of the fair market value
of Common Stock on the date of the exercise of the incentive stock option over
the exercise price of the option is included in alternative minimum taxable
income for alternative minimum tax purposes. If the alternative minimum tax
applies to the optionee, an alternative minimum tax credit may reduce the
regular tax upon eventual disposition of the Common Stock.
The Company will not be allowed an income tax deduction upon the grant or
exercise of an incentive stock option. Upon a disqualifying disposition by the
optionee of shares acquired upon exercise of the incentive stock option, the
Company will be allowed a deduction in an amount equal to the ordinary income
recognized by the optionee.
Under the proposed regulations issued by the Internal Revenue Service, the
exercise of an option with previously acquired Common Stock of the Company will
be treated as, in effect, two separate transactions. Pursuant to Section 1036 of
the Code, the first transaction will be a tax-free exchange of the previously
acquired shares for the same number of new shares. The new shares will
16
<PAGE>
retain the basis and, except, as provided below, the holding periods of the
previously acquired shares. The second transaction will be the issuance of
additional new shares having a value equal to the difference between the
aggregate fair market value of all of the new shares being acquired and the
aggregate option exercise price for those shares. Because the exercise of an
incentive stock option does not result in the recognition by the optionee of
income, this issuance will also be tax-free (unless the alternative minimum
tax applies, as described above). The optionee's basis in these additional
shares will be zero and the optionee's holding period for these shares will
commence on the date on which the shares are transferred. For purposes of the
one and two-year holding period requirements which must be met for favorable
incentive stock option tax treatment to apply, the holding periods of
previously acquired shares are disregarded.
Nonqualified Stock Options. As in the case of incentive stock options, no
income is recognized by the optionee on the grant of a nonqualified stock
option. On the exercise by an optionee of a nonqualified option, generally the
excess of the fair market value of the stock when the option is exercised over
its cost to the optionee will be (a) taxable to the optionee as ordinary income
and (b) deductible for income tax purposes by the Company. The optionee's tax
basis in the Common Stock will equal the cost for the Common Stock plus the
amount of ordinary income the optionee had to recognize with respect to the
nonqualified stock option.
The Internal Revenue Service will treat the exercise of a nonqualified
stock option with already owned Common Stock as two transactions. First, there
will be a tax-free exchange of the old shares for a like number of shares under
Section 1036 of the Code, with such exchanged shares retaining the basis and
holding periods of the old shares. Second, there will be an issuance of
additional new shares having a value equal to the difference between the fair
market value of all the new shares being acquired (including the exchanged
shares and the additional new shares) and the aggregate option price for those
shares. The employee will recognize ordinary income under Section 83 of the
Code, in an amount equal to the fair market value of the additional new shares
(i.e., the spread on the option). The additional new shares will have a basis
equal to the fair market value of the additional new shares.
Accordingly, upon a subsequent disposition of Common Stock acquired upon
the exercise of a nonqualified stock option, the optionee will recognize
short-term or long-term capital gain or loss, depending upon the holding period
of the Common Stock equal to the difference between the amount realized upon
disposition of the stock by the optionee and the optionee's basis in the stock.
For all options, different tax rules may apply if the optionee is subject
to Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL AND ADOPTION OF
THE FIRST ALERT, INC. 1997 STOCK OPTION PLAN.
ITEM 3 -- INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed Price Waterhouse LLP, as independent
accountants to audit the consolidated financial statements of the Company and
its subsidiaries for the fiscal year ending December 31, 1997. Price Waterhouse
LLP, certified public accountants, has served as independent accountants since
1992 to audit the financial statements of the Company.
A representative of Price Waterhouse LLP is expected to be present at the
meeting and will have the opportunity to make a statement if he or she so
desires and to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPOINTMENT OF PRICE
WATERHOUSE LLP.
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's officers and
directors and persons owning greater than 10% of the outstanding Company Common
Stock to file reports of ownership and changes in ownership with the Securities
and Exchange Commission. Officers, directors and persons owning greater than 10%
of the outstanding Company Common Stock are required by the Securities and
Exchange Commission regulations to furnish the Company with copies of all
Section 16(a) forms they file.
17
<PAGE>
Based solely on copies of such forms furnished, as provided above, and
certificates from officers, directors and persons owning greater than 10% of
Company Common Stock, the Company believes that during fiscal year 1996 there
was compliance with all Section 16(a) filing requirements applicable to its
officers, directors and persons owning greater than 10% of Company Common Stock.
TIME FOR SUBMISSION OF STOCKHOLDER PROPOSALS
Under regulations adopted by the Securities and Exchange Commission, any
proposal submitted for inclusion in the Company's Proxy Statement relating to
the Annual Meeting of Stockholders to be held in 1998 must be received at the
Company's principal executive offices in Aurora, Illinois on or before December
7, 1997. Receipt by the Company of any such proposal from a qualified
stockholder in a timely manner will not ensure its inclusion in the proxy
material because there are other requirements in the proxy rules for such
inclusions.
In addition to the Securities and Exchange Commission requirements
regarding stockholder proposals, the Company's By-laws contain provisions
regarding matters to be brought before stockholder meetings. If such matters are
to be included in the Company's Proxy Statement and form of proxy, notice
thereof must be delivered to the Company in accordance with the Securities and
Exchange Commission requirements set forth in the paragraph above. If such
matters are not to be included in the Company's Proxy Statement and form of
proxy, notice of them must be given by personal delivery or by United States
mail, postage prepaid, to the Secretary of the Company on or before February 5,
1998.
OTHER MATTERS
Management knows of no matters which may properly be and are likely to be
brought before the meeting other than the matters discussed herein. However, if
any other matters properly come before the meeting, the persons named in the
enclosed proxy will vote in accordance with their best judgment.
The cost of this solicitation will be borne by the Company. It is expected
that the solicitation will be made primarily by mail, but regular employees or
representatives of the Company (none of whom will receive any extra compensation
for their activities) may also solicit proxies by telephone, telecopier and in
person and arrange for brokerage houses and other custodians, nominees and
fiduciaries to send proxies and proxy material to their principals at the
expense of the Company.
10-K REPORT
THE COMPANY WILL PROVIDE EACH BENEFICIAL OWNER OF ITS SECURITIES WITH A
COPY OF AN ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS AND
SCHEDULES THERETO, REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION FOR THE COMPANY'S MOST RECENT FISCAL YEAR, WITHOUT CHARGE, UPON
RECEIPT OF A WRITTEN REQUEST FROM SUCH PERSON. SUCH REQUEST SHOULD BE SENT TO
MICHAEL A. ROHL, VICE PRESIDENT AND CHIEF FINANCIAL OFFICER, FIRST ALERT, INC.,
P.O. BOX 68, AURORA, ILLINOIS, 60507-0068.
18
<PAGE>
VOTING PROXIES
The Board of Directors recommends an affirmative vote on all proposals
specified. Proxies will be voted as specified. If signed proxies are returned
without specifying an affirmative or negative vote on any proposal, the shares
represented by such proxies will be voted in favor of the Board of Directors'
recommendations.
By order of the Board of Directors
HALDON K. GRANT
Secretary
April 7, 1997
19
<PAGE>
ANNEX 1
FIRST ALERT, INC.
1997 STOCK OPTION PLAN
1. Purpose of the Plan. This stock option plan (the "Plan") is intended to
provide incentives: (a) to the officers and other employees of First Alert, Inc.
(the "Company") and any present or future subsidiaries of the Company by
providing them with opportunities to purchase stock in the Company pursuant to
options granted hereunder which qualify as "incentive stock options" under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") ("ISO"
or "ISOs"); and (b) to officers, employees and consultants of the Company and
any present or future subsidiaries by providing them with opportunities to
purchase stock in the Company pursuant to options granted hereunder which do not
qualify as ISOs ("Non-Qualified Option" or "Non-Qualified Options"). As used
herein, the terms "parent" and "subsidiary" mean "parent corporation" and
"subsidiary corporation," respectively, as those terms are defined in Section
424 of the Code and the Treasury Regulations promulgated thereunder (the
"Regulations").
2. Stock Subject to the Plan.
(a) The total number of shares of the authorized but unissued shares of the
common stock, $.01 par value, of the Company ("Common Stock") for which options
may be granted under the Plan shall not exceed 1,300,000 shares, subject to
adjustment as provided in Section 11 hereof.
(b) If an option granted hereunder shall expire or terminate for any reason
without having been exercised in full, the unpurchased shares subject thereto
shall again be available for subsequent option grants under the Plan.
(c) Stock issuable upon exercise of an option granted under the Plan may be
subject to such restrictions on transfer, repurchase rights or other
restrictions as shall be determined by the Committee (as defined in Section 3
below).
3. Administration of the Plan.
(a) At the discretion of the Board of Directors, the Plan shall be
administered either (i) by the full Board of Directors or (ii) by a committee
(the "Committee") consisting of two or more members of the Company's Board of
Directors. In the event that the Board of Directors is the administrator of the
Plan, references herein to the Committee shall be deemed to include the full
Board of Directors. The Board of Directors may from time to time appoint a
member or members of the Committee in substitution for or in addition to the
member or members then in office and may fill vacancies on the Committee however
caused. The Committee shall choose one of its members as Chairman and shall hold
meetings at such times and places as it shall deem advisable. A majority of the
members of the Committee shall constitute a quorum and any action may be taken
by a majority of those present and voting at any meeting. Any action may also be
taken without the necessity of a meeting by a written instrument signed by a
majority of the Committee. The decision of the Committee as to all questions of
interpretation and application of the Plan shall be final, binding and
conclusive on all persons. The Committee shall have the authority to adopt,
amend and rescind such rules and regulations as, in its opinion, may be
advisable in the administration of the Plan. The Committee may correct any
defect or supply any omission or reconcile any inconsistency in the Plan or in
any option agreement granted hereunder in the manner and to the extent it shall
deem expedient to carry the Plan into effect and shall be the sole and final
judge of such expediency. No Committee member shall be liable for any action or
determination made in good faith.
(b) Subject to the terms of the Plan, the Committee shall have the
authority to (i) determine the employees of the Company and its subsidiaries
(from among the class of employees eligible under Section 4 to receive ISOs)
to whom ISOs may be granted, and to determine (from the class of individuals
eligible under Section 4 to receive Non-Qualified Options) to whom
Non-Qualified Options may be granted; (ii) determine the time or times at
which options may be granted; (iii) determine the option price of shares
subject to each option which price shall not be less than the minimum price
specified in Section 6; (iv) determine whether each option granted shall be an
ISO or a Non-Qualified Option; (v) determine (subject to Section 9) the time
or times when each option shall become exercisable and the duration of the
exercise period; and (vi) determine whether restrictions such as repurchase
options are to be imposed on shares subject to options and the nature of such
restrictions.
20
<PAGE>
4. Eligibility.
(a) Options designated as ISOs may be granted only to employees (including
officers who are employees) of the Company or of any of its subsidiaries.
Non-Qualified Options may be granted to any officer, employee, or consultant of
the Company or of any of its subsidiaries.
(b) Directors who are not otherwise employees of the Company or a
subsidiary shall not be eligible to be granted an option pursuant to the Plan.
(c) In determining the eligibility of an individual to be granted an
option, as well as in determining the number of shares to be optioned to any
person, the Committee shall take into account the position and responsibilities
of the person being considered, the nature and value to the Company or its
subsidiaries of his or her service and accomplishments, his or her present and
potential contribution to the success of the Company or its subsidiaries, and
such other factors as the Committee may deem relevant.
(d) No option designated as an ISO shall be granted to any employee of the
Company or any subsidiary if such employee owns, immediately prior to the grant
of an option, stock representing more than 10% of the total combined voting
power of all classes of stock of the Company or a parent or a subsidiary, unless
the purchase price for the stock under such option shall be at least 110% of its
fair market value at the time such option is granted and the option, by its
terms, shall not be exercisable more than five years from the date it is
granted. In determining the stock ownership under this paragraph, the provisions
of Section 424(d) of the Code shall be controlling. In determining the fair
market value under this paragraph, the provisions of Section 6 hereof shall
apply.
(e) The maximum number of shares of Common Stock with respect to which an
Option may be granted to any employee in any taxable year of the Company shall
not exceed 1,300,000 shares, taking into account shares subject to options
granted and terminated, or repriced, during such taxable year, subject to
adjustment as provided in Section 11 hereof.
5. Option Agreement. Each option shall be evidenced by an option agreement
(the "Agreement") duly executed on behalf of the Company and by the optionee to
whom such option is granted, which Agreement shall comply with and be subject to
the terms and conditions of the Plan. The Agreement may contain such other
terms, provisions and conditions which are not inconsistent with the Plan as may
be determined by the Committee, provided that options designated as ISOs shall
meet all of the conditions for ISOs as defined in Section 422 of the Code. The
date of grant of an option shall be as determined by the Committee. More than
one option may be granted to an individual.
6. Option Price. The option price or prices of shares of the Company's
Common Stock for options designated as NonQualified Options shall be as
determined by the Committee, but in no event shall the option price be less than
the minimum legal consideration required therefor under the laws of the State of
Delaware or the laws of any jurisdiction in which the Company or its successors
in interest may be organized. The option price or prices of shares of the
Company's Common Stock for ISOs shall be the fair market value of such Common
Stock at the time the option is granted as determined by the Committee in
accordance with the Regulations promulgated under Section 422 of the Code. If
such shares are then listed on any national securities exchange, the fair market
value shall be the mean between the high and low sales prices, if any, on such
exchange on the date of the grant of the option or, if none, shall be determined
by taking a weighted average of the means between the highest and lowest sales
prices on the nearest date before and the nearest date after the date of grant
in accordance with Treasury Regulations Section 25.2512-2. If the shares are not
then listed on any such exchange, the fair market value of such shares shall be
the mean between the high and low sales prices, if any, as reported in The
Nasdaq National Market for the date of the grant of the option, or, if none,
shall be determined by taking a weighted average of the means between the
highest and lowest sales on the nearest date before and the nearest date after
the date of grant in accordance with Treasury Regulations Section 25.2512-2. If
the shares are not then either listed on any such exchange or quoted in The
Nasdaq National Market, the fair market value shall be the mean between the
average of the "Bid" and the average of the "Ask" prices, if any, as reported in
the National Daily Quotation Service for the date of the grant of the option,
or, if none, shall be determined by taking a weighted average of the means
between the highest and lowest sales prices on the nearest date before and the
nearest date after the date of grant in accordance with Treasury Regulations
Section 25.2512-2. If the fair market value cannot be determined under the
preceding three sentences, it shall be determined in good faith by the
Committee.
21
<PAGE>
7. Manner of Payment; Manner of Exercise.
(a) Options granted under the Plan may provide for the payment of the
exercise price by delivery of (i) cash or a check payable to the order of the
Company in an amount equal to the exercise price of such options, (ii) shares of
Common Stock of the Company owned by the optionee having a fair market value
equal in amount to the exercise price of the options being exercised, or (iii)
any combination of (i) and (ii), provided, however, that payment of the exercise
price by delivery of shares of Common Stock of the Company owned by such
optionee may be made only under such circumstances and on such terms as may from
time to time be established by the Committee and only if provided for in the
Agreement. The fair market value of any shares of the Company's Common Stock
which may be delivered upon exercise of an option shall be determined by the
Committee in accordance with Section 6 hereof. Payment may also be made by
delivery of a properly executed exercise notice to the Company, together with a
copy of irrevocable instructions to a broker to deliver promptly to the Company
the amount of sale or loan proceeds to pay the exercise price if provided for in
the Agreement. To facilitate the foregoing, the Company may enter into
agreements for coordinated procedures with one or more brokerage firms.
(b) To the extent that the right to purchase shares under an option has
accrued and is in effect, options may be exercised in full at one time or in
part from time to time, by giving written notice, signed by the person or
persons exercising the option, to the Company, stating the number of shares with
respect to which the option is being exercised, accompanied by payment in full
for such shares as provided in subparagraph (a) above. Upon such exercise,
delivery of a certificate for paid-up non-assessable shares shall be made at the
principal office of the Company to the person or persons exercising the option
at such time, during ordinary business hours, after ten business days from the
date of receipt of the notice by the Company, as shall be designated in such
notice, or at such time, place and manner as may be agreed upon by the Company
and the person or persons exercising the option.
8. Exercise of Options. Subject to the provisions of paragraphs 9 through
11, each option granted under the Plan shall be exercisable as follows:
(a) Vesting. The option shall either be fully exercisable on the date of
grant or shall become exercisable thereafter in such installments as the
Committee may specify;
(b) Full Vesting of Installments. Once an installment becomes exercisable
it shall remain exercisable until expiration or termination of the option,
unless otherwise specified by the Committee;
(c) Partial Exercise. Each option or installment may be exercised at any
time or from time to time, in whole or in part, for up to the total number of
shares with respect to which it is then exercisable; and
(d) Acceleration of Vesting. The Committee shall have the right to
accelerate the date of exercise of any installment of any option; provided that
the Committee shall not, without the consent of an optionee, accelerate the
exercise date of any installment of any option granted to any employee as an ISO
if such acceleration would violate the annual vesting limitation contained in
Section 422(d) of the Code. The Committee, in its sole discretion, shall have
the right to provide in any Agreement for the acceleration of the date of
exercise of any installment of any option granted hereunder upon the occurrence
of any event or circumstance as the Committee shall determine.
9. Term of Options; Exercisability.
(a) Term. Each option shall expire not more than ten (10) years from the
date of the granting thereof, but shall be subject to earlier termination as may
be provided in any Agreement evidencing an option granted hereunder.
(b) Exercisability. An option granted to an employee optionee who ceases to
be an employee of the Company or one of its subsidiaries shall be exercisable
only to the extent that the right to purchase shares under such option has
accrued and is in effect on the date such optionee ceases to be an employee of
the Company or one of its subsidiaries.
10. Options Not Transferable. Options granted under the Plan and the right
of any optionee to exercise any option granted to him or her shall not be
assignable or transferable by such optionee otherwise than by will or the laws
of descent and distribution, and any such option shall be exercisable during the
lifetime of such optionee only by him or her. Any option granted under the Plan
shall be null and void and without effect upon any attempted assignment or
transfer, except as herein provided, including without limitation
22
<PAGE>
any purported assignment, whether voluntary or by operation of law, pledge,
hypothecation or other disposition, attachment, divorce, trustee process or
similar process, whether legal or equitable, upon such option.
11. Adjustments.
(a) Upon the occurrence of any of the following events, an optionee's
rights with respect to options granted to him or her hereunder shall be adjusted
as hereinafter provided, unless otherwise specifically provided in the written
agreement between the optionee and the Company relating to such option:
(i) Stock Dividends and Stock Splits. If the shares of Common Stock shall
be subdivided or combined into a greater or smaller number of shares or if the
Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock deliverable upon
the exercise of options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend; and
(ii) Recapitalization or Reorganization. In the event of a recapitalization
or reorganization of the Company (except as otherwise provided in any Agreement)
pursuant to which securities of the Company or of another corporation are issued
with respect to the outstanding shares of Common Stock, an optionee upon
exercising an option shall be entitled to receive for the purchase price paid
upon such exercise the securities the optionee would have received if the
optionee had exercised the option prior to such recapitalization or
reorganization.
(iii)Modification of ISOs. Notwithstanding the foregoing, any adjustments
made pursuant to subparagraphs (i) or (ii) with respect to ISOs shall be made
only after the Committee, after consulting with counsel for the Company,
determines whether such adjustments would constitute a "modification" of such
ISOs (as that term is defined in Section 424 of the Code) or would cause any
adverse tax consequences for the holders of such ISOs. If the Committee
determines that such adjustments made with respect to ISOs would constitute a
modification of such ISOs, it may refrain from making such adjustments.
(iv) Dissolution or Liquidation. In the event of the proposed dissolution
or liquidation of the Company, each option will terminate immediately prior to
the consummation of such proposed action or at such other time and subject to
such other conditions as shall be determined by the Committee.
(v) Issuances of Securities. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
subject to options. No adjustments shall be made for dividends paid in cash or
in property other than securities of the Company.
(vi) Fractional Shares. No fractional share shall be issued under the Plan
and the optionee shall receive from the Company cash in lieu of such fractional
shares.
(vii) Adjustments. Upon the happening of any of the events described in
subparagraphs (i) or (ii) above, the class and aggregate number of shares set
forth in Section 2 and Section 4 hereof that are subject to options which
previously have been or subsequently may be granted under the Plan shall also
be appropriately adjusted to reflect the events described in such
subparagraphs. The Committee or the Successor Board shall determine the
specific adjustments to be made under this paragraph 11 and, subject to
Section 3, its determination shall be conclusive.
(b) If any person or entity owning restricted Common Stock obtained by
exercise of an option made hereunder receives shares or securities or cash in
connection with a corporate transaction described in subparagraphs (i) or (ii)
above as a result of owning such restricted Common Stock, such shares or
securities or cash shall be subject to all of the conditions and restrictions
applicable to the restricted Common Stock with respect to which such shares or
securities or cash were issued, unless otherwise determined by the Committee or
the Successor Board.
23
<PAGE>
12. No Special Employment Rights. Nothing contained in the Plan or in any
option granted under the Plan shall confer upon any option holder any right with
respect to the continuation of his employment by the Company (or any subsidiary)
or interfere in any way with the right of the Company (or any subsidiary),
subject to the terms of any separate employment agreement to the contrary, at
any time to terminate such employment or to increase or decrease the
compensation of the option holder from the rate in existence at the time of the
grant of an option. Whether an authorized leave of absence, or absence in
military or government service, shall constitute termination of employment shall
be determined by the Committee at the time.
13. Withholding. The Company's obligation to deliver shares upon the
exercise of any Option granted under the Plan shall be subject to the option
holder's satisfaction of all applicable Federal, state and local income, excise,
employment and any other tax withholding requirements. The Company and employee
may agree to withhold shares of Common Stock purchased upon exercise of an
option to satisfy the above-mentioned withholding requirements. The option
holder may satisfy the foregoing condition by electing to have the Company
withhold from delivery shares having a value equal to the amount of tax to be
withheld in the manner set forth in the Agreement and in compliance with such
rules and regulations as determined by the Committee from time to time. The
Committee shall also have the right to require that shares be withheld from
delivery to satisfy such condition.
14. Restrictions on Issue of Shares.
(a) Notwithstanding the provisions of Section 7, the Company may delay the
issuance of shares covered by the exercise of an option and the delivery of a
certificate for such shares until one of the following conditions shall be
satisfied:
(i) The shares with respect to which such option has been exercised are at
the time of the issue of such shares effectively registered or qualified under
applicable Federal and state securities acts now in force or as hereafter
amended; or
(ii) Counsel for the Company shall have given an opinion, which opinion
shall not be unreasonably conditioned or withheld, that such shares are exempt
from registration and qualification under applicable Federal and state
securities acts now in force or as hereafter amended.
(b) It is intended that all exercises of options shall be effective, and
the Company shall use its best efforts to bring about compliance with the above
conditions within a reasonable time, except that the Company shall be under no
obligation to qualify shares or to cause a registration statement or a
post-effective amendment to any registration statement to be prepared for the
purpose of covering the issue of shares in respect of which any option may be
exercised, except as otherwise agreed to by the Company in writing.
15. Purchase for Investment; Rights of Holder on Subsequent Registration.
Unless the shares to be issued upon exercise of an option granted under the Plan
have been effectively registered under the Securities Act of 1933, as now in
force or hereafter amended, the Company shall be under no obligation to issue
any shares covered by any option unless the person who exercises such option, in
whole or in part, shall give a written representation and undertaking to the
Company which is satisfactory in form and scope to counsel for the Company and
upon which, in the opinion of such counsel, the Company may reasonably rely,
that he or she is acquiring the shares issued pursuant to such exercise of the
option for his or her own account as an investment and not with a view to, or
for sale in connection with, the distribution of any such shares, and that he or
she will make no transfer of the same except in compliance with any rules and
regulations in force at the time of such transfer under the Securities Act of
1933, or any other applicable law, and that if shares are issued without such
registration, a legend to this effect may be endorsed upon the securities so
issued. In the event that the Company shall, nevertheless, deem it necessary or
desirable to register under the Securities Act of 1933 or other applicable
statutes any shares with respect to which an option shall have been exercised,
or to qualify any such shares for exemption from the Securities such information
in writing for use in any registration statement, supplementary registration
statement, prospectus, preliminary prospectus or offering circular as is
reasonably necessary for such purpose and may require reasonable indemnity to
the Company and its officers and directors and controlling persons from such
holder against all losses, claims, damages and liabilities arising from such use
of the information so furnished and caused by any untrue statement of any
material fact therein or caused by the omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made.
24
<PAGE>
16. Loans. The Company may make loans to optionees to permit them to
exercise options. If loans are made, the requirements of all applicable Federal
and state laws and regulations regarding such loans must be met.
17. Modification of Outstanding Options. The Committee may authorize the
amendment of any outstanding option with the consent of the optionee when and
subject to such conditions as are deemed to be in the best interests of the
Company and in accordance with the purposes of this Plan.
18. Approval of Stockholders. The Plan shall be subject to approval by the
vote of stockholders holding at least a majority of the voting stock of the
Company present, or represented, and entitled to vote at a duly held
stockholders' meeting, or by written consent of stockholders holding at least a
majority of the voting stock of the Company, within twelve (12) months after the
adoption of the Plan by the Board of Directors and shall take effect as of the
date of adoption by the Board of Directors upon such approval. The Committee may
grant options under the Plan prior to such approval, but any such option shall
become effective as of the date of grant only upon such approval and,
accordingly, no such option may be exercisable prior to such approval.
19.Termination and Amendment. Unless sooner terminated as herein provided,
the Plan shall terminate ten (10) years from the date upon which the Plan was
duly adopted by the Board of Directors of the Company. The Board of Directors
may at any time terminate the Plan or make such modification or amendment
thereof as it deems advisable; provided, however, that except as provided in
this Section 19, the Board of Directors may not, without the approval of the
stockholders of the Company obtained in the manner stated in Section 18,
increase the maximum number of shares for which options may be granted or change
the designation of the class of persons eligible to receive options under the
Plan, or make any other change in the Plan which requires stockholder approval
under applicable law or regulations or any applicable rule or regulation of any
stock exchange or over-the-counter market on which the Company's Common Stock is
then listed. The Committee may grant options under the Plan prior to such
approval, but any such option shall become effective as of the date of grant
only upon such approval and, accordingly, no such option may be exercisable
prior to such approval. The Committee may terminate, amend or modify any
outstanding option without the consent of the option holder, provided, however,
that, except as provided in Section 11, without the consent of the optionee, the
Committee shall not change the number of shares subject to an option, nor the
exercise price thereof, nor extend the term of such option.
20. Reservation of Stock. The Company shall at all times during the term of
the Plan reserve and keep available such number of shares of stock as will be
sufficient to satisfy the requirements of the Plan and shall pay all fees and
expenses necessarily incurred by the Company in connection therewith.
21. Limitation of Rights in the Option Shares. An optionee shall not be
deemed for any purpose to be a stockholder of the Company with respect to any of
the options except to the extent that the option shall have been exercised with
respect thereto and, in addition, a certificate shall have been issued
theretofore and delivered to the optionee.
22. Notices. Any communication or notice required or permitted to be given
under the Plan shall be in writing, and mailed by registered or certified mail
or delivered by hand, if to the Company, to its principal place of business,
attention: President, and, if to an optionee, to the address as appearing on the
records of the Company.
25
<PAGE>
Exhibit 3
[LOGO]
March 6, 1998
To Our Shareholders:
On behalf of the Board of Directors of First Alert, Inc. (the 'Company'), I
am pleased to inform you that on February 28, 1998, the Company entered into an
Agreement and Plan of Merger (the 'Merger Agreement') with Sunbeam Corporation
and its subsidiary, Sentinel Acquisition Corp. (the 'Purchaser'). Pursuant to
the Merger Agreement, the Purchaser has today commenced a cash tender offer (the
'Offer') to purchase all of the outstanding shares of Common Stock of the
Company at $5.25 per share, net to the seller in cash, subject to the terms and
conditions in the Offer to Purchase accompanying this letter.
The Offer will be followed by a merger (the 'Merger') in which any
remaining shares of Common Stock of the Company (except for any shares as to
which the holder has properly exercised dissenters' rights of appraisal) will be
converted into the right to receive $5.25 in cash, without interest.
YOUR BOARD OF DIRECTORS (BY THE UNANIMOUS VOTE OF ALL DIRECTORS) HAS
DETERMINED THAT THE OFFER AND MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF,
THE COMPANY AND ITS SHAREHOLDERS AND HAS APPROVED THE MERGER AGREEMENT, THE
OFFER AND THE MERGER. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS OF THE COMPANY ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO
THE OFFER.
In arriving at its recommendation, the Board of Directors gave careful
consideration to the factors described in the attached Schedule 14D-9 that is
being filed today with the Securities and Exchange Commission, including the
opinions of Salomon Brothers Inc and Smith Barney Inc. (collectively doing
business as 'Salomon Smith Barney') and NationsBanc Montgomery Securities LLC,
the Company's financial advisors, that the consideration to be received by the
shareholders in the Offer and the Merger is fair, from a financial point of
view, to such shareholders.
In addition to the attached Schedule 14D-9, also enclosed is the Offer to
Purchase together with related materials, including a Letter of Transmittal to
be used for tendering your shares in the Offer. These documents state the terms
and conditions of the Offer and the Merger and provide instructions as to how to
tender your shares. We urge you to read these documents carefully in making your
decision with respect to tendering your shares pursuant to the Offer.
On behalf of the Board of Directors,
/s/ B. Joseph Messner
-------------------------------------
B. JOSEPH MESSNER
President and Chief Executive Officer
<PAGE>
EXHIBIT 4
February 16, 1998
PERSONAL AND CONFIDENTIAL
Anthony DiNovi, Managing Director
Thomas H. Lee Company
75 State Street
Boston, MA 02109
Dear Mr. DiNovi:
We have requested information from First Alert, Inc. (the "Company") in
connection with our consideration of possibly acquiring the Company and/or the
business (the "Business") of the Company (the "Transaction"). As a condition to
furnishing such information to us, the Company requires that we agree, as set
forth below, to treat confidentially any information that the Company or its
officers, directors, agents, advisors or controlling persons, furnish to us or
our Representatives (which term shall include our directors, officers,
employees, agents, advisors, attorneys and accountants) (such information being
collectively referred to herein as the "Evaluation Material").
The term "Evaluation Material" does not include any information that
(i) at the time of disclosure or thereafter is in or comes into the public
domain other than as a result of a disclosure by us or our representatives, (ii)
is already in our position or becomes available to us on a non-confidential
basis from a source other than the Company or its agents or advisors, provided
that such source is not and was not (to our knowledge after reasonable inquiry)
bound by an obligation of secrecy to the Company or another party or (iii) has
been independently developed by us without violation of the agreements contained
in this letter.
We hereby agree that the Evaluation Material will be used by us and our
Representatives solely for the purpose of evaluating a possible Transaction
between the Company and us, will not be used in any way detrimental to the
Company, and will be kept confidential by us and our representatives; provided,
however, that (i) the existence of a possible Transaction and any such
information may be disclosed to those of our Representatives who need to know
such information for the purpose of
1
<PAGE>
evaluating any such possible Transaction between the Company and us, provided,
further, however, that (a) such Representatives will be informed by us on a
confiden tial nature of such information and will be required by us to treat
such information confidentially as if such Representative were a party to this
agreement and we shall be responsible for any disclosure by our Representatives,
and (ii) any disclosure of such information may be made to which the Company
consents in writing.
In addition, without the prior written consent of the Company except as
may be required by law, and then only after prior written notice to the Company,
we will not, and will cause our Representatives not to, disclose to any person
either the fact that discussions or negotiations are taking place concerning a
possible Transaction between the Company and us or any of the terms, conditions
or other facts with respect to any such possible Transaction, including the
existence or status thereof. The term "person" as used in this letter shall be
broadly interpreted to include, without limitation, any corporation, company,
partnership or other entity or individual. It is our understanding that the
Company and Thomas H. Lee Company similarly will not disclose to any person
either the fact that discussions or negotiations are taking place concerning a
possible Transaction or other facts with respect to any such possible
Transaction.
In the event that we or our Representative are requested or required to
disclose all or any part of the information contained in the Evaluation
Material, we agree (i) to notify the Company of the existence, terms and
circumstances surround ing such a request or requirement as promptly as the
circumstances permit so that it may seek an appropriate protective order and/or
waive our compliance with the provisions of the agreements contained in this
letter. If in the absence of a protective order, we or any of our
Representatives are nonetheless in the opinion of our counsel compelled to
disclose Evaluation Material or any other information concerning the
Transaction, we or any such representative may disclose only that portion of the
Evaluation or other material which we are advised by counsel is so
legally compelled, and we will exercise our best efforts to obtain assurance
that confidential treatment will be accorded such Evaluation Material.
Until the earlier of (i) the acquisition of the Business by us and (ii)
two years from the date of this letter, we agree not to initiate or maintain
contact (except for contacts in the ordinary course of business) with any
officer, director, employee, supplier, distributor, broker or customer of the
Business concerning its operations, assets, prospects or finances, except with
the express written permission of the Company. It is understood that the Thomas
H. Lee Company will arrange for
2
<PAGE>
appropriate contacts for any due diligence we may require and will handle all
inquiries regarding the company.
We hereby agree that for the period two years from the date of this
letter, we will not without the Company written consent, directly or indirectly
solicit for employment or hire any person who is currently employed in a senior
management position by the Company, except as such employment may be
accomplished pursuant to the consummation of a Transaction with the Company as
contemplated by this letter or pursuant to general solicitations of employment
through advertisements or similar means not directed towards employees of the
Company or towards a class of persons who only could be employed by the Company.
We are aware and will advise our Representatives who are informed of
the matters that are subject to this letter agreement, of the restrictions
imposed by the United States Securities laws on the purchase or sale of
securities by any person who has received material, non-public information from
the issuer of such securities and on the communication of such information to
any other person when it is reasonably foreseeable that such person is likely to
purchase or sell such securities in reliance upon such information.
In consideration of the Evaluation Material being furnished to us, for
a period of two years from the date of this letter, we will not (nor will we
assist, provide or arrange financing to or for others or encourage others to),
directly or indirectly, acting alone or in concert with others, unless
specifically requested in writing in advance by the Board of Directors of the
Company; (i) acquire or agree, offer, seek or purpose to acquire (or request
permission to do so) ownership (including but not limited to, beneficial
ownership as defined in Rule 13d-3 under the Securities Exchange Act of 1934
(the "Exchange Act") or any securities issued by the Company or any rights or
options to acquire such ownership (including from a third party) or make any
public announcement or submit any proposal (or request permission to make such
announcement or proposal) with respect to any of the foregoing, or for or with
request to any extraordinary transaction or merger, consolidation, sale of
substantial assets or business combination involving the Company, (ii) except as
pursuant to a consulated Transaction, seek or propose to influence or control
the management or the policies of the Company or to obtain representation on the
Company's Board of Directors, or solicit, or participate in the "solicitation"
of any "proxies" (as such terms are defined or used in Regulation 14A under the
Exchange Act) with respect to any securities of the Company, or become a
"participant" in any "election contest" (as such terms are defined or used in
Rule 14a-11 under the
3
<PAGE>
Exchange Act) to vote, or seek to advise or influence any person or entity with
respect to the voting of any voting securities of the Company or make any public
announcement with respect to any of the foregoing or request permission to do
any of the foregoing, or (iii) enter into any discussions, negotiations,
arrangements or understandings with any third party with respect to any of the
foregoing.
Although the Company has endeavored to include in the Evaluation
Material information known to it which it believes to be relevant for the
purpose of our investigation, we understand that neither the Company nor any of
its agents, advisors or controlling persons, has made or makes any
representation or warranty as to the accuracy or completeness of the Evaluation
Material. We agree that neither the Company, nor its agents, advisors or
controlling persons, shall have any liability to us or any of our
Representatives resulting from the use or content of the Evaluation Material.
Only those representations, warranties and covenants contained in a definitive
agreement with respect to a consummated transaction shall have any legal effect.
At the request of the Company or in the event we decide not to proceed
with the transaction which is the subject of this letter, we and our
Representatives shall promptly redeliver to the Company all written Evaluation
Material provided by the Company and will not retain copies, extracts or other
reproductions in whole or in part or such written material. All documents,
spreadsheets, memoranda, notes or other writings prepared by us shall be
permanently deleted or erased, and we shall certify in writing to the Company
that we have complied with the provisions of this paragraph.
It is further understood and agreed that no failure or delay by the
Company in exercising any right power or privilege under this letter shall
operate as a waiver thereof, nor shall any single or partial exercise thereof
preclude any other or further exercise thereof.
We agree that unless and until a definitive agreement between the
Company and us with respect to any transaction referred to in this letter has
been executed and delivered, neither the Company nor we will be under any legal
obligation of any kind whatsoever with respect to any Transaction by virtue of
this or any written or oral expression with respect to such a Transaction by any
of its or our directors, officers, employees, agents or advisors except for the
matters specifically agreed to by us in this letter. We acknowledge and agree
that the Company and its advisors are free to conduct the process relating to
any possible Transaction as the Company in its sole
4
<PAGE>
discretion determines (including, without limitation, by negotiating with any
pro spective buyer and entering into a preliminary or definitive agreement
without prior notice to us or any other person), (b) you reserve the right in
your sole discretion to change the procedures relating to your consideration of
the Transaction at any time without prior notice to us or any other person, to
reject any and all proposals by us or any of our Representatives with regards to
a Transaction, and to terminate discus sions and negotiations with us at any
time and for any reason. The agreements set forth in this letter may be modified
or waived only by a separate written executed by the Company and us expressly so
modifying or waiving such agreements. We further acknowledged and agree that the
Company reserves the right, in its sole and absolute discretion, to reject any
and all proposals and to terminate discussions and negotiations with us at any
time.
It is further understood and agreed that money damages would not be a
sufficient remedy for any breach by us of the agreements contained in this
letter and that the Company shall be entitled to specific performance and
injunctive or other equitable relief as a remedy for any such breach, and we
further agree to waive any requirements for the securing posting of any bond in
connection with such remedy for our breach of this letter agreement. The
foregoing remedies shall not be exclu sive but shall be in addition to all other
remedies available at law or in equity to the Company. We agree to indemnify the
Company for any loss for account of our breach or noncompliance with the terms
of this letter agreement, including without limitation attorneys fees incurred
by the Company in connection with enforcement of this agreement.
This letter shall be governed by, and construed in accordance with, the
internal laws of the Commonwealth of Massachusetts, without giving effect to the
principles of conflict of laws thereof. We irrevocably consent to jurisdiction
of the state or federal courts located in the City of Boston, Massachusetts and
waive any objection to such venue and agree not to object to any proceeding
regarding this letter agreement as being brought in an inconvenient form.
The Company acknowledges that Sunbeam may from time to time engage in
the same or similar lines of business as the Company and that the information
provided to Sunbeam by the Company and its Representatives and any due diligence
conducted by Sunbeam may serve to enhance Sunbeam's understanding of its own
business and the markets in which it competes (or businesses in which it may
engage or markets in which it may compete in the future). Nothing contained in
this letter agreement shall serve to prohibit Sunbeam (or its subsidiaries or
affiliates) from
5
<PAGE>
engaging in any particular line of business or from developing its own product
lines or pursuing other acquisition opportunities in the same or similar lines
of business or engaging in any particular line of business now or in the future;
provided that we hereby agree not to violate the provisions of the third
literary paragraph of this letter agreement.
If you are in agreement with the foregoing, please so indicate by
signing and returning one copy of this letter which will constitute our
agreement with respect to the matters set forth herein.
Very truly yours,
Sunbeam Corporation
By: /s/ David C. Fannin
-------------------------------------
David C. Fannin
Executive Vice President &
General Counsel
Confirmed and agreed to as of
the date first written above:
THOMAS H. LEE COMPANY
By: /s/ Anthony DiNovi
--------------------------
Anthony DiNovi
Managing Director
cc Robert Kitts, Morgan Stanley
Blaine V. Fogg, Skadden, Arps, Slate, Meagher & Flom LLP
6
<PAGE>
EXHIBIT 5
STOCK SALE AGREEMENT
STOCK SALE AGREEMENT, dated as of February 28, 1998 (the
"Agreement"), among Sunbeam Corporation, a Delaware corporation (the "Parent"),
and each person or entity named in Schedule A to this Agreement (the "Stockhold
ers"). Capitalized terms used herein and not otherwise defined shall have the
meanings ascribed to them in the Merger Agreement (as defined below).
WHEREAS, the Parent, Sentinel Acquisition Corp., a Delaware
corporation and a wholly owned subsidiary of Parent (the "Purchaser"), and First
Alert, Inc., a Delaware corporation (the "Company"), are entering into an
Agreement and Plan of Merger (the "Merger Agreement") simultaneously with the
entry into this Agreement, which provides, among other things, that the
Purchaser, upon the terms and subject to the conditions thereof, make a cash
tender offer (the "Offer") for all issued and outstanding shares of common
stock, par value $.01 per share, of the Company (the "Shares") at a price of
$5.25 per share, and following consummation of the Offer the Purchaser will
merge with and into the Company with the Company as the surviving corporation
(the "Merger") and each then outstanding Share (other than Shares held by (i)
the Parent or any of its wholly owned subsidiaries, (ii) the Company or any of
its wholly owned subsidiaries or (iii) any holder who perfects dissenters'
rights under Delaware law) would be converted into the right to receive $5.25 in
cash, or any higher price paid per Share in the Offer; and
WHEREAS, the Parent has required, as a condition to its
entering into the Merger Agreement and commencing the Offer, that each of the
Stockholders enter into, and each of the Stockholders have agreed to enter into,
this Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Stockholders' Representations. Each of the Stockholders
severally represents and warrants to the Parent (a) that such Stockholder has
the power and authority (or the capacity if an individual) to execute and
deliver this Agreement, (b) that, if a corporation, partnership or other entity,
this Agreement has been duly authorized by all requisite action on the part of
the Stockholder, (c) that the Stockholder has duly executed and delivered this
Agreement and this Agreement is a valid and binding agreement, enforceable
against such Stockholder in accordance with its terms, (d) that neither the
execution of this Agreement nor the consummation by such Stockholder of the
transactions contemplated hereby will
1
<PAGE>
constitute a violation of, or conflict with, or default under, any contract,
commitment, agreement, understanding, arrangement or restriction of any kind to
which such Stockholder is a party or by which such Stockholder is bound and,
if the Stockholder is a corporation, partnership or other entity, the
organizational documents thereof, (e) that on the date hereof such Stockholder
has good and valid title to the number of Shares set forth opposite such
Stockholder's name on Schedule A hereto (the "Stockholder's Shares"), free and
lear of all claims, liens, charges, encumbrances and security interests,
without any restrictions on the voting rights of such Stockholder's Shares,
(f) that there are no options or rights to purchase or acquire, or agreements
relating to, any of such Stockholder's Shares except pursuant to this
Agreement, and (g) that the number of Shares set forth in Schedule A hereto
opposite the name of such Stockholder constitutes all of the Shares owned
beneficially or of record by such Stockholder.
2. Parent's Representations. The Parent represents and
warrants to each of the Stockholders that the Parent has duly authorized,
executed and delivered this Agreement and this Agreement is a valid and binding
agreement, enforceable against the Parent in accordance with its terms.
3. Sale of Shares. In the event that within 9 months following
the date hereof and the Parent shall be entitled to the Termination Fee pursuant
to Section 8.1(b) of the Merger Agreement, the Stockholder shall sell, transfer
or otherwise commit to dispose any or all of such Shares to any party other than
the Parent or an affiliate of the Parent (a "Sale") and realize a Profit (as
defined below) from such Sale, then the Stockholder shall pay to the Parent an
amount equal to the Profit. Such amount shall be paid to the Parent promptly
following the receipt of proceeds by the Stockholder or its affiliates from such
Sale. The term "Profit" shall mean the excess, if any, of (a) the aggregate
consideration received by the Stock holder or its affiliates in connection with
the Sale over (b) the number of Shares sold, transferred or disposed of in
connection with the Sale multiplied by the Offer Price.
4. Changes in Shares. In the event of a stock dividend or
distribution, or any change in the Company's Common Stock by reason of any stock
dividend, split-up, recapitalization, combination, exchange of shares or the
like, the term "Shares" shall refer to and include the Shares as well as all
such stock dividends and distributions and any shares into which or for which
any or all of the Shares may be changed or exchanged. Each Stockholder's Shares
shall include all Shares
2
<PAGE>
acquired after the date hereof by such Stockholder and all dividends or
distributions in respect of the Stockholder's Shares.
5. Legend. As soon as practicable after the execution of this
Agreement, each Stockholder shall surrender the certificates representing such
Stockholder's Shares to the Parent so that the following legend may be placed on
such certificates:
"The shares of capital stock represented by this certificate
are subject to a Stock Sale Agreement, dated as of February 28, 1998,
between Sunbeam Corporation and [the Stockholder]."
6. Specific Enforcement. The parties hereto acknowledge that
damages would be an inadequate remedy for a breach of this Agreement and that
the obligations of the parties hereto shall be specifically enforceable, in
addition to any other remedy which may be available at law or in equity.
7. Brokerage Fees. Each of the Stockholders and the Parent, in
connection with the transaction contemplated herein, severally agree to
indemnify and hold the other harmless from and against any and all claims,
liabilities or obligations with respect to any brokerage fees, commissions or
finders' fees asserted by any person on the basis of any act or statement
alleged to have been made by such party or its affiliate.
8. Expenses. Each party hereto shall pay its own expenses
incurred in connection with this Agreement.
9. Survival. Notwithstanding anything contained herein to the
contrary, all representations, warranties and agreements made by each of the
Stock holders in this Agreement shall survive the termination of this Agreement
and any investigation at any time made by or on behalf of any party hereto.
10. Stop Transfer. Each of the Stockholders shall not request
that the Company register the transfer (book-entry or otherwise) of any
certificate or uncertificated interest representing any of the Shares, unless
such transfer is made in compliance with this Agreement.
11. Further Assurances. From time to time, at the other
party's request and without further consideration, each party hereto shall
execute and deliver
3
<PAGE>
such additional documents and take all such further lawful action as may be
neces sary or desirable to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this Agreement.
12. Miscellaneous.
(a) Amendment, Etc. This Agreement may not be
modified, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
(b) Assignment. No party to this Agreement may
assign any of its rights or obligations under this Agreement without the prior
consent of the other parties except that the rights and obligations of the
Parent may be assigned by the Parent to Purchaser or any of its other wholly
owned subsidiaries but no such transfer shall relieve the Parent of its
obligations hereunder if such transferee does not perform such obligations.
(c) Binding Effect. This Agreement and the
obligations hereunder shall attach to the Shares and shall be binding upon any
person or entity to which legal or beneficial ownership of such Shares shall
pass, whether by operation of law or otherwise. Notwithstanding any transfer of
Shares, the transferor shall remain liable for the performance of all
obligations under this Agreement of the transferor.
(d) Notices. All notices, claims, requests,
demands and other communications hereunder will be in writing and will be deemed
to have been duly given upon receipt as follows:
(a) If to the Parent, to:
Sunbeam Corporation
1615 South Congress Avenue
Suite 200
Delray Beach, FL 33445
Attention: General Counsel
with a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
4
<PAGE>
919 Third Avenue
New York, New York 10022
Attention: Blaine V. Fogg, Esq.
(b) If to the Stockholder, to such Stock holder at the
address set forth under his name in Schedule A.
or to such other address as the person to whom notice is to be given may have
previously furnished to the others in writing in the manner set forth above.
(e) Counterparts. This Agreement may be
executed in two or more counterparts, each of which will be deemed to be an
original but all of which together will constitute one and the same instrument.
(f) Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware,
regardless of the laws that might otherwise govern under applicable Delaware
principles of conflicts of law.
(g) Termination. Except for Sections 7, 8 and 9
hereof, this Agreement shall terminate on the earlier of (i) the purchase of
each Stockholder's Shares pursuant to the Offer or through the Merger and (ii)
three years from the date hereof.
(h) Remedies Cumulative. All rights, powers and
remedies provided under this Agreement or otherwise available in respect hereof
at law or in equity shall be cumulative and not alternative, and the exercise of
any thereof by any party shall not preclude the simultaneous or later exercise
of any other such right, power or remedy by such party.
(i) No Waiver. The failure of any party hereto
to exercise any right, power or remedy provided under this Agreement or
otherwise available in respect hereof at law or in equity, or to insist upon
compliance by any other party hereto with its obligations hereunder, and any
custom or practice of the parties at variance with the terms hereof, shall not
constitute a waiver by such party of its right to exercise any such or other
right, power or remedy or to demand such compliance.
5
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by each Stockholder and a duly authorized officer of the Parent on the
day and year first written above.
SUNBEAM CORPORATION
By: /s/ David C. Fannin
---------------------------------
Executive Vice President & General
Counsel
THOMAS H. LEE EQUITY PARTNERS, L.P.
By: THL Equity Advisors
Limited Partnership
---------------------------------
By: THL Equity Trust
---------------------------------
Its General Partner
By /s/ Anthony J. DiNovi
-------------------------
Vice President
ML-LEE ACQUISITION FUND II, L.P.
By: Mezzanine Investments II, L.P.
---------------------------------
Its Managing General Partner
By: ML Mezzanine II Inc.
---------------------------------
Its General Partner
By /s/ James V. Caruso
-------------------------
Executive Vice President
ML-LEE ACQUISITION FUND (RETIRE
MENT ACCOUNTS) II, L.P.
By: Mezzanine Investments II, L.P.
---------------------------------
Its Managing General Partner
By: ML Mezzanine II Inc.
---------------------------------
Its General Partner
By /s/ James V. Caruso
-------------------------
Executive Vice President
<PAGE>
STATE STREET BANK AND TRUST COMPANY OF
CONNECTICUT, NATIONAL ASSOCIATION,
as Successor Trustee of the 1989
THOMAS H. LEE NOMINEE TRUST
By /s/ Gerald R. Wheeler
---------------------------------
Senior Vice President
<PAGE>
/s/ John W. Childs
-------------------------------------
John W. Childs
/s/ David W. Harkins
-------------------------------------
David W. Harkins
/s/ Thomas R. Shepherd
-------------------------------------
Thomas R. Shepherd
/s/ Thomas R. Shepherd - IRA
-------------------------------------
Thomas R. Shepherd - IRA
/s/ Glenn H. Hutchins
-------------------------------------
Glenn H. Hutchins
/s/ Scott A. Schoen
-------------------------------------
Scott A. Schoen
/s/ C. Hunter Boll
-------------------------------------
C. Hunter Boll
/s/ Steven G. Segal
-------------------------------------
Steven G. Segal
/s/ Anthony J. DiNovi
-------------------------------------
Anthony J. DiNovi
/s/ Thomas M. Hagerty
-------------------------------------
Thomas M. Hagerty
/s/ Joseph I. Incandela
-------------------------------------
Joseph I. Incandela
/s/ Warren C. Smith
-------------------------------------
Warren C. Smith
<PAGE>
/s/ Glenn A. Hopkins
-------------------------------------
Glenn A. Hopkins
/s/ Charles W. Robins
-------------------------------------
Charles W. Robins
STEVEN ZACHARY LEE IRREVOCABLE
TRUST DATED 1988
By: /s/ Charles W. Robins
---------------------
Trustee
/s/ Adam L. Suttin
-------------------------------------
Adam L. Suttin
/s/ Wendy L. Masler
-------------------------------------
Wendy L. Masler
/s/ Andrew D. Flaster
-------------------------------------
Andrew D. Flaster
SGS Family Limited Partnership
By /s/ Steven G. Segal
----------------------------------
Its General Partner
<PAGE>
SCHEDULE A
Number of Shares
Name and Address of Common Stock
of Stockholder1 of the Company
--------------- --------------
Thomas H. Lee Equity Partners, L.P. 8,324,492
ML-Lee Acquisition Fund II, L.P. 2,058,474
ML-Lee Acquisition Fund (Retirement
Accounts) II, L.P. 2,281,524
State Street Bank and Trust Company
Not Individually but as Trustee of the
1989 Thomas H. Lee Nominee Trust 985,706
John W. Childs 159,178
David V. Harkins 118,518
Thomas R. Shepherd 44,446
Thomas R. Shepherd - IRA 44,446
Glenn H. Hutchins 88,888
Scott A. Schoen 87,034
C. Hunter Boll 62,000
Steven G. Segal 35,550
- ------------------------
1 Address for all Stockholders, until notice of change is given, is:
c/o Thomas H. Lee Company
75 State Street
Boston, Massachusetts 02109
A-1
<PAGE>
Anthony J. DiNovi 35,550
Thomas M. Hagerty 35,550
Joseph I. Incandela 15,500
Warren C. Smith, Jr. 11,160
Glenn A. Hopkins 6,200
Charles W. Robins 6,200
SZL Trust 6,200
Adam L. Suttin 6,200
Wendy L. Masler 1,240
Andrew D. Flaster 1,550
SGS Family Limited Partnership 6,200
A-2
<PAGE>
EXHIBIT 6
SALOMON SMITH BARNEY
- --------------------
212-816-6000
A Member of TravelersGroup
February 28, 1998
Board of Directors
First Alert, Inc.
3901 Liberty Street Road
Aurora, Illinois 60504-8122
Members of the Board:
You have requested our opinion as investment bankers as to the
fairness, from a financial point of view, to the holders of shares of common
stock, par value $0.01 per share (the "Company Common Stock"), of First Alert,
Inc. (the "Company") of the consideration to be received by such holders in the
proposed acquisition of the Company by Sunbeam Corporation ("Acquiror") pursuant
to the Agreement and Plan of Merger, dated as of February 28, 1998 (the
"Agreement"), by and among the Company, Acquiror and Sentinel Acquisition Corp.,
a wholly owned subsidiary of Acquiror ("Acquisition Corp.").
As more specifically set forth in the Agreement, Acquisition Corp. will
commence a tender offer (the "Proposed Tender Offer") to purchase all of the
outstanding shares of Company Common Stock for a price of $5.25 per share in
cash (the "Offer Price"). Following consummation of the Proposed Tender Offer,
Acquisition Corp. will be merged with and into the Company (the "Proposed
Merger" and, together with the Proposed Tender Offer, the "Proposed
Transaction") and each then outstanding share of Company Common Stock (other
than shares held by Acquiror, Acquisition Corp. or any of their subsidiaries or
shares as to which appraisal rights have been properly exercised under
applicable law) will be converted in the Proposed Merger into the right to
receive, in cash, the Offer Price (or such higher price as may be paid for each
share of Company Common Stock in the Proposed Tender Offer). We understand that
certain holders of Company Common Stock have agreed to surrender to Acquiror any
amount received upon a sale of shares of Company Common Stock in excess of the
Offer Price.
In connection with rendering our opinion, we have reviewed and analyzed
material bearing upon the financial and operating condition and prospects of the
Company including, among other things, the following: (i) a draft version of the
Agreement; (ii) certain publicly available information concerning the Company,
including the Annual Reports on Form 10-K of the Company for each of the years
in the three year period ended December 31, 1996 and the Quarterly Reports on
Form 10-Q of the Company for the quarters ended March 31, 1997, June 30, 1997
and September 30, 1997, respectively; (iii) certain other internal information,
<PAGE>
Board of Directors
First Alert, Inc.
3901 Liberty Street Road
Aurora, Illinois 60504-8122
Page 2
primarily financial in nature (including projections, forecasts and analyses
prepared by or on behalf of the Company's management), concerning the business
and operations of the Company furnished to us by the Company for purposes of our
analysis; (iv) certain publicly available information concerning the trading of,
and the trading market for, the Company Common Stock; (v) certain publicly
available information with respect to certain other companies that we believe to
be comparable to the Company and the trading markets for certain of such other
companies' securities; and (vi) certain publicly available information
concerning the nature and terms of certain other transactions that we consider
relevant to our inquiry. We have also considered such other information,
financial studies, analyses, investigations and financial, economic and market
criteria that we deemed relevant. We have also met with certain officers and
employees of the Company to discuss the foregoing as well as other matters we
believe relevant to our inquiry.
In our review and analysis and in arriving at our opinion, we have
assumed and relied upon the accuracy and completeness of all of the financial
and other information provided to us or publicly available and have neither
attempted independently to verify nor assumed any responsibility for verifying
any of such information and have further relied upon the assurances of members
of management of the Company that they are not aware of any facts that would
make any of such information inaccurate or misleading. We have not conducted a
physical inspection of any of the properties or facilities of the Company, nor
have we made or obtained or assumed any responsibility for making or obtaining
any independent evaluations or appraisals of any of such properties or
facilities, nor have we been furnished with any such evaluations or appraisals.
With respect to projections, we have, upon the advice and consent of management
of the Company, assumed that such projections were reasonably prepared on bases
reflecting the best currently available estimates and judgment of the Company's
management as to the future financial performance of the Company and we express
no view with respect to such projections or the assumptions on which they were
based. We have also assumed that the definitive Agreement will not, when
executed, contain any terms or conditions that differ materially from the terms
and conditions contained in the draft of such document we have reviewed and that
the Proposed Acquisition will be consummated in a timely manner and in
accordance with the terms of the Agreement.
In conducting our analysis and arriving at our opinion as expressed
herein, we have considered such financial and other factors as we have deemed
appropriate under the circumstances including, among others, the following: (i)
the historical and current financial position and results of operations of the
Company; (ii) the business prospects of the Company; (iii) the historical and
current market for the Company Common Stock and for the equity securities of
certain other companies that we believe to be comparable to the Company; and
<PAGE>
Board of Directors
First Alert, Inc.
3901 Liberty Street Road
Aurora, Illinois 60504-8122
Page 3
(iv) the nature and terms of certain other acquisition transactions that we
believe to be relevant. We have also taken into account our assessment of
general economic, market and financial conditions as well as our experience in
connection with similar transactions and securities valuation generally. Our
opinion necessarily is based upon conditions as they exist and can be evaluated
on the date hereof and we assume no responsibility to update or revise our
opinion based upon circumstances or events occurring after the date hereof. Our
opinion is, in any event, limited to the fairness, from a financial point of
view, of the consideration to be received by the holders of the Company Common
Stock in the Proposed Transaction and does not address the Company's underlying
business decision to effect the Proposed Transaction or constitute a
recommendation to any holder of Company Common Stock as to whether such holder
should tender shares of the Company Common Stock in the Proposed Tender Offer or
as to how such holder should vote with respect to the Proposed Merger, if such a
vote is taken.
As you are aware, Salomon Brothers Inc and Smith Barney Inc.
(collectively doing business as "Salomon Smith Barney"), are acting as financial
advisor to the Independent Committee of the Board of Directors of the Company in
connection with the Proposed Transaction and will receive a fee for their
services, a substantial portion of which is contingent upon consummation of the
Proposed Transaction. In addition, in the ordinary course of our business,
Salomon Smith Barney may actively trade the debt and equity securities of the
Company for its own account and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities. Salomon Smith
Barney and its affiliates (including Travelers Group Inc.) may have other
business relationships with the Company or Acquiror.
This opinion is intended solely for the benefit and use of the Company
(including its management and directors) in considering the transaction to which
it relates and may not be used for any other purpose or reproduced,
disseminated, quoted or referred to at any time, in any manner or for any
purpose, without the prior written consent of Salomon Smith Barney.
Based upon and subject to the foregoing, we are of the opinion as
investment bankers that the consideration to be received by the holders of the
Company Common Stock in the Proposed Transaction is fair, from a financial point
of view, to such holders.
Very truly yours,
/s/ SALOMON SMITH BARNEY
SALOMON SMITH BARNEY
<PAGE>
[NationsBanc Montgomery Securities Letterhead]
February 28, 1998 Exhibit 7
Special Committee of the Board of Directors
First Alert, Inc.
3901 Liberty Street Road
Aurora, IL 60504-8122
ATTN: John R. Albers
Albert L. Prillaman
Gentlemen:
We understand that First Alert, Inc., a Delaware corporation
("Seller"), Sunbeam Corporation, a Delaware corporation ("Parent"), and Sentinel
Acquisition Corp., a Delaware corporation ("Buyer"), propose to enter into an
Agreement and Plan of Merger dated as of February 28, 1998 (the "Merger
Agreement"). Pursuant to the Merger Agreement, we understand that Buyer will
make a cash tender offer (the "Offer") for each outstanding share of the common
stock, $ .01 par value per share, of Seller ("Seller Common Stock") at a price
per share of $5.25 (the "Consideration") and that thereafter Buyer will be
merged into Seller in a transaction in which each outstanding share of Seller
Common Stock (other than shares held by Buyer or Parent) will be converted into
the Consideration (the "Merger"). The terms and conditions of the Offer and the
Merger are set forth in more detail in the Merger Agreement.
You have asked us for our opinion as investment bankers as to whether
the Consideration to be received by the stockholders of Seller (other than Buyer
or Parent) pursuant to the Offer and the Merger is fair to such stockholders
from a financial point of view, as of the date hereof. As you are aware, we were
not retained to nor did we advise Seller with respect to alternatives to the
Offer or the Merger or Seller's underlying decision to proceed with or effect
the Offer or the Merger. Further, we were not requested to nor did we solicit or
assist Seller in soliciting indications of interest from third parties for all
or any part of Seller.
In connection with our opinion, we have, among other things: (i)
reviewed certain publicly available financial and other data with respect to
Seller, including the consolidated financial statements for recent years and
interim periods to December 31, 1997 and certain other relevant financial and
operating data relating to Seller made available to us from published sources
and from the internal records of Seller; (ii) reviewed the financial terms and
conditions of the Merger Agreement; (iii) reviewed certain publicly
<PAGE>
First Alert, Inc.
February 28, 1998
Page 2
available information concerning the trading of, and the trading market for,
Seller Common Stock and (iv) compared Seller from a financial point of view with
certain other companies in the home security and consumer durables industries
which we deemed to be relevant; (v) considered the financial terms, to the
extent publicly available, of selected recent business combinations of companies
in the home security and consumer durables industries which we deemed to be
comparable, in whole or in part, to the Offer and the Merger; (vi) prepared a
discounted cash flow analysis and compared these results to the Consideration;
(vii) reviewed and discussed with representatives of the management of Seller
certain information of a business and financial nature regarding Seller,
furnished to us by them, including financial forecasts and related assumptions
of Seller; (viii) made inquiries regarding and discussed the Offer and the
Merger and the Merger Agreement and other matters related thereto with Seller's
counsel; and (ix) performed such other analyses and examinations as we have
deemed appropriate.
In connection with our review, we have not assumed any obligation
independently to verify the foregoing information and have relied on its being
accurate and complete in all material respects. With respect to the financial
forecasts for Seller provided to us by Seller management, upon their advice and
with your consent we have assumed for purposes of our opinion that the forecasts
have been reasonably prepared on bases reflecting the best available estimates
and judgments of management at the time of preparation as to the future
financial performance of Seller and that they provide a reasonable basis upon
which we can form our opinion. We have also assumed that there have been no
material changes in Seller's assets, financial condition, results of operations,
business or prospects since the dates of its last financial statements made
available to us. We have relied on advice of counsel and independent accountants
to Seller as to all legal and financial reporting matters with respect to Seller
and the Merger Agreement, including the legal status and financial reporting of
litigation involving Seller. We have assumed that the Offer and the Merger will
be consummated in a manner that complies in all respects with the applicable
provisions of the Securities Exchange Act of 1934 and all other applicable
federal and state statutes, rules and regulations. In addition, we have not
assumed responsibility for making an independent evaluation, appraisal or
physical inspection of any of the assets or liabilities (contingent or
otherwise) of Seller, nor have we been furnished with any such appraisals.
Finally, our opinion is based on economic, monetary and market and other
conditions as
<PAGE>
First Alert, Inc.
February 28, 1998
Page 3
in effect on, and the information made available to us as of, the date hereof.
Accordingly, although subsequent developments may affect this opinion, we have
not assumed any obligation to update, revise or reaffirm this opinion.
We have further assumed with your consent that the Offer and the Merger
will be consummated in accordance with the terms described in the Merger
Agreement, without any further amendments thereto, and without waiver by Seller
of any of the conditions to its obligations thereunder.
We have been retained solely for the purposes of rendering an opinion
to the Special Committee of the Board of Directors of Seller as to the fairness
to the stockholders of Seller from a financial point of view of the
Consideration and will receive a fee for our services, the payment of which is
contingent on consummation of the Offer and the Merger. In addition, one of our
affiliates is a senior lender to Seller.
Based upon the foregoing and in reliance thereon, it is our opinion as
investment bankers that the Consideration to be received by the stockholders of
Seller pursuant to the Offer and the Merger is fair to such stockholders from a
financial point of view, as of the date hereof.
This opinion is directed to the Special Committee of the Board of
Directors of Seller in its consideration of the Offer and the Merger and is not
a recommendation to any stockholder as to whether such stockholder should accept
the Offer or how such stockholder should vote with respect to the Merger.
Further, this opinion addresses only the financial fairness of the Consideration
to the stockholders and does not address the relative merits of the Offer and
the Merger and any alternatives to the Offer and the Merger, Seller's underlying
decision to proceed with or effect the Offer and the Merger, or any other aspect
of the Offer or the Merger. This opinion may not be used or referred to by
Parent, Buyer or Seller, or quoted or disclosed to any person in any manner,
without our prior written consent, which consent is hereby given to the
inclusion of this opinion in any proxy statement or tender offer statement filed
with the Securities and Exchange Commission in connection with the Merger
Agreement.
Very truly yours,
/s/ NationsBanc Montgomery Securities LLC
NATIONSBANC MONTGOMERY SECURITIES LLC
<PAGE>
Exhibit 8
EMPLOYMENT AGREEMENT
--------------------
This Agreement is made as of the 18th day of September, 1996 between
First Alert, Inc., a Delaware corporation (the "Company"), and B. Joseph Messner
(the "Employee").
RECITALS
--------
WHEREAS, the Company desires to employ the Employee as President and
Chief Executive Officer of the Company and its wholly-owned subsidiary, BRK
Brands, Inc., a Delaware corporation ("BRK Brands"), and the Employee desires to
serve as President and Chief Executive Officer of the Company and BRK Brands, on
the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto, each intending to be legally bound hereby,
agree as follows:
1. Employment. The Company hereby employs the Employee as the President
and Chief Executive Officer of the Company and BRK Brands, and the Employee
accepts such employment for the term of employment specified in Section 3 below
(the "Employment Term"). During the Employment Term, the Employee shall, subject
to the direction of the Board of Directors of the Company, oversee and direct
the operations of the Company and perform such other duties as may from time to
time be assigned to him by the Board of Directors. The Employee shall also be
elected as a member of the Company's Board of Directors for a term expiring on
the date of the Company's 1999 Annual Meeting of Shareholders.
2. Performance. The Employee agrees to devote his best efforts and all
of his business time to the performance of his duties hereunder during the
Employment Term.
3. Employment Term. The Employment Term shall begin on the date of this
Agreement and continue until September 30, 1999 (the "Initial Employment Term").
Employment shall thereafter continue on the basis hereby established for
successive one year terms unless, more than 180 days prior to the expiration of
the term of employment, either the Employee or the Company provides the other
with written notice that this Agreement will not be renewed (the "Subsequent
Employment Term" and with the Initial Employment Term, the "Employment Term").
Employment during the Employment Term shall be subject to termination in
accordance with the terms of this Agreement.
4. Compensation.
(a) Salary. During the period commencing on the date hereof and
ending on December 31, 1997, the Company shall pay the Employee a base salary,
payable in bi-weekly installments, subject to withholding and other applicable
taxes, at an annual rate of Three Hundred Thousand Dollars ($300,000.00).
Commencing on January 1, 1998, the base salary will be reviewed annually by the
Compensation Committee of the Board of Directors and may be increased but not
decreased.
<PAGE>
(b) Bonus. In addition to the annual base salary payable to the
Employee, commencing with the fiscal year ending December 31, 1997, the Employee
shall be eligible to participate in the Management Incentive Bonus Program of
the Company pursuant to which the Employee will be entitled to earn an annual
bonus of up to one hundred percent (100%) of the annual base salary in effect
for such year, subject to achieving specified financial targets established by
the Compensation Committee of the Board of Directors. All bonuses payable under
this Section 4(b) shall be paid to the Employee as soon as practicable after the
delivery of the Company's audited financial statements for the bonus year.
(c) Stock Options. The Employee shall be granted, effective the
date the Employee shall join the Company, an option (the "Option") to purchase
300,000 shares of Common Stock of the Company, at an exercise price (the "Strike
Price") equal to the fair market value of the Common Stock on the business day
immediately preceding the date of grant, as defined in the Company's 1994 Stock
Option Plan (the "Option Plan"). The Option will vest and become exercisable in
four equal annual installments on the first, second, third and fourth
anniversaries of the date of grant. The Option will vest and become immediately
exercisable upon the occurrence of a Change of Control (as defined below). The
Option will be granted pursuant to a Stock Option Agreement in the form of
Exhibit A hereto. In addition, the Employee will be granted an option to
purchase an additional 200,000 shares of Common Stock, at an exercise price
equal to the Strike Price (the "Additional Option"), which will vest and become
exercisable only in the event there shall occur a Change of Control (as
hereinafter defined) prior to December 31, 1997. The Additional Option shall
terminate and be of no further force and effect if a Change of Control is not
consummated prior to December 31, 1997. For purposes of this Agreement, a
"Change of Control" shall mean the happening of any of the following events:
(i) Any acquisition resulting in any person, entity
or group (within the meaning of Section 13(d)(3) or 14(d)(2)) of
the Securities Exchange Act of 1934 (the "Exchange Act") having
beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 50% or more of the
combined voting power of the then outstanding securities
entitled to vote generally in the election of directors of the
Company; excluding, however, the following: (1) any acquisition
directly from the Company, other than an acquisition by virtue
of the exercise of a conversion privilege unless the security
being so converted was itself acquired directly from the
Company, (2) any acquisition by the Company, (3) any acquisition
by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the
Company, (4) any acquisition by the Thomas H. Lee Company or its
affiliates, or (5) any acquisition by any entity pursuant to a
transaction which is excluded from subsection (ii) below; or
(ii) The approval by the shareholders of the Company
of a reorganization, merger or consolidation or sale or other
disposition of all or
- 2 -
<PAGE>
substantially all of the assets of the Company ("Corporate
Transaction"); excluding, however, any Corporate Transaction
which would result in the voting securities of the Company
immediately prior to such Corporate Transaction continuing to
represent (either by remaining outstanding or being converted
into voting securities or another entity) 50% or more of the
combined voting power of the securities entitled to vote
generally in the election of directors of the Company or such
other entity outstanding immediately after such Corporate
Transaction.
Notwithstanding the foregoing, a Change of Control shall not be deemed to have
occurred if the "person" described in the preceding portions of this Section
4(c) is an underwriter or underwriting syndication that has acquired ownership
of 50% or more of the combined voting power of the Company's then outstanding
voting securities solely in connection with a public offering of the Company's
securities.
(d) Insurance; Other Benefits. The Employee shall be entitled to
participate in all employee benefit plans now existing or hereinafter
established by the Company, including, but not limited to, medical plans, group
life and disability insurance plans, pension, profit sharing or bonus plans,
401(k) plans and any other employee benefit plan or arrangement made available
to executive officers of the Company.
(e) Vacation. The Employee shall be entitled to take four weeks
of paid vacation during each year of the Employment Term, to be taken at such
time or times as shall be mutually convenient and consistent with his duties and
obligations to the Company. The Employee shall be entitled to carry-over not
more than two weeks vacation for use in the immediately succeeding year of the
Employment Term.
(f) Automobile. The Employee shall be entitled to the use of one
Company provided automobile during the Employment Term pursuant to the terms of
the Company's Automobile Policy.
(g) Club Membership. The Company shall reimburse the Employee
for all initiation and annual or monthly dues incurred by the Employee in
connection with one country club membership to a club in the Aurora, Illinois
area selected by the Employee.
(h) Relocation Expenses. The Employee shall be reimbursed by the
Company for all reasonable out-of-pocket expenses incurred by him in relocating
to the Aurora, Illinois area upon receipt of appropriate documentation. Such
expenses shall include travel and temporary living expenses incurred in
relocating, actual moving and storage costs and all transportation expenses
associated with relocating the Employee's personal property. To the extent that
the expenses reimbursed by the Company under this Section 4(h) are included in
the Employee's taxable income and are not tax deductible by the Employee, the
Company will reimburse the Employee for all income taxes attributable to such
expenses reimbursement .
- 3 -
<PAGE>
5. Business Expenses. The Employee shall be reimbursed by the Company
for all reasonable expenses incurred by him in connection with the performance
of his duties hereunder in accordance with policies established by the Board of
Directors from time to time and upon receipt of appropriate documentation.
6. Restrictions on Activities.
(a) Competition. The Employee acknowledges that he will be
employed by the Company in a key executive capacity which will give him access
to confidential information concerning the Company's products, suppliers,
customers, manufacturing operations and research and development activities
throughout the world, that the Company is engaged in a highly competitive
business and that the success of the Company's business in the marketplace
depends upon its goodwill, reputation for quality and dependability and the
preservation of confidential information. The Employee further acknowledges and
agrees that reasonable limits may be placed on his ability to compete against
the Company as provided herein so as to protect and preserve the legitimate
business interests and goodwill of the Company.
During his employment with the Company and the Non-Competition
Period (as defined below), the Employee will not (anywhere in the world where
thex Company or any of its divisions, subsidiaries or affiliates then conducts
business) engage or participate in, directly or indirectly, as principal, agent,
employee, employer, consultant, investor or partner, or assist in the management
of, or own any stock or any other ownership interest in, any business which
competes with the Company (as defined below). For purposes of this Agreement, a
business shall be considered to compete with the Company only if it engages
directly or indirectly in the business of designing, manufacturing, marketing,
distributing or selling (1) residential smoke detectors which are not capable of
being monitored by an alarm control panel, (2) rechargeable lanterns and
flashlights, (3) fire extinguishers, (4) night lights, (5) electromechanical or
electronic timers which are stand alone devices and not part of a lighting
control system, (6) passive infrared motion sensors which are not part of any
lighting control or building control system, (7) fire-resistant storage boxes,
(8) carbon monoxide detectors, (9) fire escape ladders, (10) child safety or
elder care products or (11) any other products which the Company is developing,
designing, manufacturing, marketing, distributing or selling during the
Employee's employment with the Company. Notwithstanding the foregoing, the
Employee may own, directly or indirectly, less than 1% of the capital stock of
any public corporation. For purposes of this Agreement, the "Non-Competition
Period" shall mean twelve (12) consecutive months immediately following the date
the Employee ceases being employed by the Company, whether the Employee's
termination from employment with the Company is voluntary or otherwise.
(b) Non-Solicitation of Employees, Customers and Suppliers. The
Employee acknowledges that by virtue of his employment with the Company he will
have the opportunity to develop knowledge of and relationships with the
Company's employees, customers, and suppliers. The Employee further acknowledges
that the Company's relationships with its
- 4 -
<PAGE>
employees, customers, and suppliers are critical to its ability to operate and
its financial well-being.
While employed by the Company and during the Non-Solicitation
Period (as defined below), the Employee will not solicit, or attempt to solicit,
any officer, director, consultant, executive or employee of the Company or any
of its divisions, subsidiaries or affiliates to leave his or her engagement with
the Company or such division, subsidiary or affiliate nor will he call upon,
solicit, divert or attempt to solicit or divert from the Company or any of its
divisions, subsidiaries or affiliates any party of whose name he was aware
during the term of his employment with the Company and who is, was, or was
solicited to become a customer of the Company or its divisions, subsidiaries or
affiliates at any time during the course of the Employee's employment with the
Company nor will he divert or attempt to divert from the Company or any of its
divisions, subsidiaries or affiliates any supplier (or potential supplier of
whose name he is aware) of the Company, its divisions, subsidiaries or
affiliates; provided, however, that nothing in this subsection 6(b) shall be
deemed to prohibit the Employee from calling upon or soliciting a customer or
supplier during the Non- Solicitation Period if such action relates solely to a
business which does not compete with the Company. For purposes of this
Agreement, the "Non-Solicitation Period" shall mean (i) in the case of the
solicitation of any officer, director, consultant, executive or employee, the
period of thirty-six (36) consecutive months immediately following the date the
Employee ceases being employed by the Company, whether the Employee's
termination from employment with the Company is voluntary or otherwise, and (ii)
in the case of the solicitation of any customer or supplier, the period of
twelve (12) consecutive months immediately following the date the Employee
ceases being employed by the Company, whether Employee's termination from
employment with the Company is voluntary or otherwise.
(c) Proprietary Information. By virtue of his employment by the
Company, the Employee will have access to confidential specifications, strategic
or technical data, marketing research data, product research and development
data, manufacturing techniques, confidential customer lists and sources of
supply, and trade secrets, all of which are confidential and may be proprietary
and are owned or used by the Company, its divisions, subsidiaries or affiliates.
Such information shall hereinafter be called "Proprietary Information" and shall
include any and all items enumerated in the pre-ceding sentence and coming
within the scope of the business of the Company or any of its divisions,
subsidiaries or affiliates as to which the Employee may have had access, whether
conceived or developed by others or by the Employee alone or with others during
the period of his service to the Company, whether or not conceived or developed
during regular working hours. Proprietary Information shall not include any
records, data or information which are in the public domain, provided the same
are not in the public domain as a consequence of disclosure directly or
indirectly by the Employee in violation of this Agreement.
The Employee agrees that Proprietary Information is of critical
importance to the Company. The Employee will keep all Proprietary Information in
a
- 5 -
<PAGE>
fiduciary capacity for the sole benefit of the Company. The Employee shall not
directly or indirectly disclose (except as required by law) to any person other
than the Company or its employees authorized to receive such disclosure by the
Company, or use for his own benefit or for the benefit of any other person or
entity:
(1) any of the Company's trade secrets, at any
time hereafter, and
(2) any Proprietary Information as defined in
subsection 6(c) of this Agreement but which
does not qualify as a trade secret under
Illinois law, while he is employed by the
Company and for a period of thirty-six (36)
months following the date the Employee ceases
being employed with the Company, whether the
Employee's termination from employment with
the Company is voluntary or otherwise.
(d) Non-Disparagement. The Employee further agrees that (1) he
will not, at any time following the date of this Agreement, take any action that
will demean, disparage or criticize the Company, its subsidiaries, divisions or
affiliates or any of their respective officers, employees, agents, directors or
stockholders, and (2) he will not make any negative or adverse remarks
whatsoever to any third party, including without limitation, actual or potential
customers, distributors, sales representatives and investors of the Company and
past, current or future employees and/or consultants of the Company, concerning
the business, operations, technologies, products, services, marketing
strategies, pricing policies, management, affairs and financial condition of the
Company, its subsidiaries, divisions, affiliates and/or their successors,
assigns, stockholders, officers, directors and employees; provided, however,
that nothing contained in this subsection shall be deemed to prohibit the
Employee from truthfully responding to inquiries pursuant to legal process,
providing information as required by law, conducting internal employee
performance appraisals, providing information to the Board or the Company's
officers, employees, and investors as necessary to the performance by the
Employee of his duties, or otherwise performing his duties.
(e) Return of Documents. The Employee agrees that upon his
termination from the Company, whether voluntary or otherwise, the Employee shall
deliver to the Company all notes, letters, documents and records which may
contain Proprietary Information which are then in his possession or control and
shall destroy any and all copies and summaries thereof not returned to the
Company.
(f) Assignment of Inventions. The Employee agrees to assign and
transfer to the Company or its designee, without any separate remuneration or
compensation, his entire right, title and interest in and to all Inventions in
the Field (as defined below), together with all United States and foreign rights
with respect thereto, and at the Company's expense to execute and deliver all
appropriate patent and copyright applications for securing United States and
- 6 -
<PAGE>
foreign patents and copyrights on Inventions in the Field and to perform all
lawful acts, including giving testimony, and to execute and deliver all such
instruments that may be necessary or proper to vest all such Inventions in the
Field and patents and copyrights with respect thereto in the Company, and to
assist the Company in the prosecution or defense of any interference which may
be declared involving any of said patent applications, patents, copyright
applications or copyrights. For the purposes of this Agreement, the words
"Inventions in the Field" shall include any discovery, process, design,
development, improvement, application, technique, or invention, whether
patentable or copyrightable or not and whether reduced to practice or not,
conceived or made by the Employee, individually or jointly with others (whether
on or off the Company's premises or during or after normal working hours) while
in the employ of the Company, and which was or is directly or indirectly related
to the business of the Company or any of its subsidiaries, divisions or
affiliates, or which resulted or results from or was suggested by any work
performed by any employee or agent thereof during the Employee's employment by
the Company and for a period of thirty-six months following the date the
Employee ceases being employed with the Company.
(g) Additional Protections. The obligations of the Employee
under the foregoing subsections 6(a) through 6(f) shall be in addition to, and
shall not limit, any other obligations of the Employee to the Company imposed
either by law or agreement with respect to the matters set forth in this Section
6.
(h) Representation. THE EMPLOYEE REPRESENTS AND WARRANTS THAT
THE KNOWLEDGE, SKILLS AND ABILITIES HE POSSESSED AT THE TIME OF EXECUTION OF
THIS AGREEMENT ARE SUFFICIENT TO PERMIT HIM TO EARN A LIVELIHOOD SATISFACTORY TO
HIMSELF WITHOUT VIOLATING ANY PROVISION OF SECTION 6 HEREOF, FOR EXAMPLE, BY
USING SUCH KNOWLEDGE, SKILLS AND ABILITIES, OR SOME OF THEM, IN THE SERVICE OF A
NON-COMPETITOR. THE EMPLOYEE FURTHER REPRESENTS AND WARRANTS THAT HIS ABILITY SO
TO EARN A LIVELIHOOD SATISFACTORY TO HIMSELF DOES NOT DEPEND UPON HIS ABILITY TO
OBTAIN COMPENSATION FOR HIS SERVICES AT, OR IN EXCESS OF, THE LEVEL AT WHICH HE
WILL BE COMPENSATED BY THE COMPANY.
(i) Remedies. It is specifically understood and agreed that any
breach of the provisions of this Section 6 will result in serious and
irreparable injury to the Company's business and that the remedy at law alone
will be an inadequate remedy for such breach, and that in addition to any other
remedy it may have, the Company shall be entitled to obtain the specific
performance of this Agreement by the Employee and to seek both temporary and
permanent injunctive relief (to the extent permitted by law) without the
necessity of proving actual damages. In addition to the foregoing, the Company
shall have no obligation to make any payment or provide any benefit to the
Employee under Section 4 or Section 9 of this Agreement on or after the date on
which any breach of the provisions of this Section 6 occurs and shall have the
right to cease such payments and benefits.
- 7 -
<PAGE>
(j) Severable Provisions. The provisions of this Agreement are
severable and the invalidity of any one or more provisions shall not affect the
validity of any other provision, except that if a court of competent
jurisdiction invalidates or voids this Section 6 or any portion hereof, the
Company shall be entitled to discontinue any payments or benefits that would
otherwise be provided under Section 4 or Section 9 and the Employee shall
forfeit his rights to the same. In the event that a court of competent
jurisdiction, in the course of a proceeding to enjoin the Employee's violation
of this Section 6, shall determine that specific performance of any portion of
this Section cannot be obtained in whole or in part because of the duration or
scope thereof, the parties hereto agree that said court in making such
determination shall have the power to reduce the duration and scope of such
provision to the extent necessary to permit an order of specific performance,
and that the Agreement in its reduced form shall be enforced to the full extent
permitted by law.
8. Termination.
(a) Termination at End of Term. The employment of the Employee
hereunder shall not automatically terminate at the end of the Initial Employment
Term, but shall continue thereafter for Subsequent Employment Terms in the
manner contemplated by Section 3, unless otherwise terminated in the manner
provided in this Section 8.
(b) Termination by the Company With Cause. The Company shall
have the right at any time to terminate the Employee's employment hereunder upon
the occurrence of any of the following (any such termination being referred to
as a termination for "Cause"):
(i) the commission by the Employee of any fraud,
embezzlement or other deliberate and premeditated act of
dishonesty or breach of fiduciary duty against the financial or
business interests of the Company or any of its subsidiaries;
(ii) the drug addiction or habitual intoxication of
the Employee;
(iii) the conviction by the Employee of or the
pleading by the Employee of nolo contendere to, a felony or a
crime involving moral turpitude;
(iv) the willful failure or refusal of the Employee
to perform the duties specified in and pursuant to Section 1
hereof, which failure or refusal is not cured within 15 days
subsequent to notice from the Company to the Employee specifying
the nature of such failure or refusal; or
(v) the breach by the Employee of any material terms
of this Agreement, which breach is not cured within 30 days
subsequent to notice from the Company to the Employee specifying
such breach.
- 8 -
<PAGE>
(c) Termination Upon Death or Disability. The Employee's employment
hereunder shall automatically terminate upon the Employee's death or upon his
inability to perform his duties hereunder by reason of any mental, physical or
other disability for a period of at least six consecutive months, as determined
by a qualified physician.
(d) Termination by the Company Without Cause. The Company shall have the
right to terminate the Employee's employment at any time for any reason without
Cause.
9. Effect of Termination of Employment.
(a) With Cause; Resignation; Death or Disability. If the
Employee's employment is terminated with Cause pursuant to Section 8(b) or if
the Employee's employment is terminated by the death or disability of the
Employee pursuant to Section 8(c) or if the Employee elects to terminate his
employment, the Employee's salary and other benefits specified in Section 4
shall cease at the time of such termination; provided, however, that the
Employee shall be entitled to all salary and bonuses which are accrued through
the date of termination, shall be entitled to continue to participate in the
Company's medical benefit plans to the extent required by law and shall retain
any stock options which have vested through the date of termination in the
manner provided in the Stock Option Agreement.
(b) Without Cause by the Company. If the Employee's employment
is terminated by the Company without Cause pursuant to Section 8(d) prior to the
expiration of the Employment Term, or if the Employee's employment is terminated
as a result of the Company's election to not renew the Agreement, as provided in
Section 3, the Employee's salary and other benefits specified in Section 4 shall
cease at the time of such termination, and the Employee shall only be entitled
to receive all salary and bonuses which are accrued through the date of
termination and the continuation of his base salary, as then in effect, for the
Severance Period (as defined below). In addition, the Employee shall be entitled
to (i) continue his participation in the Company's medical benefit plans for a
period of twelve months from the date of termination on the same terms and
conditions as in effect during the term of his employment hereunder, (ii) retain
any stock options which have vested through the date of termination in the
manner provided in the Stock Option Agreement, and (iii) receive a pro rata
portion of the incentive bonus referred to in Section 4(b) for the fiscal year
in which the Employee is terminated, subject to the Company achieving the
specified financial targets established by the Compensation Committee for such
fiscal year, which bonus, if earned, will be paid to the Employee at the same
time as bonuses are paid to the other participants in the Management Incentive
Bonus Program. The salary payments shall be payable in equal bi-weekly
installments, subject to withholding and other applicable taxes. If the Employee
obtains other employment during the period in which the Company is required to
continue his salary hereunder, the amount of compensation received from such
other employment source during the period that the Company is required to make
payments under this Section 9(b) shall reduce on a dollar-for-dollar basis the
payments otherwise required to be made hereunder, unless the Employee is
terminated in connection with a Change of Control, in which event the payments
required to be made to the Employee under this Section
- 9 -
<PAGE>
9(b) shall not be subject to such reduction. For purposes of this Section 9(b),
the term "Severance Period" shall mean (i) in the case of the termination of the
Employee's employment without Cause pursuant to Section 8(d) prior to the
expiration of the Employment Term, a period equal to the longer of (x) the
remainder of the Employment Term, or (y) twenty-four months from the date of
termination, and (ii) in the case of the termination of the Employee's
employment as a result of the Company's election to not renew the Agreement, a
period equal to twelve months from the date the Company delivers to the Employee
a written notice of its election to not renew this Agreement under Section 3
hereof.
10. Insurance. The Company may purchase insurance on the life of the
Employee, and if it does so, the Employee shall cooperate fully by performing
all the requirements of the life insurer which are necessary conditions
precedent to the issuance of the life insurance policy issued by it.
11. No Other Benefits. Except as specifically provided in this
Agreement, the Employee shall not be entitled to any compensation, severance or
other benefits from the Company or any of its divisions, subsidiaries or
affiliates in the event of the Employee's termination of employment for any
reason.
12. Notice. Any notices required or permitted hereunder shall be in
writing and shall be deemed to have been given when personally delivered or when
mailed, certified or registered mail, postage prepaid, to the following
addresses or such other address as to which notice is given in the manner
provided herein:
If to the Employee:
B. Joseph Messner
11724 High Drive
Leawood, Kansas 66211
If to the Company:
First Alert, Inc.
3901 Liberty Street Road
Aurora, Illinois 60504-8122
Attn: Chairman
13. General.
(a) Governing Law. The terms of this Agreement shall be governed
by and construed under the laws of the State of Illinois without regard to its
principles of conflicts of laws.
- 10 -
<PAGE>
(b) Assignability. The Employee may not assign his interest in
or delegate his duties under this Agreement. The Company may not assign the
Agreement or the rights and obligations hereunder without consent of Employee.
(c) Enforcement Costs. In the event that either the Company or
the Employee initiates an action or claim to enforce any provision or term of
this Agreement, the costs and expenses (including attorney's fees) of the
prevailing party shall be paid by the other party, such party to be deemed to
have prevailed if such action or claim is concluded pursuant to a court order or
final judgment which is not subject to appeal, a settlement agreement or
dismissal of the principle claims.
(d) Binding Effect; Successors. This Agreement shall be binding
upon and inure to the benefit of the Company, its permitted successors and
assigns and the Employee, his representatives and heirs. The Company will
require that any successor (whether direct or indirect, by purchase of stock or
assets, by merger, by consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company, together with such successor's
ultimate parent corporation (if any), will be jointly and severally liable for
the obligations owed to the Employee hereunder and will perform this Agreement
in the same manner and to the same extent that the Company is obligated to
perform it. Any succession shall not, however, relieve or alter the Company's
continuing liability for all obligations owing to the Employee hereunder. The
Employee acknowledges and understands, however, that the Employee's employment
by a successor to the Company, if consistent with the terms and provisions of
this Agreement, will not be deemed a termination of the Employee's employment
with the Company.
(e) Entire Agreement; Modification. This Agreement constitutes
the entire agreement of the parties hereto with respect to the subject matter
hereof and may not be modified or amended in any way except in writing by the
parties hereto.
(f) Duration. Notwithstanding the term of employment hereunder,
this Agreement shall continue for so long as any obligations remain under this
Agreement.
(g) Representation of Employee. The Employee represents and
warrants that neither the execution and delivery of this Agreement nor the
performance of his duties hereunder violates the provisions of any other
agreement to which he is a party or by which he is bound.
* * * *
- 11 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound,
have hereunto executed this Agreement the day and year first written above.
FIRST ALERT, INC.
By: /s/ Malcolm Candlish
----------------------------
Name: Malcolm Candlish
Title: Chairman
EMPLOYEE
/s/ B. Joseph Messner
---------------------------------
B. Joseph Messner
- 12 -
<PAGE>
Exhibit 9
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT, dated as of this 1st day of January 1997, between BRK
Brands, Inc. (the "Company") and the undersigned executive whose name and
address appear on the signature page hereto (the "Executive").
W I T N E S S E T H:
-------------------
WHEREAS, the Company considers it important to the best interests of
the Company and its affiliated corporations that the Executive be encouraged to
maintain employment with the Company;
WHEREAS, the Company considers it imperative to the best interests of
the Company and its affiliated corporations that the Executive be subject to
certain restrictions concerning the activities which he may undertake for
himself or others unrelated to the Company and its corporate affiliates and
would not enter into an agreement to provide certain benefits to Executive
absent such restrictions; and
WHEREAS, the Company anticipates that entering into an employment
agreement will operate as an incentive for the Executive to maintain employment
with the Company and to refrain from activities contrary to the interests of the
Company and its corporate affiliates;
NOW, THEREFORE, to induce the Executive to maintain employment with the
Company and to refrain from activities contrary to the interests of the Company
and its corporate affiliates, and to induce the Company to continue Executive's
employment with the Company and to provide certain benefits to Executive, the
Company and the Executive agree as follows:
<PAGE>
1. Terms of Employment.
-------------------
(a) Duration of Employment. The Executive shall be employed by the
Company through December 31, 1999 (the "Employment Period").
(b) Position/Duties. The Executive shall serve as Chairman of the Board
of Directors of the Company and its parent, First Alert, Inc., through at least
June 30, 1998. Thereafter, the Executive shall perform such duties as he may be
directed to perform by the Board of Directors of the Company ("Board").
(c) Business Efforts. So long as the Executive is employed by the
Company, the Executive shall devote a significant portion of his business time
to the performance of his duties under this Agreement but in no event less than
twenty (20) days per year.
(d) Salary. Provided that the Executive continues to be employed by the
Company, he shall be paid an annual base salary of $100,000.00, less any
applicable payroll or other taxes required to be withheld and any required
employee contributions towards benefits pursuant to Company employee benefit
plans or such other amount not less than $100,000 as may be determined by the
Board in its discretion.
(e) Bonus. In addition to a base annual salary, the Executive shall be
entitled to receive such bonuses as the Board may determine to be appropriate or
as provided by separate agreement between the Company and the Executive. Nothing
contained in this Agreement is intended to affect any rights to bonus which the
Executive currently has or as precluding the entry into any future agreement
concerning bonuses.
(f) Insurance Benefits. The Executive shall be eligible to participate
in all insurance benefit plans and group health programs sponsored by the
Company which are applicable to non-
-2-
<PAGE>
exempt employees throughout the period of the Executive's employment by the
Company, provided that the Executive pays the employee share of any premium
attributable to said benefit.
(g) Annual Physical. The Executive may elect to undergo a physical
examination by a physician of the Executive's choice once each calendar year.
All fees and medical expenses associated with said physical examination shall be
paid by the Company.
(h) Other Benefits. The Executive shall further be eligible to
participate in other employee benefit plans such as pension and 401(k) plans and
receive such benefits as vacation and leave time on the same terms as are
applicable to other officers of the Company.
2. Termination of Employment.
-------------------------
(a) By the Company. During the term of this Agreement and any extension
thereof, the Executive's employment with the Company may be terminated by the
Company only for cause. For purposes of this Agreement, the following reasons
shall constitute "cause":
(1) The Executive is convicted of, or pleads guilty or
nolo contenders to any felony or a crime involving
moral turpitude;
(2) The Executive materially fails or refuses to perform
his duties and such material failure or refusal
continues for a period of ten (10) days following
written notice of such failure or refusal in
reasonable detail, it being understood that the
Company's failure to achieve its business plan or
projections shall not itself be considered a failure
or refusal to perform duties;
(3) The Executive breaches any provision of Section 5
hereof;
-3-
<PAGE>
(4) The Executive commits any fraud, embezzlement,
misappropriation of funds, breach of fiduciary duty
or other act of dishonesty or intentional malfeasance
against the Company; or
(5) The Executive's death or permanent incapacity.
(b) By the Executive. During the term of this Agreement and any
extension thereof, the Executive's employment with the Company may be terminated
by the Executive for any reason.
(c) Effect of Termination of Employment. The termination of the
Executive's employment pursuant to subsections 2(a) or 2(b) shall relieve the
Company of any further obligation to pay to the Executive salary pursuant to
subsection 1(d) or bonus, or to permit the Executive's participation in any
benefit plan (other than medical/dental insurance or group health program
coverage as set forth below) pursuant to subsection 1(f), but shall not relieve
the Company of its obligation to provide an annual physical examination pursuant
to subsection 1(g) above and continuing medical/dental insurance or group health
program coverage pursuant to Section 4 below, unless the Executive's employment
is terminated by the Company pursuant to subsections 2(a)(1), (3) or (4), and
provided that the Executive continues at all times to comply with his
obligations under Section 5 below.
3. Notice of Termination/Resignation.
---------------------------------
Termination of the Executive's employment with the Company by the
Company pursuant to subsection 2(a) or resignation from employment with the
Company by the Executive pursuant to subsection 2(b) shall be communicated by a
written "Notice of Termination" or "Notice of Resignation" to the other party.
(In the case of the Executive's death or permanent incapacity,
-4-
<PAGE>
receipt of actual notice of death or incapacity by the Company shall be deemed
Notice of immediate Resignation.) Except in the case of the Executive's death or
permanent incapacity, the Notice of Termination or Notice of Resignation may, at
the discretion of the party giving the notice, be effective immediately or at a
future specified date. The date the Executive ceases performance of services for
the Company pursuant to said Notice, or pursuant to the expiration of the term
of this Agreement on December 31, 1999 or a later date, shall be considered the
"Termination Date."
4. Continuing Medical/Health Insurance or Group Health Program
-----------------------------------------------------------
Coverage.
-------
Provided that the Executive complies with his obligations under Section
5, the Executive shall be entitled to receive the following benefits after the
Termination Date, without regard to whether said Termination Date occurs during
the term of this Agreement or subsequent to its expiration:
(a) The Executive and Jasmine R. Cresswell Candlish ("the Executive's
Wife") shall be eligible to continue to participate, to the same extent and
level they were participating as of the Termination Date, in any Company
sponsored group medical and dental plans (whether insured or self-insured) for
non-bargaining unit employees and their spouses("Group Plan") in effect on the
Termination Date, for the maximum allowable period under COBRA ("COBRA
Coverage"). Participation in said Group Plan by the Executive and the
Executive's Wife shall be subject to his/her payment of the regular employee
contribution or share for employee and spouse coverage as specified in the Group
Plan. Provided that the Executive or the Executive's Wife pays said regular
employee contribution, the remainder of the premium for COBRA Coverage shall be
paid by the Company.
- 5 -
<PAGE>
(b) If, as of the date the Executive is no longer eligible for COBRA
Coverage, the Executive has not reached the minimum age for coverage under
Medicare, the Company shall at the Company's option: (1) purchase for the
Executive a medical/dental insurance policy (to be effective as of the date the
Executive is no longer eligible for COBRA Coverage) which will provide benefits
comparable to those then available to employees of the Company under the Group
Plan; or (2) directly reimburse the Executive for any medical/dental costs
incurred by him after the date the Executive is no longer eligible for COBRA
Coverage on the same terms as such costs would be paid by the Group Plan if the
Executive were insured under such Group Plan then in effect at the Company. The
Executive's benefits pursuant to this sub-section 4(b) shall terminate on the
date the Executive becomes eligible for Medicare coverage. It is understood that
depending upon the circumstances at the time, the payments made pursuant to this
subsection (whether the payments are made to purchase insurance or to directly
reimburse the Executive for medical/dental costs) may constitute taxable income
to the Executive. In the event that such payments constitute taxable income, it
is agreed that the payments will be reported to the Internal Revenue Service and
any other appropriate taxing authority as taxable income to the Executive, and
it is further agreed that the Executive shall be solely responsible for any
taxes associated with such payments.
(c) If, as of the date the Executive's Wife is no longer eligible for
COBRA Coverage pursuant to subsection 4(a), the Executive's Wife has not reached
the minimum age for coverage under Medicare, the Company shall at the Company's
option: (1) purchase for the Executive's Wife a medical/dental insurance policy
(to be effective as of the date the Executive's Wife is no longer eligible for
COBRA Coverage) which will provide benefits comparable to those then
-6-
<PAGE>
available to spouses of employees of the Company under the Group Plan; or (2)
directly reimburse the Executive or, in the case of the Executive's demise, the
Executive's Wife, for any medical/dental costs incurred by her after the date on
which the Executive's Wife is no longer eligible for COBRA Coverage on the same
terms as such costs would be paid by the Group Plan if the Executive's Wife were
insured under such Group Plan then in effect at the Company. The Executive's
Wife's benefits pursuant to this subsection 4(c) shall terminate on the date the
Executive's Wife becomes eligible for Medicare coverage. It is understood that
depending upon the circumstances at the time, the payments made pursuant to this
subsection (whether the payments are made to purchase insurance or to directly
reimburse the Executive or the Executive's Wife for medical/dental costs) may
constitute taxable income to either the Executive or to the Executive's Wife. In
the event that such payments do constitute taxable income, it is agreed that the
payments will be reported to the Internal Revenue Service and any other
appropriate taxing authority as taxable income to the Executive and/or the
Executive's Wife, and it is further agreed that the Executive and/or the
Executive's Wife shall be solely responsible for any taxes associated with such
payments.
(d) It is understood and agreed that the Company's obligation to allow
continuing participation in employee benefit plans as specified in subsection
4(a) and the Company's obligations to provide the benefits as specified in
subsections 4(b) and (c) is contingent upon the Executive's continuing
compliance with his obligations under Section 5. If the Company determines that
the Executive has failed to comply with said obligations, it may cease any
contribution for employee benefits, may cease any further payment of
medical/dental insurance premiums or reimbursement of medical/dental costs, and
may further recover from the Executive
-7-
<PAGE>
any premium payments made for or reimbursement payments made to the Executive
prior to the date of the Company's determination but after the Executive
initially failed to comply.
It is further understood and agreed that if the Executive, the
Executive's wife or both of them, receive medical and dental plan coverage from
another employer of the Executive which is comparable to that provided under
this Agreement as such coverage may be in effect for them from time to time, the
Company's obligations to provide coverage under this Section 4 to the Executive,
the Executive's Wife or both of them, as the case may be, shall cease.
5. Restrictions on Activities.
--------------------------
(a) Competition. The Executive acknowledges that he has been and will
continue to be employed by the Company in a key executive capacity which has
given and will give him access to confidential information concerning the
Company's products, suppliers, customers, manufacturing operations and research
and development activities throughout the world, that the Company is engaged in
a highly competitive business and that the success of the Company's business in
the marketplace depends upon its goodwill, reputation for quality and
dependability and the preservation of confidential information. The Executive
further acknowledges and agrees that reasonable limits may be placed on his
ability to compete against the Company as provided herein so as to protect and
preserve the legitimate business interests and goodwill of the Company.
During his employment with the Company and the Non-Competition Period
(as defined below), the Executive will not (anywhere in the world where the
Company or any of its divisions, subsidiaries or affiliates then conducts
business) engage or participate in, directly or indirectly, as principal, agent,
employee, employer, consultant, investor or partner, or assist in the
-8-
<PAGE>
management of, or own any stock or any other ownership interest in, any business
which competes with the Company (as defined below). For purposes of this
Agreement, a business shall be considered to compete with the Company only if it
engages directly or indirectly in the business of designing, manufacturing,
marketing, distributing or selling (1) residential smoke detectors which are not
capable of being monitored by an alarm control panel, (2) rechargeable lanterns
and flashlights, (3) fire extinguishers, (4) night lights, (5) electromechanical
or electronic timers which are stand alone devices and not part of a lighting
control system, (6) passive infrared motion sensors which are not part of any
lighting control or building control system, (7) fire-resistant storage boxes,
(8) carbon monoxide detectors, (9) fire escape ladders, (10) child safety or
elder care products or (11) any other products which the Company is developing,
designing, manufacturing, marketing, distributing or selling during the
Executive's employment with the Company. Notwithstanding the foregoing, the
Executive may own, directly or indirectly, less than 1% of the capital stock of
any public corporation, may serve as a director of The Black & Decker
Corporation, and may serve as a director of such other corporations, which may
have any of the foregoing competing businesses as part of their business, as the
Board may from time to time agree, without violating this subsection 5(a). For
purposes of this Agreement, the "Non-Competition Period" shall mean the period
equal to the longer of (i) the period from the effective date of this Agreement
to December 31, 1997, (ii) twelve (12) consecutive months immediately following
the date the Executive ceases being employed by the Company, whether the
Executive's termination from employment with the Company is voluntary or
otherwise, or (iii) twelve (12) consecutive months immediately following the
date the Executive ceases receiving salary payments from the Company hereunder.
-9-
<PAGE>
(b) Non-Solicitation of Employees, Customers and Suppliers. The
Executive acknowledges that by virtue of his employment with the Company he has
had and will have the opportunity to develop knowledge of and relationships with
the Company's employees, customers, and suppliers. The Executive further
acknowledges that the Company's relationships with its employees, customers, and
suppliers are critical to its ability to operate and its financial well-being.
While employed by the Company and during the NonSolicitation Period (as
defined below), the Executive will not solicit, or attempt to solicit, any
officer, director, consultant, executive or employee of the Company or any of
its divisions, subsidiaries or affiliates to leave his or her engagement with
the Company or such division, subsidiary or affiliate nor will he call upon,
solicit, divert or attempt to solicit or divert from the Company or any of its
divisions, subsidiaries or affiliates any party of whose name he was aware
during the term of his employment with the Company and who is, was, or was
solicited to become a customer of the Company or its divisions, subsidiaries or
affiliates at any time during the course of the Executive's employment with the
Company nor will he divert or attempt to divert from the Company or any of its
divisions, subsidiaries or affiliates any supplier (or potential supplier of
whose name he is aware) of the Company, its divisions, subsidiaries or
affiliates; provided, however, that nothing in this subsection 5(b) shall be
deemed to prohibit the Executive from calling upon or soliciting a customer or
supplier during the Non-Solicitation Period if such action relates solely to a
business which does not compete with the Company. For purposes of this
Agreement, the "Non-Solicitation Period" shall mean the period of thirty-six
(36) consecutive
-10-
<PAGE>
months immediately following the Termination Date whether the Executive's
termination from employment with the Company is voluntary or otherwise.
(c) Proprietary Information. By virtue of his employment by the
Company, the Executive has had and will have access to confidential
specifications, strategic or technical data, marketing research data, product
research and development data, manufacturing techniques, confidential customer
lists and sources of supply, and trade secrets, all of which are confidential
and may be proprietary and are owned or used by the Company, its divisions,
subsidiaries or affiliates. Such information shall hereinafter be called
"Proprietary Information" and shall include any and all items enumerated in the
preceding sentence and coming within the scope of the business of the Company or
any of its divisions, subsidiaries or affiliates as to which the Executive may
have had access, whether conceived or developed by others or by the Executive
alone or with others during the period of his service to the Company, whether or
not conceived or developed during regular working hours. Proprietary Information
shall not include any records, data or information which are in the public
domain during the period of service by the Executive, provided the same are not
in the public domain as a consequence of disclosure directly or indirectly by
the Executive in violation of this Agreement.
The Executive agrees that Proprietary Information is of critical
importance to the Company. The Executive has kept all Proprietary Information in
a fiduciary capacity for the sole benefit of the Company. The Executive has not
and shall not directly or indirectly disclose (except as required by law) to any
person other than the Company or its employees authorized to receive such
disclosure by the Company, or use for his own benefit or for the benefit of any
other person or entity:
-11-
<PAGE>
(1) any of the Company's trade secrets, at any time
hereafter, and
(2) any Proprietary Information as defined in subsection
5(c) of this Agreement but which does not qualify as
a trade secret under Illinois law, while he is
employed by the Company and for a period of
thirty-six (36) months following the Termination Date
whether the Executive's termination from employment
with the Company is voluntary or otherwise.
(d) Non-Disparagement. The Executive further agrees that (1) he has not
and will not, at any time following the date of this Agreement, take any action
that will demean, disparage or criticize the Company, its subsidiaries,
divisions or affiliates or any of their respective officers, employees, agents,
directors or stockholders, and (2) he has not and will not make any negative or
adverse remarks whatsoever to any third party, including without limitation,
actual or potential customers, distributors, sales representatives and investors
of the Company and past, current or future employees and/or consultants of the
Company, concerning the business, operations, technologies, products, services,
marketing strategies, pricing policies, management, affairs and financial
condition of the Company, its subsidiaries, divisions, affiliates and/or their
successors, assigns, stockholders, officers, directors and employees; provided,
however, that nothing contained in this subsection shall be deemed to prohibit
the Executive from truthfully responding to inquiries pursuant to legal process,
providing information as required by law, conducting internal employee
performance appraisals, providing information to the Board or the Company's
officers, employees, and investors as necessary to the performance by the
Executive of his duties, or otherwise performing his duties.
-12-
<PAGE>
(e) Return of Documents. The Executive agrees that upon his termination
from the Company, whether voluntary or otherwise, the Executive shall deliver to
the Company all notes, letters, documents and records which may contain
Proprietary Information which are then in his possession or control and shall
destroy any and all copies and summaries thereof not returned to the Company.
(f) Assignment of Inventions. The Executive agrees to assign and
transfer to the Company or its designee, without any separate remuneration or
compensation, his entire right, title and interest in and to all Inventions in
the Field (as defined below), together with all United States and foreign rights
with respect thereto, and at the Company's expense to execute and deliver all
appropriate patent and copyright applications for securing United States and
foreign patents and copyrights on Inventions in the Field and to perform all
lawful acts, including giving testimony, and to execute and deliver all such
instruments that may be necessary or proper to vest all such Inventions in the
Field and patents and copyrights with respect thereto in the Company, and to
assist the Company in the prosecution or defense of any interference which may
be declared involving any of said patent applications, patents, copyright
applications or copyrights. For the purposes of this Agreement, the words
"Inventions in the Field" shall include any discovery, process, design,
development, improvement, application, technique, or invention, whether
patentable or copyrightable or not and whether reduced to practice or not,
conceived or made by the Executive, individually or jointly with others (whether
on or off the Company's premises or during or after normal working hours) while
in the employ of the Company, and which was or is directly or indirectly related
to the business of the Company or any of its subsidiaries, divisions or
affiliates, or which resulted or results from or was suggested by any
-13-
<PAGE>
work performed by any employee or agent thereof during the Executive's
employment by the Company and for a period of thirty-six months following the
Termination Date.
(g) Additional Protections. The obligations of the Executive under the
foregoing subsections 5(a) through 5(f) shall be in addition to, and shall not
limit, any other obligations of the Executive to the Company imposed either by
law or agreement with respect to the matters set forth in this Section 5.
(h) Representation. THE EXECUTIVE REPRESENTS AND WARRANTS THAT THE
KNOWLEDGE, SKILLS AND ABILITIES HE POSSESSED AT THE TIME OF EXECUTION OF THIS
AGREEMENT ARE SUFFICIENT TO PERMIT HIM TO EARN A LIVELIHOOD SATISFACTORY TO
HIMSELF WITHOUT VIOLATING ANY PROVISION OF SECTION 6 HEREOF, FOR EXAMPLE, BY
USING SUCH KNOWLEDGE, SKILLS AND ABILITIES, OR SOME OF THEM, IN THE SERVICE OF A
NON-COMPETITOR. THE EXECUTIVE FURTHER REPRESENTS AND WARRANTS THAT HIS ABILITY
SO TO EARN A LIVELIHOOD SATISFACTORY TO HIMSELF DOES NOT DEPEND UPON HIS ABILITY
TO OBTAIN COMPENSATION FOR HIS SERVICES AT, OR IN EXCESS OF, THE LEVEL AT WHICH
HE WILL BE COMPENSATED BY THE COMPANY.
6. Remedies.
--------
It is specifically understood and agreed that any breach of the
provisions of Section 5 of this Agreement will result in serious and irreparable
injury to the Company's business and that the remedy at law alone will be an
inadequate remedy for such breach, and that in addition to any other remedy it
may have, the Company shall be entitled to obtain the specific performance of
this Agreement by the Executive and to seek both temporary and permanent
injunctive relief (to
-14-
<PAGE>
the extent permitted by law) without the necessity of proving actual damages. In
addition to the foregoing, the Company shall have no obligation to make any
payment or provide any benefit to the Executive under Section 4 of this
Agreement on or after the date on which any breach of the provisions of Section
5 of this Agreement occurs and shall have the right to cease such payments and
benefits.
7. No Other Benefits.
-----------------
Except as specifically provided in this Agreement, the Executive shall
not be entitled to any compensation, severance or other benefits from the
Company, its parent or any of their respective divisions, subsidiaries or
affiliates in the event of the Executive's termination of employment for any
reason.
8. Limitations on Payments.
-----------------------
Anything herein to the contrary notwithstanding, in no event shall the
present value of all payments made to the Executive by the Company hereunder
which constitute "parachute payments" (within the meaning of Section
280(G)(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code"),
without regard to clause A(ii) thereof), when aggregated with any other payments
made by the Company to the Executive which constitute "parachute payments" (as
so defined), exceed 299% of the Executive's "base amount" (within the meaning of
said Section 280(G)) unless the applicable percentage of the holders of the
Company's common stock outstanding as of the date of such payments shall approve
such payments after appropriate disclosure. The Company agrees to make
reasonable efforts to obtain such stockholder approval. For the purposes hereof,
the "present value" of any payment shall be determined in accordance with
Section 280(G) of the Code.
-15-
<PAGE>
9. Severable Provisions.
--------------------
The provisions of this Agreement are severable and the invalidity of
any one or more provisions shall not affect the validity of any other provision,
except that if a court of competent jurisdiction invalidates or voids Section 5
of this Agreement or any portion thereof, the Company shall be entitled to
discontinue any payments or benefits that would otherwise be provided under
Section 4 and the Executive shall forfeit his rights to the same. In the event
that a court of competent jurisdiction, in the course of a proceeding to enjoin
the Executive's violation of Section 5, shall determine that specific
performance of any portion of Section 5 of this Agreement cannot be obtained in
whole or in part because of the duration or scope thereof, the parties hereto
agree that said court in making such determination shall have the power to
reduce the duration and scope of such provision to the extent necessary to
permit an order of specific performance, and that the Agreement in its reduced
form shall be enforced to the full extent permitted by law.
10. Notices.
-------
All notices hereunder, to be effective, shall be in writing and shall
be delivered by hand or mailed by certified mail, postage and fees prepared, as
follows:
If to the Company: BRK BRANDS, INC.
3901 Liberty Street Road
Aurora, IL 60504-8122
Attn: Haldon K. Grant
If to the Executive, to the address set forth below his name on the
signature page hereto; or to such other address as a party may notify the other
pursuant to a notice given in accordance with this Section 11.
-16-
<PAGE>
11. Miscellaneous.
-------------
(a) Modification. This Agreement constitutes the entire Agreement
between the parties hereto with regard to the subject matter hereof, superseding
all prior understandings and agreements, whether written or oral, except as
specifically referenced herein. This Agreement may not be amended or revised
except by a writing signed by both parties or by a court of competent
jurisdiction as provided in Section 9 above.
(b) Waiver. No waiver by either party hereto at anytime of (1) any
breach by the other party hereto of any provision of this Agreement, or (2)
compliance with any condition of this Agreement to be performed by such other
party, shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or any prior or subsequent time.
(c) Assignment and Transfer. This Agreement shall not be terminated by
the merger or consolidation of the Company with any corporate or other entity or
by the transfer of all or substantially all of the assets of the Company to any
other person, corporation, firm or entity. The provisions of this Agreement
shall be binding on and shall inure to the benefit of any such successor in
interest to the Company. Neither this Agreement nor any of the rights, duties or
obligations of the Executive shall be assignable by the Executive, nor shall any
of the payments required or permitted to be made to the Executive by this
Agreement be encumbered, transferred or in any way anticipated, except as
specifically provided herein.
(d) Captions. Captions herein have been inserted solely for convenience
of reference and in no way define, limit or describe the scope or substance of
any provision of this Agreement.
-17-
<PAGE>
(e) Governing Law. This Agreement shall be construed under and enforced
in accordance with the laws of The State of Illinois.
12. Term of Agreement. This Agreement shall become effective as of
January 1, 1997, and continue in effect through December 31, 1999. The
Executive's obligations under Section 5, and the Company's obligations under
subsection 1(g) and Section 4 shall continue without regard to expiration.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the date first above written.
The Executive BRK Brands, Inc.
By: /s/ Malcolm Candlish By: /s/ David V. Harkins
- ------------------------------- -----------------------------
Malcolm Candlish David V. Harkins
465 Walls Way Chairman of the
Osprey, Florida 34229 Compensation Committee
-18-
<PAGE>
Exhibit 10
NONCOMPETITION AGREEMENT
THIS AGREEMENT is entered into as of the 27th day of February,
1998 between First Alert, Inc., a Delaware corporation (the "Company"), and B.
Joseph Messner (the "Executive").
WHEREAS, the Company and BRK Brands, Inc., a Delaware
corporation and wholly owned subsidiary of the Company ("BRK Brands"), are
engaged primarily in the business of designing, manufacturing, marketing,
distributing and selling residential smoke detectors, fire extinguishers, carbon
monoxide detectors and certain other products;
WHEREAS, the Executive serves as the President and Chief
Executive Officer of the Company and BRK Brands pursuant to the terms of an
Employment Agreement dated as of September 18, 1996 (the "Employment
Agreement");
WHEREAS, the Executive's abilities and services are
unique and essential to the prospects of the Company; and
WHEREAS, the Company and the Executive desire to enter into
this Agreement upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements herein contained, the Company and the Executive
hereby agree as follows:
1. Definitions. As used in this Agreement, the
following terms shall have the respective meanings set forth
below:
(a) "Board" means the Board of Directors of the
Company.
(b) "Cause" means
(i) the commission by the Executive of any fraud,
embezzlement or other deliberate and premeditated act of
dishonesty or breach of fiduciary duty against the financial
or business interests of the Company or any of its
subsidiaries;
(ii) the drug addiction or habitual intoxication
of the Executive;
(iii) the conviction by the Executive of or the
pleading by the Executive of nolo contendere to, a
felony or a crime involving moral turpitude;
(iv) the willful failure or refusal of the
Executive to perform the duties specified in and
<PAGE>
pursuant to Section 1 of the Employment Agreement, which
failure or refusal is not cured within 15 days subsequent to
notice from the Company to the Executive specifying the nature
of such failure or refusal; or
(v) the breach by the Executive of any material terms
of the Employment Agreement, which breach is not cured within
30 days subsequent to notice from the Company to the Executive
specifying such breach.
(c) "Change of Control" means:
(i) Any acquisition resulting in any person, entity
or group (within the meaning of Section 13(d)(3) or 14(d)(2))
of the Exchange Act having beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of
50% or more of the combined voting power of the then
outstanding securities entitled to vote generally in the
election of directors of the Company; excluding, however, the
following: (1) any acquisition directly from the Company,
other than an acquisition by virtue of the exercise of a
conversion privilege unless the security being so converted
was itself acquired directly from the Company, (2) any
acquisition by the Company, (3) any acquisition by any
employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the
Company, (4) any acquisition by the Thomas H. Lee Company or
its affiliates, or (5) any acquisition by any entity pursuant
to a transaction which is excluded from subsection (ii) below;
or
(ii) The approval by the shareholders of the Company of a
reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the
Company ("Corporate Transaction"); excluding, however, any
Corporate Transaction which would result in the voting
securities of the Company immediately prior to such Corporate
Transaction continuing to represent (either by remaining
outstanding or being converted into voting securities or
another entity) 50% or more of the combined voting power of
the securities entitled to vote generally in the election of
directors of the Company or such other entity outstanding
immediately after such Corporate Transaction.
Notwithstanding the foregoing, a Change of Control shall not be deemed to have
occurred if the "person" described in the preceding portions of this Section
1(c) is an underwriter or underwriting syndication that has acquired ownership
of 50% or more of the combined voting power of the Company's then
-2-
<PAGE>
outstanding voting securities solely in connection with a public offering of the
Company's securities.
(d) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(e) "Good Reason" means, without the Executive's express
written consent, the occurrence of any of the following events after a Change of
Control:
(i) Failure by the Company to honor any of its
material obligations under the Employment Agreement; or
(ii) Failure to elect or reelect or otherwise to maintain
the Executive to or in the office or the position (or a
substantially equivalent office or position) in the Company
that the Executive held as of the date hereof; or
(iii) The Executive's overall compensation or perquisites
are reduced or adversely modified in any material respect, or
the Executive's authority or duties are materially changed, in
either case without the prior and voluntary written consent of
the Executive, which change is not fully remedied within ten
(10) calendar days after receipt by the Company of written
notice from the Executive identifying such change(s). For
purposes of this Agreement, the Executive's authority or
duties shall be conclusively considered to have been
"materially changed" if, without the Executive's express and
voluntary written consent, there is any substantial diminution
or adverse modification in the Executive's title, status,
overall position, responsibilities, reporting relationship or
general working environment (including, without limitation,
secretarial and staff support, offices, and frequency and mode
of travel); provided, however, that in no event shall the
geographic relocation of the Executive requested by the
Company in good faith constitute a "material change" unless
the Company fails to reimburse Executive for the reasonable
and customary costs associated with such relocation, including
without limitation moving expenses and brokerage fees.
(f) "Nonqualifying Termination" means a termination of the
Executive's employment (1) by the Company for Cause, (2) by the Executive for
any reason other than a Good Reason, (3) as a result of the Executive's death or
(4) by the Company due to the Executive's absence from his duties with the
Company on a full-time basis for at least 180 consecutive days as a result of
the Executive's incapacity due to physical or mental illness.
-3-
<PAGE>
(g) "Termination Period" means the period of time beginning
with a Change of Control and ending on the earlier to occur of (1) two years
following such Change of Control and (2) the Executive's death.
2. Restrictions on Activities. If during the Termination
Period the employment of the Executive shall terminate, other than by reason of
a Nonqualifying Termination, then the Executive shall be bound by the
noncompetition and nonsolicitation covenants set forth in this Section 2 and
shall be entitled to the payments set forth in Section 3 of this Agreement.
(a) Non-Competition. The Executive acknowledges that he is
employed by the Company in a key employee capacity which gives him access to
confidential information concerning the Company's products, suppliers,
customers, manufacturing operations and research and development activities
throughout the world, that the Company is engaged in a highly competitive
business and that the success of the Company's business in the marketplace
depends upon its goodwill, reputation for quality and dependability and the
preservation of confidential information. The Executive further acknowledges and
agrees that reasonable limits may be placed on his ability to compete against
the Company as provided herein so as to protect and preserve the legitimate
business interests and goodwill of the Company.
During the Non-Competition Period (as defined below), the
Executive will not (anywhere in the world where the Company or any of its
divisions, subsidiaries or affiliates then conducts business) engage or
participate in, directly or indirectly, as principal, agent, employee, employer,
consultant, investor or partner, or assist in the management of, or own any
stock or any other ownership interest in, any business which competes with the
Company (as defined below). For purposes of this Agreement, a business shall be
considered to compete with the Company only if it engages directly or indirectly
in the business of designing, manufacturing, marketing, distributing or selling
(1) residential smoke detectors which are not capable of being monitored by an
alarm control panel, (2) fire extinguishers, (3) carbon monoxide detectors or
(4) any other products which the Company is developing, designing,
manufacturing, marketing, distributing or selling during the Executive's
employment with the Company. Notwithstanding the foregoing, the Executive may
own, directly or indirectly, less than 1% of the capital stock of any public
corporation. For purposes of this Agreement, the "Non-Competition Period" shall
mean the five-year period beginning on the date during the Termination Period on
which the employment of the Executive terminates other than by reason of a
Nonqualifying Termination.
(b) Non-Solicitation of Employees, Customers and Suppliers.
The Executive acknowledges that by virtue of his employment with the Company he
has knowledge of and relationships
-4-
<PAGE>
with the Company's employees, customers, and suppliers. The Executive further
acknowledges that the Company's relationships with its employees, customers, and
suppliers are critical to its ability to operate and its financial well-being.
During the Non-Competition Period, the Executive will not
solicit, or attempt to solicit, any officer, director, consultant, executive or
employee of the Company or any of its divisions, subsidiaries or affiliates to
leave his or her engagement with the Company or such division, subsidiary or
affiliate nor will he call upon, solicit, divert or attempt to solicit or divert
from the Company or any of its divisions, subsidiaries or affiliates any party
of whose name he was aware during the term of his employment with the Company
and who is, was, or was solicited to become a customer of the Company or its
divisions, subsidiaries or affiliates at any time during the course of the
Executive's employment with the Company nor will he divert or attempt to divert
from the Company or any of its divisions, subsidiaries or affiliates any
supplier (or potential supplier of whose name he is aware) of the Company, its
divisions, subsidiaries or affiliates; provided, however, that nothing in this
subsection 2(b) shall be deemed to prohibit the Executive from calling upon or
soliciting a customer or supplier during the Non-Competition Period if such
action relates solely to a business which does not compete with the Company.
(c) Additional Protections. The obligations of the Executive
under the foregoing subsections 2(a) and 2(b) shall be in addition to, and shall
not limit, any other obligations of the Executive to the Company imposed either
by law or agreement with respect to the matters set forth in this Section 2.
(d) Representation. THE EXECUTIVE REPRESENTS AND WARRANTS THAT
THE KNOWLEDGE, SKILLS AND ABILITIES HE POSSESSED AT THE TIME OF EXECUTION OF
THIS AGREEMENT ARE SUFFICIENT TO PERMIT HIM TO EARN A LIVELIHOOD SATISFACTORY TO
HIMSELF WITHOUT VIOLATING ANY PROVISION OF SECTION 2 HEREOF, FOR EXAMPLE, BY
USING SUCH KNOWLEDGE, SKILLS AND ABILITIES, OR SOME OF THEM, IN THE SERVICE OF A
NON-COMPETITOR. THE EXECUTIVE FURTHER REPRESENTS AND WARRANTS THAT HIS ABILITY
SO TO EARN A LIVELIHOOD SATISFACTORY TO HIMSELF DOES NOT DEPEND UPON HIS ABILITY
TO OBTAIN COMPENSATION FOR HIS SERVICES AT, OR IN EXCESS OF, THE LEVEL AT WHICH
HE IS OR WILL BE COMPENSATED BY THE COMPANY.
(e) Remedies. It is specifically understood and agreed that
any breach of the provisions of this Section 2 will result in serious and
irreparable injury to the Company's business and that the remedy at law alone
will be an inadequate remedy for such breach, and that in addition to any other
remedy it may have, the Company shall be entitled to obtain the specific
performance of this Agreement by the Executive and to seek both temporary and
permanent injunctive relief (to the extent permitted by law) without the
necessity of proving actual damages. In addition to the foregoing, the Company
shall have no
-5-
<PAGE>
obligation to make any payment to the Executive under Section 3 of this
Agreement on or after the date on which any breach of the provisions of this
Section 2 occurs and shall have the right to cease such payments.
(f) Severable Provisions. The provisions of this Agreement are
severable and the invalidity of any one or more provisions shall not affect the
validity of any other provision. In the event that a court of competent
jurisdiction, in the course of a proceeding to enjoin the Executive's violation
of this Section 2, shall determine that specific performance of any portion of
this Section cannot be obtained in whole or in part because of the duration or
scope thereof, the parties hereto agree that said court in making such
determination shall have the power to reduce the duration and scope of such
provision to the extent necessary to permit an order of specific performance,
and that the Agreement in its reduced form shall be enforced to the full extent
permitted by law.
3. Compensation. As compensation for the covenants contained
in Section 2 of this Agreement, the Company shall make a cash payment to the
Executive, within 10 days following the date of the commencement of the
Non-Competition Period, in the amount of $1,000,000.
4. Reimbursement of Expenses. If any contest or dispute shall
arise under this Agreement involving termination of the Executive's employment
with the Company or involving the failure or refusal of the Company to perform
fully in accordance with the terms hereof, the Company shall reimburse the
Executive on a current basis, for all legal fees and expenses, if any, incurred
by the Executive in connection with such contest or dispute, together with
interest at a rate equal to the Prime Rate as published in the "Money Rates"
section of The Wall Street Journal, but in no event higher than the maximum
legal rate permissible under applicable law, such interest to accrue from the
date the Company receives the Executive's statement for such fees and expenses
through the date of payment thereof; provided, however, that in the event the
resolution of any such contest or dispute includes a finding denying, in total,
the Executive's claims in such contest or dispute, the Executive shall be
required to reimburse the Company, over a period of 12 months from the date of
such resolution, for all sums advanced to the Executive pursuant to this Section
4.
5. Operative Event. Notwithstanding any provision herein to
the contrary, no amounts shall be payable hereunder unless and until there is a
Change of Control.
6. Termination of Agreement.
(a) This Agreement shall be effective on the date hereof and
shall continue until terminated by the Company as provided in paragraph (b) of
this Section 6; provided, however,
-6-
<PAGE>
that this Agreement shall terminate in any event upon the termination of the
Executive's employment with the Company prior to a Change of Control.
(b) The Company shall have the right prior to a Change of
Control, in its sole discretion, pursuant to action by the Board, to approve the
termination of this Agreement, which termination shall not become effective
until the date fixed by the Board for such termination, which date shall be at
least 120 days after notice thereof is given by the Company to the Executive in
accordance with Section 9; provided, however, that no such action shall be taken
by the Board during any period of time when the Board has knowledge that any
person has taken steps reasonably calculated to effect a Change of Control
until, in the opinion of the Board, such person has abandoned or terminated its
efforts to effect a Change of Control; and provided further, that in no event
shall this Agreement be terminated in the event of a Change of Control.
7. Scope of Agreement. Nothing in this Agreement shall be
deemed to entitle the Executive to continued employment with the Company or its
subsidiaries, and if the Executive's employment with the Company shall terminate
prior to a Change of Control, then the Executive shall have no further rights
under this Agreement; provided, however, that any termination of the Executive's
employment following a Change of Control shall be subject to all of the
provisions of this Agreement.
8. Successors; Binding Agreement.
(a) This Agreement shall not be terminated by any merger or
consolidation of the Company whereby the Company is or is not the surviving or
resulting corporation or as a result of any transfer of all or substantially all
of the assets of the Company. In the event of any such merger, consolidation or
transfer of assets, the provisions of this Agreement shall be binding upon the
surviving or resulting corporation or the person or entity to which such assets
are transferred.
(b) The Company agrees that concurrently with any merger,
consolidation or transfer of assets referred to in paragraph (a) of this Section
8, it will cause any successor or transferee unconditionally to assume, by
written instrument delivered to the Executive, all of the obligations of the
Company hereunder.
(c) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
-7-
<PAGE>
9. Notices.
(a) For purposes of this Agreement, all notices and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered or five days after deposit in the
United States mail, certified and return receipt requested, postage prepaid,
addressed (1) if to the Executive, to B. Joseph Messner at his address as it
appears in the records of the Company, and if to the Company, to First Alert,
Inc., 3901 Liberty Street Road, Aurora, Illinois 60504-8122, attention to the
Chairman of the Board, or (2) to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notices of
change of address shall be effective only upon receipt.
(b) A written notice of the Executive's date of termination of
employment by the Company or the Executive, as the case may be, to the other,
shall (i) indicate the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) specify the termination
date (which date shall be not less than 15 days after the giving of such
notice). The failure by the Executive or the Company to set forth in such notice
any fact or circumstance which contributes to a showing of Good Reason or Cause
shall not waive any right of the Executive or the Company hereunder or preclude
the Executive or the Company from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
10. Full Settlement; Resolution of Disputes.
(a) The Company's obligation to make any payments provided for
in this Agreement and otherwise to perform its obligations hereunder shall not
be affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action which the Company may have against the Executive or others.
(b) If there shall be any dispute between the Company and the
Executive in the event of any termination of the Executive's employment, then,
unless and until there is a final, nonappealable judgment by a court of
competent jurisdiction declaring that such termination was for Cause, that the
determination by the Executive of the existence of Good Reason was not made in
good faith, or that the Company is not otherwise obligated to pay any amount to
the Executive under Section 3, the Company shall pay all amounts to the
Executive that the Company would be required to pay pursuant to Section 3 as
though such termination were by the Company without Cause or by the Executive
with Good Reason; provided, however, that the Company shall not be required to
pay any disputed amounts pursuant to this paragraph except upon receipt of an
undertaking by or on behalf
-8-
<PAGE>
of the Executive to repay all such amounts to which the Executive is ultimately
adjudged by such court not to be entitled.
11. Employment with Subsidiaries. Employment with the Company
for purposes of this Agreement shall include employment with any corporation or
other entity in which the Company has a direct or indirect ownership interest of
50% or more of the total combined voting power of the then outstanding
securities of such corporation or other entity entitled to vote generally in the
election of directors.
12. Governing Law. The interpretation, construction and
performance of this Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of Illinois without regard to the
principle of conflicts of laws.
13. Counterparts. This Agreement may be executed in two
counterparts, each of which shall be deemed to be an original and both of which
together shall constitute one and the same instrument.
14. Miscellaneous. No provision of this Agreement may be
modified or waived unless such modification or waiver is agreed to in writing
and signed by the Executive and by a duly authorized officer of the Company. No
waiver by a party hereto at any time of any breach by the other party hereto of,
or compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar provisions
or conditions at the same or at any prior or subsequent time. Failure by the
Executive or the Company to insist upon strict compliance with any provision of
this Agreement or to assert any right the Executive or the Company may have
hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason, shall not be deemed to be a waiver of such
provision or right or any other provision or right of this Agreement.
-9-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed by a duly authorized officer of the Company and the Executive has
executed this Agreement as of the day and year first above written.
FIRST ALERT, INC.
By: /s/ Malcolm Candlish, Chairman
_______________________________
Malcolm Candlish, Chairman
EXECUTIVE:
/s/ B. Joseph Messner
______________________________
B. Joseph Messner
-10-
<PAGE>
Exhibit 11
NONCOMPETITION AGREEMENT
THIS AGREEMENT is entered into as of the 27th day of February,
1998 between First Alert, Inc., a Delaware corporation (the "Company"), and
Michael A. Rohl (the "Executive").
WHEREAS, the Company and BRK Brands, Inc., a Delaware
corporation and wholly owned subsidiary of the Company ("BRK Brands"), are
engaged primarily in the business of designing, manufacturing, marketing,
distributing and selling residential smoke detectors, fire extinguishers, carbon
monoxide detectors and certain other products;
WHEREAS, the Executive serves as the Vice President and
Chief Financial Officer of the Company;
WHEREAS, the Executive's abilities and services are
unique and essential to the prospects of the Company; and
WHEREAS, the Company and the Executive desire to enter into
this Agreement upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements herein contained, the Company and the Executive
hereby agree as follows:
1. Definitions. As used in this Agreement, the
following terms shall have the respective meanings set forth
below:
(a) "Board" means the Board of Directors of the
Company.
(b) "Cause" means
(i) the commission by the Executive of any fraud,
embezzlement or other deliberate and premeditated act of
dishonesty or breach of fiduciary duty against the financial
or business interests of the Company or any of its
subsidiaries;
(ii) the drug addiction or habitual intoxication
of the Executive;
(iii) the conviction by the Executive of or the
pleading by the Executive of nolo contendere to, a
felony or a crime involving moral turpitude;
(iv) the willful failure or refusal of the Executive to
perform the duties of his employment with the Company or any
of its subsidiaries, which failure or refusal is not cured
within 15 days subsequent to
<PAGE>
notice from the Company to the Executive specifying the
nature of such failure or refusal; or
(v) the breach by the Executive of any material terms
of his employment with the Company or any of its subsidiaries,
which breach is not cured within 30 days subsequent to notice
from the Company to the Executive specifying such breach.
(c) "Change of Control" means:
(i) Any acquisition resulting in any person, entity
or group (within the meaning of Section 13(d)(3) or 14(d)(2))
of the Exchange Act having beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of
50% or more of the combined voting power of the then
outstanding securities entitled to vote generally in the
election of directors of the Company; excluding, however, the
following: (1) any acquisition directly from the Company,
other than an acquisition by virtue of the exercise of a
conversion privilege unless the security being so converted
was itself acquired directly from the Company, (2) any
acquisition by the Company, (3) any acquisition by any
employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the
Company, (4) any acquisition by the Thomas H. Lee Company or
its affiliates, or (5) any acquisition by any entity pursuant
to a transaction which is excluded from subsection (ii) below;
or
(ii) The approval by the shareholders of the Company of a
reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of the
Company ("Corporate Transaction"); excluding, however, any
Corporate Transaction which would result in the voting
securities of the Company immediately prior to such Corporate
Transaction continuing to represent (either by remaining
outstanding or being converted into voting securities or
another entity) 50% or more of the combined voting power of
the securities entitled to vote generally in the election of
directors of the Company or such other entity outstanding
immediately after such Corporate Transaction.
Notwithstanding the foregoing, a Change of Control shall not be deemed to have
occurred if the "person" described in the preceding portions of this Section
1(c) is an underwriter or underwriting syndication that has acquired ownership
of 50% or more of the combined voting power of the Company's then outstanding
voting securities solely in connection with a public offering of the Company's
securities.
-2-
<PAGE>
(d) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(e) "Good Reason" means, without the Executive's express
written consent, the occurrence of any of the following events after a Change of
Control:
(i) Failure to elect or reelect or otherwise to maintain
the Executive to or in the office or the position (or a
substantially equivalent office or position) in the Company
that the Executive held as of the date hereof; or
(ii) The Executive's overall compensation or perquisites
are reduced or adversely modified in any material respect, or
the Executive's authority or duties are materially changed, in
either case without the prior and voluntary written consent of
the Executive, which change is not fully remedied within ten
(10) calendar days after receipt by the Company of written
notice from the Executive identifying such change(s). For
purposes of this Agreement, the Executive's authority or
duties shall be conclusively considered to have been
"materially changed" if, without the Executive's express and
voluntary written consent, there is any substantial diminution
or adverse modification in the Executive's title, status,
overall position, responsibilities, reporting relationship or
general working environment (including, without limitation,
secretarial and staff support, offices, and frequency and mode
of travel); provided, however, that in no event shall the
geographic relocation of the Executive requested by the
Company in good faith constitute a "material change" unless
the Company fails to reimburse Executive for the reasonable
and customary costs associated with such relocation, including
without limitation moving expenses and brokerage fees.
(f) "Nonqualifying Termination" means a termination of the
Executive's employment (1) by the Company for Cause, (2) by the Executive for
any reason other than a Good Reason, (3) as a result of the Executive's death or
(4) by the Company due to the Executive's absence from his duties with the
Company on a full-time basis for at least 180 consecutive days as a result of
the Executive's incapacity due to physical or mental illness.
(g) "Termination Period" means the period of time beginning
with a Change of Control and ending on the earlier to occur of (1) two years
following such Change of Control and (2) the Executive's death.
2. Restrictions on Activities. If during the Termination
Period the employment of the Executive shall terminate, other than by reason of
a Nonqualifying Termination,
-3-
<PAGE>
then the Executive shall be bound by the noncompetition and nonsolicitation
covenants set forth in this Section 2 and shall be entitled to the payments set
forth in Section 3 of this Agreement.
(a) Non-Competition. The Executive acknowledges that he is
employed by the Company in a key employee capacity which gives him access to
confidential information concerning the Company's products, suppliers,
customers, manufacturing operations and research and development activities
throughout the world, that the Company is engaged in a highly competitive
business and that the success of the Company's business in the marketplace
depends upon its goodwill, reputation for quality and dependability and the
preservation of confidential information. The Executive further acknowledges and
agrees that reasonable limits may be placed on his ability to compete against
the Company as provided herein so as to protect and preserve the legitimate
business interests and goodwill of the Company.
During the Non-Competition Period (as defined below), the
Executive will not (anywhere in the world where the Company or any of its
divisions, subsidiaries or affiliates then conducts business) engage or
participate in, directly or indirectly, as principal, agent, employee, employer,
consultant, investor or partner, or assist in the management of, or own any
stock or any other ownership interest in, any business which competes with the
Company (as defined below). For purposes of this Agreement, a business shall be
considered to compete with the Company only if it engages directly or indirectly
in the business of designing, manufacturing, marketing, distributing or selling
(1) residential smoke detectors which are not capable of being monitored by an
alarm control panel, (2) fire extinguishers, (3) carbon monoxide detectors or
(4) any other products which the Company is developing, designing,
manufacturing, marketing, distributing or selling during the Executive's
employment with the Company. Notwithstanding the foregoing, the Executive may
own, directly or indirectly, less than 1% of the capital stock of any public
corporation. For purposes of this Agreement, the "Non-Competition Period" shall
mean the five-year period beginning on the date during the Termination Period on
which the employment of the Executive terminates other than by reason of a
Nonqualifying Termination.
(b) Non-Solicitation of Employees, Customers and Suppliers.
The Executive acknowledges that by virtue of his employment with the Company he
has knowledge of and relationships with the Company's employees, customers, and
suppliers. The Executive further acknowledges that the Company's relationships
with its employees, customers, and suppliers are critical to its ability to
operate and its financial well-being.
During the Non-Competition Period, the Executive will not
solicit, or attempt to solicit, any officer, director, consultant, executive or
employee of the Company or any of its
-4-
<PAGE>
divisions, subsidiaries or affiliates to leave his or her engagement with the
Company or such division, subsidiary or affiliate nor will he call upon,
solicit, divert or attempt to solicit or divert from the Company or any of its
divisions, subsidiaries or affiliates any party of whose name he was aware
during the term of his employment with the Company and who is, was, or was
solicited to become a customer of the Company or its divisions, subsidiaries or
affiliates at any time during the course of the Executive's employment with the
Company nor will he divert or attempt to divert from the Company or any of its
divisions, subsidiaries or affiliates any supplier (or potential supplier of
whose name he is aware) of the Company, its divisions, subsidiaries or
affiliates; provided, however, that nothing in this subsection 2(b) shall be
deemed to prohibit the Executive from calling upon or soliciting a customer or
supplier during the Non-Competition Period if such action relates solely to a
business which does not compete with the Company.
(c) Additional Protections. The obligations of the Executive
under the foregoing subsections 2(a) and 2(b) shall be in addition to, and shall
not limit, any other obligations of the Executive to the Company imposed either
by law or agreement with respect to the matters set forth in this Section 2.
(d) Representation. THE EXECUTIVE REPRESENTS AND WARRANTS THAT
THE KNOWLEDGE, SKILLS AND ABILITIES HE POSSESSED AT THE TIME OF EXECUTION OF
THIS AGREEMENT ARE SUFFICIENT TO PERMIT HIM TO EARN A LIVELIHOOD SATISFACTORY TO
HIMSELF WITHOUT VIOLATING ANY PROVISION OF SECTION 2 HEREOF, FOR EXAMPLE, BY
USING SUCH KNOWLEDGE, SKILLS AND ABILITIES, OR SOME OF THEM, IN THE SERVICE OF A
NON-COMPETITOR. THE EXECUTIVE FURTHER REPRESENTS AND WARRANTS THAT HIS ABILITY
SO TO EARN A LIVELIHOOD SATISFACTORY TO HIMSELF DOES NOT DEPEND UPON HIS ABILITY
TO OBTAIN COMPENSATION FOR HIS SERVICES AT, OR IN EXCESS OF, THE LEVEL AT WHICH
HE IS OR WILL BE COMPENSATED BY THE COMPANY.
(e) Remedies. It is specifically understood and agreed that
any breach of the provisions of this Section 2 will result in serious and
irreparable injury to the Company's business and that the remedy at law alone
will be an inadequate remedy for such breach, and that in addition to any other
remedy it may have, the Company shall be entitled to obtain the specific
performance of this Agreement by the Executive and to seek both temporary and
permanent injunctive relief (to the extent permitted by law) without the
necessity of proving actual damages. In addition to the foregoing, the Company
shall have no obligation to make any payment to the Executive under Section 3 of
this Agreement on or after the date on which any breach of the provisions of
this Section 2 occurs and shall have the right to cease such payments.
(f) Severable Provisions. The provisions of this Agreement are
severable and the invalidity of any one or more provisions shall not affect the
validity of any other provision.
-5-
<PAGE>
In the event that a court of competent jurisdiction, in the course of a
proceeding to enjoin the Executive's violation of this Section 2, shall
determine that specific performance of any portion of this Section cannot be
obtained in whole or in part because of the duration or scope thereof, the
parties hereto agree that said court in making such determination shall have the
power to reduce the duration and scope of such provision to the extent necessary
to permit an order of specific performance, and that the Agreement in its
reduced form shall be enforced to the full extent permitted by law.
3. Compensation. As compensation for the covenants contained
in Section 2 of this Agreement, the Company shall make a cash payment to the
Executive, within 10 days following the date of the commencement of the
Non-Competition Period, in the amount of $300,000.
4. Reimbursement of Expenses. If any contest or dispute shall
arise under this Agreement involving termination of the Executive's employment
with the Company or involving the failure or refusal of the Company to perform
fully in accordance with the terms hereof, the Company shall reimburse the
Executive on a current basis, for all legal fees and expenses, if any, incurred
by the Executive in connection with such contest or dispute, together with
interest at a rate equal to the Prime Rate as published in the "Money Rates"
section of The Wall Street Journal, but in no event higher than the maximum
legal rate permissible under applicable law, such interest to accrue from the
date the Company receives the Executive's statement for such fees and expenses
through the date of payment thereof; provided, however, that in the event the
resolution of any such contest or dispute includes a finding denying, in total,
the Executive's claims in such contest or dispute, the Executive shall be
required to reimburse the Company, over a period of 12 months from the date of
such resolution, for all sums advanced to the Executive pursuant to this Section
4.
5. Operative Event. Notwithstanding any provision herein to
the contrary, no amounts shall be payable hereunder unless and until there is a
Change of Control.
6. Termination of Agreement.
(a) This Agreement shall be effective on the date hereof and
shall continue until terminated by the Company as provided in paragraph (b) of
this Section 6; provided, however, that this Agreement shall terminate in any
event upon the termination of the Executive's employment with the Company prior
to a Change of Control.
-6-
<PAGE>
(b) The Company shall have the right prior to a Change of
Control, in its sole discretion, pursuant to action by the Board, to approve the
termination of this Agreement, which termination shall not become effective
until the date fixed by the Board for such termination, which date shall be at
least 120 days after notice thereof is given by the Company to the Executive in
accordance with Section 9; provided, however, that no such action shall be taken
by the Board during any period of time when the Board has knowledge that any
person has taken steps reasonably calculated to effect a Change of Control
until, in the opinion of the Board, such person has abandoned or terminated its
efforts to effect a Change of Control; and provided further, that in no event
shall this Agreement be terminated in the event of a Change of Control.
7. Scope of Agreement. Nothing in this Agreement shall be
deemed to entitle the Executive to continued employment with the Company or its
subsidiaries, and if the Executive's employment with the Company shall terminate
prior to a Change of Control, then the Executive shall have no further rights
under this Agreement; provided, however, that any termination of the Executive's
employment following a Change of Control shall be subject to all of the
provisions of this Agreement.
8. Successors; Binding Agreement.
(a) This Agreement shall not be terminated by any merger or
consolidation of the Company whereby the Company is or is not the surviving or
resulting corporation or as a result of any transfer of all or substantially all
of the assets of the Company. In the event of any such merger, consolidation or
transfer of assets, the provisions of this Agreement shall be binding upon the
surviving or resulting corporation or the person or entity to which such assets
are transferred.
(b) The Company agrees that concurrently with any merger,
consolidation or transfer of assets referred to in paragraph (a) of this Section
8, it will cause any successor or transferee unconditionally to assume, by
written instrument delivered to the Executive, all of the obligations of the
Company hereunder.
(c) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
9. Notices.
(a) For purposes of this Agreement, all notices and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given when delivered or five days after deposit in the
United States mail, certified and return receipt requested, postage prepaid,
-7-
<PAGE>
addressed (1) if to the Executive, to Michael A. Rohl at his address as it
appears in the records of the Company, and if to the Company, to First Alert,
Inc., 3901 Liberty Street Road, Aurora, Illinois 60504-8122, attention to the
Chairman of the Board, or (2) to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notices of
change of address shall be effective only upon receipt.
(b) A written notice of the Executive's date of termination of
employment by the Company or the Executive, as the case may be, to the other,
shall (i) indicate the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) specify the termination
date (which date shall be not less than 15 days after the giving of such
notice). The failure by the Executive or the Company to set forth in such notice
any fact or circumstance which contributes to a showing of Good Reason or Cause
shall not waive any right of the Executive or the Company hereunder or preclude
the Executive or the Company from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
10. Full Settlement; Resolution of Disputes.
(a) The Company's obligation to make any payments provided for
in this Agreement and otherwise to perform its obligations hereunder shall not
be affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action which the Company may have against the Executive or others.
(b) If there shall be any dispute between the Company and the
Executive in the event of any termination of the Executive's employment, then,
unless and until there is a final, nonappealable judgment by a court of
competent jurisdiction declaring that such termination was for Cause, that the
determination by the Executive of the existence of Good Reason was not made in
good faith, or that the Company is not otherwise obligated to pay any amount to
the Executive under Section 3, the Company shall pay all amounts to the
Executive that the Company would be required to pay pursuant to Section 3 as
though such termination were by the Company without Cause or by the Executive
with Good Reason; provided, however, that the Company shall not be required to
pay any disputed amounts pursuant to this paragraph except upon receipt of an
undertaking by or on behalf of the Executive to repay all such amounts to which
the Executive is ultimately adjudged by such court not to be entitled.
11. Employment with Subsidiaries. Employment with the Company
for purposes of this Agreement shall include employment with any corporation or
other entity in which the Company has a direct or indirect ownership interest of
50% or more of the total
-8-
<PAGE>
combined voting power of the then outstanding securities of such corporation or
other entity entitled to vote generally in the election of directors.
12. Governing Law. The interpretation, construction and
performance of this Agreement shall be governed by and construed and enforced in
accordance with the internal laws of the State of Illinois without regard to the
principle of conflicts of laws.
13. Counterparts. This Agreement may be executed in two
counterparts, each of which shall be deemed to be an original and both of which
together shall constitute one and the same instrument.
14. Miscellaneous. No provision of this Agreement may be
modified or waived unless such modification or waiver is agreed to in writing
and signed by the Executive and by a duly authorized officer of the Company. No
waiver by a party hereto at any time of any breach by the other party hereto of,
or compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar provisions
or conditions at the same or at any prior or subsequent time. Failure by the
Executive or the Company to insist upon strict compliance with any provision of
this Agreement or to assert any right the Executive or the Company may have
hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason, shall not be deemed to be a waiver of such
provision or right or any other provision or right of this Agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed by a duly authorized officer of the Company and the Executive has
executed this Agreement as of the day and year first above written.
FIRST ALERT, INC.
By: /s/ Malcolm Candlish, Chairman
_______________________________
Malcolm Candlish, Chairman
EXECUTIVE:
/s/ Michael A. Rohl
______________________________
Michael A. Rohl
-9-
<PAGE>
Exhibit 12
[First Alert Letterhead]
April 15, 1997
Mr. Douglas H. Kellam
17 Overdale Road
Rye, NY 10580
Dear Doug:
This letter will serve to supplement my previous employment offer letter to you
of March 17, 1997. That earlier letter did not cover the subject of severance
but we had several discussions about that subject prior to your decision to
accept our offer. This letter will serve to document our understanding regarding
the circumstances under which you will be entitled to severance pay and the
extent of those benefits.
The details of the terms of this severance arrangement are set forth in the
attached Exhibit 1 which are substantially identical to the terms of
arrangements which have been provided to certain other executive officers.
Sincerely,
/s/ B. Joseph Messner
B. Joseph Messner
President and
Chief Executive Officer
<PAGE>
Exhibit 1
1. Severance Benefits
First Alert, Inc. or its wholly-owned subsidiary, BRK Brands, Inc., (the
"Company") shall provide Douglas H. Kellman (the "Executive") with the benefits
set forth in Section 3 of this Exhibit 1 if his employment is terminated by the
Company without cause attributable to the Executive. The Executive shall not be
entitled to the benefits set forth in Section 3 if:
a) The Executive voluntarily terminates his employment with the Company;
b) The Executive dies or becomes incapacitated during the term of his
employment; or
c) The Executive's employment is terminated by the Company for one or more of
the following reasons:
1) The Executive has been convicted of, or has pleaded guilty or nolo
contendere to any felony or a crime involving moral turpitude;
2) The Executive has materially failed or refused to perform his duties
hereunder and such material failure or refusal has continued for a
period of ten (10) days following written notice of such failure or
refusal in reasonable detail, it being understood that the Company's
failure to achieve its business plan or projections shall not itself be
considered a failure or refusal to perform duties;
3) The Executive has breached any provision of his Confidential
Information and Inventions Agreement ("Confidentiality Agreement") with
the Company; or
4) The Executive has committed any fraud, embezzlement, misappropriation
of funds, breach of fiduciary duty or other act of dishonesty,
intentional malfeasance against the Company or material breach of
Company policy.
2. Notice of Termination
Termination of the Executive's employment with the Company by the Company or
by the Executive shall be communicated by written "Notice of Termination" to the
other party at their last known address.
3. Specific Benefits
a) Subject to the conditions set forth in Section 1 and as specified in this
Section 3, the Executive shall be entitled to receive the following
benefits:
-2-
<PAGE>
1) Periodic Payments. The Executive shall be paid a monthly termination
benefit in an amount equal to 1/12th of his annual base salary in
effect as of the termination date less any applicable payroll or other
taxes required by law to be withheld ("monthly payment"). For purposes
of this Agreement, "annual base salary" shall not include any cost of
living adjustments, bonus payments, or other forms of supplementary
compensation. Provided that Executive complies with his obligations
under the Confidentiality Agreement and is otherwise entitled to
benefits under Section 1, Executive shall continue to receive such
monthly payments until such time as he becomes employed, he dies, he
becomes incapacitated, or he has received a total of 12 such
monthly payments, whichever occurs first. Said monthly payments shall
be paid on the last business day of the month beginning with the first
month following the date of termination.
2) Accrued But Unused Vacation Time. The Company shall pay to the
Executive, in a lump sum within 31 days after the termination date, all
vacation time accrued but unused by the Executive prior to the
termination date.
3) Insurance Benefits. Subject to his payment of the employee contribution
or share as specified in the Company's employee benefit plans and his
continuing compliance with the Confidentiality Agreement, the Executive
shall continue to participate, to the same extent and level he was
participating as of the termination date in any life, accident,
disability, health and dental insurance plans and other similar fringe
benefits of the Company, until the date of the last monthly payment
due him under Section 3(a)(1) above.
b) It is understood and agreed that the Company's obligation to make monthly
payments as specified in Section 3(a)(1) and to allow continuing
participation in employee benefit plans as specified in Sections 3(a)(2)
and (3) is contingent upon the Executive's continuing compliance with his
obligations under the Confidentiality Agreement. If the Company determines
that the Executive has failed to comply with said obligations, it may cease
making the monthly payments and cease any contribution for employee
benefits and may further recover from the Executive any monthly payments
made to and any monthly premium payments made for the Executive prior to
the date of its determination but after the Executive initially failed to
comply.
c) It is further understood and agreed that the Executive will promptly notify
the Company if he obtains other employment and the Executive promises that
he will return any monthly payment erroneously made to him prior to the
Company's receipt of notification of the Executive's other employment
together with a reimbursement of any premium payment erroneously made on
his behalf by the Company prior to its receipt of such notice.
-3-
<PAGE>
d) Finally, it is understood and agreed that the monthly payments specified in
Section 3(a)(1) shall be reduced to the extent of any unemployment or other
insurance benefits paid to the Executive by the State or the Company.
4. Limitation on Payments. Anything herein to the contrary notwithstanding, in
no event shall the present value of all payments made to the Executive by
the Company hereunder which constitute "parachute payments" (within the
meaning of Section 280(G)(b)(2) of the Internal Revenue Code of 1986, as
amended (the "Code"), without regard to clause A(ii) thereof), when
aggregated with any other payments made by the Company to the Executive
which constitute "parachute payments" (as so defined), exceed 299% of the
Executive's "base amount" (within the meaning of said Section 280(G))
unless the applicable percentage of the holders of the Company's common
stock outstanding as of the date of such payments shall approve such
payments after appropriate disclosure. The Company agrees to make
reasonable efforts to obtain such stockholder approval. For the purposes
hereof, the "present value" of any payment shall be determined in
accordance with Section 280(G) of the Code.
5. Assignment and Transfer
a) The Executive. Neither this Exhibit 1 nor any of the rights, duties or
obligations of the Executive shall be assignable by the Executive, nor
shall any of the payments required or permitted to be made to the Executive
by this Exhibit 1 be encumbered, transferred or in any way anticipated.
b) The Company. This Exhibit 1 shall not be terminated by the merger or
consolidation of the Company with any corporate or other entity or by the
transfer of all or substantially all of the assets of the Company to any
other person, corporation, firm or entity, and the provisions of this
Exhibit 1 shall inure to the benefit of any such successor in interest to
the Company. It is further intended that the provisions of this Exhibit 1
shall be binding on any such successor in interest to the Company, provided
that if the terms of such merger, consolidation or transfer render it
impractical to pay the benefits provided by this Exhibit 1, the Company
shall only be required to make reasonable efforts to procure the payment of
equivalent benefits.
-4-
<PAGE>
Exhibit 13
[BRK Brands, Inc. letterhead]
February 27, 1998
Mr. Mark Devine
1111 Cambridge Lane
Shorewood, IL 60436
Dear Mark:
This letter will serve to confirm the Company's obligation to pay you separation
payments and other severance benefits beyond those presently available under
Company policy. These additional payments and benefits are being extended to you
because of the importance the Company attributes to your continued employment
given (i) the nature of your position, (ii) the likelihood the Company may
experience a change of control through a corporate transaction and (iii) the
need for confidentiality and continued superior performance from you while such
a transaction is implemented.
The terms of this severance arrangement are set forth in the attached Exhibit 1.
Sincerely,
/s/ B. Joseph Messner
B. Joseph Messner
President and Chief Executive Officer
attachment
<PAGE>
Exhibit 1
1. Severance Benefits
BRK Brands, Inc., (the "Company") shall provide Mark Devine (the
"Executive") with the benefits set forth in Section 3 of this Exhibit 1 if his
employment is terminated by the Company without cause attributable to the
Executive. The Executive shall not be entitled to the benefits set forth in
Section 3 if:
a) The Executive voluntarily terminates his employment with the Company;
b) The Executive dies or becomes incapacitated during the term of his
employment; or
c) The Executive's employment is terminated by the Company for one or more of
the following reasons:
1) The Executive has been convicted of, or has pleaded guilty or nolo
contendere to any felony or a crime involving moral turpitude;
2) The Executive has materially failed or refused to perform his duties
hereunder and such material failure or refusal has continued for a
period of ten (10) days following written notice of such failure or
refusal in reasonable detail, it being understood that the Company's
failure to achieve its business plan or projections shall not itself be
considered a failure or refusal to perform duties;
3) The Executive has breached any provision of his Confidential
Information and Inventions Agreement ("Confidentiality Agreement") with
the Company; or
4) The Executive has committed any fraud, embezzlement, misappropriation
of the funds, breach of fiduciary duty or other act of dishonesty,
intentional malfeasance against the Company or material breach of
Company policy.
2. Notice of Termination
Termination of the Executive's employment with the Company by the Executive or
by the Company shall be communicated by written "Notice of Termination" to the
other party at their last known address.
3. Specific Benefits
a) Subject to the conditions set forth in Section 1 and as specified in this
Section 3, the Executive shall be entitled to receive the following
benefits:
<PAGE>
1) Periodic Payments. The Executive shall be paid a monthly termination
benefit in an amount equal to 1/12th of his annual base salary in
effect as of the termination date less any applicable payroll or other
taxes required by law to be withheld ("monthly payment"). For purposes
of this Agreement, "annual base salary" shall not include any cost of
living adjustments, bonus payments, or other forms of supplementary
compensation. Provided that Executive complies with his obligations
under the Confidentiality Agreement and is otherwise entitled to
benefits under Section 1, Executive shall continue to receive such
monthly payments until such time as he becomes employed, he dies, he
becomes incapacitated, or he has received a total of twelve (12) such
monthly payments, whichever occurs first. Said monthly payments shall
be paid on the first business day of each calendar month beginning with
the first calendar month following the date of termination.
2) Accrued But Unused Vacation Time. The Company shall pay to the
Executive, in a lump sum within 31 days after the termination date, all
vacation time accrued but unused by the Executive prior to the
termination date.
3) Insurance Benefits. Subject to his payment of the employee contribution
or share as specified in the Company's employee benefit plans and his
continuing compliance with the Confidentiality Agreement, the Executive
shall continue to participate, to the same extent and level he was
participating as of the termination date in any life, accident,
disability, health and dental insurance plans and other similar fringe
benefits of the Company, through the last day of the month in which the
last monthly payment is due him under Section 3(a)(1) above.
b) It is understood and agreed that the Company's obligation to make monthly
payments as specified in Section 3(a)(1) and to allow continuing
participation in employee benefit plans as specified in Sections 3(a)(2)
and (3) is contingent upon the Executive's continuing compliance with his
obligations under the Confidentiality Agreement. If the Company determines
that the Executive has failed to comply with said obligations, it may cease
making the monthly payments and cease any contribution for employee
benefits and may further recover from the Executive any monthly payments
made to and any monthly premium payments made for the Executive prior to
the date of its determination but after the Executive initially failed to
comply.
c) It is further understood and agreed that the Executive will promptly notify
the Company if he obtains other employment and the Executive promises that
he will return any monthly payment erroneously made to him prior to the
Company's receipt of notification of the Executive's other employment
together with a reimbursement of any premium payment erroneously made on
his behalf by the Company prior to its receipt of such notice.
-2-
<PAGE>
d) Finally, it is understood and agreed that the monthly payments specified in
Section 3(a)(1) shall be reduced to the extent of any unemployment or other
insurance benefits paid to the Executive by the State or the Company.
4. Limitation on Payments. Anything herein to the contrary notwithstanding, in
no event shall the present value of all payments made to the Executive by
the Company hereunder which constitute "parachute payments" (within the
meaning of Section 280(G)(b)(2) of the Internal Revenue Code of 1986, as
amended (the "Code"), without regard to clause A(ii) thereof), when
aggregated with any other payments made by the Company to the Executive
which constitute "parachute payments" (as so defined), exceed 299% of the
Executive's "base amount" (within the meaning of said Section 280(G))
unless the applicable percentage of the holders of the Company's common
stock outstanding as of the date of such payments shall approve such
payments after appropriate disclosure. The Company agrees to make
reasonable efforts to obtain such stockholder approval. For the purposes
hereof, the "present value" of any payment shall be determined in
accordance with Section 280(G) of the Code.
5. Assignment and Transfer
a) The Executive. Neither this Exhibit 1 nor any of the rights, duties or
obligations of the Executive shall be assignable by the Executive, nor
shall any of the payments required or permitted to be made to the Executive
by this Exhibit 1 be encumbered, transferred or in any way anticipated.
b) The Company. This Exhibit 1 shall not be terminated by the merger or
consolidation of the Company with any corporate or other entity or by the
transfer of all or substantially all of the assets of the Company to any
other person, corporation, firm or entity, and the provisions of this
Exhibit 1 shall inure to the benefit of any such successor in interest to
the Company. It is further intended that the provisions of this Exhibit 1
shall be binding on any such successor in interest to the Company, provided
that if the terms of such merger, consolidation or transfer render it
impractical to pay the benefits provided by this Exhibit 1, the Company
shall only be required to make reasonable efforts to procure the payment of
equivalent benefits.
-3-
<PAGE>
Exhibit 14
[BRK Brands Inc. Letterhead]
February 27, 1998
Mr. Mark Welch
515 Gateshead
Naperville, IL 60565
Dear Mark:
This letter will serve to confirm the Company's obligation to pay you separation
payments and other severance benefits beyond those presently available under
Company policy. These additional payments and benefits are being extended to you
because of the importance the Company attributes to your continued employment
given (i) the nature of your position, (ii) the likelihood the Company may
experience a change of control through a corporate transaction and (iii) the
need for confidentiality and continued superior performance from you while such
transaction is implemented.
The terms of this severance arrangement are set forth in the attached Exhibit 1.
Sincerely,
/s/ B. Joseph Messner
B. Joseph Messner
President and Chief Executive Officer
attachment
<PAGE>
1. Severance Benefits
BRK Brands, Inc. (the "Company") shall provide Mark Welch (the "Executive") with
the benefits set forth in Section 3 of this Exhibit 1 if his employment is
terminated by the Company without cause attributable to the Executive. The
Executive shall not be entitled to the benefits set forth in Section 3 if:
a) The Executive voluntarily terminates his employment with the Company;
b) The Executive dies or becomes incapacitated during the term of his
employment; or
c) The Executive's employment is terminated by the Company for one or more
of the following reasons:
1) The Executive has been convicted of, or has pleased guilty or
nolo contendere to any felony or a crime involving moral
turpitude;
2) The Executive has materially failed or refused to perform his
duties hereunder and such material failure or refusal has
continued for a period of ten (10) days following written
notice of such failure or refusal in reasonable detail, it
being understood that the Company's failure to achieve its
business plan or projections shall not itself be considered a
failure or refusal to perform duties;
3) The Executive has breached any provision of his Confidential
Information and Inventions Agreement ("Confidentiality
Agreement") with the Company; or
4) The Executive has committed any fraud, embezzlement,
misappropriation of funds, breach of fiduciary duty or other
act of dishonesty, intentional malfeasance against the Company
or material breach of Company policy.
2. Notice of Termination
Termination of the Executive's employment with the Company by the Executive or
by the Company shall be communicated by written "Notice of Termination" to the
other party at their last known address.
3. Specific Benefits
a) Subject to the conditions set forth in Section 1 and as specified in
this Section 3, the Executive shall be entitled to receive the
following benefits:
1) Periodic Payments. The Executive shall be paid a monthly
termination benefit in an amount equal to 1/12th of his annual
base salary in effect as of the termination
<PAGE>
date less any applicable payroll or other taxes required by
law to be withheld ("monthly payment"). For purposes of this
Agreement, "annual base salary" shall not include any cost of
living adjustments, bonus payments, or other forms of
supplementary compensation. Provided that Executive complies
with his obligations under the Confidentiality Agreement and
is otherwise entitled to benefits under Section 1, Executive
shall continue to receive such monthly payments until such
time as he becomes employed, he dies, he becomes
incapacitated, or he has received a total of twelve (12) such
monthly payments, whichever occurs first. Said monthly
payments shall be paid on the first business day of each
calendar month beginning with the first calendar month
following the date of termination.
2) Accrued But Unused Vacation Time. The Company shall pay to the
Executive, in a lump sum within 31 days after the termination
date, all vacation time accrued but unused by the Executive
prior to the termination date.
3) Insurance Benefits. Subject to his payment of the employee
contribution or share as specified in the Company's employee
benefit plans and his continuing compliance with the
Confidentiality Agreement, the Executive shall continue to
participate, to the same extent and level he was participating
as of the termination date in any life, accident, disability,
health and dental insurance plans and other similar fringe
benefits of the Company, through the last day of the month in
which the last monthly payment is due him under Section
3(a)(1) above.
b) It is understood and agreed that the Company's obligation to make
monthly payments as specified in Section 3(a)(1) and to allow
continuing participation in employee benefit plans as specified in
Sections 3(a)(2) and (3) is contingent upon the Executive's continuing
compliance with his obligations under the Confidentiality Agreement.
If the Company determines that the Executive has failed to comply with
said obligations, it may cease making the monthly payments and cease
any contribution for employee benefits and may further recover from
the Executive any monthly payments made to and any monthly premium
payments made for the Executive prior to the date of its determination
but after the Executive initially failed to comply.
c) It is further understood and agreed that the Executive will promptly
notify the Company if he obtains other employment and the Executive
promises that he will return any monthly payment erroneously made to
him prior to the Company's receipt of notification of the Executive's
other employment together with a reimbursement of any premium payment
erroneously made on his behalf by the Company prior to its receipt of
such notice.
<PAGE>
d) Finally, it is understood and agreed that the monthly payments
specified in Section 3(a)(1) shall be reduced to the extent of any
unemployment or other insurance benefits paid to the Executive by the
State or the Company.
4. Limitation on Payments. Anything herein to the contrary
notwithstanding, in no event shall the present value of all payments
made to the Executive by the Company hereunder which constitute
"parachute payments" (within the meaning of Section 280(G)(b)(2) of
the Internal Revenue Code of 1986, as amended (the "Code"), without
regard to clause A(ii) thereof), when aggregated with any other
payments made by the Company to the Executive which constitute
"parachute payments" (as so defined), exceed 299% of the Executive's
"base amount" (within the meaning of said Section 280(G)) unless the
applicable percentage of the holders of the Company's common stock
outstanding as of the date of such payments shall approve such
payments after appropriate disclosure. The Company agrees to make
reasonable efforts to obtain such stockholder approval. For the
purposes hereof, the "present value" of any payment shall be
determined in accordance with Section 280(G) of the Code.
5. Assignment and Transfer.
a) The Executive. Neither this Exhibit 1 nor any of the rights, duties or
obligations of the Executive shall be assignable by the Executive, nor
shall any of the payments required or permitted to be made to the
Executive by this Exhibit 1 be encumbered, transferred or in any way
anticipated.
b) The Company. This Exhibit 1 shall not be terminated by the merger or
consolidation of the Company with any corporate or other entity or by
the transfer of all or substantially all of the assets of the Company
to any other person, corporation, firm or entity, and the provisions
of this Exhibit 1 shall inure to the benefit of any such successor in
interest to the Company. It is further intended that the provisions of
this Exhibit 1 shall be binding on any such successor in interest to
the Company, provided that if the terms of such merger, consolidation
or transfer render it impractical to pay the benefits provided by this
Exhibit 1, the Company shall only be required to make reasonable
efforts to procure the payment of equivalent benefits.
<PAGE>
Exhibit 15
[BRK Brands, Inc. letterhead]
February 27, 1998
Mr. Edward J. Tyranski
111 Harbor East
6532 Springbrook Road
Rockford, IL 61114
Dear Ed:
This letter will serve to confirm the Company's obligation to pay you separation
payments and other severance benefits beyond those presently available under
Company policy. These additional payments and benefits are being extended to you
because of the importance the Company attributes to your continued employment
given (i) the nature of your position, (ii) the likelihood the Company may
experience a change of control through a corporate transaction and (iii) the
need for confidentiality and continued superior performance from you while such
a transaction is implemented.
The terms of this severance arrangement are set forth in the attached Exhibit I.
Sincerely,
/s/ B. Joseph Messner
- -------------------------------------
B. Joseph Messner
President and Chief Executive Officer
attachment
<PAGE> Exhibit 1
1. Severance Benefits
BRK Brands, Inc., (the "Company") shall provide Edward J. Tyranski (the
"Executive") with the benefits set forth in Section 3 of this Exhibit 1 if his
employment is terminated by the Company without cause attributable to the
Executive. The Executive shall not be entitled to the benefits set forth in
Section 3 if:
a) The Executive voluntarily terminates his employment with the Company;
b) The Executive dies or becomes incapacitated during the term of his
employment; or
c) The Executive's employment is terminated by the Company for one or more of
the following reasons:
1) The Executive has been convicted of, or has pleaded guilty or nolo
contendere to any felony or a crime involving moral turpitude;
2) The Executive has materially failed or refused to perform his duties
hereunder and such material failure or refusal has continued for a
period of ten (10) days following written notice of such failure or
refusal in reasonable detail, it being understood that the Company's
failure to achieve its business plan or projections shall not itself be
considered a failure or refusal to perform duties;
3) The Executive has breached any provision of his Confidential
Information and Inventions Agreement ("Confidentiality Agreement") with
the Company; or
4) The Executive has committed any fraud, embezzlement, misappropriation
of funds, breach of fiduciary duty or other act of dishonesty,
intentional malfeasance against the Company or material breach of
Company policy.
2. Notice of Termination
Termination of the Executive's employment with the Company by the Executive or
by the Company shall be communicated by written "Notice of Termination" to the
other party at their last known address.
3. Specific Benefits
a) Subject to the conditions set forth in Section 1 and as specified in this
Section 3, the Executive shall be entitled to receive the following
benefits:
<PAGE>
1) Periodic Payments. The Executive shall be paid a monthly termination
benefit in an amount equal to 1/12th of his annual base salary in
effect as of the termination date less any applicable payroll or other
taxes required by law to be withheld ("monthly payment"). For purposes
of this Agreement, "annual base salary" shall not include any cost of
living adjustments, bonus payments, or other forms of supplementary
compensation. Provided that Executive complies with his obligations
under the Confidentiality Agreement and is otherwise entitled to
benefits under Section 1, Executive shall continue to receive such
monthly payments until such time as he becomes employed, he dies, he
becomes incapacitated, or he has received a total of twelve (12) such
monthly payments, whichever occurs first. Said monthly payments shall
be paid on the first business day of each calendar month beginning with
the first calendar month following the date of termination.
2) Accrued But Unused Vacation Time. The Company shall pay to the
Executive, in a lump sum within 31 days after the termination date, all
vacation time accrued but unused by the Executive prior to the
termination date.
3) Insurance Benefits. Subject to his payment of the employee contribution
or share as specified in the Company's employee benefit plans and his
continuing compliance with the Confidentiality Agreement, the Executive
shall continue to participate, to the same extent and level he was
participating as of the termination date in any life, accident,
disability, health and dental insurance plans and other similar fringe
benefits of the Company, through the last day of the month in which the
last monthly payment is due him under Section 3(a)(1) above.
b) It is understood and agreed that the Company's obligation to make monthly
payments as specified in Section 3(a)(1) and to allow continuing
participation in employee benefit plans as specified in Sections 3(a)(2)
and (3) is contingent upon the Executive's continuing compliance with his
obligations under the Confidentiality Agreement. If the Company determines
that the Executive has failed to comply with said obligations, it may cease
making the monthly payments and cease any contribution for employee
benefits and may further recover from the Executive any monthly payments
made to and any monthly premium payments made for the Executive prior to
the date of its determination but after the Executive initially failed to
comply.
c) It is further understood and agreed that the Executive will promptly notify
the Company if he obtains other employment and the Executive promises that
he will return any monthly payment erroneously made to him prior to the
Company's receipt of notification of the Executive's other employment
together with a reimbursement of any premium payment erroneously made on
his behalf by the Company prior to its receipt of such notice.
-2-
<PAGE>
d) Finally, it is understood and agreed that the monthly payments specified in
Section 3(a)(1) shall be reduced to the extent of any unemployment or other
insurance benefits paid to the Executive by the State or the Company.
4. Limitation on Payments. Anything herein to the contrary notwithstanding, in
no event shall the present value of all payments made to the Executive by
the Company hereunder which constitute "parachute payments" (within the
meaning of Section 280(G)(b)(2) of the Internal Revenue Code of 1986, as
amended (the "Code"), without regard to clause A(ii) thereof), when
aggregated with any other payments made by the Company to the Executive
which constitute "parachute payments" (as so defined), exceed 299% of the
Executive's "base amount" (within the meaning of said Section 280(G))
unless the applicable percentage of the holders of the Company's common
stock outstanding as of the date of such payments shall approve such
payments after appropriate disclosure. The Company agrees to make
reasonable efforts to obtain such stockholder approval. For the purposes
hereof, the "present value" of any payment shall be determined in
accordance with Section 280(G) of the Code.
5. Assignment and Transfer
a) The Executive. Neither this Exhibit 1 nor any of the rights, duties or
obligations of the Executive shall be assignable by the Executive, nor
shall any of the payments required or permitted to be made to the Executive
by this Exhibit 1 be encumbered, transferred or in any way anticipated.
b) The Company. This Exhibit 1 shall not be terminated by the merger or
consolidation of the Company with any corporate or other entity or by the
transfer of all or substantially all of the assets of the Company to any
other person, corporation, firm or entity, and the provisions of this
Exhibit 1 shall inure to the benefit of any such successor in interest to
the Company. It is further intended that the provisions of this Exhibit 1
shall be binding on any such successor in interest to the Company, provided
that if the terms of such merger, consolidation or transfer render it
impractical to pay the benefits provided by this Exhibit 1, the Company
shall only be required to make reasonable efforts to procure the payment of
equivalent benefits.
-3-
<PAGE>
Exhibit 16
TERMINATION BENEFITS AGREEMENT
AGREEMENT, dated the 5th day of July, 1995, between BRK Brands, Inc.
(the "Company") and the undersigned executive employee of the Company whose name
and address appear on the signature page hereto (the "Executive").
W I T N E S S E TH:
WHEREAS, the Company considers it important to the best interests of
the Company and its affiliates, that the Executive be encouraged to continue to
be employed by the Company;
WHEREAS, the Company considers it imperative to the best interests of
the Company and its affiliates that the Executive be subject to certain
restrictions concerning the activities which he may undertake for himself or
others unrelated to the Company and its affiliates;
WHEREAS, the Company anticipates that providing severance benefits will
operate as an incentive for the Executive to continue to be employed by the
Company and to refrain from activities contrary to the interests of the Company
and its affiliates;
NOW, THEREFORE, to induce the Executive to continue to be employed by
the Company, to refrain from activities contrary to the interests of the Company
and its affiliates and for other good and valuable consideration, the Company
and the Executive agree as follows:
1. Circumstances Triggering Receipt Of Severance Benefits.
The Company shall provide the Executive with the benefits set forth in
Section 4 of this Agreement if his employment is terminated by the Company
during the term of this Agreement without cause attributable to the Executive.
The Executive shall not be entitled to the benefits set forth in Section 4 if:
<PAGE>
a) the Executive voluntarily terminates his employment with
the Company;
b) the Executive dies or becomes incapacitated during the term
of his employment; or
c) the Executive's employment is terminated by the Company for
one or more of the following reasons:
(1) The Executive has been convicted of, or has
pleaded guilty or nolo contenders to any
felony or a crime involving moral turpitude;
(2) The Executive has materially failed or
refused to perform his duties hereunder and
such material failure or refusal has
continued for a period of ten (10) days
following written notice of such failure or
refusal in reasonable detail, it being
understood that the Company's failure to
achieve its business plan or projections
shall not itself be considered a failure or
refusal to perform duties;
(3) The Executive has breached any provision of
Section 5 hereof; or
(4) The Executive has committed any fraud,
embezzlement, misappropriation of funds,
breach of fiduciary duty or other act of
dishonesty or intentional malfeasance
against the Company.
2. Notice of Termination
Termination of the Executive's employment with the Company by the
Company or by the Executive shall be communicated by written "Notice of
Termination" to the other party.
3. Nonrenewal.
This Agreement shall not renew automatically and shall expire at the
end of the term specified in Section 14 below unless both parties, in writing,
agree to its renewal 60 days prior to its termination. To be effective, such
renewal of this Agreement must set forth the term of the renewal period and be
signed by both parties. Expiration of this Agreement shall not in
- 2 -
<PAGE>
and of itself serve to terminate Executive's employment with the Company and
shall, in and of itself, give rise to no right to the benefits set forth in
Section 4 below.
4. Termination Benefits.
a) Subject to the conditions set forth in Section 1 and as
specified in this Section 4, the Executive shall be entitled to receive the
following benefits:
(1) Periodic Payments. The Executive shall be paid a
monthly termination benefit in an amount equal to 1/12th of his annual base
salary in effect as of the termination date less any applicable payroll or other
taxes required by law to be withheld ("monthly payment"). For purposes of this
Agreement, "annual base salary" shall not include any cost of living
adjustments, bonus payments, or other forms of supplementary compensation.
Provided that Executive complies with his obligations under Section 5 and is
otherwise entitled to benefits under Section 1, Executive shall receive a
minimum of three monthly payments, and thereafter, if Executive is still
unemployed, he shall continue to receive monthly payments until such time as he
becomes employed, he dies, he becomes incapacitated, or he has received a total
of 12 monthly payments, whichever occurs first. Said monthly payments shall be
paid on the last business day of the month beginning with the first month
following the date of termination.
(2) Accrued But Unused Vacation Time. The Company
shall pay to the Executive, in a lump sum within 31 days after the termination
date, all vacation time accrued but unused by the Executive prior to the
termination date.
(3) Insurance Benefits. Subject to his payment of
the employee contribution or share as specified in the Company's employee
benefit plans and his continuing compliance
- 3 -
<PAGE>
with Section 5 of this Agreement, the Executive shall continue to participate to
the same extent and level he was participating as of the termination date, in
any life, accident, disability, health and dental insurance plans and other
similar fringe benefits of the Company in effect on the termination date for a
period of six months from the termination date unless the Executive obtains
other employment prior to the expiration of six months in which event the
Executive's participation in the foregoing benefit plans will terminate on such
earlier date as he and any members of his family covered by the Company's
benefit plans become eligible for coverage under any benefit plan offered to the
Executive by virtue of such other employment.
b) It is understood and agreed that the Company's obligation
to make monthly payments as specified in Section 4(a) (1) and to allow
continuing participation in employee benefit plans as specified in Sections
4(a)(2) and (3) is contingent upon the Executive's continuing compliance with
his obligations under Section 5. If the Company determines that the Executive
has failed to comply with said obligations, it may cease making the monthly
payments and cease any contribution for employee benefits and may further
recover from the Executive any monthly payments made to and any monthly premium
payments made for the Executive prior to the date of its determination but after
the Executive initially failed to comply.
(c) It is further understood and agreed that the Executive
will promptly notify the Company if he obtains other employment and the
Executive promises that he will return any monthly payment erroneously made to
him prior to the Company's receipt of notification of the Executive's other
employment together with a reimbursement of any
- 4 -
<PAGE>
premium payment erroneously made on his behalf by the Company prior to its
receipt of such notice.
(d) Finally, it is understood and agreed that the monthly
payments specified in Section 4(a)(1) shall be reduced to the extent of any
unemployment or other insurance benefits paid to the Executive by the State or
the Company.
5. Continuing obligations.
The Executive acknowledges that by virtue of his employment by the
Company and the nature of his duties, the Executive has acquired confidential
information and trade secrets of the Company and its corporate affiliates (the
latter being hereafter referred to as the "Group") and that he has also gained
influence with the Company's and the Group's customers, suppliers and employees.
The Executive further acknowledges that in order to protect the Company's and
the Group's business, certain restrictions on the Executive's activities are
reasonably necessary. It is understood and agreed that absent an agreement to
such restrictions, the Company would not enter into this Agreement. Therefore,
in order to induce the Company to enter into this Agreement and to reasonably
protect the Company's and the Group's business, the Executive hereby agrees as
follows:
a) Confidentiality. All documents, records, techniques, trade
secrets and other information which have come into the Executive's possession
from time to time during his employment by the Company shall be deemed to be
confidential and proprietary to the Company and shall not be disseminated by the
Executive to any third party at any time either before or after his employment
by the Company terminates except to the extent necessary to the Executive's
proper performance of his duties as an executive of the Company. The
- 5 -
<PAGE>
Executive further agrees to retain in confidence any confidential information
known to him concerning the Company and its subsidiaries and corporate
affiliates and their respective businesses so long as such information is not in
the public domain. (For purposes of this paragraph, information shall not be
deemed in the public domain if its initial disclosure constituted a breach of
confidentiality.) The Executive further agrees that upon his termination, he
will promptly return to the Company any Company documents or articles. The
obligations of the Executive under this Section 5 shall be in addition to, and
shall not limit, any other obligation of the Executive to the Company with
respect to the matters set forth herein or otherwise, except as required by law.
(b) Non-Competition/Solicitation/Disparagement. The Executive
agrees that he shall not during his employment by the Company and for a period
of one year following his termination of employment with the Company without
prior written consent of the Company directly or indirectly for himself or on
behalf of or as an employee or agent of any other:
(1) Engage in or be employed by or in any business
which shall directly or indirectly compete with the Company in the provision of
services or the making, processing, adapting for sale or selling of goods or
materials of a kind and nature with which he was concerned to a material extent
at any time during the period beginning with his hire by the Company; provided
that nothing in this subsection shall restrain Executive from such action as
aforesaid in any business insofar as his duties or work shall relate to
services, good or materials of a kind or nature with which Executive was not
concerned to a material extent at any time during the period beginning with his
hire by the Company;
- 6 -
<PAGE>
(2) canvas or solicit business from any customer of
the Company unless such business is of a completely different kind and nature
from that of the Company;
(3) Interfere or seek to interfere or take such
steps as may interfere with the continuance of supplies to the Company from any
suppliers who are, or who have been at any time during his employment by the
Company, supplying components, materials or services to the Company;
(4) Solicit or entice or endeavor to solicit or
entice any employee away from the Company;
(5) Solicit or entice or endeavor to solicit or
entice any agent or distributor away from the Company;
(6) Speak negatively about the Company, its Board of
Directors, or its personnel.
(c) Intellectual Property. The Executive shall, without
additional remuneration, promptly communicate and disclose to the Company:
(1) All inventions, discoveries, products, product
modifications and improvements, whether patentable or not, conceived, originated
or developed by the Executive, solely or jointly with others, during any period
of employment by the Company, or at the facilities, expense or request of the
Company, or based on knowledge or information obtained from the Company or any
member of the Group during the course of or incidental to his employment
(hereinafter together called "Inventions"). Upon request of the Company, the
Executive shall without additional remuneration (except that the Company shall
reimburse the Executive for expenses reasonably incurred by Executive in
connection with the development
- 7 -
<PAGE>
or assignment of said invention) assign to the Company, or as the Company may
lawfully direct, any and all Inventions, free from all encumbrances and
restrictions. All such assignments shall include the patent rights in the United
States and throughout the world. With respect to patentable Inventions, in the
event the Company or other member of the Group does not file or cause to be
filed an application for patent rights within two years after the Executive
discloses completely to the Company such invention, and provided that the
Company has not utilized such invention as part of the secret know-how used or
licensed by the Company or by any of the Group, if within one year thereafter
Executive requests the Company in writing to do so, the Company will release
such invention to Executive provided that Executive files a patent application
thereon within one year following the date of such request, and offers to grant,
and upon acceptance of such offer does grant, the Company, or such person or
entity as the Company shall direct, non-exclusive, worldwide, royalty-free
licenses for manufacture and sales with respect thereto. It is agreed that the
Executive's promises as set forth in this paragraph (c)(1) do not apply to
inventions for which no equipment, supplies, facilities or trade secrets of the
Company were used and which were developed entirely on the Executive's own time
unless the invention relates to the business of the Company or the Company's
actual or demonstrably anticipated research or development or the invention
results from any work performed by the Executive for the Company.
(2) Any trademarks, labels of product or other designs
conceived, originated or developed by him, whether solely or jointly with
others, during any period of employment by the Company, or at the Company's
facilities, expense or request, or based upon knowledge or information obtained
from the Company during the course of his employment (hereinafter
- 8 -
<PAGE>
together called "Protected Material"). Protected Material which relates to the
business or products of the Company, or of any member of the Group, is
hereinafter called "BRK Protected Material," and such BRK Protected Material and
any copyrights and trademarks arising therefrom shall be solely and exclusively
the property of the Company, their successors and assigns, absolutely and
forever. The Company shall, for itself and for members of the Group, have the
rights, in the capacity of an employer of an employee for hire, to secure
trademark registrations and copyright in such BRK Protected Material throughout
the world in its own name or in any other name designated by it, and all
renewals and extensions of such trademark registration and copyright, whether
now or hereafter created, and shall have the sole and exclusive right to use and
dispose of such BRK Protected Material and to direct the use and disposition
thereof throughout the world in any manner whatsoever, and at its sole
discretion to refrain therefrom. The Executive hereby assigns to the Company all
such future copyrights, and agrees to execute and deliver all such documents as
are necessary or desirable to secure and protect the rights of the Company and
of the members of the Group and the rights of their respective successors and
assigns in such BRK Protected Material and to protect the Company from liability
therefore, the Company to reimburse the Executive for expenses reasonably
incurred in connection with such assignment.
(d) Additional Covenant. As a separate and additional covenant
with the Company, which is for this purpose the agent of the Group, the
provisions of Sections 5(a), 5(b), subsections (1) through (6) inclusive, and
5(c) shall apply respectively to each member of the Group as if herein set out
seriatim.
- 9 -
<PAGE>
(e) Representation. THE EXECUTIVE REPRESENTS AND WARRANTS THAT
THE KNOWLEDGE, SKILLS AND ABILITIES HE POSSESSED AT THE TIME OF HIS ACCEPTANCE
OF EMPLOYMENT WITH THE COMPANY ARE SUFFICIENT TO PERMIT HIM TO EARN A LIVELIHOOD
SATISFACTORY TO HIMSELF WITHOUT VIOLATING ANY PROVISION OF SECTION 5 HEREOF, FOR
EXAMPLE, BY USING SUCH KNOWLEDGE, SKILLS AND ABILITIES, OR SOME OF THEM, IN THE
SERVICE OF A NON-COMPETITOR. THE EXECUTIVE FURTHER REPRESENTS AND WARRANTS THAT
HIS ABILITY SO TO EARN A LIVELIHOOD SATISFACTORY TO HIMSELF DOES NOT DEPEND UPON
HIS ABILITY TO OBTAIN COMPENSATION FOR HIS SERVICES AT, OR IN EXCESS OF, THE
LEVEL AT WHICH HE WILL BE COMPENSATED BY THE COMPANY.
(f) Remedies. It is specifically understood and agreed that
any breach of the provisions of Section 5 of this Agreement will result in
serious and irreparable injury to the Company's business and that the remedy at
law alone will be an inadequate remedy for such breach, and that in addition to
any other remedy it may have, the Company shall be entitled to obtain the
specific performance of this Agreement by the Executive and to seek both
temporary and permanent injunctive relief (to the extent permitted by law)
without the necessity of proving actual damages. In addition to the foregoing,
the Company shall have no obligation to make any payment or provide any benefit
to the Executive under Section 4 of this Agreement or after the date on which
any breach of the provisions of Section 5 of this Agreement occurs and shall
have the right to cease such payments and benefits.
- 10 -
<PAGE>
6. No Other Benefits.
Except as specifically provided in this Agreement, the Executive shall
not be entitled to any compensation, severance or other benefits from the
Company or any of its affiliates in the event of the Executive's termination.
7. Limitations on Payments.
Anything herein to the contrary notwithstanding, in no event shall the
present value of all payments made to the Executive by the Company hereunder
which constitute "parachute payments" (within the meaning of Section
280(G)(b)(2) of the Internal Revenue Code of 1986, as amended (the "Code"),
without regard to clause A(ii) thereof), when aggregated with any other payments
made by the Company to the Executive which constitute "parachute payments" (as
so defined), exceed 299% of the Executive's "base amount" (within the meaning of
said Section 280(G)) unless the applicable percentage of the holders of the
Company's common stock outstanding as of the date of such payments shall approve
such payments after appropriate disclosure. The Company agrees to make
reasonable efforts to obtain such shareholder approval. For the purposes hereof,
the "present value" of any payment shall be determined in accordance with
Section 280(G) of the Code.
8. Assignment and Transfer.
a) The Executive. Neither this Agreement nor any of the
rights, duties or obligations of the Executive shall be assignable by the
Executive, nor shall any of the payments required or permitted to be made to the
Executive by this Agreement be encumbered, transferred or in any way
anticipated. If the Executive should die or become incapacitated while receiving
the three initial monthly payments specified in subsection 4(a),
- 11 -
<PAGE>
those initial three monthly payments, to the extent that they have not already
been paid to the Executive, shall be paid in accordance with the terms of this
Agreement to his estate's personal representatives or administrators or his
trustee, whichever applies. In the case of the Executive's bankruptcy while any
amounts are payable to him hereunder, all such payments otherwise provided
herein may at the discretion of the Company be paid in accordance with the terms
of this Agreement to his trustee in bankruptcy. Payment to any of the aforesaid
representatives, administrators or trustees shall be deemed to satisfy in full
the Company's obligations under this Agreement.
b) The Company. This Agreement shall not be terminated by the
merger or consolidation of the Company with any corporate or other entity or by
the transfer of all or substantially all of the assets of the Company to any
other person, corporation, firm or entity, and the provisions of this Agreement
shall inure to the benefit of any such successor in interest to the Company. It
is further intended that the provisions of this Agreement shall be binding on
any such successor in interest to the Company, provided that if the terms of
such merger, consolidation or transfer render it impractical to pay the benefits
provided by this Agreement, the Company shall only be required to make
reasonable efforts to procure the payment of equivalent benefits.
9. Notices.
For the purposes of this Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when delivered or mailed by registered mail, return receipt
requested, postage prepaid, addressed as follows:
- 12 -
<PAGE>
If to the Executive, to the address set forth below his name on the
signature page hereto.
If to the Company:
BRK Brands, Inc.
3901 Liberty Street Road
Aurora, Illinois 60504-8122
U.S.A.
Attention: Senior Vice President and Chief Financial officer
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices or change of address shall
be effective only upon receipt.
10. Governing Law.
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Illinois.
11. Waiver and Modification.
Except as necessary in order to conform the terms of Section 5 of this
Agreement to any restrictions imposed by law so as to render the terms of each
subsection thereof enforceable to the fullest extent possible, no provisions of
this Agreement may be modified, waived, or discharged unless such waiver,
modification or discharge is agreed to in writing signed by the Executive and
the Company. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or any prior or
subsequent time. No agreements or representations, oral or otherwise, express or
implied, with respect to the
- 13 -
<PAGE>
subject matter hereto have been made by either party which are not set forth
expressly in this Agreement.
12. Separability.
The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect, except that if a court
of competent jurisdiction invalidates or voids Section 5 of this Agreement or
any portion thereof, the Company shall be entitled to discontinue any payments
or benefits that would otherwise be provided under Section 4 and the Executive
shall forfeit his rights to the same. The parties further authorize any court of
competent jurisdiction to impose any limitation or other modification necessary
to render the various subsections of Section 5 enforceable to the maximum extent
possible.
13. Non-assignability.
This Agreement is personal in nature and Executive shall not, without
the consent of the Company, assign or transfer this Agreement or any rights or
obligations hereunder. Without limiting the foregoing, the Executive's right to
receive payments hereunder shall not be assignable or transferable, whether by
pledge, creation of a security interest or otherwise, and in the event of any
attempted assignment or transfer contrary to this paragraph the Company shall
have no liability to pay any amount so attempted to be assigned or transferred,
provided that the Company may choose to pay benefits as specified in subsection
8(a) above.
- 14 -
<PAGE>
14. Term of Agreement.
This Agreement shall become effective as of the date first above
written and shall terminate on December 31, 1997, unless renewed annually in
writing by the parties in accordance with Section 3.
- 15 -
<PAGE>
TERMINATION BENEFITS AGREEMENT
Counterpart Signature Page
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above set forth.
BRK Brands, Inc.
By:/s/ Malcolm Candlish
----------------------------
/s/ Michael A. Rohl
----------------------------
Michael A. Rohl
372 Marion Avenue
Glen Ellyn, Illinois 60137
- 16 -
<PAGE>
AMENDMENT TO TERMINATION BENEFITS AGREEMENT
AMENDMENT TO AGREEMENT, dated September 26, 1997, between BRK Brands, Inc. (the
"Company") and the undersigned executive employee of the Company whose name and
address appear on the signature page hereto (the "Executive").
W I T N E S S E T H
WHEREAS, the Company entered into a Termination Benefits Agreement with
the Executive dated July 5, 1995 (the "Agreement");
WHEREAS, the Company considers it important to the best interests of
the Company and its affiliates, that the Executive continue to be encouraged to
remain employed by the Company;
WHEREAS, the Company considers it imperative to the best interests of
the Company and its affiliates that the Executive continue to be subject to
certain restrictions concerning the activities which he may undertake for
himself or others unrelated to the Company and its affiliates; and
WHEREAS, the Company anticipates that providing severance benefits will
continue to operate as an incentive for the Executive to remain employed by the
Company and to refrain from activities contrary to the interests of the Company
and its affiliates;
NOW, THEREFORE, to induce the Executive to continue to be employed by
the Company, to refrain from activities contrary to the interests of the Company
and its affiliates and for other good and valuable consideration, the Company
and the Executive agree as follows:
1. Pursuant to the terms of Section 3 of the Agreement, the parties
agree to renew the Agreement for one year and therefore amend Section 14 of the
Agreement to read as follows:
"14. Term of Agreement
This Agreement shall become effective as of the date first above
written and shall terminate on December 31, 1998, unless renewed annually in
writing by the parties in accordance with Section 3."
2. In all other respects the Agreement shall continue in full force and
effect.
IN WITNESS WHEREOF, the parties have caused this amendment to the
Agreement to be executed and delivered as of the day and year first above
written.
BRK Brands, Inc.
By: /s/ B.Joseph Messner
-------------------
/s/ Michael A. Rohl
- ------------------------
Michael A. Rohl
941 Winslow Circle
Glen Ellyn, Illinois 60137
<PAGE>
Exhibit 17
First Alert Inc.
3901 Liberty Street Road
Aurora, Illinois
60504-8122
708 851-7330
fax: 708 851-1331
CONTACT:
Mike Rohl Van Negris / Philip J. Denning
First Alert, Inc. Kehoe, White, Savage & Co., Inc.
(630) 851-7330 (212) 888-1616
FOR IMMEDIATE RELEASE:
FIRST ALERT TO BE ACQUIRED BY SUNBEAM
AURORA, IL - March 2, 1998 - First Alert, Inc. (Nasdaq: ALRT) today announced
that it has entered into a definitive agreement with Sunbeam Corporation
(NYSE:SOC) providing for the acquisition of First Alert by Sunbeam in a
transaction valued at approximately $175 million which includes the assumption
of existing debt.
Under the terms of the agreement, which has been approved by the Boards of
Directors of both companies, Sunbeam will shortly commence a cash tender offer
to acquire all the outstanding shares of common stock of First Alert at a price
of $5.25 per share. After successful completion of the tender offer, remaining
shares of First Alert will be acquired at the tender offer price through a
merger.
First Alert's Board of Directors has received the option of each of Salomon
Smith Barney and NationsBanc Montgomery Securities that the consideration
payable in the tender offer and merger is fair, from a financial point of view,
to First Alert's stockholders.
The consummation of the offer is subject to certain customary conditions,
including expiration of the waiting period under the Hart-Scott-Rodino Antitrust
Improvement Act. Financing is not a condition to the completion of the
transaction.
Sunbeam Corporation is a leading consumer products company that designs,
manufacturers and markets, nationally and internationally, a diverse portfolio
of brand name products. Sunbeam's Sunbeam(R) and Oster(R) brands have been
household names for generations, both domestically and abroad, and the company
is a market leader in many of its product catetgories.
B. Joseph Messner, President and Chief Executive Officer of First Alert, stated:
"Our Board believes this is a positive transaction for all of our shareholders,
customers and suppliers. Sunbeam's capabilities and financial strength will
enable First Alert to aggressively pursue growth opportunities in the home
safety market."
First Alert, Inc., through its subsidiaries, is a leading manufacturer and
marketer of a broad range of residential safety products anchored by the
Company's leadership position in the U.S. residential smoke and carbon monoxide
detector product lines. The First Alert(R) name is considered to be the most
widely recognized consumer brand name in home safety.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995: The statements in this release that relate to future plans, expectations,
events, performance and the like are forward-looking statements, within the
meaning of the Private Securities Litigation Reform Act of 1995 and the
Securities Exchange Act of 1934. Actual results or events could differ
materially from those described in the forward-looking statements due to a
variety of factors, including those set forth in the Company's reports on Forms
10-K and 10-Q filed with the Securities and Exchange Commission.
