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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(d)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
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FIRST ALERT, INC.
(NAME OF SUBJECT COMPANY)
FIRST ALERT, INC.
(NAME OF PERSON FILING STATEMENT)
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COMMON STOCK, PAR VALUE $0.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
CUSIP NO. 31846N 10 2
(CUSIP NUMBER OF CLASS OF SECURITIES)
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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
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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,
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;
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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
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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
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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)
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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;
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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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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.
AMOUNT
BENEFICIALLY PERCENT OF
NAME OF BENEFICIAL OWNER OWNED(1) CLASS
- --------------------------------------------------------------------------------------- ------------ ----------
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%
- ------------------
* 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
(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
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.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AGE AND FIVE-YEAR EMPLOYMENT HISTORY
- --------------------------- --- ------------------------------------------------------------------------------
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
II-5
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AGE AND FIVE-YEAR EMPLOYMENT HISTORY
- --------------------------- --- ------------------------------------------------------------------------------
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).
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.
DIRECTOR PRESENT PRINCIPAL OCCUPATION OR
NAME AGE SINCE EMPLOYMENT AND FIVE-YEAR EMPLOYMENT HISTORY
- --------------------------- --- -------- --------------------------------------------------------------------
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.
II-6
DIRECTOR PRESENT PRINCIPAL OCCUPATION OR
NAME AGE SINCE EMPLOYMENT AND FIVE-YEAR EMPLOYMENT HISTORY
- --------------------------- --- -------- --------------------------------------------------------------------
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.
II-7
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
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.
NAME AGE PRESENT POSITION AND OFFICE WITH THE COMPANY
- --------------------------- --- ------------------------------------------------------------------------------
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.
II-9
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
ANNUAL COMPENSATION OTHER SECURITIES ALL OTHER
--------------------------- ANNUAL UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($)(1) COMPENSATION OPTIONS(#) ($)
- -------------------------------------- ---- ------------ ----------- ------------ --------- ------------
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)
- ------------------
(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
(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 $1,700 for personal use of a Company car.
STOCK OPTIONS
The following table contains information concerning the grant of stock
options during 1996 to the Company's executives listed in the Summary
Compensation Table above.
OPTION GRANTS IN 1996
INDIVIDUAL GRANTS
--------------------------------------------------
PERCENT
OF
NUMBER TOTAL POTENTIAL REALIZABLE
OF OPTIONS VALUE AT ASSUMED
SECURITIES GRANTED ANNUAL RATES OF STOCK
UNDERLYING TO PRICE APPRECIATION FOR
OPTIONS EMPLOYEES EXERCISE OPTION TERM
GRANTED IN FISCAL PRICE EXPIRATION ----------------------
NAME (#)(1) YEAR(%) ($/SH)(7) DATE 5%
- -------------------------------------- ---------- --------- --------- ---------- ----------------------
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
NAME 10%
- -------------------------------------- ----------------------
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
- ------------------
(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
(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 $3.19 per share. The vesting and other provisions of such
options remained unchanged, except that the options now vest over four equal
annual installments commencing in February 1998.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the Company's
executives listed in the Summary Compensation Table above, concerning the
exercise of options during the year ended December 31, 1996 and unexercised
options held as of the end of the fiscal year:
AGGREGATE OPTION EXERCISES
AND YEAR-END OPTION VALUES AS OF DECEMBER 31, 1996
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT 12/31/96(#) OPTIONS AT 12/31/96(1)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------- ------------ ----------- ----------- ------------- ----------- -------------
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
- ------------------
(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
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.
YEARS OF SERVICE
--------------------------------------------------------
RENUMERATION 15 20 25 30 35
- ----------------------------------------------------- -------- -------- -------- -------- --------
$ 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
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
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
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
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
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.