Exhibit 2
FIRST ALERT, INC.
NOTICE OF
1997 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 6, 1997
To Our Stockholders:
The 1997 Annual Meeting of Stockholders of First Alert, Inc. will be held
on Tuesday, May 6, 1997, beginning at 10:30 a.m., in the Regency Ballroom of the
Hilton Hotel, 3003 Corporate West Drive, Lisle, Illinois, for the following
purposes:
1. To elect three directors, to serve for a term of three years as more
fully described in the accompanying Proxy Statement.
2. To consider and act upon a proposal to ratify, confirm and approve the
First Alert, Inc. 1997 Stock Option Plan.
3. To consider and act upon a proposal to ratify, confirm and approve the
selection of Price Waterhouse LLP as the independent public accountants of the
Company for fiscal year 1997.
4. To consider and act upon any other business which may properly come
before the meeting.
The Board of Directors has fixed the close of business on March 18, 1997,
as the record date for the meeting. Only stockholders of record on that date are
entitled to notice of and to vote at the meeting.
PLEASE COMPLETE AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED
WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE MEETING IN PERSON.
By order of the Board of Directors
/s/ HALDON K. GRANT
-------------------
HALDON K. GRANT
Secretary
Aurora, Illinois
April 7, 1997
1
FIRST ALERT, INC.
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of First Alert, Inc. (the "Company") for use
at the 1997 Annual Meeting of Stockholders to be held on Tuesday, May 6, 1997,
at the time and place set forth in the notice of the meeting, and at any
adjournments thereof. The approximate date on which this Proxy Statement and
form of proxy are first being sent to stockholders is April 7, 1997.
If the enclosed proxy is properly executed and returned, it will be voted
in the manner directed by the stockholder. If no instructions are specified with
respect to any particular matter to be acted upon, proxies will be voted in
favor thereof. Any person signing the enclosed form of proxy has the power to
revoke it by voting in person at the meeting, or by giving written notice of
revocation to the Secretary of the Company at any time before the proxy is
exercised.
The holders of a majority in interest of all Common Stock issued,
outstanding and entitled to vote are required to be present in person or be
represented by proxy at the meeting in order to constitute a quorum for the
transaction of business. The election of the nominees for director will be
decided by plurality vote. The affirmative vote of the holders of at least a
majority of the shares of Common Stock voting in person or by proxy at the
meeting are required to approve all other matters listed in the notice of the
meeting.
The Company will bear the cost of the solicitation. It is expected that the
solicitation will be made primarily by mail, but regular employees or
representatives of the Company (none of whom will receive any extra compensation
for their activities) may also solicit proxies by telephone, telecopier and in
person and arrange for brokerage houses and other custodians, nominees and
fiduciaries to send proxies and proxy materials to their principals at the time
expense of the Company.
The Company's principal executive offices are located at 3901 Liberty
Street Road, Aurora, Illinois 60504-8122, telephone number (630) 851-7330.
RECORD DATE AND VOTING SECURITIES
Only stockholders of record at the close of business on March 18, 1997 are
entitled to notice of and to vote at the meeting. On that date, the Company had
outstanding and entitled to vote 24,183,116 shares of Common Stock, par value
$.01 per share ("Company Common Stock" or "Common Stock"). Each outstanding
share of Company Common Stock entitles the record holder to one vote.
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table shows, as of March 18, 1997, any person who is known by
the Company to be the beneficial owner of more than five percent of any class of
voting securities of the Company. For purposes of this Proxy Statement,
beneficial ownership is defined in accordance with Rule 13d-3 ("Rule 13d-3")
under the Securities Exchange Act of 1934, as amended, and means generally the
power to vote or dispose of the securities, regardless of any economic interest
therein. See "Security Ownership of Directors and Officers" for information
concerning the beneficial ownership of voting securities of the Company by
directors and executive officers of the Company.
2
Amount and
Nature of
Name and Address Beneficial Percent
of Beneficial Owner Ownership(1) of Class
------------------- ------------ --------
Thomas H. Lee Equity Partners, L.P. ............................................ 8,324,492(2) 34.4%
c/o Thomas H. Lee Company 75 State Street Boston,
Massachusetts 02109
ML-Lee Acquisition Funds........................................................ 4,339,998(3) 17.9%
c/o Merrill Lynch & Co., Inc. World Financial Center South
Tower New York, New York 10080
- --------------------
(1) According to Schedules 13G filed with the Securities and Exchange
Commission on or before February 14, 1997. All of the shares included in
this table are subject to the terms of the Shareholders' Agreement
described under "Compensation Committee Interlocks and Insider
Participation -- Certain Relationships and Related Transactions."
(2) In addition, each of the THL Equity Advisors Limited Partnership ("Equity
Advisors"), the general partner of Thomas H. Lee Equity Partners, L.P.
("Equity Partners"); THL Equity Trust, the general partner of Equity
Advisors; David V. Harkins, as Trustee of THL Equity Trust; and Scott A.
Schoen and Anthony J. DiNovi, as officers of THL Equity Trust, may be
deemed to be beneficial owners of the 8,324,492 shares of Common Stock held
by Equity Partners. Each of Equity Advisors, THL Equity Trust, Mr. Harkins,
Mr. Schoen and Mr. DiNovi maintains a principal business address c/o Thomas
H. Lee Company ("THL Co."), 75 State Street, Boston, Massachusetts 02109.
(3) Represents 2,281,524 shares held of record by the ML-Lee Acquisition Fund,
L.P. ("Fund I"), the ML-Lee Acquisition Fund II, L.P. ("Fund II") and the
ML-Lee Acquisition Fund (Retirement Accounts) II, L.P. (the "Retirement
Fund", and, together with Fund II, the "ML-Lee Acquisition Funds") and
2,058,474 shares held of record by Fund II. Each of: Thomas H. Lee Advisors
II, L.P. ("Advisors II"), the investment advisor of each of Fund II and the
Retirement Fund; T.H. Lee Mezzanine II ("Mezzanine II"), a general partner
of Advisors II; David V. Harkins, as a Trustee of THL Equity Trust; and
Scott A. Schoen and Anthony J. DiNovi, as officers of Mezzanine II, may be
deemed to be beneficial owners of 4,339,998 shares of Common Stock held in
the aggregate by Fund II and the Retirement Fund. Each of Advisors II and
Mezzanine II maintains its principal address c/o THL Co., 75 State Street,
Boston, Massachusetts 02109. The ML-Lee Acquisition Funds maintains its
principal address c/o Merrill Lynch & Co., World Financial Center, South
Tower, New York, New York 10080.
SECURITY OWNERSHIP OF DIRECTORS AND OFFICERS
The following information is furnished as of March 18, 1997, with respect
to Common Stock of the Company beneficially owned within the meaning of Rule
13d-3 by (i) each director of the Company and each nominee; (ii) each Named
Executive Officer (as defined herein); and (iii) all directors and executive
officers of the Company as a group. All of the shares included in this table,
other than those owned by Messrs. Albers, Messner, Rohl and Wood, are subject to
the terms of the Shareholders' Agreement described under "Compensation Committee
Interlocks and Insider Participation -- Certain Relationships and Related
Transactions."
3
Amount
Nature of
Name and Address Beneficial Percent
of Beneficial Owner Ownership of Class
------------------- --------- --------
John R. Albers....................................... 44,347 (1) *
William K. Brouse.................................... 161,498 (2) *
Malcolm Candlish..................................... 837,998 (3) 3.4%
Anthony J. DiNovi.................................... 35,550 (4) *
David V. Harkins..................................... 130,918 (5) *
B. Joseph Messner.................................... 25,000 *
Michael A. Rohl...................................... 34,900 (6) *
Scott A. Schoen...................................... 87,034 (7) *
Peter M. Wood........................................ 6,347 (8) *
All directors and executive officers as a
group (10 persons).................................. 1,365,092 (9) 5.5%
- --------------------
* Represents beneficial ownership of less than 1%.
(1) Includes 4,347 shares of Common Stock which Mr. Albers has the right to
acquire within sixty days pursuant to the First Alert, Inc. Non-Qualified
Stock Option Plan for Non-Employee Directors (the "Non-Employee Director
Plan"). Mr. Albers maintains his principal business address c/o First
Alert, Inc., 3901 Liberty Street Road, Aurora, Illinois 60504.
(2) Includes 109,498 shares of Common Stock which Mr. Brouse has the right to
acquire within sixty days pursuant to the First Alert, Inc. 1992 Stock
Option Plan (the "1992 Stock Option Plan") and the First Alert, Inc. 1994
Stock Option Plan (the "1994 Stock Option Plan"). Mr. Brouse is also a
joint trustee with respect to a trust which includes 3,000 shares of Common
Stock. Mr. Brouse disclaims any beneficial ownership of such shares. Mr.
Brouse maintains his principal business address c/o First Alert, Inc., 3901
Liberty Street Road, Aurora, Illinois 60504.
(3) Includes 478,998 shares of Common Stock which Mr. Candlish has the right to
acquire within sixty days pursuant to the 1992 Stock Option Plan and the
1994 Stock Option Plan. Mr. Candlish maintains his principal business
address c/o First Alert, Inc., 3901 Liberty Street Road, Aurora, Illinois
60504.
(4) Mr. DiNovi also may be deemed to be the beneficial owner of the 8,324,492
shares of Common Stock held by Equity Partners and the 4,339,998 shares of
Common Stock held, in the aggregate, by the Retirement Fund and Fund II, by
virtue of his positions as an officer of each of THL Equity Trust and
Mezzanine II. Mr. DiNovi disclaims beneficial ownership of such shares. Mr.
DiNovi maintains his principal business address c/o THL Co., 75 State
Street, Boston, Massachusetts 02109.
(5) Mr. Harkins also may be deemed to be the beneficial owner of the 8,324,492
shares of Common Stock held by Equity Partners and the 4,339,998 shares of
Common Stock held, in the aggregate, by the Retirement Fund and the Fund
II, by virtue of his position as a Trustee and officer of each of THL
Equity Trust and Mezzanine II. Mr. Harkins also may be deemed to
beneficially own 12,400 shares of Common Stock held by his children. Mr.
Harkins disclaims beneficial ownership of all such shares. Mr. Harkins
maintains his principal business address c/o THL Co., 75 State Street,
Boston, Massachusetts 02109.
(6) Includes 32,400 shares of Common Stock which Mr. Rohl has the right to
acquire within sixty days pursuant to the 1994 Stock Option Plan. Mr. Rohl
maintains his principal business address c/o First Alert, Inc., 3901
Liberty Street Road, Aurora, Illinois 60504.
(7) Mr. Schoen also may be deemed to be the beneficial owner of the 8,324,492
shares of Common Stock held by Equity Partners and the 4,339,998 shares of
Common Stock held, in the aggregate, by the Retirement Fund and the Fund
II, by virtue of his
4
position as an officer of each of THL Equity Trust and Mezzanine II.
Mr. Schoen disclaims beneficial ownership of such shares. Mr. Schoen also may be
deemed to hold an additional 6,000 shares of Common Stock as a result of such
shares being held in trust for the benefit of his children and an additional
15,460 shares of Common Stock held by other members of his immediate family. Mr.
Schoen disclaims beneficial ownership of all such additional shares. Mr. Schoen
maintains his principal business address c/o THL Co., 75 State Street, Boston,
Massachusetts 02109.
(8) Includes 4,347 shares of Common Stock which Mr. Wood has the right to
acquire within sixty days pursuant to the Non- Employee Director Plan. Mr.
Wood maintains his principal business address c/o First Alert, Inc., 3901
Liberty Street Road, Aurora, Illinois 60504.
(9) Includes shares beneficially owned by Messrs. Albers, Brouse, Candlish,
Mark A. Devine, Vice President -- Engineering of the Company, DiNovi,
Harkins, Messner, Rohl, Schoen and Wood (including 1,000 shares of Common
Stock Mr. Devine has the right to acquire within sixty days pursuant to the
1994 Stock Option Plan). In addition, the shares of Common Stock held by
Equity Partners and the ML-Lee Acquisition Funds may be deemed beneficially
owned by Messrs. DiNovi, Harkins and Schoen by virtue of their affiliation
with Equity Partners and the ML-Lee Acquisition Funds; however, each of
Messrs. DiNovi, Harkins and Schoen disclaims such beneficial ownership.
ITEM 1 -- ELECTION OF DIRECTORS
The Board of Directors is divided into three classes, with each class as
nearly equal in number as possible. One class is elected each year for a term of
three years. It is proposed that the nominees listed below, whose terms expire
at the Annual Meeting, be elected to serve a term of three years and until their
successors are duly elected and qualified or until they sooner die, resign or
are removed. The Company presently has a Board of Directors of seven members.
Each of the nominees, except Mr. Albert L. Prillaman, is a current director of
the Company. One current director of the Company whose term expires at the
Annual Meeting, Mr. Peter M. Wood, is not standing for reelection at the Annual
Meeting.
The persons named in the accompanying proxy will vote, unless authority is
withheld, for the election of the nominees named below. If such nominees should
become unavailable for election, the persons named in the accompanying proxy
will vote for such substitutes as the Board of Directors may recommend. The
nominees are not related to any other executive officer of the Company or its
subsidiaries.
Year First
Elected a Position With the Company or Principal
Name of Director Age Director Occupation During the Past Five Years
- ---------------- --- -------- -------------------------------------
Directors Standing for Election
Nominated for a term ending in 2000:
Malcolm Candlish.................. 61 1992 Malcolm Candlish joined the Company as a director in August 1992 and
was elected Chairman of the Board in October 1992 and Chief Executive
Officer in December 1992. Mr. Candlish served as Chief Executive
Officer until September 18, 1996. He also served as President of the
Company from April 1, 1996 to September 18, 1996. Prior to his
employment with the Company, Mr. Candlish was Chairman, Chief Executive
Officer and President of Sealy, Inc., a bedding manufacturer, from 1989
until October 1992. From 1983 until 1989, Mr. Candlish was employed
with Beatrice Companies, a conglomerate, as President and Chief
Executive Officer of Samsonite Luggage Company, a luggage manufacturer
and, from 1977 until 1983, Mr. Candlish was employed by the Wilson
Sporting Goods subsidiary of PepsiCo., Inc. in various executive
positions. Mr. Candlish also serves as a director of AmerUs Life
Insurance Company and The Black & Decker Corporation.
David V. Harkins.................. 56 1992 David V. Harkins has served as a director of the Company since July
1992. Mr. Harkins has also served as Chairman of the Company's
Compensation Committee and as a member of the Company's Audit Committee
since October 1992. Mr. Harkins has been employed by THL Co., an
investment company, since 1986 and currently serves as a Senior
Managing Director. Mr. Harkins has been Chairman and director of
National Dentex Corporation, an operator of dental laboratories, since
1983. Mr. Harkinsalso serves as Senior Vice President and Trustee of
Thomas H. Lee Advisors I, L.P. ("Advisors I") and Mezzanine II,
affiliates of the Fund II and the Retirement Fund, respectively, and as
a director of Stanley Furniture Company, Inc., HomeSide Lending, Inc.
and various private corporations.
5
Albert L. Prillaman............... 51 Nominee Albert L. Prillaman currently serves as Chairman, Chief Executive
Officer and President of Stanley Furniture Company, Inc. ("Stanley"), a
furniture manufacturer. Mr. Prillaman has been President and Chief
Executive Officer of Stanley since December 1985 and Chairman of the
Board of Stanley since September 1988. Before such time, Mr. Prillaman
served in various executive capacities with Stanley and its predecessor
company since 1969. Mr. Prillaman also is a director of Main street
BankGroup Incorporated.
Directors Continuing in Office
Serving a term ending in 1998:
John R. Albers.................... 65 1995 John R. Albers has served as a director of the Company since July 1995.
Mr. Albers has also served as a member of the Company's Compensation
Committee since July 1995. From May 1995 to present, Mr. Albers has
served as Chief Executive Officer and President of Fairfield
Enterprises, Inc., a holding company. From 1988 to March 1995, Mr.
Albers served as Chairman, President and Chief Executive Officer of Dr.
Pepper/Seven-Up Companies, Inc., a beverage manufacturer. Mr. Albers is
also a director of AmerUs Life Insurance Company and Recovery
Engineering, Inc.
Anthony J. DiNovi................. 34 1992 Anthony J. DiNovi has served as a director of the Company since July
1992. Mr. DiNovi has also served on the Company's Audit Committee since
October 1992 and the Company's Compensation Committee since July 1995.
Mr. DiNovi has been employed by THL Co., an investment company, since
1988 and currently serves as a Managing Director. Mr. DiNovi also
serves as a Vice President of Advisors I and Mezzanine II, affiliates
of the ML Acquisition Funds, and as a director of Safelite Glass Corp.
and various private corporations.
6
Serving a term ending in 1999:
B. Joseph Messner................. 44 1996 B. Joseph Messner joined the Company as the President, Chief Executive
Officer and a director on September 18, 1996. Prior to his employment
with the Company, Mr. Messner served as president of Bushnell
Corporation, formerly the Sports Optics Division of Bausch & Lomb, Inc.
from 1989 to November, 1995. In the period from 1981 through 1988, he
held other positions with Bausch & Lomb, Inc. including Vice President
and Controller of the Eyewear Division and Corporate Director of
Finance. Mr. Messner also serves as a director of Totes, Inc.
Scott A. Schoen................... 38 1992 Scott A. Schoen has served as a director of the Company since July
1992. Mr. Schoen has also served as a member of the Company's
Compensation Committee and Chairman of the Company's Audit Committee
since October 1992. Mr. Schoen has been employed by THL Co., an
investment company, since 1986 and currently serves as a Managing
Director. Mr. Schoen also serves as a Vice President of Advisors I and
Mezzanine II, affiliates of THL Co., and as a director of Health o
meter Products, Inc., Rayovac Corporation, LaSalle Re Holdings, Inc.
and various private corporations.
INFORMATION CONCERNING THE BOARD OF DIRECTORS
During fiscal 1996, there were six meetings of the Board of Directors of
the Company. All of the directors attended at least 75% of the aggregate of (i)
the total number of meetings of the Board of Directors during which they served
as director and (ii) the total number of meetings held by committees of the
Board of Directors on which they served. The Board of Directors does not have a
Nominating Committee. Directors of the Company who are not employees of the
Company and who are not affiliates of significant investors in the Company
receive an annual retainer of $13,000 and a fee of $2,000 for each Board meeting
attended or $500 for each Board meeting in which the director participates by
telephone. Such directors also receive annual retainer fees of an aggregate of
$2,000 for service as a member of one or more Board committees and fees for each
Board committee meeting attended, not held in conjunction with a full Board
meeting, of $1,000 or $500 for each committee meeting in which the director
participates by telephone. Pursuant to the Non-Employee Director Plan,
qualifying directors receive approximately one half of their compensation as
directors in the form of options to acquire Common Stock of the Company. No
director received compensation for serving as such, except that in 1996 Mr.
Albers earned $13,250 and Mr. Wood earned $11,250 in cash and each received
options to purchase 4,347 shares of Common Stock under the Non-Employee Director
Plan; and Messrs. Candlish and Messner received compensation as employees of BRK
Brands, Inc., the principal subsidiary of the Company. See "Compensation
Committee Interlocks and Insider Participation -- Certain Relationships and
Related Transactions -- Employment Agreements" and "-- Management Agreement." In
addition to the amounts set forth above, during 1996, Mr. Albers earned $3,000
and Mr. Wood earned $1,000 for their individual participation in the screening
of candidates for President of the Company. During 1996, BRK Brands, Inc. also
reimbursed the travel expenses of Messrs. Albers, DiNovi, Harkins, Schoen and
Wood in the amount of approximately $100, $9,200, $8,800, $8,500 and $4,800,
respectively, in connection with their attending meetings of the Board of
Directors of the Company.
The Board of Directors has a Compensation Committee whose present members
are John R. Albers, Anthony J. DiNovi, David V. Harkins and Scott A. Schoen. The
Compensation Committee determines the compensation to be paid to key officers of
subsidiaries of the Company and generally administers the Company's stock option
plans. During fiscal year 1996, there were three meetings of the Compensation
Committee.
The Company also has an Audit Committee whose present members are Anthony
J. DiNovi, David V. Harkins, Scott A. Schoen and Peter M. Wood. The Audit
Committee reviews with the Company's independent auditors the scope of the audit
for the year, the results of the audit when completed and the independent
auditors' fee for services performed. The Audit Committee also recommends
independent auditors to the Board of Directors and reviews with management
various matters related to its internal accounting controls. During fiscal 1996,
there were two meetings of the Audit Committee.
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Compensation Committee") of the Board of
Directors has furnished the following report on executive compensation.
7
Executive Compensation Philosophy
Under the supervision of the Compensation Committee, the Company has
developed and implemented executive compensation policies, plans and programs
which seek to enhance the profitability and value of the Company. The primary
objective is to align closely the financial interests of the Company's
executives with those of its stockholders. The Compensation Committee believes
that equity ownership by management is beneficial in conforming management and
stockholder interests in the enhancement of stockholder value.
The Compensation Committee's philosophy is to integrate management pay with
the achievement of annual financial performance goals. The compensation package
for each officer is designed to recognize individual initiative and achievement.
In establishing compensation, the Compensation Committee incorporates a number
of factors to promote both long and short-term performance of the Company. These
factors include earnings, market share growth, cost control efforts, balance
sheet strength and organizational developments. The compensation for individual
executives is based on both company and personal goals, with varying weight
being given to individual factors for particular executives.
The Compensation Committee believes that the Company's overall executive
compensation package enables the Company to obtain and retain the services of
top executives. The Company operates with a small team of top executives which
is given significant and extensive responsibilities. These executives' duties
encompass overall strategic policy of the Company and day-to-day activities in
sales, customer communications, product development, marketing, manufacturing,
engineering and other similar activities. The compensation package is intended
to reflect these broad responsibilities.
The Company's compensation package for its executive officers consists of
base salary, incentive payments, stock option grants and, for certain executive
officers, other benefits.
Base Salary
The Compensation Committee sets base salary at the minimum level deemed
sufficient to attract and retain qualified executives. By restricting the role
of base salary in the compensation package, more of an executive's compensation
can be paid in the form of incentives which encourage and reward performance.
The base salaries of individual executives are set in light of the
responsibilities of the position held and the experience of the individual, with
a recognition of the Company's requirements for the top executives to perform
many varied tasks.
Annual Incentive Payments
The Compensation Committee establishes company performance targets based on
certain financial objectives of the Company each year providing for potential
incentive payments under a current management incentive plan. Executive officers
are eligible to receive cash incentives based upon the achievement of such
predetermined performance targets and the executive officer's individual
performance, as determined by the Chief Executive Officer of the Corporation and
approved by the Compensation Committee. Special awards may also be granted as
determined by the Chief Executive Officer and approved by the Compensation
Committee.
Long-Term Incentives
In 1992, the Company adopted the 1992 Stock Option Plan to provide
employees with options to acquire Company Common Stock. All nonqualified stock
options under the 1992 Stock Option Plan are granted at an option price as
determined by the Board of Directors or any committee thereof.
In 1994, the Company adopted the 1994 Stock Option Plan to provide
employees with options to acquire Company Common Stock. Under the 1994 Stock
Option Plan, incentive stock options and nonqualified stock options may be
granted to key employees and consultants of the Company and its subsidiaries. To
date, all options granted under the 1994 Stock Option Plan have been granted at
an exercise price equal to the fair market value on the date immediately prior
to the date of grant.
8
The Board of Directors or a committee thereof awarded stock options under
the Company's 1994 Stock Option Plan to executive officers during 1996. Stock
options are designed to provide an incentive to the Company's executive officers
and other key employees to increase the market value of the Company's Common
Stock, thus linking company performance and stockholder value to executive
compensation.
On March 31, 1997, the Board of Directors approved, subject to stockholder
approval, the adoption of the First Alert, Inc. 1997 Stock Option Plan in order
to provide key employees and consultants with options to acquire Company Common
Stock.
Chief Executive Officer Compensation
Mr. Messner has entered into an executive employment agreement with the
Company. Mr. Messner's base salary was fixed at the rate of $300,000 in 1996.
Also during 1996, Mr. Messner received stock option grants as explained below.
In 1996, Mr. Messner received a grant of 500,000 stock options of which
options to purchase 186,000 shares were granted pursuant to the provisions of
the 1994 Stock Option Plan and options to purchase 314,000 shares were granted
apart from any Company stock option plan. The Compensation Committee believes
that it is important for Mr. Messner as President and Chief Executive Officer of
the Company to have a meaningful stock interest in the Company. By receiving a
significant portion of his total compensation in the form of stock, Mr. Messner
has additional incentives to maximize stockholder value.
COMPENSATION COMMITTEE
John R. Albers
Anthony J. DiNovi
David V. Harkins
Scott A. Schoen
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
Messrs. Albers, DiNovi, Harkins and Schoen served as members of the
Compensation Committee during fiscal 1996.
Certain Relationships and Related Transactions
Employment Agreements. On September 18, 1996, the Company entered into an
Executive Employment Agreement with B. Joseph Messner. Such agreement provides
for a three (3) year term with additional consecutive one-year terms after
September 30, 1999, unless affirmatively terminated by either the Company or Mr.
Messner, during which Mr. Messner will serve as President and Chief Executive
Officer of the Company in consideration of a specified annual base salary
(currently $300,000 per year), which may be increased from time to time. In
addition to a base salary, Mr. Messner is also eligible to receive incentive
payments as the Company's Board of Directors may determine from time to time and
certain other employment benefits. No incentive payment was earned in 1996.
Such agreement with Mr. Messner provides that upon his death, disability or
termination without cause, as defined in the agreement, Mr. Messner is entitled
to receive as severance the greater of (i) the balance of salary payments due
under the agreement or (ii) one year's salary as in effect on the effective date
of termination, payable in twelve monthly installments and reduced by any
statutorily-mandated severance, change-of-control or other similar payment to
Mr. Messner. Subject to certain limitations, Mr. Messner also continues to
participate in medical, dental and life insurance plans and to receive other
fringe benefits during the severance period.
The agreement also provides that during the period of employment, and for a
period of twelve (12) months following termination, if such termination is due
to a voluntary termination by Mr. Messner or his election not to renew the
agreement, or for cause by the Company, Mr. Messner will not, directly or
indirectly, engage in certain specified activities relating to the Company or
the business
9
thereof. In addition, the agreement places certain restrictions upon Mr.
Messner's ability to communicate confidential information concerning the Company
to third parties.
The Company and Malcolm Candlish are entering into an Executive Employment
Agreement effective as of January 1, 1997, which provides for a three (3) year
term in consideration of an annual base salary of $100,000 per year. In addition
to the base salary, Mr. Candlish also is eligible to receive incentive payments
as the Company's Board of Directors may determine from time to time and certain
other employment benefits. During the term of this agreement, Mr. Candlish will
perform such duties as he may be directed to perform by the Board of Directors
of the Company from time to time, including serving as Chairman of the Board of
the Company. The agreement also provides that during the period of employment
and for a period of twelve months following the later of the date of termination
of his employment and the date of termination of salary payments thereunder, Mr.
Candlish will not, directly or indirectly, engage in certain specified
activities relating to the Company or the business thereof. In addition, the
agreement places certain restrictions upon Mr. Candlish's ability to communicate
confidential information concerning the Company to third parties.
Management Agreement. On July 31, 1992, the Company and THL Co. entered
into a Management Agreement pursuant to which the Company engaged THL Co. to
provide consulting and management advisory services to the Company for a period
of five years, renewable on a year-to-year basis thereafter. In consideration of
the consulting services, the Company pays an annual fee to THL Co. of $180,000
plus expenses. Management believes that this Management Agreement is on terms no
less favorable to the Company than could have been obtained from an independent
third party.
Shareholders' Agreement and Registration Rights Agreement. In connection
with the acquisition by the Company's wholly-owned subsidiary, BRK Brands, Inc.,
of substantially all of the assets of the BRK Electronics Division of Pittway
Corporation, effective as of July 31, 1992, the Company entered into a
Shareholders' Agreement (the "Shareholders' Agreement") and a Registration
Rights Agreement (the "Registration Rights Agreement") with the initial
investors in the Company (the "Initial Shareholders"). In accordance with the
terms of the Shareholders' Agreement, the Initial Shareholders and Mr. Candlish
are obligated to vote their shares of Common Stock to elect a Board of Directors
of the Company consisting of up to two directors designated by the ML-Lee
Acquisition Funds, two directors designated by Equity Partners and three
directors designated by affiliates of THL Co. (other than the ML-Lee Acquisition
Funds and Equity Partners).
Pursuant to the Registration Rights Agreement, Equity Partners, the ML-Lee
Acquisition Funds and their respective affiliates holding in the aggregate
twenty-five percent (25%) of the shares of Common Stock subject to the
Registration Rights Agreement may require the Company to effect the registration
of shares of Common Stock held by the Initial Shareholders for sale to the
public on three occasions, subject to certain conditions and limitations. In
addition, under the terms of the Registration Rights Agreement, if the Company
proposes to register any of its securities under the Securities Act of 1933, as
amended, whether for its own account or otherwise, the Initial Shareholders are
entitled to notice of such registration and are entitled to include their shares
therein, subject to certain conditions and limitations. All fees, costs and
expenses of any registration effected on behalf of the Initial Shareholders
under the Registration Rights Agreement (other than underwriting discounts and
commissions) will be paid by the Company.
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded to, earned by or
paid to the Company's Chief Executive Officer and each of the Company's four
most highly compensated executive officers (other than the Chief Executive
Officer) whose total annual salary and incentive payments exceeded $100,000 for
all services rendered in all capacities to the Company and its subsidiaries for
the Company's fiscal year ended December 31, 1996 (the "Named Executive
Officers").
10
SUMMARY COMPENSATION TABLE
Name and Annual Compensation Other Annual All Other
Principal Position Year Salary(1) Incentives(1) Compensation Compensation
- ------------------------------------------------------- ---- --------- ------------- ------------ ------------
Malcolm Candlish....................................... 1996 $ 325,000 $ 0 $ 64,081(2) $ 4,425(3)
Chairman of the Board 1995 400,000 0 77,277(2) 6,524(4)
1994 291,667 180,000 60,866(2) 5,768(5)
B. Joseph Messner(6)................................... 1996 84,231 0 11,319(7) 532(8)
President and Chief Executive Officer 1995 0 0 0 0
1994 0 0 0 0
William K. Brouse...................................... 1996 128,769 0 0 ---
Vice President - Sales 1995 120,461 0 0 6,889(10)
1994 109,083 33,600 0 5,995(11)
Fred W. Higgenbottom(12)............................... 1996 134,239 0 0 6,592(13)
Vice President - Operations 1995 127,343 0 0 9,021(14)
1994 93,503 34,500 0 4,106(15)
Michael A. Rohl........................................ 1996 112,384 0 0 6,069(16)
Vice President and Chief Financial Officer 1995 99,885 5,000 0 3,687(17)
1994 95,583 18,017 0 0
Richard F. Timmons(18)................................. 1996 122,769 0 0 7,156(19)
Vice President - Marketing 1995 114,885 0 0 5,097(20)
1994 104,083 32,100 0 5,232(21)
- --------------------
(1) Salary and bonus amounts are presented in the year earned; however, the
payment of such amounts may have occurred in other years.
(2) Represents reimbursement of commuting expenses.
(3) Represents $2,521 contributed by BRK Brands, Inc. ("BRK") pursuant to
BRK's Retirement Savings Plan-- 401(k) (the "401(k) Plan") and $1,904 of
insurance premiums.
(4) Represents $4,620 contributed by BRK pursuant to the 401(k) Plan and
$1,904 of insurance premiums.
(5) Represents $4,620 contributed by BRK pursuant to the 401(k) Plan and
$1,148 of insurance premiums.
(6) Mr. Messner became President and Chief Executive Officer of the Company on
September 18, 1996. See discussion of Mr. Messner's Executive Employment
Agreement in "Compensation Committee Interlocks and Insider Participation
-- Employment Agreements."
(7) Represents reimbursement of commuting and other expenses.
(8) Represents $532 for personal use of a Company car.
(9) Represents $3,556 contributed by BRK pursuant to the 401(k) Plan, $148 of
insurance premiums and $2,955 for personal use of a Company car.
(10) Represents $4,620 contributed by BRK pursuant to the 401(k) Plan, $125 of
insurance premiums and $2,144 for personal use of a Company car.
11
(11) Represents $3,513 contributed by BRK pursuant to the 401(k) Plan, $96 of
insurance premiums and $2,386 for personal use of a Company car.
(12) Mr. Higgenbottom resigned his position as an executive officer of the
Company on December 10, 1996.
(13) Represents $2,509 contributed by BRK pursuant to 401(k) Plan, $132 of
insurance premiums and $3,951 for personal use of a Company car.
(14) Represents $4,620 contributed by BRK pursuant to the 401(k) Plan, $127 of
insurance premiums and $4,274 for personal use of a Company car.
(15) Represents $62 of insurance premiums and $4,044 for personal use of a
Company car.
(16) Represents $3,372 contributed by BRK pursuant to the 401(k) Plan and
$2,697 for personal use of a Company car.
(17) Represents $3,687 contributed by BRK pursuant to the 401(k) Plan.
(18) Mr. Timmons resigned his position as an executive officer of the Company
on January 17, 1997.
(19) Represents $3,620 contributed by BRK pursuant to the 401(k) Plan, $132 of
insurance premiums and $3,404 for personal use of a Company car.
(20) Represents $3,378 contributed by BRK pursuant to the 401(k) Plan, $17 of
insurance premiums and $1,702 for personal use of a Company car.
(21) Represents $3,528 contributed by BRK pursuant to the 401(k) Plan, $4 of
insurance premiums and $1,700 for personal use of a Company car.
Grants of Stock Options
On February 9, 1996, the Company granted options to acquire a total of
258,000 shares of Common Stock at an exercise price of $7.9375 per share to
certain employees, including options to Messrs. Candlish, Brouse, Higgenbottom,
Rohl and Timmons for 50,000, 12,000, 12,000, 10,000 and 12,000 shares,
respectively. The options were not exercisable during the first twelve months
after the date of grant and, thereafter, the options become exercisable as to
25% of the shares covered thereby on each anniversary of the date of grant. On
April 4, 1996, the Company granted options to acquire 222,500 shares of Common
Stock at an exercise price of $6.6875 per share to certain employees on the same
terms, except price, as the options previously granted under the 1994 Stock
Option Plan, as discussed above, including options to Messrs. Brouse,
Higgenbottom, Rohl and Timmons for 25,000, 25,000, 13,000 and 25,000 shares,
respectively. On September 18, 1996, the Company granted to Mr. Messner options
to purchase an aggregate of 500,000 shares with the following terms: (i) options
to purchase 186,000 shares of Common Stock at an exercise price of $6.0625 per
share under the 1994 Stock Option Plan, and options to purchase 114,000 shares
of Common Stock at an exercise price of $6.0625 per share apart from any Company
stock option plan, all of which options vest in equal annual installments over
four years following the date of grant and which accelerate and become
immediately exercisable upon the occurrence of a change of control of the
Company (as defined in Mr. Messner's Executive Employment Agreement); and (ii)
options to purchase 200,000 shares of Common Stock apart from any Company stock
option plan, which options vest only if a change of control of the Company
occurs prior to December 31, 1997. In February 1997, the Company gave the
holders of options to purchase an aggregate of 928,202 shares (including Mr.
Messner) the opportunity to exchange such options for options to purchase the
same number of shares at $3.19 per share. The vesting and other provisions of
such options remain unchanged, except that the options which vest over time will
now vest over four equal annual installments commencing in February 1998.
12
1996 OPTION GRANTS
Individual Grants
--------------------------------------------
Potential Realizable
% of Total Value at Assumed
Options Annual Rates of Stock Price
Granted Appreciation for Option Term
Option to Employees Exercise Expiration ----------------------------
Name Grants in 1996 Price Date 5% 10%
- ---- ------ --------- ------- ------ ---------- ----------
Malcolm Candlish .............................. 50,000 4.9% $ 7.94 2/09/06 $ 249,595 $ 632,515
Chairman of the Board
B. Joseph Messner ............................. 500,000 49.3% $ 6.06 9/18/06 $1,906,350 $4,831,050
President and Chief Executive Officer
William K. Brouse ............................. 12,000 1.2% $ 7.94 2/09/06 $ 59,903 $ 151,804
Vice President - Sales 25,000 2.5% $ 6.69 $ 105,143 $ 266,455
Fred W. Higgenbottom .......................... 12,000 1.2% $ 7.94 2/09/06 $ 59,903 $ 151,804
Vice President - Operations 25,000 2.5% $ 6.69 $ 105,143 $ 266,455
Michael A. Rohl ............................... 10,000 1.0% $ 7.94 2/09/06 $ 49,919 $ 126,503
Vice President and Chief Financial Officer 13,000 1.3% $ 6.69 4/04/06 $ 54,674 $ 138,557
Richard F. Timmons ............................ 12,000 1.2% $ 7.94 2/09/06 $ 59,903 $ 151,804
Vice President - Marketing 25,000 2.5% $ 6.69 $ 105,143 $ 266,455
Stock Option Exercises and December 31, 1996 Stock Option Value
Set forth in the table below is information concerning the value of stock
options held at December 31, 1996 by the Named Executive Officers of the
Company. None of the Named Executive Officers exercised any stock options
during the year ended December 31, 1996.
AGGREGATE OPTION EXERCISES IN LAST FISCAL
YEAR AND OPTION VALUES AS OF DECEMBER 31, 1996
Value of Unexercised
In-The-Money Options
Number of Unexercised at December 31, 1996(1)
Shares Acquired Value Options at December 31, 1996 --------------------------
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
Malcolm Candlish............................. 0 0 413,915 246,417 $ 563,868 $ 140,968
Chairman of the Board
B. Joseph Messner............................ 0 0 0 500,000 0 0
President and Chief Executive Officer
William K. Brouse............................ 0 0 96,998 78,000 140,964 35,242
Vice President - Sales
Fred W. Higgenbottom(2)...................... 0 0 0 0 0 0
Vice President - Operations
Michael A. Rohl.............................. 0 0 19,600 44,600 0 0
Vice President and Chief Financial Officer
Richard F. Timmons(3)........................ 0 0 93,999 81,001 126,867 31,718
Vice President - Marketing
13
- --------------------
(1) The amounts set forth represent the difference, if positive, between the
fair market value of the Common Stock underlying the options at December
31, 1996 ($3.375 per share) and the exercise price of the options ($1.613
for options under the 1992 Stock Option Plan and $8.50, $13.50, $7.94,
$6.69 and $6.06 for options under the 1994 Stock Option Plan and $6.06 for
options granted apart from any Company stock option plan), multiplied by
the applicable number of shares for which options have been granted.
(2) Mr. Higgenbottom resigned his position as an executive officer of the
Company on December 10, 1996 and consequently all of the options granted to
him under the 1994 Stock Option Plan have terminated, pursuant to the terms
of such stock option plan.
(3) Mr. Timmons resigned his position as an executive officer of the Company on
January 17, 1997 and consequently all of the unexercisable options granted
to him under the 1992 Stock Option Plan and the 1994 Stock Option Plan have
been terminated, pursuant to the terms of each such stock option plan.
PERFORMANCE GRAPH
The graph set forth below compares the change in the Company's cumulative
total stockholder return on its Common Stock (as measured by dividing (i) the
sum of (a) the cumulative amount of dividends for the period indicated, assuming
dividend reinvestment, and (b) the difference between the Company's share price
at the end of the period and March 28, 1994, the date the Company's Common Stock
commenced trading on The Nasdaq National Market; by (ii) the share price at
March 28, 1994) with the cumulative total return of The Nasdaq Stock Market
(U.S.) Index and the cumulative total return of the Nasdaq Non-Financial Stocks
Index (assuming the investment of $100 in the Company's Common Stock, the Nasdaq
Stock Market (U.S.) Index and the Nasdaq Non-Financial Stocks Index on March
28, 1994, and reinvestment of all dividends). During 1995 and 1996, the Company
paid no dividends.
The NASDAQ
Measurement Period First Alert, The NASDAQ Stock Non-Financial
(Fiscal Year Covered) Inc. Market Stocks Index
3/28/94 100 100 100
3/31/94 102 96 96
6/30/94 149 92 89
9/30/94 217 99 97
12/31/94 165 98 97
3/31/95 117 107 105
6/30/95 168 122 122
9/30/95 177 137 136
12/31/95 97 139 135
3/31/96 76 145 142
6/30/96 45 157 154
9/30/96 66 163 158
12/31/96 38 171 164
ITEM 2 -- APPROVAL OF THE FIRST ALERT, INC. 1997 STOCK OPTION PLAN
General
There will be presented at the Annual Meeting a proposal to approve the
First Alert, Inc. 1997 Stock Option Plan (the "1997 Stock Option Plan"), which
was adopted by the Board of Directors on March 31, 1997. The purpose of the 1997
Stock Option Plan is to attract and retain key employees of and consultants to
the Company, to provide an incentive for them to achieve long-range performance
goals, and to enable them to participate in the long-term growth of the Company.
Under the 1997 Stock Option Plan, incentive stock options may be granted to
employees and officers of the Company or any present or future subsidiary and
non-qualified stock options may be granted to employees and officers of, and
consultants to the Company or any present or future subsidiary.
The Board of Directors recommends that the stockholders approve the
adoption of the 1997 Stock Option Plan. The affirmative vote of the holders of
at least a majority of the Common Stock voting in person or by proxy at the
meeting will be required for the approval of the 1997 Stock Option Plan. Set
forth below is a summary of the principal provisions of the 1997 Stock Option
Plan, the full text of which is set forth in Annex 1 to this Proxy Statement.
14
Administration
At the discretion of the Board of Directors, the 1997 Stock Option Plan
shall be administered by either the full Board of Directors or a committee of
the Board of Directors consisting of two or more members of the Company's Board
of Directors (the "Stock Option Administrator"). The members of the Stock Option
Administrator (if the full Board of Directors is not serving in this capacity)
are appointed by the Board of Directors and the Board of Directors may from time
to time appoint a member or members of the Stock Option Administrator in
substitution for or in addition to the member or members then in office and may
fill vacancies on the Stock Option Administrator however caused.
Eligibility
Subject to the provisions of the 1997 Stock Option Plan, the Stock Option
Administrator has the authority to select optionees and to determine the terms
of the options granted, including (i) the number of shares subject to each
option (ii) when the option becomes exercisable, (iii) the exercise price of the
option (which in the case of an incentive stock option cannot be less than the
fair market value of the Common Stock on the date of grant, or at least 110% of
the fair market value in the case of employees or officers holding 10% of the
total combined voting power of the Company), (iv) the duration of the option
(which in the case of an incentive stock option granted to employees or officers
holding 10% of the total combined voting power of the Company cannot be in
excess of five (5) years), and (v) the time, manner and form of payment upon
exercise of an option. Options designated as non-qualified options may be
granted to officers, key employees and key consultants engaged to provide
services to the Company or any of its subsidiaries. Directors who are not
otherwise employees of the Company or a subsidiary are not eligible to be
granted options pursuant to the 1997 Stock Option Plan.
In determining the eligibility of an individual to be granted an option, as
well as in determining the number of shares to be granted to any individual, the
Stock Option Administrator takes into account the position and responsibilities
of the individual being considered, the nature and value to the Company or its
subsidiaries of the individual's service and accomplishments, his or her present
and potential contribution to the success of the Company or its subsidiaries,
and such other factors as the Stock Option Administrator deems relevant.
Terms of Options
The total number of shares of authorized but unissued shares of Common
Stock for which options may be granted under the 1997 Stock Option Plan may not
exceed 1,300,000 shares, subject to adjustment described below. The maximum
number of shares of Common Stock with respect to which an option may be granted
to an employee in any taxable year of the Company may not exceed 1,300,000
shares. Options granted under the 1997 Stock Option Plan are exercisable at such
times and during such period as is set forth in the Option Agreement (as such
term is defined herein), but cannot have a term in excess of ten (10) years from
the date of grant. The Stock Option Administrator is entitled to accelerate the
date of exercise of any installment of any option except that, without the
consent of the optionee, the Stock Option Administrator shall not accelerate the
exercise date of any installment of any incentive stock option if such
acceleration would violate the annual vesting limitation contained in Section
422(d) of the Internal Revenue Code of 1986, as amended (the "Code"). Each
option will be evidenced by an option agreement (the "Option Agreement") duly
executed on behalf of the Company and by the optionee to whom such option is
granted. The Option Agreement may contain such provisions and conditions as may
be determined by the Stock Option Administrator, including the acceleration of
vesting in connection with any event or circumstance specified therein. The
option exercise price for options designated as non-qualified stock options
granted under the 1997 Stock Option Plan is determined by the Stock Option
Administrator. The option exercise price for incentive stock options granted
under the 1997 Stock Option Plan shall be no less than the fair market value of
the Company Common Stock at the time the option is granted. Options granted
under the 1997 Stock Option Plan may provide for the payment of the exercise
price by delivery of cash or a check payable to the Company or shares of Company
Common Stock owned by the optionee having a fair market value equal in amount to
the exercise price of the options being exercised, or any combination thereof.
The right of any optionee to exercise an option granted under the 1997
Stock Option Plan is not assignable or transferable by such optionee otherwise
than by will or the laws of descent and distribution or (solely with respect
to non-qualified stock options) pursuant to a qualified domestic relations
order, and any option shall be exercisable during the lifetime of such
optionee only by him or her.
15
Termination or Amendment of the 1997 Stock Option Plan
Unless sooner terminated, each option shall terminate ten (10) years from
the date of the granting thereof. The Board of Directors may at any time
terminate the 1997 Stock Option Plan or make such modification or amendment to
it as the Board of Directors deems advisable; provided, however, that the Board
of Directors may not, without stockholder approval, increase the maximum number
of shares for which options may be granted or change the designation of the
class of persons eligible to receive options under the 1997 Stock Option Plan or
make any other change in the 1997 Stock Option Plan which requires stockholder
approval under applicable law or regulations or any applicable rule or
regulation of any stock exchange or over-the-counter market on which the
Company's Common Stock is listed. The Stock Option Administrator may terminate,
amend or modify any outstanding option without the consent of the optionee;
provided, however, that without the consent of the optionee, the Stock Option
Administrator shall not change the number of shares subject to an option, or the
exercise price or term thereof.
Recapitalization; Reorganization
The 1997 Stock Option Plan provides that the number and kind of shares as
to which options may be granted thereunder, and as to which outstanding options
then unexercised shall be exercisable, shall be adjusted to prevent dilution in
the event of any reorganization or recapitalization (except as may be provided
in any Option Agreement), reclassification, stock subdivision, combination of
shares or dividends payable in capital stock. Upon dissolution or liquidation of
the Company, all options granted under the 1997 Stock Option Plan shall
terminate immediately prior to the consummation of such proposed action or at
such other time and subject to such other conditions as shall be determined by
the Stock Option Administrator.
Tax Effects
Options granted under the 1997 Stock Option Plan are intended to be either
incentive stock options, as defined in Section 422 of the Code, or nonqualified
stock options.
Incentive Stock Options. Except as provided below with respect to the
alternative minimum tax, the optionee will not recognize taxable income upon the
grant or exercise of an incentive stock option. If the optionee holds the shares
of Common Stock received pursuant to the exercise of the option for at least one
year after the date of exercise and for at least two years after the option is
granted, the optionee will recognize long-term capital gain or loss upon the
disposition of the Common Stock measured by the difference between the option
exercise price (the stock's basis) and the amount received for such shares upon
disposition.
In the event that the optionee disposes of the Common Stock prior to the
expiration of the required holding periods (a "disqualifying disposition"), the
optionee generally will realize ordinary income equal to the difference between
the exercise price and the lower of the fair market value of the Common Stock at
the date of the option exercise or the sale price of the Common Stock. The basis
in the Common Stock acquired upon exercise of the option will equal the amount
of income recognized by the optionee plus the option exercise price. Upon
eventual disposition of the Common Stock, the optionee will recognize long-term
or short-term capital gain or loss, depending on the holding period of the
Common Stock and the difference between the amount realized by the optionee upon
disposition of the Common Stock and the optionee's basis in the Common Stock.
For alternative minimum tax purposes, the excess of the fair market value
of Common Stock on the date of the exercise of the incentive stock option over
the exercise price of the option is included in alternative minimum taxable
income for alternative minimum tax purposes. If the alternative minimum tax
applies to the optionee, an alternative minimum tax credit may reduce the
regular tax upon eventual disposition of the Common Stock.
The Company will not be allowed an income tax deduction upon the grant or
exercise of an incentive stock option. Upon a disqualifying disposition by the
optionee of shares acquired upon exercise of the incentive stock option, the
Company will be allowed a deduction in an amount equal to the ordinary income
recognized by the optionee.
Under the proposed regulations issued by the Internal Revenue Service, the
exercise of an option with previously acquired Common Stock of the Company will
be treated as, in effect, two separate transactions. Pursuant to Section 1036 of
the Code, the first transaction will be a tax-free exchange of the previously
acquired shares for the same number of new shares. The new shares will
16
retain the basis and, except, as provided below, the holding periods of the
previously acquired shares. The second transaction will be the issuance of
additional new shares having a value equal to the difference between the
aggregate fair market value of all of the new shares being acquired and the
aggregate option exercise price for those shares. Because the exercise of an
incentive stock option does not result in the recognition by the optionee of
income, this issuance will also be tax-free (unless the alternative minimum
tax applies, as described above). The optionee's basis in these additional
shares will be zero and the optionee's holding period for these shares will
commence on the date on which the shares are transferred. For purposes of the
one and two-year holding period requirements which must be met for favorable
incentive stock option tax treatment to apply, the holding periods of
previously acquired shares are disregarded.
Nonqualified Stock Options. As in the case of incentive stock options, no
income is recognized by the optionee on the grant of a nonqualified stock
option. On the exercise by an optionee of a nonqualified option, generally the
excess of the fair market value of the stock when the option is exercised over
its cost to the optionee will be (a) taxable to the optionee as ordinary income
and (b) deductible for income tax purposes by the Company. The optionee's tax
basis in the Common Stock will equal the cost for the Common Stock plus the
amount of ordinary income the optionee had to recognize with respect to the
nonqualified stock option.
The Internal Revenue Service will treat the exercise of a nonqualified
stock option with already owned Common Stock as two transactions. First, there
will be a tax-free exchange of the old shares for a like number of shares under
Section 1036 of the Code, with such exchanged shares retaining the basis and
holding periods of the old shares. Second, there will be an issuance of
additional new shares having a value equal to the difference between the fair
market value of all the new shares being acquired (including the exchanged
shares and the additional new shares) and the aggregate option price for those
shares. The employee will recognize ordinary income under Section 83 of the
Code, in an amount equal to the fair market value of the additional new shares
(i.e., the spread on the option). The additional new shares will have a basis
equal to the fair market value of the additional new shares.
Accordingly, upon a subsequent disposition of Common Stock acquired upon
the exercise of a nonqualified stock option, the optionee will recognize
short-term or long-term capital gain or loss, depending upon the holding period
of the Common Stock equal to the difference between the amount realized upon
disposition of the stock by the optionee and the optionee's basis in the stock.
For all options, different tax rules may apply if the optionee is subject
to Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL AND ADOPTION OF
THE FIRST ALERT, INC. 1997 STOCK OPTION PLAN.
ITEM 3 -- INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed Price Waterhouse LLP, as independent
accountants to audit the consolidated financial statements of the Company and
its subsidiaries for the fiscal year ending December 31, 1997. Price Waterhouse
LLP, certified public accountants, has served as independent accountants since
1992 to audit the financial statements of the Company.
A representative of Price Waterhouse LLP is expected to be present at the
meeting and will have the opportunity to make a statement if he or she so
desires and to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPOINTMENT OF PRICE
WATERHOUSE LLP.
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's officers and
directors and persons owning greater than 10% of the outstanding Company Common
Stock to file reports of ownership and changes in ownership with the Securities
and Exchange Commission. Officers, directors and persons owning greater than 10%
of the outstanding Company Common Stock are required by the Securities and
Exchange Commission regulations to furnish the Company with copies of all
Section 16(a) forms they file.
17
Based solely on copies of such forms furnished, as provided above, and
certificates from officers, directors and persons owning greater than 10% of
Company Common Stock, the Company believes that during fiscal year 1996 there
was compliance with all Section 16(a) filing requirements applicable to its
officers, directors and persons owning greater than 10% of Company Common Stock.
TIME FOR SUBMISSION OF STOCKHOLDER PROPOSALS
Under regulations adopted by the Securities and Exchange Commission, any
proposal submitted for inclusion in the Company's Proxy Statement relating to
the Annual Meeting of Stockholders to be held in 1998 must be received at the
Company's principal executive offices in Aurora, Illinois on or before December
7, 1997. Receipt by the Company of any such proposal from a qualified
stockholder in a timely manner will not ensure its inclusion in the proxy
material because there are other requirements in the proxy rules for such
inclusions.
In addition to the Securities and Exchange Commission requirements
regarding stockholder proposals, the Company's By-laws contain provisions
regarding matters to be brought before stockholder meetings. If such matters are
to be included in the Company's Proxy Statement and form of proxy, notice
thereof must be delivered to the Company in accordance with the Securities and
Exchange Commission requirements set forth in the paragraph above. If such
matters are not to be included in the Company's Proxy Statement and form of
proxy, notice of them must be given by personal delivery or by United States
mail, postage prepaid, to the Secretary of the Company on or before February 5,
1998.
OTHER MATTERS
Management knows of no matters which may properly be and are likely to be
brought before the meeting other than the matters discussed herein. However, if
any other matters properly come before the meeting, the persons named in the
enclosed proxy will vote in accordance with their best judgment.
The cost of this solicitation will be borne by the Company. It is expected
that the solicitation will be made primarily by mail, but regular employees or
representatives of the Company (none of whom will receive any extra compensation
for their activities) may also solicit proxies by telephone, telecopier and in
person and arrange for brokerage houses and other custodians, nominees and
fiduciaries to send proxies and proxy material to their principals at the
expense of the Company.
10-K REPORT
THE COMPANY WILL PROVIDE EACH BENEFICIAL OWNER OF ITS SECURITIES WITH A
COPY OF AN ANNUAL REPORT ON FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS AND
SCHEDULES THERETO, REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION FOR THE COMPANY'S MOST RECENT FISCAL YEAR, WITHOUT CHARGE, UPON
RECEIPT OF A WRITTEN REQUEST FROM SUCH PERSON. SUCH REQUEST SHOULD BE SENT TO
MICHAEL A. ROHL, VICE PRESIDENT AND CHIEF FINANCIAL OFFICER, FIRST ALERT, INC.,
P.O. BOX 68, AURORA, ILLINOIS, 60507-0068.
18
VOTING PROXIES
The Board of Directors recommends an affirmative vote on all proposals
specified. Proxies will be voted as specified. If signed proxies are returned
without specifying an affirmative or negative vote on any proposal, the shares
represented by such proxies will be voted in favor of the Board of Directors'
recommendations.
By order of the Board of Directors
HALDON K. GRANT
Secretary
April 7, 1997
19
ANNEX 1
FIRST ALERT, INC.
1997 STOCK OPTION PLAN
1. Purpose of the Plan. This stock option plan (the "Plan") is intended to
provide incentives: (a) to the officers and other employees of First Alert, Inc.
(the "Company") and any present or future subsidiaries of the Company by
providing them with opportunities to purchase stock in the Company pursuant to
options granted hereunder which qualify as "incentive stock options" under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") ("ISO"
or "ISOs"); and (b) to officers, employees and consultants of the Company and
any present or future subsidiaries by providing them with opportunities to
purchase stock in the Company pursuant to options granted hereunder which do not
qualify as ISOs ("Non-Qualified Option" or "Non-Qualified Options"). As used
herein, the terms "parent" and "subsidiary" mean "parent corporation" and
"subsidiary corporation," respectively, as those terms are defined in Section
424 of the Code and the Treasury Regulations promulgated thereunder (the
"Regulations").
2. Stock Subject to the Plan.
(a) The total number of shares of the authorized but unissued shares of the
common stock, $.01 par value, of the Company ("Common Stock") for which options
may be granted under the Plan shall not exceed 1,300,000 shares, subject to
adjustment as provided in Section 11 hereof.
(b) If an option granted hereunder shall expire or terminate for any reason
without having been exercised in full, the unpurchased shares subject thereto
shall again be available for subsequent option grants under the Plan.
(c) Stock issuable upon exercise of an option granted under the Plan may be
subject to such restrictions on transfer, repurchase rights or other
restrictions as shall be determined by the Committee (as defined in Section 3
below).
3. Administration of the Plan.
(a) At the discretion of the Board of Directors, the Plan shall be
administered either (i) by the full Board of Directors or (ii) by a committee
(the "Committee") consisting of two or more members of the Company's Board of
Directors. In the event that the Board of Directors is the administrator of the
Plan, references herein to the Committee shall be deemed to include the full
Board of Directors. The Board of Directors may from time to time appoint a
member or members of the Committee in substitution for or in addition to the
member or members then in office and may fill vacancies on the Committee however
caused. The Committee shall choose one of its members as Chairman and shall hold
meetings at such times and places as it shall deem advisable. A majority of the
members of the Committee shall constitute a quorum and any action may be taken
by a majority of those present and voting at any meeting. Any action may also be
taken without the necessity of a meeting by a written instrument signed by a
majority of the Committee. The decision of the Committee as to all questions of
interpretation and application of the Plan shall be final, binding and
conclusive on all persons. The Committee shall have the authority to adopt,
amend and rescind such rules and regulations as, in its opinion, may be
advisable in the administration of the Plan. The Committee may correct any
defect or supply any omission or reconcile any inconsistency in the Plan or in
any option agreement granted hereunder in the manner and to the extent it shall
deem expedient to carry the Plan into effect and shall be the sole and final
judge of such expediency. No Committee member shall be liable for any action or
determination made in good faith.
(b) Subject to the terms of the Plan, the Committee shall have the
authority to (i) determine the employees of the Company and its subsidiaries
(from among the class of employees eligible under Section 4 to receive ISOs)
to whom ISOs may be granted, and to determine (from the class of individuals
eligible under Section 4 to receive Non-Qualified Options) to whom
Non-Qualified Options may be granted; (ii) determine the time or times at
which options may be granted; (iii) determine the option price of shares
subject to each option which price shall not be less than the minimum price
specified in Section 6; (iv) determine whether each option granted shall be an
ISO or a Non-Qualified Option; (v) determine (subject to Section 9) the time
or times when each option shall become exercisable and the duration of the
exercise period; and (vi) determine whether restrictions such as repurchase
options are to be imposed on shares subject to options and the nature of such
restrictions.
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4. Eligibility.
(a) Options designated as ISOs may be granted only to employees (including
officers who are employees) of the Company or of any of its subsidiaries.
Non-Qualified Options may be granted to any officer, employee, or consultant of
the Company or of any of its subsidiaries.
(b) Directors who are not otherwise employees of the Company or a
subsidiary shall not be eligible to be granted an option pursuant to the Plan.
(c) In determining the eligibility of an individual to be granted an
option, as well as in determining the number of shares to be optioned to any
person, the Committee shall take into account the position and responsibilities
of the person being considered, the nature and value to the Company or its
subsidiaries of his or her service and accomplishments, his or her present and
potential contribution to the success of the Company or its subsidiaries, and
such other factors as the Committee may deem relevant.
(d) No option designated as an ISO shall be granted to any employee of the
Company or any subsidiary if such employee owns, immediately prior to the grant
of an option, stock representing more than 10% of the total combined voting
power of all classes of stock of the Company or a parent or a subsidiary, unless
the purchase price for the stock under such option shall be at least 110% of its
fair market value at the time such option is granted and the option, by its
terms, shall not be exercisable more than five years from the date it is
granted. In determining the stock ownership under this paragraph, the provisions
of Section 424(d) of the Code shall be controlling. In determining the fair
market value under this paragraph, the provisions of Section 6 hereof shall
apply.
(e) The maximum number of shares of Common Stock with respect to which an
Option may be granted to any employee in any taxable year of the Company shall
not exceed 1,300,000 shares, taking into account shares subject to options
granted and terminated, or repriced, during such taxable year, subject to
adjustment as provided in Section 11 hereof.
5. Option Agreement. Each option shall be evidenced by an option agreement
(the "Agreement") duly executed on behalf of the Company and by the optionee to
whom such option is granted, which Agreement shall comply with and be subject to
the terms and conditions of the Plan. The Agreement may contain such other
terms, provisions and conditions which are not inconsistent with the Plan as may
be determined by the Committee, provided that options designated as ISOs shall
meet all of the conditions for ISOs as defined in Section 422 of the Code. The
date of grant of an option shall be as determined by the Committee. More than
one option may be granted to an individual.
6. Option Price. The option price or prices of shares of the Company's
Common Stock for options designated as NonQualified Options shall be as
determined by the Committee, but in no event shall the option price be less than
the minimum legal consideration required therefor under the laws of the State of
Delaware or the laws of any jurisdiction in which the Company or its successors
in interest may be organized. The option price or prices of shares of the
Company's Common Stock for ISOs shall be the fair market value of such Common
Stock at the time the option is granted as determined by the Committee in
accordance with the Regulations promulgated under Section 422 of the Code. If
such shares are then listed on any national securities exchange, the fair market
value shall be the mean between the high and low sales prices, if any, on such
exchange on the date of the grant of the option or, if none, shall be determined
by taking a weighted average of the means between the highest and lowest sales
prices on the nearest date before and the nearest date after the date of grant
in accordance with Treasury Regulations Section 25.2512-2. If the shares are not
then listed on any such exchange, the fair market value of such shares shall be
the mean between the high and low sales prices, if any, as reported in The
Nasdaq National Market for the date of the grant of the option, or, if none,
shall be determined by taking a weighted average of the means between the
highest and lowest sales on the nearest date before and the nearest date after
the date of grant in accordance with Treasury Regulations Section 25.2512-2. If
the shares are not then either listed on any such exchange or quoted in The
Nasdaq National Market, the fair market value shall be the mean between the
average of the "Bid" and the average of the "Ask" prices, if any, as reported in
the National Daily Quotation Service for the date of the grant of the option,
or, if none, shall be determined by taking a weighted average of the means
between the highest and lowest sales prices on the nearest date before and the
nearest date after the date of grant in accordance with Treasury Regulations
Section 25.2512-2. If the fair market value cannot be determined under the
preceding three sentences, it shall be determined in good faith by the
Committee.
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7. Manner of Payment; Manner of Exercise.
(a) Options granted under the Plan may provide for the payment of the
exercise price by delivery of (i) cash or a check payable to the order of the
Company in an amount equal to the exercise price of such options, (ii) shares of
Common Stock of the Company owned by the optionee having a fair market value
equal in amount to the exercise price of the options being exercised, or (iii)
any combination of (i) and (ii), provided, however, that payment of the exercise
price by delivery of shares of Common Stock of the Company owned by such
optionee may be made only under such circumstances and on such terms as may from
time to time be established by the Committee and only if provided for in the
Agreement. The fair market value of any shares of the Company's Common Stock
which may be delivered upon exercise of an option shall be determined by the
Committee in accordance with Section 6 hereof. Payment may also be made by
delivery of a properly executed exercise notice to the Company, together with a
copy of irrevocable instructions to a broker to deliver promptly to the Company
the amount of sale or loan proceeds to pay the exercise price if provided for in
the Agreement. To facilitate the foregoing, the Company may enter into
agreements for coordinated procedures with one or more brokerage firms.
(b) To the extent that the right to purchase shares under an option has
accrued and is in effect, options may be exercised in full at one time or in
part from time to time, by giving written notice, signed by the person or
persons exercising the option, to the Company, stating the number of shares with
respect to which the option is being exercised, accompanied by payment in full
for such shares as provided in subparagraph (a) above. Upon such exercise,
delivery of a certificate for paid-up non-assessable shares shall be made at the
principal office of the Company to the person or persons exercising the option
at such time, during ordinary business hours, after ten business days from the
date of receipt of the notice by the Company, as shall be designated in such
notice, or at such time, place and manner as may be agreed upon by the Company
and the person or persons exercising the option.
8. Exercise of Options. Subject to the provisions of paragraphs 9 through
11, each option granted under the Plan shall be exercisable as follows:
(a) Vesting. The option shall either be fully exercisable on the date of
grant or shall become exercisable thereafter in such installments as the
Committee may specify;
(b) Full Vesting of Installments. Once an installment becomes exercisable
it shall remain exercisable until expiration or termination of the option,
unless otherwise specified by the Committee;
(c) Partial Exercise. Each option or installment may be exercised at any
time or from time to time, in whole or in part, for up to the total number of
shares with respect to which it is then exercisable; and
(d) Acceleration of Vesting. The Committee shall have the right to
accelerate the date of exercise of any installment of any option; provided that
the Committee shall not, without the consent of an optionee, accelerate the
exercise date of any installment of any option granted to any employee as an ISO
if such acceleration would violate the annual vesting limitation contained in
Section 422(d) of the Code. The Committee, in its sole discretion, shall have
the right to provide in any Agreement for the acceleration of the date of
exercise of any installment of any option granted hereunder upon the occurrence
of any event or circumstance as the Committee shall determine.
9. Term of Options; Exercisability.
(a) Term. Each option shall expire not more than ten (10) years from the
date of the granting thereof, but shall be subject to earlier termination as may
be provided in any Agreement evidencing an option granted hereunder.
(b) Exercisability. An option granted to an employee optionee who ceases to
be an employee of the Company or one of its subsidiaries shall be exercisable
only to the extent that the right to purchase shares under such option has
accrued and is in effect on the date such optionee ceases to be an employee of
the Company or one of its subsidiaries.
10. Options Not Transferable. Options granted under the Plan and the right
of any optionee to exercise any option granted to him or her shall not be
assignable or transferable by such optionee otherwise than by will or the laws
of descent and distribution, and any such option shall be exercisable during the
lifetime of such optionee only by him or her. Any option granted under the Plan
shall be null and void and without effect upon any attempted assignment or
transfer, except as herein provided, including without limitation
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any purported assignment, whether voluntary or by operation of law, pledge,
hypothecation or other disposition, attachment, divorce, trustee process or
similar process, whether legal or equitable, upon such option.
11. Adjustments.
(a) Upon the occurrence of any of the following events, an optionee's
rights with respect to options granted to him or her hereunder shall be adjusted
as hereinafter provided, unless otherwise specifically provided in the written
agreement between the optionee and the Company relating to such option:
(i) Stock Dividends and Stock Splits. If the shares of Common Stock shall
be subdivided or combined into a greater or smaller number of shares or if the
Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock deliverable upon
the exercise of options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend; and
(ii) Recapitalization or Reorganization. In the event of a recapitalization
or reorganization of the Company (except as otherwise provided in any Agreement)
pursuant to which securities of the Company or of another corporation are issued
with respect to the outstanding shares of Common Stock, an optionee upon
exercising an option shall be entitled to receive for the purchase price paid
upon such exercise the securities the optionee would have received if the
optionee had exercised the option prior to such recapitalization or
reorganization.
(iii)Modification of ISOs. Notwithstanding the foregoing, any adjustments
made pursuant to subparagraphs (i) or (ii) with respect to ISOs shall be made
only after the Committee, after consulting with counsel for the Company,
determines whether such adjustments would constitute a "modification" of such
ISOs (as that term is defined in Section 424 of the Code) or would cause any
adverse tax consequences for the holders of such ISOs. If the Committee
determines that such adjustments made with respect to ISOs would constitute a
modification of such ISOs, it may refrain from making such adjustments.
(iv) Dissolution or Liquidation. In the event of the proposed dissolution
or liquidation of the Company, each option will terminate immediately prior to
the consummation of such proposed action or at such other time and subject to
such other conditions as shall be determined by the Committee.
(v) Issuances of Securities. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
subject to options. No adjustments shall be made for dividends paid in cash or
in property other than securities of the Company.
(vi) Fractional Shares. No fractional share shall be issued under the Plan
and the optionee shall receive from the Company cash in lieu of such fractional
shares.
(vii) Adjustments. Upon the happening of any of the events described in
subparagraphs (i) or (ii) above, the class and aggregate number of shares set
forth in Section 2 and Section 4 hereof that are subject to options which
previously have been or subsequently may be granted under the Plan shall also
be appropriately adjusted to reflect the events described in such
subparagraphs. The Committee or the Successor Board shall determine the
specific adjustments to be made under this paragraph 11 and, subject to
Section 3, its determination shall be conclusive.
(b) If any person or entity owning restricted Common Stock obtained by
exercise of an option made hereunder receives shares or securities or cash in
connection with a corporate transaction described in subparagraphs (i) or (ii)
above as a result of owning such restricted Common Stock, such shares or
securities or cash shall be subject to all of the conditions and restrictions
applicable to the restricted Common Stock with respect to which such shares or
securities or cash were issued, unless otherwise determined by the Committee or
the Successor Board.
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12. No Special Employment Rights. Nothing contained in the Plan or in any
option granted under the Plan shall confer upon any option holder any right with
respect to the continuation of his employment by the Company (or any subsidiary)
or interfere in any way with the right of the Company (or any subsidiary),
subject to the terms of any separate employment agreement to the contrary, at
any time to terminate such employment or to increase or decrease the
compensation of the option holder from the rate in existence at the time of the
grant of an option. Whether an authorized leave of absence, or absence in
military or government service, shall constitute termination of employment shall
be determined by the Committee at the time.
13. Withholding. The Company's obligation to deliver shares upon the
exercise of any Option granted under the Plan shall be subject to the option
holder's satisfaction of all applicable Federal, state and local income, excise,
employment and any other tax withholding requirements. The Company and employee
may agree to withhold shares of Common Stock purchased upon exercise of an
option to satisfy the above-mentioned withholding requirements. The option
holder may satisfy the foregoing condition by electing to have the Company
withhold from delivery shares having a value equal to the amount of tax to be
withheld in the manner set forth in the Agreement and in compliance with such
rules and regulations as determined by the Committee from time to time. The
Committee shall also have the right to require that shares be withheld from
delivery to satisfy such condition.
14. Restrictions on Issue of Shares.
(a) Notwithstanding the provisions of Section 7, the Company may delay the
issuance of shares covered by the exercise of an option and the delivery of a
certificate for such shares until one of the following conditions shall be
satisfied:
(i) The shares with respect to which such option has been exercised are at
the time of the issue of such shares effectively registered or qualified under
applicable Federal and state securities acts now in force or as hereafter
amended; or
(ii) Counsel for the Company shall have given an opinion, which opinion
shall not be unreasonably conditioned or withheld, that such shares are exempt
from registration and qualification under applicable Federal and state
securities acts now in force or as hereafter amended.
(b) It is intended that all exercises of options shall be effective, and
the Company shall use its best efforts to bring about compliance with the above
conditions within a reasonable time, except that the Company shall be under no
obligation to qualify shares or to cause a registration statement or a
post-effective amendment to any registration statement to be prepared for the
purpose of covering the issue of shares in respect of which any option may be
exercised, except as otherwise agreed to by the Company in writing.
15. Purchase for Investment; Rights of Holder on Subsequent Registration.
Unless the shares to be issued upon exercise of an option granted under the Plan
have been effectively registered under the Securities Act of 1933, as now in
force or hereafter amended, the Company shall be under no obligation to issue
any shares covered by any option unless the person who exercises such option, in
whole or in part, shall give a written representation and undertaking to the
Company which is satisfactory in form and scope to counsel for the Company and
upon which, in the opinion of such counsel, the Company may reasonably rely,
that he or she is acquiring the shares issued pursuant to such exercise of the
option for his or her own account as an investment and not with a view to, or
for sale in connection with, the distribution of any such shares, and that he or
she will make no transfer of the same except in compliance with any rules and
regulations in force at the time of such transfer under the Securities Act of
1933, or any other applicable law, and that if shares are issued without such
registration, a legend to this effect may be endorsed upon the securities so
issued. In the event that the Company shall, nevertheless, deem it necessary or
desirable to register under the Securities Act of 1933 or other applicable
statutes any shares with respect to which an option shall have been exercised,
or to qualify any such shares for exemption from the Securities such information
in writing for use in any registration statement, supplementary registration
statement, prospectus, preliminary prospectus or offering circular as is
reasonably necessary for such purpose and may require reasonable indemnity to
the Company and its officers and directors and controlling persons from such
holder against all losses, claims, damages and liabilities arising from such use
of the information so furnished and caused by any untrue statement of any
material fact therein or caused by the omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made.
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16. Loans. The Company may make loans to optionees to permit them to
exercise options. If loans are made, the requirements of all applicable Federal
and state laws and regulations regarding such loans must be met.
17. Modification of Outstanding Options. The Committee may authorize the
amendment of any outstanding option with the consent of the optionee when and
subject to such conditions as are deemed to be in the best interests of the
Company and in accordance with the purposes of this Plan.
18. Approval of Stockholders. The Plan shall be subject to approval by the
vote of stockholders holding at least a majority of the voting stock of the
Company present, or represented, and entitled to vote at a duly held
stockholders' meeting, or by written consent of stockholders holding at least a
majority of the voting stock of the Company, within twelve (12) months after the
adoption of the Plan by the Board of Directors and shall take effect as of the
date of adoption by the Board of Directors upon such approval. The Committee may
grant options under the Plan prior to such approval, but any such option shall
become effective as of the date of grant only upon such approval and,
accordingly, no such option may be exercisable prior to such approval.
19.Termination and Amendment. Unless sooner terminated as herein provided,
the Plan shall terminate ten (10) years from the date upon which the Plan was
duly adopted by the Board of Directors of the Company. The Board of Directors
may at any time terminate the Plan or make such modification or amendment
thereof as it deems advisable; provided, however, that except as provided in
this Section 19, the Board of Directors may not, without the approval of the
stockholders of the Company obtained in the manner stated in Section 18,
increase the maximum number of shares for which options may be granted or change
the designation of the class of persons eligible to receive options under the
Plan, or make any other change in the Plan which requires stockholder approval
under applicable law or regulations or any applicable rule or regulation of any
stock exchange or over-the-counter market on which the Company's Common Stock is
then listed. The Committee may grant options under the Plan prior to such
approval, but any such option shall become effective as of the date of grant
only upon such approval and, accordingly, no such option may be exercisable
prior to such approval. The Committee may terminate, amend or modify any
outstanding option without the consent of the option holder, provided, however,
that, except as provided in Section 11, without the consent of the optionee, the
Committee shall not change the number of shares subject to an option, nor the
exercise price thereof, nor extend the term of such option.
20. Reservation of Stock. The Company shall at all times during the term of
the Plan reserve and keep available such number of shares of stock as will be
sufficient to satisfy the requirements of the Plan and shall pay all fees and
expenses necessarily incurred by the Company in connection therewith.
21. Limitation of Rights in the Option Shares. An optionee shall not be
deemed for any purpose to be a stockholder of the Company with respect to any of
the options except to the extent that the option shall have been exercised with
respect thereto and, in addition, a certificate shall have been issued
theretofore and delivered to the optionee.
22. Notices. Any communication or notice required or permitted to be given
under the Plan shall be in writing, and mailed by registered or certified mail
or delivered by hand, if to the Company, to its principal place of business,
attention: President, and, if to an optionee, to the address as appearing on the
records of the Company.
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