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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
COMMISSION FILE NUMBER 0-23630

FIRST ALERT, INC.
(Exact name of Registrant as specified in its charter)

DELAWARE 04-3157075
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)

3901 LIBERTY STREET ROAD, AURORA, ILLINOIS 60504-8122
(Address, including zip code, of Registrant's principal executive office)

(630) 851-7330
(Registrant's telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes / X / No / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements,
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K / X /.

The aggregate market value of the voting stock held by non-affiliates of
the Registrant totaled $27,645,388 (based on the closing price of the Company's
Common Stock on the Nasdaq Stock Market (National Market) on March 18, 1997).

As of March 18, 1997, there were 24,183,116 shares outstanding of the
Company's Common Stock ($0.01 par value).

DOCUMENTS INCORPORATED BY REFERENCE

Certain parts of the Registrant's 1996 Annual Report to Stockholders are
incorporated by reference into Parts I, II and IV of this report.

Certain parts of the Registrant's definitive Proxy Statement dated April 7,
1997 are incorporated by reference into Part III of this report.

Exhibit Index on page 19.

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FIRST ALERT, INC.

FORM 10-K

FISCAL YEAR ENDED DECEMBER 31, 1996

INDEX

PAGE
----

PART I
Item 1. Business..................................................................... 1

Item 2. Properties................................................................... 9
Item 3. Legal Proceedings............................................................ 10
Item 4. Submission of Matters to a Vote of Security Holders.......................... 11

PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........ 11
Item 6. Selected Financial Data...................................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operation................................................................... 12
Item 8. Financial Statements and Supplementary Data.................................. 15
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial.... 15

PART III
Item 10. Directors and Executive Officers of the Registrant........................... 16
Item 11. Executive Compensation....................................................... 16
Item 12. Security Ownership of Certain Beneficial Owners and Management............... 16
Item 13. Certain Relationships and Related Transactions............................... 16

PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............. 16

PART I

THE COMPANY

The Company was formed in 1992 by Thomas H. Lee Company ("THL Co.") and
senior management of the Company to purchase, through its wholly-owned
subsidiary BRK Brands, Inc. ("BRK Brands"), substantially all of the assets and
to assume substantially all of the liabilities of the BRK Electronics Division
of Pittway Corporation ("Pittway") and to acquire from Pittway all of the
capital stock of various foreign entities engaged in businesses related to
Pittway's BRK Electronics Division (the "Predecessor Company"). The acquisition
of the Predecessor Company by the Company (the "Acquisition") was consummated as
of July 31, 1992. In connection with the Acquisition, Pittway received from the
Company consideration of approximately $92.5 million, including Common Stock of
the Company, then valued at $5.0 million, all of which was sold by Pittway
Intellectual Property Corp. ("PIPCO") in the Company's initial public offering
of Common Stock which was consummated on April 5, 1994.

BUSINESS

ITEM 1.

The Company, through its subsidiaries, is a leading manufacturer and
marketer of a broad range of residential safety products, anchored by its
leadership position in the United States residential smoke detector market. The
Company's market position is supported by the strength of the First Alert(R)
brand name, which the Company believes is the most widely recognized consumer
brand in the home safety business. The Company has capitalized on the First
Alert(R) brand name and its leading smoke detector market share to develop and
market a broad range of residential safety products, including carbon monoxide
detectors, fire extinguishers, rechargeable flashlights and lanterns, electronic
and electromechanical timers, nightlights, fire safes and chests, radon gas
detectors, fire escape ladders, child safety products and motion sensing
lighting controls. This broad product line enables the Company to position
itself with retailers and consumers as a residential safety products provider
and to stimulate incremental sales by cross-marketing its various products. The
Company's most significant addition to its product line is the First Alert(R)
carbon monoxide detector which was introduced in September 1993. In response to
the October 1, 1995 revisions to the Underwriters Laboratories Inc. ("UL")
Safety Standard 2034, the Company introduced two new carbon monoxide detectors
in August 1995. In 1996, the Company introduced a plug in carbon monoxide
detector with a digital readout that allows the consumer to know the level of
carbon monoxide that is present. The Company's carbon monoxide detectors are
designed to detect and provide an early warning against potentially harmful
concentrations of carbon monoxide in the home.

MARKET OVERVIEW

United States Residential Safety Market

Smoke Detectors. The U.S. market for smoke detectors has grown
significantly over the last twenty years with growth fueled by a combination of
increased public awareness of the value of smoke detectors and by state and
local governments enacting legislation requiring the installation of smoke
detectors and in some cases an increased number of smoke detectors per
residence. Independent studies completed in late 1994 indicate that
approximately 92% of households in the United States have one or more smoke
detectors, up from approximately 10% in 1975. Although multiple smoke detectors
can decrease the risk of death due to fire, the U.S. Consumer Product Safety
Commission (the "CPSC") estimates that only 41% of U.S. households have more
than one smoke detector and only 13% have three or more smoke detectors.

The market for residential smoke detectors developed in the 1970s based on
the effectiveness of smoke detectors as an early warning in the event of a fire.
During this period, state and local governments enacted building codes requiring
the installation of residential smoke detectors. In 1978, the National Fire
Protection Association ("NFPA") recommended that a smoke detector be installed
on every level of a residence. In June 1992, NFPA released results of a ten year
study (1981-1990) which indicated that the death rate for individuals in a fire
decreased by 42% in those areas where a smoke detector was present.

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The trend to increasingly stringent smoke detector requirements is
continuing as more governmental entities adopt legislation and as legislation
increasingly covers existing as well as new homes and mandates more smoke
detectors per residence.

Moreover, regional building associations which publish model codes for new
and existing homes such as the Uniform Building Code, the National Building Code
and the One and Two Family Dwelling Code, have enacted guidelines generally
recommending that smoke detectors be installed in or near every sleeping room
and/or on every level.

Carbon Monoxide Detectors. Carbon monoxide detectors have not yet
experienced the market penetration experienced by smoke detectors or fire
extinguishers. Prior to 1994, consumer awareness of the dangers of carbon
monoxide poisoning was low. Since 1994, several highly publicized incidents of
deaths from carbon monoxide poisoning have heightened public awareness of the
dangers of carbon monoxide. In addition, a small number of municipalities,
including the City of Chicago, have passed carbon monoxide detector ordinances
for residential usage.

Carbon monoxide detectors have been subject to scrutiny, notably in
Chicago, where in late 1994 public officials questioned the performance of
carbon monoxide detectors, particularly the sensitivity of the First Alert(R)
product to lower concentrations of carbon monoxide gas.

Carbon monoxide is produced by the incomplete combustion of fuel. Any
device which burns fuel, such as a stove, lamp, furnace, water heater, fireplace
or space heater, is a potential source of harmful carbon monoxide. The CPSC has
recommended that consumers purchase and install at least one carbon monoxide
detector in every household, near the sleeping area.

UL amended the standard for carbon monoxide detectors, all aspects of which
were effective by October 1, 1995. In August 1995, the Company introduced two
new carbon monoxide detectors, both of which complied with the new UL standard.
In 1996, the Company introduced a plug in carbon monoxide detector with a
digital readout that allows the consumer to know the level of carbon monoxide
that is present.

Fire Extinguishers. Over the last several years, fire extinguishers have
also become a key element of residential safety for consumers. The Company is
one of the leading participants in the United States retail fire extinguisher
market. During 1996, the Company introduced a new line of fire extinguishers
with a pressure gauge to be marketed under the SureGrip(TM) brand name. The
Company believes that introduction of innovative new products and expanding into
new markets will help to increase demand for fire extinguishers.

International Residential Safety Markets

The Company believes that in general the markets for residential smoke
detectors outside the United States are in a much earlier stage of development
than the United States market, and the level of development varies greatly from
country to country. Market penetration is greatest in the United Kingdom and
Canada, where the Company estimates approximately 77% and 94% of households,
respectively, have at least one smoke detector. These penetration rates,
however, are not necessarily reflective of the market for residential smoke
detectors in other developed countries such as France, Germany and Japan.
Currently, the Company estimates that the use of smoke detectors in these
countries is generally less than 5%.

In 1987, the well-publicized King's Cross London Underground Station fire
stimulated consumer interest in residential fire safety products in the United
Kingdom. In mid-1990, the United Kingdom became the first European Community
country to adopt a residential smoke detector standard. In June 1992, building
regulations in England and Wales enacted by the Department of the Environment
and the Welsh office became effective requiring the placement of smoke detectors
on every level of new dwellings. The Company believes that the implementation of
these regulations, along with educational advertising by the government, fire
departments, and manufacturers in the wake of the King's Cross fire, were the
primary reasons for the increase in the number of U.K. households with smoke
detectors from an estimated 13% in 1988 to an estimated 77% in 1996.

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The Company believes that adoption of building standards, together with
promotion of consumer awareness of fire safety and the value of smoke detectors,
will serve eventually to increase residential smoke detector usage throughout
Europe. Since local political and cultural factors also affect the market
acceptance of smoke detectors in these international markets, it is difficult to
determine the extent or timing of their market acceptance.

Management intends to focus its attention on selected developed countries
and to stimulate and capitalize on increased international demand for
residential safety-related products in those countries. A new management team
was installed in Europe in 1995 and 1996 to assist the Company in implementing
this strategy.

PRODUCTS

Smoke Detectors. The Company's smoke detector product line for residential
application, consisting of UL listed photoelectric and ionization smoke
detectors, was launched in the late 1960s.

The Company markets its smoke detectors under three principal brand names.
The First Alert(R) brand name is the Company's advertised premium brand and is
featured in media and public relations promotional campaigns. Through the First
Alert(R) brand, the Company offers a full line of smoke detectors, featuring a
variety of options such as a patented light-activated test feature, a unit
specifically designed for the hearing impaired and the only UL Listed ten year
smoke detector. The Company also offers its Family Gard(R) brand as a lower
priced, basic function alternative for those consumers who are price sensitive,
thereby affording retailers the opportunity to offer a full range of
price-points through one supplier.

The Company also offers a variety of smoke detectors under the BRK(R) brand
name which it sells into the electrical wholesale market. Through this brand,
the Company is able to offer its products to contractors who install the
Company's products in new and remodeled homes.

Carbon Monoxide Detectors. In September 1993, the Company introduced its
first carbon monoxide detector in the United States under the First Alert(R)
brand name. The Company introduced two new carbon monoxide detectors in August
1995, both designed to meet the October 1, 1995 revisions to UL Safety Standard
2034. One new carbon monoxide detector is an easy-to-install, nine-volt battery
operated carbon monoxide detector with a two-stage alarm that provides early
warnings at low levels of carbon monoxide and a full alarm at higher levels.
This carbon monoxide detector incorporates a biomimetic sensor specially
designed to replicate the human response to the presence of carbon monoxide in
the blood stream and thus alert the user to possible dangerous levels of this
colorless, odorless gas, the inhalation of which, in moderate quantities, can
lead to flu-like symptoms and which, in excessive quantities, can lead to death.
This sensor is contained in an easily removable unit which requires replacement,
in general, every three years. The other new carbon monoxide detector uses a tin
oxide technology. This model is calibrated at four levels, for long-term
accuracy and reliability and it is easily installed on any standard electrical
outlet. Audible and visual warning signals indicate both low and higher
concentrations of carbon monoxide. In 1996, the Company introduced a plug in,
tin oxide carbon monoxide detector with a digital readout that allows the
consumer to know the level of carbon monoxide that is present, and a Family
Gard(R) carbon monoxide detector with a biomimetic sensor.

The Company believes that its carbon monoxide detectors have helped to
create an important new consumer product category given the increasing consumer
awareness of the dangers of accidental carbon monoxide inhalation, the ease of
installation and the attractive retail price points of the Company's product.
The CPSC has recommended that consumers purchase and install at least one carbon
monoxide detector, near the sleeping area. Management estimates that less than
15% of all households in the United States are equipped with a carbon monoxide
detector.

Fire Extinguishers. The Company's disposable fire extinguisher product
line was introduced in 1985 to complement its First Alert(R) brand smoke
detectors and evidences the Company's commitment and ability to leverage the
First Alert(R) brand name into other residential safety-related product
categories. The Company currently markets a full range of fire extinguisher
products for use by the consumer, including fire extinguishers for use in the
kitchen, garage, workshop, automobile and boat. In 1996, the Company redesigned
its fire extinguisher line to include a pressure gauge and be marketed under a
new SureGrip(TM) brand name.

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Other Residential Products. The Company has extended its product line to
create a broad category of safety-related products. The following products are
marketed through the Company's existing distribution channels in conjunction
with its smoke detectors, carbon monoxide detectors and fire extinguishers:

- Fire escape ladders;

- Fire security safes and chests;

- Child safety products;

- Rechargeable flashlights and lanterns;

- Photoelectric nightlights;

- Electronic and electromechanical timers which permit the automatic
activation of lights and other electrical appliances;

- Passive infrared motion sensors which facilitate the automatic
operation of exterior and interior lighting; and

- Radon and other gas detectors which alert the user to the presence of
potentially harmful gases which either occur naturally or as a result
of leakage.

The following table sets forth the percentages of the Company's net sales
for its product categories for the three years ended December 31:

1996 1995 1994
----- ----- -----

Fire Safety........................................... 58.3% 56.2% 50.1%
Home Safety........................................... 35.5% 38.1% 44.1%
Home Lighting Security................................ 6.2% 5.7% 5.8%
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====

The Fire Safety Product Category includes net sales of smoke detectors,
fire extinguishers, fire escape ladders and fire security safes and chests.

The Home Safety Product Category includes net sales of carbon monoxide
detectors, rechargeable lights and lanterns, radon gas detectors and child
safety products.

The Home Lighting Security Product Category includes net sales of
nightlights, timers and passive infrared motion-sensing home lighting controls.

PRODUCT DEVELOPMENT

The Company directs its product development efforts towards extensions of
its existing product categories with feature enhancements and the identification
and development of new residential safety product categories. The Company
conducts ongoing product identification and development activities spearheaded
by its marketing staff. In certain circumstances, the Company engages third
parties to provide or to assist in the development of specific products. In
1994, 1995 and 1996, the Company's research and development expenditures were
approximately $1.6 million, $2.9 million and $3.1 million, respectively. To
facilitate its product development efforts, the Company actively participates in
fire research projects, including those sponsored by the NFPA and other
residential safety-related projects.

In addition to carbon monoxide detectors, First Alert(R) product
introductions since 1993 include: (i) a smoke detector with a non-removable ten
year battery; (ii) a line of electromechanical timers designed to complement its
line of electronic timers; (iii) a line of passive infrared motion sensors; (iv)
a smoke detector for the hearing impaired comprised of a strobe light and a
smoke detector in one unit; (v) a compact fire extinguisher with the fire
fighting rating of a larger unit; (vi) a line of fire security safes and chests;
(vii) fire escape ladders; (viii) a smoke detector with a battery that has a six
year life; (ix) child safety products; and (x) new SureGrip(TM) gauged fire
extinguishers.

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CUSTOMERS AND CUSTOMER RELATIONS

The Company sells its products to mass merchants, such as Wal-Mart, Kmart,
Target Stores and Sears; home center and hardware chains, such as Home Depot,
Lowe's, Builders Square, True Value/Cotter and Ace Hardware; catalog showrooms,
such as Service Merchandise; warehouse clubs, such as Price Club and Sam's; and
electrical wholesale distributors such as Graybar, Wesco and Grainger. In 1996,
net sales to Wal-Mart and Sam's, in the aggregate, represented approximately 15%
of the Company's net sales. The Company believes that its broad customer base
reduces its dependence on sales to any single customer. In addition, the Company
believes that the breadth of its product lines allows it to supply discounters,
warehouse clubs and full service retail establishments.

The Company also supplies its products to its wholly-owned, non-U.S.
subsidiaries and to independent foreign distributors, who in turn distribute the
Company's products to over 500 customers in over fifty (50) countries worldwide,
with the United Kingdom, Canada, Australia and the Scandinavian countries
currently representing the Company's principal foreign markets.

SALES ORGANIZATION

The Company's sales organization consists of a domestic retail division, an
electrical wholesale division and an international distribution division. The
Company's domestic retail sales division directly supervises sales to selected
national accounts and its five domestic retail regional sales managers supervise
approximately 50 commissioned sales representatives who call on domestic
retailers. The sales organization of the Company's electrical wholesale division
is comprised of a national sales manager and three regional managers who
supervise approximately 60 independent sales organizations which are responsible
for providing wholesale distributors and electrical contractors with the
Company's BRK(R) Electronics line of residential safety products. The Company
distributes its products in the United Kingdom, Canada and Australia through
sales organizations with local country managers and in all other international
markets through approximately 50 distributors under the supervision of three
international sales managers.

ADVERTISING AND PROMOTION

The Company promotes its products primarily through cooperative trade,
television, print and radio advertising. In 1996 and 1995, the Company spent
approximately $22.9 million and $33.3 million, respectively, for advertising.
The Company's principal 1996 promotions related to a national advertising
campaign aimed at promoting multiple usage of smoke detectors.

The Company supplements product advertising with public service campaigns
aimed at increasing residential safety awareness. These educational programs are
not limited to the dangers of fire and carbon monoxide, but also emphasize the
proper maintenance of the respective detectors. In this regard, the Company
associates itself with school, community, and national safety awareness programs
in order to stimulate consumer demand for safety-related consumer products. For
example, the Company's fire safety video, "Plan to Get Out Alive," which was
created with the assistance of the United States Fire Administration and in
conjunction with the New York affiliate of CBS News and McDonald's Corporation,
is used worldwide by fire officials and educators to teach people about the
dangers of fire and the benefits of meaningful precautions. "Project Get
Alarmed," developed in conjunction with the National SAFE KIDS Campaign and the
Company's "Junior Fire Inspector Program" bring the same fire safety education
message to children, the most frequent victims of home fires. The Company
periodically issues the HomeSafe & Sound Guide, created in conjunction with
Meredith Publications, publisher of Ladies Home Journal and Better Homes and
Gardens. The Guide, which is offered to consumers who buy the Company's
products, includes articles, ads and special offers which motivate readers to
make their homes safe. In addition, in recent years, insurance companies have
become active in public service campaigns which encourage the use and proper
maintenance of smoke detectors, and a major battery manufacturer has promoted
its products by reminding customers to replace smoke detector batteries at the
end of each annual daylight savings time period.

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GOVERNMENT REGULATION AND LITIGATION

The Company's products are subject to the provisions of the Federal
Consumer Product Safety Act (the "FCPS Act") and the rules and regulations
promulgated thereunder. The FCPS Act authorizes the Consumer Product Safety
Commission (the "CPSC") to protect the public against unreasonable risks of
injury associated with consumer products. The CPSC can require the repurchase or
recall by a manufacturer of its products and can impose fines or other penalties
in the event of violations of the FCPS Act. Similar laws exist in states and
municipalities and in foreign countries in which the Company markets its
products. There can be no assurance that the Company will not be required to, or
will not voluntarily, recall its products in the future. On September 8, 1995,
the Company received a Special Order and Subpoena from the CPSC for the
production of certain records and answers to questions relating to the sounding
mechanisms in the Company's smoke detectors. The Company has responded to these
requests and is cooperating with the CPSC in its investigation. Although the
Company believes that the CPSC investigation into smoke detectors will not have
a material adverse effect on the Company's financial condition or results of
operations, this investigation has not been formally closed and there can be no
assurance that this investigation will be resolved in favor of the Company. If
this investigation results in a recall of the Company's products, such recall
could have a material adverse effect on the Company's financial condition or
results of operations. Since the introduction of the Company's carbon monoxide
detector in 1993, there have been numerous reports of incidents of alleged false
or nuisance alarms regarding carbon monoxide detectors, including those
manufactured by the Company. Since March 1994, the Company has received two
requests for information from the CPSC with respect to these alleged false or
nuisance alarms by the Company's carbon monoxide detectors. Based on the nature
of the alleged problem, the Company does not believe that the CPSC investigation
into carbon monoxide detectors will have a material adverse effect on the
Company's financial condition or results of operations; however, there can be no
assurance that this investigation will be resolved in favor of the Company. If
this investigation results in a recall of the Company's products, such recall
could have a material adverse effect on the Company's financial condition or
results of operations.

The Company is subject to various federal, state and foreign laws and
regulations pertaining to the use of potentially dangerous materials, to the
discharge of materials into the environment or otherwise relating to the
protection of the environment, which may require the Company to allocate a
portion of its operating budget for use in ensuring its full compliance with
such regulations. The Company believes that it has complied in all material
respects with all such laws and regulations.

Because certain of the Company's products use a minute quantity of
radioactive material in the detection of the presence of smoke, the Company also
is subject to the oversight of the Nuclear Regulatory Commission ("NRC") and is
subject to various other federal, state and foreign laws and regulations
pertaining to such use. The Company has obtained a license from the NRC to
handle radioactive material in the amounts necessary to conduct its business in
the ordinary course. In order to maintain its license granted by the NRC, the
Company is required to comply with certain rules and regulations promulgated by
the NRC. The Company believes that it has complied in all material respects with
the rules and regulations applicable to it with respect to its use of
radioactive material. Proper and full compliance with the foregoing laws and
regulations in the future could result in a material financial burden on the
Company or failure to so comply could have a material adverse effect on the
Company's financial condition or results of operations.

The Company is subject to various claims brought against it for alleged
non-performance of its products. The Company maintains product liability
insurance and aggressively defends itself against all such claims. The Company's
insurance coverage and the insurance coverage maintained by Pittway on behalf of
the Predecessor Company is on an occurrence basis covering losses attributable
to injury to person or property during the policy period. Under the terms of the
purchase agreement relating to the Acquisition, the Company is required to
indemnify Pittway to the extent that Pittway's available insurance for claims
made after the Acquisition relating to occurrences prior to the Acquisition is
insufficient to satisfy such claims. The Company believes that Pittway's
insurance coverage in effect for periods prior to the Acquisition is no less
favorable in the aggregate than the insurance maintained by the Company since
the Acquisition; however Pittway's insurance coverage also covers the business
of Pittway unrelated to the Predecessor Company and claims asserted prior to the
Acquisition.

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COMPETITION

The Company believes that it competes on the basis of its ability to
provide a reasonably priced broad range of high quality residential safety
products. The Company's competition is fragmented across its product lines and,
accordingly, the Company does not compete with any one company across all
product lines. Although the Company is the leading manufacturer and marketer of
smoke detectors, the residential safety industry is highly competitive and
includes numerous domestic and foreign participants, some of whom are
substantially larger and have greater financial and other resources than the
Company. In addition, the Company's products compete to some extent with higher
priced AC powered residential security systems. To the extent that the
installation and maintenance expenses associated with such systems decline, the
Company may experience increased competition for its products from manufacturers
and marketers who traditionally have not competed with the Company.

TRADEMARKS AND PATENTS

The First Alert(R) trademark is owned by the First Alert Trust in which the
Company has a 75% beneficial interest. The Company entered into a license
agreement with the First Alert Trust and Pittway which permits the Company in
perpetuity and on an exclusive, royalty-free basis, to manufacture and market
under the First Alert(R) brand name any products other than products which are
designed to be monitored by an alarm or building control system or to work in
conjunction with a communications panel or other building control system
("Professional Products"). PIPCO owns the remaining 25% beneficial interest in
the First Alert Trust and Pittway is a party to such license agreement with the
First Alert Trust under which it has, in perpetuity, an exclusive, royalty free
license to manufacture and market Professional Products under the First Alert
Professional(R) and First Alert Professional Security System(R) brand names.
Either Pittway or the Company may terminate their further obligations and rights
under the license by providing notice to the other party.

The Company owns a number of trademarks that have been registered with the
United States Patent and Trademark Office, including BRK(R) and Family Gard(R).
The Company also owns a number of patents related to the design and manufacture
of its products.

In 1993, the Company entered into a seventeen year license agreement (the
"Quantum Agreement"), cancelable by either party after seven years, with Quantum
Group, Inc. ("Quantum") pursuant to which the Company obtained an exclusive
license to use and sell, in the United States, the patented biomimetic sensor
component of its carbon monoxide detector product in all markets other than the
United States original equipment manufacturer ("OEM") recreational vehicle
market. Pursuant to this agreement, the Company must pay Quantum a royalty based
upon a percentage of the Company's net sales attributable to the products which
contain the biomimetic sensor component licensed by Quantum. In addition, the
Company obtained and subsequently exercised an option to obtain similar licenses
covering all other international markets, except Japan. In April 1995, the
Company and Quantum amended the Quantum Agreement to (i) permit the Company to
offer products with sensors other than Quantum sensors, subject to the Company
ordering certain minimum quantities of Quantum sensors during 1995 and 1996
which orders would only be required if the detector incorporating such sensors
received a listing from UL by October 31, 1995, the date on which the amendment
to U.L. Safety Standard 2034, related to certain performance characteristics of
the detector, became effective (such listing was obtained); (ii) obligate the
Company to pay a royalty on all of its sales during 1995 and 1996 of detectors
containing non-Quantum sensors; (iii) make the license granted to the Company
under the original Quantum Agreement nonexclusive and permit Quantum to sell its
sensors to other parties, both effective January 1, 1997; and (iv) obligate
Quantum to continue to supply replacement sensors to the Company.

The Company aggressively seeks to protect its intellectual property, such
as trademarks, patents, product designs, manufacturing processes and new product
research and concepts. These rights are protected through the acquisition of
utility and design patents and trademark registrations, the maintenance of trade
secrets, the development of trade dress and, when necessary and appropriate,
litigation against those who, in the Company's opinion, are competing unfairly
with the Company. The Company also maintains stringent procedures to maintain
the secrecy of its confidential business information. These procedures include
the

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establishment of "need to know" criteria for the dissemination of certain
information and the use of written confidentiality agreements in cases where the
sharing of proprietary information with third parties is necessary.

The Company has received from time to time, and may receive in the future,
communications from third parties asserting intellectual property rights
relating to the Company's products and technologies. To date, licenses generally
have been available to the Company where third-party technology was necessary or
useful for development or manufacture of the Company's products. In the future,
however, there can be no assurance that third parties will not assert claims
against the Company with respect to existing or future products or that licenses
will be available on reasonable terms, or at all, with respect to any
third-party technology. If the Company is unable to obtain licenses of
third-party technology, it could be prohibited from manufacturing and marketing
products incorporating that technology. The Company could also incur substantial
costs in redesigning its products or in defending any legal action taken against
it. Should the Company be found to infringe the intellectual property rights of
others, the Company could be required to pay damages to the infringed party.

SEASONALITY AND VARIABILITY IN QUARTERLY RESULTS

The Company has experienced, and expects to continue to experience,
seasonality and quarter to quarter variability in net sales and operating
income. These seasonal trends resulted in 59% and 60% of its net sales being
generated in the last six months of its fiscal year in 1996 and 1995,
respectively.

RELIANCE UPON CENTRALIZED MANUFACTURING FACILITIES; INTERRUPTION OF OPERATIONS

All of the Company's manufacturing occurs at its two facilities in Juarez,
Mexico, except fire extinguisher manufacturing which occurs at one of the
Company's Aurora, Illinois facilities. The Company's manufacturing operations
utilize certain custom designed equipment which, if damaged or otherwise
rendered inoperable, could result in the disruption of the Company's
manufacturing operations. Although the Company maintains business interruption
insurance in amounts deemed adequate by management, any extended interruption of
the operations at any of these facilities would have a material adverse effect
on the Company's financial condition or results of operations. At the present
time, management cannot evaluate the effect, if any, on the Company that may
result from any negative developments in the Mexican economy.

Information regarding the sources and availability of components used in
the Company's products is incorporated herein by reference from Note 1 on page
17 of the Company's 1996 Annual Report to Stockholders.

EMPLOYEES

As of December 31, 1996, the Company had 2,125 full-time employees, 249 of
whom worked in Aurora, Illinois, 1,811 of whom worked in Juarez, Mexico/El Paso,
Texas and 65 of whom worked in other locations. Approximately 95 employees are
represented by the International Brotherhood of Electrical Workers, Local 134
("IBEW"), and work under a three-year labor contract which expires on April 30,
1998. The Company believes its relations with the IBEW and its members are good.

FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES

Information regarding foreign operations is incorporated herein by
reference from Note 15 on page 23 of the Company's 1996 Annual Report to
Stockholders.

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EXECUTIVE OFFICERS

The following table sets forth the name, age and position with the Company
of each person who is an executive officer of the Company:

NAME AGE POSITION
---- --- --------

Malcolm Candlish................. 61 Chairman of the Board
B. Joseph Messner................ 44 President and Chief Executive Officer
William K. Brouse................ 48 Vice President -Sales
Mark A. Devine................... 39 Vice President - Engineering
Michael A. Rohl.................. 37 Vice President and Chief Financial Officer

- ---------------

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.

B. JOSEPH MESSNER joined the Company as 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 1989, 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.

WILLIAM K. BROUSE began his employment with the Predecessor Company in 1984
as Director -- Special Markets. Mr. Brouse has served the Predecessor Company as
well as the Company in a variety of capacities since that time. In June 1993,
Mr. Brouse was appointed Vice President -- Sales.

MARK A. DEVINE began his employment with the Predecessor Company in 1982 as
an electrical engineer. Mr. Devine served as Manager of Quality Control from
1987 until June 1994 when Mr. Devine was named Plant Manager of Fire
Extinguisher Operations. In December 1996, Mr. Devine was appointed Vice
President-Engineering.

MICHAEL A. ROHL began his employment with the Company in October 1993 as
Corporate Controller. In May 1996, Mr. Rohl was appointed Vice President and
Chief Financial Officer of the Company. Prior to joining the Company from
September 1992 to October 1993, Mr. Rohl served as Senior Manager, Finance for
Motorola Nortel Communications and prior to that as a Senior Audit Manager with
Deloitte & Touche.

ITEM 2. PROPERTIES

The Company's principal manufacturing facilities are located in Juarez,
Mexico. These facilities comprise a 144,000 square foot owned manufacturing
plant at which smoke detectors, rechargeable flashlights and lanterns, passive
infrared motion sensors, nightlights, rechargeable lead-acid batteries and
plastic injection molded parts are produced and an adjacent 109,000 square foot
leased manufacturing plant at which carbon monoxide detectors and fire security
chests are produced.

In June 1995, the Company commenced occupancy of 60,000 square feet of
office space for a fifteen-year period, pursuant to a lease of a building in
Aurora, Illinois, which serves as the Company's principal executive offices. The
Company sold its 225,000 square foot combined office, plant and warehouse
located in Aurora, Illinois in June 1995. In September 1995, the Company
commenced occupancy of a building of approximately 176,000 square feet in
Aurora, Illinois, pursuant to a lease for a ten year period plus two five-year
renewal

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options, serving as its finished goods warehouse and fire extinguisher
manufacturing facility. The Company currently leases its distribution facilities
in El Paso, Texas (90,000 square feet), Rexdale, Ontario (13,200 square feet),
Newbury, England (14,000 square feet) and Parramatta, Australia (10,200 square
feet). The Company believes that its properties, owned and leased, are and will
be adequate to meet its needs in the foreseeable future.

ITEM 3. LEGAL PROCEEDINGS

In November 1994, the Company and certain of its officers and directors
were named as defendants in four purported class action lawsuits filed in the
United States District Court for the Northern District of Illinois, Eastern
Division. The plaintiffs in these actions, pursuant to a Court order, filed a
consolidated and amended complaint resulting in the consolidation of the four
actions. The consolidated case is entitled Gilbert et al. vs. First Alert, Inc.
et al. ("Gilbert"). The amended complaint sought compensatory damages, costs and
attorneys' fees on behalf of the purchasers of the Company's Common Stock during
the period from October 12, 1994, through November 10, 1994. By order, dated
August 21, 1995, the Court certified the class. Subsequently, the plaintiffs'
motion to amend the complaint to expand the class period to September 20, 1994,
through December 7, 1994, was granted and a second consolidated and amended
complaint was filed on January 16, 1996. The new class was certified by the
Court. The complaint alleges generally that the Company and other defendants
disseminated false and misleading information to the investing public regarding
the First Alert(R) Carbon Monoxide Detector in connection with an anticipated
secondary public offering of the Company's Common Stock in late 1994 in
violation of various provisions of the Securities Exchange Act of 1934 and the
rules promulgated thereunder. The Registration Statement with respect to the
proposed secondary public offering was declared effective by the Securities and
Exchange Commission on November 9, 1994, but was subsequently withdrawn by the
Company at the request of the selling stockholders. The public offering was
solely to facilitate the sale of shares by certain selling stockholders and the
Company would not have received any proceeds therefrom.

The Company vigorously contested all claims and denied liability.
Nevertheless, to avoid further expense and the burdens of litigation, in
November 1996, the Company agreed to a tentative settlement of the consolidated
class actions. An executed settlement agreement was filed with the Court on
February 11, 1997, and the Court entered an order on February 25, 1997, giving
preliminary approval to the settlement.

Pursuant to the Court's February 25, 1997, order, members of the class have
until May 12, 1997, to opt out of the class and until July 28, 1997, to file
proofs of claim if they wish to receive a share of the settlement amount. The
Court will hold a hearing on June 20, 1997, at which the fairness of the
settlement will be considered and the Court will determine whether to give final
approval.

Under the terms of the settlement agreement, defendants will pay a fixed
amount per share to class members, depending on when they bought or sold their
shares, with a maximum amount of $3 million (including attorneys' fees and costs
for class counsel) to be paid out in settlement. The effect of the Gilbert
complaint did not have a material effect on the Company's financial results for
any period and adequate reserves exist at December 31, 1996, for the Company's
share of the settlement amount.

A purported class action entitled Betley et al. vs. First Alert, Inc.
("Betley") was filed in the Circuit Court of Cook County, Illinois on January 3,
1995, against the Company alleging common law fraud, breach of warranties and a
statutory violation of the Illinois Consumer Fraud Act, all related to alleged
defects in the original First Alert(R) Carbon Monoxide Detector ("Model FACO")
design and the manner in which the detector was marketed. The Company does not
believe the plaintiffs claim any personal injuries or property damage, nor do
they claim their detectors failed to detect dangerous levels of carbon monoxide.
Instead they claim (i) that the Company failed to disclose that the product
alarms in non-life threatening conditions (which they say is a "nuisance"), (ii)
that the Company falsely proclaims the product resets "automatically" when, in
fact, the product can take several hours or days to reset after it has gone into
alarm and (iii) that the Company falsely claims the product met Underwriter
Laboratories' listing criteria for residential carbon monoxide detectors in
effect at the time the Model FACO was manufactured. They seek a refund of their

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purchase price, other out-of-pocket expenses, punitive damages and attorneys'
fees. The Company has raised numerous defenses to this claim and will continue
to oppose it forcefully.

In February 1997, the Company and its wholly-owned subsidiary, BRK Brands
were named as defendants in a purported class action lawsuit entitled Houlihan
et al. vs. First Alert, Inc. et al. ("Houlihan") in the Circuit Court of Cook
County, Illinois, alleging breach of express warranty and statutory violations
of various states' consumer protection statutes due to alleged
misrepresentations and product defects involving First Alert(R) Carbon Monoxide
Detectors. The Company does not believe the plaintiffs claim any personal
injuries or property damage, nor do they claim specifically that their detectors
failed to detect dangerous levels of carbon monoxide. Rather, they seek
"rescissionary damages" and attorneys' fees. The Company is still evaluating
this lawsuit but believes it to be without merit and, thus, the Company will
vigorously defend the case.

In addition to the Gilbert, Betley and Houlihan actions, the Company and
its subsidiaries, including BRK Brands, Inc., are parties to various product
liability and other types of lawsuits and are from time to time subject to
investigations by various governmental agencies, including investigations
regarding environmental matters. Although the ultimate liabilities, if any,
arising out of the Gilbert, Betley, Houlihan and other pending legal actions or
investigations cannot presently be determined, based on its past experience and
assessment of such matters, the Company believes that the outcome of these
matters will not have a material adverse effect on the Company's financial
position.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the fourth quarter of 1996, no matter was submitted to a vote of
security holders.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Nasdaq National Market is the principal market in which the Company's
Common Stock is traded under the symbol "ALRT." The quarterly market prices
included in Note 17 on page 23 of the Company's 1996 Annual Report to
Stockholders are incorporated herein by reference.

At March 18, 1997, there were 417 stockholders of record of the Company's
Common Stock. This number does not include beneficial owners of Common Stock
whose shares are held in the names of various dealers, clearing agencies, banks,
brokers and other fiduciaries.

The Company has neither declared nor paid cash dividends on its Common
Stock during 1996 or 1995. The Company intends to retain all of its earnings to
finance the development and expansion of its business and therefore does not
intend to pay dividends on its Common Stock in the foreseeable future. Any
future declaration of dividends will be subject to the discretion of the Board
of Directors of the Company, will be subject to applicable law and will depend
upon the Company's results of operations, earnings, financial condition,
contractual limitations, cash requirements, future prospects and other factors
deemed relevant by the Company's Board of Directors. In addition, the current
credit facility (the "Credit Facility") of the Company's subsidiary, BRK Brands,
Inc. ("BRK Brands"), limits BRK Brands' ability to pay dividends on its Common
Stock, during any period of four consecutive fiscal quarters, to 50% of BRK
Brands' net income for such period. In March 1997, the Company signed a
commitment letter relating to a new $80.0 million senior secured revolving
credit facility (the "New Credit Facility"). The New Credit Facility also
contains covenants restricting dividends.

ITEM 6. SELECTED FINANCIAL DATA

The Five-Year "Summary of Selected Consolidated/Combined Financial Data" on
page 9 of the Company's 1996 Annual Report to Stockholders is incorporated
herein by reference.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION

"Management Discussion and Analysis of Financial Condition and Results of
Operations" on pages 10 through 12 of the Company's 1996 Annual Report to
Stockholders is incorporated herein by reference. The discussion therein
contains certain forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from the
results anticipated in those forward-looking statements as a result of certain
factors set forth below.

CERTAIN FACTORS THAT MAY AFFECT FUTURE PERFORMANCE

The Company cautions that the following important factors, among others
(including but not limited to factors mentioned from time to time in the
Company's reports filed with the Securities and Exchange Commission), could
affect the Company's actual financial condition or results and could cause the
Company's actual financial condition or results to differ materially from those
expressed in any forward-looking statements of the Company made by or on behalf
of the Company. The factors included here are not exhaustive. Further, any
forward-looking statement speaks only as of the date on which such statement is
made, and the Company undertakes no obligation to update any forward-looking
statement or statements to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time and it is not possible for
management to predict all such factors, nor can it assess the impact of each
such factor on the business or the extent to which any factor, or combination of
factors, may cause the Company's actual financial condition or results to differ
materially from those contained in any forward-looking statement. Therefore,
forward-looking statements should not be relied upon as a prediction of actual
future financial condition or results.

DEPENDENCE ON KEY SUPPLIERS

Information regarding the dependence upon key suppliers for certain
components used in the Company's products is incorporated herein by reference
from Note 1 on page 17 of the Company's 1996 Annual Report to Stockholders.

POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS

The Company's quarterly financial results may vary significantly depending
primarily upon factors such as the timing of significant orders, the timing of
new product offerings by the Company and its competitors and product
presentations. In addition, the Company's business historically has been
seasonal, with the largest proportion of sales occurring in September, October
and November of each calendar year. Moreover, consistently low temperatures and
high levels of snowfall during the typical home heating months increase the
likelihood of improperly vented carbon monoxide gas emissions being trapped
inside a closed home or building, which may in turn increase the demand for the
Company's carbon monoxide detectors, and consequently cause the Company's
quarterly results to fluctuate in such months. Factors such as quarterly
variations in financial results could adversely affect the market price of the
Common Stock and cause it to fluctuate substantially. In addition, the Company
(i) may from time to time increase its operating expenses to fund greater levels
of research and development, increase its sales and marketing activities,
develop new distribution channels, improve its operational and financial systems
and broaden its customer support capabilities and (ii) may incur significant
operating expenses associated with any new acquisitions. To the extent that such
expenses precede or are not subsequently followed by increased revenues, the
Company's business, operating results and financial condition will be materially
adversely affected.

The Company expects to experience significant fluctuations in future
quarterly operating results that may be caused by many factors, including demand
for the Company's products, introduction or enhancement of products by the
Company and its competitors, market acceptance of new products, price reductions
by the Company or its competitors, mix of distribution channels through which
products are sold, level of product returns, mix of products sold, component
pricing, mix of international and United States revenues, and general economic
conditions. In addition, as a strategic response to changes in the competitive
environment, the Company may from time to time make certain pricing or marketing
decisions or acquisitions that could have a material adverse effect on the
Company's business, results of operations or financial condition. As a result,
the

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Company believes that period-to-period comparisons of its results of operations
are not necessarily meaningful and should not be relied upon as an indication of
future performance. Due to all of the foregoing factors, it is likely that in
some future quarters the Company's operating results will be below the
expectations of public market analysts and investors. In such event, the price
of the Company's common stock would likely be materially adversely affected.

DEPENDENCE ON CONSUMER PREFERENCE

The Company is susceptible to fluctuations in its business based upon
consumer demand for carbon monoxide and smoke detectors, in part by publicized
accounts of deaths or serious injury due to carbon monoxide poisoning and/or
fires. The Company believes that its success depends in substantial part on its
ability to anticipate, gauge and respond to such fluctuation in consumer demand.
However, it is impossible to predict the occurrence and effect of any such event
that would cause such fluctuations in consumer demand for the Company's home
safety products.

DEPENDENCE ON TIMELY PRODUCT INTRODUCTION

The Company's ability to remain competitive in the home safety product
market will depend in part upon its ability to successfully identify new product
opportunities and to develop and introduce new products and enhancements on a
timely and cost effective basis. There can be no assurance that the Company will
be successful in developing and marketing new products or in enhancing its
existing products, that new products, such as its carbon monoxide detector, will
achieve ongoing consumer acceptance, that products developed by others will not
render the Company's products non-competitive or obsolete or that the Company
will be able to obtain or maintain the rights to use proprietary technologies
developed by others which are incorporated in the Company's products. Any
failure by the Company to anticipate or respond adequately to technological
developments and customer requirements, or any significant delays in product
development or introduction, could have a material adverse effect on the
Company's financial condition and results of operations.

The future introduction of new products may require the expenditure of
funds for research and development, tooling, manufacturing processes, inventory
and marketing. In order to achieve high volume production of any new product,
the Company may have to make substantial investments in inventory and expand its
production capabilities.

DEPENDENCE ON MAJOR RETAIL CUSTOMERS

The Company's performance is affected by the economic strength and weakness
of its worldwide retail customers. The Company sells its products to mass
merchants, such as Wal-Mart, Kmart, Target Stores and Sears; home center and
hardware chains, such as Home Depot, Lowe's Builders Square, True Value/Cotter
and Ace Hardware; catalog showrooms, such as Service Merchandise; warehouse
clubs, such as Price Club and Sam's; and electrical wholesale distributors such
as Graybar, Wesco and Grainger. In 1996, net sales to Wal-Mart and Sam's, in the
aggregate, represented approximately 15% of the Company's net sales. The Company
also supplies its products to its wholly-owned, non-U.S. subsidiaries and to
independent foreign distributors, who in turn distribute the Company's products
to over 500 customers in over 50 countries worldwide, with the United Kingdom,
Canada, Australia and the Scandinavian countries currently representing the
Company's principal foreign markets. The loss of any one or more of the
Company's key retail customers either in the United States or abroad, due for
example to their financial weakness or bankruptcy, could have a material adverse
effect on the Company's financial condition or results of operations.

PRODUCT LIABILITY RISKS

The Company is subject to various claims brought against it for alleged
non-performance of its products. The Company maintains insurance against product
liability claims in amounts deemed adequate by management, but there can be no
assurance that such coverage will continue to be available on terms acceptable
to the Company or that such coverage will be adequate for liability actually
incurred. The Company's insurance coverage is on an occurrence basis covering
losses attributable to injury to person or property during the policy period.
Although to date product liability claims have not had a material adverse

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effect on the financial condition or results of operations of the Company, there
can be no assurance that the Company will not experience materially adverse
losses due to product liability claims in the future. A successful claim brought
against the Company in excess of available insurance coverage or any claim that
results in significant adverse publicity against the Company, could have a
material adverse effect on the Company's financial condition or results of
operations.

RELIANCE UPON CENTRALIZED MANUFACTURING FACILITIES; INTERRUPTION OF OPERATIONS

All of the Company's manufacturing occurs at its two facilities in Juarez,
Mexico, except fire extinguisher manufacturing which occurs at one of the
Company's Aurora, Illinois facilities. The Company's manufacturing operations
utilize certain custom designed equipment which, if damaged or otherwise
rendered inoperable, could result in the disruption of the Company's
manufacturing operations. Although the Company maintains business interruption
insurance in amounts deemed adequate by management, any extended interruption of
the operations at any of these facilities could have a material adverse effect
on the Company's financial condition or results of operations.

GOVERNMENT REGULATION; POTENTIAL PRODUCT RECALLS; ALLEGED NUISANCE DETECTORS

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future could result in a material financial burden on the Company or failure to
so comply could have a material adverse effect on the Company's financial
condition or results of operations.

COMPETITION

The home safety market is characterized by intense competition based
primarily on product availability, price, speed of delivery, ability to tailor
specific solutions to customer needs, quality and depth of product lines. The
Company's competition is fragmented across its product lines, and accordingly,
the Company does not compete with any one company across all product lines. The
Company competes with a variety of entities, some of which have greater
financial and other resources than the Company. The Company's ability to remain
competitive in the home safety market depends in part on its ability to
successfully identify new product opportunities and develop and introduce new
products and enhancements on a timely and cost effective basis. In addition, the
Company's products compete to some extent with higher priced AC powered
residential security systems. To the extent that the installation and
maintenance expenses associated with such systems decline, the Company may
experience increased competition for its products from manufacturers and
marketers which traditionally have not competed with the Company.

GENERAL ECONOMIC CONDITIONS AND LIQUIDITY

General economic conditions, both domestic and foreign, and sources and
availability of financing have an impact on the Company's business, financial
condition and results of operations. From time to time the markets in which the
Company sells its products experience weak economic conditions that may
negatively affect the sales of the Company's products. To the extent that
general economic conditions affect the demand for products sold by the Company,
or the sources and availability of funding of the Company's operations, whether
or not under the Company's existing or committed credit facilities, such
conditions could have a material adverse effect on the Company's financial
condition or results of operations. Moreover, operating its business in
countries outside of the United States exposes the Company to fluctuations in
foreign currency exchange rates, exchange ratios, nationalization or
expropriation of assets, import/export controls, political instability and
variations in the protection of intellectual property rights. In addition,
limitations on foreign investments and restrictions on the ability to convert
currency are risks in conducting operations in geographically distant locations,
with customers speaking different languages and having different cultural
approaches to the conduct of business, any one of which alone or collectively,
could have a material adverse effect on the Company's international operations,
and consequently on the Company's financial condition or results of operations.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Consolidated Financial Statements and Notes to the Consolidated Financial
Statements, which are included on pages 13 through 23 of the 1996 Annual Report
to Stockholders, together with the "Report of Independent Accountants" on page
24 of the 1996 Annual Report to Stockholders and the unaudited supplementary
data that are included in Note 17-Quarterly Results on page 23 of the 1996
Annual Report to Stockholders are incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information contained under the captions "Election of Directors" and
"Information Concerning the Board of Directors" found in the Company's
definitive Proxy Statement, which will be filed with the Commission on or about
April 7, 1997, is incorporated herein by reference. See Item 1, "Executive
Officers" for information concerning executive officers.

ITEM 11. EXECUTIVE COMPENSATION

Incorporated by reference to the information under the caption "Executive
Compensation" contained in the Company's definitive Proxy Statement, which will
be filed with the Commission on or about April 7, 1997.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Incorporated by reference to the information under the captions "Principal
Holders of Voting Securities" and "Security Ownership of Directors and Officers"
contained in the Company's definitive Proxy Statement, which will be filed with
the Commission on or about April 7, 1997.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated by reference to the information under the caption "Certain
Relationships and Related Transactions" contained in the Company's definitive
Proxy Statement, which will be filed with the Commission on or about April 7,
1997.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1) CONSOLIDATED FINANCIAL STATEMENTS

The following consolidated financial statements of First Alert, Inc.
included in the Company's 1996 Annual Report to Stockholders, are incorporated
herein by reference in Item 8 of Part II of this report.

Consolidated Balance Sheet -- December 31, 1996 and 1995 on page 13 of
the 1996 Annual Report to Stockholders

Consolidated Statement of Operations -- years ended December 31, 1996,
1995 and 1994 on page 14 of the 1996 Annual Report to Stockholders

Consolidated Statement of Cash Flows -- years ended December 31, 1996,
1995 and 1994 on page 15 of the 1996 Annual Report to Stockholders

Consolidated Statement of Stockholders' Equity for the years ended
December 31, 1996, 1995 and 1994 on page 16 of the 1996 Annual Report to
Stockholders

Notes to the Consolidated Financial Statements on pages 17 through 23
of the 1996 Annual Report to Stockholders

Report of Independent Accountants on page 24 of the 1996 Annual Report
to Stockholders

(2) FINANCIAL STATEMENT SCHEDULE

The following financial statement schedule is filed with this report:

Schedule II -- Valuation and Qualifying Accounts

The Report of Independent Accountants on Financial Statement Schedule
appears on page 22 of this report. All other schedules for which provision is
made in Regulation S-X of the Securities and Exchange Commission, are not
required under the related instructions or are not applicable and, therefore,
have been omitted.

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(3) EXHIBITS

The following is a list of exhibits filed as part of the Form 10-K.

EXHIBIT NO. TITLE
----------- -----

2.1 Amended and Restated Asset Purchase Agreement, dated as of July 31, 1992, with
Pittway (incorporated by reference to Exhibit 2.1 to the Company's Registration
Statement on Form S-1 (No. 33-75132), as filed on February 9, 1994, as amended)

3.1 Certificate of Incorporation of the Company (incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement on Form S-1 (No. 33-75132),
as filed on February 9, 1994, as amended)

3.2 Restated Certificate of Incorporation of the Company (incorporated by reference
to Exhibit 3.2 to the Company's Registration Statement on Form S-1 (No.
33-75132), as filed on February 9, 1994, as amended)

3.3 By-Laws of the Company (incorporated by reference to Exhibit 3.3 to the
Company's Registration Statement on Form S-1 (No. 33-75132), as filed on
February 9, 1994, as amended)

3.4 Amended and Restated By-Laws of the Company (incorporated by reference to
Exhibit 3.4 to the Company's Registration Statement on Form S-1 (No. 33-75132),
as filed on February 9, 1994, as amended)

4.1 Specimen Form of the Company's Common Stock Certificate (incorporated by
reference to Exhibit 4.1 to the Company's Registration Statement on Form S-1
(No. 33-75132), as filed on February 9, 1994, as amended)

10.1 Note and Stock Purchase Agreement, dated July 31, 1992 among BRK Brands, the
Company and the ML-Lee Acquisition Funds (incorporated by reference to Exhibit
10.1 to the Company's Registration Statement on Form S-1 (No. 33-75132), as
filed on February 9, 1994, as amended)

10.2 Holding Company Guaranty, dated July 31, 1992, by the Company in favor of the
ML-Lee Acquisition Funds (incorporated by reference to Exhibit 10.2 to the
Company's Registration Statement on Form S-1 (No. 33-75132), as filed on
February 9, 1994, as amended)

10.3 OEM Agreement, dated March 31, 1992, between Nittan Company Ltd. and BRK Brands
(incorporated by reference to Exhibit 10.21 to the Company's Registration
Statement on Form S-1 (No. 33-75132), as filed on February 9, 1994, as amended)

10.4 NDC and BRK Distribution Agreement, dated December 22, 1993, between BRK Brands
and Nippon Dry Chemical Co. (incorporated by reference to Exhibit 10.22 to the
Company's Registration Statement on Form S-1 (No. 33-75132), as filed on
February 9, 1994, as amended)

10.5 Distribution Agreement, dated July 31, 1992, between Pittway Australia Pty. Ltd
and BRK Brands (incorporated by reference to Exhibit 10.23 to the Company's
Registration Statement on Form S-1 (No. 33-75132), as filed on February 9,
1994, as amended)

10.6 Distribution Agreement, dated July 31, 1992, between the System Sensor Division
of Pittway and BRK Brands (incorporated by reference to Exhibit 10.24 to the
Company's Registration Statement on Form S-1 (No. 33-75132), as filed on
February 9, 1994, as amended)

10.7 License and Distribution Agreement, dated March 19, 1993, between Quantum
Group, Inc. and BRK Brands (incorporated by reference to Exhibit 10.25 to the
Company's Registration Statement on Form S-1 (No. 33-75132), as filed on
February 9, 1994, as amended)

10.8 Data Processing Services and Data File Conversion Agreement, dated July
31,1992, between BRK Brands and the System Sensor Division of Pittway
(incorporated by reference to Exhibit 10.26 to the Company's Registration
Statement on Form S-1 (No. 33-75132), as filed on February 9, 1994, as amended)

10.9 Technology and Know-How License Agreement, dated July 31, 1992, between Pittway
and BRK Brands (incorporated by reference to Exhibit 10.27 to the Company's
Registration Statement on Form S-1 (No. 33-75132), as filed on February 9,
1994, as amended)

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EXHIBIT NO. TITLE
----------- ----

10.10 Manufacturing, Testing and Miscellaneous Services Agreement, dated July 31,
1992, between BRK Brands, Pittway and Electronica BRK de Mexico, S.A. de C.V.
(incorporated by reference to Exhibit 10.28 to the Company's Registration
Statement on Form S-1 (No. 33- 75132), as filed on February 9, 1994, as
amended)

10.11 U.S. Patent Assignment, dated July 31, 1992, between Pittway and BRK Brands
(incorporated by reference to Exhibit 10.29 to the Company's Registration
Statement on Form S-1 (No. 33-75132), as filed on February 9, 1994, as amended)

10.12 Foreign Patent Assignment, dated July 31, 1992, between Pittway and BRK Brands
(incorporated by reference to Exhibit 10.30 to the Company's Registration
Statement on Form S-1 (No. 33-75132), as filed on February 9, 1994, as amended)

10.13 U.S. Trademark Assignment, dated July 31, 1992, between Pittway and BRK Brands
(incorporated by reference to Exhibit 10.31 to the Company's Registration
Statement on Form S-1 (No. 33-75132), as filed on February 9, 1994, as amended)

10.14 Foreign Trademark Assignment, dated July 31, 1992, between Pittway and BRK
Brands (incorporated by reference to Exhibit 10.32 to the Company's
Registration Statement on Form S-1 (No. 33-75132), as filed on February 9,
1994, as amended)

10.15 Copyright Assignment, dated July 31, 1992, between Pittway and BRK Brands
(incorporated by reference to Exhibit 10.33 to the Company's Registration
Statement on Form S-1 (No. 33-75132), as filed on February 9, 1994, as amended)

10.16 Trademarks, Technology and Know-How License Agreement, dated July 31, 1992, by
and among the First Alert Trust, BRK Brands and Pittway (incorporated by
reference to Exhibit 10.34 to the Company's Registration Statement on Form S-1
(No. 33-75132), as filed on February 9, 1994, as amended)

10.17 Management Stock Subscription Agreement, dated July 31, 1992 (incorporated by
reference to Exhibit 10.35 to the Company's Registration Statement on Form S-1
(No. 33-75132), as filed on February 9, 1994, as amended)

10.18 Equity Investor Stock Subscription Agreement, dated July 31, 1992 (incorporated
by reference to Exhibit10.36 to the Company's Registration Statement on Form
S-1 (No. 33-75132), as filed on February 9, 1994, as amended)

10.19 Management IRA Stock Subscription Agreement, dated July 31, 1992 (incorporated
by reference to Exhibit 10.37 to the Company's Registration Statement on Form
S-1 (No. 33-75132), as filed on February 9, 1994, as amended)

10.20 Stock Subscription Agreement, dated October 31, 1992 (incorporated by reference
to Exhibit 10.38 to the Company's Registration Statement on Form S-1 (No.
33-75132), as filed on February 9, 1994, as amended)

10.21 Shareholders' Agreement, dated October 31, 1992 (incorporated by reference to
Exhibit 10.39 to the Company's Registration Statement on Form S-1 (No.
33-75132), as filed on February 9, 1994, as amended)

10.22 Registration Rights Agreement, dated July 31, 1992 (incorporated by reference
to Exhibit 10.40 to the Company's Registration Statement on Form S-1 (No.
33-75132), as filed on February 9, 1994, as amended)

10.23 1992 Time Accelerated Restricted Stock Option Plan (incorporated by reference
to Exhibit 10.41 to the Company's Registration Statement on Form S-1 (No.
33-75132), as filed on February 9, 1994, as amended)

10.24 1994 Stock Option Plan (incorporated by reference to Exhibit 10.42 to the
Company's Registration Statement on Form S-1 (No. 33-75132), as filed on
February 9, 1994, as amended)

10.25 1994 Management Incentive Bonus Program (incorporated by reference to Exhibit
10.43 to the Company's Registration Statement on Form S-1 (No. 33-75132), as
filed on February 9, 1994, as amended)

18
21

EXHIBIT NO. TITLE
----------- -----

10.26 Lease Agreement, dated January 15, 1985, among William J. Strong, Albert
Emerich, and Achin Wolf, The Old Second National Bank of Aurora as Trustee
under Trust #1887 and BRK Brands (incorporated by reference to Exhibit 10.45 to
the Company's Registration Statement on Form S-1 (No. 33-75132), as filed on
February 9, 1994, as amended)

10.27 Lease Agreement, dated December 1986, between Louis Kennedy and BRK Brands, as
assigned to The Lincoln National Insurance Company (incorporated by reference
to Exhibit 10.46 to the Company's Registration Statement on Form S-1 (No.
33-75132), as filed on February 9, 1994, as amended)

10.28 First Amendment to Lease Agreement, dated October 28, 1987, between Louis
Kennedy and BRK Brands (incorporated by reference to Exhibit 10.47 to the
Company's Registration Statement on Form S-1 (No. 33-75132), as filed on
February 9, 1994, as amended)

10.29 Collective Bargaining Agreement between BRK Brands and Local Union No.
134,International Brotherhood of Electrical Workers, AFL-CIO from May 1, 1992
to April 30, 1995 (incorporated by reference to Exhibit 10.48 to the Company's
Registration Statement on Form S-1 (No. 33-75132), as filed on February 9,
1994, as amended)

10.30 Amended and Restated Executive Employment and Non-Competition Agreement, dated
November 25, 1992, between BRK Brands and Gerald Carrino (incorporated by
reference to Exhibit 10.49 to the Company's Registration Statement on Form S-1
(No. 33-75132), as filed on February 9, 1994, as amended)

10.31 Amended and Restated Executive Employment and Non-Competition Agreement, dated
November 25, 1992, between BRK Brands and Gary L. Lederer (incorporated by
reference to Exhibit 10.50 to the Company's Registration Statement on Form S-1
(No. 33-75132), as filed on February 9, 1994, as amended)

10.32 Termination Benefits Agreement, dated July 31, 1992, between BRK Brands and
Richard F. Timmons (incorporated by reference to Exhibit 10.51 to the Company's
Registration Statement on Form S-1 (No. 33-75132), as filed on February 9,
1994, as amended)

10.33 Termination Benefits Agreement, dated July 31, 1992, between BRK Brands and
William K. Brouse (incorporated by reference to Exhibit 10.52 to the Company's
Registration Statement on Form S-1 (No. 33-75132), as filed on February 9,
1994, as amended)

10.34 Termination Benefits Agreement, dated July 31, 1992, between BRK Brands and
Andrew J. Saarnio (incorporated by reference to Exhibit 10.53 to the Company's
Registration Statement on Form S-1 (No. 33-75132), as filed on February 9,
1994, as amended)

10.35 Termination Benefits Agreement, dated July 31, 1992, between BRK Brands and
Gerard Seyler (incorporated by reference to Exhibit 10.54 to the Company's
Registration Statement on Form S-1 (No. 33-75132), as filed on February 9,
1994, as amended).

10.36 Management Agreement, dated July 31, 1992, among THL Co., the Company and BRK
Brands (incorporated by reference to Exhibit 10.55 to the Company's
Registration Statement on Form S-1 (No. 33-75132), as filed on February 9,
1994, as amended)

10.37 Form of Credit Agreement, among BRK Brands, the Lenders parties thereto and The
First National Bank of Chicago (incorporated by reference to Exhibit 10.56 to
the Company's Registration Statement on Form S-1 (No. 33-75132), as filed on
February 9, 1994, as amended)

10.38 Form of Guaranty by the Company to and in favor of each of the Lenders parties
thereto, the LC Issuer and the Agent party thereto, to the Credit Agreement
(incorporated by reference to Exhibit 10.57 to the Company's Registration
Statement on Form S-1 (No. 33-75132), as filed on February 9, 1994, as amended)

10.39 Trust Agreement, dated as of July 31, 1992, by and between Pittway and
Continental Bank, National Association (incorporated by reference to Exhibit
10.58 to the Company's Registration Statement on Form S-1 (No. 33-75132), as
filed on February 9, 1994, as amended)

19
22

EXHIBIT NO. TITLE
----------- -------------------------------------------------------------------------------

10.40 Lease, dated September 7, 1994, by and between the Company and American
National Bank and Trust Company of Chicago, not personally but as Trustee under
Trust Agreement, dated August 3, 1994 and known as Trust No. 118625-05
(incorporated by reference to Exhibit 10.59 to the Company's Annual Report on
Form 10-K, as filed on March 30, 1995)
10.41 Amendment to License and Distribution Agreement between Quantum Group, Inc. and
BRK Brands, effective April 11, 1995. (incorporated by reference to Exhibit
10.62 to the Company's Annual Report on Form 10-K, as filed on March 29, 1996)
10.42 First Alert, Inc. Nonqualified Stock Option Plan for Non-Employee Directors
(incorporated by reference to Exhibit 10.63 to the Company's Annual Report on
Form 10-K, as filed on March 29, 1996)
10.43 Standard Industrial Lease Agreement by and between The Lincoln National Life
Insurance Company and BRK Brands for 25A Spur Drive, El Paso, Texas, effective
as of March 15, 1996 (incorporated by reference to Exhibit 10.64 to the
Company's Annual Report on Form 10-K, as filed on March 29, 1996)
10.44 First Amendment to Building Lease between American National Bank and Trust
Company of Chicago and BRK Brands for 3901 Liberty Street Road, Aurora,
Illinois, effective as of March 15, 1995 (incorporated by reference to Exhibit
10.65 to the Company's Annual Report on Form 10-K, as filed on March 29, 1996)
10.45 Industrial Building Lease between American National Bank and Trust Company of
Chicago and BRK Brands for 3920 Enterprise Court, Aurora, Illinois, effective
as of April 3, 1995 and First Amendment thereto effective as of October 31,
1995 (incorporated by reference to Exhibit 10.66 to the Company's Annual Report
on Form 10-K, as filed on March 29, 1996)
10.46 Employment Agreement, dated as of September 18, 1996, between the Company and
B. Joseph Messner (filed herewith)
10.47 Termination Benefits Agreement, dated July 5, 1995, between BRK Brands and
Michael A. Rohl (filed herewith)
10.48 Termination Benefits Agreement, dated April 24, 1996, between BRK Brands and
Fred W. Higgenbottom (filed herewith)
10.49 1995 Management Incentive Bonus Program (filed herewith)
10.50 1996 Management Incentive Bonus Program (filed herewith)
11.1 Statement re: computation of per share earnings (filed herewith)
13.1 1996 Annual Report to Stockholders (filed herewith)
21.1 List of Subsidiaries (incorporated by reference to Exhibit 22.1 to the
Company's Annual Report on Form 10-K, as filed on March 30, 1995)
24.0 Consent of Price Waterhouse LLP (filed herewith)
27.0 Financial Data Schedule (filed herewith)

- ---------------

(b) REPORTS ON FORM 8-K

There were no reports on Form 8-K filed during the fourth quarter ended
December 31, 1996.

20
23

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 31st day of
March, 1997.

FIRST ALERT, INC.

/s/ B. JOSEPH MESSNER
By: ................................
B. JOSEPH MESSNER
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
(PRINCIPAL EXECUTIVE OFFICER)

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ B. JOSEPH MESSNER President, Chief Executive March 31, 1997
........................................ Officer and Director
B. JOSEPH MESSNER (Principal Executive Officer)

/s/ MICHAEL A. ROHL Vice President and Chief March 31, 1997
........................................ Financial Officer (Principal
MICHAEL A. ROHL Financial and Accounting
Officer)

/s/ MALCOLM CANDLISH Chairman of the Board March 31, 1997
........................................
MALCOLM CANDLISH

/s/ JOHN R. ALBERS Director March 31, 1997
........................................
JOHN R. ALBERS

/s/ ANTHONY J. DINOVI Director March 31, 1997
........................................
ANTHONY J. DINOVI

/s/ DAVID V. HARKINS Director March 31, 1997
........................................
DAVID V. HARKINS

/s/ SCOTT A. SCHOEN Director March 31, 1997
........................................
SCOTT A. SCHOEN

/s/ PETER M. WOOD Director March 31, 1997
........................................
PETER M. WOOD

21
24

REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors
of First Alert, Inc.

Our audits of the consolidated financial statements referred to in our
report dated March 21, 1997 appearing on page 24 of the 1996 Annual Report to
Stockholders of First Alert, Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the Financial Statement Schedule listed in Item 14(a)
of this Form 10-K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.

/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP

Chicago, Illinois,
March 21, 1997

22
25

SCHEDULE II

FIRST ALERT INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(THOUSANDS OF DOLLARS)

BALANCE AT BALANCE
BEGINNING CHARGES TO AT CLOSE
DESCRIPTIONS OF PERIOD EXPENSE DEDUCTIONS OF PERIOD
------------ ---------- ---------- ---------- ---------

Year Ended December 31, 1996
Allowance for Doubtful Accounts............. $3,342 $1,252 $ (774) $ 3,820
Inventory Reserve........................... 5,118 4,685 (5,297) $ 4,506

Year Ended December 31, 1995
Allowance for Doubtful Accounts............. $2,600 $ 861 $ (119) $ 3,342
Inventory Reserve........................... 2,000 3,803 (685) 5,118

Year Ended December 31, 1994
Allowance for Doubtful Accounts............. $1,265 $2,339 $ (1,004) $ 2,600
Inventory Reserve........................... 1,098 3,083 (2,181) 2,000

23
26

EXHIBIT 11.1

FIRST ALERT, INC. AND SUBSIDIARIES

CALCULATION OF SHARES USED IN DETERMINING NET INCOME PER SHARE

YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------

Weighted average common shares outstanding............ 24,118,854 24,043,116 22,619,424
Weighted average common share equivalents outstanding
during the period computed in accordance with the
treasury stock method period computed in accordance
with the treasury stock method...................... 440,496 788,269 981,240
---------- ---------- ----------
Total weighted average shares outstanding............. 24,559,350 24,831,385 23,600,664
========== ========== ==========