10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

þ  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006

Commission File Number 1-6003

FEDERAL SIGNAL CORPORATION

(Exact name of the Company as specified in its charter)

Delaware	36-1063330
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1415 West 22nd Street, Oak Brook, Illinois	60523 (Zip Code)
(Address of principal executive offices)

The Company’s telephone number, including area code

(630) 954-2000

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, par value $1.00 per share, with preferred share purchase rights	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ     No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes o     No þ

Indicate by check mark whether the Company (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 Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the Company’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.  o

Indicate by check mark if the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b(2) of the Exchange Act. (Check one).

Large accelerated filer þ     Accelerated filer o     Non-accelerated filer o

Indicate by check mark if the registrant is a shell company, in Rule 12b(2) of the Exchange Act.  Yes o     No þ

State the aggregate market value of voting stock held by nonaffiliates of the Company as of June 30, 2006: Common stock, $1.00 par value — $713,126,714.

Indicate the number of shares outstanding of each of the Company’s classes of common stock, as of January 31, 2007: Common stock, $1.00 par value — 47,649,076 shares.

Documents Incorporated By Reference

Portions of the proxy statement for the Annual Meeting of Shareholders to be held on April 24, 2007 are incorporated by reference in Part III.

FEDERAL SIGNAL CORPORATION
Index to Form 10-K

		Page
PART I
Item 1.	Business		1
Item 1A.	Risk Factors		5
Item 1B.	Unresolved Staff Comments		7
Item 2.	Properties		7
Item 3.	Legal Proceedings		8
Item 4.	Submission of Matters to a Vote of Security Holders		8
Item 4A.	Executive Officers		8
PART II
Item 5.	Market for Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		9
Item 6.	Selected Financial Data		12
Item 7.	Management’s Discussion and Analysis of Financial Conditions and Results of Operations		13
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		25
Item 8.	Financial Statements and Supplementary Data		25
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		63
Item 9A.	Controls and Procedures		63
Item 9B.	Other Information		63
PART III
Item 10.	Directors and Corporate Governance		63
Item 11.	Executive Compensation		64
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		64
Item 13.	Certain Relationships and Related Transactions; and Director Independence		64
Item 14.	Principal Accounting Fees and Services		64
PART IV
Item 15.	Exhibits and Financial Statement Schedules		64
Signatures			65
Exhibit Index			67
Management Incentive Plan
Savings Restoration Plan
Severance Policy for Executive Employees
General Release and Separation Agreement
General Release and Separation Agreement
Stock Purchase Agreement
Subsidiaries
Consent of Independent Registered Public Accounting Firm
CEO Certification
CFO Certification
Section 906 CEO Certification
Section 906 CFO Certification
Press Release

PART I

Item 1.   Business.

Federal Signal Corporation, founded in 1901, was reincorporated as a Delaware Corporation in 1969. The Company designs and manufactures a suite of products and integrated solutions for municipal, governmental, industrial and airport customers. Federal Signal’s portfolio of products includes interoperable communications platforms, safety and security systems, fire apparatus, aerial devices, street sweepers, industrial vacuums, waterblasters, sewer cleaners and consumable industrial tooling. Federal Signal Corporation and its subsidiaries (referred to collectively as “the Company” or “Company” herein, unless context otherwise indicates) operates manufacturing facilities in 33 plants in 13 countries around the world serving customers in approximately 100 countries in all regions of the world. The Company also provides customer and dealer financing to support the sale of its vehicles.

Narrative Description of Business

Products manufactured and services rendered by the Company are divided into four major operating groups: Safety and Security Systems, Fire Rescue, Environmental Solutions and Tool. The individual operating companies are organized as such because they share certain characteristics, including technology, marketing, distribution and product application, which create long-term synergies.

Financial information (net sales, foreign sales, export sales, operating income and identifiable assets) concerning the Company’s four operating segments as of, and for each of the three years in the period ended, December 31, 2006 included in Note 14 of the financial statements contained under Item 8 of this Form 10-K is incorporated herein by reference.

Safety and Security Systems Group

The Safety and Security Systems Group designs and manufactures emergency vehicle warning lights and sirens, industrial and outdoor signaling, warning, lighting and communication devices and integrated systems; and parking revenue and access control systems. Products are sold under the Federal Signal, Target Tech, VAMA, Pauluhn, Victor and Federal APD brand names. The group operates manufacturing facilities in North America, Europe and South Africa. Many of the group’s products are designed in accordance with various regulatory codes and standards, and meet agency approvals such as Underwriters Laboratory (UL), International Electrotechnical Commission (IEC) and American Bureau of Shipping (ABS).

Fire Rescue Group

The Fire Rescue Group manufactures a broad range of fire rescue apparatus in its facilities located in North America and Europe. The group sells vehicles under the following brand names: E-ONE, Superior, Saulsbury and Bronto Skylift.

E-ONE is a leading brand of aluminum and stainless steel, custom-made vehicles including pumpers and tankers, aerial ladders and platforms, rescues, quick attack units, command centers and airport rescue vehicles. Superior brand trucks are manufactured and distributed primarily for the Canadian market and US wildlands markets. Under the Bronto Skylift brand name, the Company manufactures vehicle-mounted aerial access platforms in Finland for sale globally.

Environmental Solutions Group

The Environmental Solutions Group manufactures and markets worldwide a full range of street cleaning and vacuum loader vehicles and high-performance water blasting equipment. Products are also manufactured for the newer markets of hydro-excavation, glycol recovery and surface cleaning. Products are sold under the Elgin, RAVO, Vactor, Guzzler, Leach, Shanghai Federal Signal and Jetstream brand names. The group’s vehicles and equipment are manufactured in North America, Europe and Asia.

Under the Elgin brand name, the Company sells the leading US brand of street sweepers primarily designed for large-scale cleaning of curbed streets, parking lots and other paved surfaces utilizing mechanical sweeping, vacuum

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and recirculating air technology for cleaning. RAVO is a market leader in Europe for high-quality, compact and self-propelled sweepers that utilize vacuum technology for pick-up.

Vactor is a leading manufacturer of municipal combination catch basin/sewer cleaning vacuum trucks. Guzzler is a leader in industrial vacuum loaders that clean up industrial waste or recover and recycle valuable raw materials. Shanghai Federal Signal is a China-based joint venture manufacturer of refuse truck bodies for waste collection and disposal for Asian markets. Jetstream manufactures high pressure waterblast equipment and accessories for commercial and industrial cleaning and maintenance operations. In addition to equipment sales, the group is increasingly engaged in the sale of parts and in providing renting and used equipment resale services.

Segment results have been restated for all periods presented to exclude losses from the North American refuse business, which was reclassified as a discontinued operation in 2005. The Company substantially disposed of the assets of this business during 2006.

Tool Group

The Tool Group manufactures, and in some cases is a reseller of, a broad range of precision tooling, ejector pins, core pins, sleeves and accessories for the plastic injection mold industry; and precision tooling and die components for the metal stamping industry. Tooling products are marketed under the Dayton Progress and PCS brand names and manufactured in North America, Europe and Asia.

Segment results have been restated for all periods presented to exclude the impact from Manchester Tool Company, On Time Machining and ClappDico Corporation or “Cutting Tool Operations”; which was reclassified as a discontinued operation in 2006. The Company completed the sale of the Ohio based Cutting Tool Operations on January 31, 2007.

Restructurings

In June 2004, the Company announced the implementation of the first steps of a broad restructuring initiative aimed at enhancing the Company’s competitive profile. The measures announced addressed three key issues: improving the profitability of the Fire Rescue Group, divesting non-strategic business activities, and improving the Company’s manufacturing overhead cost structure.

The initiatives included the following restructuring plans and divestitures:

•  Closure of Preble, New York plant — By the end of 2004, the Company had closed its 120,000 square feet production facilities in Preble, New York and consolidated US production of fire rescue vehicles into its Ocala, Florida operations.

•  Sale of interest in Plastisol B.V. Holdings — In 2004, the Company sold its 54% majority ownership interest in Plastisol B.V. Holdings to its minority partner. The Company acquired its ownership interest in Plastisol in 2001. Plastisol manufactures glassfiber reinforced polyester fire truck cabs and bodies mainly for the European and Asian markets.

•  Safety Storage Inc. joint venture — In June 2004, the Company concluded the sale of its 30% minority ownership interest in Safety Storage, Inc. to the majority owner. Safety Storage makes mobile buildings for the off-site storage of hazardous waste.

•  Industrial leasing portfolio — In 2001, the Company made the strategic decision to exit the leasing business for industrial customers. During 2004, the Company sold a $10 million portion of its industrial leases to a financial institution and continued the runoff of the rest of the portfolio; proceeds were used to pay down debt.

•  Dayton France manufacturing consolidation — The Company has completed reduction of certain manufacturing activities at Dayton France.

In the fourth quarter of 2006 the Company completed the closure of the Red Deer, Canada operation and consolidated the production of its fire rescue vehicles into the Ocala, Florida facility. In the fourth quarter of 2005, the Company completed the closure of operations in Federal APD do Brasil, LTDA, which produced parking

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systems for the local market. In 2004, the Company divested Technical Tool, Inc., a small manufacturer of precision beverage can tooling, and Justrite Manufacturing Company, L.L.C., a leading manufacturer of products for the safe storage of flammable and hazardous materials.

Financial Services

The Company offers a variety of short- and long-term financing primarily to its Fire Rescue and Environmental Solutions independent dealers and customers. The Company provides financing, principally through sales-type leases, to (i) municipal customers to purchase vehicles and (ii) independent dealers to finance the purchase of vehicle inventory. Financings are secured by vehicles and primarily, in the case of the independent dealers, the dealer’s personal guarantee. In 2001, the Company decided to curtail new leasing to industrial customers, who generally have a higher credit risk; this portfolio continues to diminish over time as no new leases were extended to industrial customers in 2006. By December 31, 2006, the Company’s investment in leases to industrial customers had declined to 4% of its lease financing and other receivables.

Marketing and Distribution

The Safety and Security Systems Group companies sell to industrial customers through approximately 2,000 wholesalers/distributors who are supported by Company sales personnel and/or independent manufacturer’s representatives. Products are also sold to municipal and governmental customers through more than 900 active independent distributors as well as through original equipment manufacturers and direct sales. International sales are made through the group’s independent foreign distributors or on a direct basis. The Company also sells complex, integrated warning, communications and parking systems through a combination of a direct sales force and distributors.

Fire Rescue and Environmental Solutions use both direct sales and dealer networks to service customers generally depending on the size of the customer as well as the technical complexity of the sale. The Company believes its national and global dealer networks for vehicles distinguishes it from its competitors. Dealer representatives are on-hand to demonstrate the vehicles’ functionality and capability to customers as well as service to the vehicles on a timely basis.

The Tool Group sells to die and mold builders, plastic molders, metal stampers and metal fabricators through distributors and a direct sales organization. Because of the consumable nature of most of the Tool Group’s products, volume depends mainly on repeat orders from thousands of customers and end users, driven primarily by their production levels and to a lesser extent by the volumes of new dies and molds being ordered for new products. Many of the Tool Group’s customers have some ability to produce certain products themselves, but at a cost disadvantage. Major market emphasis is placed on quality of product, delivery, level of service and price. Inventories for certain products, are maintained to assure prompt service to the customer, while other products are made to order. The average order for standard tools is filled in less than one week for domestic shipments and within two weeks for international shipments.

Customers and Backlog

Approximately 40%, 25% and 35% of the Company’s total 2006 orders were to US municipal and government customers, US commercial and industrial customers, and non-US customers, respectively. No single customer accounted for a material part of the Company’s business.

The Company’s US municipal and government customers depend on tax revenues to support spending. A sluggish industrial economy, therefore, will eventually impact a municipality’s revenue base as jobs are lost and profits decline. Generally, a municipal slowdown lags far enough behind the industrial slowdown such that the industrial economy is growing again by the time municipalities reduce their spending. The US economic downturn from 2001 to 2003 lasted longer than expected, allowing spending cuts by municipalities to affect the Company during the same time period as weak industrial demand was experienced. During 2006, the Company saw municipal and governmental orders increase 3% from 2005, to add to the 10% increase in these orders in 2005 compared to 2004.

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The Company’s backlog totaled $403 million and $386 million as of December 31, 2006 and 2005, respectively. The 4% increase is primarily attributed to strong orders for vacuum trucks, sewer cleaners and truck mounted aerial access platforms, partially offset by lower orders for other fire rescue vehicles. A substantial majority of the orders in backlog at December 31, 2006 are expected to be filled during 2007.

Suppliers

The Company purchases a wide variety of raw materials from around the world for use in the manufacture of its products, although the majority of current purchases are from North American sources. To minimize availability, price and quality risk, the Company is party to numerous supplier strategic alliances. Although certain materials are obtained from either a single-source supplier or a limited number of suppliers, the Company has identified alternative sources to minimize the interruption to its business in the event of supply problems.

Components critical in the production of the Company’s vehicles (such as engines, transmissions, drivetrains, axles and tires) are purchased from a select number of suppliers and may be specified by the customer. The Company also purchases raw and fabricated aluminum and steel as well as commercial chassis with certain specifications from a few sources.

The Company believes it has adequate supplies or sources of availability of the raw material and components necessary to meet its needs. However, there are risks and uncertainties with respect to the supply of certain of these raw materials that could impact their price, quality and availability in sufficient quantities.

Competition

Within specific product categories and domestic markets, the Safety and Security Systems Group companies are among the leaders with three to four strong competitors and several additional ancillary market participants. The group’s international market position varies from leader to ancillary participant depending on the geographic region and product line. Generally, competition is intense as to all of the group’s products and purchase decisions are made based on competitive bidding, price, reputation, performance and servicing.

E-ONE is a leading, single-source manufacturer of custom-built, stainless steel and aluminum-bodied fire apparatus and chassis in a market served by approximately ten key manufacturers and approximately 70 small, regional manufacturers. E-ONE occupies the number one or two position of the North American pumper and aerial market based on units. E-ONE is a leading command vehicle provider to the city, state and federal agencies for natural and man-made disaster response. In addition, E-ONE is a significant global provider of industrial pumpers and aerials serving the petrochemical and pharmaceutical industries. E-ONE also competes with six manufacturers worldwide in the production of airport rescue and firefighting vehicles. Bronto Skylift is established as the articulated aerial leader in the global fire fighting and rescue platform markets; the Company manufactures and distributes vehicle-mounted aerial access platforms globally.

Within the Environmental Solutions Group, Elgin is recognized as the market leader among several domestic sweeper competitors and differentiates itself primarily on product performance. RAVO, the Company’s Dutch compact sweeper manufacturer, also competes on product performance through its vacuum technology and successfully leads in market share for mid-sized sweepers among several regional European manufacturers. Vactor and Guzzler both maintain the leading domestic position in their respective marketplaces by enhancing product performance with leading technology and application flexibility. Jetstream is a market leader in the in-plant cleaning segment of the US waterblast industry competing on product performance and rapid delivery.

The Tool Group companies compete with several hundred competitors worldwide. In North America, the Company holds a share position ranging from number one to number three depending on the product offering.

Research and Development

The information concerning the Company’s research and development activities included in Note 14 of the financial statements contained under Item 8 of this Form 10-K is incorporated herein by reference.

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Patents and Trademarks

The Company owns a number of patents and possesses rights under others to which it attaches importance, but does not believe that its business as a whole is materially dependent upon any such patents or rights. The Company also owns a number of trademarks that it believes are important in connection with the identification of its products and associated goodwill with customers, but no material part of the Company’s business is dependent on such trademarks.

Employees

The Company employed over 5,400 people in ongoing businesses at the close of 2006. Approximately 16% of the Company’s domestic hourly workers were unionized at December 31, 2006. The Company believes relations with its employees continue to be good.

Governmental Regulation of the Environment

The Company believes it substantially complies with federal, state and local provisions that have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment. Capital expenditures in 2006 attributable to compliance with such laws were not material. The Company believes that the overall impact of compliance with environmental regulations will not have a material effect on its future operations.

Seasonality

Certain of the Company’s businesses are susceptible to the influences of seasonal buying or delivery patterns. The Company’s businesses which tend to have lower sales in the first calendar quarter compared to other quarters as a result of these influences are street sweeping, fire rescue products, outdoor warning, emergency signaling products and parking systems.

Additional Information

The Company makes its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports available, free of charge, through its Internet website (http://www.federalsignal.com) as soon as reasonably practical after it electronically files or furnishes such materials to the Securities and Exchange Commission (“SEC”). All of the Company’s filings may be read or copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding issuers that file electronically.

Item 1A.   Risk Factors.

The following are some of the risks that we face in our business. The list of risk factors is not exhaustive. There can be no assurance that we have correctly identified and appropriately assessed all factors affecting our business or that publicly available and other information with respect to these matters is complete and correct. Additional risks not presently known to us or that we currently believe to be immaterial also may adversely impact us. Should any risks and uncertainties develop into actual events, these developments could have material adverse effects on our business, financial condition and results of operations.

Our financial results are subject to considerable cyclicality.

Our ability to be profitable depends heavily on varying conditions in the United States government and municipal markets and the overall United States economy. The industrial markets in which we compete are subject to considerable cyclicality, and move in response to cycles in the overall business environment. Many of our customers are municipal governmental agencies, and as such, we are dependent on municipal government spending. Spending by our municipal customers can be affected by local political circumstances, budgetary constraints, and

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other factors. The United States government and municipalities depend heavily on tax revenues as a source of their spending and, accordingly, there is a correlation, usually lagged by one or two years, between the overall strength of the United States economy and our sales to the United States government and municipalities. Therefore, downturns in the United States economy are likely to result in decreases in demand for our products. During previous economic downturns, we experienced decreases in sales and profitability, and we expect our business to remain subject to similar economic fluctuations in the future.

The inability to obtain raw materials, component parts, and/or finished goods in a timely and cost-effective manner from suppliers would adversely affect our ability to manufacture and market our products.

We purchase raw materials and component parts from suppliers to be used in the manufacturing of our products. In addition, we purchase certain finished goods from suppliers. Changes in our relationships with suppliers or increases in the costs of purchased raw materials, component parts or finished goods could result in manufacturing interruptions, delays, inefficiencies or our inability to market products. In addition, our profit margins would decrease if prices of purchased raw materials, component parts or finished goods increase and we are unable to pass on those increases to our customers.

We operate in highly competitive markets.

The markets in which we operate are highly competitive. The intensity of this competition, which is expected to continue, can result in price discounting and margin pressures throughout the industry and adversely affects our ability to increase or maintain prices for our products. In addition, certain of our competitors may have lower overall labor or material costs.

Failure to keep pace with technological developments may adversely affect our operations.

We are engaged in an industry which will be affected by future technological developments. The introduction of products or processes utilizing new technologies could render our existing products or processes obsolete or unmarketable. Our success will depend upon our ability to develop and introduce on a timely and cost-effective basis new products, processes and applications that keep pace with technological developments and address increasingly sophisticated customer requirements. We may not be successful in identifying, developing and marketing new products, applications and processes and product or process enhancements. We may experience difficulties that could delay or prevent the successful development, introduction and marketing of product or process enhancements or new products, applications or processes. Our products, applications or processes may not adequately meet the requirements of the marketplace and achieve market acceptance. Our business, operating results and financial condition could be materially and adversely affected if we were to incur delays in developing new products, applications or processes or product or process enhancements or if our products do not gain market acceptance.

Our ability to operate our Company effectively could be impaired if we fail to attract and retain key personnel.

Our ability to operate our businesses and implement our strategies depends, in part, on the efforts of our executive officers and other key employees. In addition, our future success will depend on, among other factors, our ability to attract and retain qualified personnel, including finance personnel, research professionals, technical sales professionals and engineers. The loss of the services of any key employee or the failure to attract or retain other qualified personnel could have a material adverse effect on our business or business prospects.

We have international operations that are subject to foreign economic and political uncertainties.

Our business is subject to fluctuations in demand and changing international economic and political conditions which are beyond our control. During 2006, approximately 35% of our sales were to customers outside the United States; with approximately 27% of sales being supplied from our overseas operations. We expect a significant and increasing portion of our revenues and profits to come from international sales for the foreseeable future. Operating

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in the international marketplace exposes us to a number of risks, including abrupt changes in foreign government policies and regulations and, in some cases, international hostilities. To the extent that our international operations are affected by unexpected and adverse foreign economic and political conditions, we may experience project disruptions and losses which could significantly reduce our revenues and profits.

Some of our contracts are denominated in foreign currencies, which result in additional risk of fluctuating currency values and exchange rates, hard currency shortages and controls on currency exchange. Although currency exposure is hedged in the short term, over the longer term changes in the value of foreign currencies could increase our US dollar costs for, or reduce our US dollar revenues from, our foreign operations. Any increased costs or reduced revenues as a result of foreign currency fluctuations could affect our profits.

We may incur material losses and costs as a result of product liability, warranty, recall claims or other lawsuits or claims that may be brought against us.

We are exposed to product liability and warranty claims in the normal course of business in the event that our products actually or allegedly fail to perform as expected or the use of our products results, or is alleged to result, in bodily injury and/or property damage. Accordingly, we could experience material warranty or product liability costs in the future and incur significant costs to defend against these claims. We carry insurance and maintain reserves for product liability claims. However, we cannot be assured that our insurance coverage will be adequate if such claims do arise, and any liability not covered by insurance could have a material adverse impact on our results of operations and financial position. A future claim could involve the imposition of punitive damages, the award of which, pursuant to state laws, may not be covered by insurance. In addition, warranty claims are not covered by our product liability coverage. Any product liability or warranty issues may adversely impact our reputation as a manufacturer of high quality, safe products and may have a material adverse effect on our business.

The costs associated with complying with environmental and safety regulations could lower our margins.

We, like other manufacturers, continue to face heavy governmental regulation of our products, especially in the areas of the environment and employee health and safety. Complying with environmental and safety requirements has added and will continue to add to the cost of our products, and could increase the capital required. While we believe that we are in compliance in all material respects with these laws and regulations, we may be adversely impacted by costs, liabilities or claims with respect to our operations under existing laws or those that may be adopted. These requirements are complex, change frequently and have tended to become more stringent over time. Therefore, we could incur substantial costs, including cleanup costs, fines and civil or criminal sanctions as a result of violations, or liabilities under, environmental laws and safety regulations.

We are subject to a number of restrictive debt covenants.

Our credit facility and other debt instruments contain certain restrictive debt covenants that may hinder our ability to take advantage of attractive business opportunities. Our ability to meet these covenants may be affected by factors outside our control. Failure to meet one or more of these covenants may result in an event of default. Upon an event of default, some of our lenders may be entitled to declare all amounts outstanding as due and payable.

Item 1B.   Unresolved Staff Comments.

None.

Item 2.   Properties.

As of December 31, 2006, the Company utilized 19 principal manufacturing plants located throughout North America, as well as 11 in Europe, 1 in South Africa and 2 in the Far East.

In total, the Company devoted approximately 1.3 million square feet to manufacturing and 0.9 million square feet to service, warehousing and office space as of December 31, 2006. Of the total square footage, approximately 39% is devoted to the Safety and Security Systems Group, 13% to the Tool Group, 23% to the Fire Rescue Group

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and 25% to the Environmental Solutions Group. Approximately 71% of the total square footage is owned by the Company with the remaining 29% being leased.

All of the Company’s properties, as well as the related machinery and equipment, are considered to be well-maintained, suitable and adequate for their intended purposes. In the aggregate, these facilities are of sufficient capacity for the Company’s current business needs.

Item 3.   Legal Proceedings.

The information concerning the Company’s legal proceedings included in Note 13 of the financial statements contained under Item 8 of this Form 10-K is incorporated herein by reference.

Item 4.   Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of security holders through the solicitation of proxies or otherwise during the three months ended December 31, 2006.

Item 4A.   Executive Officers.

The following is a list of the Company’s executive officers, their ages, business experience and positions and offices as of February 1, 2007:

Paul D. Box, age 53, was appointed Vice President and Chief Procurement Officer in March 2006. Previously, Mr. Box was Vice President Global Purchasing at Newell Rubbermaid from 2002 to March 2006, and Director Corporate Procurement at Compaq Computer Corporation from 1996 to 2002.

Paul Brown, age 43, was appointed Vice President and Controller in March 2005. He served as Vice President-Internal Audit from April 2004. Previously, Mr. Brown was Vice President Finance-Flame Retardants, for Great Lakes Chemical Corporation from 2000 to April 2004.

Kimberly L. Dickens, age 45, was elected as Vice President Human Resources in April 2004. Previously, Ms. Dickens was appointed Vice President Human Resources for BorgWarner, Inc. from 2002 to March 2004, and Vice President Human Resources for BorgWarner Transmission Systems from 1999 to 2002.

Marc L. Gustafson, age 54, was appointed Group President, Fire Rescue Group effective October 7, 2004. Previously, Mr. Gustafson was President of American LaFrance from 2003 to 2004, Board Member (non-paid position) and laborer for Habitat for Humanity from 2001 to 2003 and President and CEO for Volvo Trucks NA from 1996 to 2001.

David E. Janek, age 43, was appointed Vice President and Treasurer in September 2006. Mr. Janek was Vice President Finance, Safety Products Group from June 2002. Previously, Mr. Janek was Vice President Finance and Administration at Zellweger Analytics, Inc. from 2001 to 2002.

Stephanie K. Kushner, age 51, was elected as Vice President and Chief Financial Officer in February 2002. Previously, Ms. Kushner was Vice President — Treasury and Corporate Development for FMC Technologies in 2001 and Vice President and Treasurer for FMC Corporation from 1999 to 2001.

David R. McConnaughey, age 50, was appointed President of Federal Signal’s Safety and Security Systems Group in March 2006. Previously, Mr. McConnaughey was President Maytag All Brand Service from 2005 to March 2006 and Vice President Maytag All Brand Service from 2004 to 2005. Previously, Mr. McConnaughey held several roles with Maytag Corporation including Vice President and G.M. Amana Brand 2003 to 2004, Vice President Supply Chain 2002 to 2003 and Vice President and G.M. Laundry Division 1998 to 2002.

Jennifer L. Sherman, age 42, was appointed Vice President, General Counsel and Secretary effective March 2004. Ms. Sherman was previously Deputy General Counsel and Assistant Secretary from 1998 to 2004.

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Gregory A. Sink, age 48, was appointed Vice President Strategic Business Development in 2005. Previously, Mr. Sink was Vice President and General Manager of Federal Signal’s Communication System Division from 2000 to 2005.

Mark D. Weber, age 49, was appointed President of the Environmental Solutions Group in April 2003. Mr. Weber was Vice President Sweeper Products for the Environmental Solutions Group from 2002 to 2003, General Manager of Elgin Sweeper Company from 2001 to 2002.

Robert D. Welding, age 58, was elected President and Chief Executive Officer and elected to the Board of Directors in December 2003. Previously, Mr. Welding was Executive Vice President of BorgWarner, Inc. from 1999 to 2003, President of BorgWarner, Inc.’s Driveline Group from 2002 to 2003, President of BorgWarner Transmission Systems, Inc. from 1996 to 2003 and Vice President of BorgWarner, Inc. from 1996 to 1999.

Michael K. Wons, age 42, was appointed Vice President and Chief Information Officer in November 2006. Previously, Mr. Wons was Senior Technology Strategy Director at Microsoft Corporation from 2002 to November 2006 and Executive Vice President and CTO at National Transportation Exchange from 2001 to 2002.

These officers hold office until the next annual meeting of the Board of Directors following their election and until their successors have been elected and qualified.

There are no family relationships among any of the foregoing executive officers.

PART II

Item 5.   Market for Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

(a)   Market Information

The Company’s common stock is listed and traded on the New York Stock Exchange (“NYSE”) under the symbol FSS. At December 31, 2006, there were no material restrictions on the Company’s ability to pay dividends. The information concerning the Company’s market price range data included in Note 18 of the financial statements contained under Item 8 of this Form 10-K is incorporated herein by reference.

As of January 31, 2007, there were 3,009 holders of record of the Company’s common stock.

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The following graph matches the cumulative 5-year total return of shareholders on Federal Signal Corporation’s common stock relative to the cumulative total returns of the Russell 2000 index, the S & P Midcap 400 index and the S & P Industrials index. The graph tracks the performance of a $100 investment in the Company’s common stock and in each of the indices (with the reinvestment of all dividends) from December 31, 2001 to December 31, 2006.

Comparison of 5 Year Cumulative Total Return*

Among Federal Signal Corporation, The Russell 2000 Index,

The S & P Midcap 400 Index and the S & P Industrials Index

*$100 invested on December 31, 2001 in stock or index-including reinvestment of dividends. Fiscal year ending December 31.

Copyright^© 2007, Standard & Poor’s a division of The McGraw-Hill Companies, Inc. All rights reserved. www.researchdatagroup.com/S&P.htm

	12/01		12/02		12/03		12/04		12/05		12/06
Federal Signal Corporation _ _		100.00		90.43		85.00		87.60		75.56		81.97
Russell 2000 . . . . . .		100.00		79.52		117.09		138.55		144.86		171.47
S & P Midcap 400 — — –		100.00		85.49		115.94		135.05		152.00		167.69
S & P Industrials _ _		100.00		73.66		97.37		114.93		117.60		133.23

The stock price performance included in this graph is not necessarily indicative of future stock price performance.

The information concerning the Company’s quarterly dividend per share data included in Note 18 of the financial statements contained under Item 8 of this Form 10-K is incorporated herein by reference.

10

(b)   Not applicable

(c)   Issuer Repurchases of Equity Securities

The program to repurchase 350,000 shares was approved by the Board of Directors’ on February 9, 2006. The Company disclosed this plan to repurchase shares to offset the dilution impact of stock based compensation in its Form 10-K filed on February 23, 2006. On July 18, 2006, the Board approved a supplemental share repurchase of up to 400,000 shares before December 31, 2006. This repurchase was completed during the quarter ended September 30, 2006.

					Total Number of Shares
					Purchased as Part of		Maximum Number of
	Total Number of		Average Price		Publicly Announced		Shares That May Yet
Period	Shares Purchased(a)		Paid per Share		Plans		Be Purchased
Mar. 2006		175,000	$	18.05		175,000
May 2006		175,000		17.50		175,000
July 2006		179,700		15.22		179,700
Aug. 2006		220,500		14.65		220,500
Total		750,200	$	16.27		750,200

11

Item 6.   Selected Financial Data.

The following table presents the selected financial information of the Company as of, and for each of the five years ended in the period December 31, 2006:

	2006			2005			2004			2003			2002
Operating Results (dollars in millions):
Net sales(a)	$	1,211.6		$	1,119.0		$	1,024.5		$	1,023.1		$	939.2
Income (loss) before income taxes(a)	$	42.7		$	40.8		$	(0.5	)	$	41.4		$	51.7
Income from continuing operations(a)	$	34.4		$	43.9		$	6.1		$	34.7		$	40.6
Operating margin(a)		5.8	%		5.7	%		2.2	%		5.9	%		7.8	%
Return on average common shareholders’ equity(b)		6.0	%		(1.2	)%		(0.6	)%		9.1	%		11.3	%
Common Stock Data (per share):
Income from continuing operations — diluted	$	0.72		$	0.91		$	0.13		$	0.72		$	0.88
Cash dividends	$	0.24		$	0.24		$	0.40		$	0.80		$	0.80
Market price range:
High	$	19.75		$	17.95		$	20.56		$	20.79		$	27.07
Low	$	12.69		$	13.80		$	15.75		$	13.60		$	16.00
Average common shares outstanding (in millions)		48.0			48.2			48.1			48.0			45.9
Financial Position at Year-End (dollars in millions):
Working capital(a)(c)	$	144.9		$	160.6		$	157.1		$	99.2		$	152.2
Current ratio(a)(c)		1.5			1.6			1.7			1.4			1.8
Total assets	$	1,049.4		$	1,119.5		$	1,132.4		$	1,177.5		$	1,155.9
Long-term debt, net of current portion	$	160.3		$	203.7		$	215.7		$	194.1		$	344.5
Shareholders’ equity	$	386.4		$	376.3		$	412.7		$	422.5		$	398.0
Debt-to-capitalization ratio(d)		37.4	%		43.0	%		37.3	%		40.0	%		44.0	%
Net debt-to-capitalization ratio(f)		35.3	%		33.5	%		35.8	%		39.1	%		37.1	%
Other (dollars in millions):
Orders(a)	$	1,230.1		$	1,100.5		$	1,083.7		$	972.7		$	1,005.1
Backlog(a)	$	403.3		$	386.2		$	411.9		$	330.3		$	412.2
Net cash provided by operating activities	$	29.7		$	70.6		$	52.5		$	70.3		$	102.1
Net cash provided by (used for) investing activities	$	(19.3	)	$	(0.7	)	$	34.1		$	(10.1	)	$	(71.0	)
Net cash provided by (used for) financing activities	$	(83.0	)	$	7.1		$	(81.7	)	$	(59.9	)	$	(38.2	)
Capital expenditures(a)	$	18.2		$	16.6		$	19.4		$	16.8		$	15.1
Depreciation and amortization(a)	$	17.9		$	18.2		$	16.2		$	15.1		$	16.9
Employees(a)		5,469			5,367			5,382			5,666			5,987

(a)	continuing operations only, prior year amounts have been reclassified for discontinued operations as discussed in Note 11 to the financial statements
(b)	excludes cumulative effects of changes in accounting
(c)	working capital: current manufacturing assets less current manufacturing liabilities; current ratio: current manufacturing assets divided by current manufacturing liabilities
(d)	manufacturing operations: total manufacturing debt divided by the sum of total manufacturing debt plus manufacturing equity(e)
(e)	manufacturing equity: total equity less financial services assets plus financial services borrowings
(f)	net debt to capitalization ratio: manufacturing debt less cash and cash equivalents divided by manufacturing equity less cash and cash equivalents

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The 2005 and 2004 income (loss) before income taxes includes restructuring costs of $0.7 million and $7.0 million, respectively. These costs are further explained in Item 7 under Restructuring Charges and in Note 12 to the financial statements. The 2005 income before income taxes was impacted by a $6.7 million gain on the sale of two industrial lighting product lines. The 2004 loss before income taxes was impacted by a $10.6 million loss incurred on a large contract for fire apparatus in the Netherlands, as more completely described in Item 7 under Fire Rescue Operations.

The selected financial data set forth above should be read in conjunction with the Company’s consolidated financial statements, including the notes thereto, and Item 7 of this Form 10-K.

The information concerning the Company’s selected quarterly data included in Note 18 of the financial statements contained under Item 8 of this Form 10-K is incorporated herein by reference.

Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The Company designs and manufactures a suite of products and integrated solutions for municipal, governmental, industrial and airport customers. Federal Signal’s portfolio of products include aerial devices, street sweepers, fire apparatus, safety and security systems, industrial vacuums, waterblasters, sewer cleaners and consumable industrial tooling. Due to technology, marketing, distribution and product application synergies, the Company’s business units are organized and managed in four operating segments: Safety and Security Systems, Fire Rescue, Environmental Solutions and Tool. The Company also provides customer and dealer financing to support the sale of its vehicles. The information concerning the Company’s manufacturing businesses included in Item 1 of this Form 10-K and Note 14 of the financial statements contained under Item 8 of this Form 10-K are incorporated herein by reference.

This Form 10-K, contain the words such as “may,” “will,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “project,” “estimate” and “objective” or the negative thereof or similar terminology concerning the Company’s future financial performance, business strategy, plans, goals and objectives. These expressions are intended to identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include information concerning the Company’s possible or assumed future performance or results of operations and are not guarantees. While these statements are based on assumptions and judgments that management has made in light of industry experience as well as perceptions of historical trends, current conditions, expected future developments and other factors believed to be appropriate under the circumstances, they are subject to risks, uncertainties and other factors that may cause the Company’s actual results, performance or achievements to be materially different.

These risks and uncertainties, some of which are beyond the Company’s control, include the cyclical nature of the Company’s industrial, municipal government and airport markets, technological advances by competitors, the Company’s ability to improve its operating performance in its fire rescue plants, increased warranty and product liability expenses, risks associated with supplier, dealer and other partner alliances, changes in cost competitiveness including those resulting from foreign currency movements, disruptions in the supply of parts or components from the sole source suppliers and subcontractors, retention of key employees and general changes in the competitive environment. These risks and uncertainties include, but are not limited to, the risk factors described under Item 1A, “Risk Factors,” in this Form 10-K. These factors may not constitute all factors that could cause actual results to differ materially from those discussed in any forward-looking statement. The Company operates in a continually changing business environment and new factors emerge from time to time. The Company cannot predict such factors nor can it assess the impact, if any, of such factors on its financial position or results of operations. Accordingly, forward-looking statements should not be relied upon as a predictor of actual results. The Company disclaims any responsibility to update any forward-looking statement provided in this Form 10-K.

Results of Operations

Operating results have been restated to exclude the results of the Cutting Tools operations, formerly a component of the Tool Group which has been presented as discontinued operations and also to reflect the exclusion of the Refuse business which was classified as a discontinued operation in 2005. The Company entered into an

13

agreement for the sale of the Cutting Tool operations in December, 2006. The transaction was completed on January 31, 2007. The assets of the Refuse business were substantially sold in 2006.

Orders and backlog

	2006			2005			2004
Analysis of orders:
Total orders	$	1,230.1		$	1,100.5		$	1,083.7
Change in orders year over year		12.0	%		2.0	%
Change in US municipal and government orders year over year		3.0	%		10.0	%
Change in US industrial and commercial orders year over year		14.0	%		(6.0	)%
Change in non-US orders year over year		23.0	%		(2.0	)%

US municipal and government orders increased 3% in 2006 as a result of high demand for sweepers and sewer cleaners. US industrial and commercial orders increased on continued strength in industrial vacuum trucks and waterblasters. The substantial increase in non-US orders includes a large fire truck order for Montreal, Canada. Demand also increased for US exports in the Fire Rescue, Safety and Security Systems, and Environmental Solutions segments, and for products manufactured in Europe.

US municipal and government orders increased in 2005 primarily due to strong demand for fire apparatus and vacuum equipment. The decrease in 2005 US industrial and commercial orders was due to a $47 million parking system contract received in 2004. Excluding this contract, orders rose 10%, largely due to strength in industrial vacuum trucks and fire apparatus. The decrease in non-US orders in 2005 was primarily due to reduced sales of fire apparatus and a product line divestiture in the third quarter.

Consolidated results of operations

The following table summarizes the Company’s results of operations and operating metrics for each of the three years in the period ended December 31, 2006 ($ in millions, except per share amounts):

	2006			2005			2004
Net sales	$	1,211.6		$	1,119.0		$	1,024.5
Cost of sales		(927.2	)		(867.5	)		(814.3	)
Gross profit		284.4			251.5			210.2
Operating expenses		(214.5	)		(187.1	)		(180.2	)
Restructuring charges		—			(0.7	)		(7.0	)
Operating income		69.9			63.7			23.0
Interest expense		(25.0	)		(23.1	)		(20.6	)
Other income (expense)		(2.2	)		0.2			(2.9	)
Income tax benefit (charge)		(8.3	)		3.1			6.6
Income from continuing operations		34.4			43.9			6.1
Discontinued operations		(11.7	)		(48.5	)		(8.4	)
Net income (loss)	$	22.7		$	(4.6	)	$	(2.3	)
Other data:
Operating margin		5.8	%		5.7	%		2.2	%
Earnings per share — continuing operations	$	0.72		$	0.91		$	0.13

Year Ended December 31, 2006 vs. December 31, 2005

Net sales increased 8% over 2005 attributable to a higher volume of safety and environmental product shipments and increased pricing across all segments. Operating income increased 10% and operating margins

14

increased year over year, on a 13% gross profit increase. Pricing and volume gains overcame higher material and component costs to flow through to earnings. Offsetting the increase in gross profit, was an increase in operating expenses relating to higher sales commissions and selling-related expenses, an increase in stock-based compensation expense of $3.7 million and Economic Value based incentive achievement, at various levels throughout the Company, of $2.1 million. Additionally, a gain of $6.7 million from the sale of a product line reduced operating expenses in 2005.

Interest expense increased 8% from 2005, primarily as a result of higher interest rates and a greater mix of floating rate debt.

Other expenses include the Company’s share of losses relating to the start-up of the joint venture in China.

The 2006 effective tax rate relating to income from continuing operations increased to 19.4% from a tax benefit rate of 7.6%. The effective tax rate in 2005 reflected benefits associated with a reduction of reserves associated with the completion of a multi-year audit of the Company’s US tax returns in the amount of $6.0 million, a benefit associated with the reconciliation of deferred tax liabilities, the effect of tax-exempt municipal income, benefits associated with the repatriation of foreign earnings enabled under the American Jobs Creation Act, as well as the completion of other favorable tax reduction strategies. The 2006 rate benefited from the effect of tax-exempt municipal income and the completion of other favorable tax reduction strategies. Income from continuing operations decreased as a result of the less favorable tax rate in 2006.

Net income improved sixfold over the comparable 2005 period. Net income in 2006 includes an $11.7 million loss from discontinued operations versus a $48.5 million loss in 2005. Discontinued operations in 2006, includes the profitable Cutting Tool Operations of the Tool reporting segment, which were sold in January 2007. Also included in discontinued operations are the 2006 operations of the North American Refuse truck body business operating under the Leach brand name. Substantially all of the assets of the Leach business were sold during the second half of 2006.

Year Ended December 31, 2005 vs. December 31, 2004

Sales increased 9% in 2005 from 2004 as a result of strength in the fire rescue and vacuum truck businesses and deliveries against a large parking system contract. The Company’s operating income of $63.7 million in 2005 included restructuring charges of $0.7 million as the restructuring activities announced in 2004 were completed. The increase in income from continuing operations of $37.8 million compared to 2004 reflected the increase in sales across all groups and also lower operating costs in the fire rescue business and lower restructuring costs partially offset by higher corporate expense and interest expense.

Interest expense increased 12% to $23.1 million in 2005 compared to 2004. This increase was largely due to higher interest rates.

The Company’s 2005 effective tax rate on continuing operations of (7.6)% reflects a benefit of $6.0 million primarily due to a reduction in reserves in the second quarter associated with the completion of an audit of the Company’s US tax returns which encompassed the years 1999 — 2003, a $1.6 million benefit recorded to recognize the differences that existed between the recorded deferred tax liabilities and the amount that should have been recorded based on an analysis of timing differences between financial reporting and tax reporting, the effect of tax-exempt municipal income and a $2.5 million benefit in the fourth quarter of 2005 due to the repatriation of foreign cash balances associated with the American Jobs Creation Act; this benefit was realized because a portion of the repatriated earnings had previously been reserved at higher tax rates.

The net loss for 2005 of $4.6 million included $48.5 million of loss from discontinued operations. Discontinued operations in 2005 included the North American refuse truck body business, trading under the Leach brand name, which was classified as a business held for sale at December 31, 2005, and Federal APD do Brasil, LTDA, where operations were closed in the fourth quarter of 2005.

15

Restructuring Charges

The following table summarizes the Company’s restructuring charges by segment for each of the three years in the period ended December 31, 2006 ($ in millions):

	2006		2005			2004
Safety and Security Systems	$	—	$	—		$	—
Fire Rescue		—		0.9			5.4
Environmental Solutions		—		—			—
Tool		—		(0.2	)		1.2
Corporate		—		—			0.4
Total	$	—	$	0.7		$	7.0

In June 2004, the Company announced the implementation of the first steps of a broad restructuring initiative. The plan aimed at enhancing the Company’s competitive profile and creating a solid foundation for annual revenue growth in the high single digits. The measures included improving the profitability of the fire rescue and European tooling operations, divesting non-strategic business activities and improving the Company’s overhead cost structure.

The Company closed its 120,000 square foot production facilities in Preble, New York and consolidated US production of fire rescue vehicles into its Ocala, Florida operations as of December 31, 2004. The consolidation was possible because successful lean manufacturing initiatives reduced manufacturing space requirements in the Fire Rescue Group, and because of progress made to rationalize and restructure the broad array of vehicle offerings. The Fire Rescue Group incurred $5.4 million in restructuring charges for the year ended December 31, 2004 and a further $0.9 million in 2005 bringing the total to $6.3 million. This consisted of $2.5 million in real property and manufacturing equipment impairment, $3.5 million in employee severance and related costs and $0.3 million of other costs.

The Company also reduced the level of tooling production in France transferring some production to its Portugal facility, which began operations in 2003. The transfer was part of a broader plan to reduce fixed overhead and shift the manufacturing footprint to lower-cost locations. The Tool Group incurred $1.2 million in restructuring costs for the year ended December 31, 2004 and recorded a gain of $0.2 million against restructuring costs in 2005 due to a better than expected salvage value for manufacturing equipment. The total of $1.0 million consisted of severance for terminated employees.

The Company’s corporate office incurred $0.4 million in restructuring charges for the year ended December 31, 2004; these costs related to outside services directly attributable to the restructuring plan.

The 2004 restructuring plan was complete as of December 31, 2005.

Safety and Security Systems Operations

The following table presents the Safety and Security Systems Group’s results of operations for each of the three years in the period ended December 31, 2006 ($ in millions):

	2006			2005			2004
Total orders	$	305.5		$	259.5		$	294.7
US orders		184.9			164.8			199.4
Non-US orders		120.6			94.7			95.3
Net sales		304.5			276.5			247.4
Operating income		41.2			45.0			33.5
Operating margin		13.5	%		16.3	%		13.5	%

Orders improved 18% in 2006 over the comparable period in 2005 with strength across all major product lines, including industrial signaling and communications, hazardous area lighting, police products, warning systems, and

16

parking systems. Net sales increased 10% over 2005, on increased volumes across all product lines, with the exception of airport parking systems, and despite the absence of $8 million of revenue from two industrial lighting product lines which were divested in the third quarter of 2005.

The operating income decline of 9% and the lower reported operating margin resulted from the inclusion of a $6.7 million gain on the sale of the industrial lighting product lines in the prior year comparable period. Excluding the gain, and the operations of the disposed product lines, the operating margin increased slightly, on higher sales volume and improved pricing, offset by higher compensation-related charges.

Orders decreased 12% in 2005 largely due to a $47 million airport parking system order received in 2004. Excluding that order, an overall order increase of 5% was achieved due to strong demand in US industrial and commercial sectors. Full year revenues increased 12% in 2005 due to deliveries against the large airport parking system contract and strength in police products, electrical products and oil and mining related hazardous lighting products.

Operating income in 2005 included a $6.7 million gain on the sale of two industrial lighting product lines. The remainder of the income increase, compared with 2004, was largely due to the increased sales.

Fire Rescue Operations

The following table presents the Fire Rescue Group’s results of operations for each of the three years in the period ended December 31, 2006 ($ in millions):

	2006			2005			2004
Total orders	$	365.0		$	354.7		$	355.8
US orders		199.3			234.7			211.9
Non-US orders		165.7			120.0			143.9
Net sales		384.8			371.2			360.9
Operating income (loss)		6.8			2.3			(23.9	)
Operating margin		1.8	%		0.6	%		(6.6	)%

Orders improved 3% over 2005, on strong aerial product demand in the Bronto articulated aerial apparatus business, particularly in the European and Asian markets as these platforms increasingly displace traditional ladders. The decline in US orders reflects effects of continuing changes in the Company’s dealer channel structure and policies. Sales increased 4% over the same period in 2005, on higher realized pricing across all product lines mainly due to pricing actions taken in 2005 to recover escalating material costs, and due to currency translation on non-USD orders. Partially offsetting these increases was the adverse impact of lower shipments from the Ocala production facility.

The operating income increase includes a $1.6 million benefit from the recovery of costs from certain suppliers relating to a large contract substantially completed in 2004. The benefit was partially offset by $1.0 million of costs incurred for the closure of a production facility in Red Deer, Alberta. The facility was sold in December, 2006. Excluding the effect of these events, operating income increased 170%, and operating margins improved to 1.6%.

Orders were essentially flat in 2005 compared to 2004. US municipal fire truck demand was strong throughout the year; however this increase was offset by lower international orders. Revenue rose 3% to $371.2 million and operating margin recovered to 0.6% due to performance improvements in the Ocala, Florida operation, lower restructuring charges and the realization of the benefits of the 2004 restructuring. Operating margin for 2004 of (6.6)% included the $10.6 million loss recorded on the multi-year contract for fire apparatus in the Netherlands. Results in 2005 also included $0.9 million in restructuring charges.

17

Environmental Solutions Operations

The following table presents the Environmental Solutions Group’s results of operations for each of the three years in the period ended December 31, 2006 ($ in millions):

	2006			2005			2004
Total orders	$	437.2		$	361.9		$	311.2
US orders		333.6			268.1			233.5
Non-US orders		103.6			93.8			77.7
Net sales		399.4			347.7			294.6
Operating income		37.1			28.9			25.2
Operating margin		9.3	%		8.3	%		8.6	%

Orders increased 21% over 2005, showing strength and improvement across all product lines, most notably in street sweepers and vacuum trucks. Sales increased 15% over the prior year on volume strength, higher pricing to offset increases in material and component costs and favorable currency movement.

Operating income increased 28% over the prior year. The operating margin benefited from the flow through of increased product demand and pricing and an improvement in production cost absorption, offset by elevated operating costs incurred from executing growth initiatives, including advancing the ERP system implementation, global expansion, and new product development.

In 2005, full year orders of $361.9 million increased 16% with increases at all operations. US vacuum truck and sewer cleaner orders were strong throughout the year. Higher sweeper volumes were the primary driver of the 21% increase in non-US orders. Revenue of $347.7 million was up 18% over 2004 primarily due to increased shipment volumes and higher pricing. Price increases were implemented in late-2004 and early-2005 to offset escalating raw material costs. Operating income increased primarily due to the increase in sales. The full year operating margin for 2005 declined to 8.3% from 8.6% in 2004 as a result of expenses related to a China joint venture initiated in the year and costs related to the progression of an enterprise business system implementation.

Tool Operations

The following table presents the Tool Group’s results of operations for each of the three years in the period ended December 31, 2006 ($ in millions):

	2006			2005			2004
Total orders	$	122.4		$	124.4		$	122.0
US orders		82.6			82.5			80.4
Non-US orders		39.8			41.9			41.6
Net sales		122.9			123.6			121.6
Operating income		8.2			11.3			9.9
Operating margin		6.7	%		9.1	%		8.1	%

Segment results have been restated to exclude the results of the Cutting Tools Operations, which have been presented as discontinued operations. The Company entered into an agreement for the sale of the Cutting Tool operations in December, 2006. The transaction was completed on January 31, 2007 for a gain of approximately $25 million.

US orders remained flat in 2006, and non-US orders contracted marginally. Sales were similarly impacted. All businesses continue to feel the impact of a weak automotive market and softness in the US housing market. Operating income declined 27% partially as a result of approximately $0.9 million of costs associated with a voluntary workforce reduction at the Dayton, Ohio plant in 2006. In addition, a business system conversion implementation error identified in 2006 resulted in approximately $1.5 million of incremental costs associated with lost productivity during the first half of 2006. These events affected the operating margin by 2.4 percentage points, and have since been satisfactorily resolved.

18

US orders increased 2% in 2005 due mainly to price increases. A stronger US industrial economy was offset by the weak automobile market. Sales were relatively flat in both US and non-US markets in 2005 compared to 2004. The operating income increase of $1.4 million in 2005 was primarily due to lower restructuring costs. The group incurred $1.2 million of restructuring charges in 2004 and recorded a $0.2 million gain in 2005.

Corporate Expense

Corporate expenses totaled $23.4 million in 2006 and $23.8 million in 2005 and $21.7 million in 2004. The 2% decrease in 2006 reflects lower expenses associated with firefighter hearing loss litigation and lower bad debt expenses relating to leasing activities, offset by higher compensation-related costs, particularly stock option expense of $1.3 million, as the Company began expensing stock options in 2006 as required under FASB Statement No. 123(R). In 2005, corporate expenses increased 10%, reflecting higher expenses associated with incentive compensation and salaries associated with improved earnings and an increased headcount. In 2005, incentive compensation included only bonuses and restricted stock awards.

Legal Matters

The Company has been sued by over 2,500 firefighters in numerous separate cases alleging that exposure to the Company’s sirens impaired their hearing. The Company has successfully defended itself in over 40 similar cases and contests the allegations. The Company continues to aggressively defend the matter. For further details regarding this and other legal matters, refer to Note 13 in the financial statements included in Item 8 of this Form 10-K.

Financial Services Activities

The Company maintained an investment of $158.9 million and $169.2 million at December 31, 2006 and 2005, respectively in lease financing and other receivables that are generated primarily by its Fire Rescue and Environmental Solutions customers. The decrease in leasing assets primarily resulted from early loan payoffs, and the continued runoff of the industrial leasing portfolio resulting from the Company’s decision in 2001 to no longer extend new leases to industrial customers. Financial services assets generally have repayment terms ranging from one to ten years. These assets are 94% leveraged as of December 31, 2006 and 2005, consistent with their overall quality; financial services debt was $149.0 million and $158.9 million at December 31, 2006 and 2005, respectively.

Financial revenues totaled $8.2 million, $9.6 million and $12.1 million in 2006, 2005 and 2004, respectively. The decline in 2006 and 2005 reflects the sale of a portion of the Company’s industrial leasing portfolio and lower financings of municipal product sales.

Financial Condition, Liquidity and Capital Resources

During each of the three years in the period ended December 31, 2006, the Company utilized its cash flows from operations to pay cash dividends to shareholders and to fund sustaining and cost reduction capital needs of its operations. Beyond these uses, remaining cash was used to pay down debt, to repurchase shares of common stock and to make voluntary pension contributions.

19

The Company’s cash and cash equivalents totaled $19.3 million, $91.9 million and $14.9 million as of December 31, 2006, 2005 and 2004, respectively. The following table summarizes the Company’s cash flows for each of the three years in the period ended December 31, 2006 ($ in millions):

	2006			2005			2004
Operating cash flow	$	29.7		$	70.6		$	52.5
Dividends		(11.5	)		(13.5	)		(19.3	)
Capital expenditures		(18.2	)		(16.6	)		(19.4	)
Purchases of treasury stock		(12.1	)		(5.0	)		—
Borrowing activity, net		(60.5	)		24.9			(62.4	)
All other, net		—			16.6			53.5
Increase (decrease) in cash	$	(72.6	)	$	77.0		$	4.9

Cash flow from operations decreased by $40.9 million in 2006 from 2005. The lower cash flow was driven by increases in working capital requirements to support high year-end sales; additional outsourcing to support higher sewer cleaner and aerial device production levels; and inventory pre-buying ahead of 2007 changes in US engine emission regulations; and an $11.5 million contribution to the Company’s pension plans compared to $7.7 million in 2005.

Operating cash flow increased by $18.1 million to $70.6 million in 2005 compared to 2004. Income from operations increased due to improved sales in Environmental Solutions and Safety and Security Systems, operational improvements in Fire Rescue and lower restructuring costs. Working capital improvements were the primary reason for the remaining increase.

During 2006, the Company repurchased $12.1 million of stock under a 750,000 stock buy-back program approved by the Board of Directors. Treasury stock purchases reflect the Company’s policy to purchase shares to offset the dilutive effects of stock based compensation.

In 2006, the Company disposed of the production facility in Red Deer, Alberta for proceeds of $2.5 million. In 2005, the Company sold four former production facilities and two industrial lighting product lines for total cash proceeds of $22.0 million. In 2004, the Company disposed of Justrite Manufacturing Company, L.L.C. and Technical Tooling, Inc. for cash proceeds of $40.1 million and $6.5 million, respectively. In addition, the Company divested its 54% majority interest in Plastisol B.V. Holdings to the minority partner for $2.5 million in cash and a note receivable of $0.4 million. The divestitures in 2004 were in conjunction with the Company’s restructuring initiatives announced in June 2004 and the proceeds are included in the All Other, net line in the preceding table.

At December 31, 2006, $21.8 million was drawn against the Company’s $125 million Amended Credit Agreement revolving credit line. This credit agreement was amended and increased from $75 million to $125 million during 2006. The Company borrowed $23.6 million in September, 2006 through the Banc of America leasing facility, the balance on this facility as of December 31, 2006 was $90.7 million. Also in 2006, a $65 million private placement note matured and was repaid using a combination of cash flow from operations and borrowings under the Amended Credit Agreement revolving credit line. The Company was in compliance with all debt covenants throughout 2006.

In March 2005, the Company entered into a loan agreement secured by certain leases of the E-One business. For more detail on this loan agreement refer to Note 5 — Debt, contained in this Form 10-K. As of December 31, 2005 the balance on this facility was $91.4 million. At December 31, 2005 there was no balance drawn under the Company’s revolving credit facility.

In 2004, the Company repaid $62.4 million of debt by utilizing the proceeds from the sale of the three aforementioned businesses as well as the positive cash flow from operations. In 2004, the Company voluntarily reduced the size of its revolving credit facility from $250 million to $200 million.

Total manufacturing debt, net of cash, totaled $205.7 million at December 31, 2006, or 35% of total capitalization, up from 34% in 2005. At December 31, 2005, total manufacturing debt net of cash was $184.4 million. The Company believes that its municipal financial services assets, due to their high overall

20

quality, are capable of sustaining a leverage ratio of 95% at December 31, 2006. The Company’s debt-to-capitalization ratio for its financial services activities was 94% at both December 31, 2006 and 2005. In 2006, the Company’s aggregate borrowing capacity was maintained.

Cash dividends decreased to $11.5 million in 2006 from $13.5 million in 2005. The Company declared dividends of $0.24 per share in 2006 and 2005.

The Company anticipates that its financial resources and major sources of liquidity, including cash flow from operations and borrowing capacity, will be adequate to meet its operating and capital needs in addition to its financial commitments.

Contractual Obligations and Commercial Commitments

The following table presents a summary of the Company’s contractual obligations and payments due by period as of December 31, 2006 ($ in millions):

	Payments Due by Period
			Less than						More than
	Total		1 Year		2-3 Years		4-5 Years		5 Years
Short-term obligations	$	30.3	$	30.3	$	—	$	—	$	—
Long-term debt		347.1		41.6		107.2		87.2		111.1
Operating lease obligations		28.3		6.8		9.5		6.6		5.4
Fair value of interest rate swaps		5.6		0.3		—		2.1		3.2
Total contractual obligations	$	411.3	$	79.0	$	116.7	$	95.9	$	119.7

The Company is party to various interest rate swap agreements in conjunction with the management of borrowing costs. As of December 31, 2006, the fair value of the Company’s net position would result in cash payments of $5.6 million. Future changes in the US interest rate environment would correspondingly affect the fair value and ultimate settlement of the contracts.

The Company also enters into foreign currency forward contracts to protect against the variability in exchange rates on cash flows of its foreign subsidiaries. As of December 31, 2006, there is no unrealized gain or loss on the Company’s foreign exchange contracts. Volatility in the future exchange rates between the US dollar and Euro and Canadian dollar will impact final settlement.

The following table presents a summary of the Company’s commercial commitments and the notional amount expiration by period ($ in millions):

	Notional Amount Expiration by Period
			Less than		2-3		4-5
	Total		1 Year		Years		Years
Financial standby letters of credit	$	36.4	$	35.9	$	0.1	$	0.4
Performance standby letters of credit		1.0		1.0		—		—
Guaranteed residual value obligations		2.5		0.1		2.4		—
Total commercial commitments	$	39.9	$	37.0	$	2.5	$	0.4

Financial standby letters of credit largely relate to casualty insurance policies for the Company’s workers’ compensation, automobile, general liability and product liability policies. Performance standby letters of credit represent guarantees of performance by foreign subsidiaries that engage in cross-border transactions with foreign customers.

In limited circumstances, the Company guarantees the residual value on vehicles in order to facilitate a sale. The Company also guaranteed the debt of an independent dealer that sells the Company’s vehicles. The Company believes its risk of loss is low; no losses have been incurred to date. The inability of the Company to enter into these types of arrangements in the future due to unforeseen circumstances is not expected to have a material impact on its financial position, results of operations or cash flows.

21

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company considers the following policies to be the most critical in understanding the judgments that are involved in the preparation of the Company’s consolidated financial statements and the uncertainties that could impact the Company’s financial condition, results of operations and cash flows.

Allowances for Doubtful Accounts

The Company performs ongoing credit evaluations of its customers. The Company’s policy is to establish, on a quarterly basis, allowances for doubtful accounts based on factors such as historical loss trends, credit quality of the present portfolio, collateral value and general economic conditions. If the historical loss trend increased or decreased 10% in 2006, the Company’s operating income would have decreased or increased by $0.1 million, respectively. Though management considers the valuation of the allowances proper and adequate, changes in the economy and/or deterioration of the financial condition of the Company’s customers could affect the reserve balances required.

Inventory Reserve

The Company performs ongoing evaluations to ensure that reserves for excess and obsolete inventory are properly identified and recorded. The reserve balance includes both specific and general reserves. Specific reserves at 100% are established based on the identification of separately identifiable obsolete products and materials. General reserves for materials are established based upon formulas which are established by reference to, among other things, the level of current inventory relative to recent usage, estimated scrap value and the level of estimated future usage. Historically, this reserve policy has given a close approximation of the Company’s experience with excess and obsolete inventory. The Company does not foresee a need to revise its reserve policy in the future. However, from time to time unusual buying patterns or shifts in demand may cause large movements in the reserve balance.

Warranty Reserve

The Company’s products generally carry express warranties that provide repairs at no cost to the customer or the issuance of credit. The length of the warranty term depends on the product sold, but generally extends from six months to five years based on the terms that are generally accepted in the Company’s marketplaces. Certain components necessary to manufacture the Company’s vehicles (including chassis, engines and transmissions) are covered under an original manufacturers’ warranty. Such manufacturers’ warranties are extended directly to end customers.

The Company accrues its estimated exposure to warranty claims at the time of sale based upon historical warranty claim costs as a percentage of sales. Management reviews these estimates on a quarterly basis and adjusts the warranty provisions as actual experience differs from historical estimates. Infrequently, a material warranty issue can arise which is outside the norm of the Company’s historical experience; costs related to such issues, if any, are provided for when they become probable and estimable.

The Company’s warranty cost as a percentage of net sales totaled 1.0% in 2006, 1.1% in 2005 and 1.3% in 2004. The decrease in the rate in 2006 is primarily due to operational improvements in the Fire Rescue business. Management believes the reserve recorded at December 31, 2006 is appropriate. A 10% increase or decrease in the estimated warranty costs in 2006 would have decreased or increased operating income by $1.3 million, respectively.

Workers’ Compensation and Product Liability Reserves

Due to the nature of the products manufactured, the Company is subject to product liability claims in the ordinary course of business. The Company is partially self-funded for workers’ compensation and product liability

22

claims with various retention and excess coverage thresholds. When a claim is filed, an initial liability is estimated, if any is expected, to settle the claim. This liability is periodically updated as more claim facts become known. The establishment and update of liabilities for unpaid claims, including claims incurred but not reported, is based on the assessment by the Company’s claim administrator of each claim, an independent actuarial valuation of the nature and severity of total claims and management’s estimate. The Company utilizes a third-party claims administrator to pay claims, track and evaluate actual claims experience and ensure consistency in the data used in the actuarial valuation. Management believes that the reserve established at December 31, 2006 appropriately reflects the Company’s risk exposure. The Company has not established a reserve for potential losses resulting from hearing loss litigation (see Note 13); if the Company is not successful in its defense, it will record a charge for such claims, to the extent they exceed insurance recoveries, at the time a judgment or settlement is made.

Goodwill Impairment

In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”, the Company ceased amortization of goodwill and indefinite-lived intangible assets effective January 1, 2002. SFAS No. 142 also requires the Company to test these assets annually for impairment; the Company performs this test in the fourth quarter unless impairment indicators arise earlier. The Company continues to amortize definite-lived intangible assets over their useful life.

A review for impairment requires judgment in estimated cash flows based upon estimates of future sales, operating income, working capital improvements and capital expenditures. Management utilizes a discounted cash flow approach to determine the fair value of the Company’s reporting units. If the sum of the expected discounted cash flows of the reporting unit is less than its carrying value, an impairment loss is required against the unit’s goodwill.

The annual testing conducted in 2006 and 2005 did not result in any impairment.

Although management believes that the assumptions and estimates used were reasonable, a sensitivity analysis for each reporting unit is performed along with the impairment test. The analysis indicated that a 5% change in the operating margin assumption would not have resulted in a goodwill impairment in any group.

Financial Market Risk Management

The Company is subject to market risk associated with changes in interest rates and foreign exchange rates. To mitigate this risk, the Company utilizes interest rate swaps and foreign currency options and forward contracts. The Company does not hold or issue derivative financial instruments for trading or speculative purposes and is not party to leveraged derivatives contracts.

Interest Rate Risk

The Company manages its exposure to interest rate movements by targeting a proportionate relationship between fixed-rate debt to total debt generally within established percentages of between 40% and 60%. The Company uses funded fixed-rate borrowings as well as interest rate swap agreements to balance its overall fixed/floating interest rate mix.

Of the Company’s debt at December 31, 2006, 40% was used to support financial services assets; the weighted average remaining life of those assets is typically under three years and the debt is substantially match-funded to the financing assets.

23

The following table presents the principal cash flows and weighted average interest rates by year of maturity for the Company’s total debt obligations held at December 31, 2006 ($ in millions):

	Expected Maturity Date																					Fair
	2007			2008			2009			2010			2011			Thereafter			Total			Value
Fixed rate	$	27.8		$	35.1		$	25.1		$	25.2		$	25.2		$	68.0		$	206.4		$	210.8
Average interest rate		5.9	%		5.8	%		5.7	%		5.6	%		5.5	%		5.2	%		5.7	%		—
Variable rate	$	44.1		$	34.5		$	12.4		$	29.7		$	7.2		$	43.1		$	171.0		$	171.0
Average interest rate		6.6	%		6.6	%		6.6	%		6.6	%		6.6	%		6.6	%		6.6	%		—

The following table presents notional amounts and weighted average interest rates by expected (contractual) maturity date for the Company’s interest rate swap contracts held at December 31, 2006 ($ in millions). Notional amounts are used to calculate the contractual payments to be exchanged under the contract. Weighted average variable rates are based on implied forward rates in the yield curve at the reporting date.

	Expected Maturity Date																				Fair
	2007			2008			2009			2010			2011			Thereafter			Total		Value
Pay fixed, receive variable	$	—		$	25.0		$	5.0		$	5.0		$	—		$	—		$	35.0	$	0.4
Average pay rate		—			5.1	%		3.8	%		3.8	%		—			—			—		—
Average receive rate		—			5.4	%		5.5	%		5.5	%		—			—			—		—
Receive fixed, pay variable	$	13.6		$	17.6		$	7.6		$	7.6		$	7.6		$	44.0		$	98.0	$	(4.6	)
Average pay rate		8.4	%		8.0	%		7.3	%		7.3	%		7.4	%		7.1	%		—		—
Average receive rate		6.4	%		6.1	%		5.7	%		5.7	%		5.7	%		5.2	%		—		—

See Note 8 to the consolidated financial statements in this Form 10-K for a description of these agreements.

Foreign Exchange Rate Risk

The Company has foreign currency exposures related to buying and selling in currencies other than the local currency in which it operates. The Company utilizes foreign currency options and forward contracts to manage these risks.

The following table summarizes the Company’s foreign currency derivative instruments as of December 31, 2006. All are expected to settle in 2007. ($ in millions):

	Expected
	Settlement Date
	2007
			Average
	Notional		Contract		Fair
	Amount		Rate		Value
Forward contracts:
Buy Euros, sell US dollars	$	1.7		1.3	$	—
Other currencies		5.5				(0.2	)
Total forward contracts		7.2				(0.2	)
Options:
Buy US dollars, sell Euros		8.4		1.2		—
Total foreign currency derivatives	$	15.6			$	(0.2	)

See Note 8 to the consolidated financial statements for a description of these agreements. All of these derivative instruments qualify for hedge accounting treatment.

24

Forward exchange contracts are recorded as a natural hedge when the hedged item is a recorded asset or liability that is revalued each accounting period, in accordance with SFAS No. 52, “Foreign Currency Translation”. For derivatives designated as natural hedges, changes in fair values are reported in the “Other income (expense)” line of the Consolidated Statements of Operations.

Other Matters

The Company has a business conduct policy applicable to all employees and regularly monitors compliance with that policy. The Company has determined that it had no significant related party transactions in each of the three years in the period ended December 31, 2006.

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk.

The information contained under the caption Financial Market Risk Management included in Item 7 of this Form 10-K is incorporated herein by reference.

Item 8.   Financial Statements and Supplementary Data.

25

FEDERAL SIGNAL CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm		27
Consolidated Balance Sheets as of December 31, 2006 and 2005		29
Consolidated Statements of Operations for the Years Ended December 31, 2006, 2005 and 2004		30
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2006, 2005 and 2004		31
Consolidated Statements of Cash Flows for the Years Ended December 31, 2006, 2005 and 2004		32
Notes to Consolidated Financial Statements		33

26

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors

of Federal Signal Corporation

We have audited the accompanying consolidated balance sheets of Federal Signal Corporation and subsidiaries as of December 31, 2006 and 2005, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2006. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Federal Signal Corporation and subsidiaries at December 31, 2006 and 2005, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2006, in conformity with US generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” and, effective for the fiscal year ended December 31, 2006, the Company adopted certain provisions of Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Federal Signal Corporation’s internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 20, 2007 expressed an unqualified opinion thereon.

Chicago, Illinois

February 20, 2007

27

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors

of Federal Signal Corporation

We have audited management’s assessment, included in Item 9A(b) of the accompanying Form 10-K, that Federal Signal Corporation maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Federal Signal Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A Company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Federal Signal Corporation maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Federal Signal Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets as of December 31, 2006 and 2005, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2006 of Federal Signal Corporation and our report dated February 20, 2007, expressed an unqualified opinion thereon.

Chicago, Illinois

February 20, 2007

28

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	December 31,
	2006			2005
	($ in millions)
ASSETS
Manufacturing activities:
Current assets
Cash and cash equivalents	$	19.3		$	91.9
Accounts receivable, net of allowances for doubtful accounts of $3.0 million and $2.6 million, respectively		192.1			165.1
Inventories — Note 2		174.2			153.0
Other current assets		33.2			24.6
Total current assets		418.8			434.6
Properties and equipment — Note 3		85.7			81.6
Other assets
Goodwill — Note 16		310.6			307.3
Other deferred charges and assets		17.6			39.1
Total manufacturing assets		832.7			862.6
Assets of discontinued operations — Note 11		57.8			87.7
Financial services activities — Lease financing and other receivables, net of allowances for doubtful accounts of $4.0 million and $3.9 million, respectively, and net of unearned finance revenue — Note 4		158.9			169.2
Total assets	$	1,049.4		$	1,119.5
LIABILITIES AND SHAREHOLDERS’ EQUITY
Manufacturing activities:
Current liabilities
Short-term borrowings — Note 5	$	30.3		$	6.6
Current portion of long-term borrowings — Note 5		34.4			66.0
Accounts payable		90.0			73.7
Accrued liabilities
Compensation and withholding taxes		36.0			34.0
Customer deposits		23.0			33.0
Other		60.2			60.7
Total current liabilities		273.9			274.0
Long-term borrowings — Note 5		160.3			203.7
Long-term pension and other liabilities		27.9			50.5
Deferred income taxes — Note 6		20.7			16.3
Total manufacturing liabilities		482.8			544.5
Liabilities of discontinued operations		31.2			39.8
Financial services activities — Borrowings — Note 5		149.0			158.9
Total liabilities		663.0			743.2
Shareholders’ equity — Notes 9 and 10
Common stock, $1 par value per share, 90.0 million shares authorized, 49.1 million and 48.8 million shares issued, respectively		49.1			48.8
Capital in excess of par value		99.8			98.2
Retained earnings		290.7			278.9
Treasury stock, 1.5 million and .7 million shares, respectively, at cost		(30.1	)		(18.1	)
Deferred stock awards		—			(4.8	)
Accumulated other comprehensive (loss)		(23.1	)		(26.7	)
Total shareholders’ equity		386.4			376.3
Total liabilities and shareholders’ equity	$	1,049.4		$	1,119.5

See notes to consolidated financial statements.

29

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

	For the Years Ended December 31,
	2006			2005			2004
	($ in millions, except per share data)
Net sales	$	1,211.6		$	1,119.0		$	1,024.5
Costs and expenses
Cost of sales		927.2			867.5			814.3
Selling, engineering, general and administrative		214.5			193.8			180.2
Gain on sale of product line		—			(6.7	)		—
Restructuring charges		—			0.7			7.0
Operating income		69.9			63.7			23.0
Interest expense		25.0			23.1			20.6
Other income (expense)		(2.2	)		0.2			(2.9	)
Income (loss) before income taxes		42.7			40.8			(0.5	)
Income tax benefit (charge) — Note 6		(8.3	)		3.1			6.6
Income from continuing operations		34.4			43.9			6.1
Discontinued operations — Note 11:
Loss from discontinued operations and disposal, net of tax (benefit) charge of $(2.0) million, $(11.5) million and $3.7 million, respectively		(11.7	)		(48.5	)		(8.4	)
Net income (loss)	$	22.7		$	(4.6	)	$	(2.3	)
Basic and diluted earnings (loss) per share
Earnings from continuing operations	$	0.72		$	0.91		$	0.13
Loss from discontinued operations and disposal, net of taxes		(0.25	)		(1.01	)		(0.18	)
Net earnings (loss) per share	$	0.47		$	(0.10	)	$	(0.05	)

See notes to consolidated financial statements.

30

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

	Common			Capital in												Accumulated
	Stock			Excess of									Deferred			Other
	Par			Par			Retained			Treasury			Stock			Comprehensive
	Value			Value			Earnings			Stock			Awards			Loss			Total
	($ in millions)
Balance at December 31, 2003,	$	48.4		$	91.9		$	317.4		$	(14.8	)	$	(2.3	)	$	(18.1	)	$	422.5
Comprehensive income:
Net loss								(2.3	)											(2.3	)
Foreign currency translation																	6.8			6.8
Unrealized gains on derivatives, net of $1.2 million tax expense																	1.9			1.9
Comprehensive income																				6.4
Cash dividends declared								(19.3	)											(19.3	)
Compensation plans:
Exercise of stock options		0.1			0.4															0.5
Stock awards granted		0.2			2.9						0.1			(3.2	)					—
Related tax benefits					0.5															0.5
Amortization of deferred stock awards														1.0						1.0
Other		(0.1	)		(1.3	)					1.1			1.4						1.1
Balance at December 31, 2004		48.6			94.4			295.8			(13.6	)		(3.1	)		(9.4	)		412.7
Comprehensive income:
Net loss								(4.6	)											(4.6	)
Foreign currency translation																	(8.9	)		(8.9	)
Unrealized gains on derivatives, net of $0.3 million tax expense																	0.5			0.5
Minimum pension liability, net of $5.3 million tax benefit																	(8.9	)		(8.9	)
Comprehensive loss																				(21.9	)
Cash dividends declared								(11.6	)											(11.6	)
Compensation plans:
Exercise of stock options					0.3															0.3
Stock awards granted		0.2			4.7						(0.1	)		(4.8	)					—
Amortization of deferred stock awards														2.1						2.1
Treasury stock:
Purchases											(5.0	)								(5.0	)
Other					(1.2	)		(0.7	)		0.6			1.0						(0.3	)
Balance at December 31, 2005		48.8			98.2			278.9			(18.1	)		(4.8	)		(26.7	)		376.3
Comprehensive loss:
Net income								22.7												22.7
Foreign currency translation																	10.0			10.0
Unrealized losses on derivatives, net of $1.3 million tax benefit																	(2.2	)		(2.2	)
Minimum pension liability, net of $2.3 million tax expense																	4.0			4.0
Comprehensive income:																				34.5
Adjustments to adopt SFAS 158, net of $4.8 million tax benefit																	(8.2	)		(8.2	)
Cash dividends declared								(11.5	)											(11.5	)
Reclassification of deferred stock awards					(4.8	)								4.8						—
Compensation plans:
Exercise of stock options					0.5															0.5
Related excess tax benefits					0.3															0.3
Stock-based compensation:
Awards and options		0.3			5.5															5.8
Treasury stock:
Purchases											(12.1	)								(12.1	)
Other					0.1			0.6			0.1									0.8
Balance at December 31, 2006	$	49.1		$	99.8		$	290.7		$	(30.1	)	$	—		$	(23.1	)	$	386.4

See notes to consolidated financial statements.

31

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Years Ended
	December 31,
	2006			2005			2004
	($ in millions)
Operating activities
Net income (loss)	$	22.7		$	(4.6	)	$	(2.3	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Loss on discontinued operations and disposal		11.7			48.5			8.4
Non-cash restructuring charges		—			0.3			7.1
Gain on sale of product line		—			(6.7	)		—
Loss on joint venture		2.2			—			—
Gain on sale of properties and equipment		(1.4	)		(2.3	)		—
Loss on minority interest divestiture		—						2.9
Depreciation and amortization		17.9			18.2			16.2
Stock option and award compensation expense		5.8			2.1			1.0
Provision for doubtful accounts		(1.4	)		(2.3	)		3.3
Deferred income taxes		(2.7	)		(39.7	)		9.9
Changes in operating assets and liabilities, net of effects from acquisitions and dispositions of companies
Accounts receivable		(21.2	)		15.1			(6.9	)
Inventories		(15.8	)		4.3			(5.0	)
Other current assets		(1.3	)		(3.4	)		7.6
Lease financing and other receivables		10.4			27.2			31.0
Accounts payable		14.3			4.6			3.5
Customer deposits		(10.8	)		9.2			2.8
Accrued liabilities		(2.1	)		(0.1	)		5.6
Income taxes		2.3			0.5			(34.6	)
Pension contributions		(11.3	)		(7.7	)		(5.2	)
Other		5.7			6.7			3.7
Net cash provided by continuing operating activities		25.0			69.9			49.0
Net cash provided by discontinued operating activities		4.7			0.7			3.5
Net cash provided by operating activities		29.7			70.6			52.5
Investing activities
Purchases of properties and equipment		(18.2	)		(16.6	)		(19.4	)
Proceeds from sales of properties and equipment		2.5			10.1			—
Proceeds from sale of product line		—			11.9			—
Investment in joint venture		(1.5	)		(0.7	)		—
Other, net		(1.4	)		(1.2	)		5.5
Net cash provided by (used for) continuing investing activities		(18.6	)		3.5			(13.9	)
Net cash provided by (used for) discontinued investing activities		(0.7	)		(4.2	)		48.0
Net cash provided by (used for) investing activities		(19.3	)		(0.7	)		34.1
Financing activities
Increase (reduction) in short-term borrowings, net		23.7			53.8			(36.3	)
Proceeds from issuance of long-term borrowings		23.6			104.2			—
Repayment of long-term borrowings		(107.8	)		(133.1	)		(26.1	)
Purchases of treasury stock		(12.1	)		(5.0	)		—
Cash dividends paid to shareholders		(11.5	)		(13.5	)		(19.3	)
Other, net		1.1			0.7			—
Net cash provided by (used for) continuing financing activities		(83.0	)		7.1			(81.7	)
Net cash used for discontinued financing activities		—			—			—
Net cash provided by (used for) financing activities		(83.0	)		7.1			(81.7	)
Increase (decrease) in cash and cash equivalents		(72.6	)		77.0			4.9
Cash and cash equivalents at beginning of year		91.9			14.9			10.0
Cash and cash equivalents at end of year	$	19.3		$	91.9		$	14.9

See notes to consolidated financial statements.

32

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

($ in millions, except per share data)

NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation:  The consolidated financial statements include the accounts of Federal Signal Corporation and all of its subsidiaries. All significant intercompany balances and transactions have been eliminated.

Changes in presentation of statements of operations:  In 2006, the Company began classifying certain selling, general and administrative expenses in cost of sales. This reclassification is reflected in all periods presented. The impact of this reclassification resulted in an increase in cost of sales, and corresponding decrease in selling, engineering, general and administrative expenses, of $26.2 million, $26.7 million and $24.7 million in each of the three years in the period ended December 31, 2006.

Reclassifications:  Certain balances in 2005 and 2004 have been reclassified to conform to the 2006 presentation. Included with the reclassifications are restatements for discontinued operations. The discontinued operations arise out of the Safety and Security Systems, Environmental Solutions and Tool segments.

Cash equivalents:  The Company considers all highly liquid investments with a maturity of three-months or less, when purchased, to be cash equivalents.

Accounts receivable, lease financing and other receivables and allowances for doubtful accounts:  A receivable is considered past due if payments have not been received within agreed upon invoice terms. The Company’s policy is generally to not charge interest on trade receivables after the invoice becomes past due, but to charge interest on lease receivables. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments on the outstanding accounts receivable and outstanding lease financing and other receivables. The allowances are each maintained at a level considered appropriate based on historical and other factors that affect collectibility. These factors include historical trends of write-offs, recoveries and credit losses; portfolio credit quality; and current and projected economic and market conditions. If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of the ability to make payments, additional allowances may be required.

Inventories:  The Company’s inventories are stated at the lower of cost or market. At December 31, 2006 and 2005, approximately 57% of the Company’s inventories were costed using the FIFO method, respectively. The remaining portion of the Company’s inventories is costed using the LIFO (last-in, first-out) method. Included in the cost of inventories are raw materials, direct wages and associated production costs.

Properties and depreciation:  Properties and equipment are stated at cost. Depreciation, for financial reporting purposes, is computed principally on the straight-line method over the estimated useful lives of the assets. Depreciation ranges from 8 to 40 years for buildings and 3 to 15 years for machinery and equipment. Leasehold improvements are depreciated over the shorter of the remaining life of the lease or the useful life of the improvement. Property, plant and equipment and other long-term assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected undiscounted cash flows is less than the carrying value of the related asset or group of assets, a loss is recognized for the difference between the fair value and carrying value of the asset or group of assets. Such analyses necessarily involve significant judgment.

Intangible assets:  Intangible assets principally consist of costs in excess of fair values of net assets acquired in purchase transactions. These assets are assessed yearly for impairment in the fourth quarter and also between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Definite lived intangible assets are amortized using the straight-line method.

Stock-based compensation plans:  On December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123 (revised 2004), Share Based Payment, which is a revision of FASB Statement No. 123, Accounting for Stock Based Compensation. Statement 123(R) supersedes APB Opinion No. 25,

33

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

($ in millions, except per share data) — (Continued)

Accounting for Stock Issued to Employees and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in Statement 123(R) is similar to the approach described in Statement 123. However, Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on fair values. Pro forma disclosure is no longer an alternative.

In April 2005, the Securities and Exchange Commission (“SEC”) issued a release that amended the compliance dates for Statement 123(R). In compliance with the SEC’s rule, the Company has applied Statement 123(R) as of January 1, 2006.

The Company has various stock-based compensation plans, described more fully in Note 9. Prior to January 1, 2006, as permitted by Statement 123, the Company accounted for these plans using the intrinsic value method of APB Opinion No. 25. Stock compensation expense reflected in net income prior to January 1, 2006 related to restricted stock awards which vested over four years through 2004 and three years beginning in 2005. With regard to stock options granted, no stock-based employee compensation expense was reflected in net income (loss) prior to January 1, 2006, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock at the date of grant which was the measurement date.

The Company has adopted Statement 123(R) using the modified prospective method in which compensation cost is recognized (a) based on the requirements of Statement 123(R) for all share-based payments granted after January 1, 2006 and (b) based on the requirements of Statement 123(R) for all awards granted to employees prior to January 1, 2006 that remained unvested on January 1, 2006. The fair value of options is estimated using a Black-Scholes option pricing model. Results for prior periods have not been restated.

Accordingly, the adoption of Statement 123(R)’s fair value method has reduced the Company’s income before taxes by $2.3 million and net income by $1.5 million in the year ended December 31, 2006. Had we adopted Statement 123(R) in prior periods, the impact of that standard would have approximated the impact of Statement 123 as described in the disclosure of pro forma net income and earnings per share in Note 9.

Statement 123(R) also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow. This requirement decreased net operating cash flows and increased net financing cash flows by $0.3 million in the year ended December 31, 2006. The amount included in operating cash flows recognized for such excess tax deductions was $0.3 million and $0.5 million in the years ended December 31, 2005 and 2004, respectively.

Use of estimates:  The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Warranty:  Sales of many of the Company’s products carry express warranties based on the terms that are generally accepted in the Company’s marketplaces. The Company records provisions for estimated warranty at the time of sale based on historical experience and periodically adjusts these provisions to reflect actual experience. Infrequently, a material warranty issue can arise which is beyond the scope of the Company’s historical experience. The Company provides for these issues as they become probable and estimable.

Product liability and workers’ compensation liability:  Due to the nature of the Company’s products, the Company is subject to claims for product liability and workers’ compensation in the normal course of business. The Company is self-funded for a portion of these claims. The Company establishes a reserve using a third-party actuary for any known outstanding matters, including a reserve for claims incurred but not yet reported.

Financial instruments:  The Company enters into agreements (derivative financial instruments) to manage the risks associated with interest rates and foreign exchange rates. The Company does not actively trade such

34

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

($ in millions, except per share data) — (Continued)

instruments nor enter into such agreements for speculative purposes. The Company principally utilizes two types of derivative financial instruments: 1) interest rate swaps to manage its interest rate risk, and 2) foreign currency forward exchange and option contracts to manage risks associated with sales and expenses (forecast or committed) denominated in foreign currencies.

On the date a derivative contract is entered into, the Company designates the derivative as one of the following types of hedging instruments and accounts for the derivative as follows:

Fair value hedge:  A hedge of a recognized asset or liability or an unrecognized firm commitment is declared as a fair value hedge. For fair value hedges, both the effective and ineffective portions of the changes in the fair value of the derivative, along with the gain or loss on the hedged item that is attributable to the hedged risk, are recorded in earnings and reported in the consolidated statements of operations on the same line as the hedged item.

Cash flow hedge:  A hedge of a forecast transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability is declared as a cash flow hedge. The effective portion of the change in the fair value of a derivative that is declared as a cash flow hedge is recorded in accumulated other comprehensive income. When the hedged item impacts the statement of operations, the gain or loss previously included in accumulated other comprehensive income is reported on the same line in the consolidated statements of operations as the hedged item. In addition, both the fair value of changes excluded from the Company’s effectiveness assessments and the ineffective portion of the changes in the fair value of derivatives used as cash flow hedges are reported in selling, general and administrative expenses in the consolidated statements of operations.

The Company formally documents its hedge relationships, including identification of the hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction. Derivatives are recorded in the consolidated balance sheets at fair value in other assets and other liabilities. This process includes linking derivatives that are designated as hedges of specific forecast transactions. The Company also formally assesses, both at inception and at least quarterly thereafter, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in either the fair value or cash flows of the hedged item. If it is determined that a derivative ceases to be a highly effective hedge, or if the anticipated transaction is no longer likely to occur, the Company discontinues hedge accounting, and any deferred gains or losses are recorded in selling, general and administrative expenses. Amounts related to terminated interest rate swaps are deferred and amortized as an adjustment to interest expense over the original period of interest exposure, provided the designated liability continues to exist or is probable of occurring.

Earnings (loss) per share:  Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average common shares outstanding, which totaled 48.0 million, 48.2 million and 48.1 million for 2006, 2005 and 2004, respectively. Diluted earnings (loss) per share is calculated by dividing net income (loss) by the weighted average common shares outstanding plus additional common shares that would have been outstanding assuming the exercise of stock options that are dilutive. The Company uses the treasury stock method to calculate dilutive shares. In 2004 and 2005, 0.1 million employee stock options were considered potential dilutive common shares, but were required to be excluded from the denominator of the calculation as anti-dilutive, due to the net loss for the years ended December 31, 2005 and December 31, 2004. The weighted average number of shares, outstanding for diluted earnings (loss) per share were 48.0 million, 48.2 million and 48.1 million for 2006, 2005 and 2004, respectively. In 2006, 2005 and 2004, options to purchase 2.6 million, 2.7 million and 2.6 million shares of common stock were outstanding, respectively.

Revenue recognition:  The Company recognizes revenue when all of the following are satisfied: persuasive evidence of an arrangement exists, the price is fixed or determinable, collectibility is reasonably assured and title has passed or services have been rendered. Typically, title passes at time of shipment, however occasionally title passes later or earlier than shipment due to customer contracts or letter of credit terms. Infrequently, a sales contract qualifies for percentage of completion or for multiple-element accounting. For percentage of completion revenues,

35

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

($ in millions, except per share data) — (Continued)

the Company utilizes the cost-to-cost method and the contract payments are received as progress payments as costs are incurred or based on installation and performance milestones. At the inception of a sales-type lease, the Company records the product sales price and related costs and expenses of the sale. Financing revenues are included in income over the life of the lease. Management believes that all relevant criteria and conditions are considered when recognizing revenues.

Product shipping costs:  Product shipping costs are expensed as incurred and are included in cost of sales.

Postretirement benefits:  In September 2006, the FASB issued Statement of Financial Accounting Standards No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106, and 132R (‘SFAS 158’). Companies are required to adopt certain provisions of SFAS 158 for the fiscal year ended December 31, 2006. Under SFAS 158, the funded status of each pension and other postretirement benefit plan at the year-end measurement date is required to be reported as an asset (for overfunded plans) or a liability (for underfunded plans), replacing the accrued or prepaid asset currently recorded and reversing any amounts previously recorded with respect to any additional minimum liability.

SFAS 158 requires disclosure of the incremental effect of adopting the standard on individual line items of the balance sheet. Adopting SFAS 158 at December 31, 2006 had the following effect on retirement benefit-related amounts reported in the balance sheet:

Incremental Effect of Adopting SFAS 158

December 31, 2006

	Before Adoption of			Adjustments to			After Adoption of
	SFAS 158*			Adopt SFAS 158			SFAS 158
	Increase/(decrease)
Assets:
Noncurrent benefit asset	$	12.3		$	(12.3	)	$	—
Intangible asset		0.4			(0.4	)		—
Deferred tax asset**		11.5			4.8			16.3
Liabilities:
Noncurrent benefit liability	$	21.7		$	(0.7	)	$	21.0
Shareholders’ Equity:
Accumulated Other Comprehensive Income	$	(19.1	)	$	(8.2	)	$	(27.3	)

*	Includes effects of additional minimum liability, if any, that would have been recognized at December 31, 2006.
**	Assumes a 37% tax rate.

36

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

($ in millions, except per share data) — (Continued)

Shareholders’ Equity and Accumulated Other Comprehensive Income changed due to the change in the additional minimum liability that would have been recognized at December 31, 2006, and the incremental effect of adopting SFAS 158 as follows:

Changes in Shareholders’ Equity

Year ended December 31, 2006

						Accumulated Other
				Comprehensive		Comprehensive
	Total			Income		Income
Balance at December 31, 2005						$	(23.1	)
Decrease in Additional Minimum Liability included in Other Comprehensive Income, net of tax		4.0			4.0		4.0
Adjustments to adopt SFAS 158, net of tax		(8.2	)				(8.2	)
Balance at December 31, 2006						$	(27.3	)

NOTE 2 — INVENTORIES

Inventories at December 31 are summarized as follows:

	2006		2005
Raw materials	$	73.9	$	56.9
Work in process		40.8		58.4
Finished goods		59.5		37.7
Total inventories	$	174.2	$	153.0

If the Company had used the first-in, first-out cost method exclusively, which approximates replacement cost, inventories would have aggregated $187.9 million and $165.6 million at December 31, 2006 and 2005, respectively.

NOTE 3 — PROPERTIES AND EQUIPMENT

Properties and equipment at December 31 are summarized as follows:

	2006			2005
Land	$	7.6		$	7.7
Buildings and improvements		49.3			49.4
Machinery and equipment		205.7			195.0
Accumulated depreciation		(176.9	)		(170.5	)
Total properties and equipment	$	85.7		$	81.6

NOTE 4 — LEASE FINANCING AND OTHER RECEIVABLES

As an added service to its customers, the Company is engaged in financial services activities. These activities primarily consist of providing long-term financing for certain US customers purchasing vehicle-based products from the Company’s Fire Rescue and Environmental Solutions groups. A substantial portion of these receivables is due from municipalities and volunteer fire departments. Financing is provided through sales-type lease contracts with terms that generally range from one to ten years. The amounts recorded as lease financing receivables represent amounts equivalent to normal selling prices less subsequent customer payments.

37

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

($ in millions, except per share data) — (Continued)

Leases past due more than 90 days are evaluated and a determination made whether or not to place the lease in a non-accrual status based upon customer payment history and other relevant information at the time of the evaluation.

Lease financing and other receivables will become due as follows: $64.7 million in 2007, $24.6 million in 2008, $20.1 million in 2009, $16.0 million in 2010, $12.3 million in 2011 and $25.2 million thereafter. At December 31, 2006 and 2005, unearned finance revenue on these leases aggregated $19.2 million and $20.8 million, respectively.

NOTE 5 — DEBT

Short-term borrowings at December 31 consisted of the following:

	2006		2005
Amended Credit Agreement	$	21.8	$	—
Other foreign lines of credit		8.5		6.6
Total short-term borrowings	$	30.3	$	6.6

On February 3, 2006, the Company entered into an Amended and Restated Credit Agreement (“Amended Credit Agreement”) and terminated its previous Revolving Credit Facility. The Amended Credit Agreement provided for borrowings of up to $110.0 million and matures March 31, 2009. Borrowings under the Amended Credit Agreement bear interest, at the Company’s option, at either the Base Rate or LIBOR, plus an applicable margin. The applicable margin ranges from .25% to 1.00% for Base Rate borrowings and 1.50% to 2.25% for LIBOR borrowings depending on the Company’s total indebtedness to capital ratio. Pursuant to the Company’s right in the Amended Credit Agreement to request a $15.0 million increase in the aggregate commitments, effective July 17, 2006, the Amended Credit Agreement was increased from $110.0 million to $125.0 million.

The Amended Credit Agreement contains certain financial covenants for each fiscal quarter ending on or after December 31, 2006 that include maintaining an interest coverage ratio of not less than 3.0. As of December 31, 2006, the Company has $21.8 million in borrowings outstanding under the Amended Credit Agreement. The Company pays a quarterly commitment fee of 0.25% based on the unused portion of the Amended Credit Agreement.

Weighted average interest rates on short-term borrowings were 7.60% and 7.25% at December 31, 2006 and 2005, respectively.

38

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

($ in millions, except per share data) — (Continued)

Long-Term Borrowings at December 31 consisted of the following:

	2006			2005
6.79% Unsecured Private Placement note with annual installments of $10.0 million due 2007-2011	$	50.0		$	50.0
6.37% Unsecured Private Placement note with annual installments of $10.0 million due 2005-2008		20.0			30.0
6.60% Unsecured Private Placement note with annual installments of $7.1 million due 2005-2011		35.7			42.9
4.93% Unsecured Private Placement note with annual installments of $8.0 million due 2008-2012		40.0			40.0
5.24% Unsecured Private Placement note due 2012		60.0			60.0
5.49% Unsecured Private Placement note due 2006		—			65.0
Unsecured Private Placement note, floating rate (6.41% and 5.57% at December 31, 2006 and 2005, respectively) due 2008-2013		50.0			50.0
Loan Agreement (described below), due 2006-2017		90.7			91.4
Other		0.7			2.0
		347.1			431.3
Fair value of interest rate swaps		(4.6	)		(6.9	)
Unamortized balance of terminated fair value interest rate swaps		1.2			4.2
		343.7			428.6
Less current maturities, excluding financial services activities		(34.4	)		(66.0	)
Less financial services activities — borrowings		(149.0	)		(158.9	)
Total long-term borrowings, net	$	160.3		$	203.7

On March 24, 2005, E-One, Inc. (“E-One”), a wholly-owned subsidiary of Federal Signal Corporation, entered into an agreement to borrow $75 million from Banc of America Leasing & Capital, LLC (the “Loan Agreement”) under a nonrecourse loan facility (the “Facility”). E-One’s indebtedness and other obligations under the Loan Agreement are payable out of certain customer leases of emergency equipment and other collateral as described in the Loan Agreement. Under the Loan Agreement, E-One may borrow additional amounts under the Facility, at the discretion of the lender, in an amount equal to 95% of the net present value of any additional customer leases included under the Facility. E-One borrowed an additional $29.2 million on December 15, 2005 and $23.6 million on September 27, 2006. In 2005, $12.8 million in lease payments were applied to reduce the Facility and during 2006, $24.3 million in lease payments have been applied to reduce the Facility balance to $90.7 million.

The Loan Agreement contains covenants and events of default that are ordinary and customary for similar credit facilities. At the election of E-One, the Facility bears interest at a fixed rate or a floating LIBOR rate. The $90.7 million outstanding at December 31, 2006 in the Facility bore interest at a 30-day floating LIBOR rate plus 1.35% (6.7% as of December 31, 2006). The obligations of E-One under the Loan Agreement are nonrecourse to E-One and the Company, except with respect to certain representations and warranties. E-One’s recourse obligations under the Loan Agreement are guaranteed by the Company.

In connection with the closing of the Loan Agreement, the Company utilized the proceeds from the initial funding of the Loan Agreement to repay $63.0 million outstanding under its previous revolving credit facility. The remainder of the proceeds were used by the Company for general corporate purposes.

Aggregate maturities of total borrowings amount to approximately $71.9 million in 2007, $69.7 million in 2008, $37.5 million in 2009, $54.8 million in 2010, $32.4 million in 2011 and $111.1 million thereafter. The fair

39

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

($ in millions, except per share data) — (Continued)

values of these borrowings aggregated $381.8 million and $450.0 million at December 31, 2006 and 2005, respectively. Included in 2007 maturities of $71.9 million are $7.2 million attributable to financial services borrowings and $30.3 million of short-term revolving debt.

For each of the above Private Placement notes, significant covenants consist of a maximum debt-to-capitalization ratio and minimum net worth. At December 31, 2006, all of the Company’s retained earnings were free of any restrictions and the Company was in compliance with the financial covenants and agreements.

At December 31, 2006 and 2005, deferred financing fees totaled $1.0 million and $1.2 million, respectively, and are included in other deferred charges and assets on the balance sheet.

The Company paid interest of $24.4 million in 2006, $24.8 million in 2005 and $24.1 million in 2004. See Note 8 regarding the Company’s utilization of derivative financial instruments relating to outstanding debt.

NOTE 6 — INCOME TAXES

The provisions for income taxes for each of the three years in the period ended December 31, 2006 consisted of the following:

	2006			2005			2004
Current:
Federal	$	5.9		$	28.4		$	(23.6	)
Foreign		4.9			7.1			6.4
State and local		0.2			1.1			0.7
		11.0			36.6			(16.5	)
Deferred:
Federal		(3.4	)		(38.9	)		11.0
Foreign		0.2			(0.4	)		(0.2	)
State and local		0.5			(0.4	)		(0.9	)
		(2.7	)		(39.7	)		9.9
Total income taxes	$	8.3		$	(3.1	)	$	(6.6	)

40

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

($ in millions, except per share data) — (Continued)

Differences between the statutory federal income tax rate and the effective income tax rate for each of the three years in the period ended December 31, 2006 are summarized below:

	2006			2005			2004
Statutory federal income tax rate		35.0	%		35.0	%		35.0	%
State income taxes, net of federal tax benefit		1.5			1.6			1.6
Tax-exempt interest		(5.1	)		(6.1	)		(529.4	)
Dividend repatriation		—			(6.2	)		—
Strategy relating to sale of U.K. lighting business		—			(4.6	)		—
Exports benefit		(2.3	)		(1.9	)		(207.0	)
Tax reserves		(4.4	)		(19.5	)		(28.4	)
R&D tax credits		(1.9	)		(1.5	)		(221.3	)
Foreign tax effects		(1.5	)		(4.5	)		(151.0	)
Valuation allowances		(0.7	)		1.2			43.7
Other, net		(1.2	)		(1.1	)		(187.8	)
Effective income tax rate		19.4	%		(7.6	)%		(1244.6	)%

The Company’s 2005 effective tax rate of (7.6)% reflects a benefit of $6.0 million primarily due to a reduction in reserves in the 2005 second quarter associated with the completion of an audit of the Company’s US tax returns which encompassed the years 1999 through 2003.

On October 22, 2004, the American Jobs Creation Act was signed into law. One provision of the legislation allowed certain repatriated foreign earnings to be taxed at 5.25%, provided certain provisions are met. During 2005, the Company recognized a tax benefit of approximately $2.5 million related to the repatriation of foreign earnings under the Act.

Deferred income tax assets and liabilities at December 31 are summarized as follows:

	2006			2005
Deferred tax assets:
Accrued expenses	$	14.6		$	11.8
Net operating loss, alternative minimum tax, research and development, and foreign tax credit carry forwards		33.9			20.8
Other		9.3			9.1
Gross deferred tax assets		57.8			41.7
Valuation allowance		(5.4	)		(3.4	)
Total deferred tax assets		52.4			38.3
Deferred tax liabilities:
Depreciation and amortization		(48.6	)		(36.3	)
Revenue recognition		(0.3	)		(2.7	)
Pension liabilities		(4.9	)		(3.5	)
Undistributed earnings of non-US subsidiary		(0.4	)		(0.2	)
Gross deferred tax liabilities		(54.2	)		(42.7	)
Net deferred tax liability	$	(1.8	)	$	(4.4	)

41

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

($ in millions, except per share data) — (Continued)

Federal and state income taxes have not been provided on accumulated undistributed earnings of certain foreign subsidiaries aggregating approximately $84.7 million at December 31, 2006, as such earnings have been reinvested in the business. The determination of the amount of the unrecognized deferred tax liability related to the undistributed earnings is not practicable.

The deferred tax asset for tax loss carryforwards includes state net operating loss carryforwards of $1.7 million, which will begin to expire in 2007; foreign net operating loss carryforwards of $3.4 million of which $2.0 million has an indefinite life. The deferred tax asset for tax credit carryforwards includes US research tax credit carryforwards of $4.6 million, which will begin to expire in 2022, US foreign tax credits of $7.3 million, which will begin to expire in 2013 and US alternative minimum tax credit carryforwards of $4.5 million with no expiration.

Valuation allowances totaling $5.4 million have been established and include $1.6 million related to state net operating loss carryforwards and $3.8 million related to the foreign net operating loss and tax credit carryforwards.

The net deferred tax liability at December 31 is classified in the balance sheet as follows:

	2006			2005
Current net deferred tax assets, included in Other Current Assets in the accompanying balance sheets	$	18.9		$	11.9
Long-term net deferred tax liability		(20.7	)		(16.3	)
	$	(1.8	)	$	(4.4	)

The Company paid income taxes of $6.9 million in 2006, $9.8 million in 2005 and $6.3 million in 2004.

Income from continuing operations before taxes for the three-year period ended December 31, 2006 consisted of the following:

	2006		2005		2004
United States	$	27.3	$	14.9	$	(19.4	)
Non-US		15.4		25.9		18.9
	$	42.7	$	40.8	$	(0.5	)

NOTE 7 — POSTRETIREMENT BENEFITS

The Company and its subsidiaries sponsor a number of defined benefit retirement plans in the US covering certain of its salaried and hourly employees. Benefits under these plans are primarily based on final average compensation and years of service as defined within the provisions of the individual plans. The Company also participates in several retirement plans that provide defined benefits to employees under certain collective bargaining agreements.

The Company uses December 31 and September 30 measurement dates for its US and non-US benefit plans, respectively.

42

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

($ in millions, except per share data) — (Continued)

The components of net periodic pension expense for each of the three years in the period ended December 31, 2006 are summarized as follows:

	US Benefit Plans									Non-US Benefit Plan
	2006			2005			2004			2006			2005			2004
Company-sponsored plans
Service cost	$	4.3		$	4.8		$	4.6		$	0.2		$	0.2		$	0.2
Interest cost		8.6			8.2			7.7			2.7			2.8			2.6
Expected return on plan assets		(9.9	)		(8.8	)		(8.2	)		(3.8	)		(3.6	)		(3.2	)
Amortization of actuarial loss		1.4			1.8			1.5			0.6			0.7			0.9
Amortization of prior service cost		0.1			0.1			0.1			—			—			—
Curtailment charge		1.3			—			—			—			—			—
Other		—			(0.3	)		(0.2	)		—			—			—
		5.8			5.8			5.5			(0.3	)		0.1			0.5
Multiemployer plans		0.3			0.3			0.2			—			—			—
Net periodic pension expense (income)	$	6.1		$	6.1		$	5.7		$	(0.3	)	$	0.1		$	0.5

On July 17, 2006, an amendment to the Company’s US defined benefit plans for all of the Company’s employees, except for Tool segment employees and University Park, Illinois IBEW employees within the Safety and Security Systems Group, was approved by the Company’s Board of Directors. The amendment freezes service accruals for these employees as of December 31, 2006. The participants will, however, continue to accrue benefits resulting from future salary increases through 2016. As a result of the amendment, the Company was required to recognize a curtailment charge under SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Plans and for Termination Benefits” due to the recognition of prior service costs. The Company recognized a curtailment charge of $1.3 million measured at July 1, 2006, which was recorded during the quarter ended September 30, 2006 and is recognized in the table above, reflecting the unamortized portion of prior benefit changes.

The following table summarizes the weighted-average assumptions used in determining pension costs in each of the three years in the period ended December 31, 2006:

	US Benefit Plans									Non-US Benefit Plan
	2006			2005			2004			2006			2005			2004
Discount rate		6.13	%		6.0	%		6.25	%		5.2	%		5.75	%		5.5	%
Rate of increase in compensation levels		3.5	%		3.5	%		3.5	%		NA	*		NA	*		NA	*
Expected long term rate of return on plan assets		8.5	%		9.0	%		9.0	%		7.0	%		8.3	%		8.3	%

*  Non-US plan benefits are not adjusted for compensation level changes

43

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

($ in millions, except per share data) — (Continued)

The following summarizes the changes in the projected benefit obligation and plan assets, the funded status of the Company-sponsored plans and the major assumptions used to determine these amounts at December 31:

	US Benefit Plans						Non-US Benefit Plan
	2006			2005			2006			2005
Change in Benefit Obligation
Benefit obligation, beginning of year	$	153.2		$	134.2		$	52.2		$	49.3
Service cost		4.3			4.8			0.2			0.2
Interest cost		8.6			8.2			2.7			2.8
Plan amendments		(4.4	)		—			—			—
Actuarial loss/(gain)		(9.3	)		10.6			0.6			4.4
Benefits paid		(9.2	)		(4.6	)		(2.5	)		(3.3	)
Increase (decrease) due to translation		—			—			3.8			(1.2	)
Benefit obligation, end of year	$	143.2		$	153.2		$	57.0		$	52.2
Accumulated benefit obligation, end of year	$	131.2		$	134.2		$	57.0		$	52.2

The following table summarizes the weighted-average assumptions used in determining benefit obligations as of December 31, 2006 and 2005:

	US Benefit Plans						Non-US Benefit Plan
	2006			2005			2006			2005
Discount rate		6.00	%		5.75	%		5.20	%		5.10	%
Rate of increase in compensation levels		3.50	%		3.50	%		N/A			N/A

	US Benefit Plans						Non-US Benefit Plan
	2006			2005			2006			2005
Change in Plan Assets
Fair value of plan assets, beginning of year	$	107.8		$	102.6		$	48.8		$	43.5
Actual return on plan assets		16.4			4.5			5.4			7.5
Company contribution		10.0			5.3			1.3			2.2
Benefits and expenses paid		(9.2	)		(4.6	)		(2.5	)		(3.3	)
Increase (decrease) due to translation		—			—			3.7			(1.1	)
Fair value of plan assets, end of year	$	125.0		$	107.8		$	56.7		$	48.8

44

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

($ in millions, except per share data) — (Continued)

The following table summarizes the Company’s asset allocations for its benefits plans as of December 31, 2006 and 2005 and the target allocation for 2007 by asset category:

	US Benefit Plans									Non-US Benefit Plan
				Percentage of
	Target			Plan Assets as of						Target			Percentage of
	Allocation			December 31						Allocation			Plan Assets as of September 30,
	2007			2006			2005			2007			2006			2005
Equity securities		75	%		81	%		77	%		60	%		67	%		61	%
Fixed income securities		25	%		19	%		23	%		40	%		31	%		36	%
Cash		—			—			—			—			2	%		3	%
Total		100	%		100	%		100	%		100	%		100	%		100	%

The investment strategy for the US benefit plans is to 1) maintain a liquid, diversified portfolio that can provide a weighted-average target return of 8.5% or more, 2) maintain liquidity to meet obligations and 3) prudently manage administrative and management costs. The plan invests in equity and fixed income instruments. The equity allocation is targeted to be within a range of 60% to 80% of plan assets with US equities comprising 50% to 80% while Company stock may comprise up to 5%. The fixed income allocation is targeted to be within a range of 20% to 40% of plan assets with US high grade fixed income securities comprising 15% to 40%; US high yield fixed income investments may comprise up to 15% of plan assets. The asset allocation is reviewed regularly and portfolio investments are rebalanced periodically to the targeted allocation when considered appropriate. The use of derivatives is allowed in limited circumstances. The plan held no derivatives during the years ended December 31, 2006 and 2005.

Plan assets for the non-US benefit plans consist principally of a diversified portfolio of equity securities, U.K. government obligations and fixed interest securities.

Strong year end returns in 2006 temporarily pushed holdings above the equity targets for both the US and non-US benefit plans.

As of December 31, 2006 and 2005, equity securities included 0.2 million shares of the Company’s common stock valued at $3.8 million and $3.5 million, respectively. Dividends paid on the Company’s common stock to the pension trusts aggregated $0.1 million in each of the years ended December 31, 2006 and 2005.

	US Benefit Plans						Non-US Benefit Plans
	2006			2005			2006			2005
Funded status, end of year
Fair value of plan assets	$	125.0		$	107.8		$	56.7		$	48.8
Benefit obligations		143.2			153.2			57.0			52.2
Funded status		(18.2	)		(45.4	)		(0.3	)		(3.4	)
Unrecognized net actuarial loss		N/A			52.4			N/A			13.3
Unrecognized prior service cost		N/A			1.7			N/A			—
Amount recognized, end of year	$	(18.2	)	$	8.7		$	(0.3	)	$	9.9

45

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

($ in millions, except per share data) — (Continued)

Amounts recognized in the Balance Sheet consist of:

	US Benefit Plans						Non-US Benefit Plan
	2006			2005			2006			2005
Noncurrent liability	$	(18.2	)	$	N/A		$	(0.3	)	$	N/A
Prepaid benefit cost		N/A			8.7			N/A			9.9
Accrued benefit liability		N/A			(35.1	)		N/A			(3.3	)
Intangible asset		N/A			1.7			N/A			—
Accumulated other comprehensive income (loss), pre-tax		31.0			33.4			12.6			3.3
Net amount recognized	$	12.8		$	8.7		$	12.3		$	9.9

Amounts recognized in Accumulated Other Comprehensive Income consist of:

	US Benefit Plans				Non-US Benefit Plan
	2006		2005		2006		2005
Net actuarial loss	$	30.6		N/A	$	12.6		N/A
Prior service cost		0.4		N/A		—		N/A
Net amount recognized, pre-tax	$	31.0		N/A	$	12.6		N/A

The Company expects $1.3 million relating to amortization of the actuarial loss to be amortized from Accumulated Other Comprehensive Income into Net Periodic Benefit Cost in 2007.

The Company expects to contribute up to $10.0 million to the US benefit plans in 2007. Future contributions to the plans will be based on such factors as annual service cost as well as impacts to plan asset values, interest rate movements and benefit payments.

The following table presents the benefits expected to be paid under the Company’s defined benefit plans in each of the next five years, and in aggregate for the five years thereafter:

	US Benefit		Non-US
	Plans		Benefit Plan
2007	$	4.5	$	2.6
2008		4.7		2.8
2009		5.0		3.0
2010		5.4		3.3
2011		5.9		3.4
2012-2016		39.9		19.5

The Company also sponsors a number of defined contribution pension plans covering a majority of its employees. Through 2006 participation in the plans was at each employee’s election and Company contributions to these plans were based on a percentage of employee contributions. Effective January 1, 2007, participation is via automatic enrollment, employees may elect to opt out of the plan. Company contributions to the plan are now based on employees’ age and service as well as a percentage of employee contributions.

The cost of these plans during each of the three years in the period ended December 31, 2006, was $5.6 million in 2006, $5.7 million in 2005 and $6.0 million in 2004.

Prior to September 30, 2003, the Company also provided medical benefits to certain eligible retired employees. These benefits were funded when the claims were incurred. Participants generally became eligible for these benefits at age 60 after completing at least fifteen years of service. The plan provided for the payment of

46

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

($ in millions, except per share data) — (Continued)

specified percentages of medical expenses reduced by any deductible and payments made by other primary group coverage and government programs. Effective September 30, 2003, the Company amended the retiree medical plan and effectively canceled coverage for all eligible active employees except for retirees and a limited group that qualified under a formula based on age and years of service. Accumulated postretirement benefit liabilities of $2.5 million and $2.8 million at December 31, 2006 and 2005, respectively, were fully accrued. The net periodic postretirement benefit costs have not been significant during the three-year period ended December 31, 2006.

NOTE 8 — DERIVATIVE FINANCIAL INSTRUMENTS

All derivative financial instruments are reported on the balance sheet at their respective fair values. Changes in fair value are recognized either in earnings or equity, depending on the nature of the underlying exposure being hedged and how effective a derivative is at offsetting price movements in the underlying exposure. All of the Company’s derivative positions existing at December 31, 2006 qualified for hedge accounting under SFAS No. 133, except as described below. Derivatives documentation policies comply with the requirements of SFAS No. 133.

To manage interest costs, the Company utilizes interest rate swaps in combination with its funded debt. Interest rate swaps executed in conjunction with long-term private placements effectively converted fixed rate debt to variable rate debt. At December 31, 2006, the Company’s receive fixed, pay variable swap agreements with financial institutions terminate in varying amounts between 2007 to 2012. These agreements are designated as fair value hedges. In the second quarter of 2005, the Company dedesignated a fair value hedge. The derivative does not qualify for hedge accounting under SFAS No. 133 and is marked-to-market with the offsetting adjustment recorded to income.

At December 31, 2006, the Company was also party to interest rate swap agreements with financial institutions in which the Company pays interest at a fixed rate and receives interest at variable LIBOR rates. These derivative instruments terminate in varying amounts between 2007 to 2010. These interest rate swap agreements are designated as cash flow hedges. In the second quarter of 2005, the Company entered into an interest rate swap which was not designated as a hedge and is marked-to-market with the offsetting adjustment recorded to income.

The fair values of interest rate swaps are based on quotes from financial institutions. The following table summarizes the Company’s interest rate swaps at December 31, 2006 and 2005:

	Fair Value Swaps						Cash Flow Swaps
	2006			2005			2006			2005
Notional amount	$	147.9		$	202.9		$	85.0		$	105.0
Fair value		(7.2	)		(10.0	)		1.6			3.3
Average pay rate		8.0	%		7.2	%		6.9	%		6.3	%
Average receive rate		6.0	%		6.0	%		7.6	%		6.2	%

In 2006 and 2005, the Company cancelled various interest rate swaps associated with its debt portfolio in response to movements in the interest rate market. These transactions resulted in net cash payments of $1.9 million and $0.5 million in 2006 and 2005, respectively. The associated losses on the interest rate swaps are being amortized to interest expense over the life of the underlying debt. As of December 31, 2006 and 2005, the Company has unamortized gains of $1.2 million and $4.2 million, respectively.

From time to time the Company designates foreign currency forward exchange contracts as fair value hedges to protect against the variability in exchange rates on short-term intercompany borrowings and firm commitments denominated in foreign currencies. There were no outstanding foreign currency fair value hedges as of December 31, 2006.

The Company also manages the volatility of cash flows caused by fluctuations in currency rates by entering into foreign exchange forward contracts and options. These derivative instruments that hedge portions of the

47

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

($ in millions, except per share data) — (Continued)

Company’s anticipated third-party purchases and forecast intercompany sales denominated in foreign currencies mature in 2007.

The following table summarizes the Company’s foreign exchange contracts at December 31, 2006 and 2005:

	2006					2005
	Notional		Fair			Notional		Fair
	Amount		Value			Amount		Value
Cash flow forwards	$	7.2	$	(0.2	)	$	17.2	$	1.4
Options		8.4		—			34.6		(.3	)
Total	$	15.6	$	(0.2	)	$	51.8	$	1.1

The Company expects $0.0 million of net gains that are reported in accumulated other comprehensive income as of December 31, 2006 to be reclassified into earnings in 2007 as the respective hedged transactions will affect 2007 earnings.

NOTE 9 — STOCK-BASED COMPENSATION

The Company’s stock benefit plans, approved by the Company’s shareholders, and administered by the Compensation and Benefits Committee of the Board of Directors of the Company, provides for the grant of incentive and non-incentive stock options, restricted stock and other stock-based awards or units to key employees and directors. The plans, as amended, authorize the grant of up to 4.0 million benefit shares or units through April 2015. These share or unit amounts exclude amounts that were issued under predecessor plans. Benefit shares or units include incentive and non-incentive stock options, restricted stock awards and other stock awards or units.

Stock options are granted at the fair market value of the shares on the date of grant. Through 2004, they normally became exercisable one year after grant at a rate of one-half annually and were exercisable in full on the second anniversary date. Beginning in 2005, stock options normally become exercisable at a rate of one-third annually and in full on the third anniversary date. All options and rights must be exercised within ten years from date of grant. At the Company’s discretion, vested stock option holders are permitted to elect an alternative settlement method in lieu of purchasing common stock at the option price. The alternative settlement method permits the employee to receive, without payment to the Company, cash, shares of common stock or a combination thereof equal to the excess of market value of common stock over the option purchase price. The Company intends to settle all such options in common stock.

The weighted average fair value of options granted during 2006, 2005 and 2004 was $6.21, $4.93 and $5.96, respectively. The fair value of each option grant was estimated using the Black-Scholes option pricing model with the following assumptions:

	2006			2005			2004
Dividend yield		1.3	%		1.7	%		2.1	%
Expected volatility		30	%		27	%		32	%
Risk free interest rate		4.6	%		4.2	%		3.5	%
Weighted average expected option life in years		7			8			8

The expected life of options represents the weighted average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and the Company’s historical exercise patterns. The risk-free interest rate is based on the US Treasury yield curve in effect at the time of the grant for periods corresponding with the expected life of the options. Expected volatility is based on historical volatilities of the Company’s common stock. Dividend yields are based on historical dividend payments.

48

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

($ in millions, except per share data) — (Continued)

Stock option activity for the three years ended December 31, 2006 was as follows:

	Option Shares									Weighted Average Exercise Price
	2006			2005			2004			2006		2005		2004
	(In millions)
Outstanding at beginning of year		2.7			2.6			2.4		$	19.15	$	19.84	$	20.06
Granted		0.6			0.6			0.5			16.93		15.69		18.74
Cancelled or expired		(0.7	)		(0.5	)		(0.2	)		21.26		19.09		20.14
Exercised		(0.0	)		(0.0	)		(0.1	)		16.23		15.26		15.65
Outstanding at end of year		2.6			2.7			2.6		$	18.15	$	19.15	$	19.84
Exercisable at end of year		1.7			1.8			1.8		$	18.84	$	20.19	$	20.70

The following table summarizes information concerning stock options outstanding as of December 31, 2006 under all plans:

	Options Outstanding						Options Exercisable
					Weighted				Weighted
			Weighted		Average				Average
			Average		Exercise				Exercise
Range of Exercise Prices	Shares		Remaining Life		Price		Shares		Price
	(In millions)		(In years)				(In millions)
$12.00 - $16.00		0.3		4.8	$	14.79		0.3	$	14.88
16.01 - 18.00		1.1		7.3		16.50		0.4		16.19
18.01 - 20.00		0.4		5.4		18.84		0.2		18.89
20.01 - 22.00		0.5		2.0		21.03		0.5		21.03
22.01 - 26.40		0.3		2.4		23.62		0.3		23.62
		2.6		5.2	$	18.15		1.7	$	18.84

The aggregate intrinsic value, the difference between the weighted average exercise price and the closing price on December 31, 2006, is $5.5 million. The closing price on December 31, 2006 was $16.04.

The following table illustrates the effect on net income and earnings per share for the two years ended December 31, 2005 if the Company had applied fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation”, to all stock-based employee compensation. For purposes of pro forma disclosure, the estimated fair value of the options using a Black-Scholes option pricing model is amortized to expense over the option’s vesting period.

	2005			2004
Reported net loss	$	(4.6	)	$	(2.3	)
Add: Stock-based employee compensation expense included in reported net loss, net of related tax effects		1.3			0.6
Deduct: Total stock-based employee compensation expense determined under the fair-value method for all awards, net of related tax effects		(2.6	)		(2.3	)
Pro forma net loss	$	(5.9	)	$	(4.0	)
Basic and diluted loss per common share:
Reported loss per share	$	(0.10	)	$	(0.05	)
Pro forma loss per share	$	(0.12	)	$	(0.08	)

49

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

($ in millions, except per share data) — (Continued)

Restricted stock awards are granted to employees at no cost. Through 2004, these awards primarily vested at the rate of 25% annually commencing one year from the date of award, provided the recipient was still employed by the Company on the vesting date. Beginning in 2005, awards primarily cliff vest at the third anniversary from the date of award, provided the recipient is still employed by the Company on the vesting date. The cost of restricted stock awards, based on the fair market value at the date of grant, is being charged to expense over the respective vesting periods. The following table summarizes restricted stock grants for the twelve month period ended December 31, 2006:

	Number of			Weighted Average
	Restricted Shares			Price per Share
	(Shares in millions)
Outstanding and non-vested at December 31, 2005		0.4		$	16.48
Granted		0.4			17.02
Vested		(0.1	)		17.46
Cancelled		(0.1	)		16.12
Outstanding and non-vested at December 31, 2006		0.6		$	16.70

The total compensation expense related to all share-based compensation plans was $5.8 million, $2.1 million, and $1.0 million for the years ended December 31, 2006, 2005 and 2004, respectively. Also, as of December 31, 2006, the total remaining unrecognized compensation cost related to awards of stock options amounted to $3.2 million, which will be amortized over the weighted-average period of approximately 1.5 years.

NOTE 10 — SHAREHOLDERS’ EQUITY

The Company’s board of directors has the authority to issue 90.0 million shares of common stock at a par value of $1 per share.

The holders of common stock (i) may receive dividends subject to all of the rights of the holders of preference stock, (ii) shall be entitled to share ratably upon any liquidation of the Company in the assets of the Company, if any, remaining after payment in full to the holders of preference stock and (iii) receive one vote for each common share held and shall vote together share for share with the holders of voting shares of preference stock as one class for the election of directors and for all other purposes. The Company has 49.1 million and 48.8 million common shares issued as of December 31, 2006 and 2005, respectively. Of those amounts 47.6 million and 48.1 million common shares were outstanding as of December 31, 2006 and 2005, respectively.

The Company’s board of directors is also authorized to provide for the issuance of 0.8 million shares of preference stock at a par value of $1 per share. The authority of the board of directors includes, but is not limited to, the determination of the dividend rate, voting rights, conversion and redemption features and liquidation preferences. The Company has not issued any preference stock as of December 31, 2006.

In July 1998, the Company declared a dividend distribution of one preferred share purchase right on each share of common stock outstanding on and after August 18, 1998. The rights are not exercisable until the rights distribution date, defined as the earlier of: 1) the tenth day following a public announcement that a person or group of affiliated or associated persons acquired or obtained the right to acquire beneficial ownership of 20% or more of the outstanding common stock or 2) the tenth day following the commencement or announcement of an intention to make a tender offer or exchange offer, the consummation of which would result in the beneficial ownership by a person or group of 30% or more of such outstanding common shares. Each right, when exercisable, entitles the holder to purchase from the Company one one-hundredth of a share of Series A Preferred Stock of the Company at a price of $100 per one one-hundredth of a preferred share, subject to adjustment. The Company is entitled to redeem the rights at $.10 per right, payable in cash or common shares, at any time prior to the expiration of twenty days following the public announcement that a 20% position has been acquired. In the event that the Company is

50

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

($ in millions, except per share data) — (Continued)

acquired in a merger or other business combination transaction or 50% or more of its consolidated assets or earning power is sold, proper provision will be made so that each holder of a right will thereafter have the right to receive, upon the exercise thereof at the then current exercise price of a right, that number of shares of common stock of the acquiring company which at the time of such transaction would have a market value of two times the exercise price of the right. The rights expire on August 18, 2008 unless earlier redeemed by the Company. Until exercised, the holder of a right, as such, will have no rights as a shareholder, including, without limitation, the right to vote or to receive dividends.

NOTE 11 — DISCONTINUED OPERATIONS

The following table shows an analysis of assets and liabilities of discontinued operations as of December 31:

	2006		2005
	($ in millions)
Current assets	$	18.2	$	36.9
Properties and equipment		12.9		18.0
Long-term assets		26.7		32.8
Total assets	$	57.8	$	87.7
Current liabilities		7.2		18.3
Long-term liabilities		24.0		21.5
Total liabilities	$	31.2	$	39.8

Included in liabilities is $13.7 million relating to estimated product liability obligations of the North American refuse truck body business.

The following table presents the operating results of the Company’s discontinued operations for the three-year period ended December 31, 2006:

	2006			2005			2004
Net sales	$	83.8		$	101.7		$	168.4
Costs and expenses		(97.5	)		(161.7	)		(173.1	)
Loss before income taxes		(13.7	)		(60.0	)		(4.7	)
Income tax charge (benefit)		(2.0	)		(11.5	)		3.7
Loss from discontinued operations and disposal	$	(11.7	)	$	(48.5	)	$	(8.4	)

On January 31, 2007, the Company completed the sale of Manchester Tool Company, On Time Machining Company and Clapp Dico, referred to collectively as the “Cutting Tool Operations” which were part of the Tool Group. The assets of these businesses were held for sale as of December 31, 2006. These operations produced industrial cutting tools, engineered components and advanced materials consumed in production processes. No asset impairment charges have been recorded in conjunction with the disposal. Revenues relating to Cutting Tool operations amount to $37.8 million, $37.9 million and $39.4 million for the years ended December 31, 2006, 2005 and 2004, respectively. Income from Cutting Tool operations, net of tax, were $4.1 million, $3.4 million and $3.4 million for the years ended December 31, 2006, 2005 and 2004, respectively.

In December 2005, the Company determined that its investment in the North American refuse truck body business, operating under the Leach brand name, was no longer strategic. The assets of this business were held for sale as of December 31, 2005 and 2006. In August 2006, the Company completed the sale of certain Leach refuse truck body business assets. The transaction included specified inventories and equipment and responsibility of the

51

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

($ in millions, except per share data) — (Continued)

Wisconsin office and associated employees. The transaction did not include the Company’s Alberta manufacturing facility which has subsequently been sold. The loss from discontinued operations includes $9.7 million and $34.1 million of after tax impairment changes related to the disposal of refuse assets for the years ended December 31, 2006 and 2005, respectively. Losses from the operations of the business, net of tax were $6.1 million, $15.7 million and $17.9 million for the years ended December 31, 2006, 2005 and 2004, respectively.

The Company initiated a restructuring in 2004 to consolidate the production of all refuse truck bodies into its facility in Medicine Hat, Alberta. The following table summarizes the restructuring actions taken and the pre-tax charges to expense in 2004 and 2005 relating to this initiative:

	Pre-tax		Pre-tax		Total pre-tax
	Restructuring		Restructuring		Restructuring
Initiative	Charges in 2004		Charges in 2005		Charges
Closure of refuse truck production facility in Oshkosh, Wisconsin and consolidation into its facility in Medicine Hat, Alberta	$	8.4	$	2.0	$	10.4

This restructuring was completed in the fourth quarter of 2005.

In December 2005, the Company completed the closure of operations at Federal APD do Brasil, LTDA. The loss on disposal was $1.6 million after tax due to asset impairments and closure costs; this included $0.9 million of goodwill attributable to this business. This business produced parking systems for the local market primarily in Brazil. Revenues amount to $0.9 million and $1.8 million for the years ended December 31, 2005 and 2004, respectively. Losses from operations, net of tax, totaled $0.5 million and $0.6 million for the years ended December 31, 2005 and 2004, respectively.

In conjunction with the strategic restructuring initiatives announced in June 2004 (see Note 12), the Company determined that its investments in Justrite Manufacturing, L.L.C. (“Justrite”), Technical Tooling, Inc. (“TTI”) and Plastisol B.V. Holdings (“Plastisol”) were no longer strategic investments and divested its interests.

In December 2004, the Company sold Justrite for $40.1 million in cash resulting in an $11.1 million gain, net of tax, on disposal of discontinued operations for the year ended December 31, 2004. Justrite manufactured hazardous liquid containment products including safety cans and cabinets for flammables and corrosives, specialty containers and drum safety equipment. Revenues amounted to $39.7 million and $35.9 million for the two years in the period ended December 31, 2005. Income before income taxes totaled $5.0 million for the year ended December 31, 2004. Sale proceeds were used to repay debt.

In October 2004, the Company divested TTI for $6.5 million in cash resulting in a $1.4 million gain, net of tax, on disposal of discontinued operations for the year ended December 31, 2004. TTI manufactured a full line of can body-making precision tooling for beverage can producers worldwide. Revenues were $6.5 million for the year ended December 31, 2004. Operating income before income taxes totaled $1.1 million for the year ended December 31, 2004. Sale proceeds were used to repay debt.

In July 2004, the Company sold its 54% majority ownership interest in Plastisol to the minority partner for $2.5 million in cash and a $0.4 million note receivable resulting in a $5.2 million loss, net of tax, on disposal of discontinued operations for the year ended December 31, 2004. The Company acquired its ownership interest in 2001. Plastisol manufactured glass fiber reinforced polyester fire truck cabs and bodies mainly for European and Asian markets. Revenues totaled $7.7 million for the year ended December 31, 2004. Operating losses before income taxes totaled $0.1 million for the year ended December 31, 2004. Sale proceeds were used to repay debt.

In April 2003, the Company completed the sale of the Sign Group to a third party. In 2004 the Company incurred an additional $0.6 million loss, net of taxes, on disposal of discontinued operations, reflecting the resolution of a contingent liability. The Sign Group manufactured illuminated, nonilluminated and electronic

52

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

($ in millions, except per share data) — (Continued)

advertising sign displays primarily for commercial and industrial markets and contracted to provide maintenance services for the signs it manufactured as well as signs manufactured by others.

NOTE 12 — RESTRUCTURING CHARGES AND ASSET DISPOSITIONS

Restructuring charges

In 2004, the Company announced the implementation of a number of initiatives including restructuring of certain of its operations and the dispositions of certain assets. The 2004 restructuring initiatives focused on plant consolidations and product rationalization in order to streamline the Company’s operations; the actions taken were aimed at improving the profitability of the Fire Rescue and European Tool businesses as well as improving the Company’s overhead cost structure. The asset dispositions consisted of asset sales of certain operations the Company considered no longer integral to the long-term strategy of its business.

The following table summarizes the 2004 restructuring actions taken, and the pre-tax charges to expense incurred in 2004 and 2005:

		Pre-Tax		Pre-Tax
		Restructuring		Restructuring
Group	Initiative	Charges in 2004		Charges in 2005			Total Charges
Fire Rescue	Closure of the production facilities located in Preble, New York and consolidation of US production of fire rescue vehicles into the Ocala, Florida operations; completed in the first quarter of 2005	$	5.4	$	0.9		$	6.3
Tool	Reducing manufacturing activities relating to tooling products in France and outsourcing production to its Portugal facility; completed in the fourth quarter of 2005		1.2		(0.2	)		1.0
Corporate	Planning and organizing restructuring activities		0.4					0.4
		$	7.0	$	0.7		$	7.7

The following presents an analysis of the restructuring reserves for the years ended December 31, 2005 and 2006:

				Asset
	Severance			Impairment		Other			Total
Balance as of December 31, 2004	$	2.0		$	—	$	0.1		$	2.1
Charges to expense		0.5			—		0.2			0.7
Cash payments		(2.6	)		—		(0.5	)		(3.1	)
Non-cash activity		0.1			—		0.2			0.3
Balance as of December 31, 2005 and 2006	$	—		$	—	$	—		$	—

Severance charges in 2005 consist of termination and benefit costs for direct manufacturing employees involuntarily terminated prior to December 31, 2005. There were no asset impairment charges in 2005.

Severance charges in 2004 consisted of termination and benefit costs for direct manufacturing employees involuntarily terminated prior to December 31, 2004. The costs of retention bonuses for employees not severed as of

53

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

($ in millions, except per share data) — (Continued)

December 31, 2004 were recognized ratably over the subsequent service period. Asset impairment charges included $2.5 million of net realizable value adjustments on real property and manufacturing equipment.

Asset dispositions

In December 2006, the Company disposed of the land and buildings of the fire truck plant in Red Deer, Alberta for proceeds of $2.5 million and recorded a pre-tax gain of $1.4 million.

The Company completed two significant asset dispositions in 2005. In May 2005, the Company sold the land and buildings of the refuse truck body plant in Oshkosh, Wisconsin for proceeds of $5.8 million and recorded a pre-tax gain of $1.0 million. In July 2005, the Company sold two product lines in Newcastle, England for proceeds of $11.9 million and recorded a pre-tax gain of $6.7 million. The Company also sold three other properties for total proceeds of $4.3 million and total pre-tax gains of $1.3 million.

The Company completed three asset dispositions during 2004. First, the Company sold its 30% minority share in Safety Storage, Inc. (“SSI”) to the majority shareholder in June 2004 for a nominal amount and, in connection therewith, recorded a $2.9 million loss in the second quarter of 2004. Under the terms of the transaction, the Company was released from any future liability arising from a judgment awarded to a third party creditor of SSI. The non-operating loss is included in other expense for the year ended December 31, 2004.

In 2004, the Company also divested a modest amount of operating assets located at a manufacturing facility in Kelowna, British Columbia. The net assets, primarily consisting of inventories and manufacturing equipment and property, were sold by the Company for approximately net book value.

In 2004 the Company sold approximately $9.6 million of industrial leasing assets to an independent party. The assets represented amounts due from industrial customers of the Company; the Company had earlier indicated that it would no longer extend financing to industrial customers. The Company received cash for the sale for an amount approximating its net book value at the time of sale. Proceeds from these sales were used to pay down debt.

NOTE 13 — LEGAL PROCEEDINGS

The Company is subject to various claims, other pending and possible legal actions for product liability and other damages and other matters arising out of the conduct of the Company’s business. The Company believes, based on current knowledge and after consultation with counsel, that the outcome of such claims and actions will not have a material adverse effect on the Company’s consolidated financial position or the results of operations. However, in the event of unexpected future developments, it is possible that the ultimate resolution of such matters, if unfavorable, could have a material adverse effect on the Company’s results of operations.

The Company has been sued in Chicago, Illinois by firefighters seeking damages claiming that exposure to the Company’s sirens has impaired their hearing and that the sirens are therefore defective. There are presently 33 cases filed during the period 1999-2004, involving a total of 2,498 plaintiffs pending in the Circuit Court of Cook County, Illinois. Of that total number, 18 plaintiffs have been dismissed outright and another 36 plaintiffs appeared in duplicate cases. These plaintiffs were dismissed from the duplicate cases. The plaintiffs’ attorneys have threatened to bring more suits in the future. The Company believes that these product liability suits have no merit and that sirens are necessary in emergency situations and save lives. The discovery phase of the litigation recommenced in 2004 and remains ongoing; the Company is aggressively defending the matters. The judge denied plaintiff’s motion to assert a claim for punitive damages on February 7, 2006. On October 19, 2006, four New York firefighters filed a complaint for hearing loss against Federal Signal and twelve additional named defendants in the Supreme Court of Kings County, New York. On October 26, 2006, three firefighters filed a similar complaint against Federal Signal and a local distributor defendant in the Circuit Court of Clay County, Missouri alleging hearing loss from Federal Signal sirens. A similar suit was filed at or about the same time by four firefighters in the Circuit Court of Jackson County, Missouri against Federal Signal and the same distributor defendant. On November 30, 2006, three

54

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

($ in millions, except per share data) — (Continued)

additional lawsuits were filed in Maryland Circuit Courts for Baltimore City (three firefighter plaintiffs), Montgomery County (three plaintiffs) and Prince Georges County (two plaintiffs), all asserting similar claims for hearing loss against Federal Signal and four local distributors. Finally, Federal Signal has been informed that four new lawsuits were filed in early January 2007, each involving a single firefighter plaintiff making similar claims of hearing loss allegedly caused by Federal Signal’s sirens, in the state courts for Bergen, Essex, Hudson and Passaic Counties in New Jersey. The Company successfully defended approximately 41 similar cases in Philadelphia, Pennsylvania in 1999 resulting in a series of unanimous jury verdicts in favor of the Company.

NOTE 14 — SEGMENT AND RELATED INFORMATION

The Company has four continuing operating segments as defined under SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.” Business units are organized under each segment because they share certain characteristics, such as technology, marketing, distribution and product application, which create long-term synergies. The principal activities of the Company’s operating segments are as follows:

Information regarding the Company’s discontinued operations is included in Note 11 — Discontinued Operations. The segment information included herein has been reclassified to reflect such discontinued operations.

Safety and Security Systems — Safety and Security Systems produces a variety of visual and audible warning and signal devices and integrated systems; paging, local signaling, and building security, parking and access control systems and hazardous area lighting. The group’s products are sold primarily to industrial, municipal and government customers.

Fire Rescue — Fire Rescue manufactures chassis; fire trucks, including Class A pumpers, mini-pumpers and tankers; airport and other rescue vehicles, aerial access platforms and aerial ladder devices. This group sells primarily to municipal customers, volunteer fire departments and government customers.

Environmental Solutions — Environmental Solutions manufactures a variety of self-propelled street cleaning vehicles, vacuum loader vehicles, municipal catch basin/sewer cleaning vacuum trucks and water blasting equipment. Environmental Solutions sells primarily to municipal and government customers; and contractors.

Tool — Tool manufactures a variety of consumable tools which include die components for the metal stamping industry and a large selection of precision metal products for plastic molding needs. The group’s products are sold almost entirely to industrial customers.

Net sales by operating segment reflect sales of products and services and financial revenues to external customers, as reported in the Company’s consolidated statements of operations. Intersegment sales are insignificant. The Company evaluates performance based on operating income of the respective segment. Operating income includes all revenues, costs and expenses directly related to the segment involved. In determining operating segment income, neither corporate nor interest expenses are included. Operating segment depreciation expense, identifiable assets and capital expenditures relate to those assets that are utilized by the respective operating segment. Corporate assets consist principally of cash and cash equivalents, notes and other receivables and fixed assets. The accounting policies of each operating segment are the same as those described in the summary of significant accounting policies.

Revenues attributed to customers located outside of the US aggregated $420.9 million in 2006, $329.5 million in 2005 and $346.2 million in 2004. Of that, sales exported from the US aggregated $151.4 million in 2006, $100.8 million in 2005 and $108.8 million in 2004.

The Company invests in research to support development of new products and the enhancement of existing products and services. The Company believes this investment is important to maintain and/or enhance its leadership position in key markets. Expenditures for research and development by the Company were approximately $23.1 million in 2006, $19.7 million in 2005 and $27.2 million in 2004.

55

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

($ in millions, except per share data) — (Continued)

A summary of the Company’s continuing operations by segment for each of the three years in the period ended December 31, 2006 is as follows:

	2006			2005			2004
Net sales
Safety and Security Systems	$	304.5		$	276.5		$	247.4
Fire Rescue		384.8			371.2			360.9
Environmental Solutions		399.4			347.7			294.6
Tool		122.9			123.6			121.6
Total net sales	$	1,211.6		$	1,119.0		$	1,024.5
Operating income (loss)
Safety and Security Systems	$	41.2		$	45.0		$	33.5
Fire Rescue		6.8			2.3			(23.9	)
Environmental Solutions		37.1			28.9			25.2
Tool		8.2			11.3			9.9
Corporate expense		(23.4	)		(23.8	)		(21.7	)
Total operating income		69.9			63.7			23.0
Interest expense		(25.0	)		(23.1	)		(20.6	)
Other income (expense)		(2.2	)		0.2			(2.9	)
Income (loss) before income taxes	$	42.7		$	40.8		$	(0.5	)
Depreciation and amortization
Safety and Security Systems	$	5.5		$	4.5		$	2.6
Fire Rescue		3.8			4.8			5.1
Environmental Solutions		4.6			3.2			5.0
Tool		4.8			4.8			4.5
Corporate		0.6			0.9			(1.0	)
Total depreciation and amortization	$	19.3		$	18.2		$	16.2

56

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

($ in millions, except per share data) — (Continued)

	2006		2005		2004
Identifiable assets
Manufacturing activities
Safety and Security Systems	$	197.5	$	181.5	$	212.0
Fire Rescue		219.4		216.6		232.7
Environmental Solutions		229.4		245.0		214.6
Tool		116.8		120.2		117.3
Corporate		69.6		99.3		31.9
Total manufacturing activities		832.7		862.6		808.5
Assets of discontinued operations		57.8		87.7		127.4
Financial services activities
Fire Rescue		116.3		138.7		155.1
Environmental Solutions		27.5		30.5		41.4
Corporate		15.1		—		—
Total financial services activities		158.9		169.2		196.5
Total identifiable assets	$	1,049.4	$	1,119.5	$	1,132.4
Additions to long-lived assets
Safety and Security Systems	$	4.2	$	2.3	$	5.5
Fire Rescue		3.8		3.4		5.1
Environmental Solutions		5.4		4.6		4.3
Tool		4.2		5.8		5.3
Corporate		1.3		0.2		1.7
Total additions to long-lived assets	$	18.9	$	16.3	$	21.9

The following table presents financial revenues (included in net sales) by segment in each of the three years in the period ended December 31, 2006 as follows:

	2006		2005		2004
Financial revenues
Fire Rescue	$	6.3	$	7.4	$	8.6
Environmental Solutions		1.9		2.2		3.5
Total financial revenues	$	8.2	$	9.6	$	12.1

Due to the nature of the Company’s customers, the majority of the Fire Rescue and Environmental Solutions financial revenues is exempt from federal income tax.

57

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

($ in millions, except per share data) — (Continued)

The segment information provided below is classified based on geographic location of the Company’s subsidiaries:

	2006		2005		2004
Net sales
United States	$	782.5	$	780.0	$	666.1
Europe		318.9		269.8		279.5
Canada		102.0		59.6		66.8
Other		8.2		9.6		12.1
	$	1,211.6	$	1,119.0	$	1,024.5
Long-lived assets
United States	$	262.5	$	307.1	$	313.8
Europe		59.3		47.3		53.1
Canada		70.7		72.5		72.5
Other		21.4		1.1		0.6
	$	413.9	$	428.0	$	440.0

NOTE 15 — COMMITMENTS, GUARANTEES AND FAIR VALUES OF FINANCIAL INSTRUMENTS

The Company leases certain facilities and equipment under operating leases, some of which contain options to renew. Total rental expense on all operating leases was $7.4 million in 2006, $7.5 million in 2005 and $7.5 million in 2004. Sublease income and contingent rentals relating to operating leases were insignificant. At December 31, 2006, minimum future rental commitments under operating leases having noncancelable lease terms in excess of one year aggregated $28.3 million payable as follows: $6.8 million in 2007, $5.3 million in 2008, $4.2 million in 2009, $3.5 million in 2010, $3.1 million in 2011 and $5.4 million thereafter.

At December 31, 2006 and 2005, the Company had outstanding standby letters of credit aggregating $37.4 million and $34.4 million, respectively, principally to act as security for retention levels related to casualty insurance policies and to guarantee the performance of subsidiaries that engage in export transactions to foreign governments and municipalities.

The Company issues product performance warranties to customers with the sale of its products. The specific terms and conditions of these warranties vary depending upon the product sold and country in which the Company does business with warranty periods generally ranging from six months to five years. The Company estimates the costs that may be incurred under its basic limited warranty and records a liability in the amount of such costs at the time the sale of the related product is recognized. Factors that affect the Company’s warranty liability include the number of units under warranty from time to time, historical and anticipated rates of warranty claims and costs per claim. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary.

58

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

($ in millions, except per share data) — (Continued)

Changes in the Company’s warranty liabilities for the years ended December 31, 2006 and 2005 were as follows:

	2006			2005
Balance at January 1	$	9.2		$	8.0
Provisions to expense		11.7			12.7
Actual costs incurred		(12.7	)		(11.5	)
Balance at December 31	$	8.2		$	9.2

The Company guarantees the debt of a third-party dealer that sells the Company’s vehicles. The notional amounts of the guaranteed debt as of December 31, 2006 and 2005 totaled $0.7 million, for both years. No losses have been incurred as of December 31, 2006.

The Company also provides residual value guarantees on vehicles sold to certain customers. Proceeds received in excess of the fair value of the guarantee are deferred and amortized into income ratably over the life of the guarantee. These transactions have been recorded as operating leases and liabilities equal to the fair value of the guarantees were recognized. The notional amounts of the residual value guarantees were $2.5 million and $2.6 million as of December 31, 2006 and 2005, respectively. No losses have been incurred as of December 31, 2006. The guarantees expire between 2007 and 2010.

The following table summarizes the carrying amounts and fair values of the Company’s financial instruments at December 31, 2006:

	2006					2005
	Notional		Fair			Notional		Fair
	Amount		Value			Amount		Value
Short-term debt (Note 5)	$	30.3	$	30.3		$	6.6	$	6.6
Long-term debt (Note 5)		347.1		351.5			431.3		443.4
Fair value swaps (Note 8)		147.9		(7.2	)		202.9		(10.0	)
Cash flow swaps (Note 8)		85.0		1.6			105.0		3.3
Foreign exchange contracts (Note 8)		7.2		—			17.2		1.4

In the third quarter of 2006, the Dallas Fort Worth (“DFW”) airport gave Federal APD a notice of non-performance and default regarding the $18.0 million contract for installation of a new parking and revenue control system at the airport, and demanded that Federal APD cure its alleged non-performance. The DFW airport also provided a copy of the non-performance and default letter to the Company’s surety carrier. The non-performance and default claim relates principally to certain disagreements as to the content and flexibility of the revenue reporting features of the system. Federal APD disputes that there is any basis under the contract for the non-performance or default as alleged by DFW. Neither Federal APD or DFW has taken any contractual steps, prescribed as remedy to the non-performance and default notice, to try to terminate the contract, and the parties are currently working together to implement the next phase of contract performance. We are in active discussions with the customer and are confident that we will be able to resolve the outstanding issues without a material adverse financial impact.

NOTE 16 — GOODWILL AND OTHER INTANGIBLE ASSETS

In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets”, goodwill and other intangible assets deemed to have indefinite lives are no longer amortized but are subject to annual impairment tests. Other intangible assets continue to be amortized over their useful lives.

59

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

($ in millions, except per share data) — (Continued)

The Company determined the fair value of the reporting unit by calculating the present value of expected future cash flows. Changes in the carrying amount of goodwill for the years ended December 31, 2006 and 2005, by operating segment, were as follows:

	Environmental			Fire			Safety
	Solutions			Rescue			Security			Tool		Total
December 31, 2004	$	126.4		$	38.9		$	89.9		$	55.8	$	311.0
Translation		(0.6	)		(1.9	)		(1.2	)		—		(3.7	)
December 31, 2005		125.8			37.0			88.7			55.8		307.3
Translation		0.4			1.6			1.3			—		3.3
December 31, 2006	$	126.2		$	38.6		$	90.0		$	55.8	$	310.6

Under SFAS No. 142, the Company is required to test its goodwill annually for impairment; the Company performs this test in the fourth quarter. The Company performed this test in 2006 and determined that there was no impairment.

The components of the Company’s other intangible assets are as follows:

	Weighted-		December 31, 2006							December 31, 2005
	Average		Gross					Net		Gross					Net
	Useful Life		Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
	(Years)		Value		Amortization			Value		Value		Amortization			Value
Amortizable:
Developed software		6	$	15.3	$	(8.3	)	$	7.0	$	14.7	$	(6.4	)	$	8.3
Patents		5-10		0.5		(0.4	)		0.1		0.4		(0.2	)		0.2
Other		3		1.2		(0.1	)		1.1		0.1		—			0.1
Total			$	17.0	$	(8.8	)	$	8.2	$	15.2	$	(6.6	)	$	8.6

Other intangible assets are included in the consolidated balance sheets within “other deferred charges and assets”.

Amortization expense for the year ended December 31, 2006, 2005 and 2004 totaled $2.2 million, $1.7 million and $0.9 million, respectively. The Company estimates that the aggregate amortization expense will be $2.0 million in 2007, $2.0 million in 2008, $1.7 million in 2009, $1.1 million in 2010, $1.0 million in 2011 and $0.4 million thereafter.

NOTE 17 — NEW ACCOUNTING PRONOUNCEMENTS

In March 2005, the FASB issued Statement of Financial Accounting Standards Interpretation Number 47 (“FIN 47”), “Accounting for Conditional Asset Retirement Obligations.” FIN 47 provides clarification regarding the meaning of the term “conditional asset retirement obligation” as used in SFAS 143, “Accounting for Asset Retirement Obligations.” FIN 47 is effective no later than the end of the Company’s fiscal year ended December 31, 2006. The Company has applied the provisions of FIN 47 as of December 31, 2006 and its adoption has no material effect on the Company’s consolidated results of operations and statement of financial position.

In May 2005, the FASB issued SFAS 154, “Accounting for Changes and Error Corrections — a replacement of APB Opinion No. 20 and FASB Statement No. 3.” SFAS 154 changes the requirements with regard to the accounting for and reporting a change in an accounting principle. The provisions of SFAS 154 require, unless impracticable, retrospective application to prior periods presented in financial statements for all voluntary changes in an accounting principle and changes required by the adoption of a new accounting pronouncement in the unusual instance that the new pronouncement does not indicate a specific transition method. SFAS 154 also requires that a change in depreciation, amortization or depletion method for long-lived, non-financial assets be accounted for as a change in an accounting estimate, which requires prospective application of the new method. SFAS 154 is effective for all changes in an accounting principle made in fiscal years beginning after December 15, 2005. The Company

60

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

($ in millions, except per share data) — (Continued)

adopted SFAS 154 effective January 1, 2006. The adoption had no material effect on the Company’s consolidated results of operations and statement of financial position.

In July 2006, FASB issued Statement of Financial Accounting Standards Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes”. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109, “Accounting for Income Taxes”. FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The new FASB standard also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. The Company intends to adopt the FIN 48 effective January 1, 2007 and does not expect it to have a material impact on the results of operations or financial position.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. This Statement is required to be adopted by the Company in the first quarter of its fiscal year 2008. The Company is currently evaluating the potential impact of adopting SFAS 157.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106, and 132(R).” SFAS 158 requires an employer to recognize a plan’s funded status in its statement of financial position, measure a plan’s assets and obligations as of the end of the employer’s fiscal year and recognize the changes in a defined benefit postretirement plan’s funded status in comprehensive income in the year in which the changes occur. SFAS 158’s requirement to recognize the funded status of a benefit plan and new disclosure requirements are effective as of the end of the fiscal year ended after December 15, 2006. The requirement to measure plan assets and benefit obligations as of the date of the employer’s fiscal year-end statement of financial position is effective for fiscal years ending after December 15, 2008. The Company recorded an adjustment to accumulated other comprehensive income for the year ended December 31, 2006, of $8.2 million in connection with the recognition of the under funded status of the benefit plans. SFAS 158 did not have a material impact on its results of operations or financial position. See Footnote 7 for further details.

In September 2006, the EITF issued EITF 06-04, “Accounting for Deferred Compensation and Postretirement Benefit Aspects of Split-Dollar Life Insurance Arrangements”. EITF 06-04 concludes that an employer should recognize a liability for post-employment benefits promised to an employee. This guidance is effective for fiscal years beginning after December 15, 2007. The Company has not determined the impact, if any, this adoption will have.

In September 2006, the EITF issued EITF 06-05, “Accounting for Purchases of Life Insurance”. EITF 06-05 concludes that in determining the amount recognized as an asset, the policy holder should consider the cash

61

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

($ in millions, except per share data) — (Continued)

surrender value as well as any additional amounts included in the contractual terms of the policy that will be paid upon surrender. This guidance is effective for fiscal years beginning after December 15, 2006. The Company does not expect EITF 06-05 to have a material impact to its results of operations or financial position.

NOTE 18 — SELECTED QUARTERLY DATA (UNAUDITED)

Effective January 1, 2004, the Company began reporting its interim quarterly periods on a 13-week basis ending on a Saturday with the fiscal year ending on December 31. For convenience purposes, the Company uses “March 31”, “June 30”, “September 30” and “December 31” to refer to its results of operations for the quarterly periods ended. In 2006, the Company’s interim quarterly periods ended April 1, July 1, September 30 and December 31 and in 2005, the Company’s interim quarterly periods ended April 2, July 2, October 1 and December 31, respectively.

The following is a summary of the quarterly results of operations, including income per share, for the Company for the quarterly periods of fiscal 2006 and 2005. Restatements of previously reported amounts represent discontinued operations as described in Footnote 11.

	For the Quarterly Period Ended
	2006											2005
	March 31			June 30			September 30			December 31		March 31			June 30			September 30			December 31
Net sales	$	273.6		$	309.5		$	289.4		$	339.1	$	253.9		$	291.1		$	276.4		$	297.6
Gross margin*		61.4			72.5			70.7			79.8		57.9			62.9			60.5			70.2
Gross margin pre-reclassification*		67.8			79.3			76.7			86.8		64.6			69.6			67.2			76.8
Income from continuing operations		1.3			10.6			9.4			13.1		3.5			14.6			13.1			12.7
Gain (loss) from discontinued operations		(1.2	)		(2.0	)		0.2			1.0		(3.7	)		(3.4	)		(2.8	)		(37.0	)
Gain (loss) on disposition		—			(10.5	)		(0.4	)		1.2		—			—			—			(1.6	)
Net income (loss)		0.1			(1.9	)		9.2			15.3		(0.2	)		11.2			10.3			(25.9	)
Per share data — diluted:
Income from continuing operations		0.03			0.22			0.20			0.27		0.08			0.30			0.27			0.26
Income (loss) from discontinued operations		(0.03	)		(0.26	)		(0.01	)		0.05		(0.08	)		(0.07	)		(0.06	)		(0.80	)
Net income (loss)		—			(0.04	)		0.19			0.32		—			(0.23	)		0.21			(0.54	)
Dividends paid per share		0.06			0.06			0.06			0.06		0.06			0.06			0.06			0.06
Market price range per share High		19.06			19.75			16.54			16.71		17.88			16.50			17.95			17.15
Low		14.75			14.26			12.69			14.65		14.45			13.80			15.55			14.80

* In 2006, the Company began classifying certain selling, engineering, general and administrative expenses in cost of sales. This reclassification is reflected in all periods presented.

The Company recorded a $6.7 million pre-tax gain in the third quarter of 2005 relating to the sale of two industrial lighting product lines.

The Company recorded $34.1 million of after-tax impairment charges, in the year ended December 31, 2005 and a further $9.7 million in the year ended December 31, 2006 in order to state the assets of the Leach business, which is a discontinued operation, at fair value.

62

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

(a)   Evaluation of Disclosure Controls and Procedures

The Company carried out an evaluation, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in the Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective.

(b)   Management’s Annual Report on Internal Control over Financial Reporting and Attestation Report of the Registered Public Accounting Firm

The Company’s management is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as defined in the Exchange Act Rule 13a-15(f). Management conducted an assessment of the Company’s internal control over financial reporting based on the framework established by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework. Based on the assessment, management concluded that, as of December 31, 2006, the Company’s internal control over financial reporting is effective. Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, has been audited by Ernst & Young LLP, the Company’s independent registered public accounting firm, as stated in their report which is included herein.

(c)   Changes in Internal Control over Financial Reporting

There was no significant change in the Company’s internal control over financial reporting that occurred during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. Other Information.

None.

PART III

Item 10. Directors and Corporate Governance.

Information regarding directors and nominees for directors is set forth in the Company’s Proxy Statement and is incorporated herein by reference. For information concerning the Company’s executive officers, see “Executive Officers of the Registrant” set forth in Part I hereof. Information regarding Compliance with Section 16(a) of the Exchange Act is set forth in the Company’s Proxy Statement under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” and is incorporated herein by reference. Information regarding the Company’s Audit Committee, Corporate Governance and Nominating Committee are set forth in the Company’s Proxy Statement under the caption “Corporate Governance” and is incorporated herein by reference.

The Company has adopted a code of ethics that applies to its principal executive officer, principal financial officer and principal accounting officer. This code of ethics and the Company’s corporate governance policies are posted on the Company’s website at http://www.federalsignal.com. The Company intends to satisfy its disclosure requirements regarding amendments to or waivers from its code of ethics by posting such information on this website. The charters of the Audit Committee, Nomination and Governance Committee and Compensation and Benefits Committee of the Company’s Board of Directors are available on the Company’s website and are also available in print free of charge.

63

Item 11. Executive Compensation.

The information contained under the captions “Compensation of Board Members” and “Executive Compensation” of the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held April 24, 2007 is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Information regarding security ownership of certain beneficial owners, of all directors and nominees, of the named executive officers, and of directors and executive officers as a group, is set forth in the Company’s Proxy Statement under the captions “Security Ownership of Directors and Executive Officers” and “Security Ownership of Certain Beneficial Owners” and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, Director Independence.

Information regarding certain relationships is hereby incorporated by reference from the Company’s Proxy Statement under the heading “Corporate Governance Guidelines,” and under the headings “Security Ownership of Directors and Executive Officers” and “Security Ownership of Certain Beneficial Owners.” Information regarding director independence is hereby incorporated by reference from the Company’s Proxy Statement under the heading “Meetings and Committees of the Board.”

Item 14. Principal Accountant Fees and Services.

Information regarding principal accountant fees and services is incorporated by reference from the Company’s Proxy Statement under the heading “Service Fees Paid to the Independent Registered Public Accounting Firm.”

PART IV

Item 15. Exhibits and Financial Statement Schedules.

(a) 1. Financial Statements

The following consolidated financial statements of Federal Signal Corporation and Subsidiaries contained under Item 8 of this Form 10-K are incorporated herein by reference:

Consolidated Balance Sheets as of December 31, 2006 and 2005

Consolidated Statements of Operations for the Years Ended December 31, 2006, 2005 and 2004

Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2006, 2005 and 2004

Consolidated Statements of Cash Flows for the Years Ended December 31, 2006, 2005 and 2004

Notes to Consolidated Financial Statements

2. Financial Statement Schedules

The following consolidated financial statement schedule of Federal Signal Corporation and Subsidiaries, for the three years ended December 31, 2006 is filed as a part of this report in response to Item 15(a)(2):

Schedule II — Valuation and Qualifying Accounts

All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore, have been omitted.

3. Exhibits

See Exhibit Index.

64

Signatures

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

FEDERAL SIGNAL CORPORATION

By: /s/  Robert D. Welding

Robert D. Welding

President, Chief Executive
Officer and Director
(Principal Executive Officer)

February 22, 2007

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below, as of February 21, 2007, by the following persons on behalf of the Company and in the capacities indicated.

/s/  Robert D. Welding Robert D. Welding	President, Chief Executive Officer and Director (Principal Executive Officer)
/s/  Stephanie K. Kushner Stephanie K. Kushner	Vice President and Chief Financial Officer (Principal Financial Officer)
/s/  Paul Brown Paul Brown	Vice President and Controller (Principal Accounting Officer)
/s/  James C. Janning James C. Janning	Chairman and Director
/s/  Charles R. Campbell Charles R. Campbell	Director
/s/  Robert M. Gerrity Robert M. Gerrity	Director
/s/  James E. Goodwin James E. Goodwin	Director
/s/  Robert S. Hamada Robert S. Hamada	Director
/s/  Paul W. Jones Paul W. Jones	Director
/s/  John F. McCartney John F. McCartney	Director
/s/  Brenda L. Reichelderfer Brenda L. Reichelderfer	Director

65

SCHEDULE II

FEDERAL SIGNAL CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts

For the Years Ended December 31, 2006, 2005 and 2004

					Deductions
			Additions		Accounts
	Balance at		Charged to		Written off			Balance
	Beginning		Costs and		Net of			at End
Description	of Year		Expenses		Recoveries			of Year
	($ in millions)
Allowance for doubtful accounts
Year ended December 31, 2006:
Manufacturing activities	$	2.6						$	3.0
Financial service activities		3.9							4.0
Total	$	6.5	$	2.1	$	(1.6	)	$	7.0
Year ended December 31, 2005:
Manufacturing activities	$	2.1						$	2.6
Financial service activities		3.9							3.9
Total	$	6.0	$	2.9	$	(2.4	)	$	6.5
Year ended December 31, 2004:
Manufacturing activities	$	2.3						$	2.1
Financial service activities		2.9							3.9
Total	$	5.2	$	2.8	$	(2.0	)	$	6.0
Inventory obsolescence
Year ended December 31, 2006:
Manufacturing activities	$	5.6	$	3.6	$	(3.5	)	$	5.7
Year ended December 31, 2005:
Manufacturing activities	$	6.0	$	2.2	$	(2.6	)	$	5.6
Year ended December 31, 2004:
Manufacturing activities	$	5.0	$	3.7	$	(2.7	)	$	6.0
Product liability and workers’ compensation
Year ended December 31, 2006:
Manufacturing activities	$	9.1	$	6.1	$	(6.8	)	$	8.4
Year ended December 31, 2005:
Manufacturing activities	$	7.9	$	7.4	$	(6.2	)	$	9.1
Year ended December 31, 2004:
Manufacturing activities	$	6.2	$	8.6	$	(6.9	)	$	7.9
Warranty liability:

The changes in the Company’s warranty liabilities are analyzed in Note 15 — Commitments, Guarantees and Fair Values of Financial Instruments.

66

EXHIBIT INDEX

The following exhibits, other than those incorporated by reference, have been included in the Company’s Form 10-K filed with the Securities and Exchange Commission. The Company shall furnish copies of these exhibits upon written request to the Corporate Secretary at the address given on the cover page. (* denotes exhibit filed in this Form 10-K)

3	.	a.	Restated Certificate of Incorporation of the Company, filed as Exhibit (3)(a) to the Company’s Form 10-K for the year ended December 31, 1996 is incorporated herein by reference.
		b.	By-laws of the Company, as amended February 13, 2004, filed as Exhibit 3.b to the Company’s Form 10-K for the year ended December 31, 2003 is incorporated herein by reference.
4	.	a.	Rights Agreement dated 7/9/98, filed as Exhibit (4) to the Company’s Form 8-A dated July 28, 1998 is incorporated herein by reference.
		b.	Amended and Restated Credit Agreement dated February 3, 2006 by and among the Company, Harris N.A. and other third party lenders named therein, filed as Exhibit (4)(b) to the Company’s Form 10-K for the year ended December 31, 2005 is incorporated herein by reference.
		c.	The Company has no other long-term debt agreements for which the related outstanding debt exceeds 10% of consolidated total assets as of December 31, 2004. Copies of debt instruments for which the related debt is less than 10% of consolidated total assets will be furnished to the Commission upon request.
10	.	a.	The 1996 Stock Benefit Plan, as amended April 17, 2003, filed as Exhibit 10(a) to the Company’s Form 10-K for the year ended December 31, 2003 is incorporated herein by reference. (1)
		b.	Management Incentive Plan, as revised December 2006. (1)*
		c.	Supplemental Pension Plan, filed as Exhibit (10)(c) to the Company’s Form 10-K for the year ended December 31, 1995 is incorporated herein by reference. (1)
		d.	Executive Disability, Survivor and Retirement Plan, filed as Exhibit (10)(d) to the Company’s Form 10-K for the year ended December 31, 1995 is incorporated herein by reference. (1)
		e.	Savings Restoration Plan, amended and restated effective January 1, 2007 from Supplemental Savings and Investment Plan. (1)*
		f.	Employment Agreement with Robert D. Welding filed as Exhibit 10.f to the Company’s Form 10-K for the year ended December 31, 2003 is incorporated herein by reference. (1)
		g.	Pension Agreement with Stephanie K. Kushner, filed as Exhibit (10)(g) to the Company’s Form 10-K for the year ended December 31, 2002 is incorporated herein by reference. (1)
		h.	Severance Policy for Executive Employees, as amended and restated December 2006. (1)*
		i.	Change of Control Agreement with Stephanie K. Kushner, filed as Exhibit (10) (i) to the Company’s Form 10-K for the year ended December 31, 2001 is incorporated herein by reference. (1)
		j	Form of Executive Change-In-Control Severance Agreement between Federal Signal Corporation and each of Robert D. Welding, Stephanie K. Kushner, David R. McConnaughey, Marc F. Gustafson, Mark D. Weber and certain other executive officers, filed as Exhibit 10.1 to the Company’s Form 10-Q for the quarterly period ended October 2, 2004 is incorporated herein by reference. (1)
		k.	Form of Executive Change-In-Control Severance Agreement between Federal Signal Corporation and certain executive officers, filed as Exhibit 10.2 to the Company’s Form 10-Q for the quarterly period ended October 2, 2004 is incorporated herein by reference. (1)
		l.	Director Deferred Compensation Plan, filed as Exhibit (10)(h) to the Company’s Form 10-K for the year ended December 31, 1997 is incorporated herein by reference. (1)
		m.	2005 Executive Incentive Compensation Plan, filed as Appendix B to the Company’s Proxy Statement for the Annual Meeting of Stockholders held April 27, 2005 is incorporated herein by reference. (1)
		n.	Executive Incentive Performance Plan, filed as Appendix C to the Company’s Proxy Statement for the Annual Meeting of Stockholders held April 27, 2005 is incorporated herein by reference. (1)
		o.	General Release and Separation Agreement between Federal Signal Corporation and Stephen C. Buck, dated May 5, 2006. (1)*

67

		p.	General Release and Separation Agreement between Federal Signal Corporation and Karen N. Latham, dated August 31, 2006. (1)*
		q.	Stock Purchase Agreement between Federal Signal Corporation and Kennametal Inc., dated December 29, 2006 with respect to the sale by Federal Signal Corporation of the capital stock of Manchester Tool Company, a wholly owned subsidiary of Federal Signal Corporation, to Kennametal Inc.*
11	.		Computation of per share earnings is furnished in Note 1 of the financial statements contained under Item 8 of this 10-K and thereby incorporated herein by reference.
14	.		Code of Ethics for CEO and Senior Financial Officers, as amended February 13, 2004, filed as Exhibit 14 to the Company’s Form 10-K for the year ended December 31, 2003 is incorporated herein by reference.
21	.		Subsidiaries of the Company.*
23	.		Consent of Independent Registered Public Accounting Firm, as filed herein.*
31	.1		CEO Certification under Section 302 of the Sarbanes-Oxley Act, as filed herein.*
31	.2		CFO Certification under Section 302 of the Sarbanes-Oxley Act, as filed herein.*
32	.1		CEO Certification of Periodic Report under Section 906 of the Sarbanes-Oxley Act, as filed herein.*
32	.2		CFO Certification of Periodic Report under Section 906 of the Sarbanes-Oxley Act, as filed herein.*
99	.1		Press Release, as filed herein.*

(1) Management contract or compensatory plan or arrangement.

68

EX-10.(B)

Exhibit 10-B

Federal Signal Corporation
Management Incentive Plan—Detailed Specifications

The following Management Incentive Plan specifications provide a detailed description of a new annual incentive bonus arrangement for Federal Signal Corporation executives. The plan will provide key corporate and business unit executives an opportunity to earn an annual cash award based on the level of achievement of specific “Economic Value” (“EV”) based goals over a 12-month period and beyond.

Effective Date	The effective date of the plan will be January 1, 2005, and will replace the annual bonus opportunity offered under the existing Management Incentive Plan.
Performance Period	The measurement period, for earning an award under this Plan, will be 12 months in length, which will correspond to the calendar year.
General Plan Concept	Specific EV goals will be established for each 12-month performance period (i.e., 3-year goals stated in annual increments). The level of achievement of the preestablished EV goals by the end of each year will determine the size of the corresponding bonus earned by each participant for that year. A “carry-forward” feature will exist, such that bonus dollars at or above target not earned in any year can be re-earned over the next two years (50% in the first year, and the remaining 50% in the second year).
Eligibility	Top executives and key contributors at both the corporate and business unit levels (i.e., approximately 240 incumbents) will be eligible to participate in this Plan for 2005. This includes corporate officers and direct reports, and Group and Business Unit Heads, Vice Presidents, and specified managers.
Award Opportunities	Minimum, target, and maximum award opportunities will be established for each participant based upon a target percentage of base salary or midpoint salary data.
	The minimum opportunity will be 50 percent of target and maximum will be 200 percent of target (with target being 100%).

1

Carry-Forward Opportunity	If, in any 12-month bonus plan year, the maximum bonus opportunity is not earned, the difference between the maximum opportunity and the actual bonus earned, or the “unearned spread” (“US”) can be re-earned over the next two years. To achieve this, performance in the subsequent year must be at or above target and EV performance must exceed that of year 1 for any amount to be earned. Fifty percent of the US can be earned in the immediately proceeding year, with the remaining 50 percent being re-earnable in the year thereafter. If not re-earned in the specified year, the opportunity expires.
	Overlapping unearned spread opportunities can exist if the maximum bonus is not earned in consecutive years.
Performance Metrics/Goals	EV will be the exclusive performance measure and, thereby, the level of achievement of the EV goal will determine 100 percent of each participant’s bonus.
	Every three years EV goals will be established for a three-year period. These three-year goals should be considered fixed, absent the occurrence of any significant unforeseeable events. The three-year goal will be communicated to participants in terms of three annual goals. The level of achievement of the annual goal will determine the value of the earned award each year.
Weighting	The level of achievement of the EV goal will be weighted for corporate, versus group, versus business unit performance, dependent upon where each participant is employed within the organization.

2

Termination of Employment	If a participant’s employment is terminated due to normal retirement (as defined under the Company’s qualified retirement plan), death, or permanent disability, at any time prior to the end of the plan year in which any annual bonus is otherwise earned, the participant will receive a pro rata payout of the actual bonus earned, based on the number of days actively employed during the bonus plan year. This pro rata bonus will be paid after the end of the corresponding plan year, at the same time active participants receive their bonus payouts. If a participant’s employment is terminated for any other reason, prior to the end of the plan year in which any annual bonus is otherwise earned, the participant shall not be eligible to receive a payout for that year.
	Notwithstanding the above, upon a Change in Control and for two years thereafter, if a participant’s employment is terminated involuntarily by the Company without Cause, or voluntarily by the participant for Good Reason, then the participant shall receive a pro rata portion of their target bonus for the year of termination, within ten calendar days of termination. “Cause” and “Good Reason” shall have definitions identical to those contained in the Executive Change-in-Control Agreements.
“Umbrella” Pool Plan Design	The plan will be structured so that payouts will be exempt from the Internal Revenue Code Section 162(m) “$1 million” nondeductibility rules. To accomplish this exemption, separate and distinct from the EV plan design, a bonus pool will be established annually (for the proxy reported executives) based on a single, fixed financial metric (e.g., 1.5% of net income). The Committee will then use “negative discretion” to award bonuses based on the EV performance criteria using the actual minimum, target, and maximum award opportunities by position. As long as the actual bonuses paid (using the EV criteria) are less than the amount as determined by the umbrella pool approach, all payouts should be exempt as being “performance based” under Section 162(m).
	Note: This approach will require shareholder approval of the umbrella pool formula and maximum opportunities for each proxy reported participant, among other details. These provisions will be made a part of the long-term incentive plan document (which also will require shareholder approval via the next proxy statement).
Deferral of Bonus Dollars	Executives who otherwise participate in the Company’s voluntarily deferral plan will be allowed to voluntary defer all or any portion of amounts earned under this bonus plan, subject to properly executed deferral elections.

Revised – December, 2006

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EX-10.(E)

Exhibit 10-E

FEDERAL SIGNAL CORPORATION

SAVINGS RESTORATION PLAN

(Amended and Restated Effective January 1, 2007)

McDermott Will & Emery LLP
Chicago

CERTIFICATE

     I,                     ,                                          of Federal Signal Corporation, hereby certify that the attached document is a correct copy of the Federal Signal Corporation Savings Restoration Plan (As Amended and Restated Effective January 1, 2007).

     Dated this ___ day of                     , 2006.

FEDERAL SIGNAL CORPORATION
By
	Its

TABLE OF CONTENTS

			PAGE
SECTION 1 INTRODUCTION			1
	1.1	Purpose	1
	1.2	Effective Date; Plan Year	1
	1.3	Plan Administration	1
	1.4	Unfunded Nature of Plan	1
SECTION 2 DEFINITIONS			2
	2.1	Account	2
	2.2	Accounting Date	2
	2.3	Beneficiary	2
	2.4	Board	2
	2.5	Bonus	2
	2.6	Code	2
	2.7	Committee	2
	2.8	Company	2
	2.9	Company Contributions	3
	2.10	Compensation	3
	2.11	Compensation Deferrals	3
	2.12	Disability	3
	2.13	Effective Date	3
	2.14	Eligible Individual	3
	2.15	Employee	3
	2.16	Employer	4
	2.17	ERISA	4
	2.18	Federal Signal Stock Fund	4
	2.19	Investment Funds	4
	2.20	Matching Contributions	4
	2.21	Participant	4
	2.22	Plan	4
	2.23	Plan Year/Plan Year Quarter	4
	2.24	Spouse	5
	2.25	Termination Date	5
	2.26	Other Definitions	5
SECTION 3 ELIGIBILITY AND PARTICIPATION			6
	3.1	Eligibility	6
	3.2	Cessation of Participation	6
SECTION 4 DEFERRALS AND CONTRIBUTIONS			7
	4.1	Compensation Deferrals	7
	4.2	Matching and Company Contributions	7
	4.3	No Election Changes During Plan Year	8

TABLE OF CONTENTS

(continued)

			PAGE
	4.4	Crediting of Deferrals	8
	4.5	Reduction of Deferrals or Contributions	8
SECTION 5 NOTIONAL INVESTMENTS			9
	5.1	Investment Funds	9
	5.2	Investment Fund Elections	9
	5.3	Investment Fund Transfers	9
SECTION 6 ACCOUNTING			10
	6.1	Individual Accounts	10
	6.2	Adjustment of Accounts	10
	6.3	Accounting Methods	11
	6.4	Statement of Account	11
SECTION 7 VESTING			12
SECTION 8 FUNDING			13
SECTION 9 DISTRIBUTION OF ACCOUNTS			14
	9.1	Distribution of Accounts	14
	9.2	6-Month Delay on Payments Due to Termination of Employment	15
	9.3	Mandatory Cash-Outs of Small Amounts	15
	9.4	Designation of Beneficiary	15
	9.5	Reemployment	16
	9.6	Form of Payment	16
SECTION 10 GENERAL PROVISIONS			17
	10.1	Interests Not Transferable	17
	10.2	Employment Rights	17
	10.3	Litigation by Participants or Other Persons	17
	10.4	Evidence	17
	10.5	Waiver of Notice	17
	10.6	Controlling Law	17
	10.7	Statutory References	18
	10.8	Severability	18
	10.9	Action By the Company, the Employers or the Committee	18
	10.10	Headings and Captions	18
	10.11	Gender and Number	18
	10.12	Examination of Documents	18
	10.13	Elections	18
	10.14	Manner of Delivery	19
	10.15	Facility of Payment	19
	10.16	Missing Persons	19

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TABLE OF CONTENTS

(continued)

			PAGE
	10.17	Recovery of Benefits	20
	10.18	Effect on Other Benefits	20
	10.19	Tax and Legal Effects	20
SECTION 11 THE COMMITTEE			21
	11.1	Establishment of Committee	21
	11.2	Committee General Powers, Rights, and Duties	21
	11.3	Interested Committee Member	22
	11.4	Compensation and Expenses	22
	11.5	Information Required by Committee	22
	11.6	Uniform Application of Rules	22
	11.7	Review of Benefit Determinations	22
	11.8	Committee’s Decision Final	23
SECTION 12 AMENDMENT AND TERMINATION			24
SUPPLEMENT A
	Special Contributions for Stephanie K. Kushner

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FEDERAL SIGNAL CORPORATION
SAVINGS RESTORATION PLAN

(Amended and Restated Effective January 1, 2007)

SECTION 1 INTRODUCTION

     1.1 Purpose

          Federal Signal Corporation (the “Company”) has established the Federal Signal Corporation Savings Restoration Plan (the “Plan”), to provide certain supplemental benefits to a select group of management employees of the Employers under the Plan who contribute materially to the continued growth, development, and future success of the Employers. The Plan is an amendment and restatement of the Federal Signal Corporation Supplemental Savings and Investment Plan, which was originally established effective January 1, 1983. This Plan is intended to comply with the American Jobs Creation Act of 2004, Code Section 409A, and related guidance. The Plan is intended to constitute an account balance plan (as defined in IRS Notice 2005-1, Q&A-9).

      1.2 Effective Date; Plan Year

          The Plan is amended and restated effective January 1, 2007. The original effective date of the Federal Signal Corporation Supplemental Savings and Investment Plan, of which this Plan is a restatement, was January 1, 1983. The Plan is administered on the basis of a Plan Year, as defined in subsection 2.24.

      1.3 Plan Administration

          As described in Section 11, the Committee shall be the administrator (as that term is defined in Section 3(16)(A) of ERISA) of the Plan and shall be responsible for the administration of the Plan; provided, however, the Committee may delegate all or any part of its powers, rights, and duties under the Plan to such person or persons as it may deem advisable. Any notice or document relating to the Plan which is to be filed with the Committee may be delivered, or mailed by registered or certified mail, postage pre-paid, to the secretary of the Committee, or to any designated Committee representative, in care of the Company, at its principal office.

      1.4 Unfunded Nature of Plan

          The Plan is an unfunded, nonqualified deferred compensation plan that is intended to qualify for the exemptions provided in Sections 201, 301, and 401 of ERISA. Participants (and their Beneficiaries) shall have only those rights to payments as set forth in the Plan and shall be considered general, unsecured creditors of the Employers with respect to any such rights.

SECTION 2 DEFINITIONS

      2.1 Account

          “Account” means all notional accounts and sub-accounts maintained for a Participant in order to reflect his interest under the Plan, as described in Section 6.

      2.2 Accounting Date

          “Accounting Date” means each day designated by the Committee as of which the value of an Investment Fund is adjusted for notional deferrals, contributions, distributions, gains, losses, or expenses. To the extent not otherwise designated by the Committee, each Investment Fund will be valued as of each day on which the New York Stock Exchange is open for trading.

      2.3 Beneficiary

          “Beneficiary” means the person or persons to whom a deceased Participant’s benefits are payable under subsection 9.4.

      2.4 Board

          “Board” means the Board of Directors of the Company, as from time to time constituted.

      2.5 Bonus

          “Bonus” means an incentive award of cash contingent upon the achievement of specified performance goals and payable to an Employee in a given year, with respect to the immediately preceding incentive bonus performance period.

      2.6 Code

          “Code” means the Internal Revenue Code of 1986, as amended. Reference to a specific section of the Code shall include such section, any valid regulation promulgated thereunder, and any comparable provision of any future legislation amending, supplementing, or superseding such section.

      2.7 Committee

          “Committee” means the Benefits Planning Committee of the Company, as described in Section 11.

      2.8 Company

          “Company” means Federal Signal Corporation or any successor organization or entity that assumes the Plan.

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      2.9 Company Contributions

          “Company Contributions” means the amounts credited to a Participant’s Company Contribution Account under the Plan by the Employer, in accordance with subsection 4.2.

      2.10 Compensation

          “Compensation” means Compensation as defined in the Federal Signal Retirement Savings Plan (the “Qualified RSP Plan”), which term shall include (but shall not be limited to) salary, bonus, and commissions; provided, however, that Compensation shall be determined for these purposes without regard to the dollar limitations in effect for qualified plans under Section 401(a)(17) of the Code.

      2.11 Compensation Deferrals

          “Compensation Deferrals” means the amounts credited to a Participant’s Compensation Deferral Account pursuant to the Participant’s election made in accordance with subsection 4.1.

      2.12 Disability

          “Disability” means the occurrence of an event as a result of which a Participant is considered disabled. A Participant is considered disabled if the Participant is determined to be disabled in accordance with a disability insurance program maintained or contributed to by the Employer by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of at least 12 months.

      2.13 Effective Date

          “Effective Date” means January 1, 2007.

      2.14 Eligible Individual

          “Eligible Individual” means each Employee of an Employer who satisfies the requirements set forth in Section 3.

      2.15 Employee

          “Employee” means a person who is employed by an Employer, is on the Employer’s regular payroll, and is treated and/or classified by the Employer as a common law employee for purposes of wage withholding for Federal income taxes. If a person is not considered to be an Employee of the Employer in accordance with the preceding sentence, a subsequent determination by the Employer, any governmental agency, or a court that the person is a common law employee of the Employer, even if such determination is applicable to prior years, will not have a retroactive effect for purposes of eligibility to participate in the Plan.

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      2.16 Employer

          “Employer” means Federal Signal Corporation and any affiliate or subsidiary of the Company as defined in Subsections 414(b) and (c) of the Code that has adopted the Plan on behalf of its Eligible Individuals with the consent of the Company.

      2.17 ERISA

          “ERISA” means the Employee Retirement Income Security Act of 1974, as amended. Reference to a specific section of ERISA shall include such section, any valid regulation promulgated thereunder, and any comparable provision of any future legislation amending, supplementing, or superseding such section.

      2.18 Federal Signal Stock Fund

          “Federal Signal Stock Fund” means an Investment Fund offered under the Plan having a notional investment return based on the performance of the common stock of the Company, in accordance with rules and procedures established by the Committee.

      2.19 Investment Funds

          “Investment Funds” means the notional funds or other investment vehicles designated pursuant to subsection 5.1.

      2.20 Matching Contributions

          “Matching Contributions” means the amounts credited to a Participant’s Matching Contribution Account under the Plan by the Employer, in accordance with subsection 4.2.

      2.21 Participant

          “Participant” means an Eligible Individual who meets the requirements of Section 3 and elects to make Compensation Deferrals pursuant to Section 4, or any individual who is an Employee or former Employee of an Employer who has an Account under this Plan, or a non-Employee member or former member of the Board of Directors of the Company, who has a Pre-2007 Plan Account under the Plan.

      2.22 Plan

          “Plan” means the Federal Signal Corporation Savings Restoration Plan, as set forth in this instrument and as hereafter amended from time to time.

      2.23 Plan Year/Plan Year Quarter

          “Plan Year” means each 12-month period beginning January 1 and ending the following December 31. “Plan Year Quarter” means each three-month period ending March 31, June 30, September 30 and December 31.

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      2.24 Spouse

          “Spouse” means the person to whom a Participant is legally married under applicable state law at the earlier of the date of the Participant’s death or the date payment of the Participant’s benefits commenced and who is living on the date of the Participant’s death.

      2.25 Termination Date

          “Termination Date” means, with respect to an Employee, the date on which the Participant has a separation from service with the Employers, the Company and any subsidiary or affiliate of the Company, as determined by the Committee.

      2.26 Other Definitions

          Other defined terms used in the Plan shall have the meanings given such terms elsewhere in the Plan.

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SECTION 3 ELIGIBILITY AND PARTICIPATION

      3.1 Eligibility

          For each Plan Year commencing on or after 2007, each Employee of an Employer who is employed at a salary grade of 18 or above (as determined by the Committee) shall be an Eligible Individual eligible to participate in the Plan by making a deferral election pursuant to Section 4. Notwithstanding the foregoing, an Employee who is employed at a salary grade lower than 18 may be determined by the Committee to be an Eligible Individual if the Committee determines that his Compensation is at a level such that he is likely to be, on a sustained basis, subject to the limitations on Compensation that can be taken into account under the Qualified RSP Plan, as described in Section 4 below. An Employee who first becomes employed at a salary grade of 18 or above during a Plan Year (or is otherwise determined by the Committee to be an Eligible Individual) shall only be permitted to become a Participant in the Plan as of the January 1 following the date he becomes an Eligible Individual. A list of all potential Eligible Individuals shall be presented to the Committee annually for approval.

          Each Eligible Individual’s decision to become a Participant shall be entirely voluntary. An Eligible Individual who makes a deferral election pursuant to Section 4, or who has an Account balance under the Plan, shall be a Participant in the Plan.

      3.2 Cessation of Participation

          If a Participant ceases to be an Eligible Individual, no further Compensation Deferrals, Company Contributions or Matching Contributions shall be credited to the Participant’s Accounts after the end of the Plan Year Quarter following the date the Participant ceases to be eligible or as soon as administratively feasible thereafter (or, if the eligibility determination can be made by the Committee or its designee prior to the end of the Plan Year Quarter, on or as soon as administratively feasible after the date the Participant ceases to be eligible), unless he is again determined to be an Eligible Individual, but the balance credited to his Accounts shall continue to be adjusted for notional investment gains and losses under the terms of the Plan and shall be distributed to him at the time and manner set forth in Section 9. An Employee shall cease to be a Participant after his Termination Date or other loss of eligibility as soon as his entire Account balance has been distributed.

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SECTION 4 DEFERRALS AND CONTRIBUTIONS

      4.1 Compensation Deferrals

          Each Plan Year, an Eligible Individual may elect to defer receipt (in increments of one percent) of no less than 6 percent but no greater than 40 percent (or such other percentage as determined by the Committee) of his Compensation that would otherwise have been payable to him on or after the effective date of the election, but only to the extent that the Participant’s deferrals under the Qualified RSP Plan have been limited by the restrictions on deferrals to the Qualified RSP Plan imposed by Section 402(g) of the Code, or by the limitations on Compensation that can be taken into account under the Qualified RSP Plan imposed by Section 401(a)(17) of the Code. A Participant’s deferral election for a Plan Year under this subsection must be made not later than December 31 of the preceding Plan Year with respect to Compensation payable on or after the following January 1 in accordance with rules established by the Committee.

          Except as provided in subsection 4.3, an election to make Compensation Deferrals under this subsection 4.1 shall be irrevocable and shall remain in effect for Compensation otherwise payable during the calendar year to which the election applies (or, in the case of deferrals of Compensation consisting of Bonus, shall remain in effect for the Bonus otherwise payable during the second calendar year following the December 31 election date described above).

      4.2 Matching and Company Contributions

          Matching Contributions shall be credited to the Matching Contribution Accounts of Participants who have satisfied the requirements of subsection 3.1 and in accordance with the requirements of this subsection 4.2. The amount of any such Matching Contribution with respect to a Participant shall be equal to 50% of 6% of the amount of the Participant’s Compensation, but reduced by the amount of Matching Contributions made to the Qualified RSP Plan on the Participant’s behalf for the applicable Plan Year. Matching Contributions under this Plan shall be credited to such Participants’ Matching Contribution Accounts at the same time as Matching Contributions are credited to Participants’ Accounts under the Qualified RSP Plan.

          Company Contributions shall be credited to the Company Contribution Accounts of Participants who have satisfied the requirements of subsection 3.1 and in accordance with the requirements of this subsection 4.2. The amount of any such Company Contributions with respect to a Participant shall be equal to the amount of Points-Weighted Contributions that would have been made under the Qualified RSP Plan on the Participant’s behalf without regard to the limits on the Participant’s Compensation under Section 401(a)(17) of the Code, but reduced by the amount of Points-Weighted Contributions that were made to the Qualified RSP Plan on the Participant’s behalf for the applicable Plan Year. Company Contributions under this Plan shall be credited to such Participants’ Company Contribution Accounts at the same time as Points-Weighted Contributions are credited to Participants’ Accounts under the Qualified RSP Plan. Additional discretionary Company Contributions may be made to the Participant’s Company Contribution Account, in the Company’s sole discretion and subject to such rules and procedures as the Committee may establish.

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      4.3 No Election Changes During Plan Year

          A Participant shall not be permitted to change or revoke his deferral elections, except that, if a Participant’s status changes such that he becomes ineligible for the Plan, the Participant’s deferrals under the Plan shall cease as described in subsection 3.2.

      4.4 Crediting of Deferrals

          The amount of deferrals pursuant to subsection 4.1 shall be credited to the Participant’s Accounts as of a date not later than 15 business days after the date on which the amount (but for the deferral) otherwise would have been paid to the Participant.

      4.5 Reduction of Deferrals or Contributions

          Any deferrals or contributions to be credited to a Participant’s Account under this Section may be reduced by an amount equal to the Federal or state income, payroll, or other taxes required to be withheld on such deferrals or contributions or to satisfy any necessary employee welfare plan contributions. A Participant shall be entitled only to the net amount of such deferral or contribution (as adjusted from time to time pursuant to the terms of the Plan).

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SECTION 5 NOTIONAL INVESTMENTS

      5.1 Investment Funds

          The Committee may designate, in its discretion, one or more Investment Funds for the notional investment of Participants’ Accounts. The Committee, in its discretion, may from time to time establish new Investment Funds or eliminate existing Investment Funds. An Investment Fund will be offered that consists of a notional investment in a Federal Signal Stock Fund, as defined in subsection 2.19. The Investment Funds are for recordkeeping purposes only and do not allow Participants to direct any Company assets (including, if applicable, the assets of any trust related to the Plan). Each Participant’s Accounts shall be adjusted pursuant to the Participant’s notional investment elections made in accordance with this Section 5, except as otherwise determined by the Committee in its sole discretion.

      5.2 Investment Fund Elections

          A Participant may elect from among the Investment Funds for the notional investment of his Accounts from time to time in accordance with procedures established by the Committee. The Committee, in its discretion, may adopt (and may modify from time to time) such rules and procedures as it deems necessary or appropriate to implement the notional investment of the Participant’s Accounts. Such procedures may differ among Participants or classes of Participants, as determined by the Committee in its discretion. The Committee may limit, delay or restrict the notional investment of certain Participants’ Accounts in accordance with Committee rules in order to comply with Company policy and applicable law or to minimize regulated filings and disclosures. Any deferred amounts subject to a Participant’s investment election that must be so limited, delayed or restricted under such circumstances may be notionally invested in an Investment Fund designated by the Committee, or may be credited with earnings at a rate determined by the Committee, which rate may be zero. A Participant’s notional investment election shall remain in effect until later changed in accordance with the rules of the Committee. If a Participant does not make a notional investment election, all deferrals by the Participant and contributions on his behalf will be deemed to be notionally invested in the Investment Fund designated by the Committee for such purpose.

      5.3 Investment Fund Transfers

          A Participant may elect that all or a part of his notional interest in an Investment Fund shall be transferred to one or more of the other Investment Funds. A Participant may make such notional Investment Fund transfers in accordance with rules established from time to time by the Committee, and in accordance with subsection 5.2. Notwithstanding the foregoing, any amount of a Participant’s Pre-2007 Plan Account that has been invested in the Federal Signal Stock Fund may not be transferred to any of the other Investment Funds.

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SECTION 6 ACCOUNTING

      6.1 Individual Accounts

          The Committee may, in its discretion, maintain in the name of each Participant, as applicable, the following Accounts, and any sub-accounts under such Accounts deemed necessary or advisable by the Committee from time to time:

(a)	Compensation Deferral Account. A Compensation Deferral Account to reflect the Participant’s Compensation Deferrals and the notional gains, losses, expenses, appreciation and depreciation attributable thereto.
(b)	Matching Contribution Account. A Matching Contribution Account to reflect the Matching Contributions credited on behalf of the Participant, if applicable, and the notional gains, losses, expenses, appreciation and depreciation attributable thereto.
(c)	Company Contribution Account. A Company Contribution Account to reflect the Company Contributions credited on behalf of the Participant, if applicable, and the notional gains, losses, expenses, appreciation and depreciation attributable thereto.
(d)	Pre-2007 Plan Account. A Pre-2007 Plan Account to reflect the amounts, if any, credited on behalf of the Participant under the Plan prior to January 1, 2007, and the notional gains, losses, expenses, appreciation and depreciation attributable thereto. Amounts in the Participant’s Pre-2007 Plan Account shall always be notionally invested in the Federal Signal Corporation Stock Fund. Notwithstanding the foregoing, a Participant’s Pre-2007 Plan Account may also contain a Pre-1998 Sub-account, which shall not be notionally invested in the Federal Signal Corporation Stock Fund, but which instead shall be notionally credited with a fixed interest rate based upon the Vanguard Retirement Savings Trust rate, or such other rate or benchmark as the Committee shall determine from time to time in its discretion.

The Committee may establish such rules and procedures relating to the maintenance, adjustment, and liquidation of Participants’ Accounts, the crediting of deferrals and contributions and the notional gains, losses, expenses, appreciation, and depreciation attributable thereto, as it considers necessary or advisable. In addition to the Accounts described above, the Committee may maintain other Accounts or sub-accounts in the names of Participants or otherwise as the Committee considers necessary or desirable.

      6.2 Adjustment of Accounts

          Pursuant to rules established by the Committee and applied on a uniform basis, Participants’ Accounts will be adjusted on each Accounting Date, except as provided in Section 9, to reflect the value of the various Investment Funds as of such date, including adjustments to

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reflect any deferrals and contributions, notional transfers between Investment Funds, and notional gains, losses, expenses, appreciation, or depreciation with respect to such Accounts since the previous Accounting Date. The “value” of an Investment Fund at any Accounting Date shall be based on the fair market value of the Investment Fund, as determined by the Committee.

      6.3 Accounting Methods

          The accounting methods or formulae to be used under the Plan for purposes of monitoring Participants’ Accounts, including the calculation and crediting of notional gains, losses, expenses, appreciation, or depreciation, shall be determined by the Committee in its sole discretion. The accounting methods or formulae selected by the Committee may be revised from time to time.

      6.4 Statement of Account

          At such times and in such manner as determined by the Committee, but at least annually, each Participant will be furnished with a statement reflecting the condition of his Accounts.

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SECTION 7 VESTING

          A Participant shall be fully vested at all times in his Compensation Deferral Account and his Pre-2007 Plan Account. A Participant’s Matching Contribution Account and Company Contribution Account shall be vested at the same time and in the same manner as the Participant’s Matching Contributions and Points-Weighted Contributions are vested under the Qualified RSP Plan. Notwithstanding the foregoing, a Participant or his Beneficiary shall have no right to amounts credited to his Matching Contributions Account and Company Contributions Account if the Committee, the Company or the Employer determines that he engaged in any willful, deliberate or gross act of commission or omission which is substantially injurious to the finances or reputation of the Company or any Employer.

          Neither the Committee nor the Employers in any way guarantee the Participant’s Account balance from loss or depreciation. Notwithstanding any provision of the Plan to the contrary, the Participant’s Account balance is subject to Section 8.

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SECTION 8 FUNDING

          No Participant or other person shall acquire by reason of the Plan any right in or title to any assets, funds, or property of the Employers whatsoever, including, without limiting the generality of the foregoing, any specific funds, assets, or other property of the Employers. Benefits under the Plan are unfunded and unsecured. A Participant shall have only an unfunded, unsecured right to the amounts, if any, payable hereunder to that Participant. The Employers’ obligations under this Plan are not secured or funded in any manner, even if the Company elects to establish a trust with respect to the Plan. Even though benefits provided under the Plan are not funded, the Company may establish a trust to assist in the payment of benefits. All investments under this Plan are notional and do not obligate the Employers (or their delegatees) to invest the assets of the Employers or of any such trust in a similar manner.

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SECTION 9 DISTRIBUTION OF ACCOUNTS

     9.1 Distribution of Accounts

          A Participant may elect to receive payment of his Accounts at his Termination of Employment (subject to subsection 9.2) in the form of a single lump sum or in annual installments for 5, 10, or 15 years. The Participant may elect each year to have all amounts attributable to the Compensation Deferrals, Matching Contributions and Company Contributions, made to the Plan on his behalf for that Plan Year, and the earnings thereon, paid in the form of either a single lump sum or installments. The Participant’s distribution election with respect to amounts credited to his Accounts for such Plan Year, and the earnings thereon, must apply to all Accounts for such Plan Year. The Participant may make a separate distribution election with respect to each Plan Year. To the extent a Participant fails to make an election, the Participant shall be deemed to have elected to receive his distribution for that Plan Year in the form of a single lump sum. Notwithstanding the foregoing, in the event of the Participant’s death, the Participant’s total Account balances shall be distributed in the form of a lump sum to the Participant’s Beneficiary as determined under subsection 9.4. A Participant’s total Pre-2007 Plan Account shall be paid to him in the form of a single lump sum (or, if applicable, in the form of installments pursuant to his election made prior to January 1, 2005 with respect to such Pre-2007 Plan Account) upon his Termination Date (or such later date as shall be required under subsection 9.2).

(a)	Elections. A Participant will be required to make his distribution election prior to the commencement of each Plan Year.
(b)	Installment Payments. The first installment payment shall be made in the month of January following the calendar year in which occurs the Participant’s Termination Date, or such later date as shall be administratively feasible for the Committee to make such payment and in accordance with subsection 9.2. Succeeding payments shall be made in January of each succeeding calendar year, or as soon as administratively feasible for the Committee to make such payment. The amount to be distributed in each installment payment shall be determined by dividing the value of the Participant’s Accounts as of an Accounting Date preceding the date of each distribution by the number of installment payments remaining to be made, in accordance with rules established by the Committee.
(c)	Subsequent Elections to Change Form of Payment. Participants may make a subsequent election to change the form of payment from installments to a lump sum or vice versa, and a separate election change shall be allowed with respect to the amounts in the Participants’ Accounts attributable to each Plan Year. Provided, however, that such election change will be allowed only once in a Participant’s period of participation in the Plan, and such election change shall only be permitted with the approval of the Committee in its sole discretion and in accordance with procedures established by the Committee. Any such election change shall not take effect until the Participant has completed 12 months of employment with the Employer following the date of such election change, and

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payments subject to such change may not commence earlier than five years following the date payments would otherwise have commenced.

(d)

Disability Election. Notwithstanding the foregoing, a Participant may elect, as of the first year in which the Participant becomes an Participant, to have the remainder of his Accounts under the Plan paid out in a lump sum immediately following his Disability (as defined in subsection 2.13), regardless of whether he has incurred a Termination Date or whether his Accounts have commenced distribution under the Plan as of such date.

     9.2 6-Month Delay on Payments Due to Termination of Employment

          Notwithstanding anything herein to the contrary, payment shall not be made or commence as a result of the Participant’s Termination Date to any Participant before the date that is not less than six months after the Participant’s Termination Date.

     9.3 Mandatory Cash-Outs of Small Amounts

          If the value of a Participant’s total Accounts equals $10,000 or less at his Termination Date (or his death), the Accounts will be paid to the Participant (or, in the event of his death, his Beneficiary) in a single lump sum, subject to subsection 9.2, notwithstanding any election by the Participant otherwise.

     9.4 Designation of Beneficiary

          Each Participant from time to time may designate any individual, trust, charity or other person or persons to whom the value of the Participant’s Accounts will be paid in the event the Participant dies before receiving the value of all of his Accounts. A Beneficiary designation must be made in the manner required by the Committee for this purpose. Primary and secondary Beneficiaries are permitted. Payments to the Participant’s Beneficiary(ies) shall be made after the Committee has received proper notification of the Participant’s death.

          A Beneficiary designation will be effective only when the Beneficiary designation is filed with the Committee while the Participant is alive, and a subsequent Beneficiary designation will cancel all of the Participant’s Beneficiary designations previously filed with the Committee. Any designation or revocation of a Beneficiary shall be effective as only if it is received by the Committee. Once received, such designation shall be effective as of the date the designation was executed, but without prejudice to the Committee on account of any payment made before the change is recorded by the Committee. If a Beneficiary dies before payment of the Participant’s Accounts have been made, the Participant’s Accounts shall be distributed in accordance with the Participant’s Beneficiary designation and pursuant to rules established by the Committee. If a deceased Participant failed to designate a Beneficiary, or if the designated Beneficiary predeceases the Participant, the value of the Participant’s Accounts shall be payable to the Participant’s Spouse or, if there is none, to the Participant’s estate, or in accordance with such other equitable procedures as determined by the Committee.

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     9.5 Reemployment

          If a former Participant is rehired by an Employer, the Company or any affiliate or subsidiary of the Company described in Section 414(b) and (c) of the Code, regardless of whether he is rehired as an Eligible Individual, any payments being made to such Participant hereunder by virtue of his previous Termination Date shall cease. Upon such Participant’s subsequent Termination Date, his payments shall again commence in the form previously elected by such Participant in accordance with this Section 9. If a former Participant is rehired by the Employer, and any payments to be made to the Participant by virtue of his previous Termination Date have not been made or commenced, such Participant shall no longer be entitled to such payments until his subsequent Termination Date.

     9.6 Form of Payment

          Amounts in a Participant’s Pre-2007 Plan Accounts shall be distributed only in the form of Federal Signal Corporation common stock. Amounts in a Participant’s other Accounts under the Plan invested at the Participant’s direction in the notional Investment Funds shall be distributed to the Participant in cash.

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SECTION 10 GENERAL PROVISIONS

     10.1 Interests Not Transferable

          The interests of persons entitled to benefits under the Plan are not subject to their debts or other obligations and, except as may be required by the tax withholding provisions of the Code or any state’s income tax act, may not be voluntarily or involuntarily sold, transferred, alienated, assigned, or encumbered. A Participant’s interest in the Plan is not transferable pursuant to a qualified domestic relations order.

     10.2 Employment Rights

          The Plan does not constitute a contract of employment, and participation in the Plan shall not give any Employee the right to be retained in the employ of an Employer, nor any right or claim to any benefit under the Plan, unless such right or claim has specifically accrued under the terms of the Plan. The Employers expressly reserve the right to discharge any Employee at any time.

     10.3 Litigation by Participants or Other Persons

          If a legal action begun against the Committee (or any member or former member thereof), an Employer, or any person or persons to whom an Employer or the Committee has delegated all or part of its duties hereunder, by or on behalf of any person results adversely to that person, or if a legal action arises because of conflicting claims to a Participant’s or other person’s benefits, the cost to the Committee (or any member or former member thereof), the Employers or any person or persons to whom the Employer or the Committee has delegated all or part of its duties hereunder of defending the action shall be charged to the extent permitted by law to the sums, if any, which were involved in the action or were payable to the Participant or other person concerned.

     10.4 Evidence

          Evidence required of anyone under the Plan may be by certificate, affidavit, document, or other information which the person acting on it considers pertinent and reliable, and signed, made, or presented by the proper party or parties.

     10.5 Waiver of Notice

          Any notice required under the Plan may be waived by the person entitled to such notice.

     10.6 Controlling Law

          Except to the extent superseded by laws of the United States, the laws of the State of Illinois shall be controlling in all matters relating to the Plan.

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     10.7 Statutory References

          Any reference in the Plan to a Code section or a section of ERISA, or to a section of any other Federal law, shall include any comparable section or sections of any future legislation that amends, supplements, or supersedes that section.

     10.8 Severability

          In case any provision of the Plan shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining provisions of the Plan, and the Plan shall be construed and enforced as if such illegal and invalid provision had never been set forth in the Plan.

     10.9 Action By the Company, the Employers or the Committee

          Any action required or permitted to be taken by the Company or any of the Employers under the Plan shall be by resolution of its board of directors, by resolution or other action of a duly authorized committee of its board of directors, or by action of a person or persons authorized by resolution of its board of directors or such committee. Any action required or permitted to be taken by the Committee under the Plan shall be by resolution or other action of the Committee or by a person or persons duly authorized by the Committee.

     10.10 Headings and Captions

          The headings and captions contained in this Plan are inserted only as a matter of convenience and for reference, and in no way define, limit, enlarge, or describe the scope or intent of the Plan, nor in any way shall affect the construction of any provision of the Plan.

     10.11 Gender and Number

          Where the context permits, words in the masculine gender shall include the feminine and neuter genders, the singular shall include the plural, and the plural shall include the singular.

     10.12 Examination of Documents

          Copies of the Plan and any amendments thereto are on file at the office of the Company where they may be examined by any Participant or other person entitled to benefits under the Plan during normal business hours.

     10.13 Elections

          Each election or request required or permitted to be made by a Participant (or a Participant’s Spouse or Beneficiary) shall be made in accordance with the rules and procedures established by the Committee and shall be effective as determined by the Committee. The Committee’s rules and procedures may address, among other things, the method and timing of any elections or requests required or permitted to be made by a Participant (or a Participant’s Spouse or Beneficiary).

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     10.14 Manner of Delivery

          Each notice or statement provided to a Participant shall be delivered in any manner established by the Committee and in accordance with applicable law, including, but not limited to, electronic delivery.

     10.15 Facility of Payment

          When a person entitled to benefits under the Plan is a minor, under legal disability, or, in the Committee’s opinion, is in any way incapacitated so as to be unable to manage his financial affairs, the Committee may cause the benefits to be paid to such person’s guardian or legal representative. If no guardian or legal representative has been appointed, or if the Committee so determines in its sole discretion, payment may be made to any person as custodian for such individual under applicable state law, or to the legal representative of such person for such person’s benefit, or the Committee may direct the application of such benefits for the benefit of such person. Any payment made in accordance with the preceding sentence shall be a full and complete discharge of any liability for such payment under the Plan.

     10.16 Missing Persons

          The Employers and the Committee shall not be required to search for or locate a Participant, Spouse, or Beneficiary. Each Participant, Spouse, and Beneficiary must file with the Committee, from time to time, in writing the Participant’s, Spouse’s, or Beneficiary’s post office address and each change of post office address. Any communication, statement, or notice addressed to a Participant, Spouse, or Beneficiary at the last post office address filed with the Committee, or if no address is filed with the Committee, then in the case of a Participant, at the Participant’s last post office address as shown on the Employer’s records, shall be considered a notification for purposes of the Plan and shall be binding on the Participant and the Participant’s Spouse and Beneficiary for all purposes of the Plan.

          If the Committee is unable to locate the Participant, Spouse, or Beneficiary to whom a Participant’s Accounts are payable, the Participant’s Accounts shall be frozen as of the date on which distribution would have been completed under the terms of the Plan, and no further notional investment returns shall be credited thereto.

          If a Participant whose Accounts were frozen (or his Beneficiary) files a claim for distribution of the Accounts within 7 years after the date the Accounts are frozen, and if the Committee determines that such claim is valid, then the frozen balance shall be paid by the Company to the Participant or Beneficiary in a lump sum cash payment as soon as practicable thereafter. If the Committee notifies a Participant, Spouse, or Beneficiary of the provisions of this Subsection, and the Participant, Spouse, or Beneficiary fails to claim the Participant’s, Spouse’s, or Beneficiary’s benefits or make such person’s whereabouts known to the Committee within 7 years after the date the Accounts are frozen, the benefits of the Participant, Spouse, or Beneficiary may be disposed of, to the extent permitted by applicable law, by one or more of the following methods:

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(a)	By retaining such benefits in the Plan.
(b)	By paying such benefits to a court of competent jurisdiction for judicial determination of the right thereto.
(c)	By forfeiting such benefits in accordance with procedures established by the Committee. If a Participant, Spouse, or Beneficiary is subsequently located, such benefits shall be restored (without adjustment) to the Participant, Spouse, or Beneficiary under the Plan.
(d)	By any equitable manner permitted by law under rules adopted by the Committee.

     10.17 Recovery of Benefits

          In the event a Participant, Spouse, or Beneficiary receives a benefit payment from the Plan that is in excess of the benefit payment that should have been made to such Participant, Spouse, or Beneficiary, or in the event a person other than a Participant, Spouse, or Beneficiary receives an erroneous payment from the Plan, the Committee shall have the right, on behalf of the Plan, to recover the amount of the excess or erroneous payment from the recipient. To the extent permitted under applicable law, the Committee may, at its option, deduct the amount of such excess or erroneous payment from any future benefits payable to the applicable Participant, Spouse, or Beneficiary.

     10.18 Effect on Other Benefits

          Except as otherwise specifically provided under the terms of any other employee benefit plan of the Company, a Participant’s participation in this Plan shall not affect the benefits provided under such other employee benefit plan.

     10.19 Tax and Legal Effects

          The Employers, the Committee, and their representatives and delegatees do not in any way guarantee the tax treatment of benefits for any Participant, Spouse, or Beneficiary, and the Employers, the Committee, and their representatives and delegatees do not in any way guarantee or assume any responsibility or liability for the legal, tax, or other implications or effects of the Plan. In the event of any legal, tax, or other change that may affect the Plan, the Company may, in its sole discretion, take any actions it deems necessary or desirable as a result of such change.

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SECTION 11 THE COMMITTEE

     11.1 Establishment of Committee

          The Plan shall be administered by a Committee established by the Company, which as of the Effective Date shall be the Benefits Planning Committee or any successor thereto.

     11.2 Committee General Powers, Rights, and Duties

          Except as otherwise specifically provided herein, and in addition to the powers, rights, and duties specifically given to the Committee elsewhere in the Plan or otherwise delegated to the Committee by the Company, the Committee shall have the following powers, rights, and duties, which shall be exercisable in the sole discretion of the Committee:

(a)	To adopt such rules, procedures, and regulations as in its opinion may be necessary for the proper and efficient administration of the Plan and as are consistent with the Plan and to change, alter, or amend such rules, procedures, and regulations;
(b)	To construe and interpret the provisions of the Plan and make factual determinations thereunder;
(c)	To determine all questions arising in the administration of the Plan, including the power to determine the rights or eligibility of Employees or Participants or any other persons, and the amounts of their benefits (if any) under the Plan, and to remedy ambiguities, inconsistencies, or omissions, and any such determination shall be binding on all parties;
(d)	To employ and suitably compensate such agents, attorneys, accountants, actuaries, recordkeepers, or other persons (who also may be employed by the Company) to render advice and perform other services as the Committee may deem necessary to carry out its powers, rights, and duties;
(e)	To the extent applicable, to direct payments or distributions in accordance with the provisions of the Plan;
(f)	To furnish the Employers with such information as may be required by them for tax or other purposes in connection with the Plan;
(g)	To communicate the Plan and its requirements to Participants;
(h)	To take such actions as the Committee may deem necessary or advisable to correct any errors in the operation of the Plan; and
(i)	To take such other actions as the Committee may deem necessary for the proper administration and operation of the Plan in accordance with its terms.

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     11.3 Interested Committee Member

          No member of the Committee who is also an Employee of an Employer shall be excluded from participating in the Plan if otherwise eligible. If a member of the Committee (or one of its delegatees or designees) also is a Participant in the Plan, he may not decide or determine any matter or question concerning distributions of any kind to be made to him or her or the nature or mode of settlement of his benefits unless such decision or determination could be made by him or her under the Plan if he were not serving on the Committee.

     11.4 Compensation and Expenses

          Unless paid by an Employer, all reasonable costs, charges, and expenses incurred in the administration of this Plan, including expenses incurred by the Committee, compensation to an investment manager, and any compensation to agents, attorneys, actuaries, accountants, recordkeepers, and other persons performing services on behalf of this Plan or for the Committee, may be drawn from (a) Participants’ Accounts, in the form of a flat fee or a percentage of the value of each Account, (b) notional earnings or gains in each Investment Fund, or (c) an account maintained under a trust related to the Plan (if any).

     11.5 Information Required by Committee

          Each person entitled to benefits under the Plan must file with the Committee from time to time in writing such person’s mailing address and each change of mailing address. Any communication, statement, or notice addressed to any person at the last mailing address filed with the Committee will be binding upon such person for all purposes of the Plan. Each person entitled to benefits under the Plan also shall furnish the Committee with such documents, evidence, data, or information as the Committee considers necessary or desirable for the purposes of administering the Plan. The Employers shall furnish the Committee with such data and information as the Committee may deem necessary or desirable in order to administer the Plan. The records of the Employers as to an Employee’s or Participant’s period of employment, termination of employment and the reason therefor, leave of absence, reemployment, and Compensation will be conclusive on all persons unless determined to the Committee’s satisfaction to be incorrect.

     11.6 Uniform Application of Rules

          The Committee shall administer the Plan on a reasonable basis. Any rules, procedures, or regulations established by the Committee shall be applied uniformly to all persons similarly situated.

     11.7 Review of Benefit Determinations

          Claims for benefits under the Plan shall be administered in accordance with Section 503 of ERISA, the regulations thereunder, and such reasonable claims procedures as may be established by the Committee. The Plan shall provide adequate notice to any Participant, Spouse, Beneficiary, or other claimant whose claim for benefits under the Plan has been denied,

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setting forth the reasons for such denial, and shall afford such claimant a reasonable opportunity for a full and fair review. After exhaustion of the Plan’s claim procedures, any further legal action taken against the Plan or its fiduciaries by the Participant, Spouse, or Beneficiary (or other claimant) for benefits under the Plan must be filed in a court of law no later than 120 days after the Committee’s final decision regarding the claim. No action at law or in equity shall be brought to recover benefits under this Plan until the appeal rights herein provided have been exercised and the Plan benefits requested in such appeal have been denied in whole or in part. All decisions and communications to Participants, Spouses, Beneficiaries, or other persons regarding a claim for benefits under the Plan shall be held strictly confidential by the Participant, Spouse, or Beneficiary (or other claimant), and the Committee, the Employers, and their agents.

     11.8 Committee’s Decision Final

          Benefits under the Plan will be paid only if the Committee decides in its sole discretion that a Participant or Beneficiary (or other claimant) is entitled to them. Subject to applicable law, any interpretation of the provisions of the Plan and any decisions on any matter within the discretion of the Committee made by the Committee or its delegate in good faith shall be binding on all persons. A misstatement or other mistake of fact shall be corrected when it becomes known and the Committee shall make such adjustment on account thereof as it considers equitable and practicable.

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SECTION 12 AMENDMENT AND TERMINATION

          While the Company expects and intends to continue the Plan, the Company and the Committee reserve the right to amend the Plan at any time and for any reason, including the right to amend this Section 12 and the Plan termination rules herein; provided, however, that each Participant will be entitled to the amount credited to his Accounts immediately prior to such amendment . The Company’s power to amend the Plan includes (without limitation) the power to change the Plan provisions regarding eligibility, contributions, notional investments, vesting, and distribution forms, and timing of payments, including changes applicable to benefits accrued prior to the effective date of any such amendment; provided, however, that amendments to the Plan (other than amendments relating to Plan termination) shall not cause the Plan to provide for acceleration of distributions in violation of Section 409A of the Code and applicable regulations thereunder

          The Company and the Committee reserve the right to terminate the Plan at any time and for any reason; provided, however, that each Participant will be entitled to the amount credited to his Accounts immediately prior to such termination (but such Accounts shall not be adjusted for future notional income, losses, expenses, appreciation and depreciation).

          In the event that the Plan is terminated pursuant to this Section 12, the balances in affected Participants’ Accounts shall be distributed at the time and in the manner set forth in Section 9. Notwithstanding the foregoing, the Company and the Committee reserve the right to make all such distributions within the second twelve-month period commencing with the date of termination of the Plan; provided, however, that no such distribution will be made during the first twelve-month period following such date of Plan termination other than those that would otherwise be payable under Section 9 absent the termination of the Plan.

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SUPPLEMENT A

Special Contributions for Stephanie K. Kushner

          A-1. Special Contributions. Beginning in Plan Year 2007 and for each of the five Plan years thereafter, the Company shall make an additional Special Contribution to the Company Contribution Account of Stephanie Kushner under this Plan in the amount described in paragraph A-2 below. Such Special Contributions shall be made at the time and in the manner determined by the Committee, and each Plan Year’s Special Contribution shall be made to the Plan only in the event that Stephanie Kushner is employed on the anniversary of her date of hire; i.e., March 1 of the applicable Plan Year as Chief Financial Officer of Federal Signal Corporation.

          A-2. Amount of Special Contributions. The amount of such Special Contributions shall be as follows:

Year of Special Contribution	Amount of Special Contribution
2007	$	308,472
2008	$	30,322
2009	$	11,233
2010	$	11,658
2011	$	11,902
2012	$	12,365

          A-3. Vesting of Special Contributions. Special Contributions shall be 100% vested five years after Stephanie Kushner’s date of hire in 2002; consequently, effective on the fifth anniversary of Stephanie Kushner’s date of hire occurring in 2007, the Special Contributions made in 2007 and thereafter shall each be 100% vested and nonforfeitable.

          A-4. Other Provisions of the Plan Applicable. All other provisions of the Plan are applicable to Special Contributions made under this Supplement A.

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EX-10.(H)

Exhibit 10-H

Executive General Severance Plan

Federal Signal Corporation

November 2006

Contents

Article 1. Establishment, Term, and Purpose	1
Article 2. Definitions	1
Article 3. Participation	4
Article 4. Severance Benefits	4
Article 5. The Company’s Payment Obligation	6
Article 6. Legal Remedies	7
Article 7. Withholding	7
Article 8. Noncompetition	8
Article 9. Successors and Assignment	8
Article 10. Miscellaneous	9

Federal Signal Corporation
Executive General Severance Plan

Article 1. Establishment, Term, and Purpose

     1.1 Establishment of the Plan. Federal Signal Corporation (hereinafter referred to as the “Company”) hereby establishes a severance plan to be known as the “Federal Signal Corporation Executive General Severance Plan” (the “Plan”). The Plan provides severance benefits to certain employees of the Company upon a termination of employment from the Company, not including a termination of employment as a result of a Change in Control of the Company. Except for the Change-in-Control Severance Agreements entered into with certain executives, the Plan is intended to supersede any and all plans, programs, or agreements providing for severance-related payments.

     1.2 Term of the Plan. This Plan will commence on January 1, 2005 (the “Effective Date”) and shall continue in effect for three (3) full calendar years. However, at the end of such three (3) year period and, if extended, at the end of each additional year thereafter, the term of this Plan shall be extended automatically for one (1) additional year, unless the Compensation Committee delivers written notice six (6) months prior to the end of such term, or extended term, to each Participant that the Plan will not be extended.

     In the event the term of the Plan is not extended for any reason, the Plan will terminate at the end of the term, or extended term, then in progress, and the Participant will be deemed terminated by the Company without Cause on such date.

     1.3 Purpose of the Plan. The purpose of the Plan is to provide certain key employees of the Company financial security in the event of a termination of employment from the Company.

Article 2. Definitions

     Whenever used in this Plan, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word is capitalized:

(a)	“Base Salary” means, at any time, the then regular annual rate of pay which the Participant is receiving as annual salary, excluding amounts: (i) received under short-term or long-term incentive or other bonus plans, regardless of whether or not the amounts are deferred, or (ii) designated by the Company as payment toward reimbursement of expenses.
(b)	“Beneficiary” means the persons or entities designated or deemed designated by a Participant pursuant to Section 10.2 herein.
(c)	“Benefits Committee” means the Benefits Planning Committee of the Company which was appointed by the Compensation and Benefits Committee of the Company’s Board of Directors, and is composed of certain officers or other employees of the Company.

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(d)	“Board” means the Board of Directors of the Company.
(e)	“Cause” shall be determined solely by the Benefits Committee except as expressly set forth to the contrary hereinbelow), which shall have the authority to interpret the Plan and to determine the meaning of any ambiguous Plan provisions in its sole and absolute discretion, and shall mean the occurrence of any one or more of the following:

(i)	The Participant’s failure to substantially perform his duties with the Company (other than any such failure resulting from the Participant’s Disability), after written notice of such failure and a reasonable opportunity to cure following written notice; or
(ii)	The Participant’s conviction of a felony; or
(iii)	The Participant’s willful engaging in conduct that is demonstrably and materially injurious to the Company, monetarily or otherwise. However, no act or failure to act on the Participant’s part shall be deemed “willful” unless done, or omitted to be done, by the Participant not in good faith and without reasonable belief that the action or omission was in the best interests of the Company.
(iv)	The Participant’s material breach of Company policies, including but not limited to the Company’s policy for business conduct.

Notwithstanding anything to the contrary stated herein, in the case of the determination of Cause involving a Participant who is a member of the Company’s “Executive Committee” as such term is defined in the Company’s then most recent annual report, the Benefits Committee shall assign and cede all of its discretion and authority in the determination of Cause to the Compensation Committee.

(f)	“Code” means the Internal Revenue Code of 1986, as amended.
(g)	“Compensation Committee” means the Compensation and Benefits Committee of the Board of Directors of the Company, or, if no Compensation Committee exists, then the full Board of Directors of the Company, or a committee of Board members, as appointed by the full Board to administer this Agreement.
(h)	“Company” means Federal Signal Corporation, a Delaware corporation (including any and all subsidiaries), or any successor thereto as provided in Article 9 herein.
(i)	“Disability” or “Disabled” shall have the meaning ascribed to such term in the Participant’s governing long-term disability plan, or if no such plan exists, at the discretion of the Benefits Committee.
(j)	“Effective Date” means the date this Plan is approved by the Board, or such other date as the Board shall designate in its resolution approving this Plan, and as specified in the opening sentence of this Plan.

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(k)	“Effective Date of Termination” means the date on which a termination occurs which triggers the payment of Severance Benefits hereunder.
(l)	“Good Reason” means, without the Participant’s express written consent, the occurrence of any one (1) or more of the following:

(i)	The assignment of the Participant to duties materially inconsistent with the Participant’s authorities, duties, responsibilities, and status (including offices, titles, and reporting requirements) as an executive and/or officer of the Company, or a material reduction or alteration in the nature or status of the Participant’s authorities, duties, or responsibilities from those in effect as of the Effective Date, other than an insubstantial and inadvertent act that is remedied by the Company promptly after receipt of notice thereof given by the Participant;
(ii)	The Company’s requiring the Participant to be based at a location in excess of fifty (50) miles from the location of the Participant’s principal job location or office as of the Effective Date; except for required travel on the Company’s business to an extent substantially consistent with the Participant’s then present business travel obligations;
(iii)	A reduction by the Company of the Participant’s Base Salary in effect on the Effective Date hereof, or as the same shall be increased from time to time;
(iv)	The failure of the Company to continue in effect any of the Company’s short- and long-term incentive compensation plans, or employee benefit or retirement plans, policies, practices, or other compensation arrangements in which the Participant participates unless such failure to continue the plan, policy, practice, or arrangement pertains to all plan participants generally; or the failure by the Company to continue the Participant’s participation therein on substantially the same basis, both in terms of the amount of benefits provided and the level of the Participant’s participation relative to other participants, as of the Effective Date;
(v)	The failure of the Company to obtain a satisfactory agreement from any successor to the Company to assume and agree to perform the Company’s obligations under this Plan, as contemplated in Article 9 herein; and
(vi)	A material breach of this Agreement by the Company which is not remedied by the Company within ten (10) business days of receipt of written notice of such breach delivered by the Participant to the Company.

Unless the Participant becomes Disabled, the Participant’s right to terminate employment for Good Reason shall not be affected by the Participant’s incapacity due to physical or mental illness. The Participant’s continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason herein.

(m) “Notice of Termination” shall mean a written notice which shall indicate the specific termination provision in this Plan relied upon, and shall set forth in reasonable detail the

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facts and circumstances claimed to provide a basis for termination of the Participant’s employment under the provision so indicated.

(n)	“Participant” means an executive of the Company who is named by the Compensation Committee as a Participant in the Plan, as set forth in Article 2 herein.
(o)	“Plan” has the meaning ascribed to such term in Section 1.1 hereof.
(p)	“Severance Benefits” means the payment of severance compensation as provided in Article 4 herein.

Article 3. Participation

     3.1 Eligible Employees. Individuals eligible to participate in the Plan shall include all key employees of the Company, as determined by the Compensation Committee in its sole discretion.

     3.2 Participation. Subject to the terms of the Plan, the Compensation Committee may, from time to time, select from all eligible employees those who shall participate in the Plan. From those selected to participate in the Plan, the Benefits Committee shall assign each Participant to a category as follows: Tier I Executives, Tier II Executives, or Tier III Executives.

Article 4. Severance Benefits

     4.1 Right to Severance Benefits. Subject to the provisions herein, each Participant shall be entitled to receive from the Company Severance Benefits as described in Section 4.2 herein, if, during the term of the Plan, the Participant’s employment with the Company shall be terminated by the Company without Cause, or voluntarily by the Participant for Good Reason.

     A Participant shall not be entitled to receive Severance Benefits under Section 4.2 hereof if he or she is terminated for Cause, or if his or her employment with the Company ends due to death, Disability, Retirement, or due to a voluntary termination of employment by the Participant without Good Reason.

     4.2 Description of Severance Benefits. In the event that a Participant becomes entitled to receive Severance Benefits, as provided in Section 4.1 herein, the Participant shall receive the following Severance Benefits:

(a) Tier I Executives: One (1.0) times the sum of: (i) the Participant’s Base Salary; and (ii) the Participant’s target annual bonus established for the bonus plan year in which the Participant’s Effective Date of Termination occurs.

Tier II Executives: Three-quarters (0.75) times the sum of: (i) the Participant’s Base Salary; and (ii) the Participant’s target annual bonus established for the bonus plan year in which the Participant’s Effective Date of Termination occurs.

Tier III Executives: One-half (0.5) times the sum of: (i) the Participant’s Base Salary; and (ii) the Participant’s target annual bonus established for the bonus plan year in which the Participant’s Effective Date of Termination occurs.

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(b)

An amount equal to the Participant’s unpaid targeted annual bonus, established for the plan year in which the Participant’s Effective Date of Termination occurs, multiplied by a fraction, the numerator of which is the number of days the Participant was employed by the Company in the then existing fiscal year through the Effective Date of Termination, and the denominator of which is three hundred sixty-five (365).

(c)

A continuation of the welfare benefits of medical insurance, dental insurance, and group term life insurance for eighteen (18) months following the Effective Date of Termination. These benefits shall be provided to Participants at the same premium cost, and at the same coverage level, as in effect as of the Participant’s Effective Date of Termination.

However, in the event the premium cost and/or level of coverage shall change for all employees of the Company, the cost and/or coverage level, likewise, shall change for each Participant in a corresponding manner.

The continuation of these welfare benefits shall be discontinued prior to the end of the eighteen (18) month period in the event the Participant has available substantially similar benefits from a subsequent employer, as determined by the Benefits Committee.

(d)	The treatment of accrued vacation days earned prior to the Effective Date of Termination, but not taken by the Participant, shall be subject to the treatment provided under the Company’s vacation policy.
(e)	All outstanding long-term incentive awards shall be subject to the treatment provided under the applicable long-term incentive plan of the Company.

     4.3 Termination Due to Disability. If a Participant’s employment is terminated due to Disability during the term of this Plan, the Participant shall receive his or her Base Salary and accrued vacation through the Effective Date of Termination. All other benefits provided to the Participant shall be determined in accordance with the Company’s disability, retirement, insurance, and other applicable plans and programs then in effect.

     4.4 Termination Due to Death. If a Participant’s employment is terminated by reason of death, the Participant, or where applicable, the Participant’s Beneficiaries, shall receive the Participant’s Base Salary and accrued vacation through the Effective Date of Termination. All other benefits provided to the Participant or the Participant’s Beneficiaries shall be determined in accordance with the Company’s retirement, survivor’s benefits, insurance, and other applicable programs of the Company then in effect.

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     4.5 Termination for Cause or by a Participant Other Than for Good Reason. If a Participant’s employment is terminated either: (a) by the Company for Cause; or (b) by the Participant other than for Good Reason, the Company shall pay the Participant his or her unpaid Base Salary and accrued vacation through the Effective Date of Termination, at the rate then in effect, plus all other amounts to which the Participant is entitled under any compensation plans of the Company, at the time such payments are due, and the Company shall have no further obligations to the Participant under this Plan.

     4.6 Notice of Termination. Any termination by the Company for Cause or by a Participant for Good Reason shall be communicated by Notice of Termination at least sixty (60) days prior to the date on which such termination shall be effective.

     4.7 Form and Timing of Severance Benefits. The Severance Benefits set forth in this Article 4 shall be made as a continuation of pay (over the applicable severance period) through the normal payroll procedures of the Company. If, as of the Effective Date of Termination, the Participant is a “key employee” as that term is used in Code Section 409A (and the regulations promulgated thereunder) then, the Severance Benefits, to the extent they are considered deferred compensation under Section 409A or the regulations thereunder, shall begin six (6) months following the Effective Date of Termination. Any Severance Benefits accrued during the first six (6) months following a Participant’s Effective Date of Termination shall be paid in a lump sum following such six (6) month period. Any remaining Severance Benefits shall then be paid through the normal payroll procedures of the Company.

     4.8 No Duplication of Severance. If a Participant is a party to a change-in-control agreement with the Company, the Participant shall not be entitled to receive a Severance Benefit under this Plan if he or she is entitled to receive a severance benefit under the change-in-control agreement.

     4.9 Release. As a condition of receiving Severance Benefits under the Plan, the Participant is required to sign a general release in a form acceptable to the Benefits Committee. No Severance Benefits will be paid to a Participant until the applicable release becomes irrevocable in accordance with its terms.

Article 5. The Company’s Payment Obligation

     5.1 Payment Obligations Absolute. The Company’s obligation to make the payments and the arrangements provided for herein shall be absolute and unconditional, and shall not be affected by any circumstances, including, without limitation, any offset, counterclaim, recoupment, defense, or other right which the Company may have against Participants or anyone else. All amounts payable by the Company hereunder shall be paid without notice or demand. Each and every payment made hereunder by the Company shall be final, and the Company shall not seek to recover all or any part of such payment from Participants or from whomsoever may be entitled thereto, for any reasons whatsoever.

6

     Participants shall not be obligated to seek other employment in mitigation of the amounts payable or arrangements made under any provision of this Plan, and the obtaining of any such other employment shall in no event effect any reduction of the Company’s obligations to make the payments and arrangements required to be made under this Plan, except to the extent provided in Section 4.2(c) herein.

     5.2 Contractual Rights to Benefits. This Plan establishes and vests in each Participant a contractual right to the benefits to which he or she is entitled hereunder. However, nothing herein contained shall require or be deemed to require, or prohibit or be deemed to prohibit, the Company to segregate, earmark, or otherwise set aside any funds or other assets, in trust or otherwise, to provide for any payments to be made or required hereunder.

Article 6. Legal Remedies

     6.1 Payment of Legal Fees. To the extent permitted by law, the Company shall pay all legal fees, costs of litigation, prejudgment interest, and other expenses incurred in good faith by the Participant as a result of the Company’s refusal to provide the Severance Benefits to which the Participant becomes entitled under this Plan, or as a result of the Company’s contesting the validity, enforceability, or interpretation of this Plan, or as a result of any conflict between the parties pertaining to this Plan; provided, however, that the Company shall be reimbursed by the Participant for all such fees and expenses in the event the Participant fails to prevail with respect to any one material issue of dispute in connection with such legal action.

     6.2 Arbitration. Subject to the following sentences, Participants shall have the right and option to elect (in lieu of litigation) to have any dispute or controversy arising under or in connection with this Plan settled by arbitration, conducted before a panel of three (3) arbitrators sitting in a location selected by the Participant within fifty (50) miles from the location of his job with the Company, in accordance with the rules of the American Arbitration Association then in effect. The Participant shall not have the right to elect to have any dispute which arises under Article 8 of this Plan settled by arbitration, but rather, the Company or the Participant shall have the right to institute judicial proceedings in any court of competent jurisdiction with respect to such dispute or claim. If judicial proceedings are instituted, the parties agree that such proceedings shall not be stayed or delayed pending the outcome of any arbitration proceeding hereunder.

     Except as provided above for claims or disputes under Article 8, judgment may be entered on the award of the arbitrator in any court having proper jurisdiction. All expenses of such arbitration, including the fees and expenses of the counsel for the Participant, shall be borne by the Company; provided, however, that the Company shall be reimbursed by the Participant for all such fees and expenses in the event the Participant fails to prevail with respect to any one material issue of dispute in connection with such legal action.

Article 7. Withholding

     The Company shall be entitled to withhold from any amounts payable under this Plan all taxes as legally shall be required (including, without limitation, any United States federal taxes, and any other state, city, or local taxes).

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Article 8. Noncompetition

     8.1 Prohibition on Competition. Without the prior written consent of the Company, during the term of this Plan, and for a period of one (1) year following the payment of Severance Benefits under this Plan, Participants shall not, as an employee or an officer, engage directly or indirectly in any business or enterprise which is “in competition” with the Company or its successors or assigns. For purposes of this Plan, a business or enterprise will be deemed to be “in competition” if it is engaged in any significant business activity of the Company or its subsidiaries within the United States of America.

     However Participants shall be allowed to purchase and hold for investment less than two percent (2%) of the shares of any corporation whose shares are regularly traded on a national securities exchange or in the over-the-counter market.

     8.2 Disclosure of Information. Participants recognize that they have access to and knowledge of certain confidential and proprietary information of the Company which is essential to the performance of their duties as employees of the Company. Participants will not, during or after the term of their employment by the Company, in whole or in part, disclose such information to any person, firm, corporation, association, or other entity for any reason or purpose whatsoever, nor shall he or she make use of any such information for their own purposes.

     8.3 Covenants Regarding Other Employees. During the term of this Plan, and for a period of one (1) year following the payment of Severance Benefits under this Plan, each Participant agrees not to attempt to induce any employee of the Company to terminate his or her employment with the Company, accept employment with any competitor of the Company, or to interfere in a similar manner with the business of the Company.

Article 9. Successors and Assignment

     9.1 Successors to the Company. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation, or otherwise) of all or substantially all of the business and/or assets of the Company or of any division or subsidiary thereof to expressly assume and agree to perform the Company’s obligations under this Plan in the same manner and to the same extent that the Company would be required to perform them if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effective date of any such succession shall be a breach of this Plan and shall entitle Participants to compensation from the Company in the same amount and on the same terms as they would be entitled to hereunder if they had terminated their employment with the Company voluntarily for Good Reason. Except for the purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Effective Date of Termination.

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     9.2 Assignment by the Participant. This Plan shall inure to the benefit of and be enforceable by each Participant’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees, and legatees. If a Participant dies while any amount would still be payable to him or her hereunder had he or she continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Plan, to the Participant’s Beneficiary. If the Participant has not named a Beneficiary, then such amounts shall be paid to the Participant’s devisee, legatee, or other designee, or if there is no such designee, to the Participant’s estate.

Article 10. Miscellaneous

     10.1 Employment Status. Except as may be provided under any other agreement between a Participant and the Company, the employment of the Participant by the Company is “at will” and may be terminated by either the Participant or the Company at any time, subject to applicable law.

     10.2 Beneficiaries. Each Participant may designate one or more persons or entities as the primary and/or contingent Beneficiaries of any Severance Benefits owing to the Participant under this Plan. Such designation must be in the form of a signed writing acceptable to the Benefits Committee. Participants may make or change such designations at any time.

     10.3 Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine, the feminine shall include the masculine, the plural shall include the singular, and the singular shall include the plural.

     10.4 Severability. In the event any provision of this Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. Further, the captions of this Plan are not part of the provisions hereof and shall have no force and effect.

     10.5 Modification. The Compensation Committee shall have unilateral authority to approve any amendment or modification to the Plan, in its sole and absolute discretion.

     10.6 Applicable Law. To the extent not preempted by the laws of the United States, the laws of the state of Delaware shall be the controlling law in all matters relating to this Plan.

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EX-10.(O)

EXHIBIT 10-O

March 24, 2006

PERSONAL AND CONFIDENTIAL

Mr. Stephen C. Buck
508 Aberdeen Road
Frankfort, Illinois 60423

Dear Steve:

As we have discussed, your employment with Federal Signal Corporation (the “Company”) will end effective April 30, 2006 (the “Separation Date”). As of your Separation Date you will be eligible to receive severance benefits under the Company’s Executive General Severance Plan (the “Severance Pay Plan”).

1. Severance Benefits

On the conditions that (i) you sign, date and return to me a copy of this letter agreement not later than 21 days after you receive this letter agreement, (ii) you sign, date and return to me the Waiver and Release Agreement attached hereto as Attachment I not later than 21 days after your Separation Date, and (iii) you do not revoke the signed Waiver and Release Agreement, you will receive from the Company the following benefits:

(a)	One (1) times the sum of: (i) your annual Base Salary; and (ii) your target annual bonus established for the 2006 bonus plan year.
(b)	An amount equal to your unpaid targeted annual bonus for the year in which your termination occurs, multiplied by a fraction, the numerator of which is the number of days you were employed by the Company during the year through the effective date of your termination of employment, and the denominator of which is three hundred sixty-five (365).

Under the provisions of the Federal Signal Corporation Management Incentive Plan, as a retiree, you would be entitled to a prorated bonus payment for the plan year 2006. If after the end of the plan year it is determined that based on actual performance, as defined by the Management Incentive Plan, that the actual prorated payment you would receive from the Management Incentive Plan is greater than the prorated target payment you will receive resulting from this agreement, the difference between those amounts will be paid to you after the end of the plan year at generally the same time as bonus payments are made to other Management Incentive Plan participants.

(c) Continuation of the welfare benefits of medical insurance, dental insurance, and group term life insurance for eighteen (18) months following your Separation Date. These benefits shall be provided to you at the same premium cost, and at the same coverage level, as are currently in effect. However, in the event the

March 24, 2006
Page 2

premium cost and/or level of coverage shall change for all employees of the Company, the cost and/or coverage level, likewise, shall change for you.

The continuation of these welfare benefits shall be discontinued prior to the end of the eighteen (18) month period if any required premium is not paid in full on time, you become covered under another group health plan, you become entitled to Medicare benefits (under Part A, Part B, or both), or the Company ceases to provide any group health plan for its employees. Continuation may also be terminated for any reason the plan providing such coverage would terminate coverage of a participant or an eligible dependent.

(d) The Company will provide you executive outplacement services for a period of twelve (12) months. Those services will be provided by the outplacement firm of Kensington International and will begin immediately.

You will be paid for any unused, accrued vacation, as of your Separation Date. Additionally, you will receive any benefits for which you are fully vested, as of your Separation Date, pursuant to plan provisions.

You acknowledge and agree that the Company’s provision of the severance benefits to you and your signing of this letter agreement and the Waiver and Release Agreement does not in any way indicate that you have any viable claims against the Company or that the Company has or admits any liability to you whatsoever.

You are encouraged to consult with an attorney of your choice, at your own expense, prior to signing a copy of this letter agreement and the Waiver and Release Agreement, and you acknowledge that you have been given at least twenty-one (21) days within which to consider this letter agreement and the Waiver and Release Agreement.

You are further advised that you may revoke the signed Waiver and Release Agreement within seven (7) days after its signing. Any such revocation must be made in writing and be received by me within the seven (7) day period.

All legally required taxes and any monies owed the Company shall be deducted from the monies and the severance benefits. The severance benefits shall not be considered or counted as “compensation” for purposes of any of the Company’s welfare or pension benefit plans which provide benefits based, in any part, on compensation.

2. Termination Before Separation Date

If you terminate employment with the Company for any reason prior to your Separation Date, including, but not limited to death, resignation, retirement, or disability, or is terminated by the Company for cause, as defined by the Severance Pay Plan, on or before your Separation Date, the Company’s obligations under Paragraph 1 shall terminate.

3. Company Property/Expenses

On your Separation Date, you must promptly return to the Company all Company property including, but not limited to, Company identification badge, credit/calling cards, cell phone, laptop computer, information technology equipment, pager, PDA/Blackberry, mobile phone, parking tag, documents and records, and other physical or personal property of the Company in

March 24, 2006
Page 3

your possession or control and you agree you will not keep, transfer or use any copies or excerpts of the foregoing items. You must also ensure that all business expenses for which you are entitled to reimbursement under the Company’s expense reimbursement policy are documented and submitted for approval on a timely basis and any final expenses are submitted within ten (10) days after your Separation Date and that all debit balances shall be timely paid on any of your corporate charge cards as well.

4. Confidentiality/Cooperation/Non-Solicitation

You agree from and after today to keep strictly confidential the existence and terms of this letter agreement, including the Waiver and Release Agreement, and you further agree that you will not disclose them to any person or entity, other than to your immediate family, your attorney, and your financial advisor, or except as may be required by law.

You acknowledge that after your Separation Date you shall not represent yourself to be an employee of the Company nor take any action which may bind the Company with regard to any customer, supplier, vendor or any other party with whom you have had contact while performing your duties as an employee of the Company.

You further agree that from and after today you shall not take any actions or make any statements to the public, future employers, current, former or future Company employees, or any other third party whatsoever that disparage or reflect negatively on the Company, and its affiliates, and its and their officers, directors, or employees.

For a one (1) year period following your Separation Date, you further agree that you will not, directly or indirectly, hire away or participate or assist in the hiring away of any person employed by the Company or its affiliates on your Separation Date and you will not solicit nor encourage any person employed by the Company or its affiliates on or after your Separation Date to leave the employ of the Company or its affiliates.

You further agree from and after today to make yourself available to the Company and its legal counsel to provide reasonable cooperation and assistance to the Company with respect to areas and matters in which you were involved during your employment, including any threatened or actual investigation, regulatory matter and/or litigation concerning the Company, and to provide to the Company, if requested, information and counsel relating to ongoing matters of interest to the Company. The Company will, of course, take into consideration your personal and business commitments, will give you as much advance notice as reasonably possible, and ask that you be available at such time or times as are reasonably convenient to you and the Company. The Company agrees to reimburse you for the actual out-of-pocket expenses you incur as a result of your complying with this provision, subject to your submission to the Company of documentation substantiating such expenses as the Company may require.

Proprietary information, confidential business information and trade secrets (hereinafter collectively “Confidential Information”) which became known to you as an employee of the Company remains the property of the Company. Such Confidential Information includes, but is not limited to, materials, records, books, products, business plans, business proposals, software, personnel information and data of the Company and its affiliates and its customers, but excludes information which is generally known to the public or becomes known except through your actions. You agree from and after today that you will not at any time, directly or indirectly, disclose Confidential Information to any third party or otherwise use such Confidential Information for your own benefit or the benefit of others. Also, you acknowledge that you

March 24, 2006
Page 4

remain bound by the terms and conditions of the applicable provisions of the Company’s Code of Business Conduct.

You acknowledge that the provisions of this Paragraph 4 are reasonable and not unduly restrictive of your rights as an individual and you warrant that as of the date you sign this letter agreement you have not breached any of the provisions of this Paragraph 4. You further acknowledge that in the event that you breach any of the provisions of this Paragraph 4, such breach will result in immediate and irreparable harm to the business and goodwill of the Company and that damages, if any, and remedies at law for such breach would be inadequate. The Company shall, therefore, be entitled to apply without bond to any court of competent jurisdiction for an injunction to restrain any violation of this Paragraph 4 by you and for such further relief as the court may deem just and proper.

5. General Matters

You acknowledge and agree that in signing this letter agreement (including Attachment I) you do not rely and have not relied on any representation or statement by the Company or by its employees, agents, representatives, or attorneys with regard to the subject matter, basis or effect of the letter agreement (including Attachment I).

This letter agreement is deemed made and entered into in the State of Illinois, and in all respects shall be interpreted, enforced and governed under the laws of the State of Illinois, without giving effect to its choice of laws provisions, to the extent not preempted by federal law. Any dispute under this letter agreement (including Attachment I) shall be adjudicated by a court of competent jurisdiction in the State of Illinois.

The language of all parts of this letter agreement (including Attachment I) shall in all cases be construed as a whole, according to its fair meaning, and not strictly for or against either party. The provisions of this letter agreement shall survive any termination of this letter agreement when necessary to effect the intent and terms of this letter agreement expressed herein.

If any of the provisions of this letter agreement (including Attachment I) shall be held to be invalid by a court of competent jurisdiction, such holding shall not in any way whatsoever affect the validity of the remainder of this letter agreement (including Attachment I).

No modification of any provision of this letter agreement shall be effective unless made in writing and signed by you and by me or another duly authorized senior officer of the Company. This letter agreement shall not be assignable by you.

Should you require further clarification of any aspect of the above arrangements, or wish to discuss their implementation, please contact me.

Please indicate your agreement and acceptance of these provisions by signing and dating the enclosed copy of this letter agreement and returning it to me not later than 21 days after your receipt of this letter agreement. Following your acceptance, the arrangements will be implemented and administered as described herein.

Please do not sign the Waiver and Release Agreement at this time. It is provided for your information and review. A substantially similar Waiver and Release Agreement will be prepared and provided to you on your Separation Date. At that time you will have twenty-one (21) days

March 24, 2006
Page 5

from receipt to consider the terms of the Waiver and Release Agreement and return it signed and properly notarized.

So that there is no misunderstanding, please understand that if for any reason I do not receive the signed copy of this letter agreement from you by the end of business on March 31, 2006, the proposed separation arrangements described in this letter agreement will be deemed to be withdrawn.

Best wishes for success in your future endeavors.

Sincerely yours,

Kimberly L. Dickens

Vice President, Human Resources

AGREED AND ACCEPTED:

I agree to the terms of this letter

Signature

Date

March 24, 2006
Page 6

ATTACHMENT I

FEDERAL SIGNAL CORPORATION

WAIVER AND RELEASE AGREEMENT

     (1) General Release. In consideration for the severance benefits payable or available to me under the terms of the General Executive Severance Plan and Kimberly L. Dickens’ letter to me dated February 28, 2006 (hereinafter referred to as the “letter agreement”), I, on behalf of myself and my heirs, executors, administrators, attorneys and assigns, hereby waive, release and forever discharge FEDERAL SIGNAL CORPORATION (hereinafter referred to as the “Company”) and the Company’s subsidiaries, divisions and affiliates, whether direct or indirect, its and their joint ventures and joint venturers (including its and their respective directors, officers, employees, shareholders, partners and agents, past, present, and future), and each of its and their respective successors and assigns (hereinafter collectively referred to as “Releasees”), from any and all known or unknown actions, causes of action, claims or liabilities of any kind which have or could be asserted against the Releasees arising out of or related to my employment with and/or separation from employment with the Company and/or any of the other Releasees and/or any other occurrence up to and including the date of this Waiver and Release Agreement, including but not limited to:

(a)	claims, actions, causes of action or liabilities arising under Title VII of the Civil Rights Act, as amended, the Age Discrimination in Employment Act, as amended (“ADEA”), the Employee Retirement Income Security Act, as amended, the Rehabilitation Act, as amended, the Americans with Disabilities Act, the Family and Medical Leave Act, and/or any other federal, state, municipal, or local employment discrimination statutes (including, but not limited to, claims based on age, sex, attainment of benefit plan rights, race, religion, national origin, marital status, sexual orientation, ancestry, harassment, parental status, handicap, disability, retaliation, and veteran status); and/or
(b)	claims, actions, causes of action or liabilities arising under any other federal, state, municipal, or local statute, law, ordinance or regulation; and/or
(c)	any other claim whatsoever including, but not limited to, claims for severance pay under any voluntary or involuntary severance/separation plan, policy or program maintained by the Releasees, claims for attorney’s fees, claims based upon breach of contract, wrongful termination, defamation, intentional infliction of emotional distress, tort, personal injury, invasion of privacy, violation of public policy, negligence and/or any other common law, statutory or other claim whatsoever arising out of or relating to my employment with and/or separation from employment with the Company and/or any of the other Releasees,

but excluding claims for severance pay under the Executive General Severance Plan and the filing of an administrative charge, any claims which I may make under state workers’ compensation or unemployment laws, and/or any claims which by law I cannot waive.

     (2) Covenant Not To Sue. In addition to and apart from the General Release contained in Paragraph 1 above, I also agree never to sue any of the Releasees or become a party to a lawsuit on the basis of any claim of any type whatsoever arising out of or related to my employment with and/or separation from employment with the Company and/or any of the other Releasees, other than a lawsuit to challenge this Waiver and Release Agreement under the ADEA.

March 24, 2006
Page 7

     (3) Consequences of Breach of Covenant Not To Sue. I further acknowledge and agree in the event that I breach the provisions of paragraph (2) above, (a) the Company shall be entitled to apply for and receive an injunction to restrain any violation of paragraph (2) above, (b) the Company shall not be obligated to continue the availability of severance benefits to me, (c) I shall be obligated to pay to the Company its costs and expenses in enforcing this Waiver and Release Agreement and defending against such lawsuit (including court costs, expenses and reasonable legal fees), and (d) as an alternative to (c), at the Company’s option, I shall be obligated upon demand to repay to the Company all but $500.00 of the severance benefits paid or provided to me, and the foregoing shall not affect the validity of this Waiver and Release Agreement and shall not be deemed to be a penalty nor a forfeiture.

     (4) Further Release And Acknowledgment. To the extent permitted by law, I further waive my right to any monetary recovery should any federal, state, or local administrative agency pursue any claims on my behalf arising out of or related to my employment with and/or separation from employment with the Company and/or any of the other Releasees. I also acknowledge that I have not suffered any on-the-job injury for which I have not already filed a claim.

     (5) No Reinstatement/Reemployment. To the extent permitted by law, I further waive, release, and discharge Releasees from any reinstatement rights which I have or could have. I further acknowledge and agree that I will not seek employment with the Company and/or any other of the Releasees following the date of my separation from employment.

     (6) Non-Disparagement. I promise that I shall not at any time or in any way disparage the Company and/or any of the other Releasees to any person, corporation, entity or other third party whatsoever.

     (7) Consequences. I further agree that if I breach the Confidentiality/Cooperation/Non-Solicitation provisions of the letter agreement or the provisions of paragraphs (5) and/or (6) above, then (a) the Company will be subject to irreparable injury and shall be entitled to apply without bond for an injunction to restrain such breach and for such further relief as the court may deem just and proper, (b) the Company shall not be obligated to continue payment of the severance benefits to me, and (c) I shall be obligated to pay to the Company its costs and expenses in enforcing the Confidentiality/Cooperation/Non-Solicitation provisions of the letter agreement and the provisions of paragraphs (5), and (6) above (including court costs, expenses and reasonable legal fees).

     (8) Time to Consider Agreement. I acknowledge that I have been given at least twenty-one (21) days to consider this Waiver and Release Agreement thoroughly and I was encouraged to consult with my personal attorney at my own expense, if desired, before signing below.

     (9) Time to Revoke Agreement. I understand that I may revoke this Waiver and Release Agreement within seven (7) days after its signing and that any revocation must be made in writing and submitted within such seven day period to Kimberly L. Dickens, Vice President, Human Resources. I further understand that if I revoke this Waiver and Release Agreement, I shall not receive the severance benefits.

     (10) Consideration. I also understand that the severance benefits which I will receive in exchange for signing and not later revoking this Waiver and Release Agreement and the accompanying letter agreement are in addition to anything of value to which I am already entitled.

March 24, 2006
Page 8

     (11) RELEASE INCLUDES UNKNOWN CLAIMS. I FURTHER UNDERSTAND THAT THIS WAIVER AND RELEASE AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS.

     (12) Severability. I acknowledge and agree that if any provision of this Waiver and Release Agreement is found, held or deemed by a court of competent jurisdiction to be void, unlawful or unenforceable under any applicable statute or controlling law, the remainder of this Waiver and Release Agreement shall continue in full force and effect.

     (13) Governing Law. This Waiver and Release Agreement is deemed made and entered into in the State of Illinois, and in all respects shall be interpreted, enforced and governed under applicable federal law and in the event reference shall be made to State law the internal laws of the State of Illinois shall apply, without reference to its conflict of law provisions. Any dispute under this Waiver and Release Agreement shall be adjudicated by a court of competent jurisdiction in the State of Illinois.

     (14) Knowing And Voluntary Waiver and Release. I further acknowledge and agree that I have carefully read and fully understand all of the provisions of this Waiver and Release Agreement and that I voluntarily enter into this Waiver and Release Agreement by signing below.

			(Date)
STATE OF	)
	)	ss.
COUNTY OF	)

The undersigned, notary public in and for the above county and state, certifies that                                                             , known to me to be the same person whose name is subscribed to the foregoing Waiver and Release Agreement, appeared before me in person and acknowledged signing and delivering the instrument as his/her free and voluntary act, for the uses and purposes therein set forth.

Dated:                     , 20     

Notary Public
 

Date Commission Expires:                                         

EX-10.(P)

Exhibit 10-P

August 31, 2006

PERSONAL AND CONFIDENTIAL

Ms. Karen N. Latham
926 William St.
River Forest, IL 60305

Dear Karen:

As we have discussed, your employment with Federal Signal Corporation (the “Company”) will end effective December 31, 2006 (the “Separation Date”). The period beginning on September 1, 2006 through and including December 31, 2006 will be a transition period (the “Transition Period”) during which you agree that you will work 20 eight-hour days, and will be compensated with a monthly transitional salary of $3,605 (less any applicable taxes including federal employment withholding taxes that are payable in connection with said amounts). During the Transition Period you will assist the Company with the transition of your responsibilities to your successors, as agreed between the parties. If and to the extent the Company requests that you provide additional services, beyond the 20 day maximum during the Transition Period, you will be compensated for such time at the rate of $275 per hour (less any applicable taxes including federal withholding taxes that are payable in connection with said amounts). As of your Separation Date you will be eligible to receive severance benefits under the Company’s Executive General Severance Plan (the “Severance Pay Plan”).

1. Severance Benefits

On the conditions that (i) you sign, date and return to me a copy of this letter agreement not later than 21 days after you receive this letter agreement, (ii) you sign, date and return to me the Waiver and Release Agreement attached hereto as Attachment I not later than 21 days after your Separation Date, and (iii) you do not revoke the signed Waiver and Release Agreement, you will receive from the Company the following benefits on the later to occur of the following dates: (1) January 15, 2007, or (ii) seven (7) days following the Company’s receipt of the Waiver and Release Agreement:

(a)	Three-quarters (0.75) times the sum of: (i) your annual Base Salary; and (ii) your target annual bonus established for the 2006 bonus plan year. (A total of $175,163.)
(b)	An amount equal to your unpaid targeted annual bonus for 2006 which the parties have agreed to calculate in advance to be equal to $60,550.
(c)	Continuation of the welfare benefits of medical insurance, dental insurance, and group term life insurance for eighteen (18) months following your Separation Date. These benefits shall be provided to you at the same employee premium cost, and at the same coverage level, as are currently in effect. However, in the event the

August 31, 2006
Page 2

employee premium cost and/or level of coverage shall change for all employees of the Company, the cost and/or coverage level, likewise, shall change for you.

The continuation of these welfare benefits shall be discontinued prior to the end of the eighteen (18) month period if any required premium is not paid in full on time, you become covered under another group health plan, you become entitled to Medicare benefits (under Part A, Part B, or both), or the Company ceases to provide any group health plan for its employees. Continuation may also be terminated for any reason the plan providing such coverage would terminate coverage of a participant or an eligible dependent.

(d) The Company will provide you executive outplacement services for a period of nine (9) months. Those services will begin immediately.

For purposes of all stock grants and option grants which have been awarded to you prior to this date, your last day of employment shall be the Separation Date. You acknowledge and agree that the Company’s provision of the severance benefits to you and your signing of this letter agreement and the Waiver and Release Agreement does not in any way indicate that you have any viable claims against the Company or that the Company has or admits any liability to you whatsoever.

You further acknowledge and agree that any and all stock grants or options which have been awarded to you but which are unvested as of the Separation Date shall be forfeited and cancelled.

You understand that any vacation pay or other wages due to you will be paid separately with appropriate employment taxes withheld and the receipt of such wages is in no way contingent upon signing this letter agreement or the Waiver and Release Agreement. (The Company and the Employee agree that Employee will be eligible to receive vacation pay for any vacation accrued but unused through September 30, 2006.) Nothing herein shall change or have any effect on any wages, pension, retirement or other employee benefits which you may be entitled to under any Company retirement or benefit program. Any monies which you owe the Company may be deducted from the severance benefit amounts in accordance with applicable law.

You are encouraged to consult with an attorney of your choice, at your own expense, prior to signing a copy of this letter agreement and the Waiver and Release Agreement, and you acknowledge that you have been given at least twenty-one (21) days within which to consider this letter agreement and the Waiver and Release Agreement.

You are further advised that you may revoke the signed Waiver and Release Agreement within seven (7) days after its signing. Any such revocation must be made in writing and be received by me within the seven (7) day period.

All legally required taxes and any monies owed the Company shall be deducted from the monies and the severance benefits. The severance benefits shall not be considered or counted as “compensation” for purposes of any of the Company’s welfare or pension benefit plans which provide benefits based, in any part, on compensation.

August 31, 2006
Page 3

2. Termination Before Separation Date

If you terminate employment with the Company for any reason prior to September 1, 2006, including, but not limited to death, resignation, retirement, or disability, or if your employment is terminated on or before September 1, 2006, by the Company for cause, as defined by the Executive Severance Pay Plan, or by the Company after September 1, 2006 because (i) the Employee is convicted of a felony or (ii) the Employee willfully engages in conduct that is demonstrably and materially injurious to the Company, monetarily or otherwise, the Company’s obligations under Paragraph 1 shall terminate.

3. Company Property/Expenses

On your Separation Date, you must promptly return to the Company all Company property including, but not limited to, Company identification badge, credit/calling cards, cell phone, information technology equipment, pager, mobile phone, parking tag, documents and records, and other physical or personal property of the Company in your possession or control and you agree you will not keep, transfer or use any copies or excerpts of the foregoing items. Notwithstanding the foregoing, the Company agrees that you may retain possession of your PDA/Blackberry and your laptop computer, provided that you deliver the laptop to the information technology department so that non-personal, confidential or proprietary information of the Company can be deleted upon the completion of the transitional responsibilities as agreed between the parties.. You must also ensure that all business expenses for which you are entitled to reimbursement under the Company’s expense reimbursement policy are documented and submitted for approval on a timely basis and any final expenses are submitted within ten (10) days after your Separation Date and that all debit balances shall be timely paid on any of your corporate charge cards as well. The Company will continue to give the Employee access to the Employee’s e-mail, Outlook and electronic folders until the close of business on the Separation Date.

4. Confidentiality/Cooperation/Non-Solicitation/Non-Competition

You agree from and after today to keep strictly confidential the existence and terms of this letter agreement, including the Waiver and Release Agreement, and you further agree that you will not disclose them to any person or entity, other than to your immediate family, your attorney, your outplacement advisor, and your financial advisor, or except as may be required by law. If at some point in the future this agreement is made public by the company, the employee is not longer obligated by the provisions of this paragraph.

You acknowledge that after September 30, 2006 you shall not represent yourself to be an employee of the Company nor take any action which may bind the Company with regard to any customer, supplier, vendor or any other party with whom you have had contact while performing your duties as an employee of the Company.

You further agree that (1) you have not taken any actions or made any statements to the public, future employers, current, former or potential future Company employees, or any other third party whatsoever that disparage or reflect negatively on the Company, its directors or its officers and (2) from and after today you shall not take any actions or make any statements to the public, future employers, current, former or future Company employees, or any other third party whatsoever that disparage or reflect negatively on the Company, its officers and directors. The Company, it’s directors, officers, employees and agents (the “Named Parties”) also agree that individually and collectively, the Named Parties (1) have not taken any actions or made any

August 31, 2006
Page 4

statements to the public, potential future employers of Employee, former, current or future employees or any other third party whatsoever that disparage or reflect negatively on the Employee and (2) shall not, from and after today, take any actions or make any statements to the public, potential future employers of Employee, former, current or future employees or any other third party whatsoever that disparage or reflect negatively on the Employee.

For nine (9) months following your Separation Date, you further agree that you will not knowingly, directly or indirectly, hire away or participate or assist in the hiring away of any person employed by the Company or its affiliates on your Separation Date and you will not solicit nor encourage any person employed by the Company or its affiliates on or after your Separation Date to leave the employ of the Company or its affiliates.

For nine (9) months following the Separation Date, you will not, without the prior written consent of the Company, engage directly or indirectly in any business or enterprise which is in competition with a legal entity within the Company or its successors or assigns that represents more than 10% of the Company’s sales as of December 31, 2005. For purposes of this agreement, a business or enterprise will be deemed to be in competition if it is engaged in any significant business activity of the Company or its subsidiaries within the United States of America.

You further agree from and after today to make yourself available to the Company and its legal counsel to provide reasonable cooperation and assistance to the Company with respect to areas and matters in which you were involved during your employment, including any threatened or actual investigation, regulatory matter and/or litigation concerning the Company, and to provide to the Company, if requested, information and counsel relating to ongoing matters of interest to the Company. The Company will, of course, take into consideration your personal and business commitments, will give you as much advance notice as reasonably possible, and ask that you be available at such time or times as are reasonably convenient to you and the Company. The Company agrees to reimburse you for the actual out-of-pocket expenses you incur as a result of your complying with this provision, subject to your submission to the Company of documentation substantiating such expenses as the Company may require.

Proprietary information, confidential business information and trade secrets (hereinafter collectively “Confidential Information”) which became known to you as an employee of the Company remains the property of the Company. Such Confidential Information includes, but is not limited to, materials, records, books, products, business plans, business proposals, software, personnel information and data of the Company and its affiliates and its customers, but excludes information which is generally known to the public or becomes known except through your actions. You agree from and after today that you will not at any time, directly or indirectly, disclose Confidential Information to any third party or otherwise use such Confidential Information for your own benefit or the benefit of others. Also, you acknowledge that you remain bound by the terms and conditions of the applicable provisions of the Company’s Code of Business Conduct. The Company agrees that if Employee’s marketing and networking activities result in situations or circumstances which might technically violate the Company’s Code of Business Conduct, Employee will make a best efforts attempt to advise the General Counsel of the potential issue which in any case shall be deemed to be waived.

You acknowledge that the provisions of this Paragraph 4 are reasonable and not unduly restrictive of your rights as an individual and you warrant that as of the date you sign this letter agreement you have not breached any of the provisions of this Paragraph 4. You further acknowledge that in the event that you breach any of the provisions of this Paragraph 4, such

August 31, 2006
Page 5

breach will result in immediate and irreparable harm to the business and goodwill of the Company and that damages, if any, and remedies at law for such breach would be inadequate. The Company shall, therefore, be entitled to apply without bond to any court of competent jurisdiction for an injunction to restrain any violation of this Paragraph 4 by you and for such further relief as the court may deem just and proper.

5. General Matters

You acknowledge and agree that in signing this letter agreement (including Attachment I) you do not rely and have not relied on any representation or statement by the Company or by its employees, agents, representatives, or attorneys with regard to the subject matter, basis or effect of the letter agreement (including Attachment I).

This letter agreement is deemed made and entered into in the State of Illinois, and in all respects shall be interpreted, enforced and governed under the laws of the State of Illinois, without giving effect to its choice of laws provisions, to the extent not preempted by federal law. Any dispute under this letter agreement (including Attachment I) shall be adjudicated by a court of competent jurisdiction in the State of Illinois.

The language of all parts of this letter agreement (including Attachment I) shall in all cases be construed as a whole, according to its fair meaning, and not strictly for or against either party. The provisions of this letter agreement shall survive any termination of this letter agreement when necessary to effect the intent and terms of this letter agreement expressed herein.

If any of the provisions of this letter agreement (including Attachment I) shall be held to be invalid by a court of competent jurisdiction, such holding shall not in any way whatsoever affect the validity of the remainder of this letter agreement (including Attachment I).

No modification of any provision of this letter agreement shall be effective unless made in writing and signed by you and by me or another duly authorized senior officer of the Company. This letter agreement shall not be assignable by you.

Should you require further clarification of any aspect of the above arrangements, or wish to discuss their implementation, please contact me.

Please indicate your agreement and acceptance of these provisions by signing and dating the enclosed copy of this letter agreement and returning it to me not later than 21 days after your receipt of this letter agreement. Following your acceptance, the arrangements will be implemented and administered as described herein.

Please do not sign the Waiver and Release Agreement at this time. It is provided for your information and review. A substantially similar Waiver and Release Agreement will be prepared and provided to you on your Separation Date. At that time you will have twenty-one (21) days from receipt to consider the terms of the Waiver and Release Agreement and return it signed and properly notarized.

So that there is no misunderstanding, please understand that if for any reason I do not receive the signed copy of this letter agreement from you by the end of business on September ___, 2006, the proposed separation arrangements described in this letter agreement will be deemed to be withdrawn.

August 31, 2006
Page 6

Best wishes for success in your future endeavors.

Sincerely yours,

Stephanie Kushner
Vice President and Chief Financial Officer

AGREED AND ACCEPTED:

I agree to the terms of this letter

Signature

Date

August 31, 2006
Page 7

ATTACHMENT I

FEDERAL SIGNAL CORPORATION

WAIVER AND RELEASE AGREEMENT

     (1) General Release. In consideration for the severance benefits payable or available to me under the terms of the General Executive Severance Plan and Kimberly L. Dickens’ letter to me dated August ___, 2006 (hereinafter referred to as the “letter agreement”), I, on behalf of myself and my heirs, executors, administrators, attorneys and assigns, hereby waive, release and forever discharge FEDERAL SIGNAL CORPORATION (hereinafter referred to as the “Company”) and the Company’s subsidiaries, divisions and affiliates, whether direct or indirect, its and their joint ventures and joint venturers (including its and their respective directors, officers, employees, shareholders, partners and agents, past, present, and future), and each of its and their respective successors and assigns (hereinafter collectively referred to as “Releasees”), from any and all known or unknown actions, causes of action, claims or liabilities of any kind which have or could be asserted against the Releasees arising out of or related to my employment with and/or separation from employment with the Company and/or any of the other Releasees and/or any other occurrence arising on or prior to the date of this Waiver and Release Agreement, including but not limited to:

(a)	claims, actions, causes of action or liabilities arising under Title VII of the Civil Rights Act, as amended, the Age Discrimination in Employment Act, as amended (“ADEA”), the Employee Retirement Income Security Act, as amended, the Rehabilitation Act, as amended, the Americans with Disabilities Act, the Family and Medical Leave Act, and/or any other federal, state, municipal, or local employment discrimination statutes (including, but not limited to, claims based on age, sex, attainment of benefit plan rights, race, religion, national origin, marital status, sexual orientation, ancestry, harassment, parental status, handicap, disability, retaliation, and veteran status); and/or
(b)	claims, actions, causes of action or liabilities arising under any other federal, state, municipal, or local statute, law, ordinance or regulation; and/or
(c)	any other claim whatsoever including, but not limited to, claims for severance pay under any voluntary or involuntary severance/separation plan, policy or program maintained by the Releasees, claims for attorney’s fees, claims based upon breach of contract, wrongful termination, defamation, intentional infliction of emotional distress, tort, personal injury, invasion of privacy, violation of public policy, negligence and/or any other common law, statutory or other claim whatsoever arising out of or relating to my employment with and/or separation from employment with the Company and/or any of the other Releasees,

but excluding claims which I may make under state workers’ compensation or unemployment laws, and/or any claims which by law I cannot waive. Specifically excluded from this General Release is my right to file a charge with an administrative agency or participate in any agency investigation. I am, however, waiving my right to recover money or anything of value in connection with such a charge or investigation. I am also waiving my right to recover money or anything of value in connection with a charge filed by any other individual or by the Equal Employment Opportunity Commission or any other federal or state agency.

     (2) Covenant Not To Sue. In addition to and apart from the General Release contained in Paragraph 1 above, I also agree never to sue any of the Releasees or become a

August 31, 2006
Page 8

party to a lawsuit on the basis of any claim of any type whatsoever arising out of or related to my employment with and/or separation from employment with the Company and/or any of the other Releasees, arising on or prior to the date of this Waiver and Release Agreement, other than a lawsuit to challenge this Waiver and Release Agreement under the ADEA.

     (3) Consequences of Breach of Covenant Not To Sue. I further acknowledge and agree in the event that I breach the provisions of paragraph (2) above, (a) the Company shall be entitled to apply for and receive an injunction to restrain any violation of paragraph (2) above, (b) I shall be obligated to pay to the Company its costs and expenses in successfully enforcing this Waiver and Release Agreement and defending against such lawsuit (including court costs, expenses and reasonable legal fees), and (c) as an alternative to (a) and (b), at the Company’s option, the Company shall not be obligated to continue the availability of severance benefits to me and I shall be obligated upon demand to repay to the Company all but $500.00 of the severance benefits paid or provided to me, and the foregoing shall not affect the validity of this Waiver and Release Agreement and shall not be deemed to be a penalty nor a forfeiture.

     (4) Further Release And Acknowledgment. To the extent permitted by law, I further waive my right to any monetary recovery should any federal, state, or local administrative agency pursue any claims on my behalf arising out of or related to my employment with and/or separation from employment with the Company and/or any of the other Releasees. I also acknowledge that I have not suffered any on-the-job injury for which I have not already filed a claim.

     (5) No Reinstatement/Reemployment. To the extent permitted by law, I further waive, release, and discharge Releasees from any reinstatement rights which I have or could have. I further acknowledge and agree that I will not seek employment with the Company and/or any of its subsidiaries, divisions and affiliates, whether direct or indirect, its and their joint ventures and joint venturers following the date of my separation from employment.

     (6) Non-Disparagement. I promise that I shall not at any time or in any way disparage the Company and/or any of the other Releasees to any person, corporation, entity or other third party whatsoever. The Company, its directors, officers, employees and agents also promise that individually and in the aggregate, the Named Parties will not at any time or in any way disparage the Employee to any person, corporation, entity or other third party whatsoever.

     (7) Consequences. I further agree that if I breach the Confidentiality/Cooperation/Non-Solicitation provisions of the letter agreement or the provisions of paragraphs (5) and/or (6) above, then (a) the Company will be subject to irreparable injury and shall be entitled to apply without bond for an injunction to restrain such breach and for such further relief as the court may deem just and proper, (b) the Company shall not be obligated to continue payment of the severance benefits to me, and (c) I shall be obligated to pay to the Company its costs and expenses in successfully enforcing the Confidentiality/Cooperation/Non-Solicitation provisions of the letter agreement and the provisions of paragraphs (5), and (6) above (including court costs, expenses and reasonable legal fees). The Company agrees that if the promise contained in paragraph (6) above is breached by it, a director, an officer, an employee or an agent, it shall be obligated to pay to the Employee, the costs and expenses, including reasonable attorney’s fees and court costs, incurred by Employee in enforcing the non-disparagement provision of the of paragraph (6) above.

     (8) Time to Consider Agreement. I acknowledge that I have been given at least twenty-one (21) days to consider this Waiver and Release Agreement thoroughly and I was encouraged to consult with my personal attorney at my own expense, if desired, before signing below.

August 31, 2006
Page 9

     (9) Time to Revoke Agreement. I understand that I may revoke this Waiver and Release Agreement within seven (7) days after its signing and that any revocation must be made in writing and submitted within such seven day period to Kimberly L. Dickens, Vice President, Human Resources. I further understand that if I revoke this Waiver and Release Agreement, I shall not receive the severance benefits.

     (10) Consideration. I also understand that the severance benefits which I will receive in exchange for signing and not later revoking this Waiver and Release Agreement and the accompanying letter agreement are in addition to anything of value to which I am already entitled.

     (11) RELEASE INCLUDES UNKNOWN CLAIMS. I FURTHER UNDERSTAND THAT THIS WAIVER AND RELEASE AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN CLAIMS ARISING ON OR PRIOR TO THE DATE OF THIS AGREEMENT. NOTHING CONTAINED HEREIN OR IN THE LETTER AGREEMENT DATED AUGUST 31, 2006 SHALL BE CONSTRUED AS A WAIVER, RELEASE, BAR TO, AND/OR PROHIBITION AGAINST ANY CLAIM BY ME TO ENFORCE THE TERMS OF THIS WAIVER AND RELEASE AGREEMENT OR THE LETTER AGREEMENT DATED AUGUST 31, 2006.

     (12) Severability. I acknowledge and agree that if any provision of this Waiver and Release Agreement is found, held or deemed by a court of competent jurisdiction to be void, unlawful or unenforceable under any applicable statute or controlling law, the remainder of this Waiver and Release Agreement shall continue in full force and effect.

     (13) Governing Law. This Waiver and Release Agreement is deemed made and entered into in the State of Illinois, and in all respects shall be interpreted, enforced and governed under applicable federal law and in the event reference shall be made to State law the internal laws of the State of Illinois shall apply, without reference to its conflict of law provisions. Any dispute under this Waiver and Release Agreement shall be adjudicated by a court of competent jurisdiction in the State of Illinois.

     (14) Knowing And Voluntary Waiver and Release. I further acknowledge and agree that I have carefully read and fully understand all of the provisions of this Waiver and Release Agreement and that I voluntarily enter into this Waiver and Release Agreement by signing below.

			(Date)
			Company Representative
STATE OF	)
	)	ss.
COUNTY OF	)

August 31, 2006
Page 10

The undersigned, notary public in and for the above county and state, certifies that                                                                                  , known to me to be the same person whose name is subscribed to the foregoing Waiver and Release Agreement, appeared before me in person and acknowledged signing and delivering the instrument as his/her free and voluntary act, for the uses and purposes therein set forth.

Dated:                                         , 20___

Notary Public

Date Commission Expires:                                                            

EX-10.(Q)

Exhibit 10-Q

Final

STOCK PURCHASE AGREEMENT

between

KENNAMETAL INC.

and

FEDERAL SIGNAL CORPORATION

Dated as of December 29, 2006

TABLE OF CONTENTS

ARTICLE 1 PURCHASE AND SALE OF SHARES			1
	1.1	Purchase and Sale of Shares; Closing	1
	1.2	Purchase Price for the Shares	2
	1.3	Payment of Purchase Price	2
	1.4	Post-Closing Adjustment	2
ARTICLE 2 ASSUMPTION OF CERTAIN LIABILITIES			3
	2.1	Assumed Liabilities	3
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER			3
	3.1	Status of Seller and Subsidiaries	3
	3.2	Financial Matters	6
	3.3	Taxes	7
	3.4	Real and Personal Property	8
	3.5	Intellectual Property; Patents; Trademarks, Trade Names	9
	3.6	Loans and Contracts	9
	3.7	Employee Plans	10
	3.8	Labor Relations	11
	3.9	Litigation and Other Proceedings	12
	3.10	Compliance with Laws	12
	3.11	Bank Accounts	13
	3.12	Brokers and Commissions	13
	3.13	Related Party Transactions	13
	3.14	Accounting Controls	14
	3.15	Receivables	14
	3.16	Inventory	14
	3.17	Customers	15
	3.18	No Other Representations	15
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER			15
	4.1	Status of Buyer	15
	4.2	Brokers and Commissions	16
	4.3	Available Funds	16
	4.4	Solvency	16
ARTICLE 5 COVENANTS OF THE SELLER			16
	5.1	Conduct of Business by the Subsidiaries	16
	5.2	Affirmative Covenants Relating to the Subsidiaries	18
	5.3	Access Before Closing	18
	5.4	Public Disclosure	18
	5.5	Monthly and Quarterly Financial Statements	19
	5.6	Termination of Related Party Transactions	19
	5.7	Bank Accounts	19
	5.8	Resignations	19
	5.9	Real Estate	19
	5.10	Consents and Closing Conditions	19

i 

	5.11	Hart-Scott-Rodino Act Notification	20
	5.12	No Negotiation	20
	5.13	Cooperation	20
	5.14	Environmental	20
	5.15	Intellectual Property	20
ARTICLE 6 COVENANTS OF BUYER			20
	6.1	Consents and Closing Conditions	20
	6.2	Obligations Concerning Employees	20
	6.3	Flexible Spending Accounts	21
	6.4	WARN Act Liability	21
	6.5	Health Care Continuation Coverage	22
	6.6	Employment Taxes	22
	6.7	Hart-Scott-Rodino Act Notification	22
	6.8	Cooperation	22
	6.9	Books and Records	22
ARTICLE 7 TAX MATTERS			23
	7.1	Payment of Taxes	23
	7.2	Cooperation and Records Retention	24
ARTICLE 8 BUYER’S CONDITIONS TO CLOSING			24
	8.1	Continued Truth of Warranties	24
	8.2	Performance of Covenants	24
	8.3	No Event Causing a Material Adverse Effect	24
	8.4	Permits and Consents	24
	8.5	No Litigation	24
	8.6	HSR Act	24
	8.7	Authorization	24
	8.8	Release of Guarantees	25
	8.9	Closing Documents	25
	8.10	Key Employee Agreements	25
ARTICLE 9 THE SELLER’S CONDITIONS TO CLOSING			25
	9.1	Continued Truth of Warranties	25
	9.2	Performance of Covenants	25
	9.3	Permits and Consents	25
	9.4	No Litigation	25
	9.5	HSR Act	25
	9.6	Closing Documents	25
ARTICLE 10 DOCUMENTS TO BE DELIVERED AT CLOSING			26
	10.1	Documents to be Delivered by the Seller	26
	10.2	Documents to be Delivered by Buyer	27
ARTICLE 11 TERMINATION			27
	11.1	Termination by Mutual Consent	27
	11.2	Termination by Either Buyer or Seller	27
	11.3	Termination by Buyer	28
	11.4	Termination by Seller	28

ii 

	11.5	Effect of Termination and Abandonment	28
ARTICLE 12 SURVIVAL; INDEMNIFICATION			28
	12.1	Survival	28
	12.2	Indemnification by the Seller	29
	12.3	Indemnification by Buyer	29
	12.4	Notice of Claims	30
	12.5	Exclusive Remedy	31
ARTICLE 13 MISCELLANEOUS			32
	13.1	Notices	32
	13.2	Amendment	33
	13.3	Counterparts	33
	13.4	Binding on Successors and Assigns	33
	13.5	Severability	33
	13.6	Waivers	33
	13.7	Publicity	33
	13.8	Headings	33
	13.9	List of Schedules and Exhibits	33
	13.10	Entire Agreement; Law Governing	35
	13.11	No Third-Party Rights	35
	13.12	Sales and Transfer Taxes	35
	13.13	Expenses	35
	13.14	Specific Performance	35
	13.15	Confidentiality	35
	13.16	Survivability of Provisions After Termination	35

iii 

STOCK PURCHASE AGREEMENT

     THIS STOCK PURCHASE AGREEMENT (this “Agreement”), is made as of this 29th day of December, 2006, by and between Kennametal Inc., a Pennsylvania corporation (“Buyer”) and FEDERAL SIGNAL CORPORATION, a Delaware corporation (“Seller”).

RECITALS

     WHEREAS, Seller is the owner of one hundred percent (100%) of the issued and outstanding shares of capital stock of MANCHESTER TOOL COMPANY, a Delaware corporation (“Manchester Tool”); and Manchester Tool is the owner of one hundred percent (100%) of the issued and outstanding shares of capital stock of both CLAPP DICO CORPORATION, an Ohio corporation (“Clapp Pico”), and ON TIME MACHINING COMPANY, an Ohio corporation (“OTM”) (Manchester Tool, Clapp Dico and OTM each being a “Subsidiary,” and, collectively the “Subsidiaries”); and

     WHEREAS, such shares of capital stock of the Subsidiaries (the “Shares”), owned as set forth in the previous recital are, in each case, the only shares of capital stock of such Subsidiaries that are issued and outstanding on the date hereof; and

     WHEREAS, the Subsidiaries are engaged in the business of manufacturing and reselling a broad range of high precision and consumable tools for metal cutting industries (the “Business”); and

     WHEREAS, Seller desires to sell, assign, transfer and convey to Buyer, and Buyer desires to acquire from Seller, all of the Shares; and

     WHEREAS, each of the parties hereto desires to set forth certain representations, warranties and covenants, and to establish certain closing conditions, made to induce the other to execute and deliver this Agreement and to consummate the transactions contemplated hereby.

     NOW, THEREFORE, in consideration of the premises, the covenants and agreements herein contained, and other good and valuable consideration, the receipt and sufficiency of which hereby are acknowledged, the parties hereto agree as follows:

ARTICLE 1

PURCHASE AND SALE OF SHARES

     1.1 Purchase and Sale of Shares; Closing. The purchase and sale of the Shares shall be effected as follows:

          (a) At the Closing (as defined in Section 1.1 (b) hereof), Seller shall sell to Buyer, and Buyer shall purchase from Seller, the Shares, as described above, such Shares being all of the shares of capital stock of the Subsidiaries that are issued and outstanding, in consideration of the Purchase Price (as defined in Section 1.2 hereof).

          (b) The closing (the “Closing”) of the transactions contemplated hereby shall take place at the offices of Buchanan Ingersoll & Rooney PC, One Oxford Centre, Pittsburgh, Pennsylvania 15219, commencing at 9:00 a.m. Eastern Standard Time on January 31, 2007, or such other date or time as may be mutually agreed upon by the parties (the “Closing Date”). The Closing shall be effective as of 11:59 p.m. prevailing local time on the Closing Date.

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     1.2 Purchase Price for the Shares. The aggregate consideration to be paid by Buyer to Seller in connection with the sale of the Shares shall be the amount of Sixty Seven Million Dollars ($67,000,000.00) in cash (the “Purchase Price”), subject to adjustment as set forth in Section 1.4.

     1.3 Payment of Purchase Price. At the Closing, Buyer shall deliver to Seller, by wire transfer to an account designated by Seller at least three days prior to the Closing Date, an aggregate amount in immediately available funds equal to the Purchase Price; provided, however, at least two (2) business days prior to the Closing, Seller shall provide to Buyer the payoff amounts of all outstanding indebtedness of the Subsidiaries, including interest, fees and premiums, if any, which amounts shall be paid by Buyer to the relevant lenders of each indebtedness and in the aggregate, reduce the amount of the Purchase Price otherwise payable to Seller; provided further, however, that the foregoing proviso shall not apply to any trade payables or other similar liabilities which do not include indebtedness for borrowed money properly reflected on the Subsidiaries’ balance sheet on the Closing Date.

     1.4 Post-Closing Adjustment.

          (a) The Statement. Within 90 days after the Closing Date, Buyer shall prepare and deliver to the Seller a statement (the “Statement”), setting forth the Net Assets (as defined below) as of the close of business on the Closing Date (the “Closing Net Assets”) determined in accordance with methodologies and policies used in the preparation of the Reference Statement (as defined in Section 3.2) (including U.S. generally accepted accounting principles (“GAAP”) in effect as of the date of the Reference Statement), except as provided in Schedule 1.4(a). After the Closing Date, at Buyer’s request, the Seller shall assist Buyer and its representatives in the preparation of the Statement and shall provide Buyer and its representatives any information reasonably requested.

          (b) Objections; Resolutions Disputes.

                (1) Unless Seller notifies the Buyer in writing within 45 days after Buyer’s delivery of the Statement of any objection to any component of the computation of the Closing Net Assets set forth therein (the “Notice of Objection”), such computation shall be final and binding. During such 45-day period, the Seller and its representatives shall be permitted to review during normal business hours as they shall reasonably request the books, records and working papers of Buyer and the Subsidiaries relating to the Statement. Any Notice of Objection shall specify in reasonable detail the basis for the objections set forth therein. The Parties acknowledge that (i) the purpose of the determination of the Closing Net Assets is to adjust the Purchase Price so as to reflect the change in Net Assets from July 2, 2006 to the Closing Date and (ii) such change is to be measured on a totally consistent basis so that the calculation is to be done using the same accounting principles, practices, methodologies and policies used in the preparation of the Reference Statement, except as provided in Schedule 1.4(a).

                (2) If the Seller provides the Notice of Objection to Buyer within such 45-day period, Buyer and Seller shall, during the 30-day period following Seller’s receipt of the Notice of Objection, attempt in good faith to resolve the Seller’s objections. During the 30-day period following Buyer’s receipt of the Notice of Objection, Buyer and its representatives shall be permitted to review during normal business hours as they shall reasonably request the working papers of the Seller relating to the Notice of Objection and the basis therefore. If Buyer and Seller are unable to resolve all such objections within such 30-day period, the matters remaining in dispute shall be submitted to an internationally recognized public accounting firm mutually agreed upon by Buyer and Seller (or, if Buyer and Seller are unable to so agree within 10 days after the end of such 30-day period or the firm so selected declines to act, then Buyer and Seller shall each select an internationally recognized public accounting firm and such firms shall jointly select a third internationally recognized public accounting

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firm to resolve the disputed matters (such determining firm being the “Independent Expert”)). Buyer and Seller shall jointly instruct the Independent Expert to render its reasoned written decision as promptly as practicable but in no event later than 30 days after its selection. The resolution of disputed items by the Independent Expert shall be final and binding, and the determination of the Independent Expert shall constitute an arbitral award that is final, binding and non-appealable and upon which a judgment may be entered by a court having jurisdiction thereover. The fees and expenses of the Independent Expert shall be borne 50% by Buyer and 50% by Seller. After final determination of the Closing Net Assets, neither Buyer nor Seller shall have any further right to make any claims against each other in respect of any post-Closing Purchase Price adjustments hereunder.

          (c) Adjustment Payment. The Purchase Price shall be increased by the amount by which the Closing Net Assets exceed $7,379,438.35 (the “Reference Net Assets”), which is the amount shown as “Equity” in the Reference Statement, and the Purchase Price shall be decreased by the amount by which the Closing Net Assets are less than the Reference Net Assets (the amount of any such increase or decrease being hereinafter called the “Post-Closing Adjustment Amount”). Within 10 days after the Closing Net Assets have been finally determined in accordance with Section 1.04(b), (i) if the Purchase Price is increased, then Buyer shall pay to Seller the Post-Closing Adjustment Amount, together with interest thereon at a rate of 5.25%, per annum from the Closing Date to the date of payment, and (ii) if the Purchase Price is decreased, Seller shall pay to Buyer the Post-Closing Adjustment Amount, together with interest thereon at a rate of 5.25% per annum from the Closing Date to the date of payment. Any such payment hereunder shall be made by wire transfer of immediately available funds to an account or accounts designated in writing by Buyer or Seller, as the case may be.

          (d) Net Assets. The term “Net Assets” means Total Assets minus Total Liabilities. The terms “Total Assets” and “Total Liabilities” mean the consolidated total assets (less goodwill) and total liabilities of the Subsidiaries, calculated in the same way, using the same accounting principles, practices, methodologies and policies, as the line items comprising total assets and total liabilities, respectively, on the Reference Statement (except as provided in Schedule 1.4(a)).

ARTICLE 2

ASSUMPTION OF CERTAIN LIABILITIES

     2.1 Assumed Liabilities. At the Closing, in addition to the purchase of the Shares contemplated by this Agreement and the corresponding retention by the Subsidiaries of their respective liabilities, Buyer shall assume and agree to pay, discharge and perform in accordance with the terms thereof, each of the obligations of the Subsidiaries related to the Business that are listed on Schedule 2.1, annexed hereto. Except as set forth herein, no liabilities shall be assumed by the Buyer.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF SELLER

     Seller hereby represents and warrants to Buyer as follows:

     3.1 Status of Seller and Subsidiaries.

          (a) Corporate Existence, Status and Capitalization.

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               (i) Seller and each of the Subsidiaries are corporations duly incorporated, organized, entitled to conduct business and validly existing in good standing under the laws of the state of their respective incorporation.

               (ii) Schedule 3.l(a)(ii) sets forth with respect to each Subsidiary (i) the total authorized capital stock, (ii) the number of shares that are issued and outstanding and (iii) the owner of such Shares. All of the Shares have been duly authorized, validly issued and are fully paid and nonassessable and were not issued in violation of any preemptive rights. There are no outstanding options, warrants, rights (including preemptive rights), agreements, puts, calls, commitments or demands of any character relating to the capital stock of the Subsidiaries or that may require the Subsidiaries to issue any shares of capital stock, and there are no outstanding securities convertible into or exchangeable for any of such capital stock.

               (iii) (A) Seller is the sole record and beneficial owner of all of the Shares of Manchester Tool, free and clear of any lien, security interest, pledge, restriction on transferability or voting, or other claim or encumbrance, except those restrictions imposed by applicable securities laws, and has full legal right, power and authority to transfer such Shares to Buyer in accordance with this Agreement, and (B) Manchester Tool is the sole record and beneficial owner of all of the Shares of Clapp Dico and OTM, free and clear of any lien, security interest, pledge, restriction on transferability or voting, or other claim or encumbrance, except those restrictions imposed by applicable securities laws, and has full legal right, power and authority to transfer such Shares to Buyer in accordance with this Agreement. There are no voting trust agreements or other agreements restricting the voting, dividend rights or disposition of any of the Shares.

          (b) Qualification. Schedule 3. 1(b) lists the jurisdictions in which each Subsidiary is qualified to do business as a foreign corporation. Each Subsidiary is qualified to do business and in good standing in all jurisdictions where the nature of its business makes such qualification necessary, except where the failure to be so qualified would not have a Material Adverse Effect. For purposes of this Agreement, the term “Material Adverse Effect” shall mean with respect to the Subsidiaries, any effect which, individually or in the aggregate with all other such effects, is both material and adverse to the financial condition or to the results of operations, assets or business of the Business taken as a whole, except for (i) changes or effects that are cured before the earlier of (A) the Closing Date and (B) the termination of this Agreement or (ii) any such changes or effects caused by or resulting from (A) this Agreement or the transactions contemplated hereby or thereby or the announcement thereof, (B) changes in general social or political conditions including the engagement by the United States in hostilities or the occurrence of a military or terrorist attack on the United States, or (C) changes in general business, economic or market conditions or prevailing interest rates, including, without limitation, changes affecting the businesses or industries in which the Business operates.

          (c) Corporate Power. Each Subsidiary has all requisite corporate power to own and lease its properties and otherwise to conduct the Business.

          (d) Ownership Interests. Except as set forth on Schedule 3.1(d), the Subsidiaries do not own any other subsidiary or have any equity securities of, investment in or loans or advances to any business enterprise or person or any agreements or commitments for such (other than trade terms extended to customers in the ordinary course of business and travel advances to employees).

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          (e) Authorization.

               (i) Seller has the right, power and authority to enter into this Agreement and each other agreement, instrument or other document required to be executed by the Seller hereunder (collectively, the “Other Agreements”) and subject in each instance to obtaining the consents and approvals set forth on Schedule 3.1(e)(i), to consummate the transactions contemplated by, and otherwise to comply with and perform its obligations under, this Agreement and the Other Agreements;

               (ii) The execution and delivery by Seller of this Agreement and the Other Agreements to which it is a party, and the consummation by Seller of the transactions contemplated by, and other compliance with and performance of its obligations under, this Agreement and the Other Agreements to which it is a party have been duly authorized by all necessary corporate action on the part of Seller, in compliance with its governing documents and applicable law; and

               (iii) This Agreement and the Other Agreements to which Seller is a party constitute valid and binding agreements of Seller that are enforceable against Seller in accordance with their respective terms, except to the extent that such enforceability may be limited by (A) the effect of any applicable bankruptcy, insolvency, reorganization, moratorium, rehabilitation or similar laws relating to the enforcement of creditors’ rights generally, (B) the availability of the remedies of specific performance or injunctive relief which may be subject to the discretion of the court before which any proceeding for such remedies may be brought, or (C) the exercise by any court of its discretion in invoking general principles of equity.

          (f) Absence of Violations or Conflicts. Except as disclosed in Schedule 3.1(f) and except as would not have or reasonably be expected to have a Material Adverse Effect, the execution and delivery of this Agreement and the Other Agreements by Seller and the consummation by the Seller of the transactions contemplated by, or other compliance with or performance under, this Agreement and the Other Agreements by the Seller, does not and will not with the passage of time or giving of notice or both, constitute a violation of, be in conflict with, constitute a default or require any payment under, permit a termination of, require any consent under, or result in the creation or imposition of any lien, encumbrance or other adverse claim or interest other than Permitted Encumbrances (as such term is defined in Section 3.4(a) of this Agreement) under (i) any contract, agreement, commitment, undertaking or understanding to which the Seller or any Subsidiary is a party or to which the Seller or any of the Subsidiaries or any of their assets or properties are subject or bound, (ii) to the Knowledge of the Seller, any judgment, decree or order of any governmental or regulatory authority to which the Seller or any Subsidiaries or any of their assets or properties are subject or bound, (iii) to the Knowledge of the Seller, any applicable law or regulation, or (iv) any governing documents of the Seller or any Subsidiary (including their articles of incorporation and by-laws (as amended)). As used in this Agreement, the term “Knowledge” means, with respect to Seller, the actual knowledge of Alan Shaffer, Van Simpson, Frank Monteleone, Douglas Weiner, Michael Wachtel, Drew Arns and Thomas McDougall, after making such inquiry as may be reasonable under the circumstances.

          (g) No Governmental Consents Required. Except as required by the HSR Act (as defined in Section 5.5) or as set forth in Schedule 3.1(g), no consent, approval, order or authorization of, or registration, declaration or filing with, any governmental authority on the part of the Seller or any of the Subsidiaries is required in connection with its execution or delivery of this Agreement or the Other Agreements or the consummation of the transactions contemplated by, or other compliance with or performance under, this Agreement or such Other Agreements by the Seller.

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     3.2 Financial Matters.

          (a) Financial Statements. Seller has delivered to Buyer true and complete copies of the unaudited consolidated balance sheets of the Subsidiaries as of December 31, 2005 and 2004 and the related unaudited consolidated statements of income for the years ended December 31, 2005 and 2004, together with the unaudited consolidated balance sheets as of July 2, 2006 (the “Reference Statement”) as set forth in Schedule 3.2(a) and July 3, 2005 and the related unaudited consolidated statements of income for the six-month periods ended July 2, 2006 and July 3, 2005 (collectively the Reference Statement together with the other unaudited financial statements described in this sentence are referred to in this Agreement as the “Financial Statements”). The Financial Statements of the Business were prepared in accordance with GAAP consistently applied and fairly present in all material respects the financial condition and results of operations of the Subsidiaries as of the respective dates thereof, except as set for in Schedule 3.2(a).

          (b) Absence of Certain Events. Except as set forth in Schedule 3.2(b), since July 2, 2006, the Seller and the Subsidiaries have conducted the Business in the ordinary and usual course consistent with past practice and there has not been:

               (i) Any event, development or state of circumstance or fact that, individually or taken together with all other facts, events and circumstances, has had a Material Adverse Effect with respect to the Business;

               (ii) Any material damage, destruction or casualty loss with respect to the Properties of the Subsidiaries (whether or not covered by insurance) which affected the Business or financial condition or results of the Business;

               (iii) Any change in the articles of incorporation or bylaws of any of the Subsidiaries or any declaration or payment of distributions with respect to the capital stock of any of the Subsidiaries or redemption or repurchase of any such shares;

               (iv) Any change in accounting policies or practices by Seller or any of the Subsidiaries;

               (v) Any individual capital expenditure in excess of $50,000;

               (vi) Any creation or incurrence of any lien, other than Permitted Liens, on any of the assets of the Subsidiaries;

               (vii) Any payment or increase by any of the Subsidiaries of any bonuses, salaries or other compensation to any shareholder, director, officer or employee, except in the ordinary course of business, or entry into any employment, severance, or similar agreement or arrangement with any director, officer or employee;

               (viii) Any sale (other than sales of inventory and obsolete equipment or machinery in the ordinary course of business), lease, or other disposition of any asset or property of the Subsidiaries for which the aggregate proceeds thereof or payments therefore or net book value thereof exceed $50,000;

               (ix) Any incurrence by the Subsidiaries of any indebtedness for borrowed money, or any assumption, guarantee, endorsement or otherwise by the Subsidiaries of any obligations of any other person;

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               (x) Any transactions or arrangements entered into, including modifications to existing transactions and arrangements, with employees, officers, directors or shareholders, of the Subsidiaries (other than those directly related to services as an officer, director or employee); and

               (xi) Any commitment or agreement to do any of the foregoing.

          (c) Absence of Undisclosed Liabilities. Except (i) as set forth in or otherwise disclosed in the Financial Statements or the Schedules hereto, (ii) for liabilities and obligations arising since July 2, 2006 in the ordinary course of business, (iii) for liabilities and obligations which would not be required to be disclosed in the Financial Statements, or (iv) as set forth on Schedule 3.2(c) the Business has no debt, obligations or liabilities (contingent or otherwise).

     3.3 Taxes.

          (a) Definitions. For purposes of this Agreement:

               (i) The term “Code” shall mean the Internal Revenue Code of 1986, as amended. All citations to the Code or to the regulations promulgated thereunder shall include any amendments or any substitute or successor provisions thereto.

               (ii) the term “Acquired Assets” shall mean, collectively, the assets of each Subsidiary, and the Shares;

               (iii) The term “Returns” shall mean, collectively, all reports, forms, declarations, estimates, returns, information statements, and similar documents relating to, or required to be filed in respect of, any Taxes and the term “Return” means any one of the foregoing Returns.

               (iv) The term “Taxes” shall mean (A) all net income, alternative or add-on minimum tax, gross income, gross receipts, gains, sales, use, ad valorem, value added, franchise, profits, license, unitary, intangible, corporate loan tax, capital stock tax, lease, service, service use, withholding on amounts paid to or by each Subsidiary, employment, payroll, excise, severance, transfer, documentary, mortgage, registration, stamp, occupation, environmental, premium, property, windfall, profits, customs, duties, and other taxes, fees, assessments or charges of any kind whatsoever, together with any interest, penalties and other additions with respect thereto, imposed by any federal, territorial, state, provincial, local or foreign government; and (B) any penalties, interest, or other additions for the failure to collect, withhold, or pay over any of the foregoing, or to accurately file any Return; and the term “Tax” shall mean any one of the foregoing Taxes.

          (b) Returns Filed and Taxes Paid. Except as otherwise set forth in Schedule 3.3 annexed hereto, (i) each Subsidiary has duly filed or caused to be filed (or joined in the filing of), on or before the due date thereof (including any valid extensions), with the appropriate taxing authorities, all Returns that it is required to file and all such Returns are true, correct and complete in all material respects; (ii) all Taxes of each Subsidiary due with respect to, or shown to be due on, each such Return (or amendment) or subsequent assessment with regard thereto, have been timely paid or adequate reserves have been established for the payment of such Taxes; (iii) there is no valid basis for the assessment of any deficiency with regard to any such Return; (iv) no audit or examination or refund litigation with respect to any such Return is pending or, to Seller’s Knowledge, has been threatened; (v) there are no outstanding waivers of statute of limitations that have been given or requested with respect to any Taxes of Seller or the Subsidiaries; (vi) no closing agreements, private letter rulings, technical

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advice memoranda or similar agreement or rulings have been entered into or issued by any taxing authority with respect to the Subsidiaries that continue to remain outstanding and/or effective; (vii) the Subsidiaries are not bound by any tax indemnity, tax sharing or tax allocation agreement or arrangement; (viii) the Subsidiaries have withheld and paid all Taxes that they are required to withhold from compensation income of their employees; (ix) Seller has not been a United States real property holding company within the meaning of Code Section 897(c)(2) during the applicable period specified in Section 897(c)(1)(A)(ii); (x) Seller has disclosed on its income Returns all positions taken therein that could reasonably give rise to a substantial understatement of federal income Tax within the meaning of Code Section 6662; and (xi) Seller and the Subsidiaries have not made and are not obligated to make a payment that would not be deductible by reason of Code Section 280G. To the Knowledge of Seller, no other Taxes are due with respect to any taxable periods or portions of periods ending on or before the Closing Date. There are no liens, attachments, or similar encumbrances on any of the Acquired Assets with respect to any Taxes, other than immaterial liens for Taxes that are not yet due and payable.

     3.4 Real and Personal Property.

          (a) Property. For purposes of this Agreement, “Property” or “Properties” means those real and personal properties owned, leased or used by each Subsidiary. Schedule 3.4(a) lists all of the real property which each Subsidiary holds legal or equitable title (whether or not of record) or leases. Except as set forth on Schedule 3.4(a), (i) each Subsidiary has good and marketable title to all Properties on Schedule 3.4(a); and (ii) none of the Properties are subject to any lien, claim or other encumbrance whatsoever, except for Permitted Encumbrances. For purposes of this Agreement, “Permitted Encumbrances” shall mean (A) liens for Taxes not yet due and payable or being contested in good faith by appropriate proceedings, (B) liens shown or described in the Financial Statements, and (C) (1) liens imposed by law and incurred in the ordinary course of business for obligations not yet due and payable to landlords, carriers, warehousemen, laborers, materialmen and the like, (2) easements, building restrictions, rights of way, reservations and such similar encumbrances or charges against real property as are of a nature generally existing with respect to properties of a similar character and which do not in any material way affect the use thereof in the Business, (3) liens, claims, encumbrances or other exceptions which are identified on the title insurance policies issued to each Subsidiary with respect to such Properties or otherwise set forth in Schedule 3.4(a) annexed hereto, and (4) liens, claims, encumbrances or other exceptions which would not reasonably be expected to have a Material Adverse Effect on such Properties.

          (b) Leases; Subleases. For purposes of this Agreement, “Lease” means any written or oral lease, sublease or rental agreement (and any related contract, agreement, commitment, arrangement, undertaking or understanding) and all amendments, modifications and supplements thereof and waivers and consents thereunder pursuant to which each Subsidiary leases, subleases or rents any real or personal property, either as lessor, lessee, landlord or tenant. Schedule 3.4(b) annexed hereto lists all Leases. Schedule 3.4(b) describes all oral Leases. True and complete copies of all written Leases have been made available to Buyer. With respect to each of the Leases set forth on Schedule 3.4(b): (i) the Subsidiary is not and, to the Knowledge of the Seller, no other party to such Lease is in material default in connection with such Lease; (ii) to the Knowledge of the Seller, no act or event has occurred which, with notice or lapse of time or both, would constitute a material default under such Lease with respect to the Subsidiary or any other party; (iii) the Subsidiary has not given or received any notice of cancellation or termination in connection with such Lease; and (iv) except as disclosed in Schedule 3.4(b) annexed hereto, such Lease will not require consents of the other parties thereto in connection with consummation of the transactions contemplated by this Agreement.

          (c) Condition. To the Knowledge of Seller, except as set forth in Schedule 3.4(c) annexed hereto, the Properties are in good repair and condition subject to reasonable wear and tear and

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structurally and mechanically sound, as applicable; comply in all material respects with the present zoning classifications assigned to such Properties or are legal nonconforming uses, and all improvements constructed on the land included in the Properties have been constructed in all material respects in accordance with the requirements of all applicable building, health, safety, environmental, zoning and other federal, state and local laws, ordinances, regulations, codes, licenses or permits applicable at the time of such construction, do not, to the Seller’s Knowledge, contain any material defect in design or construction, and have access to existing highways, roads and utility services. Neither Seller nor any of the Subsidiaries have received any notice or request from any governmental authority, utility, insurer, board of fire authorities or similar organization for the performance of any work or alteration with respect to the Properties or for the termination or limitation of any access, services or insurance with respect thereto. Seller does not own or lease any real property used in the Business except as listed in Schedule 3.4(a). The Subsidiaries do not own or lease any real property not listed in Schedule 3.4(a)

     3.5 Intellectual Property; Patents; Trademarks, Trade Names. (a) All patents, inventions, discoveries, trademarks, service marks, trade names, fictitious business names, software, mask works copyrights owned by or used or proposed to be used by the Subsidiaries and all applications or registrations therefore (“Intellectual Property”) and all contracts, agreements, commitments and understandings relating to the use or license of technology, know-how, trade secrets, confidential or proprietary information, customer and supplier lists or processes by the Subsidiaries that are known to the Subsidiaries or Seller and related to or used in the Business (the “Intellectual Property Licenses”) are listed in Schedule 3.5 annexed hereto. All necessary registration, maintenance and renewal fees currently due in connection with any registered Intellectual Property have been paid and all necessary documents, recordations, and certifications in connection with the registered Intellectual Property have been filed with the relevant authorities for the purpose of maintaining such registered Intellectual Property. Except as disclosed in Schedule 3.5: (i) each Subsidiary owns (free and clear of all liens, claims and encumbrances, other than Permitted Encumbrances), or has the right to use, all Intellectual Property, whether under Intellectual Property Licenses or otherwise, used in the ordinary conduct of the Business; (ii) the consummation of the transactions contemplated by this Agreement will not materially alter or impair any such rights or require any consent or approval; (iii) no Intellectual Property owned, licensed or used by the Subsidiaries, or Intellectual Property License is the subject of a lawsuit or any other proceeding, nor, has any party challenged or, to the Knowledge of the Seller threatened to challenge any Subsidiary’s right to use such Intellectual Property or Intellectual Property License or application for any of the foregoing or that the operation of the Business as it has been and is currently conducted, has not and will not infringe or misappropriate the intellectual property of any third party; and (iv) to the Knowledge of Seller, no party has or is infringing or misappropriating any Intellectual Property.

     3.6 Loans and Contracts.

          (a) Indebtedness. Schedule 3.6(a) annexed hereto sets forth a complete and accurate list or description of all instruments or other documents (“Debt Instruments”) relating to any direct or indirect indebtedness for borrowed money of each Subsidiary (other than trade debt incurred in the ordinary course), as well as indebtedness by way of industrial development bonds, capital leases, lease-purchase arrangements, guarantees, undertakings on which others rely in extending credit and all conditional sales contracts, chattel mortgages and other security arrangements with respect to personal property used or owned by each Subsidiary.

          (b) Other Contracts. Schedule 3.6(b) annexed hereto lists each contract, agreement, commitment, arrangement, undertaking or understanding (except where the same does not call for the payment or receipt by a Subsidiary of cash or other property or services having a value in excess of Fifty Thousand Dollars ($50,000.00)) to which each Subsidiary is a party or bound or to which Seller is bound

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but which is necessary to conduct the Business or to which a Subsidiary or its property is subject, whether written or oral (“Contract,” but such list and the term “Contract” shall not include Leases, Intellectual Property Licenses, Debt Instruments, Insurance Policies and employee-related matters of each Subsidiary disclosed elsewhere in this Agreement). True and complete copies of the Contracts have been provided to Buyer.

          (c) Insurance. The material terms of all insurance coverage of the Subsidiaries now in force with respect to the Business (“Insurance Policies”), have been disclosed to Buyer, and the insurance policies are set forth on Schedule 3.6(c) annexed hereto. All such policies are on an occurrence basis and are in full force and effect. The Seller with respect to the Subsidiaries and the Subsidiaries have not been denied any application for insurance or had any policy of insurance terminated during the past three (3) years, nor has Seller or any of the Subsidiaries been notified of any pending termination.

          (d) Status. Except as disclosed on Schedule 3.6(d) annexed hereto: (i) each Subsidiary is not nor, to the Knowledge of the Seller, is any other party in material default in connection with any Intellectual Property License, Debt Instrument or Contract; (ii) no Subsidiary has received any notice of cancellation or termination in connection with any Intellectual Property License, Debt Instrument or Contract; (iii) no Intellectual Property License, Debt Instrument or Contract will be affected by, or require the consent of or payment to any other party to avoid an event of default or event of termination with respect to such Intellectual Property License, Debt Instrument or Contract (assuming that any required notice of default or termination has been given and any periods for cure have expired) by reason of the transactions contemplated by this Agreement; and (iv) each Intellectual Property License, Debt Instrument and Contract is a valid and legally binding obligation of the Subsidiaries and the same are in full force and effect.

     3.7 Employee Plans.

          (a) Except as set forth in Schedule 3.7 annexed hereto, neither Seller nor any Subsidiary maintains, or is required to maintain or contribute to or otherwise participate in, with respect to employees employed by the Subsidiaries who provide services to the Business (the “Business Employees”), either (i) any employee pension benefit plan, including any employee stock ownership plan (“Pension/Profit Sharing Plan”), or any employee welfare benefit plan (“Welfare Plan”) (as such terms are defined in the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)), including any pension, profit sharing, retirement or thrift plan, or (ii) any other compensation, welfare, fringe benefit or retirement plan, program, stock purchase or stock option plan, policy, understanding or arrangement of any kind whatsoever, whether formal or informal, providing for benefits for or the welfare of any or all of the current or former Business Employees or their beneficiaries or dependents (all of the foregoing in items (i) and (ii) being referred to herein collectively as the “Employee Plans” and individually as an “Employee Plan”).

          (b) Except as set forth in Schedule 3.7, neither Seller nor any Subsidiary has maintained, contributed to or been required to contribute to, with respect to any of the Business Employees, a “multiemployer plan” (as defined in Section 3(37) of ERISA). Except as set forth in Schedule 3.7 annexed hereto, no amount is due or owing from Seller or any Subsidiary on account of a “multiemployer plan” (as defined in Section 3(37) of ERISA) covering any Business Employee or on account of any withdrawal therefrom.

          (c) Except as set forth in Schedule 3.7, no Employee Plan, other than an Employee Plan which is an employee pension benefit plan (within the meaning of Section 3(2)(A) of ERISA), provides benefits, including without limitation death, health or medical benefits (whether or not insured),

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with respect to current or former Business Employees beyond their retirement or other termination of service in the Business (other than (i) coverage mandated by applicable law, (ii) deferred compensation benefits accrued as liabilities on the books of any Subsidiary, or (iii) benefits the full cost of which is borne by the current or former Business Employee (or his or her beneficiary)).

          (d) For each Employee Plan, to the extent applicable to each such Employee Plan, true and complete copies of the following have been delivered to Buyer: (1) the documents embodying the Employee Plans, including the plan documents, all amendments thereto, the related trust or funding contracts, investment management contracts, administrative service contracts, insurance contracts, union or trade contracts and, in the case of any unwritten Employee Plans, written descriptions thereof; (ii) annual reports including Forms 5500 and all schedules thereto for the last three (3) years; (iii) financial statements for the last three (3) years; (iv) actuarial reports, if applicable, for the last three (3) years; (v) each communication (other than routine communications) received by Seller, any of the Subsidiaries or any ERISA Affiliate from or furnished by Seller, any of the Subsidiaries or any ERISA Affiliate to the Service, federal Department of Labor (“DOL”), Pension Benefit Guaranty Corporation (“PBGC”) or other governmental authorities; and (vi) if the Employee Plan is intended to be qualified under Code Section 401(a) or 403(a), the most recent determination letter received from the Service. Seller has also furnished to Buyer a copy of the current summary plan description and each summary of material modification prepared in the last three (3) years for each Employee Plan, and all employee manuals, handbooks, policy statements and other written materials given to employees relating to any Employee Plans. No material oral or written representations or commitments inconsistent with such written materials have been made to any employee of the Subsidiaries by Seller.

          (e) Except as set forth on Schedule 3.7(e), each of the Employee Plans and all related trusts, insurance contracts and funds have been created, maintained, funded and administered in all material respects in compliance with all applicable laws including, without limitation, all applicable requirements of the Code and any predecessor federal income tax laws, ERISA, the health care continuation requirements of COBRA, the Health Insurance Portability And Accountability Act of 1996 (“HIPAA”) and any applicable collective bargaining contracts. There exists no condition or set of circumstances with respect to an Employee Plan under which the Seller or the Subsidiaries could, directly or indirectly, be subject to any material liability under ERISA or the Code or other applicable law, other than liability for benefit claims and funding obligations payable in the ordinary course. Without limiting the generality of the foregoing, Seller and the Subsidiaries have provided all notices and other correspondence to employees and former employees required by HIPAA and the health care continuation provisions of COBRA. Each of the Employee Plans and all related trusts, insurance contracts and funds have also been created, maintained, funded and administered in all material respects in compliance with applicable law, the plan document, trust agreement, insurance policy or other writing creating the same or applicable thereto. To the Knowledge of Seller, no Employee Plan is or is proposed to be under audit or investigation, and no completed audit of any Employee Plan has resulted in the imposition of any tax, fine, penalty or lien.

     3.8 Labor Relations. Except as described in Schedule 3.8 annexed hereto: (a) there is no unfair labor practice, complaint, charge, representation proceeding or other matter against or involving any of the Subsidiaries or their employees pending or, to the Knowledge of the Seller, threatened before any governmental authority; (b) there is no labor strike, organizing effort, slow down, stoppage or other material labor difficulty pending against or involving any of the Subsidiaries or, to the Knowledge of the Seller, threatened against or affecting any of the Subsidiaries; (c) no grievance nor any arbitration proceeding arising out of or under collective bargaining agreements to which any of the Subsidiaries is a party is pending, and, to the Knowledge of the Seller, no claim therefore exists; (d) there is no collective bargaining agreement which is binding on any of the Subsidiaries; (e) all of the Subsidiaries’ employees are employed at will; and (f) the Subsidiaries are in compliance in all material respects with all

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applicable laws regarding labor, employment, pay equity, workers’ compensation, equal employment opportunity, workplace safety and health, immigration, terms and conditions of employment, leaves of absence, and wages and hours.

     3.9 Litigation and Other Proceedings. Except as disclosed in Schedule 3.9 annexed hereto, none of the Subsidiaries is engaged in, a party to, subject to (nor are any of the Acquired Assets or the Assets of the Seller used in the Business subject to) or, to the Knowledge of the Seller, threatened with any claim, legal or equitable action, or other proceeding (whether as plaintiff, defendant or otherwise and regardless of the forum or the nature of the opposing party) relating to the Business.

     3.10 Compliance with Laws.

          (a) Generally. Except as set forth in Schedule 3.10(a) annexed hereto, (a) each Subsidiary is conducting the Business in compliance with all applicable laws excluding, however, any non-compliance which would not reasonably be expected to have a Material Adverse Effect and excluding Environmental Laws, as to which the Subsidiary’s sole representations and warranties are set forth in Section 3.10(c).

          (b) Permits. Except as set forth in Schedule 3.10(b) annexed hereto and except with regard to Environmental Permits as to which each Subsidiary’s sole representations and warranties are set forth in Section 3.10(c), to the Knowledge of Seller, each Subsidiary holds all permits and franchises necessary to operate the Business as currently operated, except where the failure to obtain a permit would not reasonably be expected to have a Material Adverse Effect and excluding permits under Environmental Laws, as to which the Subsidiary’s sole representations and warranties are as set forth in Section 3.10(c).

          (c) Environmental.

          (i) Except as set forth on Schedule 3.10(c) annexed hereto, no person or party (including, but not limited to, any governmental or regulatory authority) has asserted any pending claim against any of the Subsidiaries relating to any Environmental Law (defined below) with respect to the Business. No Subsidiary has received oral or written notice of any existing or pending violation, citation, claim, order, direction, instruction or complaint relating to the Business, or any facility now or previously owned or operated by the Subsidiary in connection therewith, arising under the Resource Conservation and Recovery Act, the Comprehensive Environmental Response Compensation and Liability Act, the Superfund Amendments and Reauthorization Act, the Toxic Substances Control Act, the Safe Drinking Water Act, the Federal Water Pollution Control Act (Clean Water Act), the Clean Air Act, the National Environmental Policy Act (Environmental Impact Statement), and antipollution, waste control and disposal and environmental “cleanup” provisions of similar statutes of any governmental authority, and all regulations and standards enacted pursuant thereto and all permits and authorizations issued in connection therewith (collectively, “Environmental Laws”).

          (ii) To the Knowledge of Seller, except as disclosed on Schedule 3.10(c) annexed hereto, such Subsidiary’s operation of the Business is in compliance with all applicable Environmental Laws.

          (iii) To the Knowledge of Seller, except as disclosed on Schedule 3.10(c) annexed hereto, such Subsidiary currently holds all required permits, approvals or other authorizations required under or issued pursuant to any Environmental Law with respect to the

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Business, except for such environmental permits, the absence of which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

          (iv) To the Knowledge of Seller, there are no Environmental Conditions that could reasonably be expected to result in a Material Adverse Effect to Buyer. The term “Environmental Condition” means (x) the presence in surface water, groundwater, drinking water supply, land surface, subsurface strata, above-ground or underground storage tanks or other containers, or ambient air of any pollutant, contaminant, industrial waste, hazardous waste, polychlorinated biphenyls, radioactive materials, toxic or hazardous substances (“Hazardous Substances”) or (y) any violation of any statue, ordinance, regulation, administrative order, judicial order or decree or other governmental requirement relating to the emission, discharge, deposit, disposal, leaching, migration or release of any Hazardous Substance into the environment or the generation, treatment, storage, transportation or disposal of any Hazardous Substance (i) arising out of or otherwise related to the operations or other activities (including the disposition of such materials or substances) of the Subsidiaries, or of any predecessor in title, interest or line of business to Seller, conducted or undertaken prior to the Closing or (ii) existing at or prior to the Closing at any of the Properties or any property previously owned, leased, occupied, used or foreclosed upon.

          (v) To the Knowledge of Seller, no ozone depleting substances (“ODS”), polychlorinated biphenyls (“PCBs”), asbestos containing material (“ACM”), or urea formaldehyde insulation (“UFI”) is present on or at the Properties, or any prior property that could reasonably be expected to result in a Material Adverse Effect on the Subsidiaries and the Subsidiaries have complied in all material respects with all regulatory requirements relating to the storage, removal, disposal or release, if any, of ODS, ACM, PCB, or UFIs which currently are or any in the past have been located on or at the Properties and any prior property.

          (vi) To the Knowledge of Seller, Seller and the Subsidiaries have complied in all material respects with all applicable provisions of any environmental laws that condition, restrict or prohibit the transfer, sale, lease or closure of any property for environmental reasons and no environmental lien has attached to any portion of the Subsidiaries or the Properties.

     3.11 Bank Accounts. Schedule 3.11 lists all bank, money market, savings and similar accounts and safe deposit boxes of the Subsidiaries, specifying the account numbers and the authorized signatories or persons having access to them.

     3.12 Brokers and Commissions. Except as disclosed in Schedule 3.12 annexed hereto, no person, firm or corporation has asserted or is entitled to any commission or broker’s or finder’s fee in connection with the other transactions contemplated by this Agreement.

     3.13 Related Party Transactions. Except as set forth on Schedule 3.13, (i) there is no indebtedness between Seller or any of the Subsidiaries, on the one hand, and any employee, officer, director, shareholder, member or affiliate of any of the Subsidiaries, on the other hand; (ii) no such employee, officer, director, shareholder, member or affiliate provides or causes to be provided any assets, services (other than services as an officer, director or employee) or facilities to any of the Subsidiaries; (iii) none of the Subsidiaries provides or causes to be provided any assets, services or facilities to any such employee, officer, director, shareholder, member or affiliate; and (iv) to the Knowledge of Seller, no such employee, officer, director, shareholder, member or affiliate has any direct or indirect ownership interest in any person with which any of the Subsidiaries competes or has a business relationship. The transactions contemplated by this Agreement will not (either alone, or upon the occurrence of any act or event, lapse of time or the giving of notice or failure to cure) result in any payment (severance or

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otherwise) becoming due from Seller or any of the Subsidiaries to any such employee, officer, director, shareholder, member or affiliate, except as contemplated herein.

     3.14 Accounting Controls. Seller and the Subsidiaries have devised and maintained systems of internal accounting controls sufficient to provide reasonable assurances that (i) all material transactions are executed in accordance with management’s general or specific authorization and (ii) all material transactions are recorded as necessary to permit the preparation of financial statements in conformity with GAAP, and to maintain proper accountability for items. Seller’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management’s report on internal control over financial reporting as of December 31, 2005 is included in Seller’s 2005 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 23, 2006. That report states that based upon management’s assessment, Seller maintained, in all material respects, effective internal control over financial reporting (as defined in the Securities Exchange Act of 1934, Rules 13a-15(f) and 15d-15(f)) as of December 31, 2005, based on criteria in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management’s assessment of the effectiveness of Seller’s internal control over financial reporting as of December 31, 2005 was audited by Ernst & Young LLP as stated in their report included in Seller’s 2005 Annual Report on Form 10-K filed with the Securities and Exchange Commission. Subsidiaries’ internal control over financial reporting was included (to the extent applicable to Seller taken as a whole) in the scope of management’s assessment as of December 31, 2005. Seller did not identify any material weaknesses in Seller’s internal control over financial reporting as of December 31, 2005. Management has not completed an assessment of its internal control over financial reporting as of any period subsequent to the assessment included in Seller’s 2005 Annual Report on Form 10-K. Seller’s chief executive officer and chief financial officer executed the certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 as of December 31, 2005. These certifications are included in Seller’s 2005 Annual Report on Form 10-K. As of December 31, 2005, there were no significant deficiencies or material weaknesses in the design or operation of internal control over financial reporting related to the Subsidiaries based on management’s assessment as of December 31, 2005 which was completed based on the consolidated results of operations and financial position of Seller. In addition, as of December 31, 2005, there was no fraud that involved management or other employees who have a significant role in Seller’s internal control over financial reporting related to the Subsidiaries.

     3.15 Receivables. All existing accounts receivable of each of the Subsidiaries with respect to the Business and as reflected on the Financial Statements or in the accounting records of the Subsidiaries as of the Closing Date, (i) represent valid obligations of customers of the Subsidiaries arising from bona fide transactions entered into in the ordinary course of business and (ii) are collectible, net of reserves therein reflected, in the ordinary course of business and without any defenses, counterclaims or setoffs.

     3.16 Inventory. The inventories of the Subsidiaries set forth in the Financial Statements are properly stated therein at the lower of cost or fair market value determined in accordance with GAAP consistently applied. The inventories consist of a quality and quantity usable and saleable in the ordinary course of business, except for obsolete items and items of below-standard quality, all of which have been written off or written down to net realizable value, or for which adequate reserves have been provided, in the Financial Statements or on the accounting records of the Subsidiaries as of the Closing Date, as the case may be, in accordance with past practices. The quantities of each item of inventory (whether raw

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materials, work-in-process, or finished goods) are not excessive, but are reasonable in the present circumstances of the Subsidiaries in accordance with past practices. All such inventories are owned by the Subsidiaries free and clear of any encumbrances, other than Permitted Encumbrances.

     3.17 Customers. Schedule 3.17 contains a list, as of the date hereof, of the ten (10) largest customers of each of the Subsidiaries (the “Material Customers”) based on the gross revenues of each of the Subsidiaries for both the fiscal year ended on December 30, 2005 and the six (6) month period ended on July 2, 2006 for each such Material Customer during such periods. Except as set forth in Schedule 3.17, there has not, to the Knowledge of the Seller, been any material change in the Subsidiaries’ relationships with any of the Material Customers and the Subsidiaries have not in the past twelve (12) months received notice from any Material Customer that said customer intends to terminate or materially change its business relationship with the Subsidiaries.

     3.18 No Other Representations. Except as set forth in this Agreement, the Schedules hereto and any document delivered pursuant hereto, Seller does not make any other representation or warranty whatsoever to Buyer.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF BUYER

     Buyer hereby represents and warrants to the Seller as follows:

     4.1 Status of Buyer.

          (a) Organization. Buyer is a duly organized corporation, entitled to conduct business and validly existing in good standing under the laws of the state of Pennsylvania.

          (b) Authorization.

          (i) Buyer has the right, power and authority to enter into this Agreement and each Other Agreement and to consummate the transactions contemplated by, and otherwise to comply with and perform its obligations under, this Agreement and the Other Agreements;

          (ii) The execution and delivery by Buyer of this Agreement and the Other Agreements, and the consummation by Buyer of other transactions contemplated by, and other compliance with and performance of its obligations under, this Agreement and the Other Agreements have been duly authorized by all necessary corporate action on the part of Buyer in compliance with its governing documents and applicable law; and

          (iii) This Agreement and the Other Agreements to which it is a party constitute the valid and binding agreements of Buyer that are enforceable against Buyer in accordance with their respective terms, except to the extent that such enforceability may be limited by (A) the effect of any applicable bankruptcy, insolvency, reorganization, moratorium, rehabilitation or similar laws relating to the enforcement of creditors’ rights generally, (B) the availability of the remedies of specific performance or injunctive relief which may be subject to the discretion of the court before which any proceeding for such remedies may be brought, or (C) the exercise by any court of its discretion in invoking general principles of equity.

          (c) Absence of Violations or Conflicts. Except as disclosed in Schedule 4.1(c) annexed hereto, the execution and delivery by Buyer of this Agreement and the Other Agreements and

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the consummation by Buyer of the transactions contemplated by, or other compliance with or performance under, this Agreement and the Other Agreements, do not and will not with the passage of time or giving of notice or both, constitute a violation of, be in conflict with, constitute a default or require any payment under, permit a termination of, require any consent under, or result in the creation or imposition of any lien, encumbrance or other adverse claim or interest upon any properties of Buyer under (i) any contract, agreement, commitment, undertaking or understanding to which Buyer is a party or to which it or any of its assets or properties are subject or bound, (ii) any judgment, decree or order of any governmental or regulatory authority to which Buyer or any of its properties are subject or bound, (iii) to the knowledge of Buyer, any applicable law, or (iv) any governing documents of Buyer.

          (d) No Governmental Consents Required. Except as required by the HSR Act (as defined in Section 5.5) and as set forth in Schedule 4. l(d) annexed hereto, no consent, approval, order or authorization of, or registration, declaration or filing with, any governmental or regulatory authority on the part of Buyer is required in connection with its execution or delivery of this Agreement or the Other Agreements or the consummation of the transactions contemplated by, or other compliance with or performance under, this Agreement or such Other Agreements by Buyer.

     4.2 Brokers and Commissions. Except as set forth in Schedule 4.2 annexed hereto, no person, firm or corporation has asserted or is entitled to any commission or broker’s or finder’s fee in connection with the transactions contemplated by this Agreement by reason of any act or omission of Buyer.

     4.3 Available Funds. As of the Closing, Buyer will have sufficient funds available to satisfy the obligation of Buyer to pay the Purchase Price and to pay all fees and expenses of Buyer related to the transactions contemplated by this Agreement.

     4.4 Solvency. Buyer is not insolvent and will not be rendered insolvent as a result of any of the transactions contemplated by this Agreement. For purposes hereof, the term “solvency” means that (i) the fair salable value of Buyer’s assets is in excess of the total amount of its liabilities (including, for purposes hereof, all liabilities, whether or not reflected on a balance sheet prepared in accordance with generally accepted accounting principles and whether direct or indirect, fixed or contingent, secured or unsecured or disputed or undisputed), (ii) Buyer is able to pay its debts or obligations in the ordinary course as they mature and (iii) Buyer has capital sufficient to carry on its business and all businesses which it is about to engage.

ARTICLE 5

COVENANTS OF THE SELLER

     5.1 Conduct of Business by the Subsidiaries. From the date hereof to the Closing Date, except for transactions that are expressly approved in writing by Buyer, Seller shall not and shall cause each Subsidiary to refrain from:

          (a) subjecting any Acquired Assets, tangible or intangible, to any lien, encumbrance, security interest or other claim of any kind, exclusive of liens arising as a matter of law in the ordinary course of business as to which there is no known default and except for Permitted Encumbrances;

          (b) except for sales in the ordinary course of business or consistent with past practices, selling, assigning, transferring or otherwise disposing of any Subsidiary’s assets or properties;

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          (c) modifying, amending, altering or terminating (whether by written or oral agreement, or any manner of action or inaction) any of the Debt Instruments, Leases, Intellectual Property Licenses, Employee Plans, Contracts or Insurance Policies, or entering into any such arrangement which is outside of the ordinary course of business or which involves the payment or receipt by the Subsidiary of an amount in excess of Fifty Thousand Dollars ($50,000.00);

          (d) taking or permitting any other action that, if taken or permitted immediately prior to the execution of this Agreement, would constitute a breach of or an exception to the representations and warranties in Section 3.1(d) hereof;

          (e) issue, sell or otherwise permit to become outstanding, or authorize the creation of, any additional shares of capital stock or any rights with respect to the Shares, (ii) permit any shares of capital stock of the Subsidiaries to become subject to stock options or other rights or similar stock-based employee rights, (iii) repurchase, redeem or otherwise acquire, directly or indirectly, any shares of the Subsidiaries capital stock, or (iv) effect any recapitalization, reclassification, stock split or like change in capitalization;

          (f) make, declare, pay or set aside for payment any non-cash dividend on or in respect of, or declare or make any non-cash distribution on any shares of the capital stock of the Subsidiaries or split, combine, redeem, reclassify, purchase or otherwise acquire, any shares of its capital stock;

          (g) enter into, amend, modify, renew or terminate any material employment, consulting, severance or similar contracts, with any directors, officers, employees of, or independent contractors of the Subsidiaries, grant any salary, wage or other increase or increase any employee benefit (including incentive or bonus payments) or take any action that would entitle any employee to receive severance pay prior to the Closing Date, except for normal general increases in salary to individual employees in the ordinary course of business consistent with past practice;

          (h) enter into, establish, adopt, amend, modify or terminate any Employee Plan or other pension, retirement, stock option, stock purchase, savings, profit sharing, employee stock ownership, deferred compensation, consulting, bonus, group insurance or other employee benefit, incentive or welfare Contract, plan or arrangement, any trust agreement (or similar arrangement) related thereto, except for administrative amendments adopted in the ordinary course of business, in each case in respect of any current or former directors, officers, employees, former employees of, or independent contractors with respect to the Subsidiaries;

          (i) amend the articles of incorporation or bylaws (or similar governing document) of the Subsidiaries;

          (j) make, change or revoke any tax election or make any agreement or settlement with any taxing authority or fail to pay any material tax or any other liability or charge when due, other than charges contested in good faith by appropriate proceedings;

          (k) make any individual capital expenditure in excess of $50,000.00 or capital expenditures in the aggregate in excess of $250,000.00, except for actions relating to purchase of a grinding machine to replace the machine damaged in a fire at Manchester Tool;

          (1) take any action which could reasonably be expected to have a Material Adverse Effect on the corporate existence, rights and franchises of the Subsidiaries; or

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          (m) agree, whether in writing or otherwise, to do any of the foregoing.

     5.2 Affirmative Covenants Relating to the Subsidiaries. From the date hereof to the Closing Date, Seller shall use its reasonable best efforts to cause each Subsidiary to:

          (a) maintain property and liability insurance in amounts and with coverage at least as great as the amounts and coverage in effect on the date of this Agreement;

          (b) maintain, consistent with past practice, its properties in good repair, order and condition, reasonable wear and tear excepted, and preserve its possession and control of all of its assets and properties;

          (c) keep in faithful service its key officers and professional staff to preserve the goodwill of those having business relations with the Subsidiary;

          (d) maintain the books, accounts and records of such Subsidiary in a manner consistent with past practice and not implement or adopt any change in the accounting principles, practices or methods used, other than as may be required by GAAP;

          (e) comply with all applicable law relating to the conduct of the Business, and conduct the Business obligations in such a manner so that on the Closing Date the representations and warranties contained in this Agreement shall be true as though such representations and warranties were made on and as of such date, except for changes permitted or contemplated by the terms of this Agreement;

          (f) provide Buyer with prompt written notice of any event, occurrence or circumstance which could reasonably be expected to have a Material Adverse Effect; and

          (g) operate the Business only in the ordinary course so as to preserve its business organization intact, including the goodwill of its suppliers, customers and others having business relations with each such Subsidiary.

     5.3 Access Before Closing. From the date of this Agreement until the Closing Date, Seller will cause each Subsidiary to permit Buyer and its representatives reasonable access on reasonable notice during normal business hours to the properties, personal property, personnel, books and records, contracts, and commitments of the Business, including the right to make copies of such books and records, contracts, and commitments. In the event that any record or other information requested by Buyer is subject to a confidentiality agreement with a third party, attorney-client privilege, or other legal restriction or privilege, the Subsidiary and Buyer will endeavor to find means of disclosing as much information as practicable that is needed by Buyer to prepare for the transfer of the Business, but the Subsidiary will not be obligated to breach such restriction or privilege. Buyer shall return all copies of such books and records, contracts, and commitments promptly upon the request of the Seller if for any reason the Closing does not occur. All requests for access to information, properties, personnel or documents pursuant to this Section 5.3 shall be directed to an executive officer or officers of the Subsidiary designated by the Seller.

     5.4 Public Disclosure. Each of the Parties agrees that it will not, without the prior approval of the other Party, issue any press release or written statement for general circulation relating to the transactions contemplated hereby, except for any release or statement that is required by law or regulation (including the rules of any self-regulatory organization) and as to which the disclosing Party has used commercially reasonable efforts to discuss with the other Party in advance, provided that such

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release or statement has not been caused by, or is not the result of, a previous disclosure by or at the direction of the disclosing Party or any of its representatives that was not permitted by this Agreement. Notwithstanding the foregoing, each of the Parties may make internal statements and announcements to their respective employees that are consistent with prior public disclosures made by the Parties with respect to the transactions contemplated hereunder.

     5.5 Monthly and Quarterly Financial Statements. Seller shall promptly provide Buyer with copies of unaudited (i) monthly income statements, which present the Business in a form similar to the Financial Statements, and (ii) unaudited quarterly financial statements, in each case for each such period after July 2, 2006 through the Closing Date on an unconsolidated basis. Except for the absence of note disclosures and typical year end adjustments and accruals, such unaudited quarterly financial statements shall present fairly the financial condition of the Subsidiaries as of such dates and the results of operations of the Subsidiaries for the period then ended.

     5.6 Termination of Related Party Transactions. Seller shall and Seller shall cause the Subsidiaries to terminate all related party transactions prior to the Closing, except for the related party transactions (i) set forth by Buyer on Schedule 5.6 and/or (ii) arising in the ordinary course of business as a result of the purchase and sale of goods and services on an arms-length basis or consistent with past practice.

     5.7 Bank Accounts. Prior to the Closing Date, Seller shall, and shall cause the Subsidiaries to, change effective as of the Closing, the individuals authorized to draw on, or having access to, the bank, savings, deposit or custodial accounts and safe deposit boxes maintained by the Subsidiaries to the individuals designated in writing by the Buyer not less than three (3) business days prior to the Closing Date.

     5.8 Resignations. Seller shall cause the directors and such executive officers of the Subsidiaries as the Buyer shall request in writing not less then ten (10) business days prior to the Closing Date to resign in such person’s capacity as a director or an officer, effective as of the Closing. In connection with any such resignation, Seller shall cause such directors or executive officers to duly execute and deliver to the Buyer such executive officer’s or director’s resignation, in a form reasonably acceptable to the Buyer, and a release, in a form reasonably acceptable to the Buyer, with respect to any claims such directors or executive officers may have against the Subsidiaries.

     5.9 Real Estate. Seller shall cooperate with Buyer in obtaining title commitments, title policies and surveys with respect to the Properties. Seller shall, or shall cause the Subsidiaries to, execute any reasonable documents necessary to procure such title commitments and title policies, including, without limitation ALTA statements, GAP affidavits, survey affidavits and any other document reasonably necessary for the title insurer under such commitments and policies to issue such title commitments and title policies satisfactory to Buyer showing good and marketable fee simple title not subject to liens, claims and encumbrances not previously disclosed in the Financial Statements and to ensure that title in the Properties is vested in the Subsidiaries. All fees, costs and other amounts in obtaining the title commitments and title policies shall be incurred and borne by the Buyer.

     5.10 Consents and Closing Conditions. Seller will and will cause each Subsidiary to cooperate with Buyer: (a) to obtain such consents, approvals, authorizations and waivers from third parties and to take other actions as may be required in order to fulfill the closing conditions which are within its control; and (b) to cause the representations and warranties of the Subsidiary in Article 3 to be true and correct on and as of the Closing Date.

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     5.11 Hart-Scott-Rodino Act Notification. The Seller shall file with the Federal Trade Commission and the Antitrust Division of the Department of Justice (collectively, the “Antitrust Authorities”) the Notification and Report Form required by The Hart-Scott-Rodino Antitrust Improvements Act of 1976 and regulations promulgated pursuant thereto (the “HSR Act”), and otherwise shall comply with the requirements of the HSR Act applicable to it. The Seller shall furnish to Buyer such information as Buyer shall reasonably request in connection with its Notification and Report Form. Seller and Buyer shall share the applicable filing fee under the HSR Act equally.

     5.12 No Negotiation. From and after the date hereof and until the termination of this Agreement, and provided that Buyer shall not have breached any of its obligations hereunder, Seller will not, and Seller will cause the Subsidiaries and its officers, employees and agents not to initiate, solicit or encourage, directly or indirectly, any inquiries or the making of any proposal with respect to, or engage in any negotiations concerning, provide any confidential information or data to, have any discussions with or enter into any agreements with or cooperate with, or take any action to knowingly facilitate or enter into any merger, acquisition, option, joint venture, partnership or similar agreements with, any person relating directly or indirectly to any acquisition, business combination, reorganization or purchase of all or any portion of the capital stock or assets of the Subsidiaries, other than the sale of assets in the ordinary course of business. Following the execution of this Agreement, Seller will, and Seller will cause the Subsidiaries to, promptly cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any such potential transactions involving the Subsidiaries.

     5.13 Cooperation. The Seller shall provide Buyer all information or assistance reasonably requested by Buyer to bring about the consummation of the transactions contemplated by this Agreement. The Seller shall cooperate with Buyer and shall use commercially reasonable efforts to assist Buyer in obtaining all consents or approvals required for consummation of the transactions contemplated by this Agreement.

     5.14 Environmental. Seller will complete and deliver to Buyer a Phase II environmental assessment for the Manchester Tool location.

     5.15 Intellectual Property. With respect to any Intellectual Property not identified in Schedule 3.5 which is determined after Closing to be owned by Seller and used primarily in the Business, Seller shall transfer ownership of such Intellectual Property to the Buyer or the Subsidiary, as appropriate, promptly and without charge. With respect to any Intellectual Property not identified on Schedule 3.5 which is determined after Closing to be licensed to Seller, and used primarily in the Business, Seller, shall sublicense or arrange for an assignment of the primary license to the Buyer or the Subsidiary, as appropriate, without charge.

ARTICLE 6

COVENANTS OF BUYER

     6.1 Consents and Closing Conditions. Buyer shall use commercially reasonable efforts to obtain such consents, approvals, authorizations and waivers from third parties and to take other actions as may be required in order to fulfill the closing conditions which are within its control.

     6.2 Obligations Concerning Employees.

          (a) Employment of all persons employed by the Subsidiaries as of the Closing Date (“Hired Employees”), including employees who are not actively at work on account of any illness or

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injury (“Disability”) of less than six (6) months duration as of the Closing Date (“Short Term Disability”), but excluding all persons who were formerly employed by the Subsidiaries or predecessors thereof, including, without limitation, those who are, as of the Closing Date, (A) retired or (B) not actively at work due to any Disability of six (6) months or longer duration as of the Closing Date (“Long Term Disability”), shall not be deemed terminated or interrupted by reason of the transactions contemplated in this Agreement. Such employees shall be eligible to participate in the employee benefit plans and programs of Buyer in accordance with, and subject to, the terms of each such employee benefit plan or program. Nothing in this Agreement shall require Buyer to, or require Buyer to cause the Subsidiaries to, establish, maintain, operate or administer any employee benefit plan or program not in effect as of the date of this Agreement.

          (b) All Hired Employees for whom Buyer shall offer employee benefit plans and programs pursuant to Section 6.2(a) will cease participation, in, and shall cease to be covered by, all employee benefits plans and programs of Seller as of the Closing Date, provided that, with respect to any benefits accrued or payable as of the Closing Date under any employee benefit plans or programs of the Subsidiaries or Seller, such employees shall continue to be entitled to such benefits after the Closing Date payable by Seller or any Employee Plan.

          (c) With respect to Hired Employees, Buyer shall recognize service with the Subsidiaries and predecessors thereof, for purposes of determining (i) eligibility for vacation benefits, short term disability or weekly accident and sickness benefits, severance benefits, service recognition and other similar programs and (ii) eligibility and vesting under all other employee benefit plans and programs of Buyer applicable to such employees, to the extent such service was recognized by Seller or the Subsidiaries for such purposes; provided, that Buyer shall not be obligated to give credit for such service to the extent it would result in duplication of any benefits to which such an employee is entitled to or had previously received under any comparable employee benefit plans or programs maintained by Seller or the Subsidiaries.

          (d) Nothing in this Agreement shall require the Buyer or the Subsidiaries to retain any Hired Employees for any period of time after the Closing Date and, subject to requirements of applicable law, Buyer reserves the right, at any time after the Closing Date, to terminate such employment and, except as expressly stated in this Agreement, to amend, modify or terminate any term and condition of employment including, without limitation, any employee benefit plan, program, policy, practice or arrangement or the compensation or working conditions of Hired Employees.

     6.3 Flexible Spending Accounts. As soon as possible following the Closing Date, the Seller shall transfer to Buyer, and Buyer agrees to accept, those amounts which represent the Hired Employees’ balances under any flexible spending accounts maintained by Seller or any Subsidiary (the “FSAs”). Buyer agrees to administer the FSAs (consistent with the terms of the flexible spending account program applicable to Buyer’s employees) such that the Hired Employees will be able to contribute additional before-tax compensation (in accordance with the terms of the applicable Buyer Plan) and to submit claims against their respective FSA within the time period permitted by applicable law.

     6.4 WARN Act Liability. Buyer acknowledges and agrees that as of the Closing Date, Buyer is considered for purposes of the Worker Adjustment and Retraining Notification Act (“WARN Act”) the employer of the Hired Employees and that Buyer, and not the Seller, shall thereupon be responsible for complying with the WARN Act with respect to the Hired Employees. Prior to and on the Closing Date, none of the Hired Employees shall be, nor shall they be deemed to be, terminated. Buyer shall indemnify and hold the Seller harmless from and against all losses incurred, paid or required under penalty of law to be paid by Seller: (a) resulting from any compliance obligations, including without limitation the obligation to give notice or pay money under the WARN Act with respect to the

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termination of any Hired Employee as of the Closing Date, or (b) resulting from any claims from the Hired Employees, including without limitation claims for cash payments or the continuation of health care or other benefits.

     6.5 Health Care Continuation Coverage. Buyer acknowledges that, as a result of the transactions contemplated by this Agreement, the Hired Employees will not be deemed to have a termination of employment for purposes of Section 601 et seq. of the Employee Retirement Income Security Act of 1974, as amended (“COBRA”). Nevertheless, any COBRA notices or coverages required to be given or made available to any Hired Employees as a result of the transactions contemplated by this Agreement shall be given or made exclusively by Buyer. Buyer shall indemnify and hold the Seller harmless from and against all losses incurred, paid or required under penalty of law to be paid by the Seller: (a) resulting from any COBRA compliance obligation as a result of the transactions contemplated by this Agreement that arise with respect to the Hired Employees, or (b) resulting from any claims made by Hired Employees, including without limitation claims for health care or other benefit coverage, as a result of the transactions contemplated by this Agreement. Buyer shall be responsible for compliance with all requirements under Section 4980B of the Code and Section 601 et seq. of ERISA with respect to any (i) Hired Employee or (ii) family member of such Hired Employee, in each case who becomes a qualified beneficiary within the meaning of Section 4980B(g)(1) of the Code as a result of the transactions contemplated by this Agreement or as a result of any “qualifying event” within the meaning of Section 4980B(f)(3) of the Code which occurs on or after the Closing Date. Sellers shall be responsible for any COBRA compliance obligations under Section 4980B of the Code and Section 601 et seq. of ERISA with respect to individuals who are not Hired Employees or family members of Hired Employees, and with respect to qualifying events that occurred before the Closing Date.

     6.6 Employment Taxes. Buyer acknowledges and agrees that, for FICA and FUTA tax purposes, Buyer qualifies as a successor employer with respect to the Hired Employees. In connection with the foregoing, the parties agree to follow the “Alternative Procedures” set forth in Section 5 of Revenue Procedure 96-60, 1996-2-C.B.399. In connection with the application of the “Alternative Procedures,” (a) the Seller, on the one hand, and Buyer, on the other, shall report on a predecessor- successor basis as set forth in such Revenue Procedure, (b) the Seller shall be relieved from furnishing Forms W-2 to the Hired Employees, and (c) Buyer shall assume the obligations of the Seller to furnish such Forms W-2 to such Hired Employees for the full calendar year in which the Closing Date occurs.

     6.7 Hart-Scott-Rodino Act Notification. Buyer shall file with the Antitrust Authorities the Notification and Report Form required by the HSR Act, and otherwise shall comply with the requirements of the HSR Act applicable to it. Buyer shall furnish to the Seller such information as the Seller shall reasonably request in connection with its Notification and Report Form. Seller and Buyer shall share the applicable filing fee under the HSR Act equally.

     6.8 Cooperation. Buyer shall provide the Seller with all information or assistance reasonably requested by the Seller to bring about the consummation of the transactions contemplated by this Agreement. Buyer shall cooperate with the Seller and shall use commercially reasonable efforts to assist the Seller in obtaining all consents or approvals required for consummation the transactions contemplated by this Agreement.

     6.9 Books and Records.

          (a) Buyer agrees that it shall preserve and keep all books and records in respect of the Business in Buyer’s possession for a period of at least six years from the Closing Date. After such six-year period, before Buyer shall dispose of any of such books and records, at least 90 calendar days’ prior written notice to such effect shall be given by Buyer to Seller, and Seller shall be given an

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opportunity during such 90-day period, at its cost and expense, to remove and retain all or any part of such books and records as Seller may select. During such six-year period, duly authorized representatives of Seller shall, upon reasonable notice, have access thereto during normal business hours to examine, inspect and copy such books and records.

          (b) If, in order to properly prepare documents required to be filed with governmental authorities or its financial statements or required under any applicable law, it is necessary that either party hereto (or any of their respective affiliates) or any successors be furnished with additional information relating to the Subsidiaries and such information is in the possession of the other party hereto or any of its affiliates, such party agrees to use its best efforts to furnish such information to such other party as soon as reasonably practicable, at the cost and expense of the party being furnished such information.

ARTICLE 7

TAX MATTERS

     7.1 Payment of Taxes.

          (a) Seller shall prepare, or cause to be prepared, and file, or cause to be filed, all Tax Returns of, or which include, the Subsidiaries for all tax periods ending on or prior to the Closing Date (a “Pre-Closing Period”); provided, that such Tax Returns shall be prepared consistent with Seller’s prior year tax accounting methods, and, with respect to such Tax Returns, the Seller shall be liable for and pay when due all Taxes due with respect to the Subsidiaries, or as to which the Subsidiaries are otherwise liable, for the Pre-Closing Period. Buyer and its representatives shall be permitted to review during normal business hours as they shall reasonably request the books, records and working papers of Seller relating to such Tax Returns not less than thirty (30) days prior to the required filing date of such Tax Returns, and the Parties shall cooperate fully with each other in a timely manner to resolve any disagreements with respect to the preparation of such Tax Returns. Buyer shall prepare, or cause to be prepared, and file, or cause to be filed, all Tax Returns of, or which include, the Subsidiaries for all taxable periods ending after the Closing Date, and shall pay all Taxes with respect thereto (except as otherwise provided in the second sentence of paragraph (b) below), for all taxable periods ending after the Closing Date.

          (b) For purposes of this Agreement, if, for any federal, state, local or foreign Tax purpose, a taxable period of any of the Subsidiaries, does not terminate on the Closing Date, the Parties shall, to the extent permitted by applicable law, elect with the relevant governmental authority to treat such taxable period for all purposes as a short taxable period ending as of the close of business on the Closing Date and such short taxable period shall be treated as a Pre-Closing Period for purposes of this Agreement. In any case where applicable law does not permit such an election to be made, then, for purposes of this Agreement, the taxable income of the Subsidiaries for the entire taxable period shall be allocated between the period prior to the Closing and the remainder of the taxable period using an interim-closing-of-the-books method, assuming that such pre-closing taxable period ended at the close of business on the Closing Date and treating such pre-closing taxable period as a Pre-Closing Period for purposes of this Agreement, except that exemptions, allowances and deductions calculated on an annual basis shall be apportioned on a per diem basis.

          (c) From and after the Closing Date, each of Buyer and Seller shall cooperate fully with each other in connection with the preparation of any Tax Return, any Tax audit, or any judicial or administrative proceedings relating to any Tax regarding the Subsidiaries, and each will retain and provide the other with any records or information that may be reasonably relevant to such Tax Return,

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Tax audit, proceeding or determination. The Party requesting assistance hereunder shall reimburse the other for reasonable direct expenses incurred in providing such assistance. No Party shall settle a Tax audit assessment or determination related to a period ending on or before the Closing Date without the prior written consent of the other Party which shall not be unreasonably withheld or delayed.

     7.2 Cooperation and Records Retention. From time to time, the Seller and Buyer shall provide, and shall cause their respective accountants and other representatives to provide, to each other on a timely basis, the information that they or their accountants or other representatives have within their control and that may be reasonably necessary in connection with the preparation of any Return or the examination by any taxing authority or other administrative or judicial proceeding relating to any Return. The Seller and Buyer shall retain or cause to be retained, until the applicable statutes of limitations (including any extensions and carryovers) have expired, copies of all Returns for all tax periods beginning before the Closing Date, together with supporting work schedules and other records or information that may be relevant to such Returns.

ARTICLE 8

BUYER’S CONDITIONS TO CLOSING

     The obligations of Buyer to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment to Buyer’s reasonable satisfaction of each of the following conditions:

     8.1 Continued Truth of Warranties. The representations and warranties of the Seller herein contained shall be true and correct in all material respects as of the Closing Date.

     8.2 Performance of Covenants. The Seller shall have performed in all material respects all covenants and obligations and complied with all conditions required by this Agreement to be performed or complied with by it on or prior to the Closing Date.

     8.3 No Event Causing a Material Adverse Effect. There shall have been no event, occurrence or circumstance from the date of this Agreement through the Closing Date that could reasonably be expected to have a Material Adverse Effect.

     8.4 Permits and Consents. The Seller shall have secured the orders, consents, approvals and clearances set forth in Schedules 3.1(f), 3.1(g), 3.4(b), 3.5 and 8.4.

     8.5 No Litigation. There shall not be any litigation or proceeding pending or threatened (including, without limitation, any litigation or proceeding arising under the antitrust, competition, trade or securities laws) to restrain or invalidate the transactions contemplated by this Agreement.

     8.6 HSR Act. The waiting period imposed by the HSR Act (including extensions thereof, if any) shall have expired or been terminated without any enforcement action being threatened by either of the Antitrust Authorities.

     8.7 Authorization. All corporate action necessary to authorize the execution, delivery and performance by the Seller of this Agreement, and the consummation of the transactions contemplated hereby, shall have been duly and validly taken by the Seller and the Seller shall have furnished Buyer with copies of all applicable resolutions adopted by the Board of Directors of the Seller certified by the Secretary or Assistant Secretary of the Seller.

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     8.8 Release of Guarantees. The Subsidiaries shall have been released from all Debt Instruments including, without limitation, all guarantee obligations of indebtedness of the Seller and its affiliates in connection with (i) that certain Amended and Restated Credit Agreement dated as of February 3, 2006 by and among Federal Signal Corporation, the Guarantors Party thereto, the Banks Party thereto, Harris N.A., as Agent and Lead Arranger, and National City Bank of the Midwest, as Documentation Agent, (ii) those certain Senior Notes issued pursuant to that certain Note Purchase Agreement dated as of June 1, 1999 ($300,000,000 Senior Notes Issuable in Series; $50,000,000 Principal Amount due June 11, 2011), and (iii) those certain Senor Notes issued pursuant to that certain Master Note Purchase Agreement dated as of June 1, 2003 ($300,000,000 Senior Notes Issuable in Series; Initial Issuance of $50,000,000 Series 2003-A) and the Seller shall have furnished Buyer with evidence of such release.

     8.9 Closing Documents. The Seller shall have delivered all documents required to be delivered by it at Closing, as more specifically set forth in this Agreement, in each case in form and substance reasonably satisfactory to Buyer.

     8.10 Key Employee Agreements. The Hired Employees listed on Schedule 10.1(b) annexed hereto shall have executed employment agreements with Buyer in a form satisfactory to Buyer.

ARTICLE 9

THE SELLER’S CONDITIONS TO CLOSING

     The obligation of Seller to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment to its reasonable satisfaction of the following conditions:

     9.1 Continued Truth of Warranties. The representations and warranties of Buyer herein contained shall be true and correct in all material respects on and as of the Closing Date.

     9.2 Performance of Covenants. Buyer shall have performed in all material respects all covenants and obligations and complied with all conditions required by this Agreement to be performed or complied with by it on or prior to the Closing Date.

     9.3 Permits and Consents. Buyer shall have secured the orders, consents, approvals and clearances set forth in Schedule 9.3.

     9.4 No Litigation. There shall not be any litigation or proceeding pending or threatened (including, without limitation, any litigation or proceeding arising under the antitrust, competition, trade or securities laws) to restrain or invalidate the transactions contemplated by this Agreement.

     9.5 HSR Act. The waiting period imposed by the HSR Act (including extensions thereof, if any) shall have expired or been terminated without any enforcement action being threatened by either of the Antitrust Authorities.

     9.6 Closing Documents. Buyer shall have delivered all documents required to be delivered by it at Closing, as more specifically set forth in this Agreement, in each case in form and substance satisfactory to the Seller.

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ARTICLE 10

DOCUMENTS TO BE DELIVERED AT CLOSING

     10.1 Documents to be Delivered by the Seller. At the Closing, the Seller shall:

          (a) Deliver to Buyer a certificate of incumbency and copies of the resolutions adopted by the Board of Directors of the Seller, authorizing the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, duly certified as of the Closing Date by the Secretary or an Assistant Secretary of the Seller;

          (b) Deliver to Buyer a certificate of the Seller, dated as of the Closing Date, to the effect that the representations and warranties of the Seller as contained in Article 3 of this Agreement are true and correct as of such Closing Date, and that the covenants of the Seller as contained in Articles 5 and 7 of this Agreement required to be performed or complied with on or prior to the Closing Date have been so performed or complied with, including, but not limited to:

               (i) all of the Subsidiaries Debt Instruments shall have been terminated or cancelled, the outstanding indebtedness (other than trade debt) of the Subsidiaries shall have been repaid in full and the liens on the assets of the Subsidiaries shall have been released or terminated, in each case in a form and substance reasonably satisfactory to Buyer; and

               (ii) each related party transaction or arrangement shall have been terminated or amended to Buyer’s reasonable satisfaction.

          (c) Deliver to Buyer certificates of good standing or their equivalent, dated not more than thirty (30) days prior to the Closing Date, attesting to the good standing of the Seller and each Subsidiary as a corporation under the laws of the state of its incorporation and each other jurisdiction listed on Schedule 3.1(b);

          (d) Deliver to Buyer copies of all consents or approvals set forth on Schedule 8.4;

          (e) Deliver to Buyer (i) the current Articles of Incorporation of each Subsidiary, certified by the Secretary of State of the Subsidiary’s state of incorporation, and (ii) the current By-laws (or equivalent) of each Subsidiary, certified as of the Closing Date by the Secretary or an Assistant Secretary of the Subsidiary;

          (f) Deliver to Buyer the original corporate minute books, stock transfer books and corporate seal of each Subsidiary;

          (g) Deliver to Buyer certificate(s) representing the Shares of Manchester Tool, Clapp Dico and OTM with, in the case of Manchester Tool only, duly executed and valid stock powers attached in form for transfer to Buyer and otherwise acceptable in form and substance to Buyer;

          (h) Execute and deliver to Buyer any and all instruments of sale, assignment and transfer and other documents reasonably requested by Buyer in order to facilitate the transactions contemplated hereby, such instruments to include, but not be limited to stock powers for the Shares;

          (i) Deliver to Buyer copies of the releases from all Debt Instruments;

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          (j) Deliver to Buyer a Non-Competition/Non-Solicitation Agreement substantially in the form of Exhibit A attached hereto; and

          (k) Deliver to Buyer an Administrative Services Agreement substantially in the form of Exhibit B attached hereto.

     10.2 Documents to be Delivered by Buyer. At the Closing, Buyer shall:

          (a) Deliver to the Seller a certificate of incumbency and a copy of the resolutions adopted by the Board of Directors of Buyer, authorizing the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, duly certified as of the Closing Date by the Secretary or an Assistant Secretary of Buyer;

          (b) Deliver to the Seller a certificate of Buyer, dated as of the Closing Date, to the effect that the representations and warranties of Buyer as contained in Article 3 of this Agreement are true and correct as of such Closing Date, and that the covenants of Buyer as contained in Articles 6 and 7 of this Agreement required to be performed or complied with on or prior to the Closing Date have been so performed or complied with;

          (c) Deliver to the Seller a certificate of good standing or its equivalent dated not more than thirty (30) days prior to the Closing Date, attesting to the good standing of Buyer as a corporation under the laws of the Commonwealth of Pennsylvania.

          (d) Deliver to the Seller copies of all consents or approvals set forth on Schedule 9.3;

          (e) Deliver to the Seller the Purchase Price as set forth in Sections 1.2 and 1.3 of this Agreement; and

          (f) Execute and deliver to the Seller any and all instruments of sale, assignment and transfer and other documents reasonably requested by the Seller in order to effect the assumption of the Assumed Liabilities by Buyer or otherwise to facilitate the transactions contemplated hereby, such instruments to include, but not be limited to assumption agreements with respect to the liabilities of the Seller falling within the definition of Assumed Liabilities in Section 2.1 of this Agreement.

ARTICLE 11

TERMINATION

     11.1 Termination by Mutual Consent. This Agreement may be terminated and the transactions contemplated herein may be abandoned at any time prior to the Closing, by the mutual consent of Seller, on the one hand, and Buyer, on the other, by appropriate action of their respective Boards of Directors.

     11.2 Termination by Either Buyer or Seller. This Agreement may be terminated and the transactions contemplated herein may be abandoned at any time prior to the Closing by action of the Board of Directors of either Buyer or Seller if (a) the transactions contemplated in this Agreement shall not have been consummated by March 31, 2007, or (b) any court of competent jurisdiction or other governmental entity having jurisdiction over Seller, Buyer, or the Business has issued a final order, decree or ruling or taken any other final action restraining, enjoining, or otherwise prohibiting or

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materially restricting the consummation of the transactions contemplated in this Agreement and such order, decree, ruling or other action shall have become final and nonappealable.

     11.3 Termination by Buyer. This Agreement may be terminated and the transactions contemplated herein may be abandoned at any time prior to the Closing by action of the Buyer, if Seller shall have breached any of its representations or warranties or failed to perform in any material respect any of its covenants or agreements contained in this Agreement which breach or failure (i) individually or in the aggregate, (A) could be reasonably be expected to have a Material Adverse Effect, or (B) could prevent or materially delay the consummation of the transactions contemplated in this Agreement, or (C) could materially impair the ability of Buyer following consummation of the transactions contemplated in this Agreement to conduct the Business in any jurisdiction where the Business is now being conducted and (ii) shall not have been cured within fifteen (15) business days after the receipt of written notice to Seller from Buyer of such breach or failure.

     11.4 Termination by Seller. This Agreement may be terminated and the transactions contemplated herein may be abandoned at any time prior to the Closing by Seller, if Buyer shall have breached any of its representations or warranties or failed to perform in any material respect any of its covenants or agreements contained in this Agreement which breach or failure shall not have been cured within fifteen (15) business days after the receipt of written notice by Seller to Buyer of such breach or failure.

     11.5 Effect of Termination and Abandonment. In the event of the termination of this Agreement pursuant to any of the provisions of this Article 11, neither Seller nor Buyer (nor any of their respective directors and officers) shall have any liability or further obligation to the other party to this Agreement, except that nothing herein will relieve any party from liability for breach of any representation or warranty or any failure to perform any covenant and agreement. The terminating party’s rights to pursue all legal remedies due to such breach or failure to perform shall survive the termination of this Agreement unimpaired.

ARTICLE 12

SURVIVAL; INDEMNIFICATION

     12.1 Survival.

          (a) All representations and warranties in this Agreement or in any certificate delivered pursuant hereto shall survive the Closing Date for a period of two (2) years thereafter, except that the representations and warranties set forth in (i) Sections 3.1 (a) (corporate existence, status and capitalization), 3.1 (d) (subsidiaries), 3.1(e) (authority), 3.7 (employee plans), 3.13 (related party transactions) and 3.12 (broker fees) shall indefinitely survive the Closing Date; (ii) Section 3.10(c) (environmental) shall survive the Closing Date for a period of five (5) years thereafter and (iii) Section 3.3 (taxes) shall survive the Closing Date until the expiration of the applicable statute of limitations.

          (b) Seller shall not be liable for any Buyer’s Loss (as defined below), as applicable, resulting from any inaccuracy in any representation or warranty of such Party contained in this Agreement or in any certificate delivered pursuant hereto unless written notice of entitlement to make a claim (whether or not any monetary losses have actually been suffered) with respect to such losses is given by Buyer on or prior to the expiration of the survival of the particular representation or warranty at issue, as set forth in Section 12.1 (a) above.

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     12.2 Indemnification by the Seller.

          (a) The Seller will indemnify, hold harmless, defend and bear all reasonable costs of defending Buyer and following the Closing, the Subsidiaries, together with their respective successors and assigns (the “Buyer Indemnities”), from, against and with respect to any and all damage, loss, deficiency, expense (including any reasonable attorney and accountant fees, legal costs or expenses), action, suit, proceedings, demand, assessment or judgment to or against Buyer or the Subsidiaries, including any punitive, exemplary or consequential damages but only to the extent such punitive, exemplary or consequential damages are contained as part of an award to a third party (collectively, “Buyer’s Loss”), as a result of, arising out of or in connection with:

               (i) any breach or violation by Seller of any of the representations or warranties contained in this Agreement or in any certificate required to be furnished pursuant to this Agreement; provided, however, that the ability of the Buyer Indemnities to recover hereunder in respect of such a breach or violation of such representations and warranties shall not be deemed qualified by any standard of materiality;

               (ii) any breach, violation, or nonperformance by Seller of any of its covenants or agreements contained in this Agreement;

               (iii) fees and expenses of any accountant, agent, attorney, broker, investment banker or other advisor engaged by Seller in connection with the execution of this Agreement or consummation of the transactions contemplated hereby;

               (iv) any liability or obligation of any nature whatsoever arising out of or resulting from the Environmental Condition described in the Phase II environmental assessment for the Manchester Tool location; and

               (v) all Taxes for which the Seller is liable under Section 7.1 for all Pre-Closing Periods.

          (b) Notwithstanding the above Section 12.2(a), the Seller shall not have any obligation to indemnify the Buyer Indemnities with respect to clause (i) of Section 12.2(a) above: (A) for any individual items where the Buyer’s Loss is less than $10,000.00, which items shall not be subject to aggregation (except that items that present substantially the same legal and factual issues as other pending items shall be subject to aggregation); (B) until Buyer Indemnities have suffered Buyer’s Loss by reason of all such breaches in excess of $300,000.00 (“Seller’s Floor”) (upon such Buyer’s Loss exceeding the Seller’s Floor, Seller shall indemnify the Buyer for the full amount of all such Buyer’s Loss); and (C) to the extent the Buyer’s Loss by reason of all such breaches exceeds an amount equal to ten percent (10%) of the Purchase Price set forth in Section 1.2 as adjusted by Section 1.4 (“Seller’s Cap”) (after which point the Seller will have no obligation to indemnify Buyer Indemnities from and against further Buyer’s Loss). Provided, however, that any claim or portion thereof by Buyer Indemnities based upon (1) any representation or warranty (or portion thereof) relating to Section 3.3 (taxes) and Section 12.2 (a)(v) and Sections 3.10(c) (environmental) and 12.2(a)(iv), (2) any cases of fraud or deceit committed by Seller and (3) the representations and warranties in Sections 3.1(a), 3.1(d), 3.1(e), 3.7, 3.12 and 3.13, shall not be subject to any of the limitations contained in the preceding sentence of this subsection (b).

     12.3 Indemnification by Buyer.

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          (a) Buyer will indemnify, hold harmless, defend and bear all costs of defending the Seller, together with its respective successors and assigns, from, against and with respect to any and all damage or loss, deficiency, expense (including any reasonable attorney and accountant fees, legal costs or expenses), action, suit, proceeding, demand, assessment or judgment to or against the Seller, including any punitive, exemplary or consequential damages but only to the extent such punitive, exemplary or consequential damages are contained as part of an award to a third party (collectively, the “Seller’s Loss”), arising out of or in connection with:

               (i) any liability or obligation of any nature whatsoever (whether accrued, absolute, continent, unasserted or otherwise) arising out of or resulting from the assets, business, activities and operations of the Subsidiaries after the Closing, except to the extent the Seller is required to provide indemnification for such liabilities and obligations pursuant to Section 12.2 or other than those arising out of or in connection with any breach, violation or nonperformance covered by Section 12.2;

               (ii) any breach or violation by Buyer of any of its representations or warranties contained in this Agreement or in any certificate required to be furnished pursuant to this Agreement; and

               (iii) any nonperformance by Buyer of any of its respective covenants or agreements contained in this Agreement.

          (b) Notwithstanding the above Section 12.3(a), Buyer shall not have any obligation to indemnify the Seller with respect to clause (ii) above: (A) for any individual items where the Seller’s Loss is less than $10,000.00, which items shall not be subject to aggregation (except that items that present substantially the same legal and factual issues as other pending items shall be subject to aggregation); (B) until the Seller has suffered Seller’s Loss by reason of all such breaches in excess of $300,000.00 (“Buyer’s Floor”) (upon such Seller’s Loss exceeding the Buyer’s Floor, Buyer shall indemnify the Seller for the full amount of such Seller’s Loss); (C) to the extent the Seller’s Loss by reason of all such breaches exceeds an amount equal to ten percent (10%) of the Purchase Price set forth in Section 1.2 as adjusted by Section 1.4 (“Buyer’s Cap”) (after which point Buyer will have no obligation to indemnify the Seller from, against and with respect to further Seller’s Loss). Provided, however, that any claim or portion thereof based upon any cases of fraud or deceit committed by Seller shall not be subject to any of the limitations contained in the preceding sentence of this subsection (b).

     12.4 Notice of Claims.

          (a) Third Party Claims.

               (i) If any third party shall notify either Party (the “Indemnified Party”) with respect to any matter (a “Third Party Claim”) which may give rise to a claim for indemnification against the other Party (the “Indemnifying Party”) under this Article 12, then the Indemnified Party shall promptly (and in any event within ten (10) business days after receiving notice of the Third Party Claim) notify the Indemnifying Party thereof in writing; provided, however, that failure to give such notification shall not affect the indemnification provided hereunder except to the extent the Indemnifying Party shall have been actually and materially prejudiced as a result of such failure.

               (ii) The Indemnifying Party will have the right at any time to assume and thereafter conduct the defense of the Third Party Claim with counsel of his or its choice reasonably satisfactory to the Indemnified Party; provided, however, that the Indemnifying Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnified Party (not to be withheld or delayed unreasonably) unless the judgment or proposed settlement releases the Indemnified Party completely in connection with such

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Third Party Claim and that would not otherwise adversely affect the Indemnified Party. Notwithstanding the foregoing, the Indemnifying Party shall not be entitled to assume the defense of any Third Party Claim (and shall be liable for the reasonable fees and expenses of counsel incurred by the Indemnified Party in defending such Third Party Claim) if the Third Party Claim seeks an order, injunction or other equitable relief or relief for other than money damages against the Indemnified Party that the Indemnified Party reasonably determines, after conferring with its outside counsel, cannot be separated from any related claim for money damages. If such equitable relief or other relief portion of the Third Party Claim can be so separated from that for money damages, the Indemnifying Party shall be entitled to assume the defense of the portion relating to money damages.

               (iii) Unless and until the Indemnifying Party assumes the defense of the Third Party Claim as provided above, however, the Indemnified Party may defend against the Third Party Claim in any manner it reasonably may deem appropriate. Notwithstanding the above, the Indemnified Party will not consent to the entry of any judgment or enter into any settlement with respect to the Third Party Claim without the prior written consent of the Indemnifying Party (not to be withheld or delayed unreasonably).

               (iv) The Party defending a Third Party Claim shall conduct the defense actively and diligently, and all Parties shall cooperate in the defense of such claim. Such cooperation shall include the provision and access to the defending Party of documents, information, books and records reasonably requested by the defending Party and material to such claim, and making available employees as may be reasonably requested by the Party defending such claim and as shall be reasonably required in connection with the defense of such claim and litigation resulting therefrom.

          (b) Other Claims. In the event any Indemnified Party should have a claim against any Indemnifying Party that does not involve a Third Party Claim being asserted against or sought to be collected from such Indemnified Party, the Indemnified Party shall deliver notice of such claim with reasonable promptness and detailing the basis for such claim or claims to the Indemnifying Party. As long as the notice is provided within the relevant survival period, if any, set forth in Section 12.l(a) above, the failure by any Indemnified Party so to notify the Indemnifying Party shall not relieve the Indemnifying Party from any liability that it may have to such Indemnified Party, except to the extent that the Indemnifying Party shall have been actually and materially prejudiced as a result of such failure. The Indemnifying Party shall notify the Indemnified Party within ten (10) business days following its receipt of such notice if the Indemnifying Party disputes its liability to the Indemnified Party, provided that the failure by any Indemnifying Party so to timely notify the Indemnified Party shall not affect any defense the Indemnifying Party may have to such Indemnified Party, except to the extent that the Indemnified Party shall have been actually and materially prejudiced as a result of such failure.

     12.5 Exclusive Remedy. The Buyer, the Seller and, following the Closing, the Subsidiaries, acknowledge and agree that the foregoing indemnification provisions in this Article 12 shall be the exclusive remedy of the Buyer, Seller and Subsidiaries with respect to the transactions contemplated by this Agreement. Without limiting the generality of the foregoing, the Buyer, Seller and the Subsidiaries hereby waive any statutory, equitable or common law rights or remedies, other than under the foregoing indemnification provisions of this Article 12, relating to any environmental matters arising under any Environmental Law.

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ARTICLE 13

MISCELLANEOUS

     13.1 Notices, Any notices or other communications required or permitted hereunder (including, by way of illustration and not limitation, any notice permitted or required under Article 12 hereof) to any party hereto shall be sufficiently given when delivered in person, or when sent by certified or registered mail, postage prepaid, or one business day after dispatch of such notice with an overnight delivery service, or when transmitted by facsimile or other form of electronic communication if an answer back is received by the sender, in each case addressed as follows:

     In the case of Buyer, care of:

Kennametal Inc.
1600 Technology Way
Latrobe, PA 15650
Attn: Vice President and General Counsel
Fax No.: (724)539-3839

     With a copy to:

Lewis U. Davis, Jr., Esq.
Buchanan Ingersoll & Rooney PC
One Oxford Centre, 20^th Floor
301 Grant Street
Pittsburgh, PA 15219
Fax No.: (412)562-1041

     In the case of the Seller:

Federal Signal Corporation
1415 West 22^nd Street
Oak Brook, IL 60523
Attention: John A. Gruber
Fax No.: (630)954-2041

     With a copy to:

Federal Signal Corporation
1415 West 22^nd Street
Oak Brook, Illinois 60523
Attention: Jennifer Sherman, General Counsel
Fax No.: (630)954-2138

     and

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Thompson Coburn LLP
One US Bank Plaza
Suite 3400
St. Louis, Missouri 63101
Attention: Robert M. LaRose
Fax No.: (314)552-7078

or such substituted address or attention as any party shall have given notice to the others in writing in the manner set forth in this Section 13.1.

     13.2 Amendment. This Agreement may be amended or modified in whole or in part only by an agreement in writing executed by all parties hereto and making specific reference to this Agreement.

     13.3 Counterparts. This Agreement may be executed in any number of counterparts and by facsimile or other electronic transmission, each of which shall be deemed an original, but all of which shall constitute one instrument, and shall become effective when such separate counterparts have been exchanged between the parties hereto.

     13.4 Binding on Successors and Assigns. This Agreement shall be binding upon, inure to the benefit of and be enforceable by and against the parties hereto and their respective successors and assigns in accordance with the terms hereof. Neither party may assign their interest under this Agreement without the prior written consent of the other party.

     13.5 Severability. In the event that any one or more of the provisions contained in this Agreement or any application thereof shall be invalid, illegal or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions of this Agreement and any other application thereof shall not in any way be affected or impaired thereby; provided, however, that to the extent permitted by applicable law, any invalid, illegal, or unenforceable provision may be considered for the purpose of determining the intent of the parties in connection with the other provisions of this Agreement.

     13.6 Waivers. The parties may, by written agreement, (a) extend the time for the performance of any of the obligations or other acts of the parties hereto, (b) waive any inaccuracies in the representations contained in this Agreement or in any document delivered pursuant to this Agreement, (c) waive compliance with, or modify, any of the covenants or conditions contained in this Agreement, and (d) waive or modify performance of any of the obligations of any of the parties hereto; provided, that no such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall operate as a waiver of, or an estoppel with respect to, any subsequent insistence upon such strict compliance other than with respect to the matter so waived or modified.

     13.7 Publicity. Any public announcement, press release or similar publicity with respect to this Agreement or the transactions contemplated herein will be issued, if at all, at such time and in such manner as Buyer and Seller shall mutually agree and determine.

     13.8 Headings. The headings in the sections and subsections of this Agreement and in the Schedules are inserted for convenience only and in no way alter, amend, modify, limit or restrict the contractual obligations of the parties.

     13.9 List of Schedules and Exhibits. As mentioned in this Agreement, there are attached hereto or delivered herewith, the following Schedules and Exhibits:

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SCHEDULES

Schedule No.	Schedule Caption
1.4(a)	Exceptions to GAAP
2.1	Assumed Liabilities
3.1(a)(ii)	Capital Stock/Outstanding Shares
3.1(b)	Foreign Qualifications
3.1(d)	Ownership Interests
3.1(e)(i)	Consents and Approvals
3.1(f)	Seller’s Conflicts
3-l(g)	Governmental Consents
3.2(a)	Financial Statements
3.2(b)	Ordinary Course Exceptions
3.2(c)	Undisclosed Liabilities
3.3	Tax Matters
3.4(a)	Real and Personal Property
3.4(b)	Leases
3.4(c)	Condition of Assets
3.5	Intellectual Property Licenses
3.6(a)	Indebtedness
3.6(b)	Other Contracts
3.6(c)	Insurance
3.6(d)	Status
3.7	Employee Plans
3.7(e)	Employee Plan Compliance
3.8	Labor Relations
3.9	Litigation
3.10(a)	Compliance with Laws
3.10(b)	Permits
3.10(c)	Environmental Matters
3.11	Bank Accounts
3.12	Brokers and Commissions
3.13	Related Party Transactions
3.17	Customers
4.1(c)	Buyer’s Conflicts
4.1(d)	Governmental Consents
4.2	Brokers and Commissions
5.6	Retained Related Party Transactions
8.4	Seller Closing Consents
9.3	Buyer Closing Consents
10.1(b)	Key Employee Agreements

EXHIBITS

Exhibit No.	Caption
A	Non-Competition/Non-Solicitation Agreement
B	Administrative Services Agreement

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Each of the foregoing Schedules and Exhibits is incorporated herein by this reference and expressly made a part hereof.

     13.10 Entire Agreement; Law Governing. All prior negotiations and agreements between the parties hereto are superseded by this Agreement (except with respect to the Confidentiality Agreement described in Section 13.15 of this Agreement), and there are no representations, warranties, understandings or agreements other than those expressly set forth herein or in an Exhibit or Schedule delivered pursuant hereto, except as modified in writing concurrently herewith or subsequent hereto. This Agreement shall be governed by and construed and interpreted according to the internal laws of the State of Illinois, determined without reference to conflicts of law principles. Each party hereto agrees to personal jurisdiction in any action brought in any court, Federal or State, within the State of Illinois having subject matter jurisdiction over the matters arising under to this Agreement. Any suit, action or proceeding arising out of or relating to this Agreement shall only be instituted in the State of Illinois. Each party waives any objection which it may have now or hereafter to the laying of the venue of such action or proceeding and irrevocably submits to the jurisdiction of any such court in any such suit, action or proceeding.

     13.11 No Third-Party Rights. This Agreement is not intended and shall not be construed to create any rights in any persons other than Buyer and the Seller, and no person shall assert any rights as third-party beneficiary hereunder.

     13.12 Sales and Transfer Taxes. Each Party shall be responsible for and pay all applicable sales, transfer, documentary, use, filing and other taxes and fees that may become due or payable as a result of the sale, conveyance, assignment, transfer or delivery of the Shares or the Business, as levied on Buyer and Seller.

     13.13 Expenses. Except as expressly provided otherwise herein, the Seller, on the one hand, and Buyer, on the other, shall pay all costs and expenses incurred by it or on its behalf in connection with this Agreement and the transactions contemplated hereby, including, without limiting the generality of the foregoing, fees and expenses of its own financial consultants, accountants and counsel.

     13.14 Specific Performance. The parties hereto agree that irreparable damage would occur in the event any provision of this Agreement required to be performed prior to the Closing was not performed in accordance with the terms hereof and that, prior to the Closing, the parties shall be entitled to specific performance of the terms hereof, in addition to any other remedy at law or in equity.

     13.15 Confidentiality. The terms of the Confidentiality Agreement dated September 18, 2006 between Seller and Buyer are hereby incorporated herein by reference and shall continue in full force and effect until the Closing, at which time such Confidentiality Agreement and the obligations of the parties under this Section 13.15 shall terminate. If this Agreement is, for any reason, terminated prior to the Closing, the Confidentiality Agreement shall continue in full force and effect.

     13.16 Survivability of Provisions After Termination. If this Agreement is terminated pursuant to Article 11 hereof, it shall become null and void and have no further force and effect, except as provided in Sections 11.5, 13.10, 13.13, 13.15 and this 13.16 which shall survive termination and except that nothing herein shall relieve any party hereto for a breach by such party of the terms of this Agreement. Upon any termination of this Agreement, each party hereto will return all documents work papers and all other material of the other party relating to the transactions contemplated hereby and all

35

covers at such materials, where so obtained before or after the execution hereof, to the party furnishing the same.

[the remainder of the page is intentionally left blank]

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     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives on the day and year first above written.

BUYER: KENNAMETAL INC.
By:
	Name:	JAMES E. MORRISON
	Title:	VICE PRESIDENT
SELLER: FEDERAL SIGNAL CORPORATION
By:
	Name:	John A. Gruber
	Title:	Vice President — Corporate Development

37

Exhibit A

Form of

NON-COMPETITION/NON-SOLICITATION AGREEMENT

          This Non-Competition/Non-Solicitation Agreement (this “Agreement”) is made and entered into this ____ day of January, 2007, by and between Kennametal Inc., a Pennsylvania corporation having its principal place of business at 1600 Technology Way, Latrobe, Pennsylvania 15650 (“Kennametal”), and Federal Signal Corporation, a Delaware corporation having its principal place of business at 1415 West 22^nd Street, Oak Brook, IL 60523 (“FSC”).

          WHEREAS, pursuant to the terms of that certain Stock Purchase Agreement (the “Stock Purchase Agreement”) dated December 29, 2006, by and between Kennametal and FSC, Kennametal is, as of the date hereof, acquiring all of the issued and outstanding capital stock of Manchester Tool Company, a Delaware corporation (“Manchester Tool”);

          WHEREAS, Manchester Tool is the owner of all of the issued and outstanding shares of capital stock of both Clapp Dico Corporation, an Ohio corporation (“Clapp Dico”) and On Time Machining Company, an Ohio corporation (“OTM”) (Manchester Tool, Clapp Dico and OTM collectively, the “Subsidiaries”);

          WHEREAS, the Subsidiaries are engaged in the business of manufacturing and reselling high precision and consumable tools for metalcutting industries, excluding all tooling for metal stamping, pressing, rolling, heading, drawing, die casting and other metalforming processes (the “Business”); and

          WHEREAS, as a material inducement and condition to Kennametal’s obligations under the Stock Purchase Agreement, FSC agreed to enter into this Agreement with Kennametal.

          NOW, THEREFORE, in consideration of the promises contained herein and for good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto, intending to be legally bound hereby, covenant and agree as follows:

     1. Definitions. For purposes of this Agreement:

     “Closing” means the closing pursuant to the Stock Purchase Agreement.

     “Covered Period” means the three (3) year period immediately following the Closing.

     “FSC” means, except where the context otherwise requires, FSC and each of its Subsidiaries and Affiliates.

     “Parties” means Kennametal and FSC and “Party” shall mean Kennametal on the one hand and FSC on the other hand, as the context requires.

     Capitalized terms not otherwise defined herein shall have the meanings set forth in the Stock Purchase Agreement.

     2. Agreement Not to Solicit. As an inducement for Kennametal to enter into the Stock Purchase Agreement and as additional consideration for the consideration inuring to FSC under

the Stock Purchase Agreement, FSC agrees throughout the Covered Period, not to, directly or indirectly, (i) solicit, induce or attempt to induce any employee of the Subsidiaries to leave the employ of said Subsidiaries or Kennametal, as the case may be; (ii) in any way interfere with the relationship between the Subsidiaries or Kennametal, as the case may be and any employee of Subsidiaries or Kennametal, as the case may be; or (iii) employ or otherwise engage as an employee, consultant, independent contractor or otherwise any such employee. Notwithstanding the foregoing, FSC shall not be prohibited from (A) hiring former employees of the Subsidiaries who have left the employ of the Subsidiaries without inducement by FSC; (B) employing any employee who contacts FSC on his or her own initiative and without any direct or indirect solicitation by FSC; or (C) conducting generalized solicitations for employees (which solicitations are not specifically targeted at Kennametal or the Subsidiary’s employees) through the use of media advertisements, professional search firms or otherwise .

     3. Agreement Not to Compete, As a further inducement for Kennametal to enter into the Stock Purchase Agreement, throughout the Covered Period, FSC agrees that it will not: i) directly or indirectly, engage or invest in, own, manage, operate, finance, control or participate in the ownership, management, operation, financing or control of, or guarantee any obligation of, any Person engaged in or, to FSC’s actual knowledge, planning to become engaged in, the Business anywhere in the world; provided, however, that FSC may purchase or otherwise acquire up to (but not more than) two percent of any class of securities of any enterprise (but without otherwise participating in the activities of such enterprise) if such securities are listed on any national or regional securities exchange or have been registered under Section 12(g) of the Securities Exchange Act of 1934; and (ii) directly or indirectly, solicit the business of any Person known to FSC to be a customer of the Subsidiaries, whether or not FSC had contact with such Person, with respect to products or activities which compete in whole or in part with the Business.

     FSC acknowledges and agrees that the covenant in (a) above is reasonable with respect to its duration, geographical area and scope.

     4. Limitation on Applicability. This Agreement will in no way prevent or place constraints upon a possible future sale of FSC’s Die and Mold Tool business, including but not limited to a sale to any company or person in competition with the Business.

     5. Extension. In the event of a breach by FSC of either covenant (non- solicitation/non-compete) set forth in Section 2 and 3, above, the term of such covenant will be extended by the period of the duration of such breach.

     6. Equitable Relief. FSC stipulates and agrees that the rights of Kennametal under this Agreement are of a specialized and unique character and that immediate and irreparable damage will result to Kennametal if FSC fails to or refuses to perform its obligations under this Agreement and, notwithstanding any election by Kennametal to claim damages from FSC as a result of any such failure or refusal. Kennametal may, in addition to any other remedies and damages available, seek an injunction in a court of competent jurisdiction to restrain any such failure or refusal. In the event Kennametal obtains any such injunction, order, decree or other relief, in law or in equity, FSC shall be responsible for all costs associated with obtaining the relief, including reasonable attorney’s fees and expenses and costs of suit.

     7. Severability. The covenants, provisions and paragraphs of this Agreement are severable. If any provisions of this Agreement as applied to either Party or to any circumstances shall be adjudged by a court to be invalid or unenforceable, the same shall in no way affect any other provision of this Agreement, the application of such provision in any other circumstances, or the validity or enforceability of this Agreement. The Parties intend this Agreement to be enforced as written. If any provision or any part thereof is held to be invalid or unenforceable because of the duration thereof, the Parties agree that the court making such determination shall have the power to reduce the duration and/or to delete specific words or phrases, and in its modified form such provision shall then be enforceable. The Parties expressly agree that this Agreement shall be given the construction that renders its provisions valid and enforceable to the maximum extent permitted by law.

     8. Consent to Jurisdiction and Venue. Any action or proceeding seeking to enforce any provision of, or based upon any right arising out of, this Agreement may be brought against either of the Parties hereto in any court, Federal or State, within the State of Illinois, having subject matter jurisdiction over the matters arising under this Agreement, and each of the Parties hereto consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding. Each of the Parties hereto hereby irrevocably waives any objection which it may now or hereafter have to the venue of any such action or proceeding brought in such court and any claim that such action or proceeding brought in such court has been brought in an inconvenient forum. Process in any action or proceeding referred to in this Section 7 may be served on either Party anywhere in the world.

     9. Notices. All notices or other communications required or permitted hereunder shall be in writing and shall be delivered by any of the following methods: (i) personally; (ii) by registered or certified mail (postage prepaid); (iii) by legible facsimile transmission; or (iv) by overnight courier (fare prepaid), in all cases addressed as follows:

If to Kennametal, to:

Kennametal Inc.
1600 Technology Way
Latrobe, PA 15650
Attention: Vice President, General Counsel
Facsimile: 724/539-3839

With a copy to:

Lewis U. Davis, Jr., Esq.
Buchanan Ingersoll & Rooney, PC
One Oxford Centre, 20^th Floor
301 Grant Street
Pittsburgh, PA 15219
Facsimile: 412/562-1041

If to FSC,to:

Federal Signal Corporation
1415 West 22^nd Street
Oak Brook, IL 60523
Attention: Jennifer Sherman, General Counsel
Facsimile: 630/954-2138

With a copy to:

Thompson Coburn LLP
One US Bank Plaza
Suite 3400
St. Louis, MO 63101
Attention: Robert M. LaRose
Facsimile: 314/552-7078

or to such address as such party may indicate by a notice delivered to the other parties hereto in the manner provided above. Notice shall be deemed received the same day (when delivered personally), five (5) days after mailing (when sent by registered or certified mail), or the next business day (when sent by facsimile transmission or when delivered by overnight courier).

     10. Descriptive Headings. The descriptive headings of the Sections hereof are for convenience of reference only and shall in no way affect or be used to construe or interpret this Agreement.

     11. Entire Agreement. This Agreement is an integrated document, contains the entire agreement between the parties regarding the subject matter hereof, wholly cancels, terminates and supersedes any and all previous and/or contemporaneous oral agreements, negotiations, commitments and writings between the parties hereto with respect to such subject matter. No change, modification, extension, termination, discharge, abandonment or waiver of this Agreement or any of the provisions hereof, nor any representation, promise or condition relating to this Agreement, shall be binding upon the parties hereto unless made in writing and signed by the Parties.

     12. Remedies Cumulative. It is agreed that the rights and remedies herein provided in case of any default or breach by either Party to this Agreement are cumulative and shall not affect in any manner any other remedies that the other Party may have by reason of such default or breach. The exercise of any right or remedy herein provided shall be without prejudice to the right to exercise any other right or remedy provided herein, by law or by equity.

     13. Waiver. No waiver of any right or remedy allowed hereunder shall be implied by the failure to enforce any such right or remedy. No express waiver shall affect any such right or remedy other than that to which the waiver is applicable and only for that occurrence.

     14. Binding Effect. This Agreement shall be binding upon and shall inure to the benefit of each of the Parties hereto and its successors and permitted assigns.

     15. Assignment. Neither Party shall have the right to assign this Agreement without the prior written consent of the other Party.

     16. Governing Law. This Agreement and the rights and the obligations of the Parties hereto shall be governed by and construed and enforced in accordance with the laws of the State of Illinois without regard to any jurisdiction’s conflicts of law provisions.

     17. Counterparts. This Agreement may be executed in two or more counterparts, each of which when taken together shall comprise one instrument. Delivery of executed signature pages hereof by facsimile transmission shall constitute effective and binding execution and delivery hereof.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

[NON-COMPETITION/NON-SOLICITATION AGREEMENT SIGNATURE PAGE]

          IN WITNESS WHEREOF, the parties have caused this Non-Competition/Non-Solicitation Agreement to be executed on the day and year first above written.

KENNAMETAL INC.
By:
	Name:
	Title:
FEDERAL SIGNAL CORPORATION
By:
	Name:
	Title:

Exhibit B

Form Of

ADMINISTRATIVE SERVICES AGREEMENT

     THIS ADMINISTRATIVE SERVICES AGREEMENT (the “Agreement”) is made and entered into as of the ____ day of January, 2007 (the “Effective Date”), by and between Federal Signal Corporation, a Delaware corporation (“FSC”), and Manchester Tool Company, a Delaware corporation (“Manchester Tool”), on its own behalf and on behalf of its wholly-owned subsidiaries, Clapp Dico Corporation, an Ohio corporation (“Clapp Dico”) and On Time Machining Company, an Ohio corporation (“OTM”) (Manchester Tool, Clapp Dico and OTM collectively, the “Cutting Tool Business”).

RECITALS

     WHEREAS, pursuant to the terms of that certain Stock Purchase Agreement (the “Stock Purchase Agreement”) dated December 29, 2006, by and between FSC and Kennametal Inc., a Pennsylvania corporation (“Buyer”), Buyer is, as of the date hereof, acquiring all of the issued and outstanding capital stock of Manchester Tool; and

     WHEREAS, the Cutting Tool Business will require the continuation of certain administrative services currently provided by FSC directly and/or through FSC’s vendors and service providers until Buyer can provide similar services to the Cutting Tool Business or establish stand-alone services for the Cutting Tool Business; and

     WHEREAS, it is a condition to Buyer’s obligations under the Stock Purchase Agreement that FSC enter into this Agreement for the provision of administrative services to the Cutting Tool Business during such transition period; and

     WHEREAS, FSC is willing to provide such services to the Cutting Tool Business on the terms set forth herein.

     NOW, THEREFORE, in consideration of the mutual promises and agreements set forth herein, and intending to be legally bound, the parties hereby agree as follows:

ARTICLE I

SERVICES

     1.1 Services. During the Term of this Agreement, FSC agrees to provide to the Cutting Tool Business the services (the “Services”), and any applicable upgrades, new versions, modifications and enhancements thereto implemented by FSC and/or made available by third parties and used by FSC set forth on Exhibit A (the “Exhibit”) for the compensation set forth in the Exhibit, provided that nothing in this sentence shall be deemed to obligate FSC to implement any upgrades, new versions, modifications or enhancements to the Services. The Exhibit shall be subject to the terms contained in such Exhibit. In the event that the Exhibit is terminated, this

Agreement shall remain in effect unless otherwise terminated as provided below. In the event of any conflict between the terms of this Agreement and the Exhibit attached hereto, the terms of this Agreement shall govern. For purposes of this Agreement, the Services provided by FSC shall include services provided by any of FSC’s subsidiaries or affiliates directly and/or through their respective vendors and service providers.

     1.2 Performance of Services.

     (a) FSC shall perform the Services with the same degree of care, skill and prudence customarily exercised for its own operations. In the event that FSC changes the degree of care, skill and prudence customarily exercised for its own operations, FSC, following 90 days prior written notice to the Cutting Tool Business of such proposed change, may modify the Services performed hereunder to comply with its revised internal performance standards for such Services and in such event the compensation payable to FSC shall be modified accordingly, but in any event shall not be increased by more than the amount of any incremental increase in costs of performing the Services incurred by FSC directly related to such modification.

     (b) Each party acknowledges that the Services will be provided only with respect to the Cutting Tool Business as such business existed immediately prior to the Effective Date of this Agreement (with such changes as may occur in the ordinary course of business of the Cutting Tool Business) or as otherwise mutually agreed in writing by the parties. The Cutting Tool Business agrees to use the Services in accordance with all applicable federal, state and local laws, regulations and tariffs and in accordance with all reasonable conditions, rules, regulations and specifications which are or may be set forth in any manuals, materials, documents or instructions of FSC. FSC agrees to make available to the Cutting Tool Business manuals, materials, documents, instructions, vendor source codes, if made available to FSC by the vendor, and application source codes in and to the applications/systems/software set forth in Exhibit A for each such applications/systems/software. FSC reserves the right to take any and all actions necessary to assure that the Services are provided in accordance with any applicable laws or regulations. Notwithstanding anything else contained in this Agreement, FSC shall consult with the Cutting Tool Business in advance of modifying the Services, will provide the Cutting Tool Business with information concerning the nature and extent of the modifications to the Services and the reasonable opportunity to make appropriate arrangements prior to any action to modify the Services pursuant to this Section 1.2.

     (c) The Cutting Tool Business shall provide any input or information needed by FSC to perform the Services pursuant to the provisions of this Agreement in a manner consistent with the practices employed by the parties immediately prior to the Effective Date of this Agreement. Should the failure to provide such input or information render the performance of the Services impossible or unreasonably difficult, FSC may, upon reasonable notice to the Cutting Tool Business, refuse to provide such Services.

     1.3 Compensation.

     (a) In consideration for FSC’s obligations under this Agreement, the Cutting Tool Business agrees to pay FSC the compensation set forth in the Exhibit hereto. The Cutting Tool Business’ obligation to make payments shall survive the expiration or earlier termination of this

2

Agreement until all amounts owed to FSC hereunder are paid. In addition, the Cutting Tool Business shall be solely responsible for its allocable share of all third-party out-of-pocket costs and expenses incurred by FSC as a result of providing the Services including, without limitation, travel costs, as well as all ongoing maintenance of its information systems required to provide the Services, to the extent such information systems are being retained solely to continue performance hereunder. FSC shall be responsible for and the Cutting Tool Business shall reasonably cooperate with FSC in obtaining any required third-party consents or approvals necessary for the Cutting Tool Business to utilize the Services and the Cutting Tool Business shall be responsible for the payment of any fees or other charges associated therewith (including, without limitation, additional license fees imposed by any software licensors or vendors).

     (b) Except as otherwise provided in the Exhibit, the Cutting Tool Business shall pay all fixed fees set forth in the Exhibit for Services to be rendered during a month by the fifteenth (15^th) day of such month. The Cutting Tool Business shall pay all variable fees for Services rendered during a month by the fifteenth (15^th) day of the next month. Payment of all expenses due to FSC hereunder shall be made by the fifteenth (15^th) day of the month following the month in which such expenses are incurred. The Cutting Tool Business shall pay all fees or expenses due hereunder either by check, wire transfer, or such other method(s) to which the parties mutually agree in writing. Any amount that is not paid within thirty (30) days of the date due, other than amounts disputed in good faith, shall bear interest at the rate of one and one half percent (1.5%) per month, or at the maximum rate allowable by law, whichever is less. FSC shall be entitled to recover its costs and expenses incurred in collecting any amounts due hereunder, including reasonable attorney’s fees.

ARTICLE II

CONFIDENTIALITY

     2.1 — Confidentiality of Information.

     (a) Each party shall use the Confidential Information (as hereinafter defined) of the other party only in furtherance of the purpose of this Agreement (which purposes are strictly limited to FSC providing Services to the Cutting Tool Business) and shall not transfer or otherwise disclose the Confidential Information to any third party without such party’s prior written consent. Each party shall (i) provide access to the Confidential Information solely to those of its employees who have a need to have access thereto strictly in order to perform the Services, and (ii) take the same security precautions to protect against disclosure or unauthorized use of such information that a party takes with its own confidential information, provided, however, that in no event shall either party apply less than a reasonable standard of care to prevent such disclosure or unauthorized use. Each party agrees to promptly return or destroy the other party’s Confidential Information upon the expiration or earlier termination of this Agreement.

     (b) The term “Confidential Information” shall mean all confidential or other proprietary information disclosed by the Cutting Tool Business or FSC and/or any of their respective subsidiaries or affiliates under this Agreement including, without limitation: (i) all trade secrets, products, operations, marketing and business plans, customer or supplier names

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and addresses, corporate organization and finances, plans, research, know-how, trade secrets, specifications, drawings, sketches, models, samples, data, technology, computer programs, documentation, software, computer systems, source code, object code methodologies, product development, distribution plans, contractual arrangements, profits, sales, pricing policies, operational methods, technical processes, other business affairs and methods, plans for future developments or other technical and business information, which can be communicated by any means whatsoever, including, without limitation oral, visual, written and electronic transmission, other confidential business information and other confidential information learned in the course of performance by either party of its obligations hereunder; (ii) all information, data, software or computer programs disclosed by either party to the other party under or in contemplation of this Agreement; and (iii) the existence of this Agreement and the terms and conditions set forth herein and in the Exhibit hereto.

     (c) Notwithstanding the foregoing, the term “Confidential Information” shall not include information which: (i) is or becomes publicly available without any action by, or involvement of, the receiving party; (ii) was in the receiving party’s possession and obtained without breaching an obligation of confidentiality prior to its disclosure by the disclosing party, (iii) becomes available to the receiving party on a non-confidential basis from a source other than the Subsidiaries that is not otherwise bound by a confidentiality agreement with Kennametal or (iv) is independently developed by the receiving party without any use of, or reference to, the Confidential Information of the disclosing party. Either party may disclose the Confidential Information of the other party pursuant to a judicial or governmental order or regulation to the extent required by such order or regulation; provided, that, when possible, such party provides the other party with sufficient prior notice to contest such order or to seek appropriate confidential treatment of the Confidential Information. Any party hereto may disclose the Confidential Information described in Section 2.1(b)(iii) to the extent required by applicable securities laws.

     (d) FSC shall provide and the Cutting Tool Business agrees reasonably to cooperate and implement, where necessary, appropriate security controls, access limitations and firewalls to protect the confidentiality of each party’s Confidential Information on FSC’s information technology systems. Neither party shall access or utilize the other party’s data for any sales, marketing, customer analysis, pricing, employee compensation or other purpose, including without limitation, data mining.

ARTICLE III

TERM AND TERMINATION

     Unless earlier terminated or extended as provided below, the term of this Agreement shall commence on the Effective Date and expire on the six (6) month anniversary hereof (the “Term”). The Cutting Tool Business shall have the option to extend the Term of this Agreement and/or the Exhibit for up to an additional three (3 ) months upon written notice delivered to FSC not less than ninety (90) days prior to the last day of the Term, at the same monthly compensation set forth on the Exhibit, unless FSC incurs additional cost in maintaining the systems or in replacing necessary hardware. The Cutting Tool Business shall have the right to terminate this Agreement and/or the Exhibit at any time by thirty (30) days’ advance written

4

notice to FSC. Upon the effectiveness of any such termination, the Cutting Tool Business shall not be obligated to pay the fees set forth in the terminated Exhibit for any period remaining in the Term. Notwithstanding the foregoing, however, if the Cutting Tool Business terminates this Agreement or the Exhibit hereunder, the Cutting Tool Business agrees to pay to FSC all amounts owed for Services provided up to the effective date of such termination.

ARTICLE IV

MISCELLANEOUS

     4.1 Additional Actions and Documents. Both parties hereto agree to take or cause to be taken such further actions, to execute, acknowledge, deliver and file or cause to be executed, acknowledged, delivered and filed such further documents and instruments, and to use all reasonable efforts to obtain such consents, as may be necessary or as may be reasonably requested in order to fully effectuate the purposes, terms and conditions of this Agreement.

     4.2 Notice. All notices, demands, requests or other communications which may be or are required to be given pursuant to this Agreement shall be in writing and shall be personally delivered, mailed by first class, registered or certified mail postage prepaid, or sent by electronic or facsimile transmission, addressed as follows:

If to the Cutting Tool Business:

The Cutting Tool Business
c/o Kennametal Inc.
1600 Technology Way
Latrobe, PA 15650
Attn: Vice President, Secretary and General Counsel
Fax: 724/539-3839

With a copy to:

Lewis U. Davis, Jr., Esq.
Buchanan Ingersoll & Rooney, PC
One Oxford Centre, 20^th Floor
301 Grant Street
Pittsburgh, PA 15219
Fax: 412/562-1041

If to FSC:

Federal Signal Corporation
1415 West 22^nd Street
Oak Brook, IL 60523
Attn: Jennifer Sherman, General Counsel
Fax: 630/954-2138

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With a copy to:

Thompson Coburn LLP
One US Bank Plaza
Suite 3400
St. Louis, MO 63101
Attn: Robert M. LaRose
Fax: 314/552-7078

     Both parties may designate by notice in writing a new address to which any notice, demand, request or communication may thereafter be so given, served or sent. Each notice, demand, request or communication which shall be delivered, mailed or transmitted in the manner described above shall be deemed sufficiently given, served, sent or received for all purposes at such time as it is delivered to the addressee or at such time as delivery is refused by the addressee upon presentation.

     4.3 Amendment. This Agreement may be amended or modified in whole or in part only by an agreement in writing executed by all parties hereto and making specific reference to this Agreement.

     4.4 Counterparts. This Agreement may be executed in any number of counterparts and by facsimile or other electronic transmission, each of which shall be deemed an original, but all of which shall constitute one instrument, and shall become effective when such separate counterparts have been exchanged between the parties hereto.

     4.5 Binding on Successors and Assigns. This Agreement shall be binding upon, inure to the benefit of and be enforceable by and against the parties hereto and their respective successors and assigns in accordance with the terms hereof. Neither party may assign their interest under this Agreement without the prior written consent of the other party.

     4.6 Severability. In the event that any one or more of the provisions contained in this Agreement or any application thereof shall be invalid, illegal or unenforceable in any respect, the validity, legality or enforceability of the remaining provisions of this Agreement and any other application thereof shall not in any way be affected or impaired thereby; provided, however, that to the extent permitted by applicable law, any invalid, illegal, or unenforceable provision may be considered for the purpose of determining the intent of the parties in connection with the other provisions of this Agreement.

     4.7 Waivers. The parties may, by written agreement, (a) extend the time for the performance of any of the obligations or other acts of the parties hereto, (b) waive compliance with, or modify, any of the covenants or conditions contained in this Agreement, and (c) waive or modify performance of any of the obligations of any of the parties hereto; provided, that no such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall operate as a waiver of, or an estoppel with respect to, any subsequent insistence upon such strict compliance other than with respect to the matter so waived or modified.

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     4.8 Publicity. Any public announcement, press release or similar publicity with respect to this Agreement or the transactions contemplated herein will be issued, if at all, at such time and in such manner as the Cutting Tool Business and FSC shall mutually agree and determine.

     4.9 Headings. The headings in the sections and subsections of this Agreement and in the Schedules are inserted for convenience only and in no way alter, amend, modify, limit or restrict the contractual obligations of the parties.

     4.10 List of Schedules and Exhibits. As mentioned in this Agreement, there is attached hereto or delivered herewith, the following Exhibit:

EXHIBITS

Exhibit No.:	Caption
A	Information Technology Services

The foregoing Exhibit is incorporated herein by this reference and expressly made a part hereof.

     4.11 Entire Agreement; Law Governing. All prior negotiations and agreements between the parties hereto concerning the subject matter hereof are superseded by this Agreement (except with respect to the Confidentiality Agreement described in Section 13.15 of the Stock Purchase Agreement), and there are no representations, warranties, understandings or agreements other than those expressly set forth herein or in the Exhibit delivered pursuant hereto, except as modified in writing concurrently herewith or subsequent hereto. This Agreement shall be governed by and construed and interpreted according to the internal laws of the State of Illinois, determined without reference to conflicts of law principles. Each party hereto agrees to personal jurisdiction over the matters arising under to this Agreement. Any suit, action or proceeding arising out of or relating to this Agreement shall only be instituted in the State of Illinois. Each party waives any objection which it may have now or hereafter to the laying of the venue of such action or proceeding and irrevocably submits to the jurisdiction of any such court in any such suit, action or proceeding.

     4.12 No Third-Party Rights. This Agreement is not intended and shall not be construed to create any rights in any persons other than FSC and the Cutting Tool Business, and no person shall assert any rights as third-party beneficiary hereunder.

     4.13 Expenses. Except as expressly provided otherwise herein, FSC, on the one hand, and the Cutting Tool Business, on the other, shall pay all costs and expenses incurred by it or on its behalf in connection with this Agreement.

     4.14 Confidentiality. The Confidentiality Agreement dated September 18, 2006, between FSC and Kennametal is confirmed in its entirety and unaffected hereby.

     4.15 Survivability of Provisions After Termination. If this Agreement is terminated pursuant to Article III hereof, it shall become null and void and have no further force and effect, except as provided in Sections 1.3, 2.1, 4.11, 4.14 and this 14.15 which shall survive termination and except that nothing herein shall relieve any party hereto for a breach by such party of the

7

terms of this Agreement. Upon any termination of this Agreement, each party hereto will return all documents work papers and all other material of the other party relating to the transactions contemplated hereby and all covers at such materials, where so obtained before or after the execution hereof, to the party furnishing the same.

     4.16 No Agency. This Agreement shall not be deemed expressly or by implication to create an agency, employee, or servant relationship between or among any of the parties hereto, or any affiliates of the parties hereto for any purpose whatsoever.

     4.17 Force Majeure. Neither party shall be liable for any failure of or delay in the performance of this Agreement for the period that such failure or delay is due to acts of God, public enemy, war, strikes or labor disputes, or any other cause beyond the parties’ reasonable control; it being understood that lack of financial resources is not to be deemed a cause beyond a party’s control. Each party shall notify the other party promptly of the occurrence of any such cause and carry out this Agreement as promptly as practicable after such cause is terminated; provided, however, that the existence of any such cause shall not extend the Term of this Agreement.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

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     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives on the day and year first above written.

MANCHESTER TOOL COMPANY		FEDERAL SIGNAL CORPORATION
By:		By:
	Name:		Name:
	Title:		Title:

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EXHIBIT A

Information Technology Services

During the Term of this Agreement and in a manner substantially consistent with FEDERAL SIGNAL’s practices immediately prior to the Effective Date, FEDERAL SIGNAL shall provide the following Information Technology Services (“IT Services”) to KENNAMETAL:

IT Support Services:

1.	Provide system availability, performance, support security, access and information to KENNAMETAL personnel; provided, that all KENNAMETAL users comply with all applicable FEDERAL SIGNAL policies and procedures.
2.	Working with KENNAMETAL to correct significant data entry and processing problems which are: (a) identified in writing; and (b) are not the result, directly or indirectly, of a change in business practices by KENNAMETAL or any other action or inaction of KENNAMETAL. Significant problems are those which prevent KENNAMETAL from functioning as a viable business concern.
3.	Support for transferring payroll processing from the FEDERAL SIGNAL payroll system to KENNAMETAL’s SAP HR system. Due to the sensitive nature of the information contained in the FEDERAL SIGNAL HR system and the fact that such system supports other FEDERAL SIGNAL functions, KENNAMETAL acknowledges and agrees that they will not have direct access to such system. FEDERAL SIGNAL will provide access to historical data residing in the existing payroll system by providing KENNAMETAL, at FEDERAL SIGNAL’S sole discretion, with either: (a) direct access to the system; (b) data in paper format; or (c) electronic files in an appropriate format. Should the transfer of payroll processing occur after the closing date, FEDERAL SIGNAL will provide current payroll management and processing services for a period not to extend beyond the terms of this agreement.
4.	Provide KENNAMETAL personnel, who comply with all FEDERAL SIGNAL policies and procedures, with access to Wide Area Networks for MANCHESTER TOOL and ON TIME MACHINING COMPANY. FEDERAL SIGNAL will consider requests for network changes and may, at its sole discretion, comply with such requests for additional fees determined by FEDERAL SIGNAL.
5.	Training of KENNAMETAL personnel up to a maximum of twenty (20) hours. KENNAMETAL acknowledges and agrees that such training will be provided at times and locations, as determined by FEDERAL SIGNAL at its sole discretion, or as otherwise mutually agreed.
6.	From time to time, FEDERAL SIGNAL and/or KENNAMETAL may be required to provide Testing or other support to accomplish system changes initiated by FEDERAL SIGNAL or KENNAMETAL.

A-1

7. FEDERAL SIGNAL will permit KENNAMETAL personnel, who comply with all FEDERAL SIGNAL policies and procedures, to access and use the following software packages during the Term of this Agreement:

(d) Name	(e) Modules	(f) Function
MCI	WAN, Phone, Data	Network Services through MCI (MTO and OTM only)
Federal Signal system	Payroll	Payroll

Note: Software vendors prohibit FEDERAL SIGNAL from providing hosting services for third parties. KENNAMETAL will be responsible for obtaining authorization from the software vendors for temporary use of the software while running on FEDERAL SIGNAL’S systems. FEDERAL SIGNAL will work with KENNAMETAL to facilitate the permanent transfer of applicable software licenses approved by FEDERAL SIGNAL to KENNAMETAL; KENNAMETAL will be responsible for obtaining authorizations from the software vendors for such transfers.

Conversion Services:

1.	FEDERAL SIGNAL will provide up to 160 hours of consultation concerning data, data structure, processing logic to assist in the conversion to KENNAMETAL’s systems. This includes consultation on EDI practices that may be unique to KENNAMETAL.
2.	FEDERAL SIGNAL will provide up to 160 hours of analysis and programming time to provide files and reports for conversion to KENNAMETAL’s systems.
3.	FEDERAL SIGNAL will provide up to 40 hours of test and validation services to assist KENNAMETAL in converting to their system(s). KENNAMETAL accepts full responsibility for any and all data loaded into KENNAMETAL’s system.
4.	FEDERAL SIGNAL will provide up to 80 hours of meeting, review and miscellaneous time to assist in the conversion process.

     KENNAMETAL acknowledges and agrees that all plans and schedules that involve IT Services are subject to FEDERAL SIGNAL’S prior written approval.

Compensation

In accordance with Section 1.3, Compensation, of this Agreement, KENNAMETAL agrees to pay FEDERAL SIGNAL the following fees and expenses:

Fees. Pursuant to Section 1.3 of the Agreement, KENNAMETAL agrees to pay FEDERAL SIGNAL the fixed and variable fees set forth below:

A-2

     Fixed Fees:

     (a) Monthly IT Support Services Fee: KENNAMETAL shall pay FEDERAL SIGNAL a fixed monthly fee equivalent to FEDERAL SIGNAL’S service provider’s cost (the “IT Support Services Fee”) per month of the Term. The IT Support Services Fee shall be prorated for any month during which this Agreement is in effect for less than the entire month.

     Variable Fees:

     (a) Additional Services Fees: In addition to the IT Support Services Fee and the Conversion Services Fee, if FEDERAL SIGNAL performs services in addition to the IT Services listed above, KENNAMETAL shall pay FEDERAL SIGNAL an additional fee of $60 per hour. Such additional services may be provided at FEDERAL SIGNAL’S sole discretion; in no event shall FEDERAL SIGNAL be obligated to provide any such additional services.

Expenses. In addition to the Fees above and in accordance with Section 1.3 of the Agreement, KENNAMETAL shall be responsible for all (i) all licensing costs, including costs associated with transferring licenses, and (ii) travel and other out-of-pocket expenses associated with the IT Services provided hereunder.

A-3

EX-21

Exhibit 21

NAME	JURISDICTION OF INCORPORATION
Bronto Skylift Holding OY	Finland
Bronto Skylift Oy Ab	Finland
Dayton Progress Canada, Ltd.	Ontario, Canada
Dayton Progress Corporation	Ohio
Dayton Progress GmbH	Germany
Dayton Progress International Corporation	Ohio
Dayton Progress — Perfuradores, LDA	Portugal
Dayton Progress, S.A.S.	France
Dayton Progress (U.K.), Ltd.	United Kingdom
Elgin Sweeper Company	Delaware
E-ONE Canada, Ltd.	Alberta, Canada
E-ONE, Inc.	Delaware
Federal APD, Inc.	Michigan
Federal Signal Credit Corporation	Delaware
Federal Signal Environmental Products China (HK) Ltd	Hong Kong
Federal Signal of Europe B.V.	Netherlands
Federal Signal Tool (Asia Pacific) Ltd.	China
Federal Signal Tool (Dongguan) Company Ltd.	China
Federal Signal U.K. Holdings, Ltd.	United Kingdom
Federal Signal VAMA, S.A.	Spain
Guzzler Manufacturing, Inc.	Alabama
IEES B.V.	Netherlands
Jetstream of Houston, Inc.	Texas
Jetstream of Houston, LLP	Texas
Leach Company, Inc.	Wisconsin
Nippon Dayton Progress K.K.	Japan
NRL Corp.	Alberta, Canada
Pauluhn Electric Manufacturing Company	New York
Pauluhn Electric Manufacturing Company, LLP	Texas
P.C.S. Company	Michigan
Ravo International (Van Raaij Holdings BV and its subsidiaries)	Netherlands
Vactor Manufacturing, Inc.	Illinois
Victor Industrial Equipment PTY Ltd.	South Africa
Victor Products, Ltd.	United Kingdom
Victor Products USA Inc.	Delaware
Wittke, Inc.	Alberta, Canada

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 33-14251, 33-89509, 333-81798, 333-127234 and 333-104629) pertaining to the Stock Option Plan and Employee Savings and Investment Plans of Federal Signal Corporation and to the incorporation by reference in the Registration Statements (Form S-3 Nos. 333-71886, 333-76372 and 333-98993) of Federal Signal Corporation and in the related Prospectuses of our reports dated, February 20, 2007, with respect to the consolidated financial statements and schedule of Federal Signal Corporation, Federal Signal Corporation management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Federal Signal Corporation included in this Annual Report (Form 10-K) for the year ended December 31, 2006.

Ernst & Young LLP

Chicago, Illinois
February 20, 2007

EX-31.1

Exhibit 31.1

CEO Certification Under Section 302 of the Sarbanes-Oxley Act

I, Robert D. Welding, certify that:

1.	I have reviewed this annual report Form 10-K of Federal Signal Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4.	The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the Company and have:

a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.	Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period in which this report is being prepared;
d.	Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors:

a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: February 22, 2007

/s/ Robert D. Welding  

Robert D. Welding 

President and Chief Executive Officer 

EX-31.2

Exhibit 31.2

CFO Certification under Section 302 of the Sarbanes-Oxley Act

I, Stephanie K. Kushner, certify that:

1.	I have reviewed this annual report Form 10-K of Federal Signal Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4.	The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the Company and have:

a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.	Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period in which this report is being prepared;
d.	Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors:

a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Date: February 22, 2007

/s/ Stephanie K. Kushner  

Stephanie K. Kushner 

Vice President and Chief Financial Officer 

EX-32.1

Exhibit 32.1

CEO Certification of Periodic Report under Section 906 of the Sarbanes-Oxley Act

I, Robert D. Welding, President and Chief Executive Officer of Federal Signal Corporation (‘the Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 USC. Section 1350, that:

(1)	The Annual report of Form 10-K of the Company for the year ended December 31, 2006 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 USC. 78m or 78o(d)); and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: February 22, 2007

/s/ Robert D. Welding  

Robert D. Welding 

President and Chief Executive Officer 

EX-32.2

Exhibit 32.2

CFO Certification of Periodic Report under Section 906 of the Sarbanes-Oxley Act

I, Stephanie K. Kushner, Vice President and Chief Financial Officer of Federal Signal Corporation (‘the Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 USC. Section 1350, that:

(3)	The Annual report of Form 10-K of the Company for the year ended December 31, 2006 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 USC. 78m or 78o(d)); and
(4)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: February 22, 2007

/s/ Stephanie K. Kushner  

Stephanie K. Kushner 

Vice President and Chief Financial Officer 

EX-99.1

Exhibit 99.1

REGENCY TOWERS, 1415 W. 22ND ST., OAK BROOK, ILLINOIS 60523

CONTACTS:	Stephanie K. Kushner	RELEASE DATE:	IMMEDIATE
	(630) 954-2020
	David Janek
	(630) 954-2063

FEDERAL SIGNAL CORPORATION ANNOUNCES
FOURTH QUARTER EARNINGS OF $.27 PER SHARE FROM CONTINUING OPERATIONS

— Highlights —

• Orders increase to $325 million, up 11% from fourth quarter of 2005

• Revenues increase to $339 million, up 14% from the prior year quarter

• Operating income increases 23% from fourth quarter of 2005

• Reported EPS excludes earnings from cutting tool business — $.02 in the fourth quarter and $.08 for the full year

• Economic value improves $9 million in 2006

Oak Brook, Illinois, February 22, 2007 — Federal Signal Corporation reported income from continuing operations of $13.1 million, or $.27 per share, for the fourth quarter of 2006 on revenue of $339 million. For the fourth quarter of 2005, the Company earned $12.7 million from continuing operations, or $.26 per share, on revenue of $298 million.

For the fourth quarter of 2006, operating income rose 23% from the prior year quarter, reflecting higher earnings in Environmental Solutions where all product lines delivered significant improvements, and in Safety and Security Systems. The significant improvement in operating earnings was largely offset by higher interest and other expense, resulting in a more modest 3% increase in income from continuing operations.

Robert D. Welding, president and chief executive officer, stated, “The Company’s fourth quarter results demonstrate continued strength across our core businesses, particularly Safety and Security Systems and Environmental Solutions, which delivered double digit order and revenue growth and healthy increases in operating earnings.

“We are encouraged by the progress made in our strategic transformation during 2006. Early in the year we introduced our new vision and mission, along with a set of strategies for achieving our goals. Using this roadmap, we divested non-core businesses including the Leach refuse business, and in January 2007, the industrial cutting tool businesses. We invested in core product lines and focused on markets where we have sustainable competitive advantages. Favorable trends are evident in several metrics. Organic growth in orders reached 12% for the year, well above our 6-8% targeted range. The share of orders from outside of the US rose to 35%, which is in line with our increased focus on global growth. Gross margins increased 1%, as we benefited from reduced fixed costs and a leaner manufacturing footprint. Additionally, our Economic Value improved $9 million compared with 2005. While we are encouraged by this progress, we are increasing our focus on reducing selling, general and administrative costs and improving operational working capital.

“Despite funding investments designed to improve longer-term profitability and development, we achieved quality revenue growth in full year 2006 and a 10% increase in operating income. Our Environmental Solutions Group provides a good example of this progress. In the past year, the Group incurred costs which were $2 million higher in 2006 than in 2005 for the startup of a new parts operation, the startup of a new refuse truck joint venture in China, and the continuing implementation of an ERP system. Nevertheless, during the same timeframe, Environmental Solutions improved earnings by $8 million and improved operating margin by one percentage point to a seven-year high of 9.3%.

“Increased investments in areas such as information technology, global expansion, and new product development position the Company for long-term growth and continued margin expansion. Further, the recent acquisition of Codespear, a developer of specialized software used in emergency management situations, strengthens our technology platform for new product offerings.

“As we begin 2007, we are positioned to maintain robust revenue growth and accelerate earnings improvement. Excluding additional acquisitions, we expect full year revenue growth of 8-10%, and full year earnings to be up approximately 30%. We are on track to deliver positive Economic Value in 2007 and a third consecutive year of Economic Value improvement.”

For the full year 2006, the Company reported $1.21 billion in revenue and $.72 per share in earnings from continuing operations. For the full year 2005, the Company reported revenue of $1.12 billion and earnings of $.91 per share from continuing operations including a net benefit of $.33 per share from items which did not recur in 2006. These prior year items included a gain from the divestiture of two product lines and income tax credits arising from the resolution of a multi-year tax audit and repatriation of previously taxed offshore cash balances. Also adversely impacting 2006 was the $.03 per share impact of expensing stock options under the new accounting guidelines.

Results for both years reflect the reclassification of earnings from the Company’s industrial cutting tool businesses into discontinued operations; that divestiture was completed on January 31, 2007. Earnings from the divested businesses totaled $.02 per share for the fourth quarter and $.08 per share for the full year 2006.

The Company recorded fourth quarter net income of $15.3 million in 2006 compared to a net loss of $25.9 million in 2005. The loss reported in 2005 included an after-tax write-down of $34 million associated with the Company’s decision to exit the Leach refuse business.

ORDERS AND BACKLOG

Total orders increased 11% in the fourth quarter of 2006 to $325 million from $292 million in the prior year period. For the full year, orders totaled $1.23 billion, up 12% from $1.10 billion in 2005.

US municipal and government orders declined 6% to $128 million from the prior year fourth quarter. Although orders for fire apparatus increased sequentially, they fell short of the prior year fourth quarter. Orders for sewer cleaners and vehicular lightbars and sirens were up significantly, indicative of continued broad strength in municipal budgets. For the full year of 2006, US municipal and government orders increased 3% compared to 2005.

Fourth quarter US industrial and commercial orders rose 12% to $84 million from the prior year period. Demand was particularly strong for industrial vacuum loaders, street sweepers, and water blasting equipment. For the full year, US industrial and commercial orders increased 14% versus 2005.

Orders from non-US markets increased 42% from the fourth quarter of 2005. International orders totaled $112 million including a large fire apparatus order for Montreal, Canada. Demand increased for US exports in the Fire Rescue, Safety and Security, and Environmental Solutions segments, and for products manufactured in Europe. Full year non-US orders were up 23% versus 2005, and accounted for 35% of the Company’s orders.

The year-end backlog remained healthy at $403 million, up 4% from the prior year end.

GROUP RESULTS

Safety and Security Systems revenue increased 16% to $83 million in the fourth quarter of 2005, while the operating margin declined to 15.2% from 16.4%.

Fourth quarter orders increased 11% from the prior year period to $73 million. Demand was particularly robust for police products and for electrical products sold into oil and gas production facilities, both in the US and internationally. Revenue increased 16% to $83 million for the fourth quarter from the prior year period. Police products reported the strongest improvement, although industrial electrical products, military warning systems, and large parking system installations also contributed to the increase. Operating income improved 8% to $12.6 million from $11.8 million in the prior year period due to the higher revenue. The decline in operating margin was primarily the result of increased expenses associated with product development, marketing and sales commissions.

For the full year 2006, orders increased 18% to $305 million with year-over-year growth in all major product lines. Revenue increased 10% to $305 million on increased volumes across most product lines, and despite the absence of $8 million of revenue from two industrial lighting product lines which were divested in the third quarter of 2005. Operating margin declined to 13.5% from 16.3% due to the inclusion of a $6.7 million gain on the sale of the product lines in the prior year.

Fire Rescue revenue grew 15% to $124 million from $108 million in the fourth quarter of 2005. Operating margin at 3.5% was equal to the prior year period.

Fourth quarter orders were slightly up from the prior year at $103 million. Results include the first units of a previously announced multi-year order for Montreal, Canada, totaling $18 million in the quarter. In other international markets, demand for Bronto articulated aerial apparatus remained strong. Largely offsetting these gains were lower orders from the rest of the North American dealer channel, through which more than half the Group’s global business is typically transacted. To boost longer-term profitability, the Company has implemented a series of changes in ordering, pricing and payment policies which has resulted in increased dealer turnover and reduced orders in the short-term.

Revenue in the quarter was $124 million, up 15% from $108 million reported for the comparable period of 2005 resulting from higher pricing, increased shipments of aerial devices and currency translation. The operating margin was unchanged from the prior year period at 3.5%, as the beneficial impact of higher volumes and prices was substantially offset by increased material prices and higher fixed manufacturing costs charged in the period.

For the full year 2006, orders totaled $365 million, a 3% increase from 2005. Demand for Bronto apparatus increased 21% as fire industry customers increasingly adopted the articulated aerial platform in place of traditional ladders. Orders for apparatus manufactured in North America declined, largely due to changes in the dealer channel structure and policies and the closure of the Red Deer, Alberta plant. Revenue increased 4% to $385 million due to higher realized pricing across product lines resulting from actions taken in 2005 to recover escalating material costs. Operating margin improved to

1.8% from 0.6% in 2005. The improvement reflects improved gross margins in the US and Finland, offset in part by losses associated with the closure of the Red Deer facility.

Environmental Solutions revenue increased 15% to $102 million, and operating margin rose to 9.5% from 7.8% in the fourth quarter of 2005.

Orders rose sharply to $119 million, a 27% increase from the prior year period, due largely to increased demand from rental fleets and industrial plants. Strength was broad-based across product lines with industrial vacuum loaders, sewer cleaners, street sweepers and water blasting equipment all reporting substantial year-over-year improvement.

Revenue in the quarter was $102 million, 15% above the same period in 2005. Revenue growth was predominantly due to higher shipment volumes, with some impact of pricing. The operating margin increase reflects the benefits of higher production volumes and pricing, net of increased investment in ongoing strategic growth initiatives. These growth initiatives include an ERP implementation, global expansion, and new product development. Also higher were recruiting and incentive compensation expenses.

For the full year 2006, orders increased 21% from 2005 to $437 million. All major product lines showed increases, most notably street sweepers and vacuum trucks. Revenue increased 15% to $399 million primarily due to higher shipment volumes. Operating margin increased to 9.3% from 8.3% in 2005, the effect of increased product demand and pricing net of higher costs associated with growth initiatives.

Tool revenue was flat at $30 million, and operating margin declined to 8.7% from 9.0% in the fourth quarter of 2005.

Segment results have been restated to exclude the three industrial cutting tool businesses which have been presented as discontinued operations. In January 2007, the Company completed the divestiture of these businesses.

Fourth quarter revenue for the group was $30 million, essentially unchanged from the year-ago quarter. Lower shipment volume in the US market due to weakness in the automotive and housing markets was offset by increased international volume and favorable currency translation of offshore sales. Operating margin declined moderately to 8.7% from 9.0% in the prior year period due to weaker US volumes and increased costs related to the startup of a new plant in China.

Full year revenue of $123 million was essentially flat compared to 2005. Modest increases in North American and Asian markets were offset by weaker results in Europe. Operating margin declined to 6.7% from 9.1% in 2005. The lower margin resulted from lost productivity attributed to a business system conversion error at the Dayton, Ohio plant which increased costs during the first half of 2006, unrecovered expenses related to a voluntary workforce reduction at the same facility, and costs for the China plant startup.

CORPORATE AND OTHER

Fourth quarter corporate expense totaled $7.5 million, unchanged from the prior year period. Full year 2006 corporate expenses were $23.4 million, down $0.4 million from 2005. Reduced expenses for the hearing loss litigation and lower bad debt expense associated with the Company’s leasing portfolio were offset by increased stock-based compensation costs. The Company began expensing stock options in the first quarter of 2006 in accordance with newly revised accounting requirements. The net effect of this additional expense reduced consolidated earnings by $.03 per share for the full year.

Fourth quarter interest expense increased to $7.0 million from $5.2 million in the prior year period due to higher short-term borrowing rates and a greater percentage of floating versus fixed debt. On December 31, 2006, 62% of the Company’s debt was at a floating rate; the composite borrowing rate averaged 6.8%.

INCOME TAX EXPENSE

The Company recorded a $0.6 million tax expense in the fourth quarter on pre-tax earnings from continuing operations of $13.7 million, an effective tax rate of 4.2%. The low fourth quarter rate incorporates the retroactive benefit from the extension in December 2006 of the US federal R&D tax credit, and the resolution of certain outstanding tax issues for which reserves had been established previously. This compares to a $0.3 million tax expense in the fourth quarter of 2005 on pre-tax earnings from continuing operations of $13.0 million, which included a $2.5 million benefit from the repatriation of cash under the provisions of the American Jobs Creation Act.

For the full year 2006, the Company’s effective tax rate was 19.4%, significantly below the statutory rate due to untaxed municipal leasing revenues, foreign earnings in low tax jurisdictions, the resolution of certain foreign and domestic tax issues, and the R&D tax credit described above. This compares with a tax credit of 7.6 % in 2005 which included benefits from a multi-year tax audit resolution and the cash repatriation.

DISCONTINUED OPERATIONS

The Company recently completed the sale of three industrial cutting tool businesses and has restated results to present these businesses as discontinued operations. Income from discontinued operations was $2 million in the fourth quarter 2006. This compares with a loss from discontinued operations of $39 million in the fourth quarter 2005. Fourth quarter 2005 included after-tax write-downs of $34 million for the Leach refuse truck body operation and $2 million for the Brazilian parking operation, both of which were discontinued during the quarter. For the full year 2006, the Company reported a loss from discontinued operations of $12 million. For the full year 2005, the loss from discontinued operations was $49 million.

CASH FLOW AND LIQUIDITY

Cash flow from operations totaled $15 million in the fourth of quarter 2006 and $34 million in the fourth quarter of 2005. Full year cash flow from operations was $30 million in 2006 and $71 million in 2005. The lower cash flow was driven by increases in primary working capital⁽¹⁾ requirements to support high year-end sales, additional outsourcing to support higher sewer cleaner and aerial device production levels and inventory pre-buying ahead of 2007 changes in US engine emissions regulations. On December 31, 2006, primary working capital totaled $253 million, an increase of $42 million from the end of 2005. Full year average primary working capital as a percentage of revenue was 20.0% in 2006 and 20.1% in 2005.

Cash balances on December 31, 2006 totaled $19 million, slightly lower than $20 million at the end of the third quarter 2006. Year-end cash balances totaled $92 million in 2005.

Manufacturing debt net of cash as a percent of capitalization⁽²⁾ totaled 35% at the end of the fourth quarter, down slightly from 37% at the end of the third quarter 2006. On December 31, 2006, $22 million was drawn against the Company’s $125 million revolving credit line, and the Company was in compliance with all debt covenants.

On January 17, the Company invested $17 million to purchase the assets of Codespear, LLC, a developer of specialized software used in emergency management situations. On January 31, the Company received $67 million in proceeds associated with the completion of the sale of three cutting tool businesses.

(1) defined as accounts receivable plus inventory less accounts payable and customer deposits

(2) manufacturing operations only, net of cash

*****************************************************************************************************
Federal Signal will host its fourth quarter conference call on Thursday, February 22, 2007 at 11:00 a.m. Eastern Time to highlight results of the quarter and discuss the company’s outlook. The call will last approximately one hour. You may listen to the conference call over the Internet through Federal Signal’s website at http://www.federalsignal.com. If you are unable to listen to the live broadcast, a replay accessible from the company website will be available shortly after the call.

Federal Signal Corporation (NYSE: FSS) is a leader in advancing security and well-being for communities and workplaces around the world. The company designs and manufactures a suite of products and integrated solutions for municipal, governmental, industrial and airport customers. Federal Signal’s portfolio of trusted, high-priority products include Bronto aerial devices, Elgin and Ravo street sweepers, E-ONE fire apparatus, Federal Signal safety and security systems, Guzzler industrial vacuums, Jetstream waterblasters and Vactor sewer cleaners. In addition, the company operates consumable industrial tooling businesses. Federal Signal was founded in 1901 and is based in Oak Brook, Illinois. www.federalsignal.com

This release contains unaudited financial information and various forward-looking statements as of the date hereof and we undertake no obligation to update these forward-looking statements regardless of new developments or otherwise. Statements in this release that are not historical are forward-looking statements. Such statements are subject to various risks and uncertainties that could cause actual results to vary materially from those stated. Such risks and uncertainties include but are not limited to: economic conditions in various regions, product and price competition, supplier and raw material prices, foreign currency exchange rate changes, interest rate changes, increased legal expenses and litigation results, legal and regulatory developments such as the FIRE Act grant program and other risks and uncertainties described in filings with the Securities and Exchange Commission.

# # # # # #

FEDERAL SIGNAL CORPORATION (NYSE)
Consolidated Financial Data
For the Fourth Quarter and Full Year 2006 and 2005 (Unaudited)
(in millions except per share data)

							Percent
	2006			2005			change
Quarter December 31:
Revenues	$	339.1		$	297.6			14	%
Income:
Income from continuing operations		13.1			12.7			3	%
Income (loss) from discontinued operations, net of tax		2.2			(38.6	)
Net income (loss)	$	15.3		$	(25.9	)	NM
Earnings per share (diluted basis):
Income from continuing operations		.27			.26			4	%
Income (loss) from discontinued operations, net of tax		.05			(.80	)
Earnings (loss) per share		0.32			(0.54	)	NM
Average common shares outstanding		48.0			48.1
Revenues	$	339.1		$	297.6			14	%
Cost of sales		(259.3	)		(227.4	)
Operating expenses		(58.1	)		(52.6	)
Operating income		21.7			17.6			23	%
Interest expense		(7.0	)		(5.2	)
Other (expense) income		(1.0	)		.6
Income before income taxes		13.7			13.0
Income tax expense		(.6	)		(.3	)
Income from continuing operations		13.1			12.7			3	%
Income (loss) from discontinued operations, net of tax		2.2			(38.6	)
Net income (loss)	$	15.3		$	(25.9	)	NM
Gross margin on revenues		23.5	%		23.6	%
Operating margin on revenues		6.4	%		5.9	%
Comprehensive income (loss)	$	11.2		$	(34.6	)

							Percent
	2006			2005			change
12 months:
Revenues	$	1,211.6		$	1,119.0			8	%
Income:
Income from continuing operations		34.4			43.9			-22	%
(Loss) from discontinued operations, net of tax		(11.7	)		(48.5	)
Net income (loss)	$	22.7		$	(4.6	)	NM
Earnings per Share (diluted basis):
Earnings from continuing operations		.72			.91			-21	%
(Loss) from discontinued operations, net of tax		(.25	)		(1.01	)
Earnings (loss) per share		0.47			(0.10	)	NM
Average common shares outstanding		48.0			48.2
Revenues	$	1,211.6		$	1,119.0			8	%
Cost of sales		(927.2	)		(867.5	)
Operating expenses		(214.5	)		(187.1	)
Restructuring charges		—			(.7	)
Operating income		69.9			63.7			10	%
Interest expense		(25.0	)		(23.1	)
Other (expense) income		(2.2	)		.2
Income before income taxes		42.7			40.8
Income tax (expense) benefit		(8.3	)		3.1
Income from continuing operations		34.4			43.9			-22	%
(Loss) from discontinued operations, net of tax		(11.7	)		(48.5	)
Net income (loss)	$	22.7		$	(4.6	)	NM
Gross margin on revenues		23.5	%		22.5	%
Operating margin on revenues		5.8	%		5.7	%
Net cash provided by operations:
Net income (loss)	$	22.7		$	(4.6	)
Loss on discontinued operations		11.7			48.5
Depreciation and amortization		17.9			18.2
Stock compensation		5.8			2.1
Pension contributions		(11.3	)		(7.7	)
Lease financing and other receivables		10.4			27.2
Working capital		(41.8	)		29.9
Other		14.3			(43.0	)
Net cash provided by operations	$	29.7		$	70.6			-58	%
Capital expenditures	$	18.2		$	16.6
Comprehensive income (loss)	$	34.5		$	(21.9	)

							Percent
	2006			2005			change
Group results:
Quarter December 31:
Revenues:
Safety and Security	$	82.7		$	71.2			16	%
Fire Rescue		124.2			107.8			15	%
Environmental Solutions		102.3			88.5			15	%
Tool		29.9			30.1			-1	%
Total group revenues	$	339.1		$	297.6			14	%
Operating income*:
Safety and Security	$	12.6		$	11.8			8	%
Fire Rescue		4.3			4.0			8	%
Environmental Solutions		9.7			6.8			40	%
Tool		2.6			2.5			4	%
Total group operating income		29.2			25.1			16	%
Corporate expenses		(7.5	)		(7.5	)
Total operating income	$	21.7		$	17.6
12 months:
Revenues:
Safety and Security	$	304.5		$	276.5			10	%
Fire Rescue		384.8			371.2			4	%
Environmental Solutions		399.4			347.7			15	%
Tool		122.9			123.6			-1	%
Total group revenues	$	1,211.6		$	1,119.0			8	%
Operating income*:
Safety and Security	$	41.2		$	45.0			-9	%
Fire Rescue		6.8			3.2			113	%
Environmental Solutions		37.1			28.9			28	%
Tool		8.2			11.1			-26	%
Total group operating income		93.3			88.2			6	%
Corporate expenses		(23.4	)		(23.8	)
Restructuring charges		—			(.7	)
Total operating income	$	69.9		$	63.7

* reported amounts for groups and corporate are before restructuring charges; certain reclassifications have been made to conform to current classifications

Reconciliation of Operating Incomes and Margins
to Amounts Excluding Restructuring Charges

     The following table summarizes the restructuring charges incurred by the Company during 2006 and 2005. The Company believes that since the restructuring charges are unusual in nature, it is appropriate to provide the reader an analysis of the effects of these charges on operating income and margins. The Company refers to comparative amounts between periods including restructuring charges in its discussion of operations.

	2006								2005
						Operating									Operating
						income									income
						excluding									excluding
	Operating			Restructuring		restructuring			Operating			Restructuring			restructuring
	income			charges		charges			income			charges			charges
Quarter December 31:
Operating income:
Safety and Security	$	12.6			—	$	12.6		$	11.8			—		$	11.8
Fire Rescue		4.3			—		4.3			3.8			(0.2	)		4.0
Environmental Solutions		9.7			—		9.7			6.8			—			6.8
Tool		2.6			—		2.6			2.7			0.2			2.5
		29.2			—		29.2			25.1			—			25.1
Corporate expenses		(7.5	)		—		(7.5	)		(7.5	)		—			(7.5	)
Total before restructuring		21.7			—		21.7			17.6			—			17.6
Restructuring charges		—			—		—			—			—			—
Total operating income	$	21.7		$	—	$	21.7		$	17.6		$	—		$	17.6
Operating margin
Safety and Security		15.2	%				15.2	%		16.4	%					16.4	%
Fire Rescue		3.5	%				3.5	%		3.5	%		-0.2	%		3.7	%
Environmental Solutions		9.5	%				9.5	%		7.8	%					7.8	%
Tool		8.7	%				8.7	%		9.0	%		0.7	%		8.3	%
Total Company		6.4	%				6.4	%		5.9	%					5.9	%
12 months:
Operating income:
Safety and Security	$	41.2		$	—	$	41.2		$	45.0		$	—		$	45.0
Fire Rescue		6.8			—		6.8			2.3			(0.9	)		3.2
Environmental Solutions		37.1			—		37.1			28.9			—			28.9
Tool		8.2			—		8.2			11.3			0.2			11.1
		93.3			—		93.3			87.5			(0.7	)		88.2
Corporate expenses		(23.4	)		—		(23.4	)		(23.8	)		—			(23.8	)
Total before restructuring		69.9			—		69.9			63.7			(0.7	)		64.4
Restructuring charges		—			—		—			—			0.7			(0.7	)
Total operating income	$	69.9		$	—	$	69.9		$	63.7		$	—		$	63.7
Operating margin:
Safety and Security		13.5	%				13.5	%		16.3	%					16.3	%
Fire Rescue		1.8	%				1.8	%		0.6	%		-0.2	%		0.9	%
Environmental Solutions		9.3	%				9.3	%		8.3	%					8.3	%
Tool		6.7	%				6.7	%		9.1	%		0.2	%		9.0	%
Total Company		5.8	%				5.8	%		5.7	%		-0.1	%		5.8	%

	December 31			December 31
	2006			2005
Assets
Manufacturing activities:-
Current assets:
Cash and cash equivalents	$	19.3		$	91.9
Trade accounts receivable, net of allowances for doubtful accounts		192.1			165.1
Inventories		174.2			153.0
Other current assets		33.2			24.6
Total current assets		418.8			434.6
Properties and equipment		85.7			81.6
Goodwill, net of accumulated amortization		310.6			307.3
Other deferred charges and assets		17.6			39.1
Total manufacturing assets		832.7			862.6
Net assets of discontinued operations		57.8			87.7
Financial services activities — Lease financing receivables, net of allowances for doubtful accounts		158.9			169.2
Total assets	$	1,049.4		$	1,119.5
Liabilities
Manufacturing activities:-
Current liabilities:
Short-term borrowings and current portion of long-term borrowings	$	64.7		$	72.6
Trade accounts payable		90.0			73.7
Accrued liabilities and income taxes		119.2			127.7
Total current liabilities		273.9			274.0
Long-term borrowings		160.3			203.7
Long-term pension and other liabilities		27.9			50.5
Deferred income taxes		20.7			16.3
Total manufacturing liabilities		482.8			544.5
Net liabilities of discontinued operations		31.2			39.8
Financial services activities — Borrowings		149.0			158.9
Shareholders’ equity		386.4			376.3
Total liabilities and shareholders’ equity	$	1,049.4		$	1,119.5
Supplemental data:
Manufacturing debt	$	225.0		$	276.3
Debt-to-capitalization ratio:
Manufacturing		37	%		43	%
Financial services		94	%		94	%
Net Debt/Cap Ratio		35	%		34	%

Net Debt/Cap Ratio — manufacturing debt-to-capitalization ratio, net of cash

* certain reclassifications have been made to conform to current classifications