-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WBMU90ZjfPB6gz7f5JKyu8gE/Ho3Phrds/93Etjfxp41gUUCorLOmFBccJJkfZ4B n25xGoaGcGSOS2En0Qf4aw== 0000720032-97-000003.txt : 19970221 0000720032-97-000003.hdr.sgml : 19970221 ACCESSION NUMBER: 0000720032-97-000003 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970210 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIGGIE INTERNATIONAL INC /DE/ CENTRAL INDEX KEY: 0000720032 STANDARD INDUSTRIAL CLASSIFICATION: SEARCH, DETECTION, NAVIGATION, GUIDANCE, AERONAUTICAL SYS [3812] IRS NUMBER: 521297376 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-08591 FILM NUMBER: 97522206 BUSINESS ADDRESS: STREET 1: 4420 SHERWIN RD CITY: WILLOUGHBY STATE: OH ZIP: 44094 BUSINESS PHONE: 2169532700 MAIL ADDRESS: STREET 1: 4420 SHERWIN RD CITY: WILLOUGHBY STATE: OH ZIP: 44094 FORMER COMPANY: FORMER CONFORMED NAME: FIGGIE INTERNATIONAL HOLDINGS INC DATE OF NAME CHANGE: 19870112 10-K405 1 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended 12/31/96 Commission file number 1-8591 FIGGIE INTERNATIONAL INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 52-1297376 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 4420 SHERWIN ROAD, WILLOUGHBY, OHIO 44094 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) Registrant's telephone number, including area code (216) 953-2700 Securities registered pursuant to Section 12(G) of the Act: Class A Common Stock, Par Value $.10 Per Share (TITLE OF CLASS) Class B Common Stock, Par Value $.10 Per Share (TITLE OF CLASS) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN,AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [ X ] STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT. (THE AGGREGATE MARKET VALUE SHALL BE COMPUTED BY REFERENCE TO THE PRICE AT WHICH THE STOCK WAS SOLD, OR THE AVERAGE BID AND ASKED PRICES OF SUCH STOCK, AS OF A SPECIFIED DATE WITHIN 60 DAYS PRIOR TO THE DATE OF FILING.) At January 24, 1997 - $199,429,616 INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE. Outstanding as of 1/24/97 Class A Common Stock, Par Value $.10 Per Share 13,681,977 Class B Common Stock, Par Value $.10 Per Share 4,712,747 DOCUMENTS INCORPORATED BY REFERENCE: LIST THE FOLLOWING DOCUMENTS IF INCORPORATED BY REFERENCE AND THE PART OF THE FORM 10-K INTO WHICH THE DOCUMENT IS INCORPORATED: (1) ANY ANNUAL REPORT TO SECURITY HOLDERS; (2) ANY PROXY OR INFORMATION STATEMENT; AND (3) ANY PROSPECTUS FILED PURSUANT TO RULE 424 (b) OR UNDER THE SECURITIES ACT OF 1933. (THE LISTED DOCUMENTS SHOULD BE CLEARLY DESCRIBED FOR IDENTIFICATION PURPOSES.) Proxy Statement Re: 1996 Annual Stockholders' Meeting(See Part III) Certain documents incorporated from prior filings (See Part IV) 2 TABLE OF CONTENTS PART I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Item 1. Business . . . . . . . . . . . . . . . . . . . . . . .4 Customers. . . . . . . . . . . . . . . . . . . . . . . . . . .5 Competition. . . . . . . . . . . . . . . . . . . . . . . . . .5 Patents and Trademarks . . . . . . . . . . . . . . . . . . . .5 Backlog of Orders. . . . . . . . . . . . . . . . . . . . . . .5 Raw Materials. . . . . . . . . . . . . . . . . . . . . . . . .6 Effect of Environmental Compliance . . . . . . . . . . . . . .6 Employees. . . . . . . . . . . . . . . . . . . . . . . . . . .6 Research and Development . . . . . . . . . . . . . . . . . . .6 Distribution . . . . . . . . . . . . . . . . . . . . . . . . .6 Financial Information About the Company's Business Segments. .7 Executive Officers of the Company. . . . . . . . . . . . . . .8 Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . .9 Principal Facilities . . . . . . . . . . . . . . . . . . . . .9 Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . .9 Item 4. Submission of Matters to a Vote of Security Holders . . 10 PART II. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Item 5. Market for the Company's Common Stock and Related Stockholder Matters. . . . . . . . . . . . . . . . . 11 Item 6. Summary of Selected Financial Data . . . . . . . . . 12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . . 13 FINANCIAL SUMMARY. . . . . . . . . . . . . . . . . . . . . . 13 INTERSTATE ELECTRONICS CORPORATION . . . . . . . . . . . . . 15 SCOTT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 SNORKEL. . . . . . . . . . . . . . . . . . . . . . . . . . . 19 CORPORATE AND UNALLOCATED COSTS AND EXPENSES . . . . . . . . 21 Item 8. Financial Statements and Supplementary Data. . . . . 24 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS . . . . . . . . . . 24 CONSOLIDATED STATEMENTS OF OPERATIONS. . . . . . . . . . . . 25 CONSOLIDATED BALANCE SHEETS. . . . . . . . . . . . . . . . . 26 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY. . . . . . . 28 CONSOLIDATED STATEMENTS OF CASH FLOWS. . . . . . . . . . . . 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . 30 (1) Summary of Significant Accounting Policies . . . . . 30 PRINCIPLES OF CONSOLIDATION. . . . . . . . . . . . . 30 NATURE OF OPERATIONS . . . . . . . . . . . . . . . . 30 USE OF ESTIMATES . . . . . . . . . . . . . . . . . . 30 CASH . . . . . . . . . . . . . . . . . . . . . . . . 30 LONG-TERM CONTRACTS. . . . . . . . . . . . . . . . . 30 CONCENTRATION OF CREDIT RISK . . . . . . . . . . . . 31 INVENTORIES. . . . . . . . . . . . . . . . . . . . . 31 PROPERTY, PLANT AND EQUIPMENT. . . . . . . . . . . . 31 LAND AND LAND IMPROVEMENTS . . . . . . . . . . . . . 31 3 INTANGIBLES. . . . . . . . . . . . . . . . . . . . . 31 CAPITALIZATION OF INTEREST . . . . . . . . . . . . . 31 ENVIRONMENTAL COMPLIANCE . . . . . . . . . . . . . . 31 INCOME TAXES . . . . . . . . . . . . . . . . . . . . 31 SELF-INSURANCE PROGRAMS. . . . . . . . . . . . . . . 32 EARNINGS PER SHARE . . . . . . . . . . . . . . . . . 32 STOCK OPTIONS. . . . . . . . . . . . . . . . . . . . 32 (2) Restructuring and Refinancing Costs. . . . . . . . . 33 (3) Discontinued Operations. . . . . . . . . . . . . . . 34 (4) Income Taxes . . . . . . . . . . . . . . . . . . . . 36 (5) Inventories. . . . . . . . . . . . . . . . . . . . . 37 (6) Receivables. . . . . . . . . . . . . . . . . . . . . 38 (7) Credit Facility and Debt Refinancing . . . . . . . . 38 (8) Long-Term Debt . . . . . . . . . . . . . . . . . . . 39 (9) Leases . . . . . . . . . . . . . . . . . . . . . . . 40 (10) Contingent Liabilities . . . . . . . . . . . . . . . 41 (11) Pension and Retirement Benefits Plans. . . . . . . . 42 (12) Capital Stock. . . . . . . . . . . . . . . . . . . . 43 (13) Stock Options. . . . . . . . . . . . . . . . . . . . 43 (14) Restricted Stock Purchase Plans. . . . . . . . . . . 45 (15) Employee Stock Ownership Plans . . . . . . . . . . . 46 (16) Industry Segment Data. . . . . . . . . . . . . . . . 47 QUARTERLY FINANCIAL DATA (UNAUDITED) . . . . . . . . . . . . 48 Item 9. Disagreements on Accounting and Financial Disclosure 49 PART III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Item 10. Directors and Executive Officers of the Registrant . 49 Item 11. Executive Compensation . . . . . . . . . . . . . . . 49 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . . . . 49 Item 13. Certain Relationships and Related Transactions . . . 49 PART IV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . 50 VALUATION AND QUALIFYING ACCOUNTS. . . . . . . . . . . . . . 54 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS . . . . . . . . . . 55 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 EXHIBIT INDEX. . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 SUBSIDIARIES OF THE COMPANY. . . . . . . . . . . . . . . . . . . 59 CONSENTS OF INDEPENDENT PUBLIC ACCOUNTANTS . . . . . . . . . . . 60 4 Except as otherwise stated, the information contained in this Annual Report is as of December 31, 1996. PART I Item 1. Business Figgie International Inc. (referred to, with all of its consolidated subsidiaries and divisions, and their predecessor entities, unless the context otherwise requires, as the "Company") is comprised of three reporting segments as set forth below: Interstate Electronics Corporation ("Interstate Electronics") develops and produces sophisticated telemetry, instrumentation and data recording systems and position measuring systems referred to as Global Positioning Systems ("GPS"), for the U.S. Navy's Polaris/Poseidon, TRIDENT, and TRIDENT II ships; precise GPS for aircraft and turnkey test ranges; and GPS for commercial and business aircraft navigation and landing systems. Interstate Electronics also designs and produces plasma, liquid crystal and cathode-ray tube display systems for a variety of shipboard and aircraft applications. In addition, Interstate Electronics manufactures sophisticated bandwidth-on-demand satellite communication modems and terminals for government and commercial applications. The Scott Aviation ("Scott") division manufactures the Scott Air Pak* and other life support products for fire fighting and personal protection against industrial contaminants. The air-purifying products provide protection against environmental and safety hazards. Scott manufactures protective breathing equipment, pilot and crew oxygen masks plus emergency oxygen for passengers on commercial, government and private aircraft. Scott also manufactures instruments to detect the presence of combustible or toxic gases and the lack of oxygen. The Snorkel division manufactures self-propelled aerial work platforms, such as telescopic and articulating booms and scissorlifts for use in construction and maintenance activities. Snorkel also fabricates and services booms that are mounted on fire apparatus to deliver large quantities of water from elevated positions. The division also includes the operations of the Company's subsidiary in New Zealand, which manufacturers trailer mounted booms in New Zealand and distributes Snorkel products in Australia, New Zealand and Southeast Asia. The Company's business is generally managed at the operating division and subsidiary level. Financial, legal, real estate and certain administrative functions are performed at the corporate offices of the Company. The Company's real estate development activities, conducted through its subsidiary, Figgie Properties, Inc., are reported as a corporate department. * Registered or common law trademarks and service marks of Figgie International Inc. and its subsidiaries. 5 Through December 31, 1996, the Company concluded the sales of all of its previously discontinued businesses. For further discussion of the Company's divestment of these operations, see "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations", included elsewhere herein. Customers The U.S. Government accounted for 24.7%, 28.4% and 35.2% of the Company's total net sales and 91.4%, 87.6% and 90.7% of the net sales of Interstate Electronics for 1996, 1995 and 1994, respectively. No other single customer accounted for more than 10% of the Company's net sales. Approximately 80% of Interstate's net sales for the next year are expected to come from U.S. government contracts. These net sales are subject to the standard government contract clause that permits the government to terminate such contracts at its convenience. In the event of such termination, there are provisions to enable the Company to recover its costs plus a fee. The Company does not anticipate the termination of any of its major government contracts. Competition The Company's segments are engaged in industries characterized by substantial competition in the form of price, service, quality, and design. The Company believes that in the United States it is among the leading manufacturers of protective breathing and emergency oxygen equipment. Patents and Trademarks The Company owns and is licensed under a number of patents and trademarks that it regards as sufficient for its operations. It believes its business as a whole is not materially dependent upon any one patent, trademark or license or technologically-related group of patents or licenses. Backlog of Orders As of December 31, 1996 and 1995, the Company had a backlog of orders as follows (in millions): 1996 1995 Interstate Electronics: Under contract $ 12 $ 46 Under contract and funded 53 38 65 84 Scott 53 48 Snorkel 45 81 $163 $213 On these dates such backlog amounts were believed to be firm. However, final verification of the Company's backlog estimates depends on, among other things, government funding and general economic and business conditions in 1997 that cannot be predicted. Of the backlog, $5.3 million and $37.8 million at December 31, 1996 and 1995, respectively, are not expected to be completed within twelve months. 6 Raw Materials The Company believes that the principal raw materials and purchased component parts for the manufacture of its products are available from a number of suppliers and are generally available in sufficient quantities to meet its current requirements. Effect of Environmental Compliance At the present time, compliance with federal, state, and local provisions with respect to environmental protection and regulation has not had and is not expected to have a material impact on the Company's capital expenditures, earnings, operations, financial position or competitive position. Employees As of December 31, 1996, the Company's workforce was comprised of 2,468 employees. Approximately 200 employees are covered by a collective bargaining agreement expiring on November 12, 1999 . The Company considers its overall relations with its workforce to be satisfactory. Research and Development During 1996, the Company's research and development activities consisted principally of further development of high technology, defense-based products to commercial applications at Interstate Electronics and, to a lesser extent, customary product development activities at Scott and Snorkel. Research and development expenditures were $14.7 million, $13.6 million and $18.2 million for 1996, 1995 and 1994, respectively. Distribution The Company's products and services are marketed through most normal channels of distribution. These vary by industry segment and include direct sales by Company salesmen, sales through independent distributors and dealers, sales through manufacturers' agents, direct sales to government agencies, and the use of licenses and joint ventures. 7 Financial Information About the Company's Business Segments FIGGIE INTERNATIONAL INC. AND SUBSIDIARIES (in thousands) Year Ended December 31 Sales to Unaffiliated Customers* and by Product Line: 1996 1995 1994 Interstate Electronics Strategic Weapon Systems $ 45,494 $ 50,914 $ 52,909 Global Positioning Systems 26,099 28,205 37,964 Other 18,944 19,146 22,764 90,537 98,265 113,637 Scott Health/Safety Products $ 70,783 $ 62,058 $ 62,243 Aviation/Government Products 65,901 50,511 36,447 136,684 112,569 98,690 Snorkel Booms $ 87,263 $ 78,209 $ 51,719 Scissorlifts and Other 71,233 51,775 35,279 158,496 129,984 86,998 Total Sales to Unaffiliated Customers $385,717 $340,818 $299,325 Major Customer Sales*: Interstate Electronics $ 82,752 $ 86,121 $103,095 Scott 12,591 10,648 2,335 Snorkel 10 6 75 Total Sales to U.S. Government $ 95,353 $ 96,775 $105,505 Export Sales - United States to*: Canada $ 14,974 $ 14,690 $ 11,726 Other 25,079 24,477 20,254 Total U.S. Export Sales $ 40,053 $ 39,167 $ 31,980 Operating Profit (Loss)*: Interstate Electronics $ 5,055 $ 5,883 $ 6,010 Scott 26,914 21,145 17,775 Snorkel 22,078 12,584 4,491 Total for Reporting Segments 54,047 39,612 28,276 Corporate and unallocated expenses (14,019) (18,436) (45,495) Total Operating Profit (Loss) $ 40,028 $ 21,176 $(17,219) Identifiable Assets: Interstate Electronics $ 58,395 $ 52,813 $ 50,750 Scott 48,787 37,331 31,901 Snorkel 67,202 59,234 50,556 Corporate 170,882 136,055 177,322 Discontinued Operations 27,519 79,423 326,481 Total Identifiable Assets $372,785 $364,856 $637,010 Capital Expenditures: Interstate Electronics $ 2,518 $ 1,113 $ 3,713 Scott 2,202 1,251 1,501 Snorkel 2,816 2,199 5,658 Corporate 2,183 1,624 2,780 Discontinued Operations 560 19,157 36,652 Total Capital Expenditures $ 10,279 $ 25,344 $ 60,304 Depreciation and Amortization: Interstate Electronics $ 1,737 $ 1,616 $ 1,083 Scott 1,597 1,179 1,024 Snorkel 2,589 2,014 1,591 Corporate 441 855 3,957 Discontinued Operations 789 630 33,978 Total Depreciation and Amortization $ 7,153 $ 6,294 $ 41,633 * Excludes those operating units that are discontinued operations. See "Item 7- Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein. 8 Executive Officers of the Company As of February 3,1997, the following executive officers of the Company serve in the positions indicated: GLEN W. LINDEMANN, President, Scott Aviation since June 15, 1989; and a Director of the Company since November, 1996; age 57. STEVEN L. SIEMBORSKI, Senior Vice President and Chief Financial Officer, and a Director of the Company since July 1, 1994. Mr. Siemborski was associated with the firm of Ernst & Young from 1976 to 1994, most recently as a Partner in Ernst & Young's Special Services Group; age 42. WILLIAM J. SICKMAN, Vice President - Corporate Relations since February 1, 1997; Director - Human Resources and Administration from September, 1994 to January, 1997; Manager - Manpower Development from March, 1992 to August, 1994; Manager - Employee Relations from August, 1988 to February, 1992; age 44. ROBERT D. VILSACK, Vice President, General Counsel and Secretary since February 1, 1997; General Counsel and Secretary from July, 1996 until February, 1997; General Counsel and Assistant Secretary from February, 1996 until July, 1996; Corporate Counsel from September, 1990 until July, 1996; age 35. In addition, as of February 3, 1997 the Chief Executive Office functions of the Company are being performed by the Office of the Chairman, formed by the Board of Directors of the Company upon the resignation on January 24, 1997 of John P. Reilly as Chief Executive Officer and President. Mr. Reilly remains Chairman of the Board of the Company. The members of the Office of the Chairman are Messrs. Reilly, Lindemann and Siemborski. 9 Item 2. Properties The Company's principal manufacturing plants in the United States have approximately 915,000 square feet of floor area for manufacturing, warehousing and administrative uses. Approximately 720,000 square feet of this area is owned and the balance is leased. The Company believes its facilities are suitable for its purposes, having adequate productive capacity for the Company's present and anticipated needs. Principal Facilities Approx. Floor Area Reporting Segment Location (Sq. Feet) Interstate Electronics Anaheim, CA 376,000 Scott Monroe, NC 123,000 Lancaster, NY 111,000 South Haven, MI 25,000 Snorkel Elwood, KS 81,000 St. Joseph, MO 15,000 Elwood, KS(leased) 185,000 Item 3. Legal Proceedings On December 19, 1994, the Company, its subsidiary Figgie Properties Inc. and the Richard E. Jacobs Group filed an action in the Common Pleas Court of Cuyahoga County, Ohio against the City of Cleveland seeking specific performance of a 1989 Master Development Agreement pertaining to a proposed real estate project known as Chagrin Highlands. The Company's complaint also seeks a declaratory judgement that the Master Development Agreement is in full force and effect and asks for an injunction preventing the City from interfering with the rights of the plaintiffs under that Agreement as well as compensatory damages in the amount of $100 million. The City of Cleveland filed a motion to dismiss the Company's complaint. On May 1, 1995, the Court denied the City's motion to dismiss the complaint and granted its motion to dismiss the Jacobs Group as a party plaintiff. On January 24, 1996, the Court denied the City's motion for summary judgement and granted the Company's motion for summary judgement with respect to several counts of a counterclaim filed by the City. On May 1, 1996, the parties reached an agreement on the general terms of a settlement and the litigation was dismissed without prejudice. The settlement is subject to final approval by Council for the City of Cleveland. Costs charged by the Company to the U.S. Government in the performance of U.S. Government contracts are subject to inquiry and audit. Several years are open. The Company has provided a reasonable reserve for possible disallowed costs. The Company has been cooperating with the U.S. Government in two criminal investigations, one involving possible improprieties at a facility where a division of the Company was a supplier, and the second involving the amount of corporate charges 10 allocated to certain of the Company's operating units. The Company has furnished documents and other information and denies any wrongdoing in both investigations. Nevertheless, the ultimate resolution of these matters could result in sanctions and damages sought by the government, and affect the Company's ability to obtain future government contracts. The Company is also involved in ordinary routine litigation incidental to its business. Management does not believe that such litigation will have a material adverse effect upon the Company. Item 4. Submission of Matters to a Vote of Security Holders The annual stockholders meeting was held on November 26, 1996. The votes cast by the record holders on the record date for the annual meeting of 13,641,613 shares of Class A Common Stock (1/20th of a vote per share) and 4,715,807 shares of Class B Common Stock (1 vote per share) entitles to cast 682,081 and 4,695,314 votes, respectively, were as follows: Amendment to the Bylaws. The proposed amendment to the Bylaws to provide that the Board shall consist of not less than five nor more than eleven Directors was adopted pursuant to the following vote: For 4,596,858 Against 162,492 Abstain 125,583 Election of Directors. The nominees for Director were elected pursuant to the following vote: AUTHORITY NOMINEE FOR WITHHELD Glen Lindemann 3,696,592 1,118,343 Harrison Nesbit II 3,867,848 1,017,087 11 PART II Item 5. Market for the Company's Common Stock and Related Stockholder Matters The Company's Common Stock is traded on the over-the-counter market and quoted in the National Association of Security Dealers Automated Quotation/ National Market System (NASDAQ/NMS) under the following symbols: Class A Common Stock "FIGIA" and Class B Common Stock "FIGI". The high and low sales prices recorded on the NASDAQ/NMS System for each quarterly period during the years 1996 and 1995 are set forth below. 1996 1995 Quarter Quarter 1st 2nd 3rd 4th 1st 2nd 3rd 4th Class A Common: Low $10.00 $13.00 $12.50 $10.00 $5.938 $7.875 $8.375 $9.875 High $13.625 $16.375 $15.75 $13.75 $9.125 $9.625 $14.125 $13.25 Class B Common: Low $10.00 $12.25 $11.625 $9.125 $6.00 $7.00 $7.50 $9.00 High $12.875 $15.50 $14.625 $12.875 $9.00 $8.75 $13.75 $12.75 As of January 24, 1997, there were 5,977 holders of Class A Common Stock and 4,877 holders of Class B Common Stock. No dividends were paid in 1996 or 1995. 12 Item 6. Summary of Selected Financial Data The following tables set forth selected consolidated financial data of the Company for the five years ended December 31, 1996. This data has been derived from the Company's audited consolidated financial statements. These tables should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements of the Company included elsewhere herein. The report of Arthur Andersen LLP, independent auditors, covering the Company's consolidated financial statements for the years ended December 31, 1996, 1995 and 1994, is also included elsewhere herein. Beginning in 1994 and concluding in 1996, the Company sold a number of itsbusiness operations to reduce debt and concentrate on its technology-driven manufacturing companies.
Year Ended December 31 1996 1995 1994 1993 1992 Financial Data (in thousands) Net Sales $ 385,717 $ 340,818 $ 299,325 $ 268,297 $ 265,578 Income (Loss) from Continuing Operations before Change in Accounting Principle $ 50,302 $ (12,364) $ (86,784) $ (83,829) $ (11,262) (Loss) from Discontinued Operations (27,002) (3,726) (79,946) (101,785) 39,561 Cumulative Effect of Change in Accounting Principle - - - 5,839 - Net Income(Loss) $ 23,300 $ (16,090) $(166,730) $ (179,775) $ 28,299 Total Assets $ 372,785 $ 364,856 $ 637,010 $ 919,078 $1,008,269 Total Debt $ 186,256 $ 214,328 $ 413,311 $ 539,737 $ 453,809 Per Share Data Income (Loss) from Continuing Operations before Change in Accounting Principle $ 2.69 $ (0.68) $ (4.90) $ (4.71) $ (0.64) (Loss)from Discontinued Operations (1.44) (0.21) (4.51) (5.73) 2.25 Cumulative Effect of Change in Accounting Principle - - - .33 - Net Income (Loss) $ 1.25 $ (0.89) $ (9.41) $(10.11) $ 1.61 Cash Dividends Class A Shares - - - 0.435 0.500 Class B Shares - - - 0.435 0.500 Book Value $ 4.05 $ 2.71 $ 3.55 $ 11.84 $ 22.14
13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations FINANCIAL SUMMARY Discussion of 1996 Compared to 1995 Net sales increased 13% in 1996 to $385.7 million from $340.8 million in 1995. Greater volume at both Snorkel and Scott offset the reduction at Interstate Electronics. Gross profit improved 20% in 1996 to $103.2 million from $86.3 million in 1995 as a result of higher sales and improved margins. The operating profit improved by $18.8 million to $40.0 million as a result of the improved gross profit and lower SG&A expenses. Significant reductions of interest expense and refinancing costs combined with the increase in operating income contributed to pretax income from continuing operations of $22.6 million compared with a loss of $12.4 million in 1995. Included in the results of continuing operations was an income tax benefit of $27.7 million representing the recognition of tax loss carryforwards given the Company's sustained profitability for six quarters. The Company also recorded a $27.0 million charge, net of related tax benefits of $14.5 million, related to discontinued operations. The net income for 1996 was $23.3 million or $ 1.25 per share compared to a loss of $16.1 million or $0.89 per share in 1995. 1996 Quarterly Results were as follows: (in thousands) First Second Third Fourth Twelve Quarter Quarter Quarter Quarter Months 1996 1996 1996 1996 1996 Net Sales $ 96,701 $ 101,415 $ 95,407 $ 92,194 $385,717 Cost of Sales 71,240 73,682 69,856 67,785 282,563 Gross Profit on Sales 25,461 27,733 25,551 24,409 103,154 % of Sales 26.3% 27.3% 26.8% 26.5% 26.7% Operating Expenses: Selling, General and Admin. 12,980 12,963 11,643 10,852 48,438 Research and Development 3,133 3,455 3,904 4,196 14,688 Total Operating Expenses 16,113 16,418 15,547 15,048 63,126 Operating Profit $ 9,348 $ 11,315 $ 10,004 $ 9,361* $40,028 % of Sales 9.7% 11.2% 10.5% 10.1% 10.4% Other Expense (Income): Refinancing Costs 218 268 254 253 993 Interest Expense 5,119 4,927 4,867 4,907 19,820 Interest Income (211) (372) (551) (998) (2,132) Other, Net 381 182 (277) (1,529) (1,243) Income from Continuing Operations before tax 3,841 6,310 5,711 6,728 22,590 Income Tax Benefit - - - 27,712 27,712 Income from Continuing Operations 3,841 6,310 5,711 34,440 50,302 Discontinued Operations: Income (Loss) from Operations, net of tax 365 109 917 (111) 1,280 Loss on Disposal,net of tax - - - (28,282) (28,282) Total 365 109 917 (28,393) (27,002) Net Income 4,206 6,419 6,628 6,047 23,300 * Includes $2,514,000 of net favorable adjustments as discussed on pages 15 through 21. 14 Per Share Data: Income from Continuing Operations before tax $0.20 $0.34 $0.31 $ 0.36 $ 1.21 Income Tax Benefit - - - 1.48 1.48 Income from Continuing Operations 0.20 0.34 0.31 1.84 2.69 Discontinued Operations: Income from Operations, net of tax 0.02 - 0.05 - 0.07 Loss on Disposal, net of tax - - - (1.51) (1.51) Total 0.02 - 0.05 (1.51) (1.44) Net Income $0.22 $0.34 $0.36 $ 0.33 $1.25 Discussion of 1995 Compared to 1994 The Company continued to make progress in 1995 toward achieving meaningful profitability. Net Sales increased 14% in 1995 to $340.8 million from $299.3 million in 1994. Greater volume at Snorkel and to a lesser extent at Scott offset the expected reduction at Interstate Electronics. Gros profit improved 32% in 1995 to $86.3 million from $65.4 million in 1994 as a result of higher sales and improved margins. The gross margin improved by 3.4 margin points to 25.3% as a result of increased manufactured volumes through the plants and modest price increases. Operating income improved by $38.4 million to $21.2 million as a result of the improved gross profit, lower SG&A expenses and lower R&D expenses. Significant amounts of interest expense and refinancing costs associated with the Company's 1994 financial crisis offset the operating income and produced a 1995 loss before discontinued operations of $12.4 million, or $.68 per share, compared with a loss of $86.8 million, or $4.90 per share, in 1994. Included in the results of operations for 1995 was a loss from discontinued operations of $3.7 million, as discussed in note 3 of this Form 10-K. The $3.7 million loss, or $.21 per share, in 1995, compared with a loss of $79.9 million, or $4.51 per share, in 1994. The net loss for 1995 was $16.1 million, or $.89 per share. Segment Information The Company is a manufacturer of technology-driven products with operations in three reporting segments, Interstate Electronics Corporation, Scott and Snorkel. The results of operations are most meaningful when analyzed and discussed in this manner. The U.S. Government accounted for 24.7% of the Company's 1996 sales as compared with 28.4% and 35.2% of 1995 and 1994 sales, respectively. Costs charged by the Company to the U.S. Government in the performance of U.S. Government contracts are subject to inquiry and audit. Several years are open. The Company has provided a reasonable reserve for possible disallowed costs. The Company has been cooperating with the U.S. Government in two criminal investigations, one involving possible improprieties at a facility where a division of the Company was a supplier, and the second involving the amount of corporate charges allocated to certain of the Company's operating units. The Company has furnished documents and other information and denies any wrongdoing in both investigations. Nevertheless, the ultimate resolution of these matters could result in sanctions by the government, and affect the Company's ability to obtain future government contracts. 15 INTERSTATE ELECTRONICS CORPORATION Interstate Electronics develops and produces sophisticated telemetry, instrumentation and data recording systems and position measuring systems, Global Positioning Systems ("GPS"), for the U.S. Navy's Polaris/Poseidon, TRIDENT, and TRIDENT II ships; precise GPS for aircraft and turnkey test ranges; and GPS for commercial and business aircraft navigation and landing systems. Interstate Electronics also designs and produces plasma, liquid crystal and cathode-ray tube display systems for a variety of shipboard and aircraft applications. In addition, Interstate Electronics develops sophisticated bandwidth-on-demand satellite communication modems and terminals for both government and commercial applications. Financial Review The annual results of operations were as follows: (in thousands) 96 v 95 95 vs 94 1996 1995 CHANGE 1994 CHANGE Net Sales $ 90,537 $ 98,265 $(7,728) $113,637 $(15,372) Cost of Sales 65,039 71,253 (6,214) 82,884 (11,631) Gross Profit on Sales 25,498 27,012 (1,514) 30,753 (3,741) % of Sales 28.2% 27.5% 27.1% Operating Expenses: Selling, General and Admin. 11,430 12,611 (1,181) 11,985 626 Research and Development 9,013 8,518 495 12,758 (4,240) Total Operating Expenses 20,443 21,129 (686) 24,743 (3,614) Operating Profit $ 5,055 $ 5,883 $ (828) $ 6,010 $ (127) % of Sales 5.6% 6.0% 5.3% Discussion of 1996 Compared to 1995 Net sales declined for the year due to lower revenue from military GPS and strategic weapon systems and an increase in the reserve for possible disallowed cost related to government contracts. There was a minimal amount of commercial sales for the year. Gross Margin increased for the year due to favorable overhead rates based on year-to-date spending. Selling, General and Administrative expenses were lower for the year due to cost reduction activities but higher as a percentage of Net Sales because fixed costs unrelated to sales activities. Research and Development was higher for the year and as a percent of Net Sales due to expenditures associated with the certification process for the flight management system. 16 1996 Quarterly Results were as follows: (in thousands) First Second Third Fourth Twelve Quarter Quarter Quarter Quarter Months 1996 1996 1996 1996 1996 Net Sales $ 22,447 $ 23,087 $ 23,244 $ 21,759* $ 90,537 Cost of Sales 15,983 16,526 16,089 16,441 65,039 Gross Profit on Sales 6,464 6,561 7,155 5,318 25,498 % of Sales 28.8% 28.4% 30.8% 24.4% 28.2% Operating Expenses: Selling, General and Admin. 3,083 2,896 2,713 2,738 11,430 Research and Development 1,796 2,198 2,410 2,609 9,013 Total Operating Expenses 4,879 5,094 5,123 5,347 20,443 Operating Profit (Loss) $ 1,585 $ 1,467 $ 2,032 $ (29) $ 5,055 % of Sales 7.1% 6.4% 8.7% --% 5.6% *Includes $1.0 million reduction in revenue and operating profit to increase the reserve for possible disallowed costs. Discussion of 1995 Compared to 1994 Net Sales and Gross Profit declined due to expected reductions in U.S. Government defense spending and concurrent costs to launch Interstate Electronics Corporation's commercial GPS and commercial Satellite Communication businesses. Commercial sales and profits in 1995 were not meaningful. Net Sales declined in all product lines due to expected reductions in defense spending. The gross margin improved in 1995 from 27.1% to 27.5% due to improvements in the displays product line. In comparing 1995 to 1994 the gross profit fell by $3.7 million due to the sales volume drop. Operating Profit as a percent of Net Sales for 1995 increased to 6.0% from 5.3% in 1994. This was primarily due to lower research and development expense in 1995 and lower general and administrative expenses. Lower R&D expense was a result of the conclusion of the initial product development phase of two major commercial ventures: 1) A bandwidth-on-demand Time Divided Multiple Access ("TDMA") mesh network product from the Satellite Communication Systems business unit, and 2) A Flight Management and Navigation Landing System ("FMS") from the Global Positioning Systems business unit. The 1995 expenses primarily reflect the costs necessary to finalize the products. General and administrative expenses were reduced from 1994 by aggressive cost controls, which included reducing indirect employees from a five to a four day work week and reducing executive compensation. 17 SCOTT Scott manufactures the Scott Air Pak and other life support products for fire fighting and personal protection against industrial contaminants. The air-purifying products provide protection against environmental and safety hazards. Scott manufactures protective breathing equipment, pilot and crew oxygen masks plus emergency oxygen for passengers on commercial, government and private aircraft. Scott also manufactures instruments to detect the presence of combustible or toxic gases and the lack of oxygen. Financial Review The results of operations were as follows: (in thousands) 96 vs 95 95 vs 94 1996 1995 CHANGE 1994 CHANGE Net Sales $136,684 $112,569 $ 24,115 $ 98,690 $13,879 Cost of Sales 93,963 76,979 16,984 66,740 10,239 Gross Profit on Sales 42,721 35,590 7,131 31,950 3,640 % of Sales 31.3% 1.6% 32.4% Operating Expenses: Selling, General and Admin 12,869 11,855 1,014 10,844 1,011 Research and Development 2,938 2,590 348 3,331 (741) Total Operating Expenses 15,807 14,445 1,362 14,175 270 Operating Profit $ 26,914 $ 21,145 $ 5,769 $ 17,775 $ 3,370 % of Sales 19.7% 18.8% 18.0% Discussion of 1996 Compared to 1995 Net Sales increased by 21% for the year due to the impact of emergency escape breathing equipment sales to the government, increased oxygen product sales to aviation customers and increased breathing apparatus sales to safety customers. Gross Margin was lower for the year due to a shift in product mix reflected by increased sales to government and aviation customers, as well as the shipment of a large, lower margin order to a new customer in the third quarter. Selling, General and Administrative expenses increased for the year in support of increased sales, but were lower as a percent of Net Sales when compared to last year. Research and Development expenses increased slightly for the year due to an increase in new product development. R & D expenses as a percentage of Net Sales were consistent with last year. 18 1996 Quarterly Results were as follows: (in thousands) First Second Third Fourth Twelve Quarter Quarter Quarter Quarter Months 1996 1996 1996 1996 1996 Net Sales $ 32,941 $ 33,342 $ 34,367 $ 36,034 $136,684 Cost of Sales 22,618 22,948 24,126 24,271* 93,963 Gross Profit on Sales 10,323 10,394 10,241 11,763 42,721 % of Sales 31.3% 31.2% 29.8% 32.6% 31.3% Operating Expenses: Selling, General and Admin. 3,147 3,099 3,071 3,552 12,869 Research and Development 625 616 838 859 2,938 Total Operating Expenses 3,772 3,715 3,909 4,411 15,807 Operating Profit $ 6,551 $ 6,679 $ 6,332 $ 7,352 $ 26,914 % of Sales 19.9% 20.0% 18.4% 20.4% 19.7% * Includes $1,434,000 of favorable adjustments as a result of fourth quarter inventory. Discussion of 1995 Compared to 1994 Net Sales increased by 14% compared to last year due to continued strong orders for oxygen products from aviation customers and $7 million of unexpected orders for emergency escape breathing equipment from government customers. Gross Margin was down slightly due to a shift in product mix reflected by increased sales to government and aviation customers. Selling, General and Administrative expenses increased slightly but were lower as a percent of Net Sales when compared to the same periods last year. Research and Development expenses were lower for the year due to completion of some major new programs such as the Integrated Personal Alert Safety System ("PASS") which were underway in 1994. 19 SNORKEL The Snorkel division manufactures self-propelled aerial work platforms, such as telescopic and articulating booms and scissorlifts for use in construction and maintenance activities. Snorkel also fabricates and services booms that are mounted on fire apparatus to deliver large quantities of water from elevated positions. The division also includes the operations of the Company's subsidiary which manufacturers trailer mounted booms in New Zealand and distributes Snorkel products in Australia, New Zealand and Southeast Asia. Financial Review The results of operations were as follows: (in thousands) 96 vs 95 95 vs 94 1996 1995 CHANGE 1994 CHANGE Net Sales $158,496 $129,984 $28,512 $86,998 $42,986 Cost of Sales 123,561 106,283 17,278 73,791 32,492 Gross Profit on Sales 34,935 23,701 11,234 13,207 10,494 % of Sales 22.0% 18.2% 15.2% Operating Expenses: Selling, General and Admin. 10,120 8,577 1,543 6,563 2,014 Research and Development 2,737 2,540 197 2,153 387 Total Operating Expenses 12,857 11,117 1,740 8,716 2,401 Operating Profit $ 22,078 $12,584 $ 9,494 $ 4,491 $ 8,093 % of Sales 13.9% 9.7% 5.2% Discussion of 1996 Compared to 1995 Net Sales increased 22% compared to last year due to high market demand for aerial work platforms. Domestic sales increased 18% for the year. International sales increased 46% for the year. Gross Profit amounts and gross margin percentages improved substantially for the year due to increased plant throughput, improved purchasing costs and manufacturing efficiencies in the scissorlift line. In addition, cost of sales was favorably impacted by inventory adjustments. Selling, General and Administrative expenses for the year increased due to additional selling costs related to the increased sales volume. 20 1996 Quarterly Results were as follows: (in thousands) First Second Third Fourth Twelve Quarter Quarter Quarter Quarter Months 1996 1996 1996 1996 1996 Net Sales $ 41,313 $ 44,986 $ 37,796 $ 34,401 $158,496 Cost of Sales 32,639 34,208 29,641 27,073* 123,561 Gross Profit on Sales 8,674 10,778 8,155 7,328 34,935 % of Sales 21.0% 24.0% 21.6% 21.3% 22.0% Operating Expenses: Selling, General and Admin 2,679 2,815 2,054 2,572 10,120 Research and Development 712 641 656 728 2,737 Total Operating Expenses 3,391 3,456 2,710 3,300 12,857 Operating Profit $ 5,283 $ 7,322 $ 5,445 $ 4,028 $ 22,078 % of Sales 12.8% 16.3% 14.4% 11.7% 13.9% * Includes $1,370,000 of favorable adjustments as a result of fourth quarter inventory and warranty experience. Discussion of 1995 Compared to 1994 Net Sales increased 49% compared to last year due to continued high domestic market demand for aerial work platforms ("AWP"), penetration of international AWP markets and continued improvement in plant output. Gross Profit amounts and gross margin percentages improved substantially compared with 1994 due to increased plant throughput and improving manufacturing efficiencies. Selling, General and Administrative expenses improved as a percent of Net Sales due to additional sales volume. Research and Development expenses increased due to product development expenditures for AWPs and fire service products. 21 CORPORATE AND UNALLOCATED COSTS AND EXPENSES Financial Review Corporate activity and unallocated costs and expenses were as follows: (in thousands) 96 vs 95 95 vs 94 1996 1995 CHANGE 1994 CHANGE Cost of Sales $ - $ - $ - $ 10,526 $ (10,526) Selling, General and Administrative $ 14,019 $ 18,436 $ (4,417) $ 34,969 $ (16,533) Other Expenses (Income): Restructuring and Refinancing Costs 993 11,855 (10,862) 55,204 (43,349) Interest Expense 19,820 29,255 (9,435) 42,062 (12,807) Interest Income (2,132) (3,248) (1,116) (3,269) (21) Other, Net (1,243) (4,322) (3,079) (1,446) 2,876 Discussion of 1996 Compared to 1995 Selling, General and Administrative expenses decreased in 1996 due to the recurring impact of the 1995 cutback of corporate staff, a decrease in travel and other expenses associated with divestitures, and numerous other cost-cutting measures had a favorable adjustment to pension expense. Refinancing Costs are down significantly because the 1995 expenses were for lender fees related to the Override Agreement which was paid-off at the end of 1995. Interest Expense is down significantly due to significantly lower levels of bank and mortgage debts outstanding. 1996 Quarterly Results were as follows: (in thousands) First Second Third Fourth Twelve Quarter Quarter Quarter Quarter Months 1996 1996 1996 1996 1996 Selling, General and Administrative $ 4,071 $ 4,153 $ 3,805 $ 1,990* $ 14,019 Other Expenses (Income): Restructuring and Refinancing Costs 218 268 254 253 993 Interest Expense 5,119 4,927 4,867 4,907 19,820 Interest Income (211) (372) (551) (998) (2,132) Other, Net 381 182 (277) (1,529) (1,243) * Includes $710,000 net favorable adjustment to the actuarially-computed pension expense for the year and to the actuarially-computed self insurance reserves at year end. 22 Discussion of 1995 Compared to 1994 Selling, General and Administrative expenses were reduced significantly in 1995. These reductions included numerous cost-cutting measures, principally, legal and professional fees, reductions in Corporate staff and Corporate expenses, the full year 1995 effect of the mid-1994 sale and related elimination of expenses of Corporate aircraft and, in the second quarter of 1995, the reversal of the 1994 bonus accrual ($1.4 million). In the second quarter of 1995, the Company paid only required bonuses and did not pay discretionary bonuses following the 1994 consolidated loss; accordingly, the accrual was reversed. Refinancing Costs in 1995 were principally lender fees related to the Override Agreement which restructured $487 million of debt and leases on August 1, 1994. In the third quarter of 1995 refinancing costs decreased substantially as a result of the completion of the amortization of the 3-1/2% fee from the original portion of the Override Agreement during the original refinancing period ended June 30, 1995. Interest Expense decreased due to lower debt levels in 1995 offset somewhat by higher interest rates than in 1994. Other, Net was favorably impacted in 1995 by adjustments to litigation and environmental reserves established in 1994. The adjustments were made as a result of favorable developments that occurred in the third and fourth quarters of 1995. In the third quarter of 1995, the Company (a) agreed to a settlement of the class action complaint filed against the Company alleging false and misleading disclosures in violation of federal securities laws and (b) resolved derivative suits filed in 1993 by two shareholders. Also in the third quarter, the Company revised downward the estimated environmental clean-up costs at three locations based upon developments occurring in the quarter. In the fourth quarter, certain litigation brought against the Company was dismissed on summary judgment and the accrual was reversed. INCOME TAXES In the fourth quarter of 1996, the Company achieved its sixth consecutive quarter of pretax income and developed its operating plan for 1997 and future years which show continued profitability. As a result, management has assessed that it is more likely than not that operating income will be sufficient to recognize, and the Company did recognize as a benefit, deferred tax assets of $42,250,000. Generally Accepted Accounting Principles require that the realization of these tax assets be included in Continuing Operations except for the effect of items solely related to Discontinued Operations. Accordingly, the Company has recorded $27,712,000 of the benefit as a component of Continuing Operations and $14,538,000 as a component of Discontinued Operations. 23 DISCONTINUED OPERATIONS Income (Loss) from Operations in 1996 and 1995 represents the operating results of the Company's Taylor Environmental unit through its sale on November 25, 1996; and, in 1994 represents the operating results of Taylor and entities previously discontinued. Loss from Disposal in 1996 represents a loss provision of $28.3 million, which is net of a tax benefit of $15.2 million, recorded by the Company in the fourth quarter of 1996. The provision reflects valuation adjustments to recorded assets arising from and accruals for costs and probable losses on obligations related to previously discontinued businesses. The loss consists of a $20.5 million addition to the self-insurance accrual as a result of a December, 1996 actuarially-prepared valuation of the liabilities to negotiate the sale of a minority position to a third party; a $14.8 million write-down of carrying value of net assets related to discontinued operations and of deferred proceeds to reflect fourth quarter negotiated resolutions of disputes and events that gave rise to greater risk of realization; a $2.6 million reserve for litigation arising from the businesses of the discontinued units and a $5.6 million accrual to buyout certain employee benefit legacy obligations. FINANCIAL POSITION AND LIQUIDITY Accounts Receivable at December 31, 1996 are $55.4 million, compared to $53.5 million as of the end of 1995. Increased Scott sales account for the increase. Inventories increased by $15.5 million due to raw material, work-in-process production and finished goods levels to fill order backlog for Scott customers, finished goods inventories at Snorkel and work-in-process inventory at Interstate Electronics. Operations used $ 5.1 million. The recording of the net deferred tax asset, as discussed in Note 4 to the consolidated financial statements, was offset primarily by increases in insurance and other reserves and writedowns of certain carrying values; neither of these events affected the company's liquidity. The proceeds from divestitures and asset sales generated $ 61.3 million which was used in part to pay down $ 28.3 million of debt. Expenditures for property, plant and equipment were $9.7 million for continuing operations in 1996. 1996 expenditures were for manufacturing equipment and tooling related to the production of products. Capital expenditures in 1997 are expected to be approximately $7.5 million and are expected to be funded from internally generated funds and the Company's credit facility. Liquidity was provided in 1996 and will be provided in 1997 by the Company's cash and cash equivalents, divestiture proceeds and the credit facility ($29.4 million was available at December 31, 1996). 24 Item 8. Financial Statements and Supplementary Data REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders Figgie International Inc. We have audited the accompanying consolidated balance sheets of Figgie International Inc. (a Delaware corporation) and Subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Figgie International Inc. and Subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP /s/ Cleveland, Ohio, January 22, 1997 25 FIGGIE INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31 (in thousands, except per share data) 1996 1995 1994 Net Sales $ 385,717 $ 340,818 $ 299,110 Costs of Sales 282,563 254,515 233,726 Gross Profit on Sales 103,154 86,303 65,384 Operating Expenses: Selling, General and Administrative 48,438 1,479 4,361 Research and Development 14,688 13,648 18,242 Total Operating Expenses 63,126 65,127 82,603 Operating Income (Loss) 40,028 21,176 (17,219) Other Expense (Income): Restructuring and Refinancing Costs 993 11,855 55,204 Interest Expense 19,820 29,255 42,062 Interest Income (2,132) (3,248) (3,269) Other, Net (1,243) (4,322) (1,446) Income (Loss) from Continuing Operations 22,590 (12,364) (109,770) before Income Tax Benefit Income Tax Benefit 27,712 - 22,986 Income (Loss) from Continuing Operations 50,302 (12,364) (86,784) Discontinued Operations, net of tax: Income (Loss) from Operations 1,280 1,871 (41,368) (Loss) on Disposal (28,282) (5,597) (38,578) (27,002) (3,726) (79,946) Net Income (Loss) $ 23,300 $(16,090)$(166,730) Weighted Average Shares 18,728 18,202 17,723 Per Share Data: Income (Loss) from Continuing Operations $ 2.69 $ (0.68) $ (4.90) (Loss) from Discontinued Operations (1.44) (0.21) (4.51) Net Income (Loss) $ 1.25 $ (0.89) $ (9.41) See Notes to Consolidated Financial Statements. 26 FIGGIE INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995 (in thousands) 1996 1995 ASSETS CURRENT ASSETS Cash and Cash Equivalents $ 44,447 $ 25,856 Trade Accounts Receivable, less Allowance for Uncollectible Accounts of $311 in 1996 and $303 in 1995 55,434 53,462 Inventories 59,365 43,841 Prepaid Expenses 1,703 1,518 Recoverable Income Taxes 7,689 12,495 Current Deferred Tax Asset 12,600 - Net Assets Related to Discontinued Operations 7,446 45,488 Total Current Assets 188,684 182,660 PROPERTY, PLANT AND EQUIPMENT Land and Land Improvements 43,352 52,393 Buildings and Leasehold Improvements 35,526 37,333 Machinery and Equipment 52,553 45,151 131,431 134,877 Accumulated Depreciation (50,200) (47,699) 81,231 87,178 Equipment under Capital Leases 282 342 Net Property, Plant and Equipment 81,513 87,520 OTHER ASSETS Deferred Divestiture Proceeds, Net 20,073 33,935 Prepaid Pension Costs 10,811 9,892 Prepaid Rent on Leased Equipment 2,644 17,075 Intangible Assets 16,133 16,694 Cash Surrender Value of Insurance Policies 6,629 8,748 Investments 10,764 1,029 Prepaid Finance Costs 1,954 3,818 Deferred Tax Asset 30,595 - Other 2,985 3,485 Total Other Assets 102,588 94,676 Total Assets $ 372,785 $ 364,856 27 FIGGIE INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1996 AND 1995 (in thousands, except par value) 1996 1995 LIABILITIES CURRENT LIABILITIES Accounts Payable 27,305 29,142 Accrued Insurance Reserves 12,174 11,113 Accrued Compensation 9,045 8,129 Accrued Interest 4,395 5,097 Accrued Environmental Reserves 3,348 4,754 Accrued Liabilities and Expenses 9,520 8,022 Current Maturities of Long-Term Debt 2,100 19,373 Total Current Liabilities 67,887 85,630 Long-Term Debt 184,156 194,955 Non-Current Insurance Reserves 27,345 16,245 Other Non-Current Liabilities 18,888 18,272 Total Liabilities 298,276 315,102 STOCKHOLDERS' EQUITY Preferred Stock, $1.00 Par Value; Authorized, - - 3,217 Shares; Issued and Outstanding, None Class A Common Stock, $.10 Par Value; 1,370 1,365 Authorized, 18,000 Shares; Issued and Outstanding 1996 - 13,695; 1995 - 13,651 Class B Common Stock, $.10 Par Value; 471 472 Authorized, 18,000 Shares; Issued and Outstanding 1996 - 4,708; 1995 - 4,718 Capital Surplus 109,538 109,046 Retained Deficit (37,717) (60,008) Unearned Compensati on (74) (1,340) Cumulative Translation Adjustment 921 219 Total Stockholders' Equity 74,509 49,754 Total Liabilities and Stockholders' Equity $ 372,785 $ 364,856 See Notes to Consolidated Financial Statements. 28 FIGGIE INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (in thousands)
Retained Cumulative Common Stock Capital Surplus Earnings Unearned Translation Class A Class B Class A Class B (Deficit) Comp. Adjustment Total BALANCE, DECEMBER 31, 1993 1,375 499 108,049 19,439 124,020 (31,003) (486) 221,893 Net Loss (166,730) (166,730) Minimum Pension Liability (488) (488) Restricted Stock Purchase Plan, Net (5) (15) (1,931) (2,596) 4,790 243 Other Common Stock Transactions, Net (13) (1,371) (1,384) Unearned ESOP Compensation (3,776) (7,296) 22,384 11,312 Translation Adjustments 465 465 BALANCE, DECEMBER 31, 1994 1,370 471 102,342 8,176 (43,198) (3,829) (21) 65,311 Net Loss (16,090) (16,090) Minimum Pension Liability (720) (720) Restricted Stock Purchase Plan, Net (5) 1 (1,434) (38) 2,489 1,013 Translation Adjustments 240 240 BALANCE, DECEMBER 31, 1995 1,365 472 100,908 8,138 (60,008) (1,340) 219 49,754 Net Income 23,300 23,300 Minimum Pension Liability (1,009) (1,009) Restricted Stock Purchase Plan, Net 5 (1) 607 (115) 1,266 1,762 Translation Adjustments 702 702 BALANCE, DECEMBER 31, 1996 $1,370 $471 $101,515 $ 8,023 $ (37,717) $ (74) $ 921 $ 74,509 See Notes to Consolidated Financial Statements.
29 FIGGIE INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 and 1994 (in thousands) 1996 1995 1994 Operating Activities: Income (Loss) from Continuing Operations $ 50,302 $ (12,364) $ (86,784) (Loss) from Discontinued Operations (27,002) (3,726) (79,946) Adjustments to Reconcile Income (Loss) to Net Cash Used by Operating Activities- Depreciation and Amortization 7,153 6,294 41,633 Amortization of Unearned Compensation 973 952 5,791 Other, Net (692) 1,740 9,917 Changes in Operating Assets and Liabilities- Receivables (2,183) (1,802) 16,737 Inventories (15,736) (15,800) 15,733 Prepaid Items (1,138) 8,164 (7,523) Other Assets 11,549 11,252 37,116 Accounts Payable (1,799) (27,132) (14,293) Accrued Liabilities and Expenses (3,731) 8,952 30,509 Income Taxes (35,246) 3,176 13,533 Other Liabilities 12,414 (12,719) 2,198 Net Cash Used by Operating Activities (5,136) (33,013) (15,379) Investing Activities: Capital Expenditures for Continuing Operations (9,719) (6,187) (23,652) Capital Expenditures for Discontinued Operations (560) (19,157) (36,652) Proceeds from Sale of Property, Plant and Equip.13,240 11,637 42,468 Proceeds from Business Divestitures 48,049 203,487 198,130 Purchases of Securities - (40) (12,739) Sale of Investments - - 7,862 Net Cash Provided by Investing Activities 51,010 189,740 175,417 Financing Activities: Proceeds from Debt 200 3,963 4,420 Principal Payments on Debt (28,272) (202,946) (94,945) Repayments of Notes Payable, Net - - (32,348) Common Stock Transactions, Net 789 (188) (2,681) Net Cash (Used) by Financing Activities (27,283) (199,171) (125,554) Net Increase(Decrease)in Cash and Cash Equiv. 18,591 (42,444) 34,484 Cash and Cash Equivalents at Beginning of Year 25,856 68,300 33,816 Cash and Cash Equivalents at End of Year $ 44,447 $ 25,856 $ 68,300 - - Continuing Operations - Unrestricted $ 44,447 $ 25,583 $ 28,611 - - Continuing Operations - Restricted $ - $ 273 $ 18,716 - - Discontinued Operations $ - $ - $ 20,973 Supplemental Disclosures of Cash Flow Information: Cash Paid (Received) during the Year for - Interest (Net of Amount Capitalized) $ 18,390 $ 32,565 $ 41,771 Domestic Federal Income Taxes $ (3,732) $(15,671) $(35,856) See Notes to Consolidated Financial Statements. 30 FIGGIE INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Summary of Significant Accounting Policies: PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the accounts of Figgie International Inc. (referred to, with all its consolidated subsidiaries and divisions and their predecessor entities, unless the context otherwise requires, as the "Company".) All intercompany account transactions have been eliminated in consolidation. NATURE OF OPERATIONS. The Company is a United States-based multinational corporation. Principal business segments are (in decreasing order based on sales): (1) aerial work platforms, (2) protective breathing and oxygen equipment and instruments, and (3) sophisticated electronic systems. The largest single customer is the U.S. Government, accounting for 24.7%, 28.4% and 35.2% of the Company's total net sales for 1996, 1995 and 1994, respectively. The Company's products are marketed through most normal channels of business, principally in North America. USE OF ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from the estimates. CASH. For purposes of the statements of cash flows, the Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash equivalents are stated at cost which approximates their fair market value. The effect of foreign currency translation on cash held by foreign divisions is immaterial. LONG-TERM CONTRACTS. Government sales are principally under long-term contracts and include cost-reimbursement and fixed-price contracts. Sales under cost-reimbursement contracts are recognized as costs are incurred and include a proportion of the fees expected to be realized equal to the ratio of costs incurred to date to total estimated costs. Sales under fixed price contracts are recognized as the actual cost of work performed relates to the estimate at completion. Cost or performance incentives, which are incorporated in certain contracts, are recognized when realization is assured and amounts can be reasonably estimated. Estimated amounts for contract changes and claims are included in contract sales only when realization is probable. Assumptions used for recording sales and earnings are adjusted in the period of change to reflect revisions in contract value and estimated costs. In the period in which it is determined that a loss will be incurred on a contract, the entire amount of the estimated loss is charged to income. 31 CONCENTRATION OF CREDIT RISK. The Company does not have any concentrations of credit risk by major customer, geographic region or activity. The Company generally does not require collateral. INVENTORIES. Manufacturing inventories are stated at the lower of first-in-first-out cost or market. Costs accumulated under government contracts are stated at actual cost. PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are stated at cost and depreciated over the estimated useful lives of the assets, generally by the straight-line method. The principal rates of depreciation are: Buildings, 2-1/2%; Machinery and Equipment, 8-1/3%; Leasehold Improvements, life of lease. LAND AND LAND IMPROVEMENTS. Land and land improvements includes $41.2 million and $50.3 million at December 31, 1996 and 1995, respectively, of developed and developable land and improvements. The recorded amounts are net of reserves of $ 5.3 million and $ 7.7 million at December 31, 1996 and 1995, respectively. The recorded amounts include the Company's investment in the Chagrin Highlands project which amounted to $11.3 million and $10.7 million at December 31, 1996 and 1995, respectively. INTANGIBLES. Goodwill of $ 22.5 million at December 31, 1996 and 1995 represents costs in excess of net assets of purchased businesses, and is generally amortized over a 40-year period. At December 31, 1996 and 1995, accumulated goodwill amortization was $6.5 million and $5.9 million, respectively. The Company has evaluated the realizability of goodwill based upon expectations of undiscounted cash flows and operating income of the related business unit and has concluded that no impairment exists. CAPITALIZATION OF INTEREST. The Company capitalizes interest costs during the development period of certain properties. Total interest capitalized was approximately $.4 million in 1996, $.3 million in 1995 and $.8 million in 1994. ENVIRONMENTAL COMPLIANCE. At the present time, compliance with federal, state, and local provisions with respect to environmental protection and regulation has not had a material impact on the Company's capital expenditures, earnings, or competitive position. The Company believes compliance with respect to environmental matters will not have a material adverse effect on the Company's financial position, future operations or cash flows. INCOME TAXES. Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to be recovered or settled. 32 SELF-INSURANCE LIABILITIES. The Company is self-insured for certain levels of general liability (including product liability) and workers' compensation coverage. The costs and balance sheet accruals for self-insurance programs are based on actuarial calculations prepared by outside actuaries. Adjustments to recorded reserves of continuing operations are reflected in current operating results. EARNINGS PER SHARE. Earnings per common share are based upon the weighted average number of shares outstanding during each year, including allocated ESOP shares and the common stock equivalents of stock options. STOCK OPTIONS. The Company accounts for stock options under APB Opinion No. 25, under which no compensation cost has been recognized. 33 (2) Restructuring and Refinancing Costs: In 1996, Refinancing Costs represent the amortization of prepaid financing costs. In 1995, Refinancing Costs consist of fees to lenders and lessors, principally the 3-1/2% fee related to the August 1, 1994 refinancing of $487 million of debt and leases. The 1994 Restructuring and Refinancing Costs were comprised of: (1) restructuring costs related to revaluation and write-down of properties held for sale to current realizable market value; (2) refinancing costs for professional and lender fees related to the Company's liquidity crisis of late 1993 and the first half of 1994 and the resultant Override Agreement which restructured $487 million of debt and leases on August 1, 1994; and (3) other various nonrecurring expenses not associated with the ongoing operations of the business. The 1994 revaluation of properties resulted from the Company's Strategic Business Plan to focus on manufacturing operations and to thereby limit the Company's active real estate development activities. The Company is developing three key properties and has been marketing for orderly sale its other real estate holdings including development land, headquarter complexes and former plants. These sales will benefit the Company by reducing current carrying costs such as real estate taxes, insurance and mortgage interest. (in thousands) Asset Revaluation $23,516 Refinancing Fees to Professionals and Lenders 22,295 Other 9,393 $55,204 34 (3) Discontinued Operations: In October, 1996, the Board of Directors decided to sell the Taylor Environmental Instruments business. Prior year financial statements have been restated and are summarized as follow: (in thousands) As Previously Reported Taylor As Restated 1995: Net Sales $ 359,032 $ (18,214) $ 340,818 Loss from Continuing Operations (10,493) (1,871) (12,364) Loss from Discontinued Operations (5,597) 1,871 (3,726) Net Loss $ (16,090) $ - $ (16,090) 1994: Net Sales $ 319,420 $ (20,095) $ 299,325 Loss from Continuing Operations (85,247) (1,537) (86,784) Loss from Discontinued Operations (81,483) 1,537 (79,946) Net Loss $ (166,730) $ - $ (166,730) Loss on Disposal in 1996 represents a loss provision of $28.3 million, which is net of a tax benefit of $15.2 million, recorded by the Company in the fourth quarter of 1996. The provision reflects valuation adjustments to recorded assets arising from and accruals for costs and probable losses on obligations related to previously discontinued businesses. The loss consists of a $20.5 million addition to the self-insurance accrual as a result of a December, 1996 actuarially-prepared valuation of the liabilities to negotiate the sale of a minority position to a third party; a $14.8 million write-down of carrying value of net assets related to discontinued operations and of deferred proceeds to reflect negotiated resolutions of disputes and events that gave rise to greater risk of realization; a $2.6 million reserve for litigation arising from the businesses of the discontinued units and a $5.6 million accrual to buyout certain employee benefit legacy obligations. The $5.6 million loss on disposal in 1995 consisted of a $21.6 million loss on the disposal of businesses, $4.0 million loss on operating losses of the businesses prior to disposal in excess of the 1994 provision, and an income tax benefit of $20.0 million. The $38.6 million loss on disposal in 1994 consisted of an estimated loss on the disposal of businesses of $4.0 million, a provision of $8.9 million for anticipated operating losses until disposal, and income taxes of $25.7 million. 35 The contract terms under which businesses were divested included representations and warranties, covenants and indemnification provisions made (a) by the Company to purchasers of the businesses and (b) by purchasers of businesses to the Company. Each transaction has contract terms specific to that transaction. The extent of representations and warranties made ranged from those qualified by time, knowledge, and dollar materiality to those representations and warranties which are unqualified. Covenants require the Company to act, or prevent the Company from acting, in a variety of ways, such as not competing with the purchasers of a business. Covenants also require the purchasers to act, or prevent them from acting, in a variety of ways. The duration of covenants ranges from those effective for a specified period of time to those which are indefinite. Remedies available for breaches of representations and warranties and covenants range from monetary relief in specific amounts for specific breaches or violations to unlimited amounts. Under the contracts, the Company has generally retained liability for events that occurred prior to sale. The Company believes that it has established appropriate accruals for losses that may arise, such as workers' compensation, product liability, general liability, environmental risks and federal and state tax matters. The Company has indemnified purchasers and has received indemnifications from purchasers for a variety of items. In some transactions, a portion of the purchase price was held back or escrowed at banks to support indemnification provisions. Such amounts are reflected within the assets of the Company as deferred divestiture proceeds. Proceeds and other consideration from divestitures which will be paid to the Company upon fulfillment of contractual provisions, the passage of time, or the occurrence of future events have been recorded as non-current assets. Deferred divestiture proceeds consist of cash held in bank escrow accounts, cash held back by purchasers, receivables expected from purchasers arising from final calculations of the purchase price and cash due to the Company from future tax benefits under a tax sharing agreement with an unaffiliated public company, Rawlings Sporting Goods, Inc. Net assets related to discontinued operations as of December 31, 1996 in the amount of $7.4 million represent the net assets of Willoughby Assurance, Ltd., a dormant reinsurance subsidiary of the Company, installation contracts in process of completion from the "Automatic" Sprinkler business and former facilities of discontinued business units. Deferred divestiture proceeds and net assets related to discontinued operations include managements' best estimates of the amounts expected to be realized on the collection and sale of discontinued operations. The amounts the Company will ultimately realize could differ materially from the amounts recorded. The Company has established a reserve of $21.7 million at December 31, 1996 and $20.8 million at December 31, 1995 against these assets, which is presented as a deduction from deferred divestiture proceeds. 36 (4) Income Taxes: Income tax provision (benefit) consists of the following components: (in thousands) Continuing Operations: 1996 1995 1994 Currently Payable: Federal $ 25,384 $ - $ (8,108) Recognition of Asset Carryforwards (25,384) - - State - - 602 $ 0 $ 0 $ (7,506) Deferred and other: Federal (17,149) - (15,480) Recognition of Asset Carryforwards (10,563) - - Total from Continuing Operations (27,712) 0 (15,480) Discontinued Operations: Operations 690 - (20,174) Disposal (15,228) (20,009) 25,654 Total from Discontinued Operations (14,538) (20,009) 5,480 Total Tax Benefit $(42,250) $(20,009) $(17,506) A reconciliation of the actual tax provision (benefit) to the U.S. federal income tax rate effective for each year for continuing operations is as follows: 1996 1995 1994 Statutory Federal Tax Rate 35.0% (35.0)% (35.0)% Foreign Sales Corporation - (0.1) (0.4) International Rate Differential - - (0.4) Goodwill 2.5 4.6 0.3 Other (net) 1.9 2.4 (0.7) State Income Taxes (Net of Federal Tax) - - 0.3 Valuation Allowance (Net of Tax Credits) (161.8) 28.1 14.7 Effective Tax Rate (Benefit) (122.4)% 0 % (21.2)% The components of the net deferred tax asset as of December 31, 1996 and 1995 are as follows: (in thousands) 1996 1995 Deferred Tax Assets: Deferred Compensation Plans $ 4,525 $ 1,212 Insurance and Other Reserves 15,780 9,594 Contingency Reserves 2,200 2,158 Inventory Reserves 596 253 Operating Losses and Tax Credit Carryforwards 63,975 17,558 Discontinued Operations and Other 2,002 23,301 Total Deferred Tax Assets $ 89,078 $ 54,076 Deferred Tax Liabilities: Property, Plant and Equipment $(19,156) $(27,866) Benefit Plans (3,104) (3,300) Discontinued Operations and Other (23,623) (22,910) Total Deferred Tax Liabilities $(45,883) $(54,076) Net Deferred Tax Assets $ 43,195 $ 0 37 As of December 31, 1996, for tax reporting purposes, the Company has tax credit carryforwards of $20.7 million, and operating loss and charitable contribution deduction carryforwards of $123.5 million($43.2 million tax) which will begin to expire in 2005 and 2008, respectively. Based on the Company's sustained profitability over the last six quarters and the historic operating earnings of the continuing divisions, management has determined that operating income will more likely than not be sufficient to recognize fully all deferred tax assets. Therefore, the financial statements reflect the benefit for previously reserved attributes, offset by reconciliation to return items. The Company has capital loss carryforwards of $39.5 million ($13.8 million tax) which it incurred in the current year. At the present time, the Company does not have sufficient capital gains in order to use these losses. These losses will be recognized when and if the Company incurs capital gains. Realization of tax carryforwards is dependent on future taxable income and amounts realized are subject to tax regulations which include limitations by year and type of tax attribute being carried forward. The Company has similar carryforward attributes for federal alternative minimum tax purposes and for state income tax purposes. Accumulated unremitted foreign earnings are not material and any liability related to the remittance of foreign earnings would not be material to the financial statements. (5) Inventories: Inventories are summarized as follows: (in thousands) 1996 1995 Manufacturing Inventories: Raw materials $ 21,332 $ 20,519 Work in process 18,953 12,741 Finished goods 20,907 11,966 Inventory reserves (1,827) (1,385) Total Inventories $ 59,365 $ 43,841 38 (6) Receivables: Receivables consist of the following components (in thousands): 1996 1995 U.S. Government Billed $12,688 $11,604 Unbilled 14,919 16,713 27,607 28,317 Commercial Billed 28,138 25,448 Allowance for Uncollectible Accounts (311) (303) $55,434 $53,462 U.S. Government receivables include amounts derived from contracts on which the Company performs on a prime contractor or subcontractor basis. Unbilled receivables represent the difference between revenue recognized on a percentage of completion basis for financial accounting and reporting purposes and amounts permitted to be billed to customers under contract terms. These amounts will be billed in subsequent periods based on provisions of the agreements. (7) Credit Facility: As of December 31, 1996, the Company has a $75 million, revolving credit loan and letter of credit facility ("Credit Agreement"). Within the Credit Agreement, the Company can issue up to $60 million in letters of credit. Borrowings are available up to the lesser of $75 million or a borrowing base which is tied to eligible receivables, inventory and equipment, less 50% of outstanding letters of credit. At the Company's option, borrowings bear interest at alternate rates based on the U.S. prime rate or LIBOR plus 200 to 250 basis points. The facility is secured by certain accounts receivable, inventory, machinery and equipment and intangibles. The facility contains various affirmative and negative covenants, including restrictions on dividends and certain financial covenants. The financial covenants include limitations on capital expenditures and requirements as to minimum tangible net worth, minimum earnings before interest, taxes, depreciation and amortization, the current ratio and the fixed charge coverage ratio. The facility expires on January 1, 1999. As of December 31, 1996, $15.6 million of letters of credit were outstanding under the facility, there were no borrowings outstanding ($29.4 million was available) and all financial covenants have been satisfied. 39 (8) Long-Term Debt: Long-term debt at December 31, 1996 and 1995 consisted of the following: (in thousands) 1996 1995 Carrying Fair Carrying Fair Value Value Value Value 9.875% Senior Notes due 1999 $174,000 $180,960 $174,000 $176,610 10.375% Debentures due 1998 - 8,000 8,040 Mortgage Notes 11,076 11,076 30,301 30,301 Obligations under Capital Lease 1,180 1,180 2,027 2,027 Total 186,256 $193,216 214,328 $216,978 Less - Current Maturities (2,100) (19,373) Long-Term Debt $184,156 $194,955 The 9.875% Senior Notes are due October 1, 1999. Interest is payable semi-annually on April 1 and October 1. The 10.375% subordinated Debentures were prepaid by the Company in August 1996. Mortgage notes are secured by real property, are due at various dates through 2009 and bear interest at rates ranging from 7.5% to 10.52%. Current maturities of long-term debt at December 31, 1995 include $15.7 million of 10.52% mortgage notes which the Company purchased from the noteholder on December 29, 1995 with a settlement date of January 31, 1996. The fair value estimates were made as follows: the Senior Notes were based on the market price at which the debt traded near year-end; the Debentures were based on management's estimates; and the mortgages were based on carrying value given their collateralized nature. The scheduled principal payments for long-term debt are as follows: 1997 - $ 2.1 million; 1998 - $ 1.2 million; 1999 - $ 175.0 million; 2000 - $ 1.1 million; and 2001 and after - $ 6.9 million. 40 (9) Leases: The Company leases manufacturing equipment under operating leases. Rental commitments under non-cancelable operating leases as of December 31, 1996 were as follows (in thousands): Discontinued Continuing Operations Operations Total Year Ending December 31, 1997 $ 1,972 $ 7,629 $ 9,601 1998 1,691 6,545 8,236 1999 790 3,541 4,331 2000 0 570 570 2001 & Beyond 0 633 633 Total minimum payments required $ 4,453 $18,918 $23,371 At the termination of the equipment leases, which is principally over the period December 1998 through June 1999, the Company is effectively required to purchase the equipment for a fixed price of approximately one-third the original lease value. As a result of these provisions and the anticipated need for continued use of the equipment in the Company's operations, the Company currently expects to purchase this equipment. The purchase price would be $9.3 million, less prepaid rent of $2.6 million. As to leased machinery and equipment that was not sold with divested business units, the Company is satisfying the rental payments through its internal funds until such equipment is sold or subleased. Operating lease expense for continuing operations was approximately $7.6 million, $ 8.9 million, and $14.1 million in 1996, 1995, and 1994, respectively. The Company also leases equipment under arrangements that are classified as capital leases. The following is a summary of assets under capital leases: (in thousands) December 31 1996 1995 Machinery and equipment $ 657 $ 719 Less accumulated amortization 375 377 Net $ 282 $ 342 Future minimum lease payments under capital leases and their present value as of December 31, 1996 are as follows: Year Ending December 3l, (in thousands) 1997 $ 946 1998 268 Total minimum lease payments 1,214 Less amount representing interest (34) Present value of net minimum lease payments $ 1,180 41 (10) Contingent Liabilities: The Company and its subsidiaries are defendants in various lawsuits arising in the ordinary course of business. In the opinion of management, any liability with respect to these matters will not have a material adverse effect on the Company's financial statements. Costs charged by the Company to the U.S. Government in the performance of U.S. Government contracts are subject to inquiry and audit. Several years are open. The Company has provided a reasonable reserve for possible disallowed costs. The Company has been cooperating with the U.S. Government in two crimianl investigations, one involving possible improprieties at a facility where a division of the Company was a supplier, and the second involving the amount of corporate charges allocated to certain of the Company's operating units. The Company has furnished documents and other information and denies any wrongdoing in both investigations. Nevertheless, the ultimate resolution of these matters could result in sanctions and damages sought by the government, and affect the Company's ability to obtain future government contracts. 42 (11) Pension and Retirement Benefits Plans: The Company has pension plans covering the majority of its employees. The plan benefits for salaried employees are based on employees' earnings during their years of participation in the plan. Hourly employees' plan benefits are based on various dollar units multiplied by the number of years of eligible service as defined in each plan. The Company's policy has been to fund amounts as necessary on an actuarial basis to comply with the Employee Retirement Income Security Act of 1974. In addition, the Company has a nonqualified supplemental retirement plan covering certain officers and senior executives. The components of net periodic pension expense and the actuarial assumptions used in accounting for the benefit plans for the years ended December 31 are as follows: (dollars in thousands) 1996 1995 1994 Service cost $ 2,054 $ 2,558 $ 4,220 Interest cost on projected benefit obligation 5,385 5,408 5,803 Actual (gain) loss on plan assets (8,880) (10,866) 2,680 Net amortization and deferral of actuarial gains (losses) 2,716 5,811 (8,501) $ 1,275 $ 2,911 $ 4,202 Assumptions: Weighted average discount rates 7.50% 7.50% 8.25% Rate of increase in compensation level 5.00% 5.00% 5.00% Expected long-term rate of return on assets 10.00% 10.00% 10.00% The funded status of the Company's domestic and international plans, along with the reconciliation to amounts reported in the consolidated balance sheets, were as follows: December 31, 1996 December 31, 1995 Assets Accum. Assets Accum. Exceed Benefits Exceed Benefits Accum. Exceed Accum. Exceed (in thousands) Benefits Assets Benefits Assets Actuarial Present Value of Benefit Obligations: Accumulated benefit obligations $ 58,387 $ 15,109 $ 56,930 $ 13,239 Vested benefit obligations $ 56,034 $ 14,809 $ 53,500 $ 12,626 Plan assets at fair value 66,209 0 61,312 0 Projected benefit obligations (59,686) (15,180) (58,823) (13,308) Assets over (under) projected benefit obligation 6,523 (15,180) 2,489 (13,308) Unrecognized net (assets) liabilities (3,761) 0 (4,331) 799 Unrecognized net (gain) loss 7,606 3,479 11,213 1,538 Unrecognized prior service cost 444 0 521 0 Adjustment required to recognize minimum liability 0 (3,408) 0 (2,268) Prepaid pension cost asset (liability) $ 10,811 $(15,109) $ 9,892 $(13,239) 43 The plans' assets consist primarily of listed common stocks, corporate and government bonds, real estate investments, and cash and cash equivalents. The plans' assets included 27,621 shares of the Company's Class B Common Stock as of December 31, 1996 and 1995, respectively. (12) Capital Stock: Each share of Class A Common Stock is entitled to one-twentieth of one vote per share, while each share of the Class B Common Stock is entitled to one vote per share, except, in each case, with respect to shares beneficially owned by a Substantial Stockholder (as defined in the Company's Restated Certificate of Incorporation, as amended), in which case the voting rights of such stock are governed by the appropriate provisions of the Company's Restated Certificate of Incorporation. Earnings per share were calculated using the following share data. Primary weighted-average shares were used in 1995 and 1994 as fully diluted shares would have been anti-dilutive. 1996 1995 1994 Primary Weighted-Average Number of Shares: Allocated Shares 18,371 17,987 17,723 Common Stock Equivalents of Stock Options 357 215 - Primary Weighted-Average 18,728 18,202 17,723 Fully Diluted Weighted-Average Number of Shares: Unallocated ESOP shares 1994 - - 196 1995 - 196 196 1996 - 196 196 Common Stock Equivalents - 29 - Fully Diluted Weighted-Average 18,728 18,623 18,311 (13) Stock Options: The Figgie International Inc. Key Employees' Stock Option Plan ("The Stock Option Plan") was approved by shareholders on October 19, 1994. The Company accounts for this plan under APB Opinion No. 25, under which no compensation cost has been recognized. Had compensation cost for stock options been determined consistent with FASB Statement No. 123, the Company's operating results would have been calculated as follows: 1996 1995 Net Income (Loss): As Reported $ 23,300 $(16,090) Pro Forma 22,600 (16,486) Primary EPS: As Reported 1.25 (0.89) Pro Forma 1.21 (0.91) Fully Diluted EPS: As Reported 1.25 (0.89) Pro Forma 1.21 (0.91) 44 FASB Statement 123 has not been applied to periods prior to January 1, 1995 since no options were granted until 1995. The Company may grant options for up to 1,500,000 shares. The Company has granted options on 1,031,000 shares through December 31, 1996. Option exercise prices equal the stock's market price on date of grant. Options generally vest after three years and expire after seven years. A summary of the status of the Stock Option Plan at December 31, 1996 and 1995 and changes during the years then ended is presented in the table and narrative below: 1996 1995 Shares Wtd Avg Shares Wtd Avg (000) Ex Price (000) Ex Price Outstanding, Beg of year 769.5 $ 7.12 0.0 Granted 237.5 $11.26 793.5 $ 7.18 Exercised (23.8) $ 7.63 0.0 Cancelled (93.8) $ 9.86 (24.0) $ 9.11 Outstanding, End of year 889.4 $ 7.92 769.5 Exercisable at end of year 292.6 $ 7.06 100.0 $ 6.50 Weighted average fair value of options granted $5.77 $3.82 Of the 889,331 options outstanding at December 31, 1996, 649,331 have exercise prices between $6.50 and $9.75, with a weighted average exercise price of $6.76 and a weighted average remaining contractual life of 5.0 years. 273,171 of these options are exercisable. The remaining 240,000 options have exercise prices between $9.75 and $13.50, with a weighted average price of $11.07 and a weighted average remaining contractual life of 6.1 years. 19,401 of these options are exercisable. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions used for the eight option grants in 1995 and 1996: risk-free interest rates of 5.56, 5.86, 6.23, 6.48, 6.61. 6.76, 7.51, and 7.79 percent; expected dividend yields of 0.00 percent; expected life of 7.0 years; expected volatility of 35.47, 35.90, 36.64, 37.99, 37.99, 38.29, 38.29, and 38.82 percent. 45 (14) Restricted Stock Purchase Plans: Under the 1993 Restricted Stock Purchase Plan for Employees ("Employee Plan"), up to 800,000 shares of Common Stock were authorized for possible issuance and employees have been granted the right to purchase shares of Common Stock at prices substantially below market value. The purchase of Common Stock under this plan entitles the employee to full voting and dividend rights but, generally, the shares cannot be sold, transferred, or pledged, and the certificates representing the shares are retained in the custody of the Company. At the earliest of the employee's retirement, death, or total disability, or the termination of the plan, these restrictions on transferring, pledging, or selling the shares expire, and the employee or heirs take unrestricted custody of the stock. In the event the employee leaves the Company prior to any of these occurrences, the Company can repurchase the shares (or, in the case of retirement, a portion of the shares) at the lower of the original purchase price paid by the employee or the then prevailing market price. In addition, under an employment contract with an executive officer of the Company, the Company is obligated to offer to the officer in 1997 the right to purchase 37,500 Class A shares and the Company accelerated such right to January 2, 1997. On December 4, 1996, the Board decided to terminate the Employee Plan, effective January 2, 1997, and all restrictions on outstanding shares lapsed. Accordingly, the Company wrote-off in 1996 all unearned compensation with respect to this plan. In 1996, the Corporation loaned to an executive officer and director, $430,000 with interest at the applicable federal rate of 5.32% in lieu of the officer and director selling stock and using the proceeds to repay a loan he incurred in order to pay federal income taxes resulting from his purchase of 75,000 shares of Common Stock pursuant to his employment contract. The principal and the interest on the loan are due on March 8, 1997. The Corporation has agreed to pay a bonus in an amount equal to the accrued interest, grossed-up for all applicable taxes, provided that the loan is not in default. As of December 31, 1996, the entire $430,000 is outstanding. Under the 1993 Restricted Stock Purchase Plan for Directors ("Director Plan"), up to 75,000 shares of Class B Common Stock were authorized for possible issuance and certain Directors of the Company have been granted the right to purchase shares of Class B Common Stock at prices substantially below market value. The Director Plan contains restrictions and other provisions similar to those of the Employee Plan. At December 31, 1996, 15,000 shares of Class B Common Stock, subject to the above restrictions, were outstanding under the Director Plan. The excess of market price over purchase price at date of grant for the Director Plan, $0.6 million, is deferred as Unearned Compensation and is being amortized as compensation expense over the restricted period. Unamortized amounts (unearned compensation) are shown as a reduction of stockholders' equity. The following amounts were amortized to expense: 46 (in thousands) 1996 1995 1994 Employee Plan $904 $ 862 $ 245 Director Plan 69 90 193 Total $ 973 $ 952 $ 438 (15) Employee Stock Ownership Plans: The Company had maintained leveraged and non-leveraged employee stock ownership plans. For financial reporting purposes, both plans were curtailed in 1994 and $5,353,000 of the Unamortized Unearned Compensation was written off in 1994. The leveraged ESOP was established in 1989 by borrowing $20 million through a term note that was guaranteed by the Company. The leveraged ESOP used the proceeds from the note to purchase 756,195 Class B shares. Prior to the August 1, 1994 refinancing, the ESOP note was being amortized according to its scheduled term. Contributions to fund the interest requirements of the loan are reflected as interest expense in the accompanying consolidated statements of income, none in 1996 and approximately $382,000 and $545,000 in 1995 and 1994, respectively. The August 1, 1994 refinancing had the effect of requiring the eight-year note to be paid in 1994 and 1995. This acceleration and the Strategic Business Plan that provided for the divestiture of fourteen additional businesses required the Company to expense the Unamortized Unearned Compensation and to curtail the plan for financial accounting purposes. The Board of Directors resolved to allocate to participants all unallocated shares, effective as of December 31, 1994. The non-leveraged ESOP was established in 1989 with the purchase of 1,124,682 Class A and 440,796 Class B shares. The aforementioned divestitures required the Company to expense the Unamortized Unearned Compensation and to curtail the plan for financial accounting purposes. The Board resolved to allocate the unallocated shares, effective as of June 30, 1996. Under the Stock Bonus Trust and Plan, shares of the Company's Class B Common Stock are allocated to eligible employee accounts each December 31 based on salary. The Company did not make contributions to this plan in 1996, 1995, or 1994. The Stock Plan held 269,074 and 197,562 shares of the Company's Class B Common Stock as of December 31, 1996 and 1995, respectively. 47 (16) Industry Segment Data: The Company's operations are conducted through three reportable business segments. These segments are described in Part I, Item 1 on page 4 of this Form 10-K. Page 7 contains a summary of certain financial data for each business segment for 1996, 1995 and 1994. Information concerning the content of this financial data is as follows: Intersegment and foreign sales are immaterial. Operating profit is total revenue less operating expenses (cost of sales, SG&A expense and R&D expense). Operating profit does not include restructuring and refinancing costs, interest expense, interest income, or federal and state income taxes. Identifiable assets are those assets used in the Company's operation for each segment. Corporate assets are principally cash, property and other assets. 48 QUARTERLY FINANCIAL DATA (UNAUDITED) This information is required by the Securities and Exchange Commission and is unaudited. First Second Third Fourth Quarter Quarter Quarter Quarter (in thousands except for per share data) 1996: Net sales $ 96,701 $ 101,415 $ 95,407 $ 92,194 Gross profit 25,461 27,733 25,551 24,409 Net income (loss): Continuing operations 3,841 6,310 5,711 34,440 Discontinued operations 365 109 917 (28,393) Net income $ 4,206 $ 6,419 $ 6,628 $ 6,047 Earnings (loss) per share: Continuing operations $ .20 $ .34 $ 0.31 $ 1.84 Discontinued operations .02 .00 .05 (1.51) Net income (loss) $ .22 $ .34 $ 0.36 $ .33 Fourth quarter adjustments consist of: 1.) $1,000,000 unfavorable, reserve for possible disallowed costs 2.) $2,804,000 favorable, inventory results and warranty experience 3.) $ 710,000 favorable, actuarial pension and self-insurance 1995: Net sales $ 80,840 $ 84,998 $ 87,286 $ 87,694 Gross profit 20,834 20,865 22,092 22,512 Net income (loss): Continuing operations (8,475) (5,822) 298 1,635 Discontinued operations 437 (8) 676 (4,831) Net income (loss) $ (8,038) $ (5,830) $ 974 $(3,196) Earnings (loss) per share: Continuing operations $ (0.46) $ (0.32) $ 0.01 $ 0.09 Discontinued operations .02 (.01) 0.04 (0.26) Net income (loss) $ (0.44) $ (0.33) $ 0.05 $ (0.17) 49 Item 9. Disagreements on Accounting and Financial Disclosure None PART III Item 10. Directors and Executive Officers of the Registrant (a) Identification of Directors Information with respect to the members of the Board of Directors of the Company is set forth under the captions "Nominees for Election as Directors to be Elected for a Term of Three Years" and "Directors Continuing in Office" in the Company's definitive proxy statement to be filed pursuant to Regulation 14A, which information is incorporated herein by reference. (b) Identification of Executive Officers Information with respect to the executive officers of the Company is set forth under the caption "Executive Officers of the Company" contained in Part I, Item 1 of this report, which information is incorporated herein by reference. Item 11. Executive Compensation Information required by this Item is set forth under the captions "Executive Compensation", "Compensation of Directors", "Retirement Plans", "Pension Plan Table" and "Employment and Severance Agreements" in the Company's definitive proxy statement to be filed pursuant to Regulation 14A, which information is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management Information required by this Item is set forth under the captions "Principal Stockholders" and "Stock Ownership of Directors, Nominees for Directors and Executive Officers" in the Company's definitive proxy statement to be filed pursuant to Regulation 14A, which information is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions Information required by this Item is set forth under the caption "Certain Transactions" in the Company's definitive proxy statement to be filed pursuant to Regulation 14A, which information is incorporated herein by reference. 50 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K Page No. (a) Financial Statements, Schedules and Exhibits: 1. Financial Statements Included in Part II of this report: Report of Independent Public Accountants 24 Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995, and 1994 25 Consolidated Balance Sheets at December 31, 1996 and 1995 26-27 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1996, 1995, and 1994 28 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995, and 1994 29 Notes to Consolidated Financial Statements 30-47 Quarterly Financial Data (Unaudited) 48 2. Schedules Included in Part IV of this report: Schedule II - Valuation and Qualifying Accounts for the Years Ended December 31, 1996, 1995 and 1994 54 Report of Independent Public Accountants 55 3. Exhibits: (3) Articles of incorporation and by-laws: (i) The Restated Certificate of Incorporation of the Company, as amended, as Exhibit 19 to the Company's Quarterly Report on Form 10-Q for the quarter ending June 30, 1987, File No. 1-8591, is hereby incorporated herein by reference. (ii) The Bylaws of the Company, as amended and restated effective November 26, 1996. 51 (4) Instruments defining rights of security holders, including indentures, for the following classes of securities: (i) Class A Common Stock, par value $.10 per share, are contained in the Restated Certificate of Incorporation, as amended, incorporated by reference in Exhibit (3)(i) above and are incorporated herein by reference. (ii) Class B Common Stock, par value $.10 per share, are contained in the Restated Certificate of Incorporation, as amended, and incorporated by reference in Exhibit (3)(i) above and are incorporated herein by reference. (iii) Indenture, dated as of October 1, 1989, between Figgie International Inc. and Continental Bank, National Association, as Trustee, with respect to the 9.875% Senior Notes due October 1, 1999, included as Exhibit (4) to the Company's Annual Report on Form 10-K for the year ending December 31, 1989, is hereby incorporated herein by reference. State Street Trust succeeded Continental Bank as Trustee pursuant to an agreement dated as of February 7, 1994, which was included as Exhibit (4)(c) to the Company's Annual Report on Form 10-K for the year ending December 31, 1993, and is hereby incorporated herein by reference. (10) Material contracts: (i)* The Company's Compensation Plan for Executives, included as Exhibit (3)(10)(b) to the Company's Form 8-B filed October 19, 1983 with the Commission, is hereby incorporated herein by reference. (ii)* The Company's Senior Executive Benefits Program, as amended, included as Exhibit (19) to the Company's Quarterly Report on Form 10-Q for the quarter ending September 30, 1988, is hereby incorporated herein by reference. (iii)* The Company's 1983 Deferred Compensation Agreement, included as Exhibit (3)(10)(f) to the Company's Form 8-B filed on October 19, 1983 with the Commission, is hereby incorporated herein by reference. (iv)* The Company's 1982 Deferred Compensation Agreement, included as Exhibit 10(g) to the Company's Annual Report on Form 10-K for the year ending December 31, 1984, File No. 1-8591, is hereby incorporated herein by reference. (v)* The Company's Split Dollar Life Insurance Plan, included as Exhibit 10(h) to the Company's Annual Report on Form 10-K for the year ending December 31, 1985, File No. 1-8591, is hereby incorporated herein by reference. 52 (vi)* The Company's 1993 Restricted Stock Purchase Plan for Employees, included as Exhibit A to the Company's definitive Proxy Statement dated May 25, 1993, is hereby incorporated herein by reference. (vii)* The Company's 1993 Restricted Stock Purchase Plan for Directors, included as Exhibit B to the Company's definitive Proxy Statement dated May 25, 1993, is hereby incorporated herein by reference. (viii)* The Company's Key Employees' Stock Option Plan, included as Exhibit A to the Company's definitive Proxy Statement dated September 22, 1994, is hereby incorporated herein by reference. (ix)* Employment agreement dated July 1, 1994, by and between the Company and Steven L. Siemborski, included as Exhibit 10(b) to the Company's Quarterly Report on Form 10Q for the quarter ending September 30, 1994, is hereby incorporated herein by reference. (x)* Employment Agreement, dated as of January 1, 1995, by and between John P. Reilly and the Company, included as Exhibit 10(p) to the Company's Annual Report on Form 10K for the year ending December 31, 1994, is hereby incorporated herein by reference. (xi) Credit Agreement between the Company and General Electric Capital Corporation, dated as of December 19, 1995; Waiver and Amendment No. 1 dated as of January 30, 1996; Amendment No. 2 dated as of February 19, 1996, included as Exhibit 10(xiv) on Form 10K for the year ending December 31, 1995, is hereby incorporated herein by reference. (xii)* Management Agreement, dated February 1, 1996, by and between Robert D. Vilsack and the Company. (xiii)* Retention Agreement, dated March 20, 1996, by and between Robert D. Vilsack and the Company. (xiv)* Separation Agreement and General Release, dated January 31, 1997, by and between Keith V. Mabee and the Company. (xv)* Management Agreement, dated December 9, 1994, by and between Glen W. Lindemann and the Company. (xvi)* Retention Agreement, dated July 17, 1996, by and between Glen W. Lindemann and the Company. (xvii) Amendment No. 3, dated June 6, 1996, of Credit Agreement between the Company and General Electric Capital Corporation. * Management contracts or compensatory plans filed pursuant to Item 14(c) of the Form 10-K. 53 (21) Subsidiaries of the Company (23) Consents of Independent Public Accountants (27) Financial Data Schedule (b) Reports on Form 8-K: Form 8-K dated March 1, 1996 filed March 15, 1996. (c) See Exhibits to this report. 54 (d) SCHEDULE II FIGGIE INTERNATIONAL INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (in thousands) Balance, Charged Amounts Balance, Beginning to Costs Charged End of Description of Year & Expenses Off Year ALLOWANCE FOR UNCOLLECTIBLE TRADE ACCOUNTS RECEIVABLES Year ended December 31, 1996 $ 303 $ 92 $ (84) $ 311 Year ended December 31, 1995 $ 189 $ 207 $ (93) $ 303 Year ended December 31, 1994 $ 124 $ 249 $ (184) $ 189 ALLOWANCE FOR PROPERTIES HELD FOR SALE Land and Land Improvements $ 7,694 - $(2,350) $ 5,344 Building and Leasehold Improvements 3,490 - (3,490) - Year ended December 31, 1996 $11,184 $ 0 $(5,840) $ 5,344 Land and Land Improvements $12,772 - $(5,078) $ 7,694 Building and Leasehold Improvements 4,083 - (593) 3,490 Year ended December 31, 1995 $16,855 $ 0 $(5,671) $11,184 Land and Land Improvements $ - $12,772 - $12,772 Building and Leasehold Improvements - 4,083 - 4,083 Year ended December 31, 1994 $ 0 $16,855 $ 0 $16,855 ALLOWANCE FOR DEFERRED DIVESTITURE PROCEEDS Year ended December 31, 1996 $20,825 $ 8,519 $(7,601) $21,743 Year ended December 31, 1995 $ 0 $20,825 - $20,825 55 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders, Figgie International Inc.: We have audited in accordance with generally accepted auditing standards, the financial statements of Figgie International Inc. and Subsidiaries included in this Form 10K, and have issued our report thereon dated January 22, 1997. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The financial statement schedule is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP /s/ Cleveland, Ohio, January 22, 1997 56 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. FIGGIE INTERNATIONAL INC. (Company) By /s/ Date: February 3, 1997 S. L. Siemborski Senior Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed as of January 24, 1997 by the following persons on behalf of the Company and in the capacities indicated. By /s/ By /s/ J. P. Reilly, Principal H. Nesbit, II, Director Executive Officer & Director By /s/ By /s/ F. J. Brinkman, Director A. A. Sommer, Jr., Director By /s/ By /s/ G.W. Lindemann, Director S. L. Siemborski, Director (Principal financial and accounting officer) By /s/ By /s/ F. R. McKnight, Director W. M. Vannoy, Director 57 EXHIBIT INDEX (3) Articles of incorporation and by-laws: (i) The Restated Certificate of Incorporation of the Company, as amended, as Exhibit 19 to the Company's Quarterly Report on Form 10-Q for the quarter ending June 30, 1987, File No. 1-8591, is hereby incorporated herein by reference. (ii) The Bylaws of the Company, as amended and restated effective November 26, 1996. (4) Instruments defining rights of security holders, including indentures, for the following classes of securities: (i) Class A Common Stock, par value $.10 per share, are contained in the Restated Certificate of Incorporation, as amended, incorporated by reference in Exhibit (3)(i) above and are incorporated herein by reference. (ii) Class B Common Stock, par value $.10 per share, are contained in the Restated Certificate of Incorporation, as amended, and incorporated by reference in Exhibit (3)(i) above and are incorporated herein by reference. (iii) Indenture, dated as of October 1, 1989, between Figgie International Inc. and Continental Bank, National Association, as Trustee, with respect to the 9.875% Senior Notes due October 1, 1999, included as Exhibit (4)(c) to the Company's Annual Report on Form 10-K for the year ending December 31, 1989, is hereby incorporated herein by reference. State Street Trust succeeded Continental Bank as Trustee pursuant to an agreement dated as of February 7, 1994, which was included as Exhibit (4)(c) to the Company's Annual Report on Form 10-K for the year ending December 31, 1993, and is hereby incorporated herein by reference. (10) Material contracts: (i) The Company's Compensation Plan for Executives, included as Exhibit (3)(10)(b) to the Company's Form 8-B filed October 19, 1983 with the Commission, is hereby incorporated herein by reference. (ii) The Company's Senior Executive Benefits Program, as amended, included as Exhibit (19) to the Company's Quarterly Report on Form 10-Q for the quarter ending September 30, 1988, is hereby incorporated herein by reference. (iii) The Company's 1983 Deferred Compensation Agreement, included as Exhibit (3)(10)(f) to the Company's Form 8-B filed on October 19, 1983 with the Commission, is hereby incorporated herein by reference. (iv) The Company's 1982 Deferred Compensation Agreement, included as Exhibit 10(g) to the Company's Annual Report on Form 10-K for the year ending December 31, 1984, File No. 1-8591, is hereby incorporated herein by reference. 58 (v) The Company's Split Dollar Life Insurance Plan, included as Exhibit 10(h) to the Company's Annual Report on Form 10-K for the year ending December 31, 1985, File No. 1-8591, is hereby incorporated herein by reference. (vi) The Company's 1993 Restricted Stock Purchase Plan for Employees, included as Exhibit A to the Company's definitive Proxy Statement dated May 25, 1993, is hereby incorporated herein by reference. (vii) The Company's 1993 Restricted Stock Purchase Plan for Directors, included as Exhibit B to the Company's definitive Proxy Statement dated May 25, 1993, is hereby incorporated herein by reference. (viii) The Company's Key Employees' Stock Option Plan, included as Exhibit A to the Company's definitive Proxy Statement dated September 22, 1994, is hereby incorporated herein by reference. (ix) Employment agreement dated July 1, 1994, by and between the Company and Steven L. Siemborski, included as Exhibit 10(b) to the Company's Quarterly Report on Form 10Q for the quarter ending September 30, 1994, is hereby incorporated herein by reference. (x) Employment Agreement, dated as of January 1, 1995, by and between John P. Reilly and the Company, included as Exhibit 10(p) to the Company's Annual Report on Form 10K for the year ending December 31, 1994, is hereby incorporated herein by reference. (xi) Credit Agreement between the Company and General Electric Capital Corporation, dated as of December 19, 1995; Waiver and Amendment No. 1 dated as of January 30, 1996; Amendment No. 2 dated as of February 19, 1996, included as Exhibit 10(xiv) on Form 10K for the year ending December 31, 1995, is hereby incorporated herein by reference. (xii) Management Agreement, dated February 1, 1996, by and between Robert D. Vilsack and the Company. (xiii) Retention Agreement, dated March 20, 1996, by and between Robert D. Vilsack and the Company. (xiv) Separation Agreement and General Release, dated January 31, 1997, by and between Keith V. Mabee and the Company. (xv) Managment Agreement, dated December 9, 1994, by and between Glen W. Lindemann and the Company. (xvi) Retention Agreement, dated July 17, 1996, by and between Glen W. Lindemann and the Company. (xvii) Amendment No. 3, dated June 6, 1996, of the Credit Agreement between the Company and General Electric Capital Corporation. (21) Subsidiaries of the Company (23) Consent of Independent Public Accountants (27) Financial Data Schedule 59 EXHIBIT 21 SUBSIDIARIES OF THE COMPANY (AS OF JANUARY 22, 1997) Percentage of Jurisdiction of Securities Owned Name Incorporation By the Company Allied Industrial Distributors California 100% Figgie Acceptance Corporation Delaware 100% Figgie Asia Pte. Ltd. Singapore 100% Figgie Canadian Holdings Ltd. Canada-Federal 100% Figgie Canada Inc. Canada-Federal 100% Figgie Communications Inc. Ohio 100% Figgie do Brasil Industria e Commercio Ltda. (in liq.) Brazil 100% Figgie Foreign Sales Corporation Virgin Islands 100% Figgie (G.B.) Limited United Kingdom 100% Figgie (U.K.) Limited United Kingdom 100% Figgie Sportswear (U.K.) Limited United Kingdom 100% Figgie International (H.K.) Ltd. Hong Kong 100% Figgie International Real Estate Inc. Delaware 100% Cafig Inc. Delaware 100% Dusk Corporation Delaware 100% Figgie Investment Trustee Limited United Kingdom 50% Figgie Leasing Corporation Delaware 100% Figgie Licensing Corporation Delaware 100% Figgie Packaging Systems Pty. Ltd. Australia 100% Figgie Pension Trustee Limited United Kingdom 50% Figgie Properties Inc. Delaware 100% Chagrin Highlands Inc. Ohio 100% Cudahy Self Storage, Inc. Wisonsin 100% Figgie Risk Management Company Florida 85% Virginia Center Inc. Virginia 100% Figgie Sportswear Limited United Kingdom 100% FP Sportswear B.V. Netherlands 100% Figgie Transportteknik Sweden AB Sweden 100% Interstate Electronics Corporation California 100% Logan Fenamec Transporttechnik GmbH Germany 100% Mojonnier de Mexico S de RL de CV (in liq) Mexico 49% Mojonnier do Brasil Industria e Commercio de Equipamentos Ltda. (in liq) Brazil 100% Snorkel Elevating Work Platforms Limited New Zealand 100% Snorkel Elevating Work Platforms Pty Limited Australia 100% Willoughby Holdings Inc. Delaware 100% Willoughby Assurance Ltd. Bermuda 100% Willoughby Services, Inc. Delaware 100% Wimbledon Shirt Company Limited United Kingdom 100% 60 EXHIBIT 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K, into the Company's previously filed Registration Statements File No. 33-66208, File No. 33-56705, File No. 33-33177 and File No. 333-12183. ARTHUR ANDERSEN LLP /s/ Cleveland, Ohio, February 3, 1997. EX-3 2 1 Exhibit 3(ii) BYLAWS OF FIGGIE INTERNATIONAL INC. ARTICLE I STOCKHOLDERS SECTION 1. Meetings of Stockholders. (a) Annual Meeting. The annual meeting of the stockholders of the Corporation shall be held at such date and time as shall be determined by the Board of Directors. Upon due notice, there may also be considered and acted upon at an annual meeting any matter which could properly be considered and acted upon at a special meeting. (b) Special Meetings. Special meetings of the stockholders of the Corporation maybe held on any business day when called at any time by the Board of Directors or by acommittee of the Board of Directors which has been duly designated by the Board of Directors and whose powers and authority, as provided in a resolution of the Board of Directors, include the power to call such meetings, but special meetings may not be called by any other person or persons. (c) Place of Meetings. Any meetings of the stockholders may be held at such place within or without the State of Delaware as may be designated in the notice of said meeting. (d) Notice of Meeting and Waiver of Notice. (1) Notice. Written notice of the place, date and hour of every meeting of the stockholders, whether annual or special, shall be given to each stockholder of record entitled to vote at the meeting not less than 10 nor more than 60 days before the date of the meeting. Every notice of a special meeting shall state the purpose or purposes thereof. Such notice shall be given by mail to each stockholder entitled thereto, and shall be directed to the stockholder at his address as it appears on the records of the Corporation. Notice shall be deemed to have been given on the day on which it was deposited in the mail. (2) Record Holder of Shares. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the ownerof shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claims to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. (3) Waiver. Whenever any written notice is required to be given under the provisions of the Certificate of Incorporation, these Bylaws, or by statute, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at nor the purpose of any meeting of the stockholders need be specified in any written waiver of notice of such meeting. Attendance of a person, either in person or by proxy, at any meeting, shall constitute a waiver of notice of such meeting, except where a person attends a meeting for the express purpose of objecting to the transaction of any business because the meeting was not lawfully called or convened. 2 (e) Quorum, Manner of Acting and Adjournment. The holders of record of shares entitled to cast a majority of the votes entitled to be cast by the holders of all shares of the capital stock issued and outstanding (not including treasury stock) and entitled to vote, thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute, by the Certificate of Incorporation, or by these Bylaws. Whether or not a quorum is present, the holders of shares entitled to cast a majority of the votes entitled to be cast by the holders present in person or represented by proxy at the meeting shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At any such adjourned meeting, at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. When a quorum is present at any meeting, the vote of a majority of the votes entitled to be cast by the holders of all issued and outstanding shares present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which, by express provision of the applicable statute or the Certificate of Incorporation or these Bylaws, a different vote is required, in which case such express provision shall govern and control the decision of such question. Except upon those questions governed by the aforesaid express provisions, the stockholders present in person or by proxy at a duly organized meeting can continue to do business until adjournment, notwithstanding withdrawal of enough stockholders to leave less than a quorum. (f) Organization of Meetings. (1) Presiding Officer. Any "executive officer" of the Corporation, as that term is defined in section 3(g) of Article III of these Bylaws, may call all meetings of the stockholders to order and shall act as Chairman thereof. (2) Minutes. The Secretary of the Corporation, or, in his absence or by his designation, an Assistant Secretary, or, in the absence of both, a person appointed by the Chairman of the meeting, shall act as Secretary of the meeting and shall make and keep a record of the proceedings thereat. (3) Stockholders' List. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting. The list shall be arranged in alphabetical order showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. (g) Voting. Except as otherwise provided by statute or the Certificate of Incorporation, every stockholder entitled to vote shall be entitled to cast the vote per share to which stock share is entitled, in person or by proxy, on each proposal submitted to the meeting for each share held of record by him on the record date for the determination of the stockholders entitled to vote at the meeting. At any meeting at which a quorum is present, all questions and business which may come before the meeting shall be determined by a majority of votes cast, except when a greater proportion is required by law, the Certificate of Incorporation, or these Bylaws. 3 (h) Proxies. A person who is entitled to attend a stockholders' meeting, to vote thereat, and execute consents, waivers and releases, may be represented at such meeting or vote thereat, and execute consents, waivers and releases, and exercise any of his rights by proxy or proxies appointed by a writing signed by such person, or by his duly authorized attorney, as provided by the laws of the State of Delaware. SECTION 2. Consent of Stockholders in Lieu of Meeting. Any action required to be taken at any annual or special meeting of stockholdersof the Corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by all the holders of outstanding stock entitled to vote thereon, except as the Certificate of Incorporation may otherwise provide. SECTION 3. Determination of Stockholders of Record. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than 60 or less than 10 days before the date of such meeting, or more than 60 days prior to any other action. If no record date is fixed: (1) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. (2) The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the day on which the first written consent is expressed. (3) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. ARTICLE II DIRECTORS SECTION 1. General Powers. The business, power, and authority of this Corporation shall be exercised, conducted, and controlled by the Board of Directors, except where the law, the Certificate of Incorporation, or these Bylaws require action to be authorized or taken by the stockholders. 4 SECTION 2. Number, Classification, and Election of Directors. (a) Number. The Board of Directors shall consist of not less than 5 nor more than 11 members. At any annual meeting, the stockholders by a vote of a majority of the votes entitled to be cast by the holders of all issued and outstanding shares, may increase or decrease the number of the members of the Board of Directors within the above limitation of 5 to 11 members, and may increase or decrease the number of directors of the class whose term shall expire in that year, provided that such class shall continue to consist of, as nearly as may be, one-third (1/3) of the whole number of the Board of Directors. If the Board of Directors determines prior to any annual meeting that an increase in the number of directors of the class whose term shall expire in that year would cause such class not to consist of, as nearly as may be, one-third (1/3) of the whole number of the Board of Directors, then the stockholders, by the vote specified in this Section 2(a), may increase by one (1) the number of directors of one (1) of the other classes, provided that such class shall continue to consist of, as nearly as may be, one-third (1/3) of the whole number of the Board of Directors. In addition, the Board of Directors may increase or decrease the number of the members of the Board of Directors within the above limitation of 5 to 11 members, and may increase or decrease the number of directors of any class, provided that such class shall continue to consist of, as nearly as may be, one-third (1/3) of the whole number of the Board of Directors. No reduction in the number of directors shall itself have the effectof shortening the term of any incumbent director. (b) Classification. The directors shall be classified in respect of the time for which they shall hold office by dividing them into three classes, each class consisting, as nearly as may be, of one-third (1/3) of the whole number of the Board of Directors. (c) Election. The directors of the appropriate class shall be elected at the annual meeting of stockholders, or if not so elected, at a special meeting of stockholders called for that purpose. At any meeting of stockholders at which directors are to be elected, only persons nominated as candidates shall be eligible for election, and the candidates receiving the greatest number of votes entitled to be cast by the holders of all issued and outstanding shares shall be elected. Directors of the Corporation need not be residents of Delaware or stockholders. No person shall be appointed or elected a director of the Corporation unless: (1) such person is elected to fill a vacancy in the Board of Directors pursuant to section 3(d) of this Article II; (2) such person is nominated for election as a director of the Corporation by the Board of Directors or a committee thereof; or (3) in the case of a nomination to be made by a stockholder of the Corporation at an annual or special meeting of the stockholders, except in the case a nomination for which proxies are being solicited under applicable regulations of the Securities and Exchange Commission or a nomination permitted by the affirmative vote of two-thirds (2/3) of the "whole board," but only if a majority of the members of the Board of Directors acting upon the matter are "continuing directors" (as these terms are defined in section (a) of Article Sixth of the Certificate of Incorporation), written notice of a stockholder's intent to make a nomination at a meeting of stockholders is filed with the Secretary of the Corporation not later than 10 days after the Notice to Stockholders for that meeting is sent to stockholders, or at least 21 days prior to the date fixed for holding the meeting at which the nomination is intended to be made, whichever is later. Such notice of intent to nominate must contain or be accompanied by the following information, which shall be accurate and current as of the date of such notice, or as of a date no earlier than 60 days prior to the meeting at which the nomination is intended to be made, whichever is later: 5 (A) the name and residence of the stockholder of the Corporation who intends to make the nomination: (B) a representation that the stockholder is a holder of record of the voting shares of the Corporation and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (C) such information regarding each nominee as would have been required to be included in a proxy statement filed pursuant to the Securities and Exchange Commission's proxy rules had the Board of Directors of the Corporation nominated or intended to nominate each nominee; (D) a description of all arrangements or understandings among the nominating stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; and (E) the consent of each nominee to serve as a director of the Corporation if so elected. SECTION 3. Term of Office of Directors. (a) Term. The term of office of each class of directors shall be three years (so that the term of one class of directors shall expire each year), and the directors shall hold office for the respective terms to which elected until their respective successors are elected and qualified, subject only to prior resignation, death or removal by the directors as provided by law, and subject to the provisions of the Certificate of Incorporation. (b) Removal. Other than as herein stated, no director may be removed from office except for cause. With prior notice thereof, all the directors, or all the directors of a particular class, or any individual director may be removed for cause by a vote of a majority of the votes entitled to be cast by the holders of all issued and outstanding shares at any meeting of stockholders properly called for that purpose. (c) Resignation. Any director of the Corporation may resign at any time by giving written notice to the Chairman of the Board of Directors or to the President or the Secretary of the Corporation. A resignation from the Board of Directors shall be deemed to take effect immediately or at such other time as the director may specify. (d) Vacancy. If there shall be any vacancy in the Board of Directors for any reason, including but not limited to death, resignation, or as provided by law, the Certificate of Incorporation, or these Bylaws (including any increase in the authorized number of directors), the remaining directors shall constitute the Board of Directors until such vacancy is filled. The remaining directors may fill any vacancy in the Board for the unexpired term. SECTION 4. Meetings of Directors. (a) Meetings. Meetings of the Board of Directors may be held at any time upon call by the Chairman of the Board, or by the President, or by any Vice President, or by any two directors. Unless otherwise indicated in the notice thereof, any business may be transacted at any such meeting. (b) Place of Meeting. Any meeting of directors may be held at such place within or without the State of Delaware as may be designated in the notice of said meetings. 6 (c) Notice of Meeting and Waiver of Notice. Notice of the time and place of any meeting of the Board of Directors and the waiver thereof shall be governed by such rules as the Board of Directors may prescribe. SECTION 5. Quorum and Voting. At any meeting of directors, not less than one-half (1/2) of the directors then in office (or, in the event that the directors than in office are an uneven number, the nearest full number of directors less than one-half (1/2) of such number) is necessary to constitute a quorum for such meeting, except that any meeting duly called, whether a quorum is present or otherwise, may, by vote of a majority of the directors present, be adjourned from time to time. At any meeting at which a quorum is present, all acts, questions and business which may come before the meeting shall be determined by a majority of votes cast by the directors present at such meeting, unless the vote of a greater number is required by the Certificate of Incorporation or Bylaws. SECTION 6. Action of Board of Directors Without a Meeting. Any action which may be authorized or taken at a meeting of the Board of Directors may be authorized or taken without a meeting if approved and authorized by a writing or writings, signed by all the directors, which are filed with the minutes of proceedings of the Board. SECTION 7. Compensation. The Board of Directors is authorized to fix a reasonable salary for directors or a reasonable fee for attendance at any meeting of the Board, the Executive and Finance Committee, or other committees appointed by the Board of Directors, or any combination of salary and attendance fee. In addition, directors may be reimbursed for any expenses incurred by them in traveling to and from such meetings. SECTION 8. Committees. (a) Appointment. The Board of Directors may from time to time, by resolution adopted by a majority of the whole Board, appoint one or more of its members to act as a committee or committees. Each such committee and each member thereof shall serve at the pleasure of the Board. Vacancies occurring in any such committee may be filed by the Board of Directors. (b) Executive and Finance Committee. In particular, the Board of Directors may create from its membership an Executive and Finance Committee, the members of which shall hold office during the pleasure of the Board of Directors and may be removed at any time, with or without cause, by action thereof. During the intervals between meetings of the Board of Directors, the Executive and Finance Committee shall possess and may exercise all of the powers of the Board of Directors in the management and control of the business of the Corporation to the extent permitted by law. All action taken by the Executive and Finance Committee shall be reported to the Board of Directors. (c) Committee Action. Unless otherwise provided by the Board of Directors, a majority of the members of any committee appointed by the Board of Directors pursuant to this section shall constitute a quorum at any meeting thereof and the act of a majority of the members present at a meeting at which a quorum is present shall be the act of such committee. Action may also be taken by any such committee without a meeting by a writing or writings, signed by all its members, which is filed with the minutes of proceedings of the committee. Any such committee shall appoint one of its own number as Chairman who shall preside at all meetings and may appoint a Secretary (who need not be a member of the committee) who shall hold office during the pleasure of such committee. Meetings of any such committee may be held without notice of the time, place or purpose thereof and may be held at such times and places within or without the State of 7 Delaware, as the committee may from time to time determine, at the call of the Chairman or any two members thereof. Any such committee may prescribe such other rules as it shall determine for calling and holding meetings and its method of procedure, subject to any rules prescribed by the Board of Directors. SECTION 9. Conference Telephone Meetings. One or more directors may participate in a meeting of the Board, or of a committee of the Board, by means of conference telephone or similar communications equipment enabling all persons participating in the meeting to hear each other. Participants in a meeting pursuant to this section shall constitute presence in person at such meeting. ARTICLE III OFFICERS SECTION 1. General Provisions The Board of Directors at such time as it determines may elect such executive officers, as defined in section 3(g), as the Board deems necessary. The Chairman of the Board shall be, but the other executive officers may, but need not, be chosen from the members of the Board. Any two or more executive offices may be held by the same person. Other officers may be appointed in the manner provided for in these Bylaws. The election or appointment of an officer for a given term, or a general provision in the Certificate of Incorporation or in the Bylaws with respect to term of office, shall not be deemed to create any contract rights. SECTION 2. Term of Office, Removal, and Vacancies. (a) Term. Each executive officer of the Corporation shall hold office during the pleasure of the Board of Directors and until his successor is elected and qualified, unless he sooner dies or resigns or is removed by the Board of Directors or the Chairman. (b) Removal. The Board of Directors by a majority vote of the members present at a meeting at which a quorum is present or the Chairman acting alone may remove any executive officer at any time, with or without cause. (c) Vacancies. Any vacancy in any executive office may be filled by the Board of Directors or by the Chairman. SECTION 3. Powers and Duties. (a) In general. All officers, as between themselves and the Corporation, shall respectively have such authority and perform such duties as are customarily incident to their respective offices, and as may be specified from time to time by the Board of Directors, regardless of whether such authority and duties are customarily incident to such office. In the absence of any officer of the Corporation, or for any other reason the Board of Directors may deem sufficient, the Board of Directors may delegate from time to time the powers or duties of such officer, or any of them, to any other officer or to any Director. (b) Chairman of the Board. The Chairman of the Board shall, subject to the provisions of these Bylaws, preside at all meetings of the stockholders and of the Board of Directors. The Chairman of the Board shall have general supervision over the Corporation's property, business, and affairs, and perform all the duties usually incident to such office, subject to the direction of the Board of Directors. He may execute all authorized deeds, mortgages, bonds, contracts, and other obligations in the name of the Corporation and shall have such other powers and duties as may be prescribed by the Board of Directors. 8 (c) President. In the absence of the Chairman of the Board, and subject to the provisions of these Bylaws, the President shall preside at all meetings of the stockholders. The President shall be the chief operating officer of the Corporation and perform all the duties usually incident to such office, subject to the direction of the Board of Directors. In case of the absence or disability of the Chairman of the Board, or when circumstances prevent the Chairman of the Board from acting, the President shall perform the duties of the Chairman of the Board, and in such case, may execute all authorized deeds, mortgages, bonds, contracts and other obligations, in the name of the Corporation. (d) Vice Presidents. The Vice Presidents shall have such powers, duties and titles as may be prescribed by the Board of Directors or as may be delegated by the Chairman of the Board of by the President. (e) Secretary. The Secretary shall keep the minutes of all meetings of the stockholders and the Board of Directors. He shall keep such books as may be required by the Board of Directors, shall have charge of the scal, if any, of the Corporation and shall be permitted, subject to the provisions of these Bylaws, to give notices of stockholders' and directors' meetings required by law or by these Bylaws, or otherwise, and have such other powers and duties as may be prescribed by the Board of Directors or the Chairman of the Board. (f) Treasurer. The Treasurer shall receive and have charge of all money, bills, notes, bonds, stock in other corporations and similar property belonging to the Corporation, and shall do with the same as shall be ordered by the Board of Directors. He shall keep accurate financial accounts, and hold the same open for inspection and examination by the directors. On the expiration of his term of office, he shall turn over to his successors, or to the Board of Directors, all property, books, papers, and money of the Corporation in his hands, and shall possess such other powers and duties as may be prescribed by the Board of Directors or the Chairman of the Board. (g) Executive Officers. The officers referred to in subparagraphs (b), (c), (d),(e), and (f) of this section and such other officers as the Board of Directors may be resolution identify shall be executive officers of the Corporation and may be referred to as such. (h) Other Officers. The Assistant Secretaries, Assistant Treasurers, if any, and any other subordinated officers shall be appointed and removed by the executive officer at whose pleasure each shall serve and shall have such powers and duties as such executive officer may prescribe. SECTION 4. Compensation. The Board of Directors is authorized to determine or to provide the method of determining the compensation of all officers. ARTICLE IV SECURITIES HELD BY CORPORATION SECTION 1. Transfer of Securities Owned by the Corporation. All endorsements, assignments, transfers, share powers, or other instruments of transfer of securities standing in the name of the Corporation shall be executed for an in the name of the Corporation by the Chairman of the Board, or by the President, or by any Vice President, or by the Secretary or Treasurer or by any additional person or persons as may be thereunto authorized by the Board of Directors. 9 SECTION 2. Voting Securities Held by the Corporation. The Chairman of the Board, or the President, or any Vice President, or the Secretary or Treasurer, in person or by another person thereunto authorized by the Board of Directors, in person or by proxy or proxies appointed by him, shall have full power and authority on behalf of the Corporation to vote, act and execute consents, waivers and releases with respect to any securities issued by other corporations which the Corporation may own. ARTICLE V SHARE CERTIFICATES SECTION 1. Transfer and Registration of Certificates. The Board of Directors shall have authority to make such rules and regulations, not inconsistent with law, the Certificate or these Bylaws, as it deems expedient concerning the issuance, transfer and registration of certificates for shares and the shares represented thereby. SECTION 2. Certificates for Shares. Each holder of shares is entitled to one or more certificates for shares of the Corporation in such form not inconsistent with law and the Certificate of Incorporation as shall be approved by the Board of Directors. Each such certificate shall be signed by the Chairman of the Board or the President or any Vice President, and by the Secretary, an Assistant Secretary, the Treasurer, or an Assistant Treasurer of the Corporation, which certificate shall certify the number and class of shares held by each stockholder in the Corporation, but no certificates for shares shall be executed or delivered until such shares are fully paid. Any of or all the signatures upon such certificate may be a facsimile, engraved or printed. In case any officer, transfer agent or registrar who has signed, or whose facsimile signature has been placed upon, any share certificate shall have ceased to be such officer, transfer agent or registrar, before the certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent or registrar at the date of its issue. SECTION 3. Transfer Agents, Registrars and Dividend Disbursing Agents. The Board of Directors may from time to time by resolution appoint one or more incorporated transfer agents and registrars (which may or may not be the same corporation) for the shares of the Corporation, and the Board of Directors from time to time by resolutions may appoint a dividend disbursing agent to disburse any and all dividends authorized by the Board of Directors payable upon the shares of the Corporation. SECTION 4. Transfers. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. No transfer shall be made which would be inconsistent with the provisions of Article 8, Title 6 of the Delaware Uniform Commercial Code--Investment Securities. SECTION 5. Lost, Stolen or Destroyed Certificates. The Corporation may issue a new certificate for shares in place of any certificate or certificates heretofore issued by the Corporation alleged to have been lost, stolen or destroyed and upon the making of an affidavit of that fact by the person claiming the certificate of stock to have been lost, stolen or destroyed. When authorizing such issue of a new certificate 10 or certificates, the Board of Directors may, in its discretion, and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representatives, to attest the same in such manner as it shall require and to give the Corporation a bond in such sum and containing such terms as the Board may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate or certificates alleged to have been lost, stolen, or destroyed. SECTION 6. Protection of Corporation. The Corporation may treat a fiduciary as having capacity and authority to exercise all rights of ownership in respect to shares of record in the name of the decedent holder, person, firm or corporation in conservation, receivership or bankruptcy, minor, incompetent person, or person under disability, as the case may be, for whom he is acting, or a fiduciary acting as such, and the Corporation, its transfer agent and registrar, upon presentation of evidence of appointment of such fiduciary shall be under no duty to inquire as to the powers of such fiduciary and shall not be liable to any firm, person, or corporation for loss caused by any act done or omitted to be done by the Corporation or its transfer agent or registrar is reliance thereon. ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, AND OTHER AUTHORIZED REPRESENTATIVES SECTION 1. Indemnification of Authorized Representative in Third Party Proceedings. The Corporation shall indemnify any person who was or is an "authorized representative" of the Corporation (which shall mean for purposes of this Article a director or officer of the Corporation, or a person serving at the request of the Corporation as a director, officer, or trustee, of another corporation, partnership, joint venture, trust or other enterprise) and who was or is a "party" (which shall include for purposes of this Article the giving of testimony or similar involvement) or is threatened to be made a party to any "third party proceeding" (which shall mean for purposes of this Article the giving of testimony or similar involvement) or is threatened to be made a party to any "third party proceeding" (which shall mean for purposes of this Article any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative, other than an action by or in the right of the Corporation) by reason of the fact that such person was or is an authorized representative of the Corporation, against expenses (which shall include for purposes of this Article attorneys' fees), judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such third party proceeding if such person acted in good faith and in a manner such person reasonably believed to be in, or not opposed to , the best interests of the Corporation and, with respect to any criminal third party proceedings (which could or does lead to a criminal third party proceeding) had no reasonable cause to believe such conduct was unlawful. The termination of any third party proceeding by judgment, order, settlement, indictment, conviction, or upon a plea of nolo contendere or its equivalent, shall not of itself create a presumption that the authorized representative did not act in good faith and in a manner which such person reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal third party proceeding, had reasonable cause to believe that such conduct was unlawful. SECTION 2. Indemnification of Authorized Representatives in Corporate Proceedings. The Corporation shall indemnify any person who was or is an authorized representative of the Corporation and who was or is a party or is threatened to be made a party to any "corporate proceeding" (which shall 11 mean for purposes of this Article any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor or investigative proceeding by the Corporation) by reason of the fact that such person was or is an authorized representative of the Corporation, against expenses actually and reasonably incurred by such person in connection with the defense or settlement of such corporate action if such person acted in good faith and in a manner reasonably believed to be in, or not opposed to , the best interests of the Corporation, except that no indemnification shall be made in respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery or the court in which such corporate proceeding was pending shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such authorized representative is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. SECTION 3. Mandatory Indemnification of Authorized Representatives. To the extent that an authorized representative of the Corporation has been successful on the merits or otherwise in defense of any third party or corporate proceedings or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses actually and reasonably incurred by such person in connection therewith. SECTION 4. Determination of Entitlement to Indemnification. Any indemnification under section 1, 2, or 3 of this Article (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the authorized representative is proper in the circumstances because such person has either met the applicable standard of conduct set forth in section 1 or 2 or has been successful on the merits or otherwise act forth in section 3 and that the amount requested has been actually and reasonably incurred. Such determination shall be made: (1) by the Board of Directors by a majority of a quorum consisting of directors who were not parties to such third party or corporate proceedings; or (2) If such a quorum is not obtainable, or, even if obtainable a majority vote of such a quorum so directs, by independent legal counsel in a written opinion; or (3) by the stockholders. SECTION 5. Advancing Expenses. Expenses actually and reasonably incurred in defending a third party or corporate proceeding shall be paid on behalf of an authorized representative by the Corporation in advance of the final disposition of such third party or corporate proceedings upon receipt of an undertaking by or on behalf of the authorized representative to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation as authorized in this Article. SECTION 6. Employee Benefit Plans. For purposes of this Article, the Corporation shall be deemed to have requested an authorized representative to serve an employee benefit plan where the performance by such person of duties to the Corporation also imposes duties on, or otherwise involves services by, such person to the plan or participants or beneficiaries of the plan; excise taxes assessed on an authorized representative with respect to an employee benefit plan pursuant to applicable law shall be deemed "fines"; and action taken or 12 omitted by such person with respect to an employee benefit plan in the performance of duties for a purpose reasonably believed to be in the interest of the participant and beneficiaries of the plan shall be deemed to be for a purpose which is not opposed to the best interest of the Corporation. SECTION 7. Scope of Article. The indemnification of and advancement of expenses to authorized representatives, as authorized by this Article, shall (1) not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any statute, agreement, vote of stockholders or disinterested directors or otherwise both as to action in an official capacity and as to action in other capacities, (2) continued as to a person who has ceased to be an authorized representative, and (3) inure to the benefit of the heirs, executors, and administrators of such person. SECTION 8. Reliance on Provisions. Each person who shall act as an authorized representative of the Corporation shall be deemed to be doing so in reliance upon rights of indemnification provided by this Article. ARTICLE VII FISCAL YEAR The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors and shall remain as fixed until changed by resolution of the Board from time to time. ARTICLE VIII CONSISTENCY WITH CERTIFICATE OF INCORPORATION If any provision of these Bylaws shall be inconsistent with the Corporation's Certificate of Incorporation (and as they may be amended from time to time), the Certificate of Incorporation (as so amended at the time) shall govern. ARTICLE IX AMENDMENTS Except as otherwise provided in the Certificate of Incorporation, these Bylaws may be altered, amended, or repealed or new bylaws may be adopted by the stockholders or by the Board of Directors at any regular meeting of the stockholders or of the Board of Directors or at any special meeting of the stockholders or of the Board of Directors if notice of such alteration, amendment, repeal or adoption of new bylaws be contained in the notice of such special meeting. EX-10 3 1 Exhibit 10(xii) MANAGEMENT AGREEMENT This MANAGEMENT AGREEMENT is entered into as of this 1st day of February, 1996, by and between Figgie International Inc. (the "Company") and Robert D. Vilsack (the "Executive"). WHEREAS, the Executive is presently in the employ of the Company as General Counsel of the Company; and WHEREAS, the Company desires to retain the employment of the Executive and the Executive desires to continue to serve the Company in such capacity; and WHEREAS, the Company and the Executive desire to set forth in a written agreement the terms and provisions of such employment and of certain severance and other payments to be made to the Executive under certain circumstances; NOW THEREFORE, in consideration of the foregoing, the mutual covenants and agreements set forth in this Agreement and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the Company and the Executive agree as follows: Article 1. Term of Employment The Company will employ the Executive in accordance with the terms and conditions set forth herein commencing as of the date of this Agreement and extending for an initial period of three (3) years, subject, however, to earlier termination as expressly provided herein. The Executive will continue to serve the Company as General Counsel or in such other future capacity as he and the Company might mutually agree and will devote his full business time and best efforts to the satisfactory discharge of the responsibilities of his office, performing such other duties as might reasonably be requested by the Company's Chief Executive Officer or his designee. 2 The initial three (3) year period of employment will be automatically extended for one (1) additional year at the end of the initial three (3) year term, and then again after each successive year thereafter. However, either party may terminate this Agreement at the end of the initial three (3) year period, or at the end of any successive one (1) year term thereafter, by giving the other party written notice of intent not to renew, delivered at least three (3) months prior to the end of such initial period or successive term. In the event such notice of intent not to renew is properly delivered, this Agreement, along with all corresponding rights, duties, and covenants will automatically expire at the end of the initial period or successive term then in progress. Article 2. Employment Terminations 2.1 Termination Due to Retirement or Death. In the event the Executive's employment is terminated by reason of retirement or death during the term of this Agreement, the Executive's benefits will be determined in accordance with the Company's retirement, survivor's benefits, insurance, Compensation Plan for Executives and other applicable programs then in effect. For purposes of this Paragraph 2.1, the determination of whether a termination qualifies as a retirement will be made in accordance with the then established rules and definitions of either; 1) the Company's Senior Executive Benefits Plan if the Executive is a participant in such Plan, or 2) the Company's tax qualified retirement plan if the Executive is not a participant in the Company's Senior Executive Benefits Plan. 3 2.2 Termination Due to Disability. In the event the Executive during the term ofthis Agreement becomes, in the opinion of the Company and based upon reasonable medical opinion, so disabled as to be unable to satisfactorily perform his duties hereunder, the Company will have the right to terminate this Agreement and the Executive's employment upon thirty (30) days written notice to the Executive. In such event, the Executive's benefits will be determined in accordance with the Company's disability and other applicable plans and programs then in effect. 2.3 Voluntary Termination by the Executive. The Executive may terminate this Agreement and his employment at any time by giving the Company written notice of intent to terminate, delivered at least ninety (90) calendar days prior to the effective date of such termination. The Company will pay the Executive his full base salary, at the rate then in effect, through the effective date of such termination, plus all other benefits to which the Executive has a vested right at that time. 2.4 Termination by the Company Without Cause. The Executive acknowledges that he is, has been and will continue at all times to be an at-will employee of the Company and as such his employment has been and continues to be terminable by either the Executive or the Company at any time upon notice to the other and for any reason not prohibited by law. However, if the Company terminates the Executive's employment and this Agreement without Cause (as defined in Section 2.5 hereof), the Company will in lieu of any severance which may otherwise be payable, continue to pay to the Executive for twelve (12) full calendar months following the date of such termination his monthly base salary at the rate in effect as of the date of such termination in accordance with the Company's normal payroll practices. In addition, the Company throughout such twelve (12) calendar month period will continue the Executive's life insurance and 4 health care benefits coverage on the same terms and at the same cost to the Executive as would be applicable to a similarly situated full-time employee provided however, that in the event the Executive begins to receive comparable life insurance and health care benefits (determined at the sole discretion of the Company) from a subsequent employer during such twelve (12) month period, the Company may immediately terminate its life insurance and health care benefits coverage of the Executive. Coverage under the Company's health care benefits plan will be in lieu of health care continuation under the Consolidated Omnibus Budget Reconciliation Act ("COBRA") for periods such coverage is in effect under this Agreement. Following such termination of the Executive's employment without Cause, the Company will pay for the costs of outplacement services on behalf of the Executive provided however, that the total fee paid will be limited to an amount equal to fifteen percent (15%) of the Executive's annual base salary rate as of the effective date of termination. The Company will also continue to be obligated to pay when due all other benefits to which the Executive has a vested right according to the provisions of any applicable retirement or other benefit plan or program. The Company and the Executive thereafter will have no further obligations under this Agreement. 2.5 Termination For Cause. Nothing in this Agreement will be construed to prevent the Company from terminating the Executive's employment for Cause and without any further duty or obligation under this Agreement. As used herein, "Cause" will be determined by the Company in the exercise of good faith and reasonable judgement and will include any breach of this Agreement by the Executive or any act by him 5 of gross personal misconduct, insubordination, misappropriation of Company funds, fraud, dishonesty, gross neglect of or failure to perform the duties reasonably required of him pursuant to this Agreement or any conduct which is in violation of any applicable law or regulation pertaining to the business of the Company. Article 3. Covenants 3.1 Disclosure or Use of Information. The Executive will at all times during and after the term of his employment by the Company keep and maintain the confidentiality of all Confidential Information and will not at any time either directly or indirectly use such information for his own benefit or otherwise divulge, disclose or communicate such information to any person or entity in any manner whatsoever other than employees or agents of the Company who have a need to know such information and then only to the extent necessary to perform their responsibilities on behalf of the Company. As used herein, "Confidential Information" will mean any and all information (excluding information in the public domain) which relates to the business of the Company including without limitation all patents and patent applications, copyrights applied for, issued to or owned by the Company, inventions,trade secrets, computer programs, engineering and technical data, drawings or designs, manufacturing techniques, information concerning pricing and pricing policies, marketing techniques, suppliers, methods and manner of operations, and information relating to the identity and/or location of all past, present and prospective customers of the Company. 3.2 Suppliers, Customers and Other Employees. During the term of this Agreement and for a period of twenty-four (24) months following its termination, the Executive will not attempt to induce any employee of the Company to terminate his or her employment with the Company nor will he 6 take any action with respect to any of the suppliers or customers of the of the Company which would have or might be likely to have an adverse effect upon the business of the Company. 3.3 Injunctive Relief. In the event of a breach or threatened breach of any of the provisions of this Article 3 by the Executive, the Company will be entitled to preliminary and permanent injunctive relief, without bond or security, sufficient to enforce the provisions thereof and the Company will be entitled to pursue such other remedies at law or in equity as it deems appropriate. Article 4. Miscellaneous 4.1 Successors. This Agreement is personal to the Executive and will not be assignable by him without the prior written consent of the Company. This Agreement may be assigned or transferred to and will be binding upon and inure to the benefit of any Successor of the Company. As used herein, the term "Successor" will include any person, firm, corporation or business entity which acquires all or substantially all of the assets or succeeds to the business of the Company or the Division. 4.2 Entire Agreement. This Agreement supersedes any prior agreements or understandings, oral or written, between the Executive and the Company with respect to the subject matter hereof and constitutes the entire agreement of the parties with respect thereto. 4.3 Modification. This Agreement will not be varied, altered, modified, canceled, changed, or in any way amended except by mutual agreement in a written instrument executed by the Company and the Executive or their legal representatives. 7 4.4 Tax Withholding. The Company may withhold from any benefits payable under this Agreement all Federal, state, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling. 4.5 Governing Law. To the extent not preempted by Federal law, the provisions of this Agreement will be construed and enforced in accordance with the laws of the state of Ohio. IN WITNESS WHEREOF, the Executive and the Company have executed this Agreement as of this 1st day of February, 1996. Figgie International Inc. Robert D. Vilsack By: /s/ /s/ Attest: /s/ EX-10 4 1 Exhibit 10(xiii) RETENTION AGREEMENT This Agreement is made and entered into at Willoughby, Ohio by and among Figgie International Inc., a Delaware corporation (the "Company") and Robert D. Vilsack (the "Executive") as of this 20th day of March, 1996. WHEREAS, the Executive has been and continues to serve the Company as the General Counsel; and WHEREAS, the Company has determined to explore and evaluate strategic alternatives to enhance stockholder value and such alternatives may include a merger, consolidation or a sale of a portion or all of the Company; and WHEREAS, the Company has determined that it is in its and its stockholders best interests to assure that the Company will have the continued dedication and service of the Executive during the term of this Agreement; and WHEREAS, the Company has determined that the best way to assure that the Company will have the continued service and dedication of the Executive is to continue his employment as "employment at will" but to provide incentives for him to remain an employee of the Company subject to the terms hereof; NOW THEREFORE, the Executive and the Company agree as follows: 1. Employment At Will The Company hereby agrees to continue the Executive in its employ and the Executive agrees to remain in such employ as an employment at will employee of the Company. Subject to the terms and conditions of this Agreement, the Company retains the right to terminate the services of the Executive at any time without cause and the Executive retains the right to terminate his services for the Company at any time in his sole discretion. 2 2. Salary and Benefits The continued service bonus provided for in this Agreement is intended to be in addition to and not in lieu of any and all other benefits and compensation which the Executive is currently receiving as an employee of the Company. Accordingly, it is intended that the provisions hereof may have the affect of increasing any such benefits to which the Executive might otherwise be entitled pursuant to the Company's benefit plans or programs and may affect the way the provisions under which such plans or programs or their related benefits may be calculated or administered. 3. Continued Service Bonus Unless this Agreement is earlier terminated pursuant to Paragraphs 7(a), (b), (d) or (e) hereof, effective on the earlier of (i) the Release Date (as hereinafter defined); or (ii) the execution of an agreement for a merger, consolidation, sale or divestiture of substantially all of the assets of any one of the Interstate Electronics, Snorkel, Scott or Taylor Divisions of the Company and as a result of such merger, consolidation, sale or divestiture, the Board of Directors of the Company declares a dividend payable to the shareholders (the "Effective Date"), then the Company will: (a) grant the Executive the right to purchase 2,550 shares of common stock pursuant to and in accordance with the 1993 Restricted Stock Purchase Plan for Employees (the "RSPP"); and (b) shall cause all options previously granted to the Executive pursuant to the Key Employees' Stock Option Plan (the "Stock Option Plan") to become immediately exercisable in full and shall remain fully exercisable until the date of expiration of the option. 3 4. Additional Service Bonus Unless this Agreement is earlier terminated pursuant to Paragraphs 7(a), (b), (d) or (e) hereof, effective on the earlier of the (i) the execution of an agreement for a merger, consolidation, sale or divestiture of substantially all of the assets of the Company; or (ii) if the Company shall make a significant negative change in the nature or scope of the authorities, powers, functions or duties of the Executive and the Executive terminates his employment within three months of such change (either being the "Release Date"), the Company will: (a) waive its right to repurchase any of the shares previously purchased by the Executive pursuant to the RSPP; and (b) make a lump sum payment of the amount due the Executive pursuant to Section 2.4 of that certain Management Agreement by and between the Company and the Executive dated February 1, 1996 (the "Management Agreement") unless the Executive elects to receive monthly payments in accordance with the Management Agreement. At any time after the Release Date and upon written notice to the Company, the Executive may elect to receive a lump payment of whatever monthly payments are then remaining; and (c) make a lump sum payment to the Executive, net of taxes, in an amount equal to 12 months of the monthly car allowance then being received by the Executive, unless the Executive elects to receive 12 consecutive monthly payments. At any time after the Release Date and upon written notice to the Company, the Executive may elect to receive a lump sum payment ofwhatever monthly payments are then remaining. 4 5. Additional Bonus Considerations In addition to the continued service bonus, the Executive will also be entitledto receive on the Release Date those presently unpaid installments, if any, of all bonuses previously awarded to the Executive pursuant to the Compensation Plan forExecutives (the "Plan"). The Executive will also be considered as a possiblerecipient of a bonus under such Plan with respect to his 1996 performance and such consideration by the Management Development and Compensation Committee of the Board of Directors will be made, and the payment of such bonus shall be made to the Executive on the Release Date. The Company in its sole discretion may also award to the Executive whatever additional bonus it deems desirable taking into consideration the contribution which the Executive makes toward the successful completion of a merger, consolidation or the sale of a part of or all of the Company; and if awarded, will be paid to the Executive on the Release Date. 6. Miscellaneous Benefits It is the desire and intent of the Company to provide to the Executive the following additional miscellaneous benefits at no cost to the Executive: (a) tax planning and/or consultation with respect to the benefit granted hereunder pursuant to a program initiated by the Company to provide accounting or legal services; (b) assistance in obtaining financing for the purchase of the Executive's stock options granted pursuant to the Stock Option Plan; and (c) additional consideration to cover the tax implications should the benefit hereunder trigger an excise tax. 5 7. Termination of Agreement This Agreement will continue in full force and effect from the date hereof until the earliest of: a. the death of the Executive, b. the determination by the Company upon reasonable medical evidence that the Executive due to disability is no longer able to effectively perform the customary duties of his position, c. the completion of any payments to the Executive in accordance with the terms and conditions contained herein, d. the termination of the employment of the Executive for any of the following reasons: (i) the Executive's willful failure to perform his duties under this Agreement; (ii) conviction of a felony; or (iii) repeated and excessive use of alcohol, drugs and/or any other intoxicating or controlled substance, e. The termination of the employment of the Executive without cause by the Executive, f. May 31, 1997. Upon the termination of this Agreement, all rights and obligations of theExecutive and the Company will terminate and the provisions hereof will be of no further force or effect, except that the Company will continue even after such termination to be obligated to make any payments provided for in this Agreement and which were previously earned by the Executive while this Agreement was in effect. 6 8. Successors This Agreement is personal to the Executive and may not be assigned by him. This Agreement may be assigned or transferred to and will be binding upon and inure to the benefit of any Successor of the Company. As used herein, the term "Successor" will include any person, firm, corporation or business entity which acquires all or substantially all of the assets or succeeds to the business of the Company. 9. Modification This Agreement will not be varied, altered, modified, canceled, changed or in any way amended except by the mutual agreement of the Executive and the Company set forth in a written instrument executed by them or their respective legal representatives. 10.Tax Withholding The Company may withhold from any amounts payable under this Agreement all federal, state, city or other taxes as may be required by law or any governmental regulation or ruling. 11.Governing Law To the extent not preempted by federal law, the provisions of this Agreement will be construed and enforced in accordance with the laws of the State of Ohio. 12.Entire Agreement This Agreement and the Management Agreement supersede any prior agreements or understandings oral or written between the Executive and the Company pertaining to the subject matter hereof and constitutes the entire agreement between them with respect thereto. Figgie International Inc. Executive: By: /s/ /s/ William J. Sickman Robert D. Vilsack EX-10 5 1 Exhibit 10 (xiv) January 31, 1997 SEPARATION AGREEMENT AND GENERAL RELEASE This Agreement is made and entered into by and between Figgie International Inc. (hereinafter "Company") and Keith V. Mabee (hereinafter "Employee"). The Company and Employee are from time to time referred to herein as the parties. By this Agreement, the parties intend to and do hereby settle any and all differences, disputes, grievances, claims, charges and complaints, whether known or unknown, accrued or unaccrued, that Employee either has or arguably may have against the Company which arise out of or in any manner relate to Employee's employment with the Company and his separation therefrom. In consideration of the mutual covenants, conditions and obligations set forth herein, the parties agree as follows: 1. At-Will Employment Employee acknowledges that he was at all times an at-will employee and that his employment was at all times terminable by either Employee or the Company at any time upon notice to the other and for any reason not prohibited by law. 2. Separation from Employment Except as provided herein and effective January 31, 1997, Employee will cease to be an employee of the Company for all purposes whatsoever, including the right to receive or accrue any further compensation or any further pension, insurance, profit sharing, stock option, stock purchase, or other fringe benefit rights or to bind the Company in any way unless otherwise stated in this Agreement. Employee is vested under the Retirement Income Plan II and the Stock Ownership Trust and Plan. The parties agree that: a. The Company shall respond to inquiries concerning the reason(s) for Employee's separation from employment by stating that Employee's position was eliminated as part of a corporate restructuring and not due to any lack of performance on Employee's behalf. 2 Keith V. Mabee January 31, 1997 Page 2 b. The Company shall waive its right to repurchase the 14,675 shares previously purchased by the Employee under the 1993 Restricted Stock Purchase Plan for Employees (the "RSPP") upon the termination of the RSPP on January 2, 1997. c. The Company shall cause all remaining stock options granted to the Employee pursuant to the Key Employees' Stock Option Plan to become immediately exercisable in full and shall remain fully exercisable until the date of expiration of the option (seven years from the grant date). d. On February 15, 1997, the Company shall pay to Employee one (1) payment of four hundred twenty thousand dollars ($420,000) (less applicable deductions) for severance, car allowance and miscellaneous items. Unused 1997 vacation entitlement will be included in the January 31, 1997 salary payment. e. As further consideration and inducement for Employee's promises and covenants contained in this Agreement, and without any obligation to do so, the Company will pay to Employee the sum of fifty-six thousand three hundred fifty dollars ($56,350) (less applicable deductions) on February 15, 1997. Additionally, and as further consideration and inducement for Employee's promises and covenants contained in this Agreement, and without any obligation to do so, the Company will pay to Employee the sum of fifty-six thousand three hundred fifty dollars ($56,350) (less applicable deductions) on or before April 30, 1997. f. In lieu of outplacement, the Company will pay the Employee thirty thousand dollars ($30,000) on February 15, 1997. g. The Company will provide tax planning and/or consultation assistance through its outside consultants. h. The Company shall maintain Employee's split-life insurance and health care benefits coverage on the same terms and at the same cost to Employee as would be applicable to a similarly situated full-time employee provided for a period of twenty-four (24) calendar months following the date of termination, however, that in the event Employee is eligible for life insurance equal or greater than the current face amount ($700,000) and comparable health care benefits (determined at the sole discretion of the Company) from a subsequent employer during such twenty-four (24) month period, the Company may immediately terminate its life insurance and health care benefits coverage 3 Keith V. Mabee January 31, 1997 Page 3 of the Employee. Thereafter, Employee's health care coverages shall terminate unless Employee exercises his rights under COBRA to extend such coverages. i. Employee acknowledges and agrees that should the Employee breach any term or condition of this Agreement, the Company shall not be obligated to make any further payments or provide any further benefits hereunder to Employee. j. All future benefits provided to Employee under the Senior Executive Benefits Plan ("SEBP") shall remain in force in accordance with the provisions of the SEBP. (Employee became 100% vested under the provisions of the Significant Management Change clause of Section II of the SEBP in 1994.) k. The Company shall sell to Employee the vehicle currently used by Employee for a purchase price of ten thousand dollars ($10,000), and facsimile machine (#105150) for a purchase price of seventy-five dollars ($75). 3. Acknowledgment of Payments Except as provided herein, employee acknowledges that he has received full payment of all monies due to him [e.g., salary, bonus, sick pay, and all other items of direct and indirect employee compensation] that he earned and to which he is entitled based upon his services to the Company as an employee from the beginning of his employment to and including the date of this Agreement, except that this paragraph shall not apply to any pension or retirement benefits which might have vested on Employee's behalf before the date of this Agreement. 4. Rights Under COBRA Employee acknowledges that he has received notice of his rights under COBRA to procure continued health insurance coverage following the termination of his employment with the Company. 4 Keith V. Mabee January 31, 1997 Page 4 5. Covenant Not to Disclose and/or Utilize Confidential or Proprietary Information Employee acknowledges that, during the course of his employment with the Company, he has obtained information that is confidential, proprietary and sensitive to the Company. Employee represents and agrees that he shall not utilize, whether for his benefit or the benefit of another, disclose to any other person, firm or entity, whether directly or indirectly, any trade secrets, financial information or other confidential proprietary information that Employee obtained or to which Employee had access during the course of his employment with the Company. Employee hereby agrees not to make any statement or take any action, directly, indirectly, that will disparage or discredit the Company, its Officers, Directors, employees or any of its products, or in any way damage its reputation or ability to do business or conduct its affairs. 6. Return of Property Employee shall immediately return to the Company all keys, combinations, credit cards, automobiles, files, memoranda, records,documents,and other physical and personal property belonging to the Company, including all copies thereof, if any such items have not already been returned, which Employee received or obtained from the Company or its agents during the course of his employment. 7. General Release Employee hereby fully releases and forever discharges the Company, its officers,directors, shareholders, agents, representatives, and employees, from any and all claims, debts, liabilities, demands and obligations (hereinafter collectively referred to as "claims," excluding benefits which have accrued under qualified stock and retirement plans or COBRA) of any kind, character and nature, which he has or arguably may have now or in the future against the Company and any of the persons and entities identified above, especially, but not limited to, those matters which arise out of or in any way relate to Employee's employment with the Company and Employee's separation therefrom. This release is intended to be broadly construed to encompass all possible legal and equitable claims, and is intended to include, but not be limited in any way to, claims for breach of contract, wrongful discharge, breach of the implied covenant of good faith and fair dealing, race, age, sex, national origin, handicap or other form of discrimination under either the state or federal laws prohibiting the same, including, but not 5 Keith V. Mabee January 31, 1997 Page 5 limited to the Age Discrimination in Employment Act of 1967, Title VII of the Civil Rights Act of 1964, intentional or negligent infliction of emotional distress, violation of ERISA, breach of fiduciary duty, fraud, or any other tort. Employee warrants and represents that he understands and acknowledges the significance and consequences of this release and waiver, that he has been advised of his right to consult with an attorney for information and advice concerning such release and waiver, and that such release and waiver are freely and voluntarily given. Employee further warrants and acknowledges that he has carefully read, understands and agrees to each and every provision contained in this Agreement. 8. Successors This Agreement shall be binding upon Employee and his heirs, administrators, executors, attorneys, successors and assigns, and shall inure to the benefit of the Company, its owners, officers, agents, representatives and employees, and their successors and assigns. 9. No Admission of Liability It is expressly understood and agreed that neither this Agreement as a whole nor any of its provisions shall at any time be treated or construed by either party, or by any other person, firm or entity, as an admission of liability or wrongdoing in any manner whatsoever. 10.Construction This Agreement shall be interpreted and construed in accordance with the laws of the State of Ohio. 6 Keith V. Mabee January 31, 1997 Page 6 11.Entire Agreement This Agreement sets forth the entire agreement between the Company and Employee, and supersedes the Management Agreement dated February 23, 1995 and the Retention Agreement dated March 20, 1996, any and all prior agreements or understandings between the parties relating to the matters contained herein. Any and all prior agreements or understandings that are not embodied in this Agreement shall be of no force and effect. Moreover, the terms of this Agreement may not be modified, except in writing and signed by the party against whom the endorsement of any such modification may be sought. DATED: January 31, 1997 FIGGIE INTERNATIONAL INC. /s/ William J. Sickman Director, Human Resources & Administration DATED: January 31, 1997 EMPLOYEE /s/ Keith V. Mabee EX-10 6 1 Exhibit 10 (xv) MANAGEMENT AGREEMENT This MANAGEMENT AGREEMENT is entered into as of this 9th day of December 1994, by and between Figgie International Inc. (the "Company") and Glen W. Lindemann (the "Executive"). WHEREAS, the Executive is presently in the employ of the Company as President of its Scott Aviation division (the "Division"); and WHEREAS, the Company desires to retain the employment of the Executive and the Executive desires to continue to serve the Company in such capacity; and WHEREAS, the Company and the Executive desire to set forth in a written agreement the terms and provisions of such employment and of certain severance and other payments to be made to the Executive under certain circumstances; NOW THEREFORE, in consideration of the foregoing, the mutual covenants and agreements set forth herein this Agreement and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the Company and the Executive agree as follows: Article 1. Term of Employment The Company will employ the Executive in accordance with the terms and conditions set forth herein commencing as of the date of this Agreement and extending for an initial period of three (3) years, subject, however, to earlier termination as expressly provided herein. The Executive will continue to serve the Company as the President of the Division or in such other future capacity as he and the Company might mutually agree and will devote his full business time and best efforts to the satisfactory discharge of the responsibilities of his office, performing such other duties as might reasonably be requested by the Company's Chief Executive Officer or his designee. The initial three (3) year period of employment will be automatically extended for one (1) additional year at the end of the initial three (3) year term, and then again after each successive year thereafter. However, either party may terminate this Agreement at the end of the initial three (3) year period, or at the end of any successive one (1) year term thereafter, by giving the other party written notice of intent not to renew, delivered at least three (3) months prior to the end of such initial period or successive term. 2 In the event such notice of intent not to renew is properly delivered, this Agreement, along with all corresponding rights, duties, and covenants will automatically expire at the end of the initial period or successive term then in progress. Article 2. Employment Terminations 2.1 Termination Due to Retirement or Death. In the event the Executive's employment is terminated by reason of retirement (as defined under the then established rules of the Company's tax-qualified retirement plan) or death during the term of this Agreement, the Executive's benefits will be determined in accordance with the Company's retirement, survivor's benefits, insurance, Compensation Plan for Executives and other applicable programs then in effect. 2.2 Termination Due to Disability. In the event the Executive during the term of this Agreement becomes, in the opinion of the Company and based upon reasonable medical opinion, so disabled as to be unable to satisfactorily perform his duties hereunder, the Company will have the right to terminate this Agreement and the Executive's employment upon thirty (30) days written notice to the Executive. In such event, the Executive's benefits will be determined in accordance with the Company's disability and other applicable plans and programs then in effect. 3 2.3 Voluntary Termination by the Executive. The Executive may terminate this Agreement and his employment at any time by giving the Company written notice of intent to terminate, delivered at least ninety (90) calendar days prior to the effective date of such termination. The Company will pay the Executive his full base salary, at the rate then in effect, through the effective date of such termination,plus all other benefits to which the Executive has a vested right at that time. 2.4 Termination by the Company Without Cause. The Executive acknowledges that he is, has been and will continue at all times to be an at-will employee of the Company and as such his employment has been and continues to be terminable by either the Executive or the Company at any time upon notice to the other and for any reason not prohibited by law. However, if the Company terminates the Executive's employment and this Agreement without Cause (as defined in Section 2.5 hereof), the Company will in lieu of any severance which may otherwise be payable, continue to pay to the Executive for twenty-four (24) full calendar months following the date of such termination his monthly base salary at the rate in effect as of the date of such termination in accordance with the Company's normal payroll practices. In addition,the Company throughout such twenty-four (24) calendar month period will continue the Executive's life insurance and health care benefits coverage on the same terms and at the same cost to the Executive as would be applicable to a similarly situated full-time employee provided however, that in the event the Executive begins to receive comparable life insurance and health care benefits (determined at the sole discretion of the Company) from a subsequent employer during such twenty- four (24) month period, the Company may immediately terminate its life insurance and health care benefits coverage of the Executive. Coverage under the Company's health care benefits plan will be in lieu of health care continuation under the Consolidated Omnibus Budget Reconciliation Act ("COBRA") for periods such coverage is in effect under this Agreement. 4 Following such termination of the Executive's employment without Cause, the Company will pay for the costs of outplacement services on behalf of the Executive provided however, that the total fee paid will be limited to an amount equal to fifteen percent (15%) of the Executive's annual base salary rate as of the effective date of termination. The Company will also continue to be obligated to pay when due all other benefits to which the Executive has a vested right according to the provisions of any applicable retirement or other benefit plan or program. The Company and the Executive thereafter will have no further obligations under this Agreement. 2.5 Termination For Cause. Nothing in this Agreement will be construed to prevent the Company from terminating the Executive's employment for Cause and without any further duty or obligation under this Agreement. As used herein, "Cause" will be determined by the Company in the exercise of good faith and reasonable judgement and will include any breach of this Agreement by the Executive or any act by him of gross personal misconduct, insubordination, misappropriation of Company funds, fraud, dishonesty, gross neglect of or failure to perform the duties reasonably required of him pursuant to this Agreement or any conduct which is in violation of any applicable law or regulation pertaining to the business of the Company. Article 3. Covenants 3.1 Competition. Without the prior written consent of the Company, the Executive will not, during the term of this Agreement and for any period thereafter during which the Executive is receiving any payments from the Company pursuant to this Agreement, either directly or indirectly operate or perform any advisory or consulting services for, or invest in or otherwise become associated with in any capacity, any company, partnership, organization, proprietorship or other entity which develops, manufactures, prepares, sells or distributes products or performs services in competition with the products developed, manufactured, prepared, sold or distributed or services rendered by the Division within those geographical areas in which such division then develops, manufactures, sells or distributes such products or renders such services. The Executive acknowledges that this prohibition on competition is in consideration for the compensation and benefits to be provided to the Executive pursuant to this Agreement and constitutes an additional incentive for the Company to enter into this Agreement. The Executive acknowledges that this prohibition on competition is in consideration for the compensation and benefits to be provided to the Executive pursuant to this Agreement and constitutes an additional incentive for the Company to enter into this Agreement. The Executive also understands the effect of the provisions of this Section 3.1, has had reasonable time to consider the effect of such provisions and has had the opportunity to consult an attorney with respect thereto. The Company and the Executive consider the restrictions contained in this Section 3.1 to be reasonable and necessary but if any aspect of such restrictions is found to be unreasonable or otherwise unenforceable by a court of competent jurisdiction, the Executive and the Company intend for such restrictions to be modified by such court so as to be reasonable and enforceable and as so modified, to be fully enforced. 5 Nothing contained in this Section 3.1 will prevent the Executive from acquiring and holding for investment five percent (5%) or less of the shares of any corporation whose shares are regularly traded on a national securities exchange or in the over-the-counter market. 3.2 Disclosure or Use of Information. The Executive will at all times during and after the term of his employment by the Company keep and maintain the confidentiality of all Confidential Information and will not at any time either directly or indirectly use such information for his own benefit or otherwise divulge, disclose or communicate such information to any person or entity in any manner whatsoever other than employees or agents of the Company who have a need to know such information and then only to the extent necessary to perform their responsibilities on behalf of the Company. As used herein, "Confidential Information" will mean any and all information (excluding information in the public domain) which relates to the business of the Company including without limitation all patents and patent applications, copyrights applied for, issued to or owned by the Company, inventions, trade secrets, computer programs, engineering and technical data, drawings or designs, manufacturing techniques, information concerning pricing and pricing policies, marketing techniques, suppliers, methods and manner of operations, and information relating to the identity and/or location of all past, present and prospective customers of the Company. 3.3 Suppliers, Customers and Other Employees. During the term of this Agreement and for a period of twenty-four (24) months following its termination, the Executive will not attempt to induce any employee of the Company to terminate his or her employment with the Company nor will he take any action with respect to any of the suppliers or customers of the Company which would have or might be likely to have an adverse effect upon the business of the Company. 6 3.4 Injunctive Relief. In the event of a breach or threatened breach of any of the provisions of this Article 3 by the Executive, the Company will be entitled to preliminary and permanent injunctive relief, without bond or security, sufficient to enforce the provisions thereof and the Company will be entitled to pursue such other remedies at law or in equity as it deems appropriate. Article 4. Miscellaneous 4.1 Successors. This Agreement is personal to the Executive and will not be assignable by him without the prior written consent of the Company. This Agreement may be assigned or transferred to and will be binding upon and inure to the benefit of any Successor of the Company. As used herein, the term "Successor" will include any person, firm, corporation or business entity which acquires all or substantially all of the assets or succeeds to the business of the Company or the Division. 4.2 Entire Agreement. This Agreement supersedes any prior agreements or understandings, oral or written, between the Executive and the Company with respect to the subject matter hereof and constitutes the entire agreement of the parties with respect thereto. 4.3 Modification. This Agreement will not be varied, altered, modified, canceled, changed, or in any way amended except by mutual agreement in a written instrument executed by the Company and the Executive or their legal representatives. 4.4 Tax Withholding. The Company may withhold from any benefits payable under this Agreement all Federal, state, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling. 4.5 Governing Law. To the extent not preempted by Federal law, the provisions of this Agreement will be construed and enforced in accordance with the laws of the state of Ohio. IN WITNESS WHEREOF, the Executive and the Company have executed this Agreement as of this 9th day of December, 1994. Figgie International Inc. Glen W. Lindemann By: /s/ /s/ Attest: /s/ EX-10 7 1 Exhibit 10 (xvi) RETENTION AGREEMENT This Retention Agreement is made and entered into at Willoughby, Ohio by and among Figgie International Inc., a Delaware corporation (the "Company") and Glen W. Lindemann (the "Executive") as of this 17th day of July, 1996. WHEREAS, the Executive has been and continues to serve the Company as President of its Scott Aviation division (the "Business Unit"); and WHEREAS, the Company (collectively with the Business Unit, "Figgie") has determined to explore and evaluate strategic alternatives to enhance stockholder value and such alternatives may include a merger, consolidation or a sale of the Business Unit or of the Company; and WHEREAS, the Company has determined that it is in its and its stockholders' best interests to assure that the Company and the Business Unit will have the continued dedication and service of the Executive during the term of this Agreement; and WHEREAS, the Company has determined that the best way to assure that Figgie will have the continued service and dedication of the Executive is to continue his employment as "employment at will" but to provide incentives for him to remain an employee of Figgie subject to the terms hereof; NOW THEREFORE, the Executive and the Company agree as follows: 1. Definitions For the purposes of this Agreement: (a) "Sale of the Company"shall mean the first to occur of the following: (A) any person (including any individual, firm, partnership, association, trust, trustee, personal representative, group as defined in Rule 13d-5 under the Securities Exchange Act of 1934, as amended, body corporate, corporation, unincorporated organization, syndicate or other entity) (other than the Company) is or becomes the beneficial owner, directly or indirectly, of (i) securities of the Company representing 50% or more of the combined voting power of the Company's then outstanding securities or (ii) assets of the Company comprising 50% or more of such assets; or 2 (B) the consummation of any consolidation or merger of the Company with any other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity), in combination with the ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Company, at least 50% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation. (b) "Sale of the Business Unit" shall have occurred when any person (other than the Company or any subsidiary of the Company) is or becomes the beneficial owner, directly or indirectly, of assets of the Business Unit comprising 50% or more of such assets. (c)"Net Proceeds" shall mean all cash consideration and the fair market value of other consideration (at the time such consideration is received) received by the Company in connection with the Sale of the Business Unit, or, as applicable, the aggregate cash consideration and the fair market value of other consideration (at the time such consideration is received) received by the stockholders of the Company (or received by the Company if such consideration is first received by the Company and then distributed to its stockholders) in connection with the Sale of the Company (excluding, if applicable, holdbacks and amounts deposited in escrow which amounts have not been release ("Holdbacks")), less the legal fees, investment banking fees and other costs associated with the Sales of the Business Unit or the Sale of the Company, as applicable. "Net Proceeds" shall also include the value of any long-term liabilities (including any and all debt obligations) of the Company or Business Unit, as applicable, indirectly or directly assumed by the buyer or successor entity, as applicable, in connection with the Sales of the Business Unit or the Sale of the Company, as applicable. Net Proceeds shall be approved by the Management Development, Compensation and Nominating Committee of the Board of Directors of the Company and shall be final. At such time as any Holdbacks are released to the stockholders (or to the Company if such Holdbacks are first released to the Company and then distributed to its stockholders) such holdbacks shall constitute a portion of the Net Proceeds. 2. Employment At Will (a) The Company hereby agrees to continue the Executive as an employee of Figgie and the Executive agrees to remain in such employ as an employment at-will employee of Figgie. Subject to the terms and conditions of this Agreement, Figgie retains the right to terminate the 3 services of the Executive at any time without cause (as defined below) and the Executive retains the right to terminate his services for Figgie at any time; provided, however, that if the Executive's employment with Figgie is terminated by Figgie without cause (as defined below), in the event that a Sale of the Company or a Sale of the Business Unit occurs during the period that would have constituted the term of this Agreement absent such termination of employment, the Executive shall be entitled to the transaction bonus described in paragraph 4 (a) hereof. (b) For the purposes of this Agreement, "cause" shall be determined by the Company in the exercise of good faith and reasonable judgement and will include any breach of the Agreement by the Executive or any act by him of gross personal misconduct, insubordination, misappropriation of Company funds, fraud, dishonesty, gross neglect of or failure to perform the duties reasonably required of him pursuant to this Agreement or any conduct which is in willful violation of any applicable law or regulation pertaining to the business of the Company. (c) Any activity which the Executive shall undertake for the acquiror of the Business Unit shall not be deemed to be a violation of the noncompetition, nondisclosure and other covenants contained in Article 3 of the Management Agreement. 3. Salary and Benefits The payments provided for in this Agreement are in addition to and not in lieu of any and all other benefits and compensation which the Executive is currently receiving as an employee of Figgie. 4. Continued Service Bonus As of the earlier of (i) Sale of the Company and (ii) Sale of the Business Unit (such earlier date, the "Release Date"): (a) the Company shall pay to the Executive in a cash lump sum a transaction bonus determined as follows: (i) if paid upon the Sale of the Business Unit, the transaction bonus shall equal two tenths of one percent (0.2%) of the Net Proceeds: (ii) if paid upon the Sale of the Company, the transaction bonus shall equal two tenths of one percent (0.2%) of the portion of the Net Proceeds of the Sale of the Company which is allocable to the Business Unit, the amount and method of which allocation shall be determined by the acquiror and approved by the Management Development, Compensation and Nominating Committee of the Board of Directors of the Company and shall be final; 4 (b) the Company shall pay to the Executive in a cash lump sum those presently unpaid installments, if any, of all bonuses previously awarded to the Executive pursuant to the Compensation Plan for Executives (the "Bonus Plan"); and (c) the Company shall pay to the Executive in a cash lump sum a pro-rata bonus under the Bonus Plan with respect to the year in which the Release Date occurs, which bonus shall be based on the Executive's performance through the date of sale under the Scott Aviation business plan for such year. 5. Nature of Payments under this Agreement No amount paid or payable to the Executive under this Agreement shall constitute salary or compensation for the purposes of any employee benefit plan maintained by Figgie. 6. Tax Indemnity (a) In the event that any payment or benefit received or to be received by the Executive in connection with a "change in ownership or control" (as defined in Section 280G(b) (2) (A) (i) of the Internal Revenue Code of 1986, as amended (the"Code"))) of the Company ( a "Change in Control") or the termination of the Executive's employment (whether pursuant to the terms of this Agreement, Management Agreement between the Executive and the Company date December 9, 1994 ("Management Agreement"), or any other plan, arrangement or agreement with the Company, any person whose actions result in a Change in Control or any person affiliated with the Company or such person) becomes subject to the excise tax (the "Excise Tax") pursuant to Section 4999 of the Code, the Company shall promptly pay Executive the amount or amounts (a "Gross-Up Payment") that are necessary to place the Executive in the same after-tax (taking into account federal, state and local income and employment taxes) financial position that he would have been in if he had not incurred any tax liability under Section 4999 of the Code. (b) Each party will notify the other in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after such party is informed in writing of such a claim and such party shall apprise the other party of the nature of such claim and the date on which such claim is requested to be paid. (c) The Company shall bear and pay directly all costs and expenses (including legal fees and additional interest and penalties) incurred in connection with any such claim or proceeding, to the extent related to the Excise Tax, and shall indemnify and hold the Executive harmless, 5 on an after tax basis, as provided in Section 6 (a), for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. 7. Termination of Agreement This Agreement will continue in full force and effect from the date hereof until the earliest of: a. the death of the Executive; b. the determination by the Company upon reasonable medical evidence that the Executive, due to disability, is no longer able to effectively perform the customary duties of his position; c. the completion of any payments to the Executive under this Agreement; d. the termination of the employment of the Executive's employment for any reason, except to the extent set forth in paragraph 2 (b); or e. May 31, 1997. Upon the termination of this Agreement, all rights and obligations of the Executive and the Company will terminate and the provisions hereof will be of no further force or effect, except that the Company will continue to be obligated to make any payments provided for in this Agreement to which the Executive became entitled during the term of this Agreement. 8. Successors This Agreement is personal to the Executive and may not be assigned by him. This Agreement may be assigned or transferred to and will be binding upon and inure to the benefit of any Successor of the Company. As used herein, the term "Successor" will include any person, firm, corporation or business entity which acquires all or substantially all of the assets or succeeds to the business of the Company or the Business Unit. In the event a Successor fails to assume this Agreement, such failure shall be deemed to constitute a termination of the Executive's employment by the Company for reason other than for Cause under the Management Agreement and shall entitle the Executive to the payments described in Section 2.4 of the Management Agreement and to the payments described in paragraph 4 hereof. 6 9. Modification This Agreement may not be varied, altered, modified, canceled, changed or in any way amended except by the mutual agreement of the Executive and the Company set forth in a written instrument executed by them or their respective legal representatives. 10.Tax Withholding The Company may withhold from any amounts payable under this Agreement all federal, state, city or other taxes as may be required by law or any governmental regulation or ruling. 11.Governing Law To the extent not preempted by federal law, the provisions of this Agreement will be construed and enforced in accordance with the laws of the State of Ohio. 12.Entire Agreement This Agreement and the Management Agreement supersede any prior agreements or understandings oral or written between the Executive and the Company pertaining to the subject matter hereof and constitute the entire agreement between them with respect thereto. Figgie International Inc. Executive: By: /s/ /s/ William J. Sickman Glen W. Lindemann EX-10 8 1 Exhibit 10 (xvii) Figgie International Inc. 4420 Sherwin Road Willoughby, Ohio 44090 June 6, 1996 General Electric Capital Corporation, as Agent and Lender 201 High Ridge Road Stamford, CT 06927-5100 Gentlemen: Reference is made to that certain Credit Agreement, dated as of December 19, 1995, as amended, among Figgie International Inc., the lenders party thereto and General Electric Capital Corporation, as agent for such lenders (the "Credit Agreement"). This letter is Amendment No. 3 to the Credit Agreement. Capitalized terms defined in the Credit Agreement are used herein as so defined. The Credit Agreement is amended as follows: (a) Section 5.3 is amended by deleting all the words after the word "Financials" on the sixth line thereof. (b) Section 11.9 is amended by deleting "on Schedule 11.10" in the fourth line from the end thereof and substituting the words "in Section 11.10(c)". (c) The reference to "Schedule 11.9" in the definition of Eligible Equipment in Annex A is hereby deleted and "Schedule 1.5(c)" is substituted therefore. Attached hereto is Schedule 1.5(c) to the Credit Agreement which was inadvertently omitted from the Schedules to the Credit Agreement at the time it was signed. (d) The references to Schedule 3.4 - Financial Statements and Projections and Schedule 6.5 - Acquisitions in the Index of Annexes, Schedules and Exhibits is hereby deleted and Schedule 1.5(c) - Eligible Equipment is added thereto. This Amendment No. 3 shall be deemed to be effective as of December 19, 1995. Except as amended hereby, the Credit Agreement is hereby ratified and confirmed and shall remain in full force and effect. 2 Kindly confirm your agreement to the foregoing by signing below where indicated. Very truly yours, FIGGIE INTERNATIONAL By: /s/ James M. Schulte Confirmed and Agreed to: GENERAL ELECTRIC CAPITAL CORPORATION, as Agent and Lender By: /s/ EX-27 9
5 0000720032 FIGGIE INTERNATIONAL 1,000 U.S. DOLLARS 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 1 44,447 0 55,745 311 59,365 188,684 132,088 50,575 372,785 67,887 184,156 0 0 1,841 72,668 372,785 385,717 385,717 282,563 345,689 (250) 99 17,688 22,590 (27,712) 50,302 (27,002) 0 0 23,300 1.25 1.25
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