-----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, NxnpX0TDs3TKdN1kX42fqFsoW5km7+XHlg6nI5l2EDEeyp53VpNZnR8XpmrEjBdY vWg5/cZ548lBmqS+qQ4eew== 0000950152-98-008049.txt : 19981007 0000950152-98-008049.hdr.sgml : 19981007 ACCESSION NUMBER: 0000950152-98-008049 CONFORMED SUBMISSION TYPE: PRES14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981208 FILED AS OF DATE: 19981006 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCOTT TECHNOLOGIES INC 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: PRES14A SEC ACT: SEC FILE NUMBER: 000-12558 FILM NUMBER: 98721609 BUSINESS ADDRESS: STREET 1: 5875 LANDERBROOK DR STREET 2: STE 250 CITY: MAYFIELD HEIGHTS STATE: OH ZIP: 44124 BUSINESS PHONE: 4404461333 MAIL ADDRESS: STREET 1: 5875 LANDERBROOK DR STREET 2: STE 250 CITY: MAYFIELD HEIGHTS STATE: OH ZIP: 44124 FORMER COMPANY: FORMER CONFORMED NAME: FIGGIE INTERNATIONAL INC /DE/ DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: FIGGIE INTERNATIONAL HOLDINGS INC DATE OF NAME CHANGE: 19870112 PRES14A 1 SCOTT TECHNOLOGIES--PRELIMINARY PROXY/SPECIAL MTG. 1 ================================================================================ SCHEDULE 14A (RULE 14a-101) INFORMATION REQUIRED IN PROXY STATEMENT SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 [X] Filed by the Registrant [ ] Filed by a Party other than the Registrant Check the appropriate box: [X] Preliminary Proxy Statement [ ] Confidential, For Use of the Commission Only (as permitted by rule 14a-6(e)(2)) [ ] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
SCOTT TECHNOLOGIES, INC. (NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) SCOTT TECHNOLOGIES, INC. (NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. (1) Title of each class of securities to which transaction applies: ....... (2) Aggregate number of securities to which transaction applies: .......... (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): ............ (4) Proposed maximum aggregate value of transaction: ...................... (5) Total fee paid: ....................................................... [ ] Fee paid previously with preliminary materials:............................ [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: ............................................... (2) Form, Schedule or Registration Statement No.: ......................... (3) Filing Party: ......................................................... (4) Date Filed: ........................................................... ================================================================================ 2 SCOTT TECHNOLOGIES, INC. 5875 LANDERBROOK DRIVE, SUITE 250 MAYFIELD HEIGHTS, OHIO 44124 NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON DECEMBER 8, 1998 To the Stockholders of Scott Technologies, Inc.: NOTICE IS HEREBY GIVEN that a Special Meeting of the holders of Class A Common Stock, par value $.10 per share (the "Class A Common Stock"), and the holders of Class B Common Stock, par value $.10 per share (the "Class B Common Stock"), of Scott Technologies, Inc. (the "Corporation") will be held at the Corporation's executive offices at 5875 Landerbrook Drive, Mayfield Heights, Ohio, on December 8, 1998, at ________ local time, to consider and approve the following proposals (each, a "Proposal"): 1. to amend Article Fourth of the Corporation's Amended and Restated Certificate of Incorporation (the "Charter") to eliminate the dual class capital structure, and to provide instead for a single, new class of common stock designated as "Common Stock," par value $.10 per share (the "New Common Stock"), consisting of 36,000,000 shares of New Common Stock authorized for issuance, with each share entitled to one vote, thereby effecting the reclassification and conversion of each outstanding share of Class A Common Stock and each outstanding share of Class B Common Stock as and into one share of New Common Stock (such actions hereinafter sometimes referred to as the "Restructuring Plan"), and to restate the Charter to reflect the foregoing amendments; 2. to amend Section (c) of Article Sixth of the Charter (the "Substantial Stockholder Provision") to eliminate the voting limitations imposed generally upon any stockholder who beneficially owns more than 20% of the outstanding voting shares of any class of stock (a "Substantial Stockholder"), and to restate the Charter to reflect the foregoing amendments; 3. to amend Section 2 of Article 2 of the Corporation's Bylaws (the "Bylaws") to lengthen the notice period for stockholder nomination of directors; 1 3 4. to amend Article Fourth of the Charter to eliminate certain unnecessary provisions regarding previously outstanding shares of Preference Stock and the terms of convertible and redeemable stock, and to restate the Charter to reflect the foregoing amendments; and 5. to amend the Scott Technologies, Inc. Key Employees' Stock Option Plan (the "Option Plan") to increase the number of shares authorized for issuance under the Option Plan from 1,500,000 shares to 3,000,000 shares and to revise certain other provisions of the Option Plan. The complete text of the Charter, restated to reflect the amendments to be adopted pursuant to the Charter amendment Proposals (the "Restated Charter"), is set forth in Appendix A to the accompanying Proxy Statement. The complete text of Section 2(c) of Article 2 of the Bylaws, reflecting the amendment to be adopted pursuant to the Bylaws amendment Proposal (the "Amended Bylaws"), is set forth in Appendix B to the accompanying Proxy Statement. Holders of Class A Common Stock and holders of Class B Common Stock of record at the close of business on October 30, 1998 (the "Record Date") are entitled to notice of and to vote at the Special Meeting or any adjournment thereof. Approval of Proposal 1 (the Restructuring Plan) requires the affirmative vote of a majority of the votes of the holders of the outstanding shares of Class A Common Stock and Class B Common Stock, voting together as a single class, and the affirmative vote of the holders of the outstanding shares of Class A Common Stock and the holders of the outstanding shares of Class B Common Stock, each voting as a separate class. Approval of each of Proposals 2 and 4 requires the affirmative vote of a majority of the votes of the holders of the outstanding shares of Class A Common Stock and Class B Common Stock, voting together as a single class. Approval of each of Proposals 3 and 5 requires the affirmative vote of a majority of the votes of the holders of the shares of Class A Common Stock and Class B Common Stock, present in person or represented by proxy, voting together as a single class. THE ADOPTION OF PROPOSAL 2 (ELIMINATION OF THE SUBSTANTIAL STOCKHOLDER PROVISION) IS CONDITIONED UPON THE ADOPTION OF PROPOSAL 1 (THE RESTRUCTURING PLAN). ACCORDINGLY, 4 IF THE STOCKHOLDERS DO NOT APPROVE PROPOSAL 1, THE SUBSTANTIAL STOCKHOLDER PROVISION WILL NOT BE ELIMINATED, EVEN IF THE STOCKHOLDERS VOTE IN FAVOR OF PROPOSAL 2. The Board of Directors has unanimously approved the Proposals (except that N. Cohn Lind recused himself from Board action on Proposal 2 because he is the designee on the Board of Richard C. Blum & Associates, L.P., a Substantial Stockholder of the Corporation as defined in the Substantial Stockholder Provision). The Board urges you to vote your shares FOR each of the Proposals, regardless of the number of shares you hold. Richard C. Blum & Associates, L.P. which can vote __% of the shares of Class A Common Stock and __% of the shares of Class B Common Stock as of the Record Date, has indicated that it intends to vote in favor of all of the Proposals. By Order of the Board of Directors Glen W. Lindemann President and Chief Executive Officer Mayfield Heights, Ohio ________, 1998 YOUR VOTE IS IMPORTANT. A FAILURE TO VOTE WILL HAVE THE EFFECT OF A VOTE AGAINST PROPOSALS 1, 2 AND 4. PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND PROMPTLY RETURN IT IN THE ENCLOSED ENVELOPE. THE GIVING OF SUCH PROXY DOES NOT AFFECT YOUR RIGHT TO REVOKE IT LATER OR TO VOTE YOUR SHARES IN PERSON IN THE EVENT YOU ATTEND THE MEETING. 3 5 SCOTT TECHNOLOGIES, INC. 5875 LANDERBROOK DRIVE, SUITE 250 MAYFIELD HEIGHTS, OHIO 44124 PROXY STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON DECEMBER 8, 1998 MAILED ON __________, 1998 TABLE OF CONTENTS
PAGE VOTING RIGHTS.....................................................................................................2 BACKGROUND AND SUMMARY OF PROPOSALS TO AMEND THE CHARTER TO ELIMINATE THE DUAL CLASS CAPITAL STRUCTURE AND THE SUBSTANTIAL STOCKHOLDER PROVISION............................5 The Restructuring Plan...................................................................................6 The Substantial Stockholder Provision....................................................................9 The Stockholders' Rights Plan...........................................................................10 Summary of Anti-Takeover Provisions That Will Remain in the Charter and Bylaws..........................13 PROPOSAL 1 -- PROPOSAL TO ADOPT THE RESTRUCTURING PLAN..........................................................18 Description of the Restructuring Plan...................................................................18 Comparison of Capital Stock Before and After the Restructuring Plan is Effective........................19 Ownership of Principal Stockholders Before and After the Restructuring Plan is Effective................21 Ownership of Certain Beneficial Owners and Management Before and After the Restructuring Plan is Effective.......................................................................23 Reasons for and Advantages of the Restructuring Plan....................................................25 Possible Disadvantages of the Restructuring Plan........................................................26 Impact of the Restructuring Plan on the Nasdaq Listing and the Corporation's Operations.................26 Federal Income Tax Consequences.........................................................................27 Investment Banker's Opinion.............................................................................28 Surrender of Stock Certificates Not Required............................................................32 PROPOSAL 2 -- PROPOSAL TO ELIMINATE THE SUBSTANTIAL STOCKHOLDER PROVISION.................................................................................32 PROPOSAL 3 -- PROPOSAL TO LENGTHEN THE NOTICE PERIOD FOR STOCKHOLDER NOMINATION OF DIRECTORS...................................................36 PROPOSAL 4 -- PROPOSAL TO ELIMINATE CERTAIN UNNECESSARY PREFERENCE STOCK, CONVERTIBLE STOCK AND REDEEMABLE STOCK PROVISIONS............................................................37 PROPOSAL 5 -- PROPOSAL TO AMEND THE SCOTT TECHNOLOGIES, INC. KEY EMPLOYEES' STOCK OPTION PLAN...........................................................38 The Proposed Amendments................................................................................39 Summary of the Option Plan..............................................................................41 CERTAIN DEADLINES FOR ANNUAL MEETING IN 1999.....................................................................50 Appendix A: Restated Certificate of Incorporation (marked to show changes) Appendix B: Amended Bylaws, Article 2 (marked to show changes) Appendix C: Summary of the Rights Plan Appendix D: Investment Banker's Opinion Appendix E: Amended Scott Technologies, Inc. Key Employees' Stock Option Plan (marked to show changes)
i 6 OTHER MATTERS....................................................................................................51 APPENDICES.......................................................................................................52 Appendix A: Restated Certificate of Incorporation (marked to show changes) Appendix B: Amended Bylaws, Article 2 (marked to show changes) Appendix C: Investment Banker's Opinion Appendix D: Summary of Rights to Purchase Preferred Shares Appendix E: Amended Scott Technologies, Inc. Key Employees' Stock Option Plan (marked to show changes)
ii 7 SCOTT TECHNOLOGIES, INC. 5875 LANDERBROOK DRIVE, SUITE 250 MAYFIELD HEIGHTS, OHIO 44124 PROXY STATEMENT FOR SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON DECEMBER 8, 1998 MAILED ON __________, 1998 This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of Scott Technologies, Inc. (the "Corporation") to be used at a Special Meeting of the holders of Class A Common Stock, par value $.10 per share (the "Class A Common Stock"), and the holders of Class B Common Stock, par value $.10 per share (the "Class B Common Stock"), of the Corporation to be held on December 8, 1998 and at any adjournment thereof. The time and place of the Special Meeting are stated in the Notice of Special Meeting of Stockholders which accompanies this Proxy Statement. The Board of Directors (the "Board") has fixed the close of business on October 30, 1998 as the record date (the "Record Date") for determining the stockholders of the Corporation entitled to notice of and to vote at the Special Meeting or any adjournment thereof. The expense of soliciting proxy/voting instruction cards ("proxies"), including the costs of preparing, assembling and mailing the Notice, Proxy Statement and proxy, will be borne by the Corporation. In addition to the use of the mail, proxies may be solicited personally or by telephone, facsimile or telegraph. The Corporation may pay persons holding shares for others their expenses in sending the proxy material to their principals, and solicitation of proxies may also be made on behalf of the Board by Morrow & Company at a total cost, including fees and expenses, of approximately $_________. If any other matters properly come before the Special Meeting or any adjournment thereof, the proxies will be voted on such matters in the discretion of the proxyholders. The Delaware General Corporation Law (the "DGCL") provides that, unless otherwise stated in the proxy and unless the proxy is coupled with an interest, a stockholder may revoke a proxy previously given at any time prior to its exercise at the Special Meeting. A stockholder who has given a proxy may revoke it at any time before it is exercised by delivering to any of the persons named as proxies, or to the Corporation addressed to the Secretary, an instrument revoking the proxy, by appearing at the Special Meeting and voting in person, or by executing a later dated proxy. 8 VOTING RIGHTS Only stockholders as of the Record Date are entitled to notice of and to vote at the Special Meeting. The proxy will also serve to instruct the trustees of the Scott Technologies, Inc. Stock Ownership Trust and Plan (the "ESOP"), the Scott Technologies, Inc. 401(k) Savings Plan for Salaried Employees, the Scott Technologies, Inc. 401(k) Savings Plan for Hourly Employees and the Scott Technologies, Inc. 401(k) Savings Plan for Bargaining Unit Employees on how to vote any shares of the Corporation's common stock held by the plans. The number of shares printed on the proxy accompanying this Proxy Statement includes, when applicable, shares allocated to the participants in any such plan. As of the Record Date, the Corporation had outstanding _________ shares of Class A Common Stock and _________ shares of Class B Common Stock. Except as discussed below, the holders of issued and outstanding shares of Class A Common Stock are entitled to 1/20 of one vote for each share held by them on each matter to be presented. Except as discussed below, the holders of issued and outstanding shares of Class B Common Stock are entitled to one vote for each share held by them on each matter to be presented. Section (c)(1) of Article Sixth of the Corporation's Amended and Restated Certificate of Incorporation (the "Charter"), the "Substantial Stockholder Provision," places limitations on the ability of certain persons coming within the definition of a "Substantial Stockholder" (other than any employee stock ownership or similar plan of the Corporation or a trustee with respect thereto) to vote shares of the Corporation's voting stock beneficially owned by them. A Substantial Stockholder is defined as any beneficial owner of more than a "threshold percentage" -- generally 20% -- of the outstanding shares of any class of voting stock of the Corporation. If a stockholder's percentage of shares of a class of voting stock of the Corporation increases above the threshold applicable to it as a result of purchases, redemptions or other acquisitions of shares of the class by the Corporation or decreases below the threshold applicable to it as a result of an issuance of shares of a class by the Corporation or a reduction in beneficial ownership by the stockholder, then the stockholder's threshold percentage is adjusted to equal the percentage of outstanding shares of the class held immediately after such event, but never below 20%. The record holders of any shares beneficially owned by a Substantial Stockholder are entitled to 1/20 of one vote for each share of Class A Common Stock held and one vote 2 9 for each share of Class B Common Stock held up to the Substantial Stockholder's threshold percentage of each class, and 1/100 of such vote for each share held in excess of such threshold percentage for each class. Thus, a Substantial Stockholder holding shares in excess of the applicable threshold percentage would be entitled to 1/2000 of one vote for each such share of Class A Common Stock and 1/100 of one vote for each such share of Class B Common Stock. Also, a Substantial Stockholder may exercise a maximum percentage of the voting power of each class equal to his threshold percentage for that class plus 5%. The excess shares owned above the threshold percentage plus 5% cannot be voted by the Substantial Stockholder. The aggregate voting power of a Substantial Stockholder, so limited, is allocated proportionately among the record holders of the shares beneficially owned by the Substantial Stockholder. As of the Record Date, Richard C. Blum & Associates, L.P. ("Blum") and the members of the group reporting on Schedule 13D with Blum (collectively referred to herein as "Blum") were a Substantial Stockholder as a result of their beneficial ownership of shares in excess of the applicable threshold percentage. As of the Record Date, Blum owned _______ shares of Class B Common Stock. As a result of the application of the Substantial Stockholder Provision, Blum is entitled to vote at the Special Meeting _________ shares of Class B Common Stock, or ____% of the Class B Common Stock, rather than the _________ shares of Class B Common Stock, or ____% of the Class B Common Stock, that Blum beneficially owned as of the Record Date. Blum's reduced voting power reduces the aggregate number of votes that the holders of shares of Class B Common Stock are entitled to cast as of the Record Date from _________ votes, if there were no Substantial Stockholder, to _________ votes. As of the Record Date, an aggregate of _________ votes are entitled to be cast by the holders of shares of Class A Common Stock. The total number of votes of both classes of the Corporation's stock entitled to be cast as of the Record Date is _________. The holders of record of shares entitled to cast a majority of the votes entitled to be cast must be present in person or represented by proxy in order to constitute a quorum for the holding of the Special Meeting. Approval of 3 10 Proposal 1 (the Restructuring Plan) requires the affirmative vote of a majority of the votes of the holders of the outstanding shares of Class A Common Stock and Class B Common Stock, voting together as a single class, and the affirmative vote of the holders of the outstanding shares of Class A Common Stock and the holders of Class B Common Stock, each voting as a separate class. Since separate votes of the holders of record of shares of Class A Common Stock and of the holders of record of shares of Class B Common Stock are required for the approval of Proposal 1, a majority of the outstanding shares of each such class, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to the vote of each such class on the Proposal. The affirmative vote of a majority of the votes of the holders of the outstanding shares of Class A Common Stock and Class B Common Stock, voting together and not as separate classes, is required for the approval of Proposals 2 (the elimination of the Substantial Stockholder Provision) and 4 (the elimination of unnecessary provisions related to Preference Stock). The adoption of Proposal 2 is conditioned upon the approval of Proposal 1. Accordingly, if the stockholders do not approve Proposal 1, the Substantial Stockholder Provision will not be eliminated, even if the stockholders vote in favor of Proposal 2. The affirmative vote of a majority of the votes of the holders of Class A Common Stock and Class B Common Stock, present in person or represented by proxy, voting together, is required for the approval of Proposals 3 (the lengthening of the notice period for nomination of directors) and 5 (the amendments to the Stock Option Plan). No appraisal or dissenters' rights are available under the DGCL or the Charter to stockholders who vote against the amendments to the Charter because these amendments were approved by the affirmative vote of two-thirds of the Board and the members of the Board acting on the amendments were then and are now continuing directors. A "continuing director" is a person who was a director on July 18, 1983 or who was thereafter elected by the stockholders or appointed by the Board prior to the date a person became a substantial stockholder, or who was designated before his initial election or appointment as a director as a continuing director by a majority of the whole Board, provided a majority of the whole Board consisted of continuing directors, or by a majority of the continuing directors, if a majority of the whole Board did not consist of continuing directors. Shares entitled to vote represented by proxies which are properly executed and returned before the Special Meeting will be voted at the Special Meeting as directed therein. If no vote is specified therein, the shares will be voted "FOR" the adoption of each of the Proposals. Shares represented by proxies which are marked "ABSTAIN" will be considered to be in person or represented by proxy at the Special Meeting for quorum purposes and, accordingly, will have the effect of a negative vote because approval of the Proposals requires the affirmative vote of either a majority of the votes of the holders of outstanding shares or a majority of the votes of the holders present in person or represented by proxies. In addition, where brokers are prohibited from exercising discretionary authority for beneficial owners who have not provided voting instructions (commonly referred to as "broker non-votes"), those shares will have the effect of a 4 11 vote "AGAINST" with respect to Proposals 1, 2 and 4, each of which requires the affirmative vote of a majority of the votes of the holders of the outstanding shares of Class A Common Stock and Class B Common Stock voting together, but will have no effect on the outcome of Proposals 3 and 5. BACKGROUND AND SUMMARY OF PROPOSALS TO AMEND THE CHARTER TO ELIMINATE THE DUAL CLASS CAPITAL STRUCTURE AND THE SUBSTANTIAL STOCKHOLDER PROVISION In 1983, the Corporation reorganized from an Ohio company into a Delaware company. In connection with that reorganization, the Corporation's stockholders approved the Charter, containing several differences from the Corporation's old Ohio certificate of incorporation, including the provisions of Article Fourth, which establish two classes of common stock (the "dual class capital structure"), and Article Sixth, which restrict the voting power of a Substantial Stockholder. At that time, the Corporation was controlled by its founder and then-Chairman of the Board of Directors, President and Chief Executive Officer, Harry E. Figgie, Jr. As explained in the 1983 proxy statement, the dual class capital structure with disparate voting rights was designed to enable the directors and officers of the Corporation and Harry E. Figgie, Jr., his family and affiliates, through their ownership of the higher voting stock, to maintain sufficient voting power to elect all of the directors of the Corporation, cause the Corporation to merge or prevent it from being acquired, and cause or prevent other significant actions. The terms of the Class A Common Stock were designed to make such shares an attractive financial investment that could be used by the Corporation to raise capital in the public markets or as consideration for acquisitions of businesses or assets without significantly reducing the voting power of the holders of Class B Common Stock, including Mr. Figgie. In May 1994, Mr. Figgie retired from the Corporation and since then he has not been an officer or director of the Corporation. In May 1998, Mr. Figgie and the members of his family sold their shares of Class A Common Stock and Class B Common Stock to Blum. Also in May 1998, the Board appointed N. Colin Lind as director of the Corporation. Mr. Lind is the designee of Blum. The Board has evaluated the Charter and Bylaws in light of the Corporation's current ownership structure and the current practices of other publicly-held companies. Based on this evaluation, the Board unanimously determined that it is in the best interests of the Corporation's stockholders to eliminate the dual class capital structure (the "Restructuring Plan") and eliminate the Substantial Stockholder Provision. (N. Colin Lind recused himself from Board action 5 12 on the Substantial Stockholder Provision because he is the designee on the Board of Blum, a Substantial Stockholder of the Corporation). In conjunction with consideration of these matters, the Board also has considered and conditionally approved a Stockholders' Rights Plan (the "Rights Plan"). Final adoption by the Board of the Rights Plan is conditioned upon stockholder approval and implementation of the Restructuring Plan and the elimination of the Substantial Stockholder Provision. This Proxy Statement describes the provisions of the Charter and Bylaws that the Board is proposing to amend and the provisions that the Board has determined to retain. The proposed amendments to the Amended and Restated Certificate of Incorporation (the "Restated Charter") are reflected in the copy of the Restated Charter that is set forth in Appendix A to this Proxy Statement. The proposed amendments to Article 2 of the Bylaws are reflected in the copy of Article 2 of the Bylaws that is set forth in Appendix B to this Proxy Statement. A summary of the Rights Plan is set forth in Appendix C to this Proxy Statement. THE RESTRUCTURING PLAN The Restructuring Plan will eliminate the Corporation's dual class capital structure through the amendment of the Charter to provide for one class of common stock designated as "Common Stock," par value $.10 per share (the "New Common Stock"), and the reclassification and conversion of each outstanding share and each share held in treasury of Class A Common Stock and each outstanding share and each share held in treasury of Class B Common Stock as and into one share of New Common Stock. The conversion ratio of one share of New Common Stock for one share of Class B Common Stock will provide the holders of Class B Common Stock with a premium of 3.1% over the average market price of a share of Class B Common Stock over the last five years. Implementation of the Restructuring Plan will increase the voting power of the holders of Class A Common Stock. Article Fourth of the Charter authorizes the issuance of two classes of common stock, identified as Special Common Stock or Class A Common Stock and Common Stock or Class B Common Stock having the following terms: Dividend Rights. Cash dividends on the Class A Common Stock must be declared and paid at the same time as cash dividends are declared and paid on the Class B Common Stock and must be paid in an amount per share at least equal to the amount of the dividend per share declared and paid on the Class B Common Stock. Voting Rights. Holders of Class A Common Stock have 1/20 of one vote for each share, and holders of Class B Common Stock have one vote for each share. The holders of Class A Common Stock and Class B Common Stock vote together as a single class on the election of directors and for all other purposes. 6 13 Rights Upon Liquidation. The rights of the holders of Class A Common Stock and Class B Common Stock are the same in the event of the liquidation, dissolution or winding up of the Corporation. All other rights, powers and limitations with respect to the Class A Common Stock and Class B Common Stock are the same. In 1996 the Board considered the possibility of eliminating the dual class capital structure. Several of the Corporation's major holders of Class B Common Stock had expressed significant support for a single class capital structure but others observed that such a restructuring should be implemented only as part of the Corporation's overall reassessment of its corporate strategy. The Board considered several alternative methods for establishing a single class capital structure: an amendment to the Charter to provide conversion rights to holders of Class B Common Stock; an offer to exchange shares of Class B Common Stock for shares of Class A Common Stock; and a restructuring through a Charter amendment that would result in one new class of common stock. The Board concluded that the restructuring would be the only effective way to achieve its objective of simplifying the capital structure. It decided not to make any changes in its capital structure at that time, however, because of its ongoing reassessment of its corporate strategy. Since then, among other things, the Corporation concluded an evaluation of strategic options, determined that the Corporation and its stockholders would be best served by the implementation of a growth strategy as an independent company and obtained stockholder approval of the change in the Corporation's name from Figgie International Inc. to Scott Technologies, Inc., in view of the Corporation's strategic focus to rebuild the Corporation's business around its Scott Aviation division. At a meeting in May 1998, the Board concluded that the time was right to re-evaluate a simplification of its capital structure. To that end, it authorized management to retain an investment banking firm to study the elimination of the dual class capital structure. In July 1998, the Board reviewed the three alternative methods for establishing a single class capital structure considered by the Board in October 1996 and reaffirmed its view that a restructuring would be the most effective method. In addition, the Board asked management to study and report on other possible amendments to the Corporation's anti-takeover protections contained in the Charter and Bylaws. On July 23, 1998, the Corporation issued a press release announcing that the Corporation had retained the investment banking firm of Duff & Phelps, LLC ("Duff & Phelps") to assist in the examination of a possible restructuring and, if the Board decided to proceed with a restructuring plan, to provide a fairness opinion as to the fairness of the transaction, from a financial standpoint, to the holders of Class A Common Stock and the holders of Class B Common Stock. In this regard, Duff & Phelps studied the benefits and drawbacks of eliminating the dual class capital structure and made recommendations 7 14 as to an appropriate range for a conversion ratio of the Class A Common Stock and the Class B Common Stock into a new class of common stock. Management asked its outside legal counsel to prepare an analysis of the impact of a single class capital structure on the anti-takeover provisions of the Charter, and to provide an analysis of other Charter or Bylaws amendments or other actions that the Board could consider in updating the Corporation's anti-takeover strategy. On September 8, 1998, the Board discussed the Charter and Bylaws provisions and determined that the elimination of the dual class capital structure would not adversely affect the Corporation's other anti-takeover protections. In addition, it considered the elimination of the Substantial Stockholder Provision, the adoption of a stockholders' rights plan and the continued appropriateness of other anti-takeover provisions of the Charter and Bylaws. The Board determined that it would not propose to eliminate the other anti-takeover provisions either because of the supermajority vote required for their amendment or the Board's ability to waive the provisions, or because it concluded that the provisions were still appropriate. On September 23, 1998, the Board held a meeting at which it considered and unanimously approved all of the Proposals now being presented for stockholder approval (except that N. Colin Lind recused himself from the Board action on Proposal 2 because he is the designee on the Board of Blum). Representatives of Duff & Phelps formally presented their analyses on the change to a single class of common stock. (For a discussion of Duff & Phelps' analyses, see "Investment Banker's Opinion" under the heading, "PROPOSAL 1 -- PROPOSAL TO ADOPT THE RESTRUCTURING PLAN.") The Board took into account Duff & Phelps' presentation in determining to adopt the Restructuring Plan. The Restructuring Plan provides for the reclassification and conversion of each outstanding share of Class A Common Stock and each outstanding share of Class B Common Stock as and into one share of New Common Stock. Duff & Phelps orally confirmed at the September 23 meeting that the one-for-one conversion ratio would be fair to both the holders of Class A Common Stock and Class B Common Stock and agreed to deliver to the Board their written opinion to that effect dated the date of this Proxy Statement. (Duff & Phelps' written opinion is set forth in Appendix D hereto.) 8 15 The Board is not proposing the Restructuring Plan in response to any actual or potential takeover offer with respect to the Corporation. The Board does not know of any takeover offer, either actual or potential. THE SUBSTANTIAL STOCKHOLDER PROVISION Article Sixth of the Charter limits the voting rights of a Substantial Stockholder to its threshold percentage, generally 20%, plus a specified additional amount. The Substantial Stockholder Provision, like the dual class capital structure, was adopted in 1983 at a time when the Figgie family controlled the Corporation. The Corporation explained in the 1983 proxy statement that the purpose of the Substantial Stockholder Provision was "to complete the protections for the corporation and its stockholders by ensuring that, even if the acquiror does not intend a second-stage transaction with the corporation, the acquiror will not be in a position to take control of the corporation since its voting power, except in certain circumstances, will be limited to 15% of the total voting power of a particular class regardless of the number of shares which it owns." (As originally adopted, the Substantial Stockholder Provision generally limited the voting rights of holders of 10% of a class of common stock and provided that the Substantial Stockholder could not cast more than 15% of the votes of the class. The 10% threshold percentage was increased to the current 20%, with a maximum vote of 25%, in 1992.) The Board recommends eliminating the Substantial Stockholder Provision. Although the Substantial Stockholder Provision is an extremely effective anti-takeover provision, and the DGCL has no provision that is comparable to it, it is the Board's view that the Provision was more appropriate for the Corporation when the Corporation was a family-controlled business. The Board believes that, under the present circumstances, a more appropriate mechanism for preserving its role in considering and acting upon any proposed change in control is a Stockholders' Rights Plan, as discussed below. The elimination of the Substantial Stockholder Provision is conditioned upon the approval of the Restructuring Plan. Accordingly, if the stockholders do not approve the Restructuring Plan, the Substantial Stockholder Provision will not be eliminated, even if the stockholders vote in favor of the proposal to eliminate the Substantial Stockholder Provision. THE STOCKHOLDERS' RIGHTS PLAN In conjunction with its consideration of the Restructuring Plan (Proposal 1) and the elimination of the Substantial Stockholder Provision (Proposal 2) at its September 23, 1998 meeting, the Board considered and conditionally 9 16 approved a Stockholders' Rights Plan (the "Rights Plan"). The Board's final approval of the Rights Plan is, however, contingent upon the stockholders' approval of the Restructuring Plan and the elimination of the Substantial Stockholder Provision and will not be final until the Restructuring Plan becomes effective. Although stockholder approval of the Rights Plan is not required, the conditional adoption of the Rights Plan by the Board should be taken into account by the stockholders when considering Proposals 1 and 2. The following description is not a complete discussion of the Rights Plan. A "Summary of the Rights Plan" is set forth in Appendix C to this Proxy Statement. The Rights Plan would provide the Board with more flexible anti-takeover protection than the protections afforded by the dual class capital structure and the Substantial Stockholder Provision that the Rights Plan would replace. Unlike most stockholders' rights plans which have terms of ten years, the Rights Plan has a term of five years which the Board can renew for additional five-year terms if, prior to the expiration of the rights, it submits such renewal to a vote of the stockholders and a majority of the holders of the New Common Stock present in person or represented by proxy do not vote against such a renewal. Upon each five-year renewal of the term of the Rights Plan, if any, the Board will examine the adequacy of the Purchase Price and, if deemed to be appropriate by the Board, amend the Purchase Price. The Rights Plan is designed to deter coercive takeover tactics and to encourage any third party interested in acquiring the Corporation to negotiate first with the Board. However, the Rights Plan, like the Substantial Stockholder Provision, provides protection to current management and directors by deterring takeover attempts that management and the Board do not approve. Directors will continue to be bound by their fiduciary duties under Delaware law to consider fully any takeover bid, however. Under the Rights Plan, otherwise known as a "poison pill," the Board will, after the Restructuring Plan is implemented, declare a dividend to all holders of New Common Stock of one "right" for each share of New Common Stock then outstanding. Each right will initially entitle its registered holder to purchase from the Corporation 1/100 of one share of a new series of preference stock of the Corporation (which is intended to be essentially the economic equivalent of the New Common Stock) at an initial price of $35.00 (the "Purchase Price"). The rights will be evidenced by, and will not be separate from, the certificates for the New Common Stock and will not be exercisable or separately transferable until the "Distribution Date," that is, the earlier of (i) ten business days following a determination by the Board that a person or group of affiliated or associated persons (an "Acquiring Person") has acquired, or obtained the right to acquire, beneficial ownership of 15% or more of the outstanding shares of New Common Stock (the "Stock Acquisition Date"), or (ii) ten business days following the commencement of a tender offer or exchange 10 17 offer that would result in a person or group beneficially owning 15% or more of the outstanding shares of New Common Stock. Under the Rights Plan, shares of common stock continuously owned by holders of more than 5% of the Corporation's outstanding shares of Class A Common Stock or Class B Common Stock since September 23, 1998 would be excluded from future calculations of their share ownership for the purpose of determining whether any such person has crossed the "Acquiring Person" threshold (but not for any other purposes), provided that, prior to final adoption of the Rights Plan, each such person certifies to the Corporation such person's ownership as of September 23, 1998 and enters into an agreement with the Corporation in which such person agrees, among other things, not to enter into a proxy contest with the Corporation or seek to acquire the Corporation in a hostile transaction or be a member of a group intending to do one of those things. As of the date of this Proxy Statement, seven persons, including Blum, have reported beneficial ownership of more than 5% of the shares of Class A Common Stock or Class B Common Stock and, therefore, may enter into such a standstill agreement with the Corporation in order for the shares they own as of September 23, 1998 to be excluded from the calculation of share ownership for purposes of the Acquiring Person threshold. Until the Distribution Date, (i) the rights would be evidenced by the certificates for shares of New Common Stock, (ii) certificates for shares of New Common Stock issued after the date the rights are declared would contain a notation incorporating the Rights Plan by reference and (iii) the surrender for transfer of any certificates for shares of New Common Stock outstanding would also constitute the transfer of the rights associated with the shares of New Common Stock represented by such certificates. The Rights Plan contains "flip-in," "flip-over" and "exchange" provisions. Under the "flip-in" provision, upon the acquisition by a third party of 15% of shares of the New Common Stock (the "Triggering Event"), the holder of a right (other than the person causing the Triggering Event, all of whose rights would be deemed null and void) would have the right to receive, upon exercise of the right at the Purchase Price, New Common Stock (or, if there are insufficient shares of New Common Stock, cash or other securities) having a value equal to two times the Purchase Price. Under the "flip-over" provision, if, after a Triggering Event, the Corporation merges with, or sells 50% or more of its assets to, another person (the "Acquiror"), the holder of a right (other than the person causing the Triggering Event, all of whose rights would be deemed null and void) would be entitled to exercise the right at the Purchase Price to purchase common stock or other assets of the Acquiror having a value equal to two times the Purchase Price. In lieu of requiring payment of the Purchase Price upon exercise of the rights, the holders of the rights could be permitted to simply exchange the rights for shares of New Common Stock or other assets of the Corporation, in the event of a "flip-in," or common stock or other assets of the Acquiror, in the event of a "flip-over," in either case having a value equal to the Purchase Price. The Rights Plan provides that the Board can redeem the rights in whole, but not in part, for an amount of $.001 per right at any time prior to ten days following the Stock Acquisition Date. Such ten-day redemption period could be extended by the Board so long as the rights were still redeemable. This gives the Board the flexibility to consider and 11 18 approve a transaction that is in the best interests of the Corporation and its stockholders. In addition, the Rights Plan provides that the rights will expire automatically, without payment of a redemption amount, upon the acquisition of the Corporation pursuant to a tender offer or an exchange offer for all of the outstanding shares of New Common Stock at a price or for consideration and on terms determined by a majority of the Board, after receiving advice from one or more nationally recognized investment banking firms, to be in the best interests of the Corporation and its stockholders. Other than certain provisions relating to the principal economic terms of the rights, any of the provisions of the Rights Plan can be amended by the Board at any time until a Distribution Date has occurred. After the Distribution Date, the provisions of the Rights Agreement can be amended by the Board in order to cure any ambiguity, to make changes that do not adversely affect the interests of holders of rights (excluding the interests of any Acquiring Person), or to shorten or lengthen any time period under the Rights Agreement, provided, however, that no amendment to adjust the time period governing redemption can be made at such time as the rights are not redeemable. SUMMARY OF ANTI-TAKEOVER PROVISIONS THAT WILL REMAIN IN THE CHARTER AND BYLAWS The Board has determined that the dual class capital structure and Substantial Stockholder Provision are not essential elements of the Corporation's overall anti-takeover strategy, having taken into account the contingent adoption of the Rights Plan and continuing effect of various anti-takeover provisions of the Charter and Bylaws. The following discussion summarizes the anti-takeover provisions that will remain in the Charter and Bylaws. 1. Supermajority Vote for Transactions with Related Parties -- Section(b)(1) of Article Sixth of the Charter. This provision requires the affirmative vote of 80% of the votes entitled to be cast for the Corporation to effect a merger with, a transfer of all or substantially all of the assets to, or to effect certain other transactions with any related company or affiliate or associated person thereof (collectively, the "Related Person"), provided a stockholder vote on the transaction would be required under Ohio law. Ohio law requires stockholder approval of a merger with, or a transfer of all or substantially all of the assets to, any person. In addition, Ohio 12 19 law requires stockholder approval of business combinations and certain transactions with holders of 10% or more of the voting power of a company's shares, except under certain circumstances. Section (b)(1) of Article Sixth of the Charter was designed to ensure that a Related Person cannot determine the result of a stockholder vote on a merger or other corporate transaction without offering to the minority shareholders terms sufficient to induce 80% of the total number of shares outstanding to approve the transactions. An amendment of this provision would require the holders of the outstanding shares of Class A Common Stock and Class B Common Stock, voting together and not as separate classes (the "eligible votes"), to approve the amendment by the affirmative vote of 80% of the eligible votes. If the Restructuring Plan is implemented, the holders of the shares of New Common Stock (referred to also as the "eligible votes") would have to approve an amendment of this provision by the affirmative vote of 80% of their votes. 2. Minimum Price and Prohibited Transactions -- Section (b)(2) of Article Sixth of the Charter. The minimum price provision requires a Related Person, which receives the requisite approval to complete a transaction with the Corporation, to pay a stockholder who does not affirmatively vote for the transaction a price per share equal to not less than the highest price per share paid by the Related Person (or, if the Related Person did not buy shares of the same class held by the stockholder, the highest market price of the shares of the class held by the stockholder on the days on which the Related Person did purchase shares), plus the excess of such price over the lower of the market price per share immediately prior to the purchases of such stock by the Related Person or the lowest price per share paid by the Related Person (or, if the Related Person did not buy shares of the same class held by the stockholder, the lowest market price on any day on which the Related Person did purchase shares). The prohibited transaction provision prohibits a merger with, transfer of assets to, and certain other transactions with a Related Person which, after becoming a Related Person: (a) acquired shares from the Corporation, except upon conversion or pursuant to a dividend or stock split; (b) received loans or other financial assistance from the Corporation; 13 20 (c) was responsible for any material change in the Corporation's business, equity capital structure or dividend practices; or (d) was responsible for any change in the Charter or Bylaws or membership of the Board or committees thereof. These provisions were designed to ensure that any takeover offer will be presented first to the Board so that it may negotiate the best possible terms in the interests of the Corporation and all of its stockholders. The prohibited transaction provision is intended to prohibit a Related Person from engaging in activities with, or relating to, the Corporation which could adversely affect the fairness of the price paid to the stockholders in a transaction between the Related Person and the Corporation. These provisions do not apply to a transaction that a majority of the whole Board (the number of directors if there is no vacancy) approves by a two-thirds vote, provided a majority of the directors consists of continuing directors. An amendment of these provisions would require the affirmative vote of 95% of the eligible votes. The proposal to eliminate the Substantial Stockholder Provision also encompasses the revision of the definition of continuing directors to delete the reference to a Substantial Stockholder and to provide that the directors as of December 8, 1998 are continuing directors. 3. Board Evaluation of a proposed Transaction -- Section (b) of Article Sixth of the Charter. This provision permits the Board to take into account the following factors when evaluating whether a merger with, sale of substantially all of the assets to, or certain other transactions are in the best interests of the Corporation: (a) the best interests of all stockholders, taking into account the consideration being offered not only in relation to the current market price but also in relation to the Board's estimate of the future value of the Corporation as an independent entity; and 14 21 (b) such other factors as it determines to be relevant, including the social, legal, and economic effects of the transaction on the employees, suppliers, customers, and business of the Corporation. This provision is intended to provide the Board the flexibility to consider any appropriate factors in evaluating a transaction with a Related Person. An amendment of this provision would require the affirmative vote of 80% of the eligible votes, unless two-thirds of the whole Board approve the amendment and a majority of the Board acting on the amendment consists of continuing directors. 4. Appraisal Rights -- Section (d) of Article Sixth of the Charter. This provision provides appraisal rights for holders of the Corporation's voting shares in connection with stockholder votes on any amendments to the Charter, mergers, consolidations and sales of all or substantially all of the assets of the Corporation, unless two-thirds of the whole Board approve the amendment or the transaction and a majority of the Board acting on the matter consists of continuing directors. This provision is designed to ensure fair treatment of minority stockholders in a second-stage merger or other transaction. An amendment of this provision would require the affirmative vote of 80% of the eligible votes, unless two-thirds of the whole Board approve the amendment and a majority of the Board acting on the amendment consists of continuing directors. 5. Blank-Check Preference Stock -- Division I of Article Fourth of the Charter. This provision provides for "blank-check" preference stock, which enables the Board to issue preference stock and establish the terms of such preference stock, including convertible or redeemable preference stock, without the need for stockholder approval. "Blank-check" preference stock gives the Board broad discretion to establish voting, dividend, conversion and other rights for the stock if and when it is eventually issued. Such broad authority provides flexibility to the Board to raise additional capital or to issue the stock in connection with the implementation of certain defenses, such as the Rights Plan. See "-- The Stockholders' Rights Plan." An amendment of this provision requires the affirmative vote of a majority of the eligible votes. 15 22 6. Limitation on Action by Written Consent -- Article Fifth of the Charter. Article Fifth provides that generally stockholders may act by written consent only if such consent is unanimous. This provision is intended to preclude a raider from avoiding the delay related to the holding of a meeting of stockholders by obtaining the consent of a majority of the votes of the stockholders. An amendment of this provision would require the affirmative vote of 80% of the eligible votes, unless two-thirds of the whole Board approve the amendment and a majority of the Board acting on the amendment consists of continuing directors. 7. Limitation on Right to Call Special Meeting -- Section 1(b) of Article I of the Bylaws. Section 1(b) of Article I of the Bylaws states that a stockholder may not call a special meeting. The DGCL does not provide stockholders with the right to call a special meeting unless such right is otherwise provided by the company. An amendment of this provision would require the affirmative vote of 80% of the eligible votes, unless two-thirds of the whole Board approve the amendment and a majority of the Board acting on the amendment consists of continuing directors. 8. Board Structure -- Sections 2(a) and (b) and Section 3 of Article II of the Bylaws. Sections 2(a) and (b) and Section 3 of Article II of the Bylaws provide for a classified Board consisting of not less than five nor more than 11 directors divided into three classes, each of which must be as nearly equal to one-third of the total number of directors as possible and one of which is elected each year to a three-year term. Section 3 of Article II specifies the three-year term for directors, provides that directors may only be removed for cause, and describes procedures for and the effects of resignations from the Board and the effects of vacancies on the Board. These provisions make it more difficult for a raider to seize control of the Corporation immediately, because only one of the three classes of directors stands for election in any one year and directors may only be removed for cause. An amendment of this provision would require the affirmative vote of 80% of the eligible votes, unless two-thirds of the whole Board approve the amendment and a majority of the Board acting on the amendment are continuing directors. 16 23 9. Stockholder Nomination of Directors -- Section 2 of the Bylaws. Section 2 of Article 2 of the Bylaws provides that written notice of a stockholder's intent to nominate an individual for election to the Board at the Corporation's annual meeting must be filed with the Secretary of the Corporation not later than 10 days after notice 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. The purpose of this provision is to provide to the Board advance notice for all nominations from the floor in an election of directors. The Board is proposing to amend this provision to lengthen the notice provision. See "Proposal 3 -- Proposal to Lengthen the Notice Period for Stockholder Nomination of Directors." 10. Provisions Requiring A Supermajority Vote for Amendment -- Article Eighth of the Charter. Article Eighth of the Charter provides that 80% of the eligible votes of the Corporation must approve any amendment to the provisions of the Charter described above in sections 3, 4 and 6, and Article Eighth itself, the provisions of the Bylaws described above in sections 7, 8 and 9. This provision makes more difficult the repeal or amendment of the Corporation's anti-takeover provisions. The supermajority vote is not required, however, if two-thirds of the whole Board approve the amendment and a majority of the Board acting on the amendment consists of continuing directors. PROPOSAL 1 PROPOSAL TO ADOPT THE RESTRUCTURING PLAN DESCRIPTION OF THE RESTRUCTURING PLAN On September 23, 1998, the Board unanimously approved the Restructuring Plan, which consists of the following components: Amendments to Article Fourth. Article Fourth will be amended to eliminate provisions relating to Class A Common Stock and Class B Common Stock, to provide for a single class of New Common Stock designated as "Common Stock," and to provide for the reclassification and conversion of Class A Common Stock and Class B Common Stock as and into New Common Stock. Currently, the Charter provides for two classes of common stock, the Class A Common Stock and the Class B Common Stock, and authorizes the issuance of 18,000,000 shares of Class A Common Stock and 18,000,000 shares of Class B Common Stock. The number of authorized shares of New Common Stock will be 36,000,000. The Amended and Restated Article Fourth is included in the Restated Charter which is set forth in Appendix A. Filing the Restated Charter. The Restated Charter (reflecting all amendments adopted pursuant to stockholder action at the Special Meeting) will be filed with the Secretary of State of Delaware on the day of the Special 17 24 Meeting or as soon thereafter as practicable. The Restructuring Plan will become effective at the close of business (5:00 p.m. EST) on the date of such filing (the "Effective Date"). Conversion Ratio and Reclassification and Conversion of Shares. As of the Effective Date, each outstanding share or share held in treasury of Class A Common Stock and each outstanding share or share held in treasury of Class B Common Stock will be reclassified as and converted into one share of New Common Stock. For all purposes, certificates representing shares of Class A Common Stock and Class B Common Stock will be deemed to be certificates representing shares of New Common Stock. Nasdaq National Market Listing. The New Common Stock will be listed on the Nasdaq National Market under the symbol "SCTT." The Nasdaq Market listing of Class A Common Stock and Class B Common Stock as SCTTA and SCTTB, respectively, will be eliminated upon listing of the New Common Stock. Conditions to Implementation of the Restructuring Plan. Implementation of the Restructuring Plan requires the affirmative vote of a majority of the votes of holders of the outstanding shares of Class A Common Stock and Class B Common Stock, voting together as a single class, and the affirmative vote of a majority of the votes of the holders of the outstanding shares of Class A Common Stock and Class B Common Stock, each voting as a separate class. The adoption of Proposal 2 (elimination of the Substantial Stockholder Provision) is conditioned upon the adoption of Proposal 1 (the Restructuring Plan). COMPARISON OF CAPITAL STOCK BEFORE AND AFTER RESTRUCTURING The existing rights, powers and limitations of the Class A Common Stock and Class B Common Stock are set forth in Article Fourth of the Charter (the "Existing Article Fourth"). The rights, powers and limitations of the New Common Stock that will be issued pursuant to the Restructuring Plan will be set forth in the Restated Charter. The following summary should be read in conjunction with, and is qualified in its entirety by reference to, Appendix A to this Proxy Statement. 18 25 Dividend Rights. Under the Existing Article Fourth, cash dividends on shares of the Class A Common Stock must be declared and paid at the same time as cash dividends are declared and paid on shares of the Class B Common Stock and must be paid in an amount per share at least equal to the amount of the dividend per share declared and paid on shares of the Class B Common Stock. Between 1989 and 1994, when the Corporation stopped paying dividends, the Corporation paid dividends in the same amounts on the shares of Class A Common Stock and Class B Common Stock. Prior to 1989, cash dividends paid to the holders of Class A Common Stock exceeded the amount of cash dividends paid to the holders of Class B Common Stock. Cash dividends will be paid on the shares of New Common Stock if, when and as declared by the Board out of funds legally available therefor. Voting Rights. Under the Existing Article Fourth, holders of shares of Class A Common Stock have 1/20 of one vote for each share, and holders of shares of Class B Common Stock have 1 vote per share. The holders of shares of Class A Common Stock and Class B Common Stock vote together as a single class on the election of directors and for all other purposes. The Restated Article Fourth will provide for one vote for each share of New Common Stock. This change will increase the voting power of the current holders of shares of Class A Common Stock and will dilute the voting power of the current holders of shares of Class B Common Stock. Rights Upon Liquidation. Under the Existing Article Fourth, the rights of the holders of shares of Class A Common Stock and shares of Class B Common Stock are the same in the event of the liquidation, dissolution, or winding up of the Corporation. These rights will not be affected by the Restructuring Plan. Each stockholder's proportionate equity interest in the Corporation will be unchanged. Authorized Number of Shares. The Existing Article Fourth authorizes 18,000,000 shares of Class A Common Stock and 18,000,000 shares of Class B Common Stock. As of _________, 1998, the Corporation had out- standing _________ shares of Class A Common Stock and _________ shares of Class B Common Stock. Under the Restructuring Plan, there will be no increase in the total number of shares of common stock authorized; thus the Restated Charter will authorize 36,000,000 shares of New Common Stock. After implementation of the Restructuring Plan, _________ shares of New Common Stock will be issued and outstanding, with _________ authorized but unissued shares of New Common Stock available for issuance from time to time by the Corporation for any proper corporate purpose. 19 26 OWNERSHIP OF PRINCIPAL STOCKHOLDERS BEFORE AND AFTER THE RESTRUCTURING PLAN IS EFFECTIVE The stockholders named in the following table are those which are known to the Corporation to be the beneficial owners of 5% or more of the Corporation's Class A Common Stock or Class B Common Stock. The information is as of the dates of the reports on Schedule 13D or 13G filed by such stockholders. For purposes of this table, and as used elsewhere in this Proxy Statement, the term "beneficial owner" means any person who, directly or indirectly, has or shares the power to vote, or to direct the voting of, a share or the power to dispose, or to direct the disposition of, a share or has the right to acquire beneficial ownership of shares within 60 days. Except as otherwise indicated, the Corporation believes that each beneficial owner listed below exercises sole voting and dispositive power over his or its shares. 20 27
IMPACT OF RESTRUCTURING PLAN CURRENT BENEFICIAL OWNERSHIP --------------------------- AND VOTING POWER AMOUNT OF -------------------------------------------------------- BENEFICIAL AMOUNT AND OWNERSHIP OF PERCENT OF NATURE OF PERCENT PERCENT NEW NEW COMMON NAME AND ADDRESS OF BENEFICIAL OF OF COMMON STOCK & BENEFICIAL OWNER OWNERSHIP CLASS (1) VOTES (2) STOCK VOTING POWER - --------------------------------- --------------------- -------------- ----------- -------------- ---------------- CLASS A COMMON STOCK NewSouth Capital Management, Inc. 1000 Ridgeway Loop Road, Suite 233 Memphis, TN 38120 1,660,388(4) [12.0]% Reich & Tang Asset Management, L.P. 600 Fifth Avenue New York, NY 10020 1,657,000(5) [12.0]% Richard C. Blum & Associates, L.P.(6) 909 Montgomery Street, Suite 400 San Francisco, CA 94133 1,184,213 ____% J.O. Hambro & Partners Limited 10 Park Place London SW1A 1LP England 848,200(7) [5.3]% CLASS B COMMON STOCK Richard C. Blum & Associates, L.P.(6) 909 Montgomery Street, Suite 400 San Francisco, CA 94133 1,503,333 ____%(8) Wilmington Trust Corporation 1100 North Market Street Wilmington, DE 19890 876,282(9) [18.6]% Mentor Partners L.P. 500 Park Avenue New York, NY 10022 433,300(10) [9.2]% The Goldman Sachs Group, L.P. 337,388(11) [7.2]% 85 Broad Street New York, NY 10004
(1) Based upon the number of shares outstanding as of the Record Date. (2) Based upon the voting power of shares outstanding as of the Record Date as adjusted by the Substantial Stockholder Provision. (3) Based upon the number of shares of New Common Stock into which the shares of Class A Common Stock and Class B Common Stock outstanding on the Record Date would be reclassified and converted as of the Effective Date. (4) This amount, as reflected in a report on Schedule 13G dated February 12, 1998 and as of December 31, 1997, consists of 1,542,888 shares as to which the reporting person claims sole voting power; 117,500 shares as to which the reporting person claims shared voting power; and 1,660,388 shares as to which the reporting person claims sole dispositive power. The reporting person does not claim any shared dispositive power. 21 28 (5) This amount, as reflected in a report on Schedule 13G dated February 12, 1998 and as of February 12, 1998, consists of 1,657,000 shares as to which the reporting person claims shared voting power and 1,657,000 shares as to which the reporting person claims shared dispositive power. The reporting person does not claim any sole voting power or sole dispositive power. (6) Blum is the general partner of three limited partnerships and has investment and voting discretion over five investment advisory accounts that own these shares, have shared voting and dispositive power over the shares and reported their ownership as a group on a report on Schedule 13D and reports filed under Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). (7) This amount, as reflected in a report on Schedule 13G dated May 18, 1998 and as of May 6, 1998, filed by J.O. Hambro Capital Management ("Hambro"), Christopher Harwood Bernard Mills, J.O. Hambro & Company Limited and J.O. Hambro Asset Management Limited, as a group, consists of 848,200 shares as to which the reporting persons claim shared voting and dispositive power. The reporting persons do not claim any sole voting or dispositive power. The Schedule 13G reports that, pursuant to agreement, Hambro and Christopher Harwood Bernard Mills have the shared right to transfer or vote the shares owned by two investment trust companies. In addition, pursuant to agreement, Hambro Partners has the right to transfer shares owned by an investment company which is managed by an investment manager that has the right to transfer and vote the shares. The investment company and investment manager also filed as part of the group. (8) As a result of the Substantial Stockholder Provision, Blum's voting power through its ownership of shares of Class B Common Stock is limited to ____% of the outstanding shares of Class B Stock that can be voted. (9) This amount, as reflected in a report on Schedule 13G dated February 6, 1998 and as of December 31, 1997, filed by Wilmington Trust Corporation ("WT Corporation") and its wholly-owned subsidiary, Wilmington Trust Company ("WT Company"), consists of 244,622 shares as to which WT Corporation and WT Company claim sole voting and dispositive power and 631,577 shares as to which WT Corporation and WT Company claim shared voting and dispositive power. (10) This amount, as reflected in a report on Schedule 13D/A dated December 28, 1995 and as of December 27, 1995, consists of 433,300 shares as to which the reporting person claims sole voting and dispositive power. The reporting person does not claim any shared voting power or shared dispositive power. (11) This amount, as reflected in a report on Amendment No. 1 to Schedule 13G dated February 14, 1998 and as of December 31, 1997, filed by The Goldman Sachs Group, L.P., and its wholly-owned subsidiary, Goldman Sachs & Co., consists of 337,388 shares as to which the reporting persons claim shared voting power and 337,388 shares as to which the reporting persons claim shared dispositive power. Goldman Sachs Trust on behalf of Goldman Sachs Small Cap Value Fund, whose ownership is also reflected on the Schedule 13G, claims shared voting power as to 239,300 shares and shared dispositive power as to 239,300 shares. The reporting persons do not claim any sole voting power or sole dispositive power. OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT BEFORE AND AFTER THE RESTRUCTURING PLAN IS EFFECTIVE The following table sets forth information, as of October 1, 1998 (except as specified below) and on an adjusted basis to give effect to the Restructuring Plan, with respect to the beneficial ownership of shares of Class A Common Stock and Class B Common Stock of each Director and each current and former executive officer named (the "Named Executive Officers") by the Corporation in the Summary Compensation Table included in the Corporation's proxy statement for its 1998 Annual Meeting of Stockholders and, by the Directors and current executive officers of the Corporation, as a group, based upon information furnished to the Corporation by such persons: 22 29
AMOUNT OF BENEFICIAL OWNERSHIP AS OF IMPACT OF OCTOBER 1, 1998 (1) RESTRUCTURING PLAN -------------------------- ------------------------------- NEW CLASS A PERCENTAGE CLASS B PERCENTAGE COMMON NAME OF BENEFICIAL OWNER COMMON STOCK OF CLASS COMMON STOCK OF CLASS STOCK(2) - ------------------------ ------------ --------- ------------ ---------- -------- Robert P. Collins........... 0 * 300 * N. Colin Lind............... 1,184,213(3) 1,503,333(3) Glen W. Lindemann........... 85,579(4)(5) 1,374(4) * Frank N. Linsalata.......... 5,000 * 0 * F. Rush McKnight............ 1,315(6) * 6,580(6) * Harrison Nesbit, II......... 53.9(7) * 562(7) * John P. Reilly.............. 320,582(8) [2.3]% 237 * William J. Sickman.......... 38,136(4)(9) * 851(4) * Steven L. Siemborski........ 111,482(4)(10) * 483(4) * All Current Directors and Executive Officers as a Group (10 persons)... 1,647,875.9(4)(11) 1,513,237(4)(11) - ------------------
* Less than one percent (1%). (1) Except as otherwise indicated in footnote (4) and as limited by the terms of applicable stock plans, each Director, executive officer or former executive officer owning shares listed or included in this table exercises sole voting and dispositive power over such shares. The shares shown include 454,001 shares of Class A Common Stock with respect to which certain current and former executive officers have a right to acquire beneficial ownership within sixty (60) days. (2) Based upon the number of shares of New Common Stock into which the shares of Class A Common Stock and Class B Common Stock outstanding on the Record Date would be reclassified and converted as of the Effective Date. (3) Mr. Lind disclaims beneficial ownership of these shares except to the extent of his pecuniary interest in shares as to which he has shared voting and dispositive power. The shares are owned by three limited partnerships of which Blum is the general partner and five investment advisory accounts for which Blum has investment and voting discretion. Mr. Lind is an officer and limited partner of Blum and a director of the general partner of Blum. (4) These amounts include shares of Class A Common Stock and Class B Common Stock held by the ESOP which are subject to certain pass-through voting and tendering rights. Participants in this plan are entitled to instruct the trustee of the plan (the "Trustee"), on a confidential basis, on how to vote and how to respond to a tender or exchange offer for shares allocated to their accounts. Under the trust agreement, shares for which no instructions are received can be voted or tendered by the Trustee. The numbers of shares of Class A Common Stock and Class B Common Stock held by the ESOP which have been allocated to the Named Executive Officers and Directors as a group as of June 30, 1998 are as follows: Mr. Lindemann-- 1,378 shares of Class A Common Stock and 1,374 shares of Class B Common Stock; Mr. Siemborski-- 644 shares of Class A Common Stock and 483 shares of Class B Common Stock; Mr. Sickman-- 929 shares of Class A Common Stock and 851 shares of Class B Common Stock; and all current Directors and executive officers as a group-- 2,951 shares of Class A Common Stock and 2,708 shares of Class B Common Stock. (5) This amount includes 74,001 shares that may be acquired beneficially within sixty (60) days by exercising stock options. (6) These amounts do not include 75 shares of Class A Common Stock and 75 shares of Class B Common Stock owned by Mr. McKnight's wife. 23 30 (7) These amounts do not include 2,248 shares of Class A Common Stock and 2.7 shares of Class B Common Stock owned by Mr. Nesbit's wife. (8) This amount includes 300,000 shares that may be acquired beneficially within sixty (60) days by exercising a stock option. (9) This amount includes 32,000 shares that may be acquired beneficially within sixty (60) days by exercising stock options. (10) This amount includes 48,000 shares that may be acquired beneficially within (60) days by exercising stock options. On March 9, 1998, Mr. Siemborski was granted an option to purchase 23,000 shares. Upon Mr. Siemborski's resignation from the Corporation on March 31, 1998, the Stock Option Committee approved the immediate vesting of all option grants and extended the period the options can be exercised to March 31, 1999. (11) Includes shares that Mr. Lind disclaims owning. See note (3). REASONS FOR AND ADVANTAGES OF THE RESTRUCTURING PLAN In view of the fact that the Corporation is no longer a family-controlled business, and having considered the analyses and recommendations of Duff & Phelps, the Board has determined that the benefits of a single class capital structure far outweigh any benefits that might be derived from retaining the existing capital structure. The elimination of the dual class capital structure will simplify the Corporation's capital structure, thereby providing greater flexibility and efficiency in raising capital and issuing additional stock if, when and to the extent desired by the Corporation. It also conforms the Corporation's capital structure with that of most other publicly held corporations, which the Board believes may generate more extensive analyst coverage and investor interest. Among publicly held companies, there has been a trend away from the dual class capital structure, consistent with policies of the major exchanges and Nasdaq in favor of one share, one vote common stock capitalization. The single class capital structure also will reduce the administrative costs associated with dual classes of common stock, and will simplify the Corporation's voting procedures. Implementation of the Restructuring Plan will provide the holders of Class B Common Stock with liquidity because they will receive shares of the New Common Stock that will be held by significantly more beneficial owners than the Class B Common Stock, thereby facilitating their sales of shares. The Board took into account Duff & Phelps' analyses of the conversion ratios in other reclassifications and in acquisitions. Since most of these conversion ratios were one for one, notwithstanding the fact that the higher voting stock generally traded at an average price higher than the average price of the lower voting stock, and since a one for one conversion ratio is simpler to implement than a different conversion ratio, the Board decided to use a one for one conversion ratio in the Restructuring Plan. In addition, the conversion ratio of one share of New Common Stock for one share of Class B Common Stock will provide the holders of Class B Common Stock with a premium of 3.1% over the 24 31 average market price of a share of Class B Common Stock over the last five years in recognition of the decrease in the voting power of the Class B Common Stock as a class. Implementation of the Restructuring Plan will increase the voting power of the holders of Class A Common Stock. POSSIBLE DISADVANTAGES OF THE RESTRUCTURING PLAN The Restructuring Plan may adversely affect the Corporation and the holders of shares of Class A Common Stock and Class B Common Stock. Implementation of the Restructuring Plan will result in the loss of the anti-takeover protection that two classes of common stock can provide to a corporation. Implementation of the Restructuring Plan will reduce the voting power of the holders of shares of Class B Common Stock because the holders of Class A Common Stock will obtain shares of New Common Stock which will entitle the holders to one vote per share. The conversion ratio in the Restructuring Plan for the conversion of a share of Class B Common Stock into a share of New Common Stock is the same conversion ratio as that applicable to shares of Class A Common Stock, despite the fact that the voting power of the shares of Class B Common Stock will be reduced. Nevertheless, based upon the fact that the average market price of a share of Class B Common Stock for the five years ended July 31, 1998 was 3.1% lower than the average market price of a share of Class A Common Stock for the same period, the holders of the shares of Class B Common Stock will receive a premium in the transaction in recognition of the decrease in their voting power as a class. IMPACT OF THE RESTRUCTURING PLAN ON THE NASDAQ LISTING AND THE CORPORATION'S OPERATIONS The Corporation expects to continue the ordinary course of its business and operations following the implementation of the Restructuring Plan. Like the shares of Class A Common Stock and Class B Common Stock, the shares of New Common Stock will be quoted on the Nasdaq National Market. The Restructuring Plan involves no increase in the total number of shares of common stock authorized in the Charter. The Corporation currently has no plans to effect a secondary offering of shares of New Common Stock following implementation of the Restructuring Plan. However, the Restated Charter will provide for sufficient authorized shares of New Common Stock such that the Board could effect such a secondary offering without seeking additional stockholder approval for such action. 25 32 FEDERAL INCOME TAX CONSEQUENCES The following is a discussion of certain of the federal income tax consequences of the Restructuring Plan. This discussion is based on the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the United States Department of the Treasury Regulations promulgated thereunder and rulings and court decisions as of the date hereof, all of which are subject to change, possibly retroactively. The discussion is included for general information purposes only and applies only to the Corporation and to the holders of the Corporation's shares of Class A Common Stock and Class B Common Stock. No rulings from the Internal Revenue Service with respect to the tax consequences of the Restructuring Plan to the Corporation's stockholders or to the Corporation will be sought. The reclassification and conversion by the Corporation of the Class A Common Stock and Class B Common Stock as and into New Common Stock will be treated as a tax-free exchange under section 1036 of the Code and as a tax-free recapitalization under section 368(a)(1)(E) of the Code. As a result of such treatment, the following tax consequences will apply: (i) No gain or loss will be recognized for federal income tax purposes by the Corporation's stockholders upon the reclassification and conversion of their shares of Class A Common Stock or Class B Common Stock as and into New Common Stock. (ii) The basis for the shares reclassified as and converted into shares of New Common Stock will be the same as the aggregate basis of the Class A Common Stock or Class B Common Stock held by the Corporation's stockholders before implementation of the Restructuring Plan. (iii) The holding period of the shares reclassified as and converted into shares of New Common Stock will include the periods during which the Class A Common Stock or Class B Common Stock was held by the 26 33 Corporation's stockholders before implementation of the Restructuring Plan, provided such shares were held by such stockholders as a capital asset at the time the Restructuring Plan was implemented. (iv) No gain or loss will be recognized for federal income tax purposes by the Corporation upon the reclassification and conversion of shares of Class A Common Stock and Class B Common Stock as and into shares of New Common Stock. BECAUSE CERTAIN TAX CONSEQUENCES OF THE RESTRUCTURING PLAN MAY VARY DEPENDING UPON THE PARTICULAR CIRCUMSTANCES OF EACH STOCKHOLDER AND OTHER FACTORS, EACH HOLDER OF THE CORPORATION'S CAPITAL STOCK IS URGED TO CONSULT SUCH HOLDER'S OWN TAX ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE RESTRUCTURING PLAN (INCLUDING THE APPLICATION AND EFFECT OF FOREIGN, STATE AND LOCAL INCOME AND OTHER TAX LAWS). INVESTMENT BANKER'S OPINION The Board retained Duff & Phelps in July 1998 to act as its financial advisor and to render an opinion as to the fairness of the Restructuring Plan, from a financial point of view, to the holders of Class A Common Stock and Class B Common Stock. On September 23, 1998, representatives of Duff & Phelps formally presented to the Board their findings on the change to a single class of common stock. In determining to propose the Restructuring Plan, the Board considered the analyses performed by Duff & Phelps which are described below. Based upon Duff & Phelps' analyses, the Board determined to set a conversion ratio under the Restructuring Plan of one share of New Common Stock for each outstanding share of Class A Common Stock and Class B Common Stock. On September 23, 1998, Duff & Phelps orally confirmed to the Board that the conversion ratio of one share of New Common Stock for each outstanding share of Class A Common Stock and Class B Common Stock was fair, from a financial point of view, to the holders of each of the Class A Common Stock and the Class B Common Stock. Duff & Phelps has now delivered its written opinion. 27 34 The full text of Duff & Phelps' written opinion dated _______, 1998, which sets forth certain assumptions made, certain procedures followed and certain matters considered by Duff & Phelps, is set forth in Appendix D hereto. The discussion of the opinion in this Proxy Statement is qualified in its entirety by reference to the full text of such written opinion attached hereto. Stockholders are encouraged to read Duff & Phelps' opinion in its entirety. Analysis of Historical Reclassification Transactions. Duff & Phelps identified and analyzed 25 reclassification trans actions occurring among publicly traded companies over the years 1991 to 1998 (the "Reclassification Transaction Analysis"). In each reclassification transaction, two classes of stock of a single company with differential voting rights were converted into a single class of common stock with equal voting rights of that company. For each of the companies identified for the Reclassification Transaction Analysis, Duff & Phelps examined the number of new shares received in the reclassification per share of the higher voting stock and the number of new shares received in the reclassification per share of the lower voting stock (the ratio of new shares received per share of higher voting stock to the shares received per lower voting stock is referred to herein as the "conversion ratio"). Of the 25 transactions examined in the Reclassification Transaction Analysis, 18 transactions exhibited a conversion ratio of 1.00; two companies exhibited conversion ratios of approximately 1.01; three transactions exhibited conversion ratios of 1.06 to 1.15; and the remaining two transactions exhibited conversion ratios of 1.26 and 1.50, respectively. Duff & Phelps examined the historical trading prices of the publicly traded shares of each of the companies completing a reclassification to determine the percentage by which the price per share of the company's higher-voting stock exceeded the price per share of the company's lower-voting stock (such percentage is referred to as the "Trading Premium", a negative Trading Premium is sometimes referred to as "Trading Discount"). Of the 25 reclassification transactions examined, insufficient data were available to analyze the historical Trading Premium of ten transactions. Of the remaining 15 reclassification transactions, one demonstrated a five-year average monthly Trading Discount of approximately 2%, one demonstrated a five-year average monthly Trading Premium of 0%, and 13 demonstrated five-year average monthly Trading Premiums ranging from approximately 1% to 26%. The indicated conversion ratio demonstrated by each reclassification transaction appeared to be unrelated to the respective five-year average historical Trading Premium. 28 35 Analysis of Historical Acquisitions of Dual Class Public Companies. Duff & Phelps identified and analyzed 19 acquisition transactions occurring from 1994 to 1998 or currently pending of public companies with two classes of common stock ("Acquisition Transaction Analysis"). For each of the transactions in the Acquisition Transaction Analysis, the consideration paid to the holders of each class of stock was examined to determine the percentage by which the price per share paid to holders of higher voting shares exceeded the price per share paid to holders of lower voting shares (the "Transaction Premium"). Of the 19 transactions examined, 18 demonstrated no Transaction Premium. One transaction, which had not been completed at the time of the analysis, demonstrated a proposed Transaction Premium of 10%. Of the 19 acquisition transactions examined, insufficient data was available to analyze the historical Trading Premium of twelve transactions. Of the remaining seven transactions, one demonstrated a five-year average monthly Trading Discount of less than 1% and six demonstrated a five-year average monthly Trading Premium ranging from 1% to 26%. The one transaction that has a proposed Transaction Premium of 10% demonstrated a five-year average monthly Trading Premium of approximately 5%. Analysis of Dual Class Publicly Traded Companies. Duff & Phelps identified and analyzed a group of companies which, as of the time of the analysis, demonstrated two or more classes of publicly traded common stock ("Public Com- pany Analysis"). Based on a search of companies listed on the New York Stock Exchange, the American Stock Exchange, the Nasdaq National Market and the Nasdaq small cap listings, an initial group of 67 companies was identified. A subset of 46 companies ("Comparable Companies") was determined from the initial group of 67 after eliminating some companies on the basis of minimum market capitalization, minimum trading volume, and differential dividends between classes of stock. In the Public Company Analysis, Duff & Phelps determined the average Trading Premium or Trading Discount exhibited by each of the Comparable Companies over a five-year period ended July 31, 1998. Of the 46 Comparable Companies examined: four companies demonstrated a five-year average Trading Discount of 1% to 7%; 26 companies demonstrated a five-year average Trading Premium of between (1%) and 5%; five companies demonstrated a five-year average Trading Premium of between 5% and 9%; and 11 companies demonstrated a five-year average Trading Premium greater than 9%. 29 36 Analysis of the Historical Trading Activity of the Corporation's Capital Stock. Duff & Phelps analyzed the historical trading activity of the Corporation's Class A Common Stock and Class B Common Stock. This included an examination of the average Trading Premium or Trading Discount exhibited by the Corporation's stock based on monthly closing prices over the five-year period from July 31, 1993 to July 31, 1998 and daily closing prices over the period from April 23, 1998 to August 15, 1998. The average Trading Discount for each of the periods described above was 3.1% and 2.3%, respectively. For the five-year period ended July 31, 1998, the average monthly trading volume of the Corporation's Class A Common Stock was approximately 1,492,000 shares and the average monthly trading volume of the Corporation's Class B Common Stock was approximately 157,000 shares. Potential Earnings Dilution Analysis. Duff & Phelps performed an analysis of potential dilution to earnings per share of the Class A Common Stock and Class B Common Stock if the reclassification and conversion of shares were to occur at a conversion ratio of greater than 1.00. Since the reclassification and conversion of shares would occur at a conversion ratio of 1.00, there would be no dilution to earnings per share as a result of the Restructuring Plan. For purposes of its opinion and in connection with its review of the Restructuring Plan, Duff & Phelps, among other things: reviewed a draft of this Proxy Statement, which describes the Restructuring Plan; discussed the current operations and future outlook of the Corporation with the Corporation's management; met with the Board to discuss the Corporation, the proposed Restructuring Plan and the results of our reviews and analyses; reviewed the Corporation's annual reports on Form 10-K for the years ended 1994 to 1997; performed a separate engagement with respect to the advisability and the structure of the Rights Plan; reviewed the Corporation's quarterly reports on Form 10-Q for the period ended June 30, 1998; reviewed the Corporation's Charter; reviewed the market prices and trading activity of the Class A Common Stock and Class B Common Stock; reviewed the market prices and trading activity of the capital stock of other companies with two classes of publicly traded stock; reviewed the terms of transactions in which two classes of capital stock of public companies were converted into a single class of capital stock; reviewed the terms of transactions in which public companies with two classes of capital stock were acquired; and performed such other review and analyses as it deemed necessary. 30 37 SURRENDER OF STOCK CERTIFICATES NOT REQUIRED After the Restructuring Plan is implemented, certificates representing shares of Class A Common Stock and Class B Common Stock will automatically be deemed to represent an equal number of shares of New Common Stock, and no action will be required on the part of stockholders to exchange their certificates representing shares of Class A Common Stock and Class B Common Stock. Any stockholder who wishes to exchange old certificates for new certificates for shares of New Common Stock may contact National City Bank, Corporate Trust, Third Floor, North Annex, 4100 West 150th Street, Cleveland, Ohio 44135-1385 (1-800-622-6757). THE BOARD OF DIRECTORS CONSIDERS THIS PROPOSAL TO BE IN THE BEST INTERESTS OF THE CORPORATION AND ALL OF ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE RESTRUCTURING PLAN AND RESTATEMENT OF THE CHARTER TO REFLECT - --- SUCH APPROVAL. PROPOSAL 2 PROPOSAL TO ELIMINATE THE SUBSTANTIAL STOCKHOLDER PROVISION The Board recommends the elimination of the Substantial Stockholder Provision if the stockholders approve the elimination of the dual class capital structure. The Board believes that this Provision is extremely restrictive and is not necessary to protect the Corporation from takeovers provided the Corporation implements the Rights Plan. The Substantial Stockholder Provision places limitations on the ability of certain persons coming within the definition of a "Substantial Stockholder" to vote shares of the Corporation beneficially owned by them. A Substantial Stockholder is defined as any beneficial owner of more than a "threshold percentage" -- generally 20% -- of the total number of outstanding voting shares of any class of stock of the Corporation. A "beneficial owner" is anyone which has or shares, directly or indirectly, the power to vote or dispose of shares. Also, a person is deemed a "beneficial owner" of shares beneficially owned by affiliates, or shares beneficially owned by any other person with which the person or 31 38 its affiliates acts as a partnership, limited partnership, syndicate or other group pursuant to an agreement, arrangement, or understanding concerning the acquisition, voting, holding or disposition of shares by such group. Thus, a group of persons which have an agreement, arrangement or understanding relating to acquiring, holding, voting or disposing of shares would be deemed to be a single stockholder which beneficially owns the aggregate number of shares held by the individual members of the group. If such aggregate number of shares exceeded 20% of the total number of outstanding voting shares of any class of stock (or such other threshold percentage applicable to the group), the group would be deemed a "Substantial Stockholder." Certain exceptions from the definition of beneficial ownership are set forth in the Substantial Stockholder Provision. These include an exception for the attribution of beneficial ownership among directors and officers of the Corporation solely by reason of their acting in their capacities as such, and for shares held under employee stock ownership and similar plans and for trustees thereof solely by reason of their capacities as such. The threshold percentage for any stockholder, including a group under the definition of Substantial Stockholder, is 20% of the total number of outstanding voting shares of any class of stock. If a stockholder's percentage of voting shares increases above the threshold applicable to it as a result of purchases, redemptions or other acquisitions of voting shares by the Corporation, or decreases below the threshold applicable to it as a result of an issuance of voting shares by the Corporation or reduction in beneficial ownership by the stockholder, the stockholder's threshold percentage is adjusted to equal the percentage of outstanding voting shares held immediately after such event, but never less than 20%. Once a person is determined to be a Substantial Stockholder, any shares of any class or series of stock held in excess of its threshold percentage are entitled to 1/100 of the vote per share to which such shares would otherwise be entitled. In addition, a Substantial Stockholder is limited to casting a maximum number of votes equal to its threshold percentage plus 5% -- generally 25% -- of the total number of votes (after deducting votes that the Substantial Stockholder is prevented from casting) of the class or series entitled to be cast on a matter. This latter limitation prevents a Substantial Stockholder from increasing its relative voting power by acquiring shares in excess of its thresh- 32 39 old percentage which carry reduced voting rights, but which also reduce the total number of votes entitled to be cast to such an extent that the full voting shares still constitute a large percentage of all shares to be voted. A simple example of the application of the Substantial Stockholder Provision to a stockholder with a 20% threshold percentage and a 25% limit illustrates its operation. For purposes of the example, it is assumed that the Corporation has outstanding 1,000 voting shares of a particular class of stock, all with one vote each. If a stockholder were to acquire 700 shares of such class, he would become a Substantial Stockholder because he would hold more than 200 voting shares, 20% of the number of outstanding voting shares. As a Substantial Stockholder, he would be entitled to 200 votes for his first 200 shares (20% of the outstanding class) and, due to the limitation on voting rights for shares held in excess of 20% of the class, an additional five votes for his remaining 500 shares. These 205 votes would be out of a total of 505 votes then entitled to be cast (that is, 205 votes by the Substantial Stockholder, and 300 votes by other holders of such class of stock, assuming none of them beneficially owned more than 20% of the total number of outstanding voting shares). Then, as these 205 votes would constitute 41% of the total number of votes of the class of stock, the provision which generally limits the Substantial Stockholder to not more than 25% of the total number of votes entitled to be cast by such class would come into operation. This would limit the Substantial Stockholder to 100 votes out of a total of 400 votes entitled to be cast by holders of the class of stock. By comparison, another stockholder of the Corporation which holds 100 shares would have 10% of the total voting power before application of the Substantial Stockholder Provision, but would have 25% of the total voting power after the voting power of the Substantial Stockholder is reduced. Thus, any such reduction in the proportionate voting power of a Substantial Stockholder has the effect of increasing the proportionate voting power of all of the other stockholders of that Class. The Board believes that the Substantial Stockholder Provision is more restrictive than necessary to protect the Corporation from takeovers as long as the dual class capital structure is eliminated. This is especially true since, the Board cannot waive the provisions of the Substantial Stockholder Provision. In order to continue to protect the Corporation from abusive takeovers after the dual class capital structure and the Substantial Stockholder Provision are eliminated, however, the Board adopted, subject to implementation of the Restructuring Plan and the elimination of the Substantial Stockholder Provision, the Rights Plan which it believes will appropriately protect the interests of all of the stockholders. 33 40 THE BOARD HAS MADE THE ELIMINATION OF THE SUBSTANTIAL STOCKHOLDER PROVISION CONDITIONED UPON THE IMPLEMENTATION OF THE RESTRUCTURING PLAN. The Board believes that the Substantial Stockholder Provision should be retained if the dual class capital structure is retained because the Substantial Stock- holder Provision and the dual class capital structure provide interrelated anti-takeover protections. This is because the Substantial Stockholder Provision eliminates the ability of a raider to acquire a controlling voting interest in the Corporation through the acquisition of shares of Class B Common Stock that are not equivalent to a controlling equity interest in the Corporation. On the other hand, the stockholders could approve the Restructuring Plan and vote against the elimination of the Substantial Stockholder Provision. In such a case, the Board would implement the Restructuring Plan but not adopt the Rights Plan. If the Restructuring Plan is implemented, the voting power of the Corporation's principal stockholder, Blum, which is a Substantial Stockholder, will decrease from ____% of the outstanding shares of Class A Common Stock and ____% of the outstanding shares of Class B Common Stock as of the Record Date, or ____% of the votes eligible to be cast, to ____% of the outstanding shares of New Common Stock based upon the one-for-one conversion ratio and the outstanding shares as of the Record Date. If the Substantial Stockholder Provision is eliminated, Blum will be able to acquire beneficial ownership of additional shares of New Common Stock and have full voting power over those shares, except that the provisions of the Rights Plan will, in effect, preclude it from acquiring beneficial ownership of shares of New Common Stock that will result in Blum becoming an Acquiring Person as defined in the Rights Plan. If the Restructuring Plan is implemented but the elimination of the Substantial Stockholder Provision is not approved by the stockholders, the Board will not adopt the Rights Plan and Blum will be unable to exercise full voting power over any shares it beneficially owns in amounts that exceed the 20% threshold percentage. THE BOARD OF DIRECTORS CONSIDERS THIS PROPOSAL TO BE IN THE BEST INTERESTS OF THE CORPORATION AND ALL OF ITS STOCKHOLDERS AND RECOMMENDS A VOTE FOR APPROVAL --- OF THE ELIMINATION OF THE SUBSTANTIAL STOCKHOLDER PROVISION AND RESTATEMENT OF THE CHARTER TO REFLECT SUCH APPROVAL. PROPOSAL 3 PROPOSAL TO LENGTHEN THE NOTICE PERIOD FOR STOCKHOLDER NOMINATION OF DIRECTORS Section 2 of Article 2 of the Bylaws, as set forth in Appendix B hereto, provides that written notice of a stockholder's intent to nominate an individual for election to the Board at the Corporation's annual meeting of stockholders must be filed with the Secretary of the Corporation not later than 10 days after notice 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. This notice 34 41 must include: (i) the name and residence of the stockholder; (ii) proof that the stockholder is a holder of record of the voting shares of the Corporation; (iii) consent of the nominee to serve if elected; (iv) a description of all arrangements and understandings between the stockholder and the nominee; and (v) any information on the nominee which would need to be included in a proxy statement filed under the proxy rules of the Securities and Exchange Commission (the "SEC"). The advance notice is not required if the nomination is permitted by the affirmative vote of two-thirds of the whole Board, provided that a majority of the Board members acting on the matter consists of continuing directors. The Board proposes to amend this provision to lengthen the advance notice period to 45 days prior to the anniversary of the mailing date of the Corporation's proxy statement for the previous annual meeting. This would provide a deadline of approximately 70 to 85 days prior to the anniversary of the date of the previous annual meeting. The amendment of the notice provision would provide the Board with time to consider the qualifications of a proposed nominee before a proxy statement is mailed. The amendment would result in the Corporation's advance notice provision being similar to that of many other public companies. It would result in the advance notice provision being consistent with recent action taken by the SEC to amend Rule 14a-4(c). The SEC's recently adopted amendment to Rule 14a-4(c) under the Exchange Act takes the position that a reasonable time for a stockholder to give notice to a company of the stockholder's intent to raise a matter from the floor at an annual meeting of stockholders is 45 days prior to the anniversary of the mailing date of the proxy statement for the previous annual meeting. THE BOARD OF DIRECTORS CONSIDERS THIS PROPOSAL TO BE IN THE BEST INTERESTS OF THE CORPORATION AND ALL OF ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO LENGTHEN THE NOTICE PERIOD FOR STOCKHOLDER - --- NOMINATION OF DIRECTORS. 35 42 PROPOSAL 4 PROPOSAL TO ELIMINATE CERTAIN UNNECESSARY PREFERENCE STOCK PROVISIONS The Board has approved deleting certain provisions of Article Fourth of the Charter because these provisions are obsolete. A marked copy of the Restated Charter is set forth in Appendix A to this Proxy Statement. The last sentence of Division I of Article Fourth refers to shares of certain series of Preference Stock that are no longer outstanding. Therefore, this sentence is unnecessary. Division IV describes the conversion terms of any convertible shares issued by the Corporation. Division V describes the redemption terms of any shares issued by the Corporation that are redeemable. These provisions were included in the charter of the Corporation's predecessor Ohio company. At the time of the Corporation's formation in 1983, the Charter also authorized the Board to create one or more series of preference stock and provided for certain specific series of convertible and redeemable preference stock. Between the time of its formation and 1985, the Corporation redeemed the outstanding preference stock, which, pursuant to the terms of the Charter, could not be reissued. In 1985, the Corporation's stockholders approved an amendment to the Charter to delete the provisions related to those previously outstanding shares of preference stock. The proxy statement, however, did not address the related provisions of Divisions IV and V of Article Fourth. The Board recommends deleting these provisions because they are unnecessary. If the Corporation decides in the future to issue convertible preference stock, the Board has the authority under the "blank check" preference stock provisions of Division I of Article Fourth of the Charter to specify the conversion and redemption terms in the resolution establishing the terms of the preference stock. THE BOARD OF DIRECTORS CONSIDERS THIS PROPOSAL TO BE IN THE BEST INTERESTS OF THE CORPORATION AND ALL OF ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE ELIMINATION OF THE CONVERTIBLE STOCK AND REDEEMABLE STOCK - --- PROVISIONS AND RESTATEMENT OF THE CHARTER TO REFLECT SUCH APPROVAL. 36 43 PROPOSAL 5 PROPOSAL TO AMEND THE SCOTT TECHNOLOGIES, INC. KEY EMPLOYEES' STOCK OPTION PLAN On September 23, 1998, the Board approved, subject to stockholder approval, amendments of the Scott Technologies, Inc. Key Employees' Stock Option Plan (the "Option Plan"), to increase the number of shares authorized for issuance pursuant to the terms of the Option Plan from 1,500,000 to 3,000,000 and revise the provisions relating to transferability of options, a change in control of the Corporation, amendments of the terms of an option and the provisions referring to Class A Common Stock. A copy of the Option Plan as proposed for revision (the "Amended Plan") is set forth as Appendix E hereto. The Amended Plan is drafted on the assumption that Proposals 1, 2 and 5 will be adopted. In the event that some but not all of the Proposals are adopted, the Amended Plan will be modified by the Board accordingly. THE PROPOSED AMENDMENTS The Option Plan provides for the granting to selected key employees of the Corporation and its subsidiaries of options to purchase not more than 1,500,000 shares of Class A Common Stock. As of the Record Date, the Corpora- tion only had [190,000] shares remaining upon which options can be granted under the Option Plan. This would not be sufficient to make option grants in the event of a reasonably sized acquisition and would not be sufficient to make the option grants which would, under the recent practices of the Stock Option Committee, occur after 1998. Since the purpose of the Option Plan is provide to key employees additional incentives which are intended to enhance the Corporation's ability to attract and retain key employees and align employees' economic interests with those of the Corporation's stockholders, the Board concluded that it was in the best interests of the Corporation and all of its stock- holders that the Option Plan be amended to authorize additional shares for issuance pursuant to the terms of the Option Plan. The Stock Option Committee of the Board (the "Committee") has no specific plans at this time to grant any options other than an option to purchase 3,760 shares of Class A Common Stock which will be granted to William J. Sickman on November 1, 37 44 1998 unless he resigns prior to November 1, 1998. The Committee expects to continue to grant options as a component of key employees' total compensation consistent with its practice since the adoption of the Option Plan in 1994. In order to permit executives to plan their estates, the Board also concluded that the Option Plan should be amended to authorize the Committee to permit a non-qualified option to be transferred, in the Committee's discretion, and to specify when the transferee must exercise the option after the original optionee's termination of employment. This amendment will provide flexibility to the Committee to appropriately permit transfers of options. Internal Revenue Code of 1986, as amended (the "Code"), provisions do not permit Incentive Stock Options to be transferred other than upon the death of an Optionee. In addition, the Board concluded that the Option Plan should be amended to require the automatic acceleration of the vesting of outstanding options upon the acquisition by a person of 50% or more of the votes of the Corporation's outstanding shares of common stock in a transaction with the Corporation accounted for under the pooling-of-interests method of accounting. If the Rights Plan is not finalized because Proposals 1 and 2 are not adopted, the 50% amount will be reduced to 20%, consistent with the terms of the Substantial Stockholder Provision. In all other types of changes in control of the Corporation, as defined in the Option Plan, the Committee will continue to have the discretion to accelerate the vesting of outstanding options. This amendment is necessary because the pooling-of-interests method of accounting could not be used by the Corporation if the Committee exercised the authority it has in the existing Option Plan to accelerate the vesting of options upon a change in control. An automatic acceleration of the vesting of options upon a change in control is consistent with the rules applicable to the pooling-of-interests method, however. The Board recommends revising the provisions of the definition of "change in control" to refer to votes rather than shares and to make the percentage amounts used in the definition 20%. These amendments clarify that a change in control is based upon control rather than numbers of shares. The Board also recommends that the Option Plan be amended to authorize the Committee to rescind option grants made after the effective date of the Option Plan amendments to the extent necessary to enable the Corporation 38 45 to be a party to a business combination that is to be accounted for under the pooling-of-interests method of accounting, provided that the optionee is given a written opinion from the Corporation's independent accountants that the option must be rescinded in order for the transaction to be accounted for under the pooling-of-interests method of accounting. Section 7(d) now authorizes the Stock Option Committee to terminate options upon stockholder approval of a change in control. This provision could not be used, however, to terminate stock options when necessary for the Corporation to use the pooling-of-interests method to account for a business combination in which it issues shares to the shareholders of another company. In addition, Section 7(d) could not be used by the Stock Option Committee to terminate options before the stockholders approve the change in control of the Corporation. Finally, the Board recommends that the Option Plan be amended to refer to the New Common Stock rather than the Class A Common Stock, if the Restructuring Plan becomes effective. SUMMARY OF THE OPTION PLAN The following is a brief description of the material features of the Scott Technologies, Inc. Key Employees' Stock Option Plan. Such description is qualified in its entirety by reference to the Option Plan, as proposed for amendment, a marked copy of which is set forth in Appendix E to this Proxy Statement. Generally the Option Plan provides for the grant to key employees of nonqualified stock options and "incentive stock options" within the meaning of Section 422 of the the Code. The Plan also provides for the granting of stock appreciation rights that give the employee the right to elect a payment equal to the appreciation of the stock value over the option price. The Option Plan is intended to provide flexibility with respect to the terms and conditions of stock awards to executives and other key employees. Administration of the Option Plan. The Committee administers the Option Plan, and has the authority: (i) to select the key employees to whom options are granted; (ii) to determine the number of shares of common stock which are subject to any option; (iii) to determine the time or times when options are granted; (iv) to determine the option price of 39 46 common stock subject to an option; (v) to determine the time or times when each option becomes exercisable and the duration of the exercise period; (vi) to determine at the time of the granting of an option under the Option Plan whether and to what extent such option is an incentive stock option entitled to the benefits of Section 422 of the Code; (vii) to determine whether stock appreciation rights are made part of any option grant, the method of valuing the stock appreciation rights and whether the stock appreciation rights are exercisable in lieu of or in addition to the related option; (viii) to prescribe the form of the option agreements to be entered into under the Option Plan and to set the provisions of such option agreements; (ix) to adopt, amend and rescind such rules and regulations as, in the Committee's opinion, are advisable in the administration of the Option Plan; and (x) to construe and interpret the Option Plan, the rules and regulations thereunder and the instruments evidencing options granted under the Option Plan and to make all other determinations deemed necessary or advisable for the administration of the Option Plan. In addition, if the proposal to amend the Option Plan is adopted, the Committee will have the authority to authorize a transfer of an option, establish the terms of such transfer and rescind an option to the extent necessary for the Corporation to be a party to a pooling-of-interests transaction. Employees Eligible for Options. The Option Plan provides that options may be granted from time to time in the discretion of the Committee only to such key employees of the Corporation or of a subsidiary corporation of the Corporation whose initiative and efforts contribute or may be expected to contribute to the Corporation's growth and future success, including key employees who may also be members of the Board. A key employee is defined by the Option Plan as any person determined by the Committee to be a high level executive officer or other valuable managerial or technical employee of the Corporation or a subsidiary of the Corporation. Approximately 35 employees may be considered to meet the definition of key employee. Members of the Committee are not eligible to participate in the Option Plan, or to receive options under it, while serving on the Committee or for the year prior to serving on the Committee. A key employee who renounces in writing any right to receive options under the Option Plan will not be eligible to receive any options under the Option Plan. The Committee may grant more than one option, with or without stock appreciation rights, to the same employee. No option may be granted to any employee during any period of time when he or she is on a leave of absence. 40 47 Shares Subject to the Option Plan. The aggregate number of shares of common stock for which options may be granted under the Option Plan is 1,500,000. The proposed amendment would increase the total number of shares avail able for issuance under the Option Plan to 3,000,000. Either treasury or authorized and unissued shares, or both, in such amount or amounts, within the maximum limits of the Option Plan, as the Committee shall from time to time determine, may be so issued. All shares of common stock which are the subject of any lapsed, expired or terminated options may be made available for reoffering under the Option Plan to any eligible employee. In the event a stock appreciation right is granted, the exercise of which is in lieu of exercise of an option, and such stock appreciation right is thereafter exercised in whole or in part, then such option or the portion thereof to which the duly exercised stock appreciation right relates shall be deemed to have been exercised and the shares of common stock which otherwise would have been issued upon exercise of such option, to the extent not used in payment for the stock appreciation right, may generally be made available for reoffering under the Option Plan. In the event that the outstanding shares of common stock should be increased or decreased or changed into or exchanged for a different number or kind of shares of capital stock of the Corporation or of another corporation, appropriate adjustments reflecting such changes will be made with respect to both the number of shares for which options may be granted in the future and the number and the exercise price for shares already subject to existing options. Option Provisions. The exercise price per share of common stock which is the subject of an incentive stock option under the Option Plan is determined by the Committee at the time of grant but cannot be less than 100% of the fair market value of a share of Common Stock on the date such option is granted. If the employee to whom an incentive stock option is granted is at the time of the grant of the option an owner of more than 10% of the total combined voting power of all classes of the stock of the Corporation (a "Ten-Percent Stockholder"), the option price per share will not be less than 110% of the fair market value of a share of common stock on the date the option is granted. The exercise price per share under each option granted pursuant to the Option Plan which is not an incentive stock option is determined by the Committee at the time of grant and may be above or below the fair market value of the Corporation's common stock on the date such option is granted. 41 48 The Committee determines when each option is to expire, but no option may be exercisable for a period of more than ten years from the date upon which the option is granted. No incentive stock option granted to an employee who is a Ten-Percent Stockholder at the time of the grant of the option may be exercisable after the expiration of five years from the date of grant of the option. Prior to the amendments proposed herein, only the key employee to whom the option is granted may exercise the option except where a guardian or other legal representative has been duly appointed for the employee and except as otherwise provided in the case of the employee's death. No option was transferable otherwise than by the last will and testament of the employee to whom it is granted or, if the employee dies intestate, by the applicable laws of descent and distribution or to the extent approved by the Committee pursuant to a qualified domestic relations order as defined by the Code. The proposed amendments would permit the Committee to provide for transferability of an option in its discretion. No option may be pledged or hypothecated, nor may any option be subject to execution, attachment or similar process. The Committee may, in its discretion, either require that, prior to the exercise of any option, the optionee must have been an employee for a specified period after the date of such option, or make any option immedi- ately exercisable. Each option is subject to such additional restrictions or conditions with respect to the right to exercise and the time and method of exercise as the Committee may prescribe. Upon satisfaction of any such conditions, the option may be exercised in whole or in part at any time during the option period, but this right of exercise shall be limited to whole shares, unless the Committee determines otherwise. Options are exercisable by the optionee giving written notice to the Corporation of the optionee's exercise of the option and the number of shares with respect to which the option is exercised accompanied by full payment of the purchase price either in cash or, with the consent of the Committee, in whole or in part in shares of common stock having a fair market value on the date the option is exercised equal to that portion of the purchase price for which payment in cash is not made. A dissolution or liquidation of the Corporation will cause each outstanding option to terminate, although each optionee will have the right during the period prescribed in the option agreement prior to such dissolution or liquidation, to exercise his option in whole or in part. 42 49 Certain provisions regarding a "change in control" of the Corporation are summarized above in connection with the description of the proposed amendments. In summary, the Committee has the right to accelerate options upon a change in control. The term "change in control" is currently defined in the Option Plan to include: (i) the first purchase of shares pursuant to a tender offer or exchange (other than a tender offer or exchange by the Corporation) for 10% or more of the Corporation's common stock of any class or any securities convertible into such common stock; (ii) the receipt by the Corporation of a Schedule 13D or other advice indicating that a person is the "beneficial owner" (as that term is defined in Rule 13d-3 under the Exchange Act) of 20% or more of the Corporation's Common Stock calculated as provided in paragraph (d) of said Rule 13d-3; (iii) the date of approval by stockholders of the Corporation of an agreement providing for any consolidation or merger of the Corporation in which the Corporation will not be the continuing or surviving corporation or pursuant to which shares of capital stock, of any class or any securities convertible into such capital stock, of the Corporation would be converted into cash, securities, or other property, other than a merger of the Corporation in which the holders of common stock of all classes of the Corporation immediately prior to the merger would have the same proportion of ownership of common stock of the surviving corporation immediately after the merger; (iv) the date of the approval by stockholders of the Corporation of any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Corporation; (v) the adoption of any plan or proposal for the liquidation (but not a partial liquidation) or dissolution of the Corporation; or (vi) such other event as the Committee shall, in its discretion, deem to be a "change in control." If an optionee ceases to be an employee of the Corporation or any of its subsidiaries, the optionee shall be able to exercise an option during the following periods (but not beyond the original term of the option): (i) three months after the date the optionee ceased to be an employee if the reason for the optionee's cessation as an employee was other than his death or disability; or (ii) one year after the date the optionee ceased to be an employee if the reason for the optionee's cessation as an employee was his disability. If an optionee should die prior to the expiration of an option, the optionee's estate, or the person designated in his last will and testament, or the person to whom the option is transferred by the applicable laws of descent and distribution, shall be able to exercise the option during the one-year period after the date the optionee ceased to be an employee (but not beyond the original term of the option) if either (A) the 43 50 optionee died while he was an employee of the Corporation or any of its subsidiaries or (B) the optionee died within three months after ceasing to be an employee of the Corporation or any of its subsidiaries. The proposed amendments would authorize the Committee to specify when a transferee could exercise an option after the initial optionee's termination of employment. Notwithstanding the foregoing, the Committee may in its discretion now provide in the option for shorter or longer periods in which the option can be exercised after the optionee's cessation as an employee or provide that the option shall not be exercisable at all after the optionee's cessation as an employee of the Corporation or any of its subsidiaries. However, no period of exercise with respect to an option may be extended beyond the original expiration date of the option. An optionee's employment shall not be deemed to have terminated while he is on a military, sick or other bona fide approved leave of absence from the Corporation or a subsidiary as such leave of absence is described in Section 1.421-7(h) of the Federal Income Tax Regulations or any lawful successor regulations thereto. It is intended that key employees may be granted, simultaneously or from time to time, "incentive stock options" under Section 422 of the Code, or other stock options, but no key employees shall be granted alternative rights in incentive stock options and other stock options so as to prevent options granted as incentive stock options under the Option Plan from qualifying as such within the meaning of Section 422 of the Code. Stock Appreciation Rights. The Committee may provide, at the time of the grant of a stock option and upon such terms and conditions as it deems appropriate, that an optionee may have the right with respect to all or a portion of the option granted to him to elect in lieu of exercising such option to surrender such option in exchange for the consideration described below. Alternatively, the Committee may provide, at the time of the grant of a stock option and upon such terms and conditions as it deems appropriate, that an optionee may have the right with respect to all or a portion of the option granted to him to receive the consideration set forth below upon exercising such option in addition to any shares of common stock purchased upon exercise thereof. Stock appreciation rights must be specifically granted by the Committee; however, the Committee will have no authority to grant stock appreciation rights except in connection with the 43 51 grant of a stock option pursuant to the Option Plan, and no optionee shall be entitled to such rights solely as a result of the grant of an option to him. Stock appreciation rights, if granted, may be exercised either with respect to all or a portion of the option to which they relate. Stock appreciation rights are not transferrable separate from the option with respect to which they were granted and are subject to all of the restrictions on transfer applicable to such option. Stock appreciation rights are exercisable only at such times and by such persons as are specified in the option agreement governing the stock option with respect to which the stock appreciation rights were granted. A stock appreciation right will provide that an optionee will have the right to receive a percentage, not greater than 100%, of the excess over the option price, if any, of the fair market value of the shares of Common Stock covered by the option, as determined by the Committee as of the date of exercise of the stock appreciation right, in the manner provided for in the Option Plan. Such amount will be payable in one or more of the following manners, as determined by the Committee: (i) in cash; (ii) in shares of common stock having a fair market value equal to such amount; or (iii) in a combination of cash and shares of common stock. If payment is made in whole or in part in shares of common stock, such payment will reduce the number of shares available for the grant of options under the Plan. In no event may any optionee exercise any stock appreciation rights granted under the Option Plan unless such optionee is then permitted to exercise the option or the portion thereof with respect to which such stock appreciation rights relate. If the option agreement with the optionee provides that exercise of the stock appreciation right is in lieu of exercise of the option, then (i) upon the exercise of any stock appreciation rights, the option or that portion thereof to which the stock appreciation rights relate will be cancelled, and (ii) upon the exercise of the option or that portion thereof to which the stock appreciation rights relate, the stock appreciation rights will be cancelled, and the option agreement governing such option will be deemed amended as appropriate without any further action by the Committee or the optionee. If the option agreement with the optionee provides that exercise of the stock appreciation right is in addition to exercise of the option, then (i) upon the exercise of any stock appreciation rights, the option or that portion thereof to which the stock appreciation rights relate will be deemed exercised and (ii) upon the exercise of the option, the stock appreciation rights corresponding thereto will be deemed exercised to the extent the option is exercised. The terms of any stock appreciation rights granted under the Option Plan will be incorporated into the option agreement which governs the option with respect to which the stock appreciation rights are granted, and will be such terms (not 45 52 inconsistent with the Option Plan) as the Committee may prescribe. The granting of an option or stock appreciation right will impose no obligation upon the optionee to exercise such option or right and the Corporation's obligation to satisfy stock appreciation rights will not be funded or secured in any manner. Limitations on Grant of Stock Options. During the calendar year in which any incentive stock options granted under the Option Plan first become exercisable by an optionee, the aggregate fair market value of the shares of common stock which are subject to such incentive stock options (determined as of the date the incentive stock options were granted) may not exceed the sum of $100,000. Options which are not designated as incentive stock options will not be subject to the limitation described in the preceding sentence. In any event, no individual key employee will be granted options for, or stock appreciation rights with respect to, more than 750,000 shares of common stock in any five-year period. Amendments to the Plan. The Committee is authorized to interpret the Option Plan and from time to time adopt any rules and regulations for carrying out the Option Plan that it may deem advisable. Subject to the approval of the Board, the Committee may at any time amend, modify, suspend or terminate the Option Plan. In no event, however, without the approval of stockholders, may any action of the Committee or the Board result in: (i) amending, modifying or altering the eligibility requirements; (ii) increasing or decreasing, except as set forth in "Shares Subject to the Option Plan" above, the maximum number of shares as to which options may be granted; (iii) decreasing the minimum option price per share at which options may be granted under the Option Plan; (iv) extending either the maximum period during which an option is exercisable or the date on which the Option Plan shall terminate; (v) changing the requirements relating to the Committee; or (vi) making any other change which would cause any options granted under the Option Plan as incentive stock options not to qualify as such options within the meaning of Section 422 of the Code, except to conform the Option Plan and the option agreements to changes in the Code or governing law. The proposed amendments would permit the Committee to terminate an option when necessary for a transaction to be accounted for as a pooling-of-interests. 46 53 Termination of the Plan. The Option Plan will terminate on October 19, 2004. All options outstanding at the time of termination of the Option Plan will continue in full force and effect according to their terms and the terms and conditions of the Option Plan. Federal Income Tax Consequences Incentive Stock Options. With respect to an incentive stock option, the optionee will realize no income for Federal income tax purposes upon the grant or exercise of the option, but the difference between the option price and the fair market value of the shares at the date of exercise will constitute an item of tax preference which may be subject to the alternative minimum tax. If no disposition of shares acquired through the exercise of incentive stock options is made by the optionee within one year after the exercise or within two years after the grant of the option, any amount realized by the optionee in the event of a sale of his shares which is in excess of his cost will be taxed as a long-term capital gain. Sixty percent of the net capital gain realized on the disposition of the shares is an item of tax preference which may be subject to the alternative minimum tax. The alternative minimum tax is paid only if it exceeds the regular tax. The Corporation is entitled to no deduction for Federal income tax purposes, either in connection with the granting of an incentive stock option or upon its exercise. If, however, the optionee disposes of his shares within the one-year or two-year periods mentioned above, he will be required to include in his income, as compensation, the excess of the fair market value of the shares at the date of exercise or, in certain cases, if less, the amount realized on disposition, over the option price, and the Corporation will be entitled to a tax deduction in the year of disposition of the shares equal to any amount which the optionee is required to treat as compensation income. Nonqualified Stock Option. With respect to a nonqualified stock option, an optionee will not realize income upon the granting of such an option; however, in any year in which an optionee exercises a part or all of such option, the excess, if any, of the fair market value of the shares at the date of exercise over the option price will be taxed as com- 47 54 pensation at ordinary income tax rates, the Corporation will be entitled to a tax deduction for the same amount in the same year. Under Section 162(m) of the Code, the Corporation is not entitled to deduct remuneration paid to anyone of the five (5) highest paid executives in excess of $1,000,000. Under currently applicable interpretations, the Corporation believes that non-qualified stock options under the Option Plan will not be subject to the $1,000,000 limit as long as the option price was at least the fair market value on the date of grant and the composition of the Committee meets certain requirements as to independence which are contained in Treasury Regulations. THE BOARD OF DIRECTORS CONSIDERS THIS PROPOSAL TO BE IN THE BEST INTERESTS OF THE CORPORATION AND ALL OF ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENTS TO THE SCOTT TECHNOLOGIES, INC. KEY EMPLOYEES' - --- STOCK OPTION PLAN. CERTAIN DEADLINES FOR ANNUAL MEETING IN 1999 Any stockholder proposal submitted to the Corporation pursuant to SEC Rule 14a-8 under the Exchange Act for inclusion in the Corporation's proxy statement and proxy relating to the Corporation's 1999 Annual Meeting of Stockholders must be received by the Corporation no later than December 17, 1998. If Proposal 3 (Proposal to Lengthen the Notice Period for Stockholder Nomination of Directors) is adopted and the Corporation does not receive notice of any non-Rule 14a-8 matter that a stockholder wishes to raise at the Annual Meeting in 1999 by March 3, 1999, the proxy holders will retain discretionary authority to vote proxies on such matters if they are raised at the 1999 Annual Meeting of Stockholders. 48 55 OTHER MATTERS To the extent that information contained in this Proxy Statement is within the knowledge of persons other than the management of the Corporation, the Corporation has relied on such persons for the accuracy and completeness thereof. You are urged to sign, date and return your proxy promptly to make certain your shares will be voted at the Special Meeting. For your convenience, a return envelope is enclosed requiring no additional postage if mailed in the United States. By Order of the Board of Directors Glen W. Lindemann President and Chief Executive Officer Dated: _______, 1998 49 56 APPENDIX A [marked to show changes] RESTATED CERTIFICATE OF INCORPORATION OF [FIGGIE INTERNATIONAL INC.] SCOTT TECHNOLOGIES, INC. Pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware SCOTT TECHNOLOGIES, INC., a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify: 1. The name of the corporation is Scott Technologies, Inc. (the "Corporation"). The Corporation was originally incorporated under the name Figgie International Inc. on May 11, 1983. 2. Pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware, this Restated Certificate of Incorporation was duly adopted and hereby restates and integrates and further amends the provisions of the Amended and Restated Certificate of Incorporation of this Corporation as follows: ARTICLE FIRST: The name of the Corporation is [Figgie International Inc.] Scott Technologies, Inc. (hereinafter the "Corporation"). ARTICLE SECOND: The registered office of the Corporation is to be located at the Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, in the County of New Castle, in the State of Delaware. The name of its registered agent at that address is The Corporation Trust Company. ARTICLE THIRD: The purpose or purposes for which the Corporation is formed are: (a) to manufacture, purchase or otherwise acquire, hold, own, use, mortgage, sell, lease, pledge, assign, exchange or otherwise dispose of merchandise and property of any and every class or description; (b) to acquire all or any part of the good will, rights, property and business of any corporation, association, partnership, firm, trustee, syndicate, combination, organization, person or entity, domestic or foreign, heretofore or hereafter engaged in any Language indicated as being shown by strike out in the typeset document is enclosed in brackets "[" and "]" in the electronic format. 57 business and to pay for the same in cash or in shares or obligations of the Corporation or otherwise, and to hold, utilize, enjoy, and in any manner dispose of the whole or any part of the rights and property so acquired in the State of Delaware or any other state, territory or country, provided such business is not prohibited by the laws of the State of Delaware; (c) to guarantee the obligations of and to aid in any manner any corporation, association, firm or individual, in which, or in the welfare of which, the Corporation shall have any interest, direct or indirect, and to aid or participate in the reorganization, consolidation or merger of any corporation, association or firm in which, or in the welfare of which, the Corporation shall have any interest; and (d) to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. Each purpose specified in any clause or paragraph of this Article is an independent purpose and shall not be limited by reference to or inference from the terms of any other clause or paragraph of this Certificate of Incorporation. ARTICLE FOURTH: The number of shares which the Corporation is authorized to issue is thirty-nine million two hundred seventeen thousand four hundred and ninety-five (39,217,495), of which shares (a) three million two hundred seventeen thousand four hundred and ninety-five (3,217,495) shall be preferred stock designated as Preference Stock with a par value of one dollar ($1.00) per share (hereinafter called the "Preference Stock"); and (b) [eighteen] thirty-six million [(18,000,000)](36,000,000) shall be common stock designated as [Special Common Stock or Class A] Common Stock with a par value of ten cents ($.10)[(10 cents) (hereinafter called the "Special Common Stock"); and] [(c) eighteen million (18,000,000) shall be common stock designated as Common Stock or Class B Common Stock with a par value of ten cents (10 cents)] per share (hereinafter called the "Common Stock"). The terms of each class of stock are set forth in the following Divisions. DIVISION I The terms of the Preference Stock are as follows: (A) Authority of Board of Directors to Create Series. The Board of Directors of the Corporation is hereby expressly granted authority, to the full extent now or hereafter permitted Language indicated as being shown by strike out in the typeset document is enclosed in brackets "[" and "]" in the electronic -2- 58 herein and by the laws of the State of Delaware, at any time or from time to time, by resolution or resolutions, to create one or more series of the Preference Stock, to fix the authorized number of shares of any series (which number of shares may vary as between series and be changed from time to time by like action), and to fix the terms of such series, including but not limited to, the following: (1) the designation of such series, which may be by distinguishing number, letter, or title; (2) the rate or rates at which shares of such series shall be entitled to receive dividends, the periods in respect of which dividends are payable, the conditions upon, and times of payment of, such dividends, the relationship and preference, if any, of such dividends to dividends payable on any other class or classes or any other series of stock, whether such dividends shall be cumulative and, if cumulative, the date or dates from which such dividends shall accumulate, and the other terms and conditions applicable to dividends upon shares of such series; (3) the rights of the holders of the shares of such series in case the Corporation be liquidated, dissolved, or wound up (which may vary depending upon the time, manner, or voluntary or involuntary nature or other circumstances of such liquidation, dissolution, or winding up) and the relationship and preference, if any, of such rights to rights of holders of shares of stock of any other class or classes or any other series of stock; (4) the right, if any, to redeem shares of such series at the option of the Cor poration, including any limitation of such right, and the amount or amounts to be payable in respect of the shares of such series in case of such redemption[)], and the manner, effect, and other terms and conditions of any such redemption thereof; (5) the obligation, if any, of the Corporation to purchase, redeem, or retire shares of such series and/or to maintain a fund for such purpose, and the amount or amounts to be payable from time to time for such purpose or into such fund, or the number of shares to be purchased, redeemed or retired, the per share purchase price or prices, and the other terms and conditions of any such obligation or obligations; (6) the voting rights, if any, full, special, or limited, to be given the shares of such series, including without limiting the generality of the foregoing, the right, if any, as a series or in conjunction with other series or classes, to elect one or more members of the Board of Directors either generally or at certain times or under certain circumstances, and restrictions, if any, on particular corporate acts without a specified vote or consent of holders of such shares (such as, among others, restrictions on modifying the terms of such series or of the Preference Stock, restricting the permissible terms of other series or the permissible variations between series of the Preference Stock, authorizing or issuing additional shares of the Preference Stock, creating debt, or creating any class of stock -3- 59 ranking prior to or on a parity with the Preference Stock or any series thereof as to dividends, or assets remaining for distribution to the stockholders in the event of the liquidation, dissolution, or winding up of the Corporation); (7) the right, if any, to exchange or convert the shares of such series into shares of any other series of the Preference Stock or into shares of any other class of stock of the Corporation, and the rate or basis, time, manner, terms, and conditions of exchange or conversion or the method by which the same shall be determined; and (8) the other special rights, if any, and the qualifications, limitations, or restrictions thereof, of the shares of such series. The Board of Directors shall fix the terms of each such series by resolution or resolutions adopted at any time prior to the issuance of the shares thereof, and the terms of each such series may, subject only to restrictions, if any, imposed by this Certificate of Incorporation or by applicable law, vary from the terms of other series to the extent determined by the Board of Directors from time to time and provided in the resolution or resolutions fixing the terms of the respective series of the Preference Stock. Shares of any series of the Preference Stock, whether provided for herein or by resolution or resolutions of the Board of Directors, which have been redeemed (whether through the operation of a sinking fund or otherwise) or which, if convertible or exchangeable, have been converted into or exchanged for shares of stock of any other class or classes, or which have been purchased or otherwise acquired by the Corporation, shall have the status of authorized and unissued shares of the Preference Stock of the same series and may be reissued as a part of the series of which they were originally a part or may be reclassified and reissued as part of a new series of the Preference Stock to be created by resolution or resolutions of the Board of Directors or as part of any other series of the Preference Stock, all subject to the conditions or restrictions on issuance set forth herein or in the resolution or resolutions adopted by the Board of Directors providing for the issue of any series of the Preference Stock. [Notwithstanding the foregoing, shares of the Preference Stock, Second Series, Convertible, and of the Preference Stock, Third Series, Convertible, which shall have been converted into Common Stock shall be permanently retired and shall not be reissued.] DIVISION II The terms of the [Special] Common Stock are as follows: (A) Dividend Rights. After unpaid cumulative dividends on all the outstanding shares of [preferred stock] Preference Stock for all prior fiscal years and also the full dividend on such shares for the current quarter year dividend period shall have been declared and paid or set aside in accordance with the terms thereof, cash dividends may be paid upon the [Special] Common Language indicated as being shown by strike out in the typeset document is enclosed in brackets "[" and "]" in the electronic format. -4- 60 Stock out of any funds lawfully available for dividends under the laws of the State of Delaware, if, when, and as declared by the Board of Directors of the Corporation in its discretion. [No cash dividends shall be declared and paid, per share, on the Common Stock unless at the same time a cash dividend is declared and paid, per share, on the Special Common Stock in an amount at least equal to the corresponding dividend declared and paid, per share, on the Common Stock.] (B) Voting Rights. The holders of the [Special] Common Stock shall, subject to the provisions of the [Certificate of Incorporation and the] Bylaws of the Corporation and of the statutes of the State of Delaware relating to the fixing of a record date and other matters, be entitled to one [twentieth of one (1/20)](1) vote for each share of [Special] Common Stock held by them, respectively, for the election of directors and for all other purposes. (C) Liquidation. In the event of the liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary, after there shall have been paid or set apart for the holders of shares of the [preferred stock] Preference Stock the full preferential amounts to which they are entitled, the holders of the [Special Common Stock and of the] Common Stock shall be entitled to receive pro rata, to the exclusion of the holders of shares of the [preferred stock] Preference Stock, the assets of the Corporation remaining for distribution to its stockholders. The consolidation or merger of the Corporation into or with any other corporation or corporations shall not be deemed a liquidation, dissolution, or winding up within the meaning of the preceding paragraph. [DIVISION III] [The terms of the Common Stock are as follows:] [(A) Dividend Rights. Subject to the express terms of (i) the preferred stock set forth in Division I hereof and (ii) the Special Common Stock, set forth in Division II hereof, cash dividends may be paid upon the Common Stock out of any funds lawfully available for dividends under the laws of the State of Delaware, if, when, and as declared by the Board of Directors of the Corporation in its discretion.] [(B) Voting Rights. The holders of the Common Stock shall, subject to the provisions of the Certificate of Incorporation and the Bylaws of the Corporation and of the statutes of the State of Delaware relating to the fixing of a record date and other matters, be entitled to one vote for each share of Common Stock held by them, respectively, for the election of directors and for all other purposes.] [(C) Liquidation. In the event of the liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary, after there shall have been paid or set apart for the holders of shares of the preferred stock the full preferential amounts to which they are entitled, the holders] Language indicated as being shown by strike out in the typeset document is enclosed in brackets "[" and "]" in the electronic format. -5- 61 [of the Common Stock and of the Special Common Stock shall be entitled to receive pro rata, to the exclusion of the holders of shares of the preferred stock, the assets of the Corporation remaining for distribution to its stockholders.] [The consolidation or merger of the Corporation into or with any other corporation or corporations shall not be deemed a liquidation, dissolution, or winding up within the meaning of the preceding paragraph.] [DIVISION IV] [(A) General. Unless otherwise provided herein or by the Board of Directors pursuant hereto, the provisions of this Division IV shall apply to any class, or, if the class is divided into series, any series, of shares designated in this Certificate of Incorporation, or designated hereafter by the Board of Directors pursuant to the provisions hereof, as convertible into shares of the common stock of the Corporation.] [The term "common stock" when used in this Division IV of this Article Fourth with reference to shares into which shares of Convertible Stock (as defined herein) are convertible shall mean exclusively the Special Common Stock and the Common Stock authorized by this Certificate of Incorporation and any shares into which such shares may thereafter have been changed, and, when otherwise used in this Division IV, shall include also shares of the Corporation of any other class, whether now or hereafter authorized, which rank or are entitled to a participation as to assets or dividends substantially on a parity with such shares or other class of shares into which such shares may have been changed.] [The holder of any shares of any class, or, if the class is divided into series, any series, convertible into common stock (referred to in this Division IV as "Convertible Stock"), at his option, at any time or from time to time, may convert all or any shares of Convertible Stock held by him into shares of common stock, at the rate, for the price and upon such other terms as are set forth in the terms of the class or series contained herein, in any amendment hereto, or in any resolution of the Board of Directors. In the event that any shares of Convertible Stock shall be called for redemption, the right of conversion as to the shares called for redemption shall expire at the close of business on the fifth day preceding the redemption date (whether or not such preceding day is a Sunday or a holiday), notwithstanding any earlier deposit by the Corporation of funds reserved for such redemption. In the event of any voluntary liquidation, dissolution or winding up of the Corporation, all conversion rights of the holders of Convertible Stock shall terminate on the date fixed by resolution of the Board of Directors of the Corporation, such date so fixed to be no later than 10 days prior to such liquidation, dissolution or winding up or earlier than 30 days after notice of such resolution shall have been mailed to the holders of record of the Convertible Stock at their respective addresses then appearing on the books of the Corporation.] Language indicated as being shown by strike out in the typeset document is enclosed in brackets "[" and "]" in the electronic format. -6- 62 [Each holder of Convertible Stock desiring to exercise his right of conversion shall deliver written notice of his election to convert such shares and shall surrender the certificate therefor (properly endorsed or assigned for transfer if the Board of Directors of the Corporation shall so require) to the Corporation or its transfer agent for the Convertible Stock. Upon receipt by the Corporation of any such notice of election to convert shares of Convertible Stock, and upon surrender of the certificate therefor, the Corporation shall, as soon as practicable, execute and deliver to the holder of the shares of Convertible Stock being converted a certificate or certificates for the number of full shares of common stock sufficient for such conversion. For all purposes, the rights of the holder of such Convertible Stock, as such holder, shall cease and the person or persons in whose name or names the certificates for shares of common stock are issuable upon such conversion shall be deemed to have become the record holder or holders of such shares at the close of business on the day on which delivery of such notice or the surrender of the certificate for such shares (whichever shall last occur) shall be made.] [No fractions of shares of common stock shall be issued upon conversion of Convertible Stock. If any fraction of a share would, except for the provisions of this paragraph, be issuable on the conversion of any shares of Convertible Stock, the Corporation shall make adjustment therefor by payment in cash in respect of such fraction on the basis of the then existing conversion price of the shares of common stock.] [The Corporation shall reserve and set apart and have at all times a number of authorized but unissued shares of common stock or other shares or securities deliverable upon conversion of Convertible Stock sufficient to enable it at any time to fulfill its obligation with respect to the conversion of all outstanding shares of Convertible Stock.] [(B) Adjustments. (1) Except as otherwise hereinafter provided, whenever the Corporation shall issue shares of common stock in excess of the number of shares of common stock theretofore issued and outstanding without receiving therefor a consideration per share at least equal to the conversion price per share of common stock applicable to a class or series of Convertible Stock in effect immediately prior to such issue, then, upon such issue, the conversion price per share of common stock with respect to such class or series of Convertible Stock shall be adjusted to the price obtained by:] [(i) multiplying the number of shares of common stock constituting issued and outstanding shares immediately prior to the issue of such additional shares of common stock by the conversion price applicable to such class or series of Convertible Stock then in effect;] [(ii) adding to the product the total amount of consideration, if any, received by the Corporation for the issuance of such additional shares of common stock; and] [(iii) dividing the sum so obtained by the total number of shares of common stock constituting issued and outstanding shares immediately after the issue of such additional shares of common stock, disregarding in the quotient so obtained fractions of one cent.] Language indicated as being shown by strike out in the typeset document is enclosed in brackets "[" and "]" in the electronic format. -7- 63 [(2) No adjustment in the initial conversion prices of any shares of Convertible Stock shall be made by reason of the issuance of any shares upon the exercise of any warrants, options or conversion rights outstanding at the date of issuance of such Convertible Stock.] [(3) For the purpose of making the computations described in paragraph (1) of this section (B), the following provisions shall be applicable:] [(i) Shares of common stock issued as a stock dividend and shares of common stock issued to change or replace issued shares of common stock shall, except for any money or other property also received by the Corporation therefor, be deemed to have been issued for a consideration of no value.] [(ii) Shares of common stock issued for money or in extinguishment of debts or obligations of the Corporation shall be deemed to have been issued for a consideration equal to the money received by the Corporation and the amount of any debt or obligation so extinguished, plus such reasonable commissions and discounts for the underwriting or marketing thereof as may have been deducted from the money which otherwise would have been received by the Corporation or from the amount of the debt or obligations which otherwise would have been extinguished.] [(iii) Shares of common stock issue for property other than cash shall be deemed to have been issued for a consideration equal to the fair value of such property as determined by the Board of Directors of the Corporation.] [(iv) In case the Corporation, after the issuance of any shares of Convertible Stock of the class, or, if the class is divided into series, the series, with respect to which an adjustment is being determined pursuant to these provisions of Division IV, shall in any manner issue or sell any shares of stock or obligations (other than Convertible Stock of the class, or, if the class is divided into series, the series, with respect to which an adjustment is being determined pursuant to these provisions of Division IV) which, at the option of the holder thereof, may be converted into or may be replaced by shares of common stock at a price less than the conversion price applicable to such Convertible Stock in effect immediately prior to the issue or sale of such convertible shares of stock or obligations, such issue or sale shall be deemed to be an issue or sale (as of the date of the issue or sale of such convertible shares of stock or obligations) of the maximum number of shares of common stock necessary to effect the conversion or replacement of all such convertible shares of stock or obligations and the amount received by the Corporation as the consideration for the issue or sale of such convertible shares of stock or obligations plus the total amount of additional consideration, if any, payable to the Corporation on conversion or replacement shall be deemed to be consideration actually received for the issue or sale of such shares of common stock, and such shares of common stock shall be deemed to constitute issued common stock as of said date; provided, however, that no further adjustment of the initial conversion prices shall be made upon the actual issuance of any common stock to effect such conversion or replacement; and provided further that if such convertible shares of stock or obligations shall be retired by the Corporation or otherwise canceled without the issuance of any common stock to effect the] Language indicated as being shown by strike out in the typeset document is enclosed in brackets "[" and "]" in the electronic format. -8- 64 [conversion or replacement above provided, a computation as aforesaid shall again be made in the same manner as though the convertible shares of stock or obligations, to the extent so retired or cancelled, had not been issued or sold.] [(v) In case the Corporation, after the issuance of any shares of Convertible Stock of the class, or, if the class is divided into series, the series, with respect to which an adjustment is being determined pursuant to these provisions of Division IV, shall grant any right, option or warrant to subscribe for or purchase any common stock (other than treasury shares) at a price less than the conversion price applicable to such Convertible Stock in effect immediately prior to the granting of such option, right or warrant, such grant shall, except as otherwise provided in paragraph (2) of this section (B), be deemed to be an issue (as of the date of granting of such right, option or warrant) of the maximum number of shares of common stock issuable upon the exercise of such right, option or warrant, and the amount, if any, received by the Corporation as the consideration for the granting of such right, option or warrant plus the total amount of additional consideration, if any, payable to the Corporation upon the exercise of such right, option or warrant shall be deemed to be consideration actually received for the issue of such common stock, and such shares of common stock shall be deemed to constitute issued common stock as of said date; provided, however, that no further adjustment of the conversion price shall be made upon the actual issuance of any shares of common stock upon the exercise of any such right, option or warrant; and provided further that if any such rights, options, or warrants shall be terminated or shall expire without being fully exercised, a computation as aforesaid shall again be made in the same manner as though the rights, options or warrants, to the extent that they remain unexercised, had not been granted.] [(vi) Common stock issued upon conversion of Convertible Stock shall be deemed to have been issued for a consideration equal to the conversion price in effect at the time of issuance thereof.] [(4) In the event that shares of any class (other than common stock) are issued by way of a stock dividend on outstanding shares of common stock, then, in addition to any common stock receivable upon exercise of the conversion rights of Convertible Stock, the holder of a share of Convertible Stock entitled to receive a specified number of shares of the first mentioned class were such share of Convertible Stock converted immediately prior to the declaration and issuance of the stock dividend shall, upon such exercise of the conversion rights of the Convertible Stock, be entitled to receive such specified number of shares of the first mentioned class and/or any shares of any class issued successively thereon as a stock dividend and/or any shares issued successively upon any exchange, replacement, subdivision or combination thereof. No adjustment in the conversion price shall be made merely by virtue of the happening of any event specified in this paragraph (4).] [(5) In case the outstanding common stock shall be subdivided into a greater or combined into a lesser number of shares of common stock (whether with or without par value), the conversion price shall be decreased or increased, as the case may be, to an amount which shall bear the same relation to the conversion price in effect immediately prior to such subdivision or combination as] Language indicated as being shown by strike out in the typeset document is enclosed in brackets "[" and "]" in the electronic format. -9- 65 [the total number of shares of common stock outstanding immediately prior to such subdivision or combination shall bear to the total number of shares of common stock outstanding immediately after such subdivision or combination.] [(6) Upon conversion of any shares of Convertible Stock no adjustment shall be made for any dividends on the shares of Convertible Stock or for any dividends on the shares into which the shares of Convertible Stock are converted.] [(7) In the event that the Corporation shall effect any capital reorganization or reclassification of its stock or shall consolidate or merge with or into any other company or shall sell all or substantially all of its property as an entirety, lawful provision shall be made as a part of the terms of such transaction that the holders of Convertible Stock may then or thereafter receive in lieu of each share of common stock otherwise issuable to them upon conversion of such Convertible Stock (but at the conversion price which would otherwise be in effect at the time of conversion and with the same protection against dilution, all as herein provided), the same kind and amount of stock (and other securities and assets, if any) as may be issuable or distributable upon such transaction with respect to each outstanding share of common stock, and after such transaction the conversion rights of the holders of such Convertible Stock shall be merely to receive such stock (and other securities and assets, if any). The foregoing provisions shall similarly apply to successive transactions of a similar nature by any such successor or purchaser.] [(8) No adjustment of any conversion price shall be made unless such adjustment, together with any other adjustments not yet made by reason of this proviso, would result in a change of at least 25 cents in the conversion price in effect, but any such adjustments which are not made by reason of this proviso shall be deemed to have been made for the purpose of making the computations prescribed in paragraph (1) of this section (B) and shall, accordingly, be carried forward and taken into account in any subsequent adjustment of the conversion price.] [DIVISION V] [(A) General. Unless otherwise provided herein or by the Board of Directors pursuant hereto, the provisions of this Division V shall apply to any shares of stock designated in this Certificate of Incorporation or designated hereafter by the Board of Directors pursuant to the provisions hereof, as subject to redemption.] [(B) Method of Redemption. At least 30 days' prior written notice shall be given to the holders of record of the shares of stock to be called for redemption, which notice shall be given by mail, addressed to the record holders thereof, at their respective addresses, as shown on the books of the Corporation. Said notice so mailed shall specify the redemption price and the place at which and the date, which date shall not be a legal holiday in the City of Cleveland, Ohio (or in Milwaukee, Wisconsin, in the case of the Serial Preference Stock, First Series, 6%), on which the shares called for redemption will be redeemed and shall specify the shares called for redemption.] Language indicated as being shown by strike out in the typeset document is enclosed in brackets "[" and "]" in the electronic format. -10- 66 [If less than all of the outstanding shares of the Serial Preference Stock or of the Preference Stock, Second Series, Convertible, and the Preference Stock, Third Series, Convertible, are to be redeemed, the shares to be redeemed shall be chosen by lot or pro rata, as the Board of Directors may determine. If such notice of redemption shall have been duly given in the manner herein provided, and if the funds necessary for such redemption shall, on or before the redemption date, have been set aside and shall be and shall continue to be available therefor, then, on and after such redemption date all such shares so called for redemption shall no longer be deemed to be outstanding, the right of the holders thereof to receive dividends thereon shall cease, and thereafter the holders of such shares shall have no right in or with respect to the Corporation, its assets or business, other than to receive, upon surrender of the certificate or certificates for such shares, the redemption price, plus all accrued and unpaid dividends to the date fixed for redemption without interest.] * * * Effective at the time of the filing with the Secretary of State of the State of Delaware of this Restated Certificate of Incorporation of the Corporation, (i) each share of the Corporation's Class A Common Stock, par value $.10 per share ("Class A Common Stock"), issued and outstanding or held in treasury immediately prior to such time shall, without any action on the part of the respective holders thereof, be reclassified as and converted into one share of Common Stock and each stock certificate that, immediately prior to the time of such filing, represented shares of the Corporation's Class A Common Stock shall, from and after such time and without the necessity of presenting the same for exchange, represent the number of shares of Common Stock into which the shares of Class A Common Stock represented by such stock certificate were reclassified pursuant hereto, and (ii) each share of the Corporation's Class B Common Stock, par value $.10 per share ("Class B Common Stock"), issued and outstanding or held in treasury immediately prior to such time shall, without any action on the part of the respective holders thereof, be reclassified as and converted into one share of Common Stock, and each stock certificate that, immediately prior to the time of such filing, represented shares of the Corporation's Class B Common Stock shall, from and after such time and without the necessity of presenting the same for exchange, represent the number of shares of Common Stock into which the shares of Class B Common Stock represented by such stock certificate were reclassified pursuant hereto. ARTICLE FIFTH: No action required or permitted to be taken at any annual or special meeting of the stockholders of the Corporation may be taken without a meeting except by the unanimous written consent of the stockholders entitled to vote thereon; provided, however, that such action may be taken by less than the unanimous written consent of the stockholders if it has been recommended to them for their approval 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 such matter shall be continuing directors, as these terms are defined in section (a) of Article Sixth. Language indicated as being shown by strike out in the typeset document is enclosed in brackets "[" and "]" in the electronic format. -11- 67 ARTICLE SIXTH: (a) Except as otherwise specifically provided in section (b) of this Article Sixth, the following definitions shall apply to this Article Sixth and to this Certificate of Incorporation generally: (1) An "affiliate" of a specified person shall mean a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified. (2) "Beneficial ownership" shall be determined pursuant to Rule 13d-3 of the General Rules and Regulations under the Securities Exchange Act of 1934 (or any successor rule or statutory provision), or, if said Rule 13d-3 shall be rescinded and there shall be no successor rule or statutory provision thereto, pursuant to said Rule 13d-3 as in effect at July 18, 1983; provided, however, that a person shall, in any event, also be deemed the "beneficial owner" of any voting shares: (A) which such person or any of its affiliates beneficially owns, directly or indirectly; or (B) which such person or any of its affiliates has (i) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding (but shall not be deemed to be the beneficial owner of any voting shares solely by reason of an agreement, arrangement, or understanding with this Corporation to effect any transaction which is described in any one or more of clauses (i) through (iv) of section (b)(1)(A) of this Article Sixth) or upon the exercise of conversion rights, exchange rights, warrants, or options or otherwise, or (ii) sole or shared voting or investment power with respect thereto pursuant to any agreement, arrangement, understanding, relationship or otherwise (but shall not be deemed to be the beneficial owner of any voting shares solely by reason of a revocable proxy granted for a particular meeting of stockholders, pursuant to a public solicitation of proxies for such meeting, with respect to shares of which neither such person nor any such affiliate is otherwise deemed the beneficial owner); or (C) which are beneficially owned, directly or indirectly, by any person with which such first mentioned person or any of its affiliates acts as a partnership, limited partnership, syndicate or other group pursuant to any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of any shares of capital stock of this Corporation; and provided further, however, that (1) no director or officer of this Corporation (or any affiliate of such director or officer) shall, solely by reason of any or all of such directors or officers acting in their capacities as such, be deemed, for any purposes hereof, to beneficially own any voting shares beneficially owned by any other such director or -12- 68 officer (or any affiliate thereof), and (2) neither any employee stock ownership or similar plan of this Corporation or any subsidiary nor any trustee with respect thereto (or any affiliate of such trustee) shall, solely by reason of such capacity of such trustee, be deemed, for any purposes hereof, to beneficially own any voting shares held under any such plan. [For purposes of computing the percentage beneficial ownership of voting shares of any class of a person in order to determine whether such person is a substantial stockholder (as defined herein), the outstanding voting shares of such class shall include shares deemed owned by such person through application of this subsection but shall not include any other voting shares of such class which may be issuable by this Corporation pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise. For all other purposes, the] The outstanding voting shares shall include only voting shares then outstanding and shall not include any voting shares which may be issuable by this Corporation pursuant to any agreement, or upon the exercise of conversion rights, warrants or options, or otherwise. (3) "Continuing director" shall mean a person who was a member of the Board of Directors at [July 18, 1983 or who was thereafter elected by the stockholders or appointed by the Board of Directors of this Corporation prior to the date as of which a substantial stockholder then in question, if any, became a substantial stockholder,] December 8, 1998 or who was designated (before his initial election or appointment as a director) as a continuing director by a majority of the whole board, but only if a majority of the whole board shall then consist of continuing directors, or, if a majority of the whole board shall not then consist of continuing directors, by a majority of the then continuing directors. (4) A "person" shall mean any individual, firm, corporation, or other entity. (5) "Subsidiary" shall mean any corporation of which 50% or more of each class of equity security (as defined in Rule 3a11-1 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect at July 18, 1983) is owned, directly or indirectly, by this Corporation. [(6) "Substantial stockholder" shall mean any person, other than this Corporation or any subsidiary (as defined in this section (a)), who is the beneficial owner, directly or indirectly, of more than the applicable threshold percentage (as defined and adjusted herein) of the total number of outstanding voting shares of any class of this Corporation (determined solely on the basis of the total number of voting shares of such class so beneficially owned without giving effect to the number or percentage of votes entitled to be cast in respect of such shares). This threshold percentage shall never be less than 20.00%, and it shall be 20.00%, as to any person with respect to any class, except that it shall be adjusted in any of the following circumstances:] Language indicated as being shown by strike out in the typeset document is enclosed in brackets "[" and "]" in the electronic format. -13- 69 [(A) If any person, other than this Corporation or any subsidiary, beneficially owns more than 10% of the total outstanding voting shares at July 18, 1983, then the threshold for such person shall be adjusted to be the percentage owned at that time.] [(B) If the percentage of beneficial ownership of any person, other than this Corporation or any subsidiary, of the total outstanding voting shares of any class is increased above or decreased below the threshold percentage applicable to such person with respect to such class as a result of any reduction of or increase in the total number of outstanding voting shares of such class, then the threshold for such person with respect to such class shall be adjusted upward or downward to reflect the percentage increase or decrease in beneficial ownership solely attributable to such reduction of or increase in the total number of outstanding voting shares of such class.] [(C) If the threshold percentage of beneficial ownership of any person, other than this Corporation or any subsidiary, of the total outstanding voting shares of any class is greater than 20.00% and such person's net beneficial ownership of voting shares of such class decreases, then his threshold with respect to such class shall be adjusted downward to reflect such decreased beneficial ownership.] [(D) If any person, other than a person who was a substantial stockholder on July 1, 1985 and other than this Corporation or any subsidiary, beneficially owned more than 10% of the total outstanding voting shares of any class on July 1, 1985, then the threshold for such person with respect to such class shall be adjusted to be the percentage owned at that time.] [(E) If any person, other than this Corporation or any subsidiary, was a substantial stockholder at the time of effectiveness of the amendment to the Restated Certificate of Incorporation of which this subsection (a)(6)(E) is a part, then the threshold percentage for such person of any class of which such person beneficially owned in excess of his applicable threshold percentage at that date shall be adjusted to equal such threshold percentage multiplied by a fraction the numerator of which is the total number of outstanding voting shares and the denominator of which is the number of outstanding voting shares of such class at that date, and if the percentage of beneficial ownership of such person of the total outstanding voting shares of such class is thereafter increased or decreased as a result of any reduction of or increase in the total number of outstanding voting shares of such class subsequent to such date, then the threshold for such person shall be adjusted upward or downward to reflect the percentage increase or decrease in beneficial ownership solely attributable to such reduction of or increase in the total number of outstanding voting shares of such class.] (6) "Voting shares" shall mean shares of capital stock of this Corporation entitled to vote generally in the election of directors. (7) "Whole board" shall mean the total number of directors which this Cor poration would have if there were no vacancies. Language indicated as being shown by strike out in the typeset document is enclosed in brackets "[" and "]" in the electronic format. -14- 70 (b) Except as otherwise provided in this section (b), the provisions and requirements of this section shall be in addition to any requirements of law and the other provisions of this Certificate of Incorporation. However, the provisions and requirements of this section, except for those set forth in subsection (1), shall not apply to any transaction which has received 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 such matter shall be continuing directors. It is hereby declared to be a proper corporate purpose, reasonably calculated to benefit stockholders, for the Board of Directors to base the response of the Corporation to any transaction within the scope of this section (b), generally including certain majority share acquisitions or combinations, mergers or consolidations, or dispositions of assets, on the Board of Directors' evaluation of what is in the best interests of the Corporation, and for the Board of Directors, in evaluating what is in the best interests of the Corporation, to consider (i) the best interests of all the stockholders, taking into account, among other factors, not only the consideration being offered in any such transaction in relation to the then current market price, but also in relation to the then-current value of the Corporation in a freely negotiated transaction and in relation to the Board of Directors' estimate of the future value of the corporation as an independent entity; and (ii) such other factors as the Board of Directors determines to be relevant, including, among other factors, the social, legal, and economic effects of any such transaction upon employees, suppliers, customers, and business of the Corporation. (1) If a stockholder vote would be required by the Ohio General Corporation Law if this Corporation were incorporated under the laws of the State of Ohio, then the stockholders of the Corporation shall be entitled to such vote, and the affirmative vote of the holders of shares entitling them to exercise 80% of the voting power of the Corporation, given in person or by proxy at a meeting called for the purpose, shall be necessary: (A) to approve (i) the lease, sale, exchange, transfer or other disposition by the Corporation of all, or substantially all, of its assets or business to a related company or an affiliate of a related company, or (ii) the consolidation of the Corporation with or its merger into a related company or an affiliate of a related company, or (iii) the merger into the Corporation or a subsidiary of the Corporation of a related company or an affiliate of a related company, or (iv) a combination or majority share acquisition in which the Corporation is the acquiring corporation and its voting shares are issued or transferred to a related company or an affiliate of a related company or to stockholders of a related company or an affiliate of a related company or an associated person; or (B) to approve any agreement, contract, or other arrangement with a related company or an affiliate of a related company or an associated person providing for any of the transactions described in paragraph (A) above; or -15- 71 (C) to effect any amendment of this Certificate of Incorporation which changes the provisions of this subsection (1). For the purpose of this subsection (1), (i) a "related company" in respect of a given transaction shall be any person, partnership, corporation or firm which, together with its affiliates and associated persons, owns of record or beneficially, directly or indirectly, in excess of 5% of the shares of any outstanding class of shares of the Corporation entitled to vote upon such transaction, as of the record date used to determine the shareholders of the Corporation entitled to vote upon such transaction; (ii) an "affiliate" of a related company shall be any individual, joint venture, trust, partnership or corporation which, directly or indirectly, through one or more intermediaries, controls, or is controlled by, or is under common control with, the related company; (iii) an "associated person" of a related company shall be any officer or director or any beneficial owner, directly or indirectly, of 10% or more of any class of equity security of such related company or any of its affiliates; and (iv) the terms "combination," "majority share acquisition," and "acquiring corporation" shall have the same meaning as that contained in section 1701.01 of the Ohio General Corporation Law or any similar provision hereafter enacted. The determination of the Board of Directors of the Corporation, based on information known to the Board of Directors and made in good faith, shall be conclusive as to whether any person, partnership, corporation or firm is a related company or affiliate or associated person as defined in this subsection (1). (2) The terms "related company," "affiliate," "combination," "majority share acquisition," "acquiring corporation," and "associated person" shall have the same meanings in this subsection (2) as are ascribed to such terms in subsection (1). (A) In the event that the requisite corporate action has been taken in accordance with the other provisions of this Certificate of Incorporation and in accordance with the laws of the State of Delaware to approve the adoption of or to authorize: (i) the lease, sale, exchange, transfer or other disposition by the Corporation of all or substantially all of its assets or business to a related company or an affiliate of a related company or an associated person of a related company; or (ii) any combination or a majority share acquisition or other transaction in which the Corporation is the acquiring corporation and its voting shares are issued or transferred to a related company or an affiliate of a related company or to stockholders of a related -16- 72 company or of an affiliate of a related company or to an associated person of a related company; or (iii) any transaction proposed by or receiving the favorable vote of any related company, affiliate of a related company or an associated person of a related company, the effect of which would be to cause the involuntary surrender of the covered stock (as defined in paragraph (B)) of the Corporation held by any stockholder of the Corporation who is not a related company or an affiliate of a related company or an associated person of a related company; or (iv) any agreement, contract, or other arrangement with a related company or an affiliate of a related company or an associated person of a related company providing for any of the transactions described in (i) through (iii) above; then in such event the provisions of paragraph (B) below shall be satisfied prior to the consummation of any transaction described in clauses (i) through (iv) above. (B) Any cash or the fair market value of any property to be received per share of any class or series of covered stock held by each covered stockholder of the Corporation who does not affirmatively vote to approve such transaction described in clauses (i) through (iv) of paragraph (A) above shall not be less than: (i) the highest price per share (including brokerage commissions, soliciting dealers' fees, dealer management compensation, cost of newspaper advertisements, printing expenses, and attorneys' fees and other expenses) paid by such related company or an affiliate of such related company or an associated person of such related company in acquiring such class or series of shares of covered stock of the Corporation, or, if no shares of that class or series of covered stock were acquired by such person, the highest market price per share of such class or series for any day on which such person acquired any of the covered stock of the Corporation, plus; (ii) an amount which exceeds such price per share by the same amount by which such price per share exceeds the lower of: (a) the market price per share of such class or series of covered stock of the Corporation immediately prior to the com mencement of the acquisition of any of such class or series of -17- 73 covered stock of the Corporation by such related company, affi liate of such related company or an associated person of such related company; or (b) the lowest price per share paid for any share of such class or series of covered stock of the Corporation by such related company, affiliate of such related company or an associated person of such related company, or, if no shares of that class or series of covered stock were acquired by such person, the lowest market price per share of such class or series for any day on which such person acquired any of the covered stock of the Corporation. In the event that the terms of any transaction covered by the provisions of paragraph (A) above do not provide for any cash or property to be received by the holders of the issued and outstanding covered stock of the Corporation, then any covered stockholder of the Corporation who, by reason of such transaction is entitled to exercise his statutory appraisal rights under Delaware law, as expanded in section (d) of this Article Sixth, shall, upon the proper exercise of appraisal rights, receive cash per share of covered stock which shall not be less than the amount derived by application of the formula set forth in this paragraph (B). In the event that the requisite corporate action to be taken to approve the adoption of or to authorize any transaction covered by the provisions of paragraph (A) above requires a vote of any of the stockholders of the Corporation, the phrase "covered stockholder of the Corporation" as used in this paragraph (B) shall mean such holder of shares of [Special Common Stock or] Common Stock or such other stock as is designated in this Certificate of Incorporation or by the Board of Directors in the resolution or resolutions fixing the terms of such stock (the "covered stock") as is registered as such on the books of the Corporation as of the record date set to determine those stockholders who are entitled to vote upon such transaction. In the event that such requisite corporate action does not require a vote of any of the stockholders of the Corporation, such phrase shall mean such holder of shares of covered stock as is registered as such on the books of the Corporation as of the date on which such requisite corporate action is taken. In either of such events, the provisions of this paragraph (B) shall apply only with respect to shares of covered stock owned by such covered stockholder on such record date or date on which such requisite corporate action is taken, whichever is applicable. (C) The Corporation shall not enter into any of the transactions covered by the provisions of paragraph (A) above if such related company or an affiliate of such related company or an associated person of such related company from and after the date on which it first became such shall have: (i) acquired any newly issued or treasury shares of the Corpor ation's capital stock directly or indirectly from the Corporation Language indicated as being shown by strike out in the typeset document is enclosed in brackets "[" and "]" in the electronic format. -18- 74 (except upon conversion of convertible securities or as a result of a pro rata stock dividend or stock split); (ii) received the benefit directly or indirectly (except propor tionately as a stockholder) of any loans, advances, guarantees, pledges or other financial assistance or tax credits provided by the Corporation; (iii) made any material change in the Corporation's business, equity capital structure or dividend practices; (iv) made, caused, or brought about directly or indirectly, any change in the Corporation's Certificate of Incorporation or Bylaws; or (v) made, caused, or brought about, directly or indirectly, any change in the membership of the Corporation's Board of Directors or Committees thereof. (D) The determination of a majority of the whole board, but only if a majority of the whole board shall then consist of continuing directors, or, if a majority of the whole board shall not then consist of continuing directors, a majority of the then continuing directors, based on information known to it and made in good faith shall be conclusive as to (i) whether any transaction is included within the provisions of this subsection (2), and (ii) the fair market value of any property to be received by each covered stockholder pursuant to the provisions of paragraph (B) of this subsection (2). (E) No amendment of this Certificate of Incorporation shall amend, alter, repeal, or change the effect of any of the provisions of this subsection (2) unless such amendment shall receive the affirmative vote of (i) the holders of then outstanding voting shares entitling the holders thereof to cast at least 95% of the votes entitled to be cast by the holders of all of the then outstanding voting shares entitled to vote thereon and (ii) the holders of voting shares entitled to cast at least 55% of the votes entitled to be cast thereon by the stockholders who are not as of the record date fixed for such vote a related company, affiliate of a related company or an associated person of a related company. (c)(1)[ For purposes of this subsection (c)(1), "threshold percentage" shall be the percentage determined under subsection (a)(6) of this Article Sixth for the purpose of determining whether a person is a substantial stockholder.] [(A) So long as a substantial stockholder beneficially owns voting shares of any class or series in excess of his threshold percentage applicable to such class or the class of which such series is a part in relation to the total number of outstanding shares of such class or series, the record] Language indicated as being shown by strike out in the typeset document is enclosed in brackets "[" and "]" in the electronic format. -19- 75 [holders of such shares shall have limited voting rights on any matter requiring their vote or consent. With respect to such excess shares of each such class or series, the record holders in the aggregate shall be entitled to cast only one one-hundredth (1/100) of the vote per share to which a holder of such share would otherwise be entitled. The aggregate voting power of such record holders, so limited, for all shares of such class or series beneficially owned by the substantial stockholder shall be allocated proportionately among such record holders. For each such record holder, this allocation shall be accomplished by multiplying the aggregate voting power of the outstanding shares of the class or series beneficially owned by the substantial stockholder by a fraction whose numerator is the number of shares of the class or series owned of record by such record holder and whose denominator is the total number of shares of such class or series beneficially owned by the substantial stockholder.] [(B) In no event shall such substantial stockholder and the record owner(s) of all voting shares of any class or series beneficially owned by such substantial stockholder collectively be entitled or permitted to cast, by virtue of their beneficial or record ownership of voting shares of any class or series beneficially owned by such substantial stockholder, in excess of the applicable threshold percentage plus 5% of the total number of votes which the holders of all then outstanding voting shares of such class or series would (after giving effect to the provisions of paragraph (A)) be entitled to cast. If the provisions of the preceding sentence shall have the effect of reducing the total number of votes which any substantial stockholder and the record owner(s) of voting shares of any class or series beneficially owned by such substantial stockholder shall be entitled to cast, such reduction shall be effected, and the number of votes which such record owner(s) shall be entitled to cast (by reason of this paragraph (B)) shall be determined, in accordance with the provisions of paragraph (A).] [(2)] A majority of the whole board, but only if a majority of the whole board shall then consist of continuing directors, or, if a majority of the whole board shall not then consist of continuing directors, a majority of the then continuing directors, shall have the power to construe and apply the provisions of this section and to make all determinations necessary or desirable to implement such provisions, including but not limited to matters with respect to (A) the number of voting shares beneficially owned by any person, (B) whether a person is an affiliate of another, (C) whether a person has an agreement, arrangement, or understanding with another as to the matters referred to in the definition of beneficial ownership, (D) the application of any other definition or operative provision of the section to the given facts, or (E) any other matter relating to the applicability or effect of this section. [(3) A majority of the whole board shall have the right to demand, but only if a majority of the whole board shall then consist of continuing directors, or, if a majority of the whole board shall not then consist of continuing directors, a majority of the then continuing directors shall have the right to demand, that any person who is reasonably believed to be a substantial stockholder (or holds of record voting shares beneficially owned by any substantial stockholder) supply the Corporation with complete information as to (A) the record owner(s) of all shares beneficially owned by such person who is reasonably believed to be a substantial stockholder,] Language indicated as being shown by strike out in the typeset document is enclosed in brackets "[" and "]" in the electronic format. -20- 76 [(B) the number of, and class or series of, shares beneficially owned by such person who is reasonably believed to be a substantial stockholder and held of record by each such record owner and the number(s) of the stock certificate(s) evidencing such shares, and (C) any other factual matter relating to the applicability or effect of this section, as may reasonably be requested of such person, and such person shall furnish such information within 10 days after the receipt of such demand.] [(4) Except as otherwise provided by law or expressly provided in this subsection (4), the presence, in person or by proxy, of the holders of record of shares of capital stock of the Corporation entitling the holders thereof to cast a majority of votes (after giving effect, if required, to the provisions of this section), entitled to be cast by the holders of shares of capital stock of the Corporation entitled to vote shall constitute a quorum at all meetings of the stockholders, and every reference in this Certificate of Incorporation to a majority or other proportion of capital stock (or the holders thereof) for purposes of determining any quorum requirement or any requirement for stockholder consent or approval shall be deemed to refer to such majority or other proportion of the votes (or the holders thereof) then entitled to be cast in respect of such capital stock.] [(5)](2) Any constructions, applications, or determinations made by the Board of Directors or by the continuing directors, as the case may be, pursuant to this section in good faith and on the basis of such information and assistance as was then reasonably available for such purpose shall be conclusive and binding upon the Corporation and its stockholders.[, including any substantial stockholder.] [(6) Nothing contained in this section shall be construed to relieve any substantial stockholder from any fiduciary obligation imposed by law.] (d) To the maximum extent permissible under section 262(c) of the Delaware General Corporation Law or any successor section or sections, the holders of voting shares of the Corporation shall be entitled to the statutory appraisal rights permitted therein as to an amendment to this Certificate of Incorporation, any merger or consolidation in which the Corporation is a constituent corporation, or the sale of all or substantially all of the assets of the Corporation, but only if such amendment or transaction requires the approval of the stockholders; provided, however, that this section of this Article Sixth shall not apply to any transaction which has received 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 such matter shall be continuing directors. ARTICLE SEVENTH: A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation law, or (iv) for any transaction from which the director derived an improper personal benefit. If the Language indicated as being shown by strike out in the typeset document is enclosed in brackets "[" and "]" in the electronic format. -21- 77 Delaware General Corporation Law is hereafter amended to permit a corporation to further eliminate or limit the liability of a director of a corporation, then the liability of a director of the Corporation, in addition to the circumstances in which a director is not personally liable as set forth in the preceding sentence, shall be further eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law as so amended. Any amendment, repeal, or modification of this Article Seventh shall not adversely affect any right or protection of a director of the Corporation for any act or omission occurring prior to the date when such amendment, repeal, or modification became effective. ARTICLE EIGHTH: The Corporation reserves the right to amend, alter, change, or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute or by this Certificate of Incorporation, and all rights conferred on stockholders herein are granted subject to this reservation. In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is authorized to adopt, amend, and repeal the Bylaws of the Corporation. Notwithstanding the foregoing, any amendment, alteration, change, or repeal of the provisions set forth in Article Fifth and Sixth of this Certificate of Incorporation, except for sections (b)(1) and (b)(2) of Article Sixth, which must be amended as provided therein; sections 1(b), 1(e), and 1(g) of Article I, sections 2 and 3 of Article II, and Article IX of the Bylaws; and this Article Eighth shall, in addition to any other vote or approval required by law or by this Certificate of Incorporation, require the affirmative vote of the holders of then outstanding voting shares entitling the holders thereof to cast at least 80% of the votes entitled to be cast by the holders of all of the then outstanding voting shares; provided, however, that this sentence shall not apply to, and such 80% vote shall not be required for, any amendment, alteration, change, or repeal declared advisable by the Board of Directors by the affirmative vote of two-thirds (2/3) of the whole board and submitted to the stockholders for their consideration, but only if a majority of the members of the Board of Directors acting upon such matter shall be continuing directors, as these terms are defined in section (a) of Article Sixth. ARTICLE NINTH: In the event any provision (or portion thereof) of this Certificate of Incorporation shall be found to be invalid, prohibited, or unenforceable for any reason, the remaining provisions (or portions thereof) of this Certificate shall be deemed to remain in full force and effect, and shall be construed as if such invalid, prohibited, or unenforceable provision had been stricken herefrom or otherwise rendered inapplicable, it being the intent of the Corporation and its stockholders that each such remaining provision (or portion thereof) of this Certificate remain, to the fullest extent permitted by law, applicable and enforceable as to all stockholders, notwithstanding any such finding. -22- 78 IN WITNESS WHEREOF, Scott Technologies, Inc. has caused this Restated Certificate of Incorporation to be signed by Glen W. Lindemann, its President, and attested by Debra L. Kackley, its Secretary, this ____ day of _______________, 1998. SCOTT TECHNOLOGIES, INC. By: ------------------------------ Glen W. Lindemann ATTEST: - -------------------------- Debra L. Kackley -23- 79 APPENDIX B [marked to show changes] ARTICLE II DIRECTORS * * * SECTION 2. Number, Classification, and Election 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 of 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] at least 45 days prior to the anniversary of the mailing date of the Corporation's proxy statement for the previous annual meeting. 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]: Language indicated as being shown by strike out in the typeset document is enclosed in brackets "[" and "]" in the electronic format. 80 (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. 81 APPENDIX C DRAFT October [ ], 1998 Board of Directors Scott Technologies, Inc. 5875 Landerbrook Drive, Suite 250 Mayfield Heights, Ohio 44124 Gentlemen: Duff & Phelps, LLC ("Duff & Phelps") has been engaged by Scott Technologies, Inc. (together with its predecessor companies, referred to as "Scott" or the "Company") as financial advisor to the board of directors of the Company ("Board"). Specifically, Duff & Phelps has been engaged to determine if a Proposed Reclassification (as defined below) is fair to the shareholders of Scott from a financial point of view. It is our understanding that the Company is currently capitalized with Class A Common Stock, Par value $0.10 per share ("Class A Common Stock") and Class B Common Stock, Par value $0.10 per share ("Class B Common Stock"). It is our further understanding that Scott is considering an amendment to the Company's Certificate of Incorporation such that each share of Class A Common Stock and each share of Class B Common Stock would be converted into one share of a single class of a common stock (the "Proposed Reclassification"). We understand that the Proposed Reclassification will be submitted to the shareholders of the Class A Common Stock and shareholders of the Class B Common Stock (collectively, the "Shareholders") for approval at a Special Meeting of the Shareholders. For purposes of our opinion and in connection with our review of the Proposed Reclassification, we have, among other things: 1. reviewed a draft of the proxy statement (the "Proxy Statement") of the Company dated as of October [__], 1998, which describes the Proposed Reclassification; 2. discussed the current operations and future outlook of Scott with Company management; 82 Board of Directors Scott Technologies, Inc. October [ ], 1998 Page 2 3. met with the Board to discuss the Company, the Proposed Reclassification and the results of our reviews and analyses; 4. reviewed the Company's Form 10-K's for the years ended 1994 to 1997; 5. reviewed the Company's Form 10-Q for the period ended June 30, 1998; 6. reviewed the Company's Amended and Restated Certificate of Incorporation; 7. reviewed the market prices and trading activity of the Class A Common Stock and Class B Common Stock; 8. reviewed the market prices and trading activity of the capital stock of other companies with two classes of publicly traded stock; 9. reviewed the terms of transactions in which two classes of capital stock of public companies were converted into a single class of capital stock; 10. reviewed the terms of transactions in which public companies with two classes of capital stock were acquired; and 11. performed such other review and analyses as we deemed necessary. In connection with our opinion, with your permission and without any independent verification, we have relied on the accuracy and completeness of all the financial and other information reviewed by us, furnished, or otherwise communicated to us by the Company or obtained by us from publicly available sources. We have not made an independent valuation or appraisal of the assets or liabilities of the Company and have not been furnished with such valuation or appraisal. Any inaccuracies in the information on which we relied could materially affect our opinion. Duff & Phelps has to date received fees from the Company for its services and expects to receive additional fees upon the completion of the Proposed Reclassification. In rendering this opinion, we have assumed that the Proposed Reclassification occurs on terms that are described in the Proxy Statement. Nonetheless, it should be recognized that we are not making any recommendation as to whether the shareholders of the Class A Common Stock or the shareholders of the Class B Common Stock should vote in favor of the Proposed Reclassification or any other matter described in the Proxy Statement. 83 Board of Directors Scott Technologies, Inc. October [ ], 1998 Page 3 Based upon the foregoing, it is our opinion that the Proposed Reclassification is fair to the shareholders of the Class A Common Stock and the shareholders of the Class B Common Stock from a financial point of view. Respectfully submitted, DRAFT Duff & Phelps, LLC 84 APPENDIX D SUMMARY OF RIGHTS TO PURCHASE PREFERRED SHARES On September 23, 1998 the Board of Directors of Scott Technologies, Inc. (the "Company") approved, contingent upon approval by the Company's stockholders of amendments to the Company's Amended and Restated Certificate of Incorporation (the "Charter") eliminating the dual class common stock structure and the substantial stockholder provision at the special meeting of stockholders (the "Special Meeting"), a Rights Agreement dated as of the date of the effectiveness of the Charter amendments (the "Rights Agreement"). If the Rights Agreement is approved, the Board will, on the date of the effectiveness of the Charter amendments, declare a dividend distribution of one Right for each outstanding share of Common Stock, $.001 par value (each, a "Common Share") of the Company to stockholders of record at the close of business on the effective date of the Charter amendments (the "Record Date"). Each Right would entitle the registered holder to purchase from the Company one one-hundredth of a share (a "Preferred Share Fraction") of the Series A Junior Participating Preferred Shares, par value $1.00 per share (the "Preferred Shares") of the Company, or a combination of securities and assets of equivalent value, at a per unit, adjustable Purchase Price of $35. The description and terms of the Rights would be set forth in the Rights Agreement. Initially, ownership of the Rights would be evidenced by the Common Share certificates representing shares then outstanding, and no separate Rights Certificates would be distributed. The Rights would separate from the Common Shares on the "Distribution Date," the earlier of (i) ten (10) business days following a determination by the Board of Directors that a person or group of affiliated or associated persons (an "Acquiring Person"1/) had acquired, or obtained the right to acquire, beneficial ownership of 15% or more of the outstanding Common Shares (the "Stock Acquisition Date"), or (ii) ten (10) business days following the commencement of a tender offer or exchange offer that would result in a person or group beneficially owning 15% or more of the outstanding Common Shares. Until the Distribution Date, (i) the Rights would be evidenced by the Common Share certificates, (ii) new Common Share certificates issued after the Record Date would contain a notation incorporating the Rights Agreement by reference and (iii) the surrender for transfer of any certificates for Common Shares outstanding would also constitute the transfer of the Rights associated with the Common Shares represented by such certificate. The Rights would not be exercisable until the Distribution Date and would expire at the close of business on the date that is five years after the Record Date (or, subject to Section 27 - -------- 1/ Common Shares continuously owned by holders of more than 5% of the Corporation's outstanding shares of Class A Common Stock or Class B Common Stock since September 23, 1998 will be excluded from future calculations of their share ownership for the purposes of determining whether any such person has become an Acquiring Person provided that, prior to final adoption of the Rights Agreement, each such person enters into an agreement with the Company in which such person certifies to the Company such person's stock ownership as of September 23, 1998 and agrees, among other things, not to enter into a proxy contest with the Company or seek to acquire the Company in a hostile takeover. -1- 85 of the Rights Agreement, such later date that would be no more than five years thereafter unless, prior to such date, (A) a majority of the members of the Board of Directors had voted to amend the Rights Agreement to extend the effectiveness of the Rights Agreement for an additional five year period and to provide for a new Purchase Price, and (B) such extension had been submitted to a vote of the stockholders of the Company and such extension had not been rejected by a negative vote of a majority of a quorum of the votes of stockholders who were then eligible to vote on such a matter) or unless earlier redeemed by the Company as described below or unless a transaction under Section 13(d) of the Rights Agreement had occurred. As soon as practicable after the Distribution Date, Rights Certificates would be mailed to holders of record of the Common Shares as of the close of business on the Distribution Date and, thereafter, the separate Rights Certificates alone would represent the Rights. Except as otherwise determined by the Board of Directors, only Common Shares issued after the Record Date and prior to the Distribution Date would be issued with Rights. Except in the circumstances described below, after the Distribution Date each Right would be exercisable for a Preferred Share Fraction. Each Preferred Share Fraction would carry voting and dividend rights that would be intended to produce the equivalent of one Common Share. The voting and dividend rights of the Preferred Shares would be subject to adjustment in the event of dividends, subdivisions and combinations with respect to the Common Shares of the Company. In lieu of issuing certificates for Preferred Share Fractions which would be less than an integral multiple of one Preferred Share (i.e., 100 Preferred Share Fractions), the Company would pay cash representing the current market value of the Preferred Share Fractions. In the event that at any time following the Stock Acquisition Date, (i) the Company were the surviving corporation in a merger with an Acquiring Person and its Common Shares remained outstanding, (ii) a Person became the beneficial owner of more than 15% of the then outstanding Common Shares other than pursuant to a tender offer or exchange offer that provided fair value to all stockholders and therefore had been deemed to be a "Qualifying Offer," (iii) an Acquiring Person engaged in one or more "self-dealing" transactions as set forth in the Rights Agreement, or (iv) during such time as there were an Acquiring Person an event occurred that resulted in such Acquiring Person's ownership interest being increased by more than 1% (e.g., a reverse stock split), each holder of a Right would thereafter have the right to receive, upon exercise, Common Shares (or, in certain circumstances, cash, property or other securities of the Company) having a value equal to two times the exercise price of the Right. In lieu of requiring payment of the Purchase Price upon exercise of the Rights following any such event, the Company could permit the holders simply to surrender the Rights, in which event they would be entitled to receive Common Shares (and other property, as the case may be) with a value of 50% of what could be purchased by payment of the full Purchase Price. Notwithstanding any of the foregoing, following the occurrence of any of the events set forth in clauses (i), (ii), (iii) or (iv) of this paragraph, all Rights that were, or (under certain circumstances specified in the Rights Agreement) had been, beneficially owned by any Acquiring Person who was involved in the transaction giving rise to any such event would be null and void. However, Rights would not be exercisable following the occurrence of any of the -2- 86 events set forth above until such time as the Rights were no longer redeemable by the Company as set forth below. For example, at an exercise price of $35 per Right, each Right not otherwise voided following an event set forth in the preceding paragraph would entitle its holder to purchase $70 worth of Common Shares (or other consideration, as noted above) for $35. Assuming that the Common Shares had a per share value of $10 at such time, the holder of each valid Right would be entitled to purchase seven Common Shares for $35. Alternatively, the Company could permit the holder to surrender each Right in exchange for three and a half Common Shares (with a value of $35) without the payment of any consideration other than the surrender of the Right. In the event that, at any time following the Stock Acquisition Date, (i) the Company were acquired in a merger or other business combination transaction in which the Company were not the surviving corporation (other than a merger that is described in or that follows a Qualifying Offer), or (ii) 50% or more of the Company's assets or earning power were sold or transferred, each holder of a Right (except Rights that previously had been voided as set forth above) would thereafter have the right to receive, upon exercise, common shares of the acquiring company having a value equal to two times the exercise price of the Right. Again, provision would be made to permit surrender of the Rights in exchange for one-half of the value otherwise purchasable. The events set forth in this paragraph and in the second preceding paragraph would be referred to as the "Triggering Events." The Purchase Price payable, and the number of Preferred Share Fractions or other securities or property issuable upon exercise of the Rights would be subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Preferred Shares, (ii) if holders of the Preferred Shares were granted certain rights or warrants to subscribe for Preferred Shares or convertible securities at less than the current market price of the Preferred Shares, or (iii) upon the distribution to holders of the Preferred Shares of evidences of indebtedness or assets (excluding regular quarterly dividends) or of subscription rights or warrants (other than those referred to above). With certain exceptions, no adjustment in the Purchase Price would be required until cumulative adjustments amounted to at least 1% of the Purchase Price. No Preferred Share Fractions would be issued and, in lieu thereof, an adjustment in cash would be made based on the market price of the Preferred Shares on the last trading date prior to the date of the exercise. At any time until ten (10) days following the Stock Acquisition Date, the Company could redeem the Rights in whole, but not in part, at a price of $.001 per Right. That ten (10) day redemption period could be extended by the Board of Directors so long as the Rights were still redeemable. Immediately upon the action of the Board of Directors ordering redemption of the Rights, the Rights would terminate and the only right of the holders of Rights would be to receive the $.001 redemption price. -3- 87 Until a Right were exercised, the holder thereof, as such, would have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends. While the distribution of the Rights would not be taxable to stockholders or to the Company, stockholders could, depending upon the circumstances, recognize taxable income in the event that the Rights became exercisable for Preferred Shares (or Common Shares or other consideration) of the Company or for common shares of the acquiring company as set forth above. Other than those provisions relating to the principal economic terms of the Rights, any of the provisions of the Rights Agreement could be amended by the Board of Directors of the Company prior to the Distribution Date. After the Distribution Date, the provisions of the Rights Agreement could be amended by the Board in order to cure any ambiguity, to make changes that did not adversely affect the interests of holders of Rights (excluding the interests of any Acquiring Person), or to shorten or lengthen any time period under the Rights Agreement; provided, however, that no amendment to adjust the time period governing redemption could be made at such time as the Rights were not redeemable. -4- 88 APPENDIX E SCOTT TECHNOLOGIES, INC. KEY EMPLOYEES' STOCK OPTION PLAN Scott Technologies, Inc. hereby [adopts a stock option plan for the benefit of certain persons and subject to the terms and provisions] amends and restates its Key Employees' Stock Option Plan as set forth below. 1. Definitions. The following terms shall have the meanings set forth below whenever used in this instrument: (a) The word "Board" shall mean the Board of Directors of the Company. (b) The word "Code" shall mean the United States Internal Revenue Code of 1986, as amended, or successor provisions of future United States revenue laws (Title 26 of the United States Code). (c) The word "Committee" shall mean the Stock Option Committee of the Board. (d) The words "Common Stock" shall mean the [Class A] Common stock, $0.10 par value, of the Company. (e) The word "Company" shall mean Scott Technologies, Inc., a Delaware corporation, and any successor thereto which shall maintain this Plan. (f) The word "Disability" shall mean the Optionee's inability to engage in substantial gainful activity for the Company by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months, as deter mined by the Committee pursuant to written certification of such Disability from a physician acceptable to the Committee. (g) The words "Incentive Stock Option" shall mean any option which qualifies as an Incentive Stock Option under the terms of Section 422 of the Code. (h) The words "Key Employee" shall mean any person who is determined by the Committee to be a high-level executive officer or other valuable managerial or technical employee of either the Company or any Subsidiary. (i) The word "Optionee" shall mean any Employee to whom a stock option has been granted pursuant to this Plan. (j) The word "Plan" shall mean this instrument, the Scott Technologies, Inc. Key Employees' Stock Option Plan, [as it is] as originally [adopted] executed, as amended and restated herein and as it may be amended hereafter. (k) The word "Subsidiary" shall mean any corporation at least 50% of the common stock of which is owned directly or indirectly by the Company. (l) The words "Substantial Stockholder" shall mean any Employee who owns directly and through attribution more than 10% of the total combined voting power of all classes of stock of either the Company or any Subsidiary. Ownership shall be determined in accordance with Section 424(d) of the Code and lawful applicable regulations. (m) The words "Transferee" shall mean any person to whom a stock option which is not an Incentive Stock Option has been transferred pursuant to Subsection 7(c). 2. Purpose of the Plan. The purpose of the Plan is to provide Key Employees of the Company and its Subsidiaries with greater incentive to serve and promote the interests of the Company and its stockholders. The premise of the Plan is that, if such persons acquire a proprietary interest in the business of the Company or increase such proprietary interest as they may already hold, then the incentive of such persons to work toward the Company's continued success will be commensurately increased. Accordingly, the Company will, from time to time during the effective period of the Plan, Language indicated as being shown by strike out in the typeset document is enclosed in brackets "[" and "]" in the electronic format. 89 grant to such Employees as may be selected to participate in the Plan options to purchase Common Stock on the terms and subject to the conditions set forth in the Plan. Options may be either Incentive Stock Options or non-qualified stock options. 3. Effective [Date of the Plan.] Dates. The Plan [shall become] originally became effective on October 20, 1994. This amendment and restatement of the Plan shall become effective on October 1, 1998, subject to approval of a majority of the votes of the holders of [Class A Common Stock and holders of Class B] all classes of Common Stock present in person or represented by proxy at a duly constituted meeting of stockholders of the Company voting together and not as separate classes. In the event that the foregoing condition is not satisfied within twelve (12) months after the date this amendment and restatement of the Plan is adopted, this amendment and restatement oF the Plan and any options granted hereunder after January 1, 1999 shall be null and void. If, however, this amendment and restatement of the Plan is [so] approved, subject to the provisions of Section 11, no further stockholder approval shall be required with respect to the granting of any options pursuant to the Plan. This amendment and restatement of the Plan shall not affect any options granted under the Plan prior to October 1, 1998. 4. Administration of the Plan. The Plan shall be administered by the Committee. The Committee shall consist of no fewer than two (2) members, who shall be designated by and be members of the Board. Each member of the Committee shall be a "disinterested person" within the meaning of Rule 16b-3 promulgated under the Securities Exchange Act of 1934 or any amendment of or successor to such rule as may be in effect from time to time and shall be an "outside director" as defined pursuant to section 162(m) of the Code. A majority of the Committee shall constitute a quorum, and the acts of a majority of the members present at any meeting at which a quorum is present, or acts approved in writing by all of the members, shall be acts of the Committee. Subject to the terms and conditions of the Plan, the Committee shall have full and final authority in its absolute discretion: (a) To select the Key Employees to whom options will be granted; (b) To determine the number of shares of Common Stock subject to any option; (c) To determine the time or times when options will be granted; (d) To determine the option price of shares of Common Stock subject to an option; (e) To determine the time or times when each option may be exercised and the duration of the exercise period; (f) To determine at the time of grant of an option whether and to what extent such option is an Incentive Stock Option under Section 422 of the Code and regulations thereunder as the same or any successor statute or regulations may at the time be in effect; (g) To determine whether stock appreciation rights shall be made part of any option grant pursuant to Section 8 hereof, the method of valuing the stock appreciation rights and whether the stock appreciation rights may be exercised in lieu of or in addition to the related option; (h) To prescribe the form of the option agreements governing the options which are granted under the Plan and to set the provisions of such option agreements as the Committee may deem necessary or desirable provided such provisions are not contrary to the terms and conditions of either the Plan or, where the option is an Incentive Stock Option, Section 422 of the Code and regulations thereunder as the same or any successor statute or regulations may at, the time be in effect; (i) To adopt, amend and rescind such rules and regulations as, in the Committee's opinion, may be advisable in the administration of the Plan; [and] 2 Language indicated as being shown by strike out in the typeset document is enclosed in brackets "[" and "]" in the electronic format. 90 (j) To construe and interpret the Plan, the rules and regulations and the instruments evidencing options granted under the Plan and to make all other determinations deemed necessary or advisable for the administration of the Plan[.]; (k) To authorize the transfer to a Transferee of an option which is not an Incentive Stock Option; (l) To determine the time or times when an option may be exercised by a Transferee and the duration of the exercise period; and (m) To rescind option grants to the extent necessary to enable the Company to be a party to a business combination which is to be accounted for under the pooling-of-interests method of accounting. Any decision made or action taken by the Committee in connection with the administration, interpretation, or implementation of the Plan and of its rules and regulations, shall, to the extent permitted by law, be conclusive and binding upon all Optionees under the Plan and upon any person claiming under or through such an Optionee. Neither the Committee nor any of its members shall be liable for any act taken by the Committee pursuant to the Plan. No member of the Committee shall be liable for the act of any other member. 5. Persons Eligible for Options. Subject to the restrictions herein contained, options may be granted from time to time in the discretion of the Committee only to such Key Employees, as designated by the Committee, whose initiative and efforts contribute or may be expected to contribute to the continued growth and future success of the Company and/or its subsidiaries. Notwithstanding the preceding sentence, a Key Employee who renounces in writing any right he may have to receive stock options under the Plan shall not be eligible to receive any stock options under the Plan. No option shall be granted to any Key Employee during any period of time when he is on leave of absence. The Committee may grant more than one option, with or without stock appreciation rights, to the same Key Employee. 6. Shares Subject to the Plan. Subject to the provisions of Section 8 concerning payment for stock appreciation rights in shares of Common Stock and subject to the provisions of the next succeeding paragraph of this Section 6, the aggregate number of shares of Common Stock for which options may be granted under the Plan shall be [1,500,000] 3,000,000 shares of Common Stock. Either treasury or authorized and unissued shares of Common Stock, or both, in such amounts, within the maximum limits of the Plan, as the Committee shall from time to time determine, may be so issued. All shares of Common Stock which are the subject of any lapsed, expired or terminated options may be made available for reoffering under the Plan to any Key Employee. If an option granted under this Plan is exercised pursuant to the terms and conditions determined by the Committee under Subsection 7(d), any shares of Common Stock which are the subject thereof shall not thereafter be available for reoffering under the Plan to any Employee. If a stock appreciation right granted in conjunction with an option pursuant to Section 8 can only be exercised in lieu of exercise of the related option, and the stock appreciation right is thereafter exercised in whole or in part, then the option or the portion thereof with respect to which the stock appreciation right was exercised shall be deemed to have been exercised and the shares of Common Stock which otherwise would have been issued upon exercise of such option, to the extent not used in payment for the stock appreciation right, may be made available for reoffering under the Plan to any Key Employee, except as provided in Subsection 7(f). In the event that subsequent to the date of adoption of the Plan by the Board the outstanding shares of Common Stock are, as a result of a stock split, stock dividend, combination or exchange of shares, exchange for other securities, reclassification, reorganization, redesignation, merger, consolidation, recapitalization, spin-off, split-off, split-up or other such change (including, without limitation, any transaction described in Section 424(a) of the Code) or a special dividend or other distribution to the Company's stockholders, increased or decreased or changed into or exchanged for a different number or kind of shares of stock or other securities of the Company, then (i) there shall automatically be substituted for each share of Common Stock subject to an unexercised option granted under the Plan and each share of Common Stock available for additional grants of options under the Plan the number and kind of shares of stock or other securities into which each outstanding share of Common Stock shall be exchanged, (ii) the option price per share of Common Stock or unit of securities shall be increased or decreased proportionately so that the aggregate purchase price for the securities subject to the option shall remain the same as immediately prior to such event, and (iii) the Committee shall make such other adjustments to the securities subject to options, the provisions of the Plan, and option agreements 3 Language indicated as being shown by strike out in the typeset document is enclosed in brackets "[" and "]" in the electronic format. 91 as may be appropriate or equitable, in order to prevent dilution or enlargement of option rights and in compliance with the provisions of Section 424(a) of the Code to the extent applicable and any such adjustment shall be final, binding and conclusive as to each Optionee. Any such adjustment may, in the discretion of the Committee, provide for the elimination of fractional shares. 7. Option Provisions. (a) Option Price. The option price per share of Common Stock which is the subject of an Incentive Stock Option under the Plan shall be determined by the Committee at the time of grant but shall not be less than one hundred percent (100%) of the fair market value of a share of Common Stock on the date the Incentive Stock Option is granted; provided, however, that if an Employee to whom an Incentive Stock Option is granted is at the time of the grant a Substantial Stockholder, the option price per share of Common Stock shall be determined by the Committee but shall never be less than one hundred ten percent (110%) of the fair market value of a share of Common Stock on the date the option is granted. The option price per share of Common Stock under each option granted pursuant to the Plan which is not an Incentive Stock Option shall be determined by the Committee at the time of grant, and may be above or below the fair market value of a share of Common Stock on the date the option is granted. Such fair market value shall be determined in accordance with procedures to be established by the Committee. The date on which the Committee approves the granting of an option shall be deemed for all purposes hereunder the date on which the option is granted. (b) Period of Option. The Committee shall determine when each option is to expire but no option shall be exercisable after ten (10) years have elapsed from the date upon which the option is granted; provided, however, that no Incentive Stock Option granted to a person who is a Substantial Stockholder at the time of the grant of such option shall be exercisable after five (5) years have elapsed from the date upon which the option is granted. Each option shall be subject to earlier termination as provided in Subsection 7(e) hereunder. (c) Limitation on Exercise and Transfer of Option. Except as otherwise provided in the event of an Optionee's death or the transfer of the option as set forth below, only the Optionee may exercise an option, provided that a guardian or other legal representative who has been duly appointed for such Optionee may exercise an option on behalf of the Optionee. [No] Except as otherwise provided below, no option granted hereunder shall be transferable other than (i) by the Last Will and Testament of the Optionee or, if the Optionee dies intestate, by the applicable laws of descent and distribution, or (ii), to the extent approved by the Committee, pursuant to a qualified domestic relations order as defined by the Code or the rules thereunder. An option granted hereunder which is not an Incentive Stock Option may be transferred to a Transferee in the discretion of the Committee. No option granted hereunder may be pledged or hypothecated, nor shall any such option be subject to execution, attachment or similar process, (d) Conditions Governing Exercise of Option. The Committee may, in its absolute discretion, either require that, prior to the exercise of any option granted hereunder, the Optionee shall have been an employee for a specified period of time after the date such option was granted, or make any option granted hereunder immediately exercisable. Each option shall be subject to such additional restrictions or conditions with respect to the right to exercise and the time and method of exercise as shall be prescribed by the Committee. Upon satisfaction of any such conditions, the option may be exercised in whole or in part at any time during the option period, but this right of exercise shall be limited to whole shares, unless the Committee shall otherwise provide. Options shall be exercised by the Optionee or any Transferee giving written notice to the Secretary of the Company at its principal office, by certified mail, return receipt requested, of the exercise of the option and the number of shares with respect to which the option is being exercised, accompanied by full payment of the purchase price either in cash or, with the consent of the Committee, in whole or in part in shares of Common Stock having a fair market value on the date the option is exercised equal to that portion of the purchase price for which payment in cash is not made. Such notice shall be deemed delivered when deposited in the mails. Notwithstanding anything in the foregoing to the contrary, in the event [of] that a person becomes the "beneficial owner" (as that term is defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of shares of Common Stock or any security convertible into Common Stock having aggregate votes equal to fifty percent (50%) of the voting power of all classes of common stock and of all classes of securities convertible into such 4 Language indicated as being shown by strike out in the typeset document is enclosed in brackets "[" and "]" in the electronic format. 92 common stock calculated as provided in paragraph (d) of said Rule 13d-3 in a transaction with the Company accounted for under the pooling-of-interests method of accounting, all outstanding options shall be immediately exercisable. In addition, in the event of other transactions considered to be a "change in control," the Committee shall have the authority and power: (i) to cause all outstanding options to be immediately exercisable notwithstanding any vesting limitation otherwise previously imposed on such options; and (ii) to accelerate the termination date of all such options. Thereafter, upon the exercise of the power in subparagraph (i) above, an Optionee or any Transferee may exercise any and all outstanding options (in whole or in part), whether or not such options are by their terms fully exercisable at such time). The term "change in control" shall include, but not be limited to: (i) the first purchase of shares pursuant to a tender offer or exchange (other than a tender offer or exchange by the Company) for [ten percent (10%) or more of the Company's common stock of any class or any] shares of Common Stock or any security convertible into Common Stock having aggregate votes equal to twenty percent (20%) of the voting power of all of the Company's outstanding shares of common stock or of all classes of securities convertible into such common stock; (ii) the receipt by the Company of a Schedule 13D or other advice indicating that a person is the "beneficial owner" (as that term is defined in Rule [13d-3 under the Securities Exchange Act of 1934) of] 13d-3 under the Exchange Act) of shares of Common Stock or any security convertible into Common Stock having aggregate votes equal to twenty percent (20%) [or more of the Company's Common Stock] of the voting power of all classes of common stock and of all classes of securities convertible into such common stock calculated as provided in paragraph (d) of said Rule [13d-3] 13-d; (iii) the date of approval by stockholders of the Company of an agreement providing for any consolidation or merger of the Company in which the Company will not be the continuing or surviving corporation or pursuant to which shares of capital stock [,] of any class or any securities convertible into such capital stock, of the Company would be converted into cash, securities, or other property, other than a merger of the Company in which the holders of common stock of all classes of the Company immediately prior to the merger would have the same proportion of ownership of common stock of the surviving corporation immediately after the merger; (iv) the date of the approval by stock holders of the Company of any sale, lease, exchange, or other transfer (in one transaction or a series of related trans actions) of all or substantially all the assets of the Company; (v) the adoption of any plan or proposal for the liquidation (but not a partial liquidation) or dissolution of the Company; or (vi) such other event as the Committee shall, in its sole and absolute discretion, deem to be a "change in control." The manner of application and interpretation of the foregoing provisions shall be determined by the Committee in its sole and absolute discretion. (e) Termination of Employment, Etc. If an Optionee ceases to be an employee of the Company or any of its Subsidiaries, his or her [Option] option shall be exercisable as follows: (i) [the Optionee] such option shall be [able to exercise an option] exercisable during the three (3) months after the date the Optionee ceased to be an employee of the Company or any of its Subsidiaries (but not beyond the original term of the option) if the reason for the Optionee's cessation as an employee was other than his death or his Disability; [or] (ii) [the Optionee] such option shall be [able to exercise an option] exercisable during the one (1) year after the date the Optionee ceased to be an employee of the Company or any of its Subsidiaries (but not beyond the original term of the option) if the reason for the Optionee's cessation as an employee was the Optionee's Disability; [or (iii) the Optionee's estate, or the person designated in the Optionee's Last Will and Testament, or the person to whom the option was transferred by the applicable laws of descent and distribution shall be able to exercise an Option] (iii) such option shall be exercisable during the one (1) year after the date the Optionee ceased to be an employee of the Company or any of its Subsidiaries (but not beyond the original term of the option) if either (A) the reason for the Optionee's cessation as an employee was his death or (B) the Optionee died within three (3) months after ceasing to be an employee of the Company or any of its Subsidiaries; or (iv) such option shall be exercisable by a Transferee as permitted by the Committee. 5 Language indicated as being shown by strike out in the typeset document is enclosed in brackets "[" and "]" in the electronic format. 93 Notwithstanding the foregoing to the contrary, the Committee may in its discretion provide in the option for shorter or longer periods in which the [Option] option can be exercised after the Optionee's cessation as an employee or provide that the [Option] option shall not be exercisable at all after the Optionee's cessation as an employee of the Company or any of its Subsidiaries. However, no period of exercise with respect to an option may be extended beyond the original expiration date of the option. An Optionee's employment shall not be deemed to have terminated while he or she is on a temporary military, sick or other bona fide leave of absence from the Company or a Subsidiary approved in writing by the Company, such as a leave of absence as is described in Section 1.421-7(h) of the Federal Income Tax Regulations or any lawful successor regulations thereto; provided, however, that the Committee may impose such terms and conditions with respect to such leaves as it deems proper as are consistent with such regulations. (f) Limitations on Grant of Stock Options. During the calendar year in which any Incentive Stock Options granted by the Company or any Subsidiary first become exercisable by any Optionee, the aggregate fair market value of the shares of Common Stock which are subject to such Incentive Stock Options (determined as of the date the Incentive Stock Options were granted) shall not exceed the sum of One Hundred Thousand Dollars ($100,000.00). Options which are not designated as Incentive Stock Options shall not be subject to the limitation described in the preceding sentence but are subject to a separate limitation so that the number of shares with respect to which [Options] options may be granted to an Optionee in any five-year period will not exceed 750,000. (g) Prohibition of Alternative Options. It is intended that Employees may be granted, simultaneously or from time to time, Incentive Stock Options or other stock options, but no Employees shall be granted alternative rights in Incentive Stock Options and other stock options so as to prevent options granted as Incentive Stock Options under the Plan from qualifying as such within the meaning of Section 422 of the Code. (h) Waiver by Committee of Conditions Governing Exercise of Option. The Committee may, in its discretion, waive any restrictions or conditions set forth in an option agreement concerning an Optionee's right to exercise any option and/or the time and method of exercise. 8. Stock Appreciation Rights. The Committee may provide, at the time of the grant of a stock option and upon such terms and conditions as it deems appropriate, that an Optionee shall have the right with respect to all or a portion of the options granted to him to elect to surrender such options in exchange for the consideration set forth in this Section 8 in lieu of exercising such options. Alternatively, the Committee may provide, at the time of the grant of a stock option and upon such terms and conditions as it deems appropriate, that an Optionee shall have the right with respect to all or a portion of the options granted to him to receive the consideration set forth in this Section 8 upon exercising such options in addition to any Common Shares purchased upon exercise thereof. Stock appreciation rights must be specifically granted by the Committee; provided, however, the Committee shall have no authority to grant stock appreciation rights except in connection with the grant of a stock option pursuant to the Plan, and no Optionee shall be entitled to such rights solely as a result of the grant of an option to him. Stock appreciation rights, if granted, may be exercised either with respect to all or a portion of the option to which they relate. Stock appreciation rights shall not be transferable separate from the option with respect to which they were granted [and], shall be subject to all of the restrictions on transfer applicable to the said options and, if the stock option to which they relate are transferred pursuant to Subsection 7(c) hereof, must be transferred simultaneously to the Transferee of the related option. Stock appreciation rights shall be exercisable only at such times and by such persons as are specified in the option agreement governing the stock option with respect to which the stock appreciation rights were granted. A stock appreciation right shall provide that an Optionee or Transferee shall have the right to receive a percentage, not greater than One Hundred Percent (100%), of the excess over the option price, if any, of the fair market value of the shares of Common Stock covered by the option, as determined by the Committee as of the date of exercise of the stock appreciation right, ["] in the manner provided for herein. Such amount shall be payable in one or more of the following manners, as shall be determined by the Committee; (a) in cash; (b) in shares of Common Stock having a fair market value equal to such amount; or 6 Language indicated as being shown by strike out in the typeset document is enclosed in brackets "[" and "]" in the electronic format. 94 (c) in a combination of cash and Common Stock. If payment is made in whole or in part in shares of Common Stock, such payment shall thereby reduce the number of shares available for the grant of options under this Plan. In no event may any Optionee or Transferee exercise any stock appreciation rights granted hereunder unless such [Optionee] person is then permitted to exercise the option or the portion thereof with respect to which such stock appreciation rights relate. If the option agreement [with the Optionee] provides that exercise of the stock appreciation right shall be in lieu of exercise of the option, then (i) upon the exercise of any stock appreciation rights, the option or that portion thereof to which the stock appreciation rights relate shall be cancelled, and (ii) upon the exercise of the option or that portion thereof to which the stock appreciation rights relate, the stock appreciation rights shall be cancelled, and the option agreement governing such option shall be deemed amended as appropriate without any further action by the Committee [or the Optionee]. If the option agreement [with the Optionee] provides that exercise of the stock appreciation right shall be in addition to exercise of the option, then (i) upon the exercise of any stock appreciation rights, the option or that portion thereof to which the stock appreciation rights relate shall be deemed exercised and (ii) upon the exercise of the option, the stock appreciation rights corresponding thereto shall be deemed exercised to the extent the option is exercised. The terms of any stock appreciation rights granted hereunder shall be incorporated into the option agreement which governs the option with respect to which the stock appreciation rights are granted, and shall be such terms as the Committee shall prescribe which are not inconsistent with this Plan. The granting of an option or stock appreciation right shall impose no obligation upon the Optionee or Transferee to exercise such option or right. The Company's obligation to satisfy stock appreciation rights shall not be funded or secured in any manner. 9. Investment Representation, Approvals and Listing. The Committee may condition its grant of any option hereunder upon receipt of an investment representation from the [Optionee] person exercising the option which shall be substantially similar to the following: ["Optionee] "The undersigned agrees that any shares of [Class A] Common Stock of Scott Technologies, Inc. which [Optionee] the undersigned may acquire by virtue of the exercise of this option shall be acquired for investment purposes only and not with a view to distribution or resale; provided, however, that this restriction shall become inoperative in the event the shares of [Class A] Common Stock of Scott Technologies, Inc. which are subject to this option shall be registered under the Securities Act of 1933, as amended, or in the event Scott Technologies, Inc. is otherwise satisfied that the offer or sale of the shares of [Class A] Common Stock which are subject to this option may lawfully be made without registration under the Securities Act of 1933, as amended." The Company shall not be required to issue any certificates for shares of Common Stock upon the exercise of an option or a stock appreciation right granted under the Plan prior to (i) obtaining any approval from any governmental agency which the Committee shall, in its sole discretion, determine to be necessary or advisable, (ii) the admission of such shares of Common Stock to listing on any national securities exchange on which the shares of Common Stock may be listed, (iii) completion of any registration or other qualification of the shares of Common Stock under any state or federal law or ruling or regulations of any governmental body which the Committee shall, in its sole discretion, determine to be necessary or advisable, or the determination by the Committee, in its sole discretion, that any registration or other qualification of the shares of Common Stock is not necessary or advisable, and (iv) obtaining an investment representation from the Optionee in the form set forth above or in such other form as the Committee, in its sole discretion, shall determine to be adequate. 10. General Provisions. (a) Option Agreements Need Not Be Identical. The form and substance of option agreements and grants of stock appreciation rights, whether granted at the same or different times, need not be identical. (b) No Right To Be Employed, Etc. Nothing in the Plan or in any option agreement shall confer upon any Optionee any right to continue in the employ of the Company or a Subsidiary, or to serve as a member of the Board, 7 Language indicated as being shown by strike out in the typeset document is enclosed in brackets "[" and "]" in the electronic format. 95 or to be entitled to receive any remuneration or benefits not set forth in the Plan or such option agreement, or to interfere with or limit either the right of the Company or a Subsidiary to terminate his or her employment at any time or the right of the stockholders of the Company to remove him or her as a member of the Board with or without cause. (c) Optionee Does Not Have Rights Of Stockholder. Nothing contained in the Plan or in any option agreement shall be construed as entitling any Optionee or transferee to any rights of a stockholder as a result of the grant of an option until such time as shares of Common Stock are actually issued to such [Optionee] person pursuant to the exercise of an option or stock appreciation right. (d) Successors In Interest. The Plan shall be binding upon the successors and assigns of the Company. (e) No Liability Upon Distribution Of Shares. The liability of the Company under the Plan and any distribution of Common Stock made hereunder is limited to the obligations set forth herein with respect to such distribution and no term or provision of the Plan shall be construed to impose any liability on the Company or the Committee in favor of any person with respect to any loss, cost or expense which the person may incur in connection with or arising out of any transaction in connection with the Plan, including, but not limited to, any liability to any Federal, state, or local tax authority and/or any securities regulatory authority. (f) Taxes. Appropriate provisions shall be made for all taxes required to be withheld and/or paid in connection with the options or the exercise thereof, and the transfer of shares of Common Stock pursuant thereto, under the applicable laws or other regulations of any governmental authority, whether Federal, state or local and whether domestic or foreign. (g) Use Of Proceeds. The cash proceeds received by the Company from the issuance of shares of Common Stock pursuant to the Plan will be used for general corporate purposes, or in such other manner as the Board of Directors deems appropriate. (h) Expenses. The expenses of administering the Plan shall be home by the Company. (i) Captions. The captions and section numbers appearing in the Plan are inserted only as a matter of convenience. They do not define, limit, construe or describe the scope or intent of the provisions of the Plan. (j) Number. The use of the singular or plural herein shall not be restrictive as to number and shall be interpreted in all cases as the context may require. (k) Gender. The use of the feminine, masculine or neuter pronoun shall not be restrictive as to gender and shall be interpreted in all cases as the context may require. 11. Amendments to the Plan AND AN OPTION. The Committee is authorized to interpret the Plan and from time to time adopt any rules and regulations for carrying out the Plan that it may deem advisable. Subject to the approval of the Board, the Committee may at any time amend, modify, suspend or terminate the Plan. In no event, however, without the approval of the Company's stockholders, shall any action of the Committee or the Board result in: (a) Amending, modifying or altering the eligibility requirements provided in Section 5 hereof-, (b) Increasing or decreasing, except as provided in Section 6 hereof, the maximum number of shares for which options may be granted; (c) Decreasing the minimum option price per share at which options may be granted under the Plan, as provided in Section 7(a) hereof; (d) Extending either the maximum period during which an option is exercisable as provided in Section 7(b) hereof or the date on which the Plan shall terminate as provided in Section 12 hereof; 8 Language indicated as being shown by strike out in the typeset document is enclosed in brackets "[" and "]" in the electronic format. 96 (e) Changing the requirements relating to the Committee; or (f) Making any other change which would cause any option granted under the Plan as an Incentive Stock Option not to qualify as an Incentive Stock Option within the meaning of Section 422 of the Code; except as necessary to conform the Plan and the option agreements to changes in the Code or other governing law. No option may be granted during any suspension of this Plan or after this Plan has terminated and no amendment, suspension or termination shall, without the Optionee's consent, alter or impair any of the rights or obligations under an option theretofore granted to such Optionee under this Plan except that the Committee may terminate an option granted to an Optionee to the extent necessary for the Company to use the pooling-of-interests method of accounting to account for a business combination. No such rescission shall take effect unless the Optionee is provided a written opinion from the Company's independent accountants to the effect that such rescission is necessary to obtain pooling-of-interests accounting and specifying the extent to which his option must be rescinded. 12. Termination of the Plan. The Plan shall terminate on October 19, 2004, and thereafter no options shall be granted under the Plan. All options outstanding at the time of termination of the Plan shall continue in full force and effect according to the terms of the option agreements governing such options and the terms and conditions of the Plan. 13. Governing Law. The Plan shall be governed by and construed in accordance with the laws of the State of Delaware and any applicable federal law. 14. Venue. The venue of any claim brought hereunder by an Employee shall be Cleveland, Ohio. 15. Changes in Governing Rules and Regulations. All references herein to the Code or sections thereof, or to rules and regulations of the Department of Treasury or of the Securities and Exchange Commission, shall mean and include the Code sections thereof and such rules and regulations as are now in effect or as they may be subsequently amended, modified, substituted or superseded. 9 97 DETACH HERE [SCOTT TECHNOLOGIES, INC. LOGO] PROXY/VOTING INSTRUCTION CARD SCOTT TECHNOLOGIES, INC. CLASS A COMMON STOCK/CLASS B COMMON STOCK THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE SPECIAL MEETING OF STOCKHOLDERS ON DECEMBER 8, 1998. YOUR VOTE IS IMPORTANT! A FAILURE TO VOTE IN PERSON OR BY RETURNING THIS PROXY CARD PROPERLY EXECUTED WILL HAVE THE EFFECT OF A VOTE AGAINST PROPOSALS 1, 2 AND 4. PLEASE SIGN AND DATE ON THE REVERSE SIDE OF THIS CARD. PROXY The undersigned hereby appoints William Sickman and Debra Kackley, and both of them, proxies, with full power of substitution to appear on behalf of the undersigned and to vote all shares of Class A Common Stock and Class B Common Stock of the undersigned at the Special Meeting of Stockholders to be held at the executive offices of Scott Technologies, Inc., 5875 Landerbrook Drive, Mayfield Heights, Ohio, on Tuesday, December 8, 1998, at ________ local time, and at any adjournment thereof, upon all Proposals described in the Proxy Statement furnished herewith, subject to any directions indicated on the reverse side of this card, hereby revoking any and all proxies heretofore given. The proxies will vote "FOR" amendments to the Charter to effect the Restructuring Plan and thereby reclassify and convert each share of Class A Common Stock and Class B Common Stock as and into one share of new "Common Stock," "FOR" amendments to the Charter to eliminate the voting limitations imposed upon a Substantial Stockholder, "FOR" an amendment to the Corporation's Bylaws to lengthen the notice period for stockholder nomination of directors, "FOR" amendments to the Charter to delete certain unnecessary provisions regarding Preference Stock and the terms of convertible and redeemable stock, and "FOR" amendments to the Scott Technologies, Inc. Key Employees' Stock Option Plan to increase the number of shares authorized for issuance and to revise certain other provisions, if the applicable box on this proxy card is not marked. PLEASE RETURN THIS CARD PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE OR OTHERWISE TO P.O. BOX 92301, CLEVELAND, OH 44197-1200, SO THAT YOUR SHARES CAN BE REPRESENTED AT THE MEETING. Continued and To Be Signed on Reverse Side See Reverse Side See Reverse Side 98 DETACH HERE [X] PLEASE MARK VOTES AS IN THIS EXAMPLE. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE PROPOSALS. 1. Approval of amendments to Article Fourth of the Amended and Restated Certificate of Incorporation (the "Charter") to effect the Restructuring Plan and thereby reclassify and convert each share of Class A Common Stock and Class B Common Stock as and into one share of new "Common Stock," and to restate the FOR AGAINST ABSTAIN Charter to reflect the foregoing amendments. [ ] [ ] [ ] 2. Approval of amendments to Section (c) of Article Sixth of the Charter to eliminate the voting limitations imposed upon a Substantial Stockholder, and to FOR AGAINST ABSTAIN restate the Charter to reflect the foregoing amendments. [ ] [ ] [ ] 3. Approval of an amendment to Section 2 of Article 2 of the Bylaws to lengthen the notice period for stockholder nomination of directors. FOR AGAINST ABSTAIN [ ] [ ] [ ] 4. Approval of amendments to Article Fourth of the Charter to delete certain unnecessary provisions regarding Preference Stock and the terms of convertible and redeemable stock, and to restate the Charter to reflect the foregoing FOR AGAINST ABSTAIN amendments. [ ] [ ] [ ] 5. Approval of amendments to the Scott Technologies, Inc. Key Employees' Stock Option Plan to increase the number of shares authorized for issuance and to FOR AGAINST ABSTAIN revise certain other provisions. [ ] [ ] [ ] THE ADOPTION OF PROPOSAL 2 (ELIMINATION OF THE SUBSTANTIAL STOCKHOLDER PROVISION) IS CONDITIONED UPON THE ADOPTION OF PROPOSAL 1 (THE RESTRUCTURING PLAN). ACCORDINGLY, IF THE STOCKHOLDERS DO NOT APPROVE PROPOSAL 1, THE SUBSTANTIAL STOCKHOLDER PROVISION WILL NOT BE ELIMINATED, EVEN IF THE STOCKHOLDERS VOTE IN FAVOR OF PROPOSAL 2. [ ] MARK HERE IF YOU PLAN TO ATTEND THE MEETING. [ ] MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT Please sign and return this Proxy Card so that your shares can be represented at the meeting. If signing for a corporation or partnership or as agent, attorney or fiduciary, indicate the capacity in which you are signing. If you do attend the meeting and decide to vote by ballot, such vote will supersede this proxy. Signature: ______________________________ Date: ___________ Signature:________________________________ Date:_________
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