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Figgie International, Inc.
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Shareholder Concerns
____________________
Xxxxxxxxxx & Partners, Inc.
0000 Xx Xxxxx Xxxxxxx Xxxxx, Xxxxx 000
Xxx Xxxxx, Xxxxxxxxxx 00000
Ph: (000) 000-0000 Fax: (000) 000-0000
December 4, 1996
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FIGGIE INTERNATIONAL, INC
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The Cost of Delay
- $16.38 today is worth more than $16.38 a year from now.
- Stated differently, $16.38 in value available to investors today has
an increasing value over time.
- Most sophisticated equity investors believe that they can meet or
exceed broad equity market returns.
- The Xxxxxxx 2000 Index (see Appendix C) is a broad market index that
has yielded 15.4% cumulative annualized returns since 1993. (The S&P
500 Index yield for the same period was also over 15%.)
- The Xxxxxxx 2000 Index return benchmarks a shareholder's perception
of comparable value over time.
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FIGGIE INTERNATIONAL, INC
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The Mounting Hurdle - Assuming Xxxxxxx 2000 Reinvestment Alternative*
Future Prices Required to Equatl $16.375 per FIGIA Share at 6/30/96
Date Share Price
____ __________
6/30/96 $ 16.38
11/30/96 $ 17.63
6/30/97 $ 18.99
12/31/97 $ 20.45
* Assumes that Figgie shareholders reasonably expect a return equal to the
15.4% cumulative annualized return of the Xxxxxxx 2000 Index (see Appendix
C).
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FIGGIE INTERNATIONAL, INC
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The Mounting Value Loss for Figgie Shareholders
Assumes Current Price Holds Constant
$ Millions Loss
_______________
11/30/96 6/30/97 12/31/97
_______________________________
Loss: Peak Price versus $ 71 $ 71 $ 71
Current Price
Value Loss Due to Delay $ 15 $ 36 $ 57
______________________________
Total Loss $ 86 $ 108 $ 128
______________________________
______________________________
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FIGGIE INTERNATIONAL, INC.
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Our Conclusions
- Figgie shareholders have suffered significantly from the failure to
execute the value-enhancing strategy adopted earlier this year.
- Operation as a conglomerate is not likely to yield shareholder value
in the forseeable future that equates to the comparable peak market
price for Figgie Common A shares achieved earlier this year.
- Continuing delays cost shareholders and increase the hurdle for
delivery of comparable value by the Board of Directors.
6 OF 9
FIGGIE INTERNATIONAL, INC.
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Alternatives
- Stay the course with three disparate operating units, following a
strategy that many believe hinges on the possibility of disposing of
Snorkel and building the Company around Xxxxx.
- Consider other restructuring alternatives to enhance shareholder
value that are within the Board's capability to execute.
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FIGGIE INTERNATIONAL, INC.
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Risks of "Stay the Course"
- Continuing risk to businesses.
- Possibility of cyclical downturns.
- Loss of one-half of Xxxxxxx's contribution to earnings could be
expected to reduce shareholder value by an additional $100
million plus. (See Appendix B)
- Delays raise the Board's value hurdle.
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FIGGIE INTERNATIONAL, INC.
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Other Restructuring Alternatives
- We have reviewed several alternatives with management.
- We accept that divestitures of Snorkel and Interstate were not
achieved.
- We believe that Xxxxx'x value can be enhanced.
- We believe the most logical alternative at this point may be:
- Spin-off of 80% of Xxxxx to shareholders and sale of 20% to the
public via an IPO. Xxxxx would carry $75 million of Xxxxxx's
debt.
- Allocate contingent liabilities among the business units as
appropriate to balance legal and economic interests.
- Utilize a tax efficient structure that preserves NOL's for offset
against future divestiture proceeds.
- Spin-off to shareholders or divest Interstate as soon as
feasible.
- Realize other assets as soon as feasible.
- Operate Snorkel unless an attractive divestiture opportunity
arises.
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FIGGIE INTERNATIONAL, INC.
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Summary
- The Board's continuing delay in realizing value is damaging
shareholders.
- We have outlined one of possibly several alternatives to enhance
shareholder value.
- Discussions with management have not revealed reasons why this
alternative is not feasible.
- Management has not articulated to shareholders why the present
course should be expected to yield value in excess of this
alternative.
- Our discussions with equity market experts give us a high degree of
confidence that the "Restructure Case" shareholder value is
achievable.
- We offer to work constructively with management and the Board to
ensure timely execution of an appropriate restructuring strategy.
