The Following is Based on a Letter From Warren B. Kanders to the Board of Directors of Federal Signal Corporation; Warren B. Kanders Alleges Certain Directors of Federal Signal Corp. Suppressed Results of Insider Trading Investigation

Warren B. Kanders:

Calls on Independent Board Members to Demand Immediate Resignation of James C. Janning as Chairman of the Board, Who Also Serves as Group President of Harbour Group

Warren B. Kanders, one of the largest shareholders of Federal Signal Corporation (NYSE: FSS), in a letter to the Board of Directors, laid out a chronology of events leading him to believe that James C. Janning, and possibly several other current members of the Board who were directors at the time, may have been involved in a cover-up of insider trading by family members of Joseph J. Ross, former Chairman, CEO and President of FSS, that led to his sudden “retirement” in November, 2003.

Mr. Kanders stated, that based upon the information he presented, “I believe the Board has no alternative but to call for Mr. Janning’s immediate resignation and to comply with the requirements of the [Securities and Exchange Commission] and the New York Stock Exchange by promptly and fully disclosing all of the facts and circumstances leading to Mr. Ross’s so-called ‘retirement’…”

Mr. Kanders also called upon directors McCartney, Wright, Martin and Reichelderfer, who were not directors at the time the events allegedly occurred, to conduct an independent investigation of the role played by directors Gerrity, Hamada, Campbell and Jones, who served as members of the Board at that time (Messrs. Campbell and Jones also served as members of the Governance Committee of the Board) and to make the results of the investigation public. Pending the outcome of the investigation, Mr. Kanders urged that directors Gerrity, Hamada, Campbell and Jones “be quarantined and recuse themselves from active participation in the business and affairs of FSS.” Mr. Kanders concluded, “only in this way can the confidence of shareholders and employees be restored in the integrity of the Board.”

The full text of Mr. Kanders’ letter to the Board appears below.

“Ladies and Gentlemen:

In my letter to the Board of July 23, 2008, necessitated by the botched sale of E-One to members of E-One’s management team and American Industrial Group (“AI”), and other highly questionable actions of the Board under the leadership of its Chairman, James C. Janning, I called upon the independent members of the Board ‘to confront the Company’s failures during Mr. Janning’s nine year tenure and to reconsider his position as Chairman and fulfill their duty to shareholders…’

In my letter to Mr. Janning of August 4, 2008 (a copy of which was distributed to each of you), disproving his false allegations that my letters contained ‘inaccuracies, innuendos and misrepresentations’ following the sale of E-One to members of E-One’s management and AI without having obtained a fairness opinion; the disappointing second quarter financial results, followed by a carefully orchestrated earnings call at which only favored analysts were permitted to ask soft-ball questions, while shareholders were ignored; and a tainted CEO selection process designed to eliminate me from consideration and which still has yet to produce a new Chief Executive Officer, I asked Mr. Janning to resign as Chairman and as a member of the Board.

Since then, information has come to my attention of an apparent cover-up by Mr. Janning, and possibly Board members Robert M. Gerrity, Robert S. Hamada, Charles R. Campbell and Paul W. Jones, all of whom were members of the Board at the time, of alleged insider trading activities in September, 2003 by family members of Mr. Joseph J. Ross, former Chairman of the Board, President and Chief Executive Officer of FSS, which the Company has never disclosed in any public filing with the Securities and Exchange Commission (“S.E.C.”), and which led to Mr. Ross’s forced ‘retirement’ as president and CEO in November, 20003 and as Chairman and director in January 2004; as well as the forced ‘resignation’ of Mr. Kim Wehrenberg, FSS’s General Counsel and Corporate Secretary, in February 2004. FSS announced the election of Mr. James C. Janning, a director of FSS and Group President of Harbour Group as non-executive chairman on December 15, 2003, but his election did not become effective until one month later – January 15, 2004 – the date Mr. Ross’s ‘retirement’ as Chairman and Director became effective.

I have set forth below a chronology of events extrapolated from public sources, including filings and submissions to the S.E.C., pleadings and docket entries in the matter of Kim Wehrenberg v. Federal Signal Corporation, Case No. 06 CV 487, U.S.D.C. for the Northern District of Illinois, Eastern Division, and other sources presumed reliable, which I believe conclusively demonstrates that the then Board of Directors of FSS willfully failed to publicly disclose (x) its knowledge, initially provided by Mr. Wehrenberg, that Mr. Ross’s family sold shares of FSS following their receipt of non-public information concerning FSS’s unfavorable anticipated quarterly earnings; (y) the facts and circumstances leading to Mr. Ross’s purported ‘retirement’; and (z) the facts and circumstances surrounding the ‘resignation’ of Mr. Wehrenberg.

Chronology

• On September 17, 2003, Mr. Ross sent a letter to FSS’s board of directors which stated, in part:

‘As I indicated to you in my e-mail yesterday, our current forecast has come in significantly short of our expectations. At this point, our best estimate of the third quarter has fallen to $.20 - .22 EPS vs. our guidance of $.29 - .33.’

• Approximately one week previously, Mr. Ross reportedly told one or more members of his family – his daughter, son-in-law, step-daughter and mother-in-law – that ‘the company wasn’t doing very well.’
• Between September 13, 2003 and September 22, 2003, members of Mr. Ross’s family reportedly sold all of their shares of FSS.
• On September 24, 2003, FSS issued a press release after the market closed revising downward its third quarter guidance from its July estimate of $.29 - .33 EPS to $.20 - .22 EPS.
• On September 25, 2003, FSS’s stock price which closed at $18.75 on September 24, 2003 fell to $16.20, its closing price on September 25, 2003.
• In early October, 2003, Mr. Wehrenberg, FSS’s Vice-President, General Counsel and Corporate Secretary, learned of the trades by Ross’s family members and reported them to FSS’s Board of Directors.
• In October, 2003, FSS’s Board retained the law firm of Latham & Watkins to conduct an internal investigation, which reportedly periodically advised the Governance Committee of its preliminary findings through November and early December, 2003, issuing its final report on December 10, 2003 reportedly concluding that Mr. Ross had released material, non-public information regarding FSS’s expected earnings to his family members, who had traded on that information ahead of its public release on September 24, 2003.
• On October 22, 2003, FSS filed a Form 8-K reporting the issuance of its earnings release announcing its financial results for the third quarter ended September 30, 2003, including a third quarter EPS of $.21. No disclosure was made as to Mr. Ross.
• On November 14, 2003, FSS filed its Form 10-Q for the quarter ended September 30, 2003. No disclosure was made as to Mr. Ross.
• On November 17, 2003, Federal Signal issued a press release announcing that the Board ‘haselected Robert D. Welding president and chief executive officer, effective December 1, 2003. Mr. Welding was also elected to the board of directors, effective December 1, 2003. Joseph J. Ross, currently chairman of the Board and chief executive officer, will continue as chairman of the board, working with Mr. Welding.’ No mention was made as to the allegations concerning Mr. Ross tipping his family, his family’s sales of FSS stock or the Latham & Watkins investigation, or the reasons for Mr. Ross’s ‘retirement’. No related Form 8-K was filed.
• On December 15, 2003, FSS issued a press release announcing that the Board ‘has elected James C. Janning as non-executive chairman of the board, effective January 15, 2004. The current chairman, Joseph J. Ross, who recently stepped down as president and chief executive officer, will retire on that day.’ No reason was given and no related Form 8-K was filed.
• On January 30, 2004, FSS filed a Form 8-K regarding the issuance of its earnings release announcing its financial results for the quarter ended December 31, 2003, and the year ended December 31, 2003. No disclosure was made as to Mr. Ross.
• On February 18, 2004, FSS filed a Form 8-K regarding an amendment to its Code of Ethics for the CEO and senior financial officers to add a provision ‘relating to the avoidance of actual or apparent conflicts of interest in personal and professional relationships.’ No disclosure was made as to Mr. Ross.
• On or about February 29, 2004, FSS entered into a ‘General Release and Separation Agreement’ with Mr. Wehrenberg (“Separation Agreement”) in which Mr. Wehrenberg agreed to ‘resign’ as an officer of FSS, effective the next day, March 1, 2004, and FSS agreed to allow him to remain in the non-executive position as ‘of counsel’ until the earlier of September 1, 2004 or the date he became employed elsewhere, during which time he would be entitled to continue to receive his monthly salary as ‘severance pay’ and up to ‘$9,000 for outplacement services.’

In return, Mr. Wehrenberg agreed:

(i) to release FSS from any claims, including, among others, claims in connection with his ‘employment relationship’ with FSS, including any claim that FSS ‘wrongfully or unlawfully terminated, discharged or laid off” Mr. Wehrenberg;

(ii) “not to disclose any confidential information that was obtained in the course of his employment by FSS,’ and

(iii) ‘never to disclose or discuss the terms or existence of this [Separation] Agreement and/or the discussions that preceded it…’

During the course of negotiations of the final language of the Separation Agreement, the following language was stricken: ‘Wehrenberg further acknowledges that he is not aware of any fact giving rise to or which would support any claim specifically released’ in the Settlement Agreement.

• On March 1, 2004, FSS issued a press release announcing that Jennifer L. Sherman was replacing Mr. Wehrenberg as Vice President, General Counsel and Secretary effective immediately. No reason was given for Mr. Wehrenberg’s ‘resignation’ and no Form 8-K was filed.
• On March 12, 2004, FSS filed both its Form 10-K for the year ended December 31, 2003 and its definitive Proxy Statement for its 2004 Annual Meeting. Neither document contained any discussion addressing the circumstances surrounding the termination of employment of Mr. Ross (then only 57 years old) or Mr. Wehrenberg. A footnote to the Summary Compensation Table of the Proxy Statement simply noted that ‘Mr. Ross retired as Chief Executive Officer effective December 1, 2003 and as Chairman on January 15, 2003’; and that ‘Mr. Wehrenberg resigned as an executive officer on March 1, 2004’ and other sections of the Proxy Statement contained similar statements.

The Proxy Statement also contained a short summary of the Retirement and Settlement Agreement (“Settlement Agreement”) with Mr. Ross – which was undated and filed as an exhibit to the Form 10-K.

Although Mr. Ross served as Chairman and CEO for more than 14 years, his Settlement Agreement did not grant him any severance or termination compensation, cancelled his unvested stock awards and extended his non-compete agreement to five years.

Yet Mr. Ross’s employment agreement dated June 23, 1989 (“Employment Agreement”) provided that he would remain an executive officer of FSS until he reached age 65, unless FSS terminated his employment with or without cause. In the event his employment was terminated for cause, the Employment Agreement stated: ‘Federal shall have no obligation under this agreement to make payments to you in respect of any period subsequent to such termination.’ (Emphasis added) However, if his employment was terminated ‘without cause,’ Mr. Ross was entitled to be paid ‘an amount equal to one year’s salary at the minimum annual rate than in effect.’ Furthermore, his non-compete obligation was only three years. As noted above, Mr. Ross received no severance payments pursuant to the Settlement Agreement, his unvested stock grants were cancelled and his non-compete was extended to five years.

• In 2005 Mr. Wehrenberg commenced legal proceedings against FSS, claiming among other things, that FSS breached his Separation Agreement and defamed him.
• On January 26, 2006, FSS removed the case to Federal Court, Kim Wehrenberg v. Federal Signal Corporation, Case No. 06CV487.
• On March 23, 2006, Mr. Wehrenberg amended his complaint to include a claim of wrongful and retaliatory discharge, alleging:

‘6. In or around October 2003, it came to Wehrenberg’s attention that some members of the family of a high-ranking [FSS] officer had traded [FSS] stock on inside information provided to them by the high-ranking [FSS] officer to whom they were related.

7. Both providing that information for use in making trades and trading on that information constitute violations of federal and Illinois securities laws.

8. Wehrenberg, in accordance with his duties under the law, including the Sarbanes-Oxley Act, reported to [FSS’s] Board of Directors the information he had learned regarding the insider trading.

9. In February 2004, in retaliation for having reported that information to [FSS’s] Board of Directors, Wehrenberg was removed, effective March 1, 2004, from his position as Vice President, General Counsel and Secretary and was, effective September 1, 2004, fired from employment at Federal Signal.’

• On August 22, 2007, Wehrenberg further amended his complaint, alleging additional breach by FSS of his Separation Agreement, withdrawing his claim for wrongful termination, and seeking a declaratory judgment that due to FSS’s breach of the Separation Agreement, he was no longer bound by the confidentiality provisions of such agreement.
• On April 29, 2008, in order to keep Mr. Wehrenberg from testifying at trial as to his information concerning the insider trading by Mr. Ross’s family and the reasons for his discharge, FSS moved for an order prohibiting Mr. Wehrenberg, his counsel or any witness from ‘testifying, arguing or otherwise raising’ any evidence regarding the family of former FSS CEO Joseph Ross engaging in insider trading because such evidence was then ‘irrelevant’ and may be ‘highly prejudicial’ to FSS.
• On June 11, 2008, following a pre-trial hearing, Judge Kennelly ruled that Mr. Wehrenberg could not introduce evidence of insider trading by members of the Ross family because it could be prejudicial to FSS, but emphasized: ‘I think it’s relevant evidence, and I want to be clear on that . . .’
• On June 25, 2008, Mr. Wehrenberg moved for a new trial following a verdict in favor of FSS on the issue of FSS’s alleged breach of the Separation Agreement, and filed an Offer of Proof with the Court detailing the events of the alleged insider trading by family members of Mr. Ross, and Mr. Wehrenberg’s actions in bringing the matter to the attention of the Board.
• Subsequently, it has been brought to my attention that FSS, in its continuing attempts to gag Mr. Wehrenberg, offered to pay him the sum of $40,000, if he would agree not to discuss, disclose or provide any information to anyone about the Offer of Proof, and further, never to disclose the terms or even the existence of such agreement. I believe that Mr. Wehrenberg has rejected FSS’s offer.

I understand that the rules and regulations of the S.E.C. require that if a director resigns because of a disagreement with the company relating to the company’s operations, policies or practices – or if a director has been removed for cause – the company must disclose the circumstances that caused the director’s resignation or removal.

Furthermore, the Code of Business Conduct and Ethics of the New York Stock Exchange requires listed companies to ‘proactively promote compliance with laws, rules and regulations, including insider trading laws. Insider trading is both unethical and illegal and should be dealt with decisively.’ (Emphasis added.)

To this date, FSS has failed to disclose the circumstances of Mr. Ross’s resignation – or, for that matter – the circumstances surrounding the resignation of Mr. Robert D. Welding, as Chairman and CEO, in December, 2007, although I have repeatedly demanded that the Board make such information public.

For all the foregoing reasons, based upon the information presented above, I believe the Board has no alternative but to call for Mr. Janning’s immediate resignation and to comply with the requirements of the S.E.C. and the New York Stock Exchange by promptly and fully disclosing all of the facts and circumstances leading to Mr. Ross’s so-called ‘retirement’ and to Mr. Wehrenberg’s so-called ‘resignation.’

I further call upon Messrs. John F. McCartney, Joseph R. Wright, Dennis Martin and Brenda Reichelderfer to conduct an independent investigation of the role played by Messrs. Gerrity, Hamada, Campbell and Jones – members of the Board who also served with Mr. Janning when the events occurred in the fall of 2003 and winter of 2004 (Jones and Campbell served on the Governance Committee of the Board at that time and would have been privy to the Latham & Watkins Report) – to determine what they knew and whether they participated in the cover-up, and that the results of that investigation be made public.

Finally, pending the outcome of such investigation, directors Gerrity, Hamada, Campbell and Jones should be quarantined and recuse themselves from active participation in the business and affairs of FSS. Mr. Goodwin, while continuing to act as interim CEO, given his ultimate responsibility for the continuing effort to silence Mr. Wehrenberg, should also recuse himself from Board activities, pending the results of such investigation. Only in this way can the confidence of shareholders and employees be restored in the integrity of the Board.

Very truly yours,”

Warren B. Kanders

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