<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by Registrant {x}
Filed by Party other than Registrant { }
Check the appropriate box:
{x} Preliminary Proxy Statement
{ } Definitive Proxy Statement
{ } Definitive Additional Materials
{ } Soliciting Material Pursuant to Section 240.-14a-11(c) or Section
240.-14a-12
- --------------------------------------------------------------------------------
FARAH INCORPORATED
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
Farah Incorporated
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (check the appropriate box):
{x} $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(j)(2).
{ } $500 per each party to the controversy pursuant to Exchange
Act Rule 14a-6(i)(3).
{ } Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
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:
(4) Proposed maximum aggregate value of transaction:
/ Set forth the amount on which the filing fee is
calculated and state how it was determined.
{ } 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:
<PAGE> 2
FARAH INCORPORATED
8889 GATEWAY WEST - EL PASO, TEXAS 79925
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders of Farah Incorporated (the
"Company") will be held at the OMNI Mandalay Hotel, 221 East Las Colinas
Boulevard, Irving, Texas in the Rangoon Room, on March 8, 1994, at 9:00 a.m.
(Central Standard Time), for the following purposes:
(1) to elect eight directors to serve on the Company's Board of
Directors;
(2) to consider and vote on a proposal to add an additional
350,000 shares of Common Stock to the Company's 1991 Stock
Option and Restricted Stock Plan;
(3) to appoint independent public accountants for the Company for
fiscal year 1993; and
(4) to transact such other business as may properly be brought
before the meeting or any adjournment thereof.
The shareholders of record at the close of business on January 21,
1994 are entitled to notice of and to vote at this Annual Meeting or any
adjournment thereof.
We hope that you attend the Annual Meeting in person, but in any event
you are urged to mark, date, sign and return your proxy in the enclosed
self-addressed envelope as soon as possible so that your shares may be voted in
accordance with your wishes. Any proxy given by a shareholder may be revoked
by that shareholder at any time prior to the voting of the proxy.
FARAH INCORPORATED
Jack R. Green,
Secretary
January 28, 1994
<PAGE> 3
FARAH INCORPORATED
8889 GATEWAY WEST - EL PASO, TEXAS 79925
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MARCH 8, 1994
The enclosed proxy is solicited by and on behalf of the Board of
Directors of Farah Incorporated (the "Company") for use at the Annual Meeting
of Shareholders (the "Annual Meeting") to be held at the OMNI Mandalay Hotel,
221 East Las Colinas Boulevard, Irving, Texas in the Rangoon Room on March 8,
1994, at 9:00 a.m. (Central Standard Time), and at any adjournment of such
Annual Meeting. The matters to be considered and acted upon at the Annual
Meeting are described in the foregoing notice of the meeting and this Proxy
Statement. The persons named as proxies are Richard C. Allender and Thomas G.
Wyman, each of whom is presently a director of the Company.
This Proxy Statement and the related form of proxy are being mailed on
or about January 28, 1994 to all shareholders of record on January 21, 1994.
Shares of the Company's common stock, no par value (the "Common Stock"),
represented by proxies will be voted as described in this Proxy Statement or as
otherwise specified by a shareholder. As to the election of directors, a
shareholder may, by checking the appropriate box on the proxy: (i) vote for all
director nominees as a group; (ii) withhold authority to vote for all director
nominees as a group; or (iii) vote for all director nominees a group except
those nominees identified by the shareholder in the appropriate area. See
"Proposal One: Election of Directors" below. With respect to each other
proposal, a shareholder may, by checking the appropriate box on the proxy: (i)
vote "FOR" the proposal; (ii) vote "AGAINST" the proposal; or (iii) "ABSTAIN"
from voting on the proposal. Any proxy given by a shareholder may be revoked
by the shareholder at any time prior to the voting of the proxy by delivering a
written notice of revocation to the Secretary of the Company, by executing and
delivering a later-dated proxy or by attending the Annual Meeting and voting in
person.
The cost of preparing, assembling and mailing the proxy, this Proxy
Statement, and other materials enclosed therewith, and all clerical and other
expenses of proxy solicitation will be borne by the Company. In addition,
directors, officers and employees of the Company and its subsidiaries may
solicit proxies by telephone, telegram or in person. The Company also has
employed Georgeson and Co. Inc., a proxy solicitation firm, to solicit proxies
from brokers and banks at a cost of approximately $10,000. The Company also
will request brokerage houses and other custodians, nominees and fiduciaries to
forward soliciting materials to the beneficial owners of Common Stock held of
record by such parties and will reimburse such parties for their expenses in
forwarding such materials.
The information contained in the "Stock Option and Compensation
Committee Report on Executive Compensation" below and "Performance of the
Common Stock" below shall not be deemed "filed" with the Securities and
Exchange Commission or subject to Regulations 14A or 14C or to the liabilities
of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
VOTING RIGHTS
The holders of record of the {8,034,618} shares of Common Stock
outstanding on January 21, 1994 will be entitled to one vote for each share
held on all matters coming before the Annual Meeting.
<PAGE> 4
METHOD OF VOTING
To be elected, each director must receive the affirmative vote of the
holders of a plurality of the issued and outstanding shares of Common Stock
represented in person or by proxy at the Annual Meeting. Approval of Proposals
Two and Three will require the affirmative vote of the holders of the majority
of the shares of Common Stock voting for or against the proposals at the Annual
Meeting. Abstentions and Non-votes (as defined below) will have no effect on
the voting of any of the proposals. A "Non-vote" occurs when a nominee holding
shares for a beneficial owner has voted on certain matters at the Annual
Meeting pursuant to discretionary authority or instructions from the beneficial
owner but may not have received instructions or exercised discretionary voting
power with respect to other matters.
ANNUAL REPORT
The annual report for the Company's fiscal year ended November 5,
1993, including financial statements, is being furnished with this Proxy
Statement to shareholders of record as of January 21, 1994. The annual report
does not constitute a part of the proxy solicitation materials.
OWNERSHIP OF COMMON STOCK
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth persons who were known to the Company
as of January 3, 1994, to be beneficial owners of more than five percent (5%)
of the outstanding shares of Common Stock:
<TABLE>
<CAPTION>
AMOUNT OF
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP CLASS(1)
----------------------- ---------- ----------
<S> <C> <C>
Georges Marciano 2,562,600(2) 30.3%
Marciano Investments, Inc.
Georges Marciano Trust
Paul Marciano
Paul Marciano Trust
Armand Marciano
Armand Marciano Trust
1444 South Alameda Drive
Los Angeles, California 90021
</TABLE>
- -----------------
(1) Percentage considers an aggregate of 434,494 shares of Common
Stock to be outstanding which are either subject to options
which are exercisable within 60 days or subject to restricted
stock awards which vest within 60 days.
(2) According to Amendment No. 11 to Schedule 13D dated September
23, 1993, Marciano Investments, Inc. owns 1,200,000 shares of
Common Stock. The Georges Marciano Trust has sole voting and
dispositive power with respect to 927,300 shares of Common
Stock owned by it and also is deemed the beneficial owner of
the 1,200,000 shares of Common Stock owned by Marciano
Investments, Inc. by virtue of its 60% ownership of Marciano
Investments, Inc. Georges Marciano is deemed to be the
beneficial owner of the 2,127,300 shares of Common Stock
deemed to be beneficially owned by the Georges Marciano Trust
and of 47,000 shares of Common Stock owned by various trusts
of which Mr. Marciano is the sole trustee. Paul Marciano is
the sole trustee of the Paul Marciano Trust which owns 317,600
shares of Common Stock and therefore may be deemed the
beneficial owner of these shares. Armand Marciano is the sole
trustee of the Armand Marciano Trust which owns 70,700 shares
of Common Stock and therefore may be deemed the beneficial
owner of these shares. According to the Schedule 13D, all of
the foregoing beneficial owners may be deemed to be a "group"
as that term as defined in Rule
- 2 -
<PAGE> 5
13(d)(3) of Exchange Act. See "Certain Matters Involving
Directors and Shareholders."
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the number of shares of Common Stock
beneficially owned by each director, each executive officer and by all
directors and executive officers as a group as of January 3, 1994.
<TABLE>
<CAPTION>
SHARES
AMOUNT SUBJECT TO
OF BENEFICIAL OPTIONS AND PERCENT
NAME OWNERSHIP(1) AWARDS(1) OF CLASS(2)
---- ---------------- ----------- -----------
<S> <C> <C> <C>
Richard C. Allender 112,000 112,000 1.32%
Christopher L. Carameros 1,500 1,500 (3)
Bert G. Cox 9,000 4,500 (3)
Sylvan Landau 9,000 9,000 (3)
Michael R. Mitchell 19,295 16,795 (3)
Edward J. Monahan 5,000 5,000 (3)
Timothy B. Page 6,000 6,000 (3)
Byron H. Rubin 1,500 1,500 (3)
James C. Swaim 64,925 64,925 (3)
Thomas G. Wyman 320,300 (4) 18,500 3.78%
All Directors and
Executive Officers
as a Group (10 persons) 548,520 239,720 6.48%
</TABLE>
- ------------------
(1) The shares of Common Stock covered by such options and awards
are also included in the column entitled "Amount of Beneficial
Ownership."
(2) Percentage considers an aggregate of 434,494 shares of Common
Stock to be outstanding which are either subject to options
which are exercisable within 60 days or subject to restricted
stock awards which vest within 60 days.
(3) Less than one percent.
(4) As of January 3, 1994, 301,800 of the shares listed are owned
by TGW Limited Partnership ("TGW"). Mr. Wyman is the sole
general partner of TGW and has sole voting and dispositive
power with respect to the shares of Common Stock held by TGW.
See "Compensation of Directors."
PROPOSAL ONE: ELECTION OF DIRECTORS
Each of the persons set forth below (see "Directors and Executive
Officers - Nominees for Election as Directors") has been nominated for election
to the Board of Directors, to serve for a term of one year until the next
annual meeting of shareholders or until his or her successor is elected and
qualified. The shares represented by proxies will be voted as specified by the
shareholder. If a shareholder does not specify his or her choice, the shares
will be voted in favor of the election of the nominees listed on the proxy
except that, in the event any nominee should not continue to be available for
election, such proxies will be voted for the election of such other person as
the Board of Directors may recommend. The Company does not presently
contemplate that any of the nominees will become unavailable for election for
any reason.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
- 3 -
<PAGE> 6
DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth certain information regarding the nominees
for election to the Company's Board of Directors and the Company's Executive
Officers:
NOMINEES FOR ELECTION AS DIRECTORS
<TABLE>
<CAPTION>
Year
First
Name, Age and Business Experience Elected
--------------------------------- -------
<S> <C>
RICHARD C. ALLENDER, age 48, is a director and executive officer of the Company. Mr. Allender has 6/88
served as the Chairman of the Board of the Company since March 9, 1993. Mr. Allender served as Vice
President of Marketing of Farah International, Inc. from March 1985 to June 1986 and as Executive
Vice President of Farah International, Inc. from June 1986 to March 1988. Mr. Allender served as
Executive Vice President of Marketing of Farah U.S.A., Inc. from April 1988 to June 1988. Mr.
Allender has been President and Chief Executive Officer of the Company since July 1990, President and
Chief Executive Officer of the Company's subsidiary, Farah U.S.A., Inc., since June 1988, and
President of the Company's subsidiary, Farah International, Inc., since March 1988. See "Ownership
of Common Stock" above and "Compensation of Executive Officers" below.
CHRISTOPHER L. CARAMEROS, age 40, is a director of the Company. Mr. Carameros was appointed Senior 8/87
Vice President-Finance and Chief Financial Officer of the Company on April 1, 1987. On January 2,
1990, he was appointed Executive Vice President of the Company. On September 21, 1990, Mr. Carameros
resigned as an officer of the Company. Mr. Carameros currently acts as a business consultant and is
in private practice as a certified public accountant. Since June 1993, Mr. Carameros has been a
director of Helen of Troy Corporation, a manufacturer of hair care appliances. See "Ownership of
Common Stock" above and "Compensation of Directors" below.
SYLVAN LANDAU, age 68, is a director of the Company. Mr. Landau served as Vice Chairman of Corporate 1/87
Marketing of the Company from January 2, 1987 to February 1, l988. Mr. Landau currently serves as
Executive Vice President-Retail Development for the Dallas Market Center, and also serves as a
consultant to the Company. See "Ownership of Common Stock" above and "Compensation of Directors"
below.
MICHAEL R. MITCHELL, age 40, is a nominee to serve as a director of the Company. Mr. Mitchell has Nominee
been employed by the Company for 11 years and has served in various sales and marketing functions.
Mr. Mitchell currently serves as Executive Vice President - Marketing and Sales for Farah U.S.A.,
Inc. See "Ownership of Common Stock" above and "Compensation of Executive Officers" below.
EDWARD J. MONAHAN, age 60, is a director of the Company. Mr. Monahan has served as a manufacturing 3/91
consultant from 1988 to the present. From January 1989 to August 1989, Mr. Monahan also served as
Vice President of Manufacturing for L.G. Balfour Company, a manufacturer of class rings and
recognition products. See "Ownership of Common Stock" above and "Compensation of Directors" below.
9/89
TIMOTHY B. PAGE, age 41, is a director of the Company. For five years prior to November 1992, Mr.
Page served as a director, Executive Vice President, Chief Financial Officer, Secretary and Treasurer
of Tri-Gas, Inc., an industrial gas manufacturing company located in Irving, Texas. Since November
1992, Mr. Page has been a business consultant and managed his personal investments. See "Ownership
of Common Stock" above and "Compensation of Directors" below.
</TABLE>
- 4 -
<PAGE> 7
<TABLE>
<S> <C>
JAMES C. SWAIM, age 41, is a director and an executive officer of the Company. Mr. Swaim served as 3/93
Vice President - Finance of the Company from December 1984 to March 1988 and as Treasurer of the
Company from September 1987 to the present. Mr. Swaim also served as Chief Financial Officer of the
Company from September 1990 to the present, Senior Vice President-Finance of the Company from
September 1990 until November 1991 and as Executive Vice President of the Company in November 1991 to
the present. See "Ownership of Common Stock" above and "Compensation of Executive Officers" below.
THOMAS G. WYMAN, age 70, is a director of the Company and served as Chairman of the Board of the 12/89
Company from April 23, 1990 until March 9, 1993. From 1984 through 1988 Mr. Wyman served as Chairman
of the Board of L.G. Balfour Company, a manufacturer of class rings and recognition products and he
currently serves as a director of Brubaker Tool Corporation, a leading manufacturer of metal cutting
tools. For more than the past five years, Mr. Wyman has been engaged in extensive farming
operations in Easton, Maryland. Mr. Wyman is currently a private investor. See "Ownership of Common
Stock" above, and "Certain Matters Involving Directors and Shareholders" and "Compensation of
Directors" below.
</TABLE>
COMMITEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Company has an Executive Committee which was appointed on
September 1, 1993 which during fiscal year 1993 was comprised of Thomas G.
Wyman (Chairman), Richard C. Allender, Christopher L. Carameros, Edward J.
Monahan and James C. Swaim. The Executive Committee has the power to exercise
all of the authority of the Board of Directors in the management of the
business and affairs of the Company, except to the extent provided in the
Company's Bylaws and by applicable law. All actions and resolutions of the
Executive Committee are reported to the Board of Directors at the next meeting
of the Board for its review, approval and ratification. The Executive
Committee met twice during fiscal year 1993.
The Company has an Audit Committee which during fiscal year 1993
consisted of Christopher L. Carameros (Chairman), Timothy B. Page and Byron H.
Rubin. The Audit Committee is responsible for evaluating accounting and
control procedures and practices of the Company and reporting on such matters
to the Board of Directors. The Audit Committee serves as a direct liaison with
the Company's independent public accountants and recommends the engagement or
discharge of such accountants. The Audit Committee meets periodically with the
Chief Financial Officer, other appropriate officers of the Company and the
Company's independent public accountants to review the Company's financial and
accounting systems, accounting and financial controls, reports by the
independent public accountants, proposed accounting changes and financial
statements and opinions on such financial statements. The Audit Committee met
or unanimously voted on resolutions twice during fiscal year 1993.
The Company has a Nominating Committee which during fiscal year 1993
consisted of Bert G. Cox (Chairman), Sylvan Landau, Edward J. Monahan, and
Richard C. Allender. The Nominating Committee receives recommendations from
its members or other members of the Board of Directors for candidates to be
appointed to the Board or Board Committee positions, reviews and evaluates such
candidates and makes recommendations to the Board of Directors for nominations
to fill Board and Board Committee positions. The Nominating Committee met or
unanimously voted on resolutions once during fiscal year 1993. The Nominating
Committee will consider candidates recommended by other employees and
shareholders. Written suggestions for candidates accompanied by a written
consent of the proposed candidate to serve as a director if nominated and
elected, a description of his or her qualifications and other relevant
biographical information, should be sent in by December 31 of the year
preceding the next Annual Meeting to the Secretary of the Company, 8889 Gateway
West, El Paso, Texas 79225.
The Company has a Stock Option and Compensation Committee which during
fiscal year 1993 consisted of Byron H. Rubin (Chairman), Bert G. Cox and Sylvan
Landau. See "Stock Option and Compensation Committee Interlocks and Insider
Participation" below and "Stock Option and Compensation Committee Report on
Executive Compensation" below. The Stock Option and Compensation Committee
reviews and makes recommendations to the Board of Directors on officer and
senior employee compensation, stock option awards and other compensation, and
generally oversees matters relating to compensation of employees of the
Company. The Stock Option and Compensation Committee met or unanimously voted
on resolutions seven times during fiscal year 1993.
- 5 -
<PAGE> 8
The Company has a Retirement and Employee Benefits Committee which
during fiscal year 1993 consisted of Jack R. Green, Vice President and
Corporate Secretary of the Company (Chairman), Richard C. Allender, Juan E.
Portillo, Director of Human Resources of the Company, and James C. Swaim. The
Retirement and Employee Benefits Committee serves as administrator for the
Company's pension and savings and retirement plans and generally oversees all
employee benefit plans and services provided by the Company for its employees.
The Retirement and Employee Benefits Committee met or unanimously voted on
resolutions four times during fiscal year 1993.
The full Board of Directors met or unanimously voted on resolutions
nine times during fiscal year 1993. Each of the directors attended or acted
upon at least seventy-five percent of the aggregate number of Board of Director
meetings, consents, and Board of Director Committee meetings or consents held
or acted upon during fiscal year 1993.
CERTAIN MATTERS INVOLVING DIRECTORS AND SHAREHOLDERS
Under the terms of an Amended and Restated Stock Purchase Agreement
dated March 12, 1993 among the Company, the Georges Marciano Trust, the Paul
Marciano Trust and Marciano Investments, Inc. (collectively, the "Marciano
Interests"), the Company sold 619,000 shares of its Common Stock to the
Marciano Interests for a purchase price of $9.625 per share. The purchase
price was based on the closing sale price of the Company's Common Stock as
reported by the New York Stock Exchange, Inc. on the date such price was
negotiated plus $1.00 per share. Under the terms of the Amended and Restated
Stock Purchase Agreement and prior agreements with Marciano Investments, Inc.,
the Company is required to exercise all authority under applicable law to cause
three individuals designated by the Marciano Interests to be elected to the
Company's Board of Directors. The right to designate three members of the
Board of Directors shall continue for so long as the Marciano Interests owns at
least the lesser of (a) 1,800,000 shares of Common Stock or (b) 25% of the
outstanding shares of Common Stock (the "First Threshold Amount"). In the
event the Marciano Interests owns a number of shares of Common Stock equal to
or greater than the lesser of (a) 1,200,000 or (b) 15% of the total outstanding
shares of Common Stock, but lesser than the First Threshold Amount, it shall be
entitled to designate two members to the Company's Board of Directors (the
"Second Threshold Amount"). In the event the Marciano Interests owns a number
of shares of Common Stock equal to or greater than the lesser of (a) 800,000 or
(b) 10% of the total outstanding shares of Common Stock, but lesser than the
Second Threshold Amount, it shall be entitled to designate one member to the
Company's Board of Directors. As of January 3, 1994, the Marciano Interests
have not elected to designate any persons to serve on the Company's Board of
Directors.
Under the terms of the Amended and Restated Stock Purchase Agreement,
the Marciano Interests and its affiliates are prohibited, without the consent
of the Company, from March 29, 1993 until September 29, 1994 (the "Restricted
Period") from acquiring any of the Company's Common Stock if as a result of
such acquisition the Marciano Interests would own in excess of 40% of the
Company's outstanding Common Stock. The Company is prohibited from issuing any
shares of its Common Stock during the Restricted Period without the consent of
the Marciano Interests except under certain limited circumstances. The
Marciano Interests have also agreed that during the Restricted Period they will
vote their shares Common Stock such that the number of directors of the Company
which are comprised of Continuing Directors (as defined below) will not be less
than the Relevant Percentage (as defined below). The term the "Relevant
Percentage" means that percentage of the aggregate Common Stock owned by
persons other than the Marciano Interests bears to the aggregate number of
shares of Common Stock outstanding on a record date. The term the "Continuing
Directors" means a person who was a member of the Board of Directors on March
12, 1993 or was subsequently elected to the Board of Directors and was
designated as a Continuing Director. The Marciano Interests also agreed that
any transaction between the Company and the Marciano Interests would require
the consent of a majority of the Continuing Directors for so long as the
Marciano Interests own in the aggregate 25% of the Company's outstanding Common
Stock. The Company also granted the Marciano Interests certain rights to cause
the registration of the shares of Common Stock owned by the Marciano Interests
under the Securities Act of 1933, as amended.
In July 1993, T.G.W. Limited Partnership, a limited partnership of
which Mr. Thomas G. Wyman is the sole general partner, entered into a Junior
Participation Agreement with Congress Financial Corporation
(Southwest)("Congress") under the terms of which T.G.W. Limited Partnership
agreed to be a junior participant
- 6 -
<PAGE> 9
of up to $2,000,000 in the revolving credit facility provided by Congress to
the Company. T.G.W. terminated its junior participation in the Congress
financing facility in November 1993. The amount of interest and fees received
by T.G.W. Limited Partnership during fiscal year 1993 in respect of its junior
participation was $102,500.
STOCK OPTION AND COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
Mr. Landau served as Vice Chairman of Corporate Marketing of the
Company from January 2, 1987 to February 1, l988. Mr. Landau currently serves
as a consultant to the Company. See "Directors and Executive Officers" and
"Certain Matters Involving Shareholders and Directors," above, and
"Compensation of Directors" and "Stock Option and Compensation Committee Report
on Executive Compensation," below.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the summary of compensation paid to the
Company's Chief Executive Officer and its other executive officers during
fiscal years 1991-1993.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------------------------------------------ ---------------------------------------------
OTHER RESTRICTED
NAME AND ANNUAL STOCK ALL OTHER
PRINCIPAL POSITION FISCAL YEAR SALARY BONUS COMPENSATION AWARDS(4) OPTIONS COMPENSATION
- ------------------ ----------- ---------- -------- ------------ ------------- ------- ------------
-
<S> <C> <C> <C> <C> <C> <C> <C>
Richard C. Allender 1993 $275,000 -0- -0- $218,750 25,000 $14,795(1)
President & Chief 1992 260,420 -0- -0- -0- -0- 11,470(1)
Executive Officer 1991 206,250 -0- -0- -0- 100,000 7,970(1)
Michael R. Mitchell, 1993 163,000 -0- -0- $ 53,250 12,500 5,591(2)
Executive Vice 1992 149,000 -0- -0- -0- -0- 4,879(2)
President 1991 130,000 -0- -0- -0- 10,000 4,467(2)
James C. Swaim 1993 $165,000 -0- -0- $ 62,125 15,000 $ 9,983(3)
Executive Vice 1992 156,250 -0- -0- -0- -0- 6,846(3)
President & 1991 139,340 -0- -0- -0- 25,000 5,384(3)
Chief Financial
Officer
</TABLE>
- -------------------
(1) Includes $8,570, $7,100 and $6,188 for fiscal years 1993, 1992
and 1991, respectively, contributed by the Company on behalf
of Mr. Allender pursuant to a defined contribution plan, the
Farah Savings and Retirement Plan (the "401(k) Plan"), and
$6,225, $4,370 and $1,782 for fiscal years 1993, 1992 and
1991, respectively, for term life insurance premiums paid by
the Company on behalf of Mr. Allender.
(2) Includes $4,815, $4,396 and $4,009 for fiscal years 1993, 1992
and 1991, respectively, contributed by the Company on behalf
of Mr. Mitchell pursuant to the 401(k) Plan and $776, $483 and
$458 for fiscal years 1993, 1992 and 1991, respectively, for
term life insurance premiums paid by the Company on behalf of
Mr. Mitchell.
(3) Includes $9,129, $5,460 and $4,180 for fiscal years 1993, 1992
and 1991, respectively, contributed by the Company on behalf
of Mr. Swaim pursuant to the 401(k) Plan and $854, $1,386 and
$1,204 for fiscal years 1993, 1992 and 1991, respectively, for
term life insurance premiums paid by the Company on behalf of
Mr. Swaim.
- 7 -
<PAGE> 10
(4) The number and value of restricted stock holdings as of
November 5, 1993 are as follows:
<TABLE>
<CAPTION>
VESTING
------------------------
FISCAL
EXECUTIVE OFFICER NUMBER VALUE YEAR NUMBER
----------------- ------ ----- ------ ------
<S> <C> <C> <C> <C>
Richard C. Allender 30,000 $255,000 1994 23,333
1995 3,333
1996 3,334
Michael R. Mitchell 6,000 $51,000 1994 2,000
1995 2,000
1996 2,000
James C. Swaim 7,000 $ 59,500 1994 2,333
1995 2,333
1996 2,334
</TABLE>
- ---------
Dividends, if any, in respect of the shares of restricted stock will
be paid at the discretion of the Stock Option and Compensation
Committee.
The following table sets forth information with respect to the
granting of options to the Company's executive officers during the last fiscal
year.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
% OF REALIZABLE VALUE AT
NUMBER TOTAL ASSUMED ANNUAL
OF OPTIONS RATES OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION
UNDERLYING EMPLOYEES EXERCISE EXPIRA- FOR OPTION TERM
OPTIONS IN FISCAL PRICE TION ---------------
NAME GRANTED YEAR ($/SHARE) DATE 5% 10%
---------- ------- ---------- ----------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Richard C. Allender 25,000 25.9% $6.875 4/28/2003 $108,090 $273,924
Michael R. Mitchell 12,500 13.0% $6.875 4/28/2003 54,045 136,962
James C. Swaim 15,000 15.5% $6.875 4/28/2003 64,854 164,354
</TABLE>
- 8 -
<PAGE> 11
The following table sets forth a summary of each exercise of stock
options during fiscal year 1993 and certain information regarding unexercised
options with respect to the Company's executive officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
NUMBER OPTIONS OPTIONS
OF AT FISCAL AT FISCAL
SHARES YEAR-END YEAR-END
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
---- ----------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Richard C. Allender -0- $-0- 100,000/25,000 $162,500/$40,625
Michael R. Mitchell 4,000 $20,000 16,795/12,500 $ 40,545/$20,313
James C. Swaim -0- $-0- 64,925/15,000 $168,050/$24,375
</TABLE>
EMPLOYMENT CONTRACTS AND TERMINATION AGREEMENTS
On March 1, 1993 the Company entered into an Employment Agreement with
Richard C. Allender, which was amended and restated on September 30, 1993. The
term of the Employment Agreement is for a three-year period which will expire
on March 1, 1996. The Employment Agreement provides for a minimum annual
salary of $275,000.
The Company can terminate the Employment Agreement upon the death or
permanent disability of Mr. Allender or for cause. In the event of a change in
control of the Company, Mr. Allender may terminate his employment (i) at any
time during the term of the Employment Agreement, for Good Reason (as defined
below), by giving written notice to the Company, or (ii) on or after the date
of the change in control of the Company, in his sole discretion, by providing
written notice to the Company. For purposes of the Employment Agreement a
"change in control" of the Company shall mean a change in control of a nature
that would be required to be reported in response to Item 1(a) of the current
Report on Form 8-K, pursuant to Section 13 or 15(d) of the Exchange Act,
provided that, without limitation, such a change in control shall be deemed to
have occurred at such time as (A) any "person", as such term is used in Section
14(d) of the Exchange Act, other than the Company, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), of 30%
(the "Relevant Percentage") or more of the combined voting power of the
Company's Common Stock; provided, however, the Relevant Percentage shall be 40%
solely in respect of any acquisitions of Common Stock by the Marciano
Interests, or (B) individuals who constitute the Board of Directors of the
Company on the date hereof (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any person becoming a
director subsequent to the date hereof whose election or nomination for
election by the Company's shareholders was approved by a vote of at least three
quarters of the directors comprising the Incumbent Board shall be, for purposes
of this clause (i), considered as though such person were a member of the
Incumbent Board. "Good Reason" shall mean (A) a substantial adverse change in
Mr. Allender's status or position(s) as an executive officer of the Company;
(B) a reduction by the Company in Mr. Allender's base salary as in effect
immediately prior to the change in control; or (C) Mr. Allender' s office is
moved, without his mutual consent, from the city where his office is located
immediately prior to the change in control.
If Mr. Allender's employment is terminated by reason of incapacity, he
shall be entitled to his annual salary for a period of 18 months. If Mr.
Allender's employment is terminated by the Company other than for cause, death
or disability, or by Mr. Allender for Good Reason after a change in control,
the Company shall be obligated to pay Mr. Allender his base salary for a period
of 36 months. If Mr. Allender's employment is terminated by him without Good
Reason but after a change in control, the Company shall be obligated to pay Mr.
Allender his base salary for a period of 18 months. In addition, the Company
shall maintain in full force and effect, for the same period for which
severance payments are being made after such termination of the Employment
Agreement, all health insurance, long-term disability, life insurance and
accidental death and disability benefits in which Mr.
- 9 -
<PAGE> 12
Allender was entitled to participate immediately prior to such termination.
On March 1, 1993 the Company entered into Employment Agreements with
Michael R. Mitchell and James C. Swaim, which were amended and restated on
September 30, 1993. The term of the Employment Agreements is for a three-year
period which will expire on March 1, 1996. The Employment Agreements provide
for a minimum annual salary of $175,000 and $165,000, respectively. The terms
of Messrs. Mitchell and Swaim's Employment Agreements are substantially the
same as the Employment Agreement with Mr. Allender except for the benefits
payable upon termination of the Employment Agreement.
If Mr. Mitchell or Mr. Swaim is terminated by reason of incapacity, he
shall be entitled to his annual salary for a period of 12 months. If Mr.
Mitchell or Mr. Swaim's employment is terminated by the Company other than for
cause, death or disability, or by Mr. Mitchell or Mr. Swaim for Good Reason
after a change in control, the Company shall be obligated to pay Mr. Mitchell
or Mr. Swaim his base salary for a period of 24 months.
COMPENSATION OF DIRECTORS
Each director who is not an officer or employee of the Company
receives $1,000 per quarter for serving on the Board of Directors and an
additional $1,000 for attending each Board of Directors' meeting or Board
Committee meeting not held in conjunction with a Board of Directors' meeting.
Directors who are not officers or employees of the Company are also entitled to
$1,000 per day and related expenses for their time expended on Company business
for special assignments upon submission and approval of expense statements.
Directors who are officers or employees of the Company receive no additional
compensation for serving on the Board of Directors or Board Committees or for
attendance at Board of Directors or Board Committee meetings.
On November 1, 1989, the Company entered into a one year Consulting
Agreement with Sylvan Landau, whereby Mr. Landau agreed to provide consulting
services to the Company. Under the Consulting Agreement, Mr. Landau received
an annual retainer of $35,000, a per diem fee of $1,000 and a monthly
reimbursement for certain expenses. The Consulting Agreement has been renewed
on a month-to-month basis since November 1, 1990. During fiscal year 1993, the
Company paid Mr. Landau $42,485 for providing consulting services to the
Company. See "Directors and Executive Officers" above.
During fiscal year 1993, the Company engaged Messrs. Carameros and
Monahan to provide consulting services. The Company paid Messrs. Carameros
and Monahan $813 and $22,898, respectively, during fiscal year 1993 for such
consulting services. See "Directors and Executive Officers" above.
On June 1, 1993, Mr. Thomas G. Wyman and the Company entered into a
Consulting Agreement pursuant to which he agreed to act as a consultant for the
Company for a period of two years. Mr. Wyman will receive 25,000 shares of
Common Stock under a restricted stock award pursuant to the Company's 1991
Stock Option and Restricted Stock Plan plus a fee of $1,000 per day for each
day he provides consulting services. During fiscal year 1993, Mr. Wyman was
paid $4,867 for consulting services and received 12,500 shares of Common Stock
under the restricted stock award.
Non-employee directors are entitled to receive options under the Farah
Incorporated 1988 Non-Employee Directors Stock Option Plan (the "1988 Plan")
and, in the case of non-employee directors that are consultants to the Company,
the Company's 1991 Stock Option and Restricted Stock Plan ("1991 Plan"). There
were no grants of options to non-employee directors under the 1991 Plan in
fiscal year 1993 other than the grant of 25,000 shares to Mr. Wyman. The 1988
Plan provides for the grant of options to purchase a total of 150,000 shares of
Common Stock. Options granted pursuant to the 1988 Plan may be exercised
immediately following the date of grant. No option may be exercised after ten
years from the date on which it is granted. The exercise price of the shares
of Common Stock under the 1988 Plan is the fair market value of such shares at
the time the option is granted.
Each director of the Company who is at the time not otherwise an
officer or employee of the Company or any of its subsidiaries will
automatically be granted an option to purchase 1,500 shares of Common Stock
immediately following each Annual Meeting of Shareholders pursuant to the 1988
Plan. The 1988 Plan is administered by the Stock Option and Compensation
Committee. The Stock Option and Compensation Committee
- 10 -
<PAGE> 13
has no discretion to determine the selection of directors to whom options may
be granted, the number of shares subject to an option, the number of options
that may be granted or the price at which such options may be exercised.
In the event that an option holder ceases to be a director of the
Company for any reason, such option holder may exercise his or her options for
a period of two years after he or she ceases to be a director, and his or her
unexercised options will expire at the end of such period. Should an option
holder, subject to this restriction, die during such two-year period, however,
or while serving as a director, his or her options may be exercised by the
beneficiary under the option holder's will or the executor of such option
holder's estate for a period of two years after death and any unexercised
options will expire at the end of such period. In no event, however, will the
period during which such options may be exercised extend beyond the term of the
options.
On March 9, 1993, the date of the 1993 Annual Meeting of Shareholders,
options to acquire 1,500 shares of Common Stock at $6.875 per share were
granted to each of Christopher L. Carameros, Bert G. Cox, Sylvan Landau, Edward
J. Monahan, Timothy B. Page, Byron H. Rubin, and Thomas G. Wyman.
PERFORMANCE OF THE COMMON STOCK
The graph below compares the cumulative total return of the Company's
Common Stock to the S&P 500 Index and the Dow Jones Clothing Industry Group.
<TABLE>
1989 1990 1991 1992 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
FARAH INC. 57.50 28.75 82.50 55.00 85.00
S&P 500 126.08 117.05 156.12 171.77 194.13
DOW JONES CLOTHING
INDUSTRY GROUP 123.87 83.99 157.06 185.77 171.27
</TABLE>
- 11 -
<PAGE> 14
STOCK OPTION AND COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Stock Option and Compensation Committee's (the "Committee") policy
is to review and make recommendations to the Board of Directors on cash
compensation, stock option and restricted stock awards and other compensation
for the Company's executive officers. Generally, compensation for executive
officers is established effective as of the beginning of each fiscal year. The
Committee takes into account many factors in making the determination of
aggregate compensation. Such factors include (1) the financial results of the
Company for the preceding fiscal year, (2) the performance of the Company's
stock, (3) compensation paid to executive officers in prior years, and (4)
compensation of executive officers employed by companies in industries similar
to the Company.
Compensation of the Company's executive officers is comprised of (1)
annual salary, (2) stock option and restricted stock awards and (3) other
employee benefits which are described in the Proxy Statement. Total
compensation is competitive with those offered by comparable companies.
Annual salary is determined by the skills and experience required by
the position, the impact of the individual on the Company and the performance
of the individual. The stock option and restricted stock awards are intended
to align the interests of management with the Company's shareholders which
allow management to benefit from increases in the price of the Company's Common
Stock. Benefits are based on benefits offered by comparable companies.
The compensation to executive officers in fiscal year 1993 is
described in the Proxy Statement. See "Compensation of Executive Officers."
The compensation paid to Richard C. Allender, the Chief Executive Officer, in
fiscal year 1993 was comprised of annual salary and stock option and restricted
stock awards. Mr. Allender had previously voluntarily reduced his salary
effective as of April 1, 1992 from $275,000 to $250,000. Mr. Allender's annual
salary was increased effective as of the beginning of fiscal year 1993 from
$250,000 per annum to $275,000. The Committee believed this increase was
appropriate based on the better financial performance of the Company. The
Company also awarded Mr. Allender options to acquire 25,000 shares of the
Company's Common Stock and awards of 30,000 shares of restricted stock. Such
awards of stock options and restricted stock were based on two factors. First,
Mr. Allender had previously waived a contractual right under his employment
agreement with the Company to acquire 20,000 shares of treasury stock. Second,
the Compensation Committee's based the decision on its subjective determination
regarding the improvement in the Company's financial performance. The price of
the Company's Common Stock increased from $5.50 per share on November 6, 1992
to $8.50 per share on November 5, 1993, an increase of 55%. The Company's net
income increased by approximately $9,721,000. The Company reported its first
net income since fiscal year 1986.
By: Byron H. Rubin (Chairman)
Bert G. Cox
Sylvan Landau
PROPOSAL TWO: INCREASE IN THE NUMBER OF SHARES OF COMMON STOCK SUBJECT TO
THE 1991 STOCK OPTION AND RESTRICTED STOCK PLAN
The Board of Directors and the Stock Option and Compensation Committee
(the "Committee") have determined that it is in the best interest of the
Company and the shareholders to add 350,000 shares of Common Stock to the 1991
Plan. There are currently 375,000 shares of Common Stock subject to the 1991
Plan, of which 372,998 shares of Common Stock are currently subject to options
or stock awards under the 1991 Plan.
The Company in the past has used stock options for attracting,
retaining and motivating key employees and directors, by providing them
incentives to enhance the growth and profitability of the Company. The 1991
Plan continues the objectives embodied in the plans previously adopted by the
Company, namely, to provide incentives to persons with experience and ability
so that they will remain in the employ of the Company or its subsidiaries, to
attract new employees and consultants whose services are considered valuable to
the Company
- 12 -
<PAGE> 15
or its subsidiaries and to encourage a proprietary interest by such persons in
the development and financial success of the Company.
As of January 3, 1994, there were only 2,002 shares of Common Stock
available for the grant of options under the 1991 Plan. The Board of Directors
believes that this is not a sufficient number of shares of Common Stock to
accomplish the objectives described above. The inclusion of 350,000 additional
shares of Common Stock subject to the 1991 Plan will enable the Company to
further promote these objectives.
The 1991 Plan was approved by the Board of Directors on October 15,
1991. The 1991 Plan provides for the grant to selected employees and
consultants of the Company of (i) options to purchase shares of Common Stock,
and (ii) shares of restricted stock. The Shareholders approved the 1991 Plan
on March 10, 1992, at the Annual Meeting of the Shareholders. The options
granted under the 1991 Plan are intended to be either incentive stock options
("Incentive Stock Options") within the meaning of Section 422 of the Internal
Revenue Code or options that do not meet the requirements for Incentive Stock
Options ("Nonstatutory Options"). The 1991 Plan originally had 300,000 shares
of Common Stock subject to the plan. The Shareholders approved an additional
75,000 shares of Common Stock on March 9, 1993 at the 1993 Annual Meeting of
Shareholders.
The approval of this amendment to the 1991 Plan requires the
affirmative vote of a majority of the issued and outstanding shares of Common
Stock held by shareholders who are present at the Annual Meeting, in person or
by proxy, and entitled to vote at such meeting. The options, if any, granted
under the amendments to the 1991 Plan will terminate if such amendment is not
approved by the Company's shareholders at the Annual Meeting.
The closing sale price of the Company's Common Stock as reported by
the New York Stock Exchange, Inc. on January 3, 1994 was $11.25 per share.
The shares represented by proxies will be voted as specified by the
shareholder. If a shareholder does not specify his or her choice, the shares
will be voted in favor of the proposed amendment to the 1991 Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
PRIOR GRANTS OF PLAN AWARDS
As of January 3, 1994, there were 51 Participants in the 1991 Plan.
There were grants of options to acquire 107,000 shares of the Company's common
stock during fiscal year 1993. During fiscal year 1993, the Company granted
Messrs. Allender and Swaim options to acquire 25,000 and 15,000 shares of
Common Stock, respectively, and were granted awards of 30,000 and 7,000 shares
of restricted stock, respectively, under the 1991 Plan. See "Compensation of
Executive Officers."
The following table summarizes the Plan Awards outstanding under the
1991 Plan as of January 3, 1994.
<TABLE>
<CAPTION>
NUMBER OF RESTRICTED
EXECUTIVE OFFICERS OPTIONS STOCK
- ------------------ ----------- ----------
<S> <C> <C>
Richard C. Allender 43,910 10,000
Michael R. Mitchell 22,500 6,000
James C. Swaim 40,000 7,000
------- ------
All Executive Officers 106,410 23,000
as a Group
Directors As a Group (2 persons) 3,500 12,500
All Employees as a Group 262,660 47,500
</TABLE>
AMOUNT OF STOCK SUBJECT TO THE 1991 PLAN
- 13 -
<PAGE> 16
Under the terms of the 1991 Plan, as amended, the Company may grant
(i) options ("Options") to purchase shares of the Company's Common Stock, and
(ii) awards of shares of Common Stock containing certain restrictions
("Restricted Stock") (collectively, grants of Options and Restricted Stock are
referred to in this Proxy Statement as "Plan Awards") with respect to an
aggregate of 725,000 shares of Common Stock (the "Shares").
ADMINISTRATION OF THE 1991 PLAN
The Committee shall administer the 1991 Plan. The Committee shall
consist of at least two persons and all Committee members shall be
"disinterested persons" within the meaning of Rule 16b-3 (or any successor rule
or regulation) promulgated under the Exchange Act.
ELIGIBILITY FOR PLAN AWARDS
Plan Awards may be granted to selected employees and consultants of
the Company or its subsidiaries (the "Participants") in consideration for
services provided to the Company or its subsidiaries; provided, however, that
no Incentive Stock Option may be granted to any individual who is not an
employee of the Company or one of its subsidiaries on the date of grant. The
Company currently has two persons serving as directors who are also employees
of the Company and three persons serving as consultants to the Company. Any
employee-director or consultant-director is eligible to receive Plan Awards,
unless such person serves on the Committee. Actual participation in the Plan
will be determined in the sole discretion of the Committee. Therefore, the
number of Participants participating in the 1991 Plan in the next fiscal year
cannot be determined precisely nor can the benefits or amounts that will be
received by or allocated to each of the Participants. Similarly, the benefits
which will be allocated to the executive officers cannot be determined at this
time.
OPTIONS UNDER THE 1991 PLAN
The exercise price for any Incentive Stock Option granted under the
1991 Plan shall be not less than 100% of the fair market value per share on the
date of grant of such Option. In the event that an Incentive Stock Option is
granted to any person who, at the time such Incentive Stock Option is granted,
owns more than ten percent of the total combined voting power of classes of
shares of the Company or of any subsidiary corporation of the Company (a "Ten
Percent Shareholder"), then the exercise price of the shares shall be not less
than 110% of the fair market value of the shares on the date the Option is
granted. The exercise price under any Nonstatutory Option granted under the
1991 Plan shall be such amount as the Committee may deem appropriate. If there
is a public market for the Common Stock and it is listed on a stock exchange,
fair market value means the closing sales price of the Common Stock per share
as reported in the Wall Street Journal as of the date of grant.
Any Option granted under the 1991 Plan is exercisable at such times,
under such conditions (including, without limitation, performance criteria with
respect to the Company and/or the optionee), in such amounts and during such
period or periods as the Committee determines on the date of the grant of such
Option. Such Options, however, shall not be exercisable after the expiration
of ten years from the date such Option is granted. In the case of an Incentive
Stock Option granted to a Ten Percent Shareholder, the Options shall not be
exercisable after the expiration of five years from the date such Option is
granted.
Payment for the shares upon exercise of an Option shall be made in
cash, by certified check or, if authorized by the Committee, by delivery of
other shares of Common Stock having a fair market value on the date of delivery
equal to the aggregate exercise price of the Shares as to which Option is being
exercised, or by any combination of such methods or by any other method of
payment as may be permitted by applicable law.
With respect to Incentive Stock Options, Options that are granted to
Participants in the Plan, which allow such Participants to purchase in excess
of $100,000 (calculated as of the time the Option is granted) of the Company's
Common Stock in any one calendar year under the Plan and all of the Company's
other plans, are considered Nonstatutory Options that are not entitled to the
favorable tax treatment provided under Section 422 of the Code.
- 14 -
<PAGE> 17
The Committee may establish procedures under the 1991 Plan for an
Optionee: (1) to pay the exercise price for the Shares by withholding from the
total number of Shares to be acquired upon exercise of an Option that number of
Shares having a fair market value equal to the exercise price; (2) to have
withheld from the total number of Shares to be acquired, in the same manner as
(1) above, the withholding obligation for federal and state income and other
taxes; and (3) to exercise a portion of the Option by delivering already-owned
Shares in payment of the exercise price.
In general, if an Optionee ceases to be an employee or Consultant (as
defined in the 1991 Plan) of the Company, as the case may be, for reasons other
than Permanent and Total Disability or Death, he will have until the earlier of
30 days or the date the Option expires to exercise the Option, to the extent
the Optionee was entitled to exercise the Option on the date of termination.
If, however, the Optionee is an employee and is terminated without cause, the
30-day period described above will be increased to 90 days, in the case of an
Incentive Stock Option, and 6 months, in the case of a Nonstatutory Option, to
the extent the Optionee was entitled to exercise the Option on the date of
termination.
If an Optionee is unable to continue to perform services for the Company
or any of its subsidiaries as a result of Permanent and Total Disability he
will have until the earlier of 12 months from the date of such disability or
the date the Option expires to exercise the Option, in whole or in part,
notwithstanding that such Option may not be fully exercisable on such date. In
the case of an Incentive Stock Option, the Optionee must have been an employee
since the date of grant and must be an employee on the date of Permanent and
Total Disability, to take advantage of this provision.
In the case of death of an Optionee, the same rule applies as in the
case of Permanent and Total Disability, above.
An Option granted under the 1991 Plan may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner other than by
will or by the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined by the Code or Title I of ERISA, or the
rules thereunder, and is not assignable by operation of law or subject to
execution, attachment or similar process.
RESTRICTED STOCK UNDER THE 1991 PLAN
The Committee may grant awards of Restricted Stock under the 1991 Plan
in accordance with the terms and conditions set forth in an agreement between
the Company and the Participant. Restricted Stock may be granted by the
Committee either separately or in combination with Options. Each grant of
Restricted Stock shall require a Participant to remain an employee or
consultant of the Company or its subsidiaries for at least six months from the
date of grant. Restricted Stock shall be granted to Participants for services
rendered to the Company, and at no additional cost to the Participant;
provided, however, that the value of such services must equal or exceed the par
value of the Restricted Stock granted to the Participant.
The Company shall establish a Restricted Stock Account for each
Participant, to which Restricted Stock granted to the Participant shall be
credited. Every credit of Restricted Stock shall be merely a bookkeeping entry
and every grant of Restricted Stock shall be considered contingent and unfunded
until the restrictions lapse. During the period of restriction such accounts
shall be subject to the claims of the Company's creditors. No Participant
shall have any rights in his Restricted Stock Account other than those of an
unsecured general creditor of the Company. On the date the restrictions lapse,
the Restricted Stock shall vest in the Participant.
The terms, conditions and restrictions of the Restricted Stock shall be
determined by the Committee on the date of grant. The restrictions shall lapse
based upon performance measures, targets, holding period requirements and other
criteria established by the Committee. Such criteria may vary among the grants
of Restricted Stock; provided, however, that once the Restricted Stock has been
granted and the criteria are established, such criteria may not be further
modified with respect to such grant. The Restricted Stock may not be sold,
assigned, transferred, redeemed, pledged or otherwise encumbered during the
period that the restrictions apply.
The Committee, in its sole discretion, may establish procedures by which
a Participant may defer the
- 15 -
<PAGE> 18
transfer of Restricted Stock to the Participant.
The Committee may provide from time to time that amounts equivalent to
dividends paid with respect to Common Stock be payable with respect to the
Restricted Stock held in the Restricted Stock Account. Such amounts shall be
credited to the Restricted Stock Account but shall be payable to the
Participant only when the restrictions lapse.
If a Participant, with the consent of the Committee, ceases to be an
employee or ceases to provide services to the Company or any of its
subsidiaries, or suffers a Permanent and Total Disability or dies, the
restrictions applicable to the Participant's Restricted Stock shall lapse in
accordance with such determination as the Committee, in its sole discretion,
shall make. A Participant who ceases to be an employee or to perform services
for the Company or any of its subsidiaries for any other reason shall forfeit
all of his grants of Restricted Stock which are still under restriction.
CAPITALIZATION ADJUSTMENTS; MERGER; CHANGE IN CONTROL
Subject to any required action by the shareholders of the Company, the
number of Shares covered by each outstanding Option (as well as the exercise
price covered by any outstanding Option), the number of Shares of Restricted
Stock granted (but still subject to restrictions) and the aggregate number of
Shares that have been authorized for issuance under the 1991 Plan, shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares resulting from a stock split, payment of a stock dividend with respect
to the Common Stock or any other increase or decrease in the number of issued
Shares of Common Stock effected without receipt of consideration by the
Company.
Unless otherwise provided by the Committee, any Options and grants of
Restricted Stock shall terminate immediately prior to the consummation of a
proposed dissolution or liquidation of the Company, a proposed sale of all or
substantially all of the assets of the Company, or the proposed merger or
consolidation of the Company with or into another corporation. The Committee
may, in the exercise of its sole discretion, in such instances declare that any
Option shall terminate as of a date fixed by the Committee and give each
Optionee the right to exercise his Option as to all or any part of the Shares
covered by such Option, including Shares as to which the Option would not
otherwise be exercisable.
Subject to the above paragraph, upon a Change in Control (as defined
below) of the Company, (i) all the outstanding Options shall immediately become
fully exercisable, and (ii) any restrictions on the Restricted Stock will lapse
and such Restricted Stock shall immediately vest in the Participant. For these
purposes, a "Change in Control" shall have occurred if: (i) any person other
than the Company or its subsidiaries, or an employee benefit plan of the
Company or its subsidiaries, is or becomes the beneficial owner of 50% or more
of the Common Stock; or (ii) a majority of the present members of the Company's
Board of Directors cease to be members of the Board of Directors.
AMENDMENT OF THE 1991 PLAN
The Committee in its sole discretion may, from time to time, amend the
Plan; provided that no amendment will be made without the requisite approval of
the shareholders of the Company, that will (i) change the aggregate number of
Shares that may be issued under the 1991 Plan, other than any increase or
decrease in the number of issued Shares resulting from a stock split, payment
of a stock dividend or any other increase or decrease in the number of issued
Shares effected without receipt of consideration by the Company, (ii) change
the designation of the Participants eligible to be granted Plan Awards, or
(iii) change the 1991 Plan so as to materially increase the benefits accruing
to the Participants under the 1991 Plan.
TERM AND TERMINATION OF THE 1991 PLAN
The 1991 Plan will continue in effect for a term of ten years, unless
sooner terminated. The Committee may terminate the 1991 Plan at any time in
its sole discretion. Neither Restricted Stock nor Options may be granted after
the 1991 Plan is terminated. The termination of the 1991 Plan, or any
amendment thereto, shall not affect any Shares previously issued to a
Participant, any Option previously granted under this Plan or any
- 16 -
<PAGE> 19
shares of Restricted Stock previously granted to a Participant.
MISCELLANEOUS
The 1991 Plan is not qualified under the provisions of Section 401(a) of
the Internal Revenue Code, and is not subject to any of the provisions of the
Employee Retirement Income Security Act of 1974, as amended.
FEDERAL INCOME TAX CONSEQUENCES
The following general summary is based upon the Internal Revenue Code
and does not include a discussion of any state or local tax consequences.
INCENTIVE STOCK OPTIONS. An optionee does not realize taxable income
upon the grant or exercise of an Incentive Stock Option.
The income tax treatment of any gain or loss realized upon an Optionee's
disposition of Shares received upon exercise of an Incentive Stock Option
depends on the timing of the disposition. If the Optionee holds the Shares
received upon exercise of an Incentive Stock Option for at least two years from
the date such Incentive Stock Option was granted, or one year from the date of
exercise, the difference (if any) between the amount realized from the sale of
such Shares and the Optionee's tax basis will be taxed as long-term capital
gain or loss.
If an Optionee disposes of the Shares before the end of the applicable
holding periods described above (i.e., he makes a "disqualifying disposition"),
such Optionee may be deemed to be in receipt of taxable income in the year of
the disqualifying disposition, depending on the selling price. If the selling
price exceeds the fair market value of the Incentive Stock Option on the date
of exercise, the excess of the fair market value over the exercise price is
taxable to the Optionee as ordinary income, and the excess of the selling price
over the fair market value is taxable to the Optionee as capital gain. If the
selling price exceeds the exercise price but not the fair market value on the
date of exercise, the excess of the selling price over the exercise price is
taxable to the Optionee as ordinary income. If the selling price is less than
the exercise price, the difference is treated as capital loss.
The Company is not entitled to a deduction for federal income tax
purposes with respect to the grant or exercise of an Incentive Stock Option or
the disposition of Shares acquired upon exercise (if the applicable holding
periods have been met). In the event of a disqualifying disposition, however,
the Company is entitled to a federal income tax deduction in an amount equal to
the ordinary income recognized by the Optionee.
Certain Optionees may be subject to the alternative minimum tax which in
individual cases could reduce or eliminate any tax benefits to them under the
1991 Plan.
NONSTATUTORY STOCK OPTIONS. An Optionee will not recognize any taxable
income upon the grant of a Nonstatutory Option. However, upon exercise of a
Nonstatutory Option, an Optionee must recognize ordinary income in an amount
equal to the excess of the fair market value of the Shares at the time of
exercise over the exercise price. Upon the subsequent disposition of the
Shares, the Optionee will realize a capital gain or loss, depending on whether
the selling price exceeds the fair market value of the Shares on the date of
exercise. The Optionee's holding period in the Shares, for capital gains and
losses purposes, begins on the date of exercise.
Different rules may apply with respect to exercises by Optionees subject
to the short-swing profit recapture provisions of Section 16(b) of the
Exchange Act (in general, officers, directors and Ten Percent Shareholders who
have not held their options for at least six months). Section 83 of the
Internal Revenue Code provides that such an Optionee will not recognize
ordinary income upon exercise (and the capital gains holding period will not
begin) if the sale of Shares acquired by such Optionee pursuant to an Option
could subject the Optionee to suit under Section 16(b). Such an Optionee would
then recognize ordinary income (and the capital gains holding period would
begin) when the Optionee is no longer subject to suit under Section 16(b).
Persons acquiring Shares subject to such a restriction, however, may elect
(within 30 days of exercise of the Option)
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<PAGE> 20
under Section 83(b) of the Internal Revenue Code, to be taxed as of the date of
exercise, thereby fixing the ordinary income recognized from the exercise to
the spread between the fair market value on the date of exercise and the
exercise price paid for the Shares. Any change in the value of the Shares
after the date of exercise would be recognized as capital gain or loss only if
and when the Shares are disposed of by the Optionee. If the Section 83(b)
election is made, the Optionee's capital gains holding period begins on the
date of exercise.
An Optionee's tax basis in the Shares received on exercise of a
Nonstatutory Option will be equal to the amount of consideration paid by the
Optionee on exercise, plus the amount of ordinary income recognized as a result
of the receipt of such Shares. The Company will be entitled to a deduction for
federal income tax purposes at the same time and in the same amount as the
Optionee recognizes taxable income, provided that the Company satisfies its
withholding tax obligation with respect to such income.
If an Optionee exercises a Nonstatutory Option by delivering other
Shares of the Company, the Optionee will not recognize gain or loss with
respect to the Shares delivered by the Optionee, even if the then fair market
value of such Shares is different from the Optionee's tax basis therein. The
Optionee, however, will be taxed as described above with respect to the
exercise of the Nonstatutory Option as if he had paid the exercise price in
cash, and the Company likewise generally will be entitled to an equivalent tax
deduction. The Optionee's tax basis in the Shares received on such exercise
will be equal to his basis in the number of Shares surrendered on such exercise
plus the fair market value of the number of Shares received in excess of the
number of Shares surrendered and the holding period for such number of Shares
received will include the holding period of the Shares surrendered.
RESTRICTED STOCK. The Participant will not recognize taxable income
upon the grant of Restricted Stock because the Restricted Stock will be
nontransferable and subject to a substantial risk of forfeiture. The
Participant will recognize ordinary income at the time at which the
restrictions that impose a substantial risk of forfeiture of such Shares (the
"Restrictions") lapse, in an amount equal to the fair market value of such
Shares at such time. The ordinary income recognized by a Participant with
respect to Shares awarded pursuant to the 1991 Plan will be deemed compensation
income subject to applicable wage withholding.
A Participant may elect, pursuant to Section 83(b) of the Internal
Revenue Code, to include in gross income the fair market value of the
Restricted Stock, notwithstanding that the Restricted Stock would otherwise not
be includable in gross income at that time. If such election is made within 30
days of the date of grant, then the Participant would include in gross income
the fair market value of the Restricted Stock on the date of grant, and any
change in the value of the Shares after the date of grant would be capital gain
or capital loss only if and when the Shares are disposed of by the Participant.
If the Section 83(b) election is made, the Participant's capital gains holding
period begins on the date of grant.
If a Section 83(b) election is made and the Participant then forfeits
the Restricted Stock, the Participant may not deduct as an ordinary loss the
amount previously included in gross income.
Dividends received on the Shares when the Restrictions on such Shares
lapse will be treated as additional compensation, and not dividend income, for
federal income tax purposes and will be subject to applicable wage withholding.
A Participant's tax basis in Shares of Restricted Stock received
pursuant to the 1991 Plan will be equal to the ordinary income recognized by
such Participant. Unless a Section 83(b) election is made, the Participant's
holding period for such Shares for purposes of determining gain or loss on a
subsequent sale will begin on the date the Restrictions on such Shares lapse.
In general, the Company will be entitled to a deduction for federal
income tax purposes in an amount equal to the ordinary income recognized by a
Participant with respect to Shares of Restricted Stock awarded pursuant to the
1991 Plan, provided that the Company satisfies its withholding obligation with
respect to such income.
If, subsequent to the lapse of Restrictions on his or her Shares, the
Participant sells such Shares, the
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<PAGE> 21
difference, if any, between the amount realized from such sale and the tax
basis of such Shares to the Participant will be taxed as long-term or
short-term capital gain or loss, depending on whether the Participant's
holding period for such Shares exceeds the applicable holding period at the
time of sale.
THE SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE IS FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE TO ALL INDIVIDUALS.
PARTICIPANTS SHOULD CONSULT THEIR OWN TAX ADVISORS FOR A DETERMINATION AS TO
THE SPECIFIC TAX CONSEQUENCES APPLICABLE TO THEM.
PROPOSAL THREE: INDEPENDENT PUBLIC ACCOUNTANTS
The independent public accountants for the Company have been Arthur
Andersen & Co. since fiscal year 1979. The Audit Committee has recommended to
the Board of Directors that Arthur Andersen & Co. be nominated as independent
public accountants for fiscal year 1994, and the Board of Directors approved
the recommendation.
Unless otherwise specified, shares represented by proxies will be voted
for the appointment of Arthur Andersen & Co. as independent public accountants
for fiscal year 1994. Representatives of Arthur Andersen & Co. are expected to
be present at the Annual Meeting. Such representatives will have the
opportunity to make a statement if they desire to do so and are expected to be
available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THIS PROPOSAL.
OTHER BUSINESS
The management knows of no other business that will be presented for
consideration at the Annual Meeting, but should any other matters be brought
before the meeting, it is intended that the persons named in the accompanying
proxy will vote such proxy at their discretion.
SHAREHOLDER PROPOSALS FOR 1995 ANNUAL MEETING
Any shareholder desiring to present a proposal to the shareholders at
the 1995 Annual Meeting of Shareholders, which currently is expected to be
scheduled on March 7, 1995, must transmit such proposal to the Company so that
it is received by the Company at its principal executive offices on or before
September 22, 1994. All such proposals should be in compliance with applicable
Securities and Exchange Commission regulations.
By Order of the Board of Directors,
Jack R. Green, Secretary
January 28, 1994
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<PAGE> 22
FARAH INCORPORATED
8889 GATEWAY WEST -- EL PASO, TEXAS 79023
ANNUAL MEETING OF SHAREHOLDERS -- MARCH 8, 1994
P The undersigned hereby appoints Richard C. Allender and
Thomas G. Wyman, and either of them, proxies of the undersigned,
R with full power of substitution, to vote all the shares of Common
Stock of Farah Incorporated (the "Company") held of record by the
O undersigned on January 21, 1994, at the Annual Meeting of
Shareholders to be held March 8, 1994, and at any adjournment
X thereof.
Y ELECTION OF DIRECTORS:
NOMINEES: Richard C. Allender, Christopher L. Carameros, Sylvan
Landau, Michael R. Mitchell, Edward J. Monahan, Timothy B. Page,
James C. Swain and Thomas G. Wyman
INSTRUCTION: To withhold authority to vote for any individual
nominee, write such nominee's name on the space
provided on the reverse side under Number 1.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS SPECIFIED
BY THE UNDERSIGNED SHAREHOLDER. IF NO CHOICE IS SPECIFIED BY THE
SHAREHOLDER, THIS PROXY WILL BE VOTED "FOR" ALL PORTIONS OF ITEMS
(1), (2), (3) AND (4) AND IN THE PROXIES' DISCRETION ON ANY OTHER
MATTERS COMING BEFORE THE MEETING.
---------
SEE REVERSE
SIDE
---------
<PAGE> 23
<TABLE>
<S> <C> <C> <C> <C>
- ----
X PLEASE MARK |
- ---- YOUR |________
VOTES AS IN
THIS
EXAMPLE.
FOR WITHHELD
1. ------ ------
------ ------
For, except vote withheld from the following nominee(s):
- --------------------------------------------------------
FOR AGAINST ABSTAIN
2. Proposal to add an ------ ------ ------
additional 350,000 shares
of Common Stock to the ------ ------ ------
1991 Stock Option and
Restricted Stock Plan.
3. Appointment of Arthur ------ ------ ------
Andersen & Co. as
Independent Public ------ ------ ------
Accountants of the
Company for fiscal year
1993.
4. In their discretion the ------ ------ ------
proxies are authorized to
vote upon such other ------ ------ ------
matters as may come
before the meeting or
any adjournment
thereof.
SIGNATURE(S)_____________________________________________ DATE _____________________
SIGNATURE(S)_____________________________________________ DATE _____________________
NOTE: Please promptly mark, sign, and mail this Proxy Card in the enclosed envelope. No postage is required.
</TABLE>
