<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ 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)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $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 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[LOGO]
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 El Paso Marriott Hotel, 1600 Airway Boulevard,
El Paso, Texas 79925, on March 12, 1996, at 9:00 a.m. (Mountain 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
500,000 shares of Common Stock to the Company's 1991 Stock
Option and Restricted Stock Plan; and
(3) 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 26,
1996 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
James C. Swaim,
Secretary
January 29, 1996
<PAGE> 3
[LOGO]
8889 GATEWAY WEST - EL PASO, TEXAS 79925
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MARCH 12, 1996
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 El Paso Marriott
Hotel, 1600 Airway Boulevard, El Paso, Texas 79925, on March 12, 1996, at 9:00
a.m. (Mountain 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 James C. Swaim, 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 29, 1996 to all shareholders of record on January 26, 1996.
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 as a group except
those nominees identified by the shareholder in the appropriate area. See
"Proposal One: Election of Directors" below. With respect to the 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 soliciting, 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").
<PAGE> 4
VOTING RIGHTS
The holders of record of the 10,155,568 shares of Common Stock
outstanding on January 26, 1996 will be entitled to one vote for each share
held on all matters coming before the Annual Meeting.
METHOD OF VOTING
The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of Common Stock entitled to vote is necessary to
constitute a quorum at the Annual Meeting. If a quorum is not present or
represented at the Annual Meeting, the shareholders present at the meeting or
represented by proxy, have the power to adjourn the Annual Meeting from time to
time, without notice other than an announcement at the Annual Meeting, until a
quorum is present or represented. At any such adjourned Annual Meeting at
which a quorum is present or represented, any business may be transacted that
might have been transacted at the original Annual Meeting.
Abstentions may be specified on all proposals (other than the election
of directors) and will be counted towards a quorum. With respect to the
election of directors, votes may be cast in favor or withheld. Directors are
elected by a plurality of the votes cast at the Annual Meeting, and votes that
are withheld will be excluded entirely from the vote and will have no effect.
Brokers who hold shares in street name for customers are required to
vote those shares in accordance with instructions received from the beneficial
owners. In addition, brokers are entitled to vote on certain items, such as
the election of directors and other "discretionary items," even when they have
not received instructions from beneficial owners. Brokers are not permitted to
vote for other "non-discretionary" items without specific instructions from the
beneficial owners. Such "broker non-votes" will be counted towards a quorum.
Under applicable Texas law and in accordance with the Company's bylaws, broker
non-votes are not counted in determining the total number of votes cast on a
proposal.
ANNUAL REPORT
The annual report for the Company's fiscal year ended November 3,
1995, including audited financial statements, is being furnished with this
Proxy Statement to shareholders of record as of January 26, 1996. 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 12, 1996, 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 936,400(1) 9.22%
Georges Marciano Trust
9756 Wilshire Boulevard
Beverly Hills, California 90212
</TABLE>
2
<PAGE> 5
- --------------------
(1) According to Amendment No. 14 to Schedule 13D dated January
24, 1996, the Georges Marciano Trust has sole voting and
dispositive power with respect to 889,400 shares of Common
Stock owned by it. Georges Marciano is deemed to be the
beneficial owner of the 889,400 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. According to the Schedule
13D, the foregoing beneficial owners may be deemed to be a
"group" as that term is defined in Rule 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 12, 1996.
<TABLE>
<CAPTION>
SHARES
AMOUNT SUBJECT TO
OF BENEFICIAL OPTIONS AND PERCENT
NAME OWNERSHIP(1) AWARDS(1) OF CLASS
---- ------------- ----------- --------
<S> <C> <C> <C>
Richard C. Allender 133,681 106,900 1.30%
Jackie L. Boatman 36,410 35,000 (3)
Clark L. Bullock 3,000 3,000 (3)
Christopher L. Carameros 5,500 3,000 (3)
Sylvan Landau 14,500 12,000 (3)
Michael R. Mitchell 63,831 57,500 (3)
Timothy B. Page 1,500 1,500 (3)
Charles J. Smith 3,000 3,000 (3)
James C. Swaim 94,832 90,400 (3)
All Directors and
Executive Officers
as a Group (9 persons) 356,254 312,300 3.43%(2)
</TABLE>
- --------------------
(1) The shares of Common Stock that are either subject to options
that exercisable within 60 days or subject to restricted stock
awards that vest withing 60 days are also included in the
column entitled "Amount of Beneficial Ownership."
(2) Percentage considers an aggregate of 312,300 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 of the outstanding shares of Common
Stock.
PROPOSAL ONE: ELECTION OF DIRECTORS
Each of the persons set forth below 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 successor is elected and qualified. See
"Directors and Executive Officers--Nominees for Election as Directors." 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
3
<PAGE> 6
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.
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
RICHARD C. ALLENDER, age 50, has been a director of the Company since June
1988. Mr. Allender has served the Company in various capacities since 1985.
Mr. Allender has been President and Chief Executive Officer of the Company
since July 1990 and Chairman of the Board since March 1993.
CLARK L. BULLOCK, age 47, has been a director of the Company since March 1994.
For the last seven years, Mr. Bullock has been Chairman and Chief Executive
Officer of Shelter Rock Investors Services Corporation, a financial services
and investment company. Mr. Bullock also serves as Chairman of the Board of
several of Shelter Rock's portfolio companies, including Almedica Services
Corp. and Almedica Corp. (pharmaceutical clinical supplies and services), SR
Metals Inc. (metal plate processing) and George Glove Company (dermatological
glove products). Mr. Bullock also serves as director for the Fundamental
Family of Funds.
CHRISTOPHER L. CARAMEROS, age 42, has been a director of the Company since
August 1987. Since September 1990, Mr. Carameros has been a business
consultant and in private practice as a certified public accountant and
currently is an officer, director and minority owner of Cactus Apparel, Inc., a
privately held private label clothing manufacturer. Mr. Carameros is also a
director of Helen of Troy Limited, a manufacturer of hair care appliances.
SYLVAN LANDAU, age 70, has been a director of the Company since January 1987.
Prior to 1987, Mr. Landau was employed by Haggar Corp. for 39 years in various
capacities, including President of Haggar International and President of the
Reed St. James division. Mr. Landau served as Vice Chairman of Corporate
Marketing of the Company from January 1987 to February 1988 and as a consultant
of the Company since 1988. Mr. Landau has served the Dallas Market Center in
various capacities since 1988, and currently is Executive Vice
President--Retail Development. The Dallas Market Center is a corporation which
operates various real properties in Dallas, Texas, and which provides markets
for the wholesale trade.
MICHAEL R. MITCHELL, age 42, has been a director of the Company since March
1994. Mr. Mitchell has been employed by the Company since 1981 in various
sales and marketing capacities. Mr. Mitchell was appointed President of Farah
U.S.A. in March 1994.
TIMOTHY B. PAGE, age 43, has been a director of the Company since September
1989. 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. From November 1992 to
March 1995, Mr. Page was a business consultant and managed his personal
investments. Since March 1995, Mr. Page has served as Executive Vice President
and Chief Operating Officer of the Company.
CHARLES J. SMITH, age 69, has been a director of the Company since March 1994.
For more than five years prior to his retirement in 1994, Mr. Smith served in
various capacities with Crystal Brands, Inc., an apparel manufacturer and
marketer, most recently as an Executive Vice President. Since then, Mr. Smith
has served as a consultant to various apparel companies. In May 1995, Mr.
Smith became a partner and director of Phoenix Apparel Group, Inc., a
privately-held apparel sourcing and consulting company.
4
<PAGE> 7
JAMES C. SWAIM, age 43, has been a director of the Company since March 1993.
Mr. Swaim has been employed by the Company since 1984 in various capacities and
has been the Company's Chief Financial Officer since 1990 and Executive Vice
President since November 1991. Mr. Swaim was appointed Secretary in March
1994.
EXECUTIVE OFFICERS
The executive officers of the Company consist of Richard C. Allender,
Jackie L. Boatman, Michael R. Mitchell, Timothy B. Page and James C. Swaim;
Messrs. Allender, Mitchell, Page and Swaim are currently also directors of the
Company. See "Nominees for Election as Directors."
JACKIE L. BOATMAN, age 37, has been an executive officer of the Company since
March 1994. Mr. Boatman has been employed by the Company since 1987 in various
capacities. Mr. Boatman served as Senior Vice President--Manufacturing of
Farah U.S.A., Inc. from May 1991 through March 1994, and has served as
Executive Vice President--Operations for Farah U.S.A., Inc. since March 1994.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Company has an Executive Committee which during fiscal year 1995
was comprised of Thomas G. Wyman, Richard C. Allender, Christopher L.
Carameros, Timothy B. Page and Charles J. Smith. Mr. Wyman served as Chairman
of the Executive Committee until his resignation as a director of the Company
in August 1995. Mr. Allender served as Chairman from August 1995 through the
end of the fiscal year. 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 to the extent provided in the Company's Bylaws and
by applicable law. The Executive Committee met or voted on resolutions five
times during fiscal year 1995.
The Company has an Audit Committee which during fiscal year 1995
consisted of Christopher L. Carameros (Chairman), Clark L. Bullock and Edward
J. Monahan, who resigned as a director of the Company effective January 1,
1996. 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 four times during fiscal year 1995.
The Company has a Nominating Committee which during fiscal year 1995
consisted of Sylvan Landau (Chairman), Richard C. Allender and Charles J.
Smith. 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 did not meet or
unanimously vote on resolutions during fiscal year 1995. The Nominating
Committee will consider candidates recommended by other directors 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 November 30 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 1995 consisted of Charles J. Smith (Chairman), Clark L. Bullock
and Christopher L. Carameros. 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, restricted stock and
stock option awards and other compensation, and generally oversees matters
relating to compensation of employees of the
5
<PAGE> 8
Company. The Stock Option and Compensation Committee met or unanimously voted
on resolutions six times during fiscal year 1995.
The Company has a Retirement and Employee Benefits Committee which
during fiscal year 1995 consisted of James C. Swaim (Chairman), Richard C.
Allender, Michael R. Mitchell, Frank C. Marroquin (Director of Human Resources
of Farah U.S.A., Inc.) and Russell Gibson (Senior Vice President, Financial
Planning and Reporting of Farah U.S.A.). Mr. Marroquin served as a member of
the Committee until his resignation from the Company in June, 1995. Mr. Gibson
took Mr. Marroquin's place on the Committee in July, 1995. 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 1995.
The full Board of Directors met or unanimously voted on resolutions
five times during fiscal year 1995. 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 1995.
CERTAIN MATTERS INVOLVING DIRECTORS AND SHAREHOLDERS
Under the terms of an Amended and Restated Stock Purchase Agreement
dated March 12, 1993 (the "Amended and Restated Stock Purchase Agreement")
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.
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 up to 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 own 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 12, 1996, the Marciano Interests own 1,033,500 shares
of Common Stock (which amount includes 97,100 shares of Common Stock
beneficially owned by Paul Marciano), and are entitled to designate one member
of the Company's Board of Directors. As of January 29, 1996 the Marciano
Interests have not elected to designate any person to the Company's Board of
Directors.
STOCK OPTION AND COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
During fiscal year 1995, the Stock Option and Compensation Committee
was composed of Charles J. Smith, Clark L. Bullock and Christopher L.
Carameros. Mr. Carameros is the only member of the Stock Option and
Compensation Committee that was formerly an officer of the Company.
6
<PAGE> 9
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth the summary of compensation paid or
accrued to the Company's Chief Executive Officer and its other executive
officers during fiscal years 1993-1995.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------------------------------------ ---------------------------------------
OTHER RESTRICTED
NAME AND ANNUAL STOCK ALL OTHER
PRINCIPAL POSITION FISCAL YEAR SALARY BONUS COMPENSATION(1) AWARDS(8) OPTIONS COMPENSATION
- ------------------ ----------- ---------- ----------- --------------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard C. Allender, 1995 $ 300,000 $ 0 $ 15,000 $ 0 0 $128,050(2)
President & Chief 1994 300,000 164,850 15,000 1,402,500 45,000 127,750(2)
Executive Officer 1993 275,000 0 0 218,750 25,000 14,795(2)
Jackie L. Boatman, 1995 $ 190,020 $ 0 $ 9,501 $ 0 0 $ 26,060(3)
Executive Vice 1994 160,425 47,100 8,271 0 14,000 25,795(3)
President, Farah 1993 137,250 0 0 26,625 10,000 4,604(3)
U.S.A., Inc.
Michael R. Mitchell, 1995 $ 240,000 $ 0 $ 12,000 $ 0 0 $ 36,510(4)
President, Farah 1994 204,588 89,490 14,438 82,500 35,000 36,167(4)
U.S.A., Inc. 1993 163,000 0 0 53,250 12,500 5,591(4)
Timothy B. Page, 1995(7) $ 160,000 $ 0 $ 0 $ 0 0 $ 1,340(5)
Executive Vice
President and Chief
Operating Officer
James C. Swaim, 1995 $ 184,992 $ 0 $ 9,250 $ 0 0 $ 26,015(6)
Executive Vice 1994 175,000 76,930 9,000 66,000 28,000 25,928(6)
President, Chief 1993 165,000 0 0 62,125 15,000 9,983(6)
Financial Officer,
Treasurer and
Secretary
</TABLE>
- --------------------
(1) Such amounts represent the Company's contribution, pursuant to
separate Deferred Compensation Agreements between the Company
and the Company's Chief Executive Officer and each other
executive officer, to a deferral account on behalf such
officer.
(2) Includes $4,500, $4,500 and $8,570 for fiscal years 1995,
1994 and 1993, 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"), $2,550, $2,250 and $6,225 for fiscal years 1995, 1994
and 1993, respectively, for life insurance premiums paid by
the Company on behalf of Mr. Allender, and $121,000 for fiscal
years 1995 and 1994 for reverse split dollar life insurance
premiums paid by the Company on behalf of Mr. Allender.
(3) Includes $4,500, $4,500 and $4,117 for fiscal years 1995, 1994
and 1993, respectively, contributed by the Company on behalf
of Mr. Boatman pursuant to the 401(k) Plan, $1,560, $1,295 and
$487 for fiscal years 1995, 1994 and 1993, respectively, for
life insurance premiums paid by the
7
<PAGE> 10
Company on behalf of Mr. Boatman, and $20,000 for fiscal years
1995 and 1994 for reverse split dollar life insurance premiums
paid by the Company on behalf of Mr. Boatman.
(4) Includes $4,500, $4,500 and $4,815 for fiscal years 1995, 1994
and 1993, respectively, contributed by the Company on behalf
of Mr. Mitchell pursuant to the 401(k) Plan, $2,010, $1,667,
$776 for fiscal years 1995, 1994 and 1993, respectively, for
life insurance premiums paid by the Company on behalf of Mr.
Mitchell, and $30,000 for fiscal years 1995 and 1994 for
reverse split dollar life insurance premiums paid by the
Company on behalf of Mr. Mitchell.
(5) This amount is for life insurance premiums paid by the Company
on behalf of Mr. Page in fiscal year 1995.
(6) Includes $4,500, $4,500 and $9,129 for fiscal years 1995, 1994
and 1993, respectively, contributed by the Company on behalf
of Mr. Swaim pursuant to the 401(k) Plan, $1,515, $1,428 and
$854 for fiscal years 1995, 1994 and 1993, respectively, for
life insurance premiums paid by the Company on behalf of Mr.
Swaim, and $20,000 for fiscal years 1995 and 1994 for reverse
split dollar life insurance premiums paid by the Company on
behalf of Mr. Swaim.
(7) Mr. Page became an officer of the Company in March 1995. See
"Directors and Executive Officers--Nominees for Election as
Directors."
(8) The number and value of restricted stock holdings as of
November 3, 1995 are as follows:
<TABLE>
<CAPTION>
VESTING
---------------------
FISCAL
EXECUTIVE OFFICER NUMBER VALUE YEAR NUMBER
- ----------------- ------ ----- ------ ------
<S> <C> <C> <C> <C>
Richard C. Allender 45,833 $320,831 1996 20,833
1997 12,500
1998 12,500
Jackie L. Boatman 1,000 $7,000 1996 1,000
Michael R. Mitchell 4,500 $31,500 1996 4,500
Timothy B. Page -- -- -- --
James C. Swaim 4,333 $30,331 1996 4,333
</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.
8
<PAGE> 11
The following table sets forth a summary of each exercise of stock
options during fiscal year 1995 and certain information regarding unexercised
options with respect to the Company's executive officers. No stock options
were granted to the Company's executive officers in fiscal year 1995.
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 -- -- 89,400/0 $ 5,500/0
Jackie L. Boatman -- -- 28,000/0 $ 2,500/0
Michael R. Mitchell 2,500 $9,375 57,500/0 $ 2,813/0
Timothy B. Page -- -- 1,500/0 $ 0/0
James C. Swaim -- -- 90,400/0 $73,925/0
</TABLE>
EMPLOYMENT CONTRACTS AND TERMINATION AGREEMENTS
On July 10, 1995, the Company entered into an Employment Agreement
with Richard C. Allender. The term of the Employment Agreement is for a
three-year period which renews automatically on a daily basis and continues
thereafter for a three-year term. The Employment Agreement provides for a
minimum annual salary of $325,000. The Company is also obligated to pay the
premiums of a reverse split-dollar life insurance policy for Mr. Allender in
the amount of $121,000 per year for three years.
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) for a period of 180
days beginning on 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 20% (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 any of its affiliates, or (B) individuals who constitute the
Board of Directors of the Company on the date of the agreement (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.
9
<PAGE> 12
If Mr. Allender's employment is terminated by reason of incapacity,
by the Company other than for cause, 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 and the remaining premiums under the
split-dollar life insurance policy described above. 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 and the remaining premiums under the split-dollar life
insurance policy described above. 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. Allender was entitled to participate
immediately prior to such termination.
On March 1, 1993 the Company entered into Employment Agreements with
Jackie L. Boatman, Michael R. Mitchell and James C. Swaim, which were amended
and restated in August 1994. The term of the Employment Agreements are for a
three-year period which will expire on March 1, 1996. The Employment
Agreements provide for a minimum annual salary of $175,000, $225,000 and
$175,000, respectively. The Company is also obligated to pay, during the term
of the Employment Agreements, the premiums of a reverse split-dollar life
insurance policy for Messrs. Boatman, Mitchell and Swaim not to exceed $20,000,
$30,000 and $20,000, respectively, per year. The terms of Messrs. Boatman,
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 Messrs. Boatman, Mitchell or Swaim is terminated by reason of
incapacity, they shall be entitled to their annual salary for a period of 12
months. If Messrs. Boatman, Mitchell or Swaim's employment is terminated by
the Company other than for cause, death or disability, or by Messrs. Boatman,
Mitchell or Swaim for Good Reason after a change in control, the Company shall
be obligated to pay Mr. Mitchell or Mr. Swaim their base salary for a period of
24 months, and Mr. Boatman his base salary for a period of 18 months, and the
Company shall be obligated to pay one additional annual premium on each of the
reverse split-dollar life insurance policies.
COMPENSATION OF DIRECTORS
Each director who is not an officer or employee of the Company
receives $1,500 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
up 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.
During fiscal year 1995, prior to his employment with the Company, the
Company engaged Mr. Page to provide consulting services. The Company paid Mr.
Page $56,000 during fiscal year 1995 for such consulting services. See
"Directors and Executive Officers" and "Compensation of Executive Officers."
During fiscal year 1995, the Company engaged Messrs. Carameros and
Landau to provide consulting services. The Company paid Messrs. Carameros and
Landau $16,094 and $38,780, respectively, during fiscal year 1995 for such
consulting services. See "Directors and Executive Officers."
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 1995. 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.
10
<PAGE> 13
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 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 14, 1995, the date of the 1995 Annual Meeting of
Shareholders, options to acquire 1,500 shares of Common Stock at $8.625 per
share were granted to each of Clark L. Bullock, Christopher L. Carameros,
Sylvan Landau, Edward J. Monahan, Charles J. Smith and Thomas G. Wyman.
11
<PAGE> 14
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
assuming a $100 investment on November 1, 1990.
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG FARAH INCORPORATED
S&P 500 INDEX AND PEER GROUP INDEX
<TABLE>
<CAPTION>
FARAH INCORPORATED DOW JONES INDUSTRY S&P 500 INDEX
GROUP CLO
<S> <C> <C> <C>
1991 286.96 185.34 133.51
1992 191.3 220.5 146.83
1993 295.65 204.81 168.78
1994 286.96 198.09 175.31
1995 243.48 200.12 221.78
</TABLE>
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. In fiscal year 1994 the Company entered into employment
agreements with each of the executive officers, other than Timothy B. Page who
was not an executive officer at the time. The employment agreement for Richard
C. Allender, the Company's Chief Executive Officer, was amended in fiscal year
1995 but did not increase the annual compensation amounts. The employment
agreements provide for a minimum annual salary and provide discretion to the
Committee to make increases based on the performance of the executive and the
Company. The annual salary levels in the agreements were based in part on
advice received from an outside consulting firm, although the Committee
exercised its discretion is setting the final amounts of annual compensation.
The outside consulting firm used a private database to survey the compensation
levels and policies of 116 companies with annual sales in the $100,000,000 -
$200,000,000 range. The companies included in the database surveyed by the
consultant are not the same companies included in the Dow Jones Clothing
Industry Group described in the section of this Proxy Statement labeled
"Performance of the Common Stock" or companies necessarily involved in the
apparel industry.
12
<PAGE> 15
Compensation of the Company's executive officers is comprised of (1)
annual salary, (2) annual incentive compensation, (3) stock option and
restricted stock awards and (4) other employee benefits which are described in
the Proxy Statement. The compensation earned by executive officers in annual
incentive compensation and stock option and restricted stock awards is intended
to align the interests of management and shareholders. In fiscal year 1995 the
Company experienced a loss and the Company's executive officers earned no
amounts from the annual incentive compensation or appreciation in any existing
stock option or restricted stock awards.
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 and as discussed above, the Company's existing employment
agreements. In fiscal year 1994, the Company recorded substantial profits
and the Committee felt that because of the Company's financial performance in
that fiscal year it was appropriate to award an increase in annual salary to
the Company's executive officers effective in fiscal year 1995. In light of
the financial difficulties experienced by the Company in fiscal year 1995,
members of the Committee, using their subjective determination, did not
increase any annual compensation to be effective in fiscal year 1996 except for
one executive officer who assumed additional management responsibilities.
Annual incentive compensation is based on a bonus plan. The bonus
plan provides for the payment of bonuses as a percentage of base annual
compensation if the Company met pre-tax income goals established at the
beginning of the fiscal year. In fiscal year 1995 the Company experienced a
loss and the Company's executive officers earned no amounts from the annual
incentive compensation.
In addition, the Committee did not make any stock option or restricted
stock awards or increase in any material respect any other employee benefits in
fiscal year 1995.
By: Charles J. Smith, Chairman
Clark L. Bullock
Christopher L. Carameros
13
<PAGE> 16
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 500,000 shares of Common Stock to the 1991
Plan. There are currently 725,000 shares of Common Stock subject to the 1991
Plan, of which 712,864 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 or its subsidiaries and to encourage a proprietary interest by such
persons in the development and financial success of the Company.
As of January 12, 1996, there were only 12,136 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 500,000 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 and provides for the grant to selected employees and consultants of the
Company of (1) 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 and 350,000 shares of Common Stock on March 8, 1994, at the 1994
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 this amendment 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 12, 1996 was $5.00.
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 12, 1996, there were 41 Participants in the 1991 Plan.
During fiscal year 1995 there were grants of stock options for 7,000 shares of
the Company's Common Stock, none of which were grants to executive officers.
There were no grants of restricted stock awards during fiscal year 1995. See
"Compensation of Executive Officers."
14
<PAGE> 17
The following table summarizes the Plan Awards outstanding under the
1991 Plan as of January 12, 1996.
<TABLE>
<CAPTION>
NUMBER OF RESTRICTED
EXECUTIVE OFFICERS OPTIONS STOCK
- ------------------ --------- ----------
<S> <C> <C>
Richard C. Allender 89,400 40,833
Jackie L. Boatman 34,000 1,000
Michael R. Mitchell 57,500 2,000
Timothy B. Page 0 0
James C. Swaim 67,400 2,333
------- ------
All Executive Officers 248,300 46,166
as Group (5 persons) ======= ======
Directors (who are not Executive Officers) 0 0
as a Group (4 persons) ======= ======
All Other Employees (including officers who 181,050 1999
are not Executive Officers) as a Group (41 ======= ======
persons)
</TABLE>
AMOUNT OF STOCK SUBJECT TO THE 1991 PLAN
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 administers the 1991 Plan. The Committee must consist
of at least two persons and all Committee members must be "disinterested
persons" within the meaning of Rule 16b-3 (or any successor rule or
regulations) 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 four persons serving as directors who are also employees
of the Company and one person serving as a consultant to the Company. Any
employee-director or consultant-director is eligible to receive Plan Awards,
unless such person serves on 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
15
<PAGE> 18
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 Option 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 Internal Revenue
Code.
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 form 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 the 1991 Plan) of the Company, as the case may be, for reasons other
than Permanent and Total Disability or Death (as defined in the 1991 Plan), 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 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 the Employee
Retirement Income Security Act of 1974, as amended ("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
16
<PAGE> 19
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 any
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 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 Permanent and Total Disability or death, 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 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
17
<PAGE> 20
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 TO 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
decease 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 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
ERISA.
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 taxable 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
18
<PAGE> 21
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, executive officers, directors and Ten Percent
Shareholders who have not yet 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) 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
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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 Shares, the
Participant sells such Shares, the 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 of 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.
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP has been the Company's independent public
accountant since fiscal year 1979. Representatives of Arthur Andersen LLP 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.
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.
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SHAREHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Any shareholder desiring to present a proposal to the shareholders at
the 1997 Annual Meeting of Shareholders, which currently is expected to be
scheduled on March 11, 1997, must transmit such proposal to the Company so that
it is received by the Company at its principal executive offices on or before
October 1, 1996. All such proposals should be in compliance with applicable
Securities and Exchange Commission regulations.
By Order of the Board of Directors,
James C. Swaim, Secretary
January 29, 1996
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