<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
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 sec. 240.14a-11(c) or sec. 240.14a-12
Farah, Inc.
- --------------------------------------------------------------------------------
(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/ No Fee Required.
/ / 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 Rules 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
Rules 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 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 Fairmont Hotel, Terrace Room, 1717 N. Akard, Dallas, Texas
75201, on March 11, 1997, 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 amend the Company's
Articles of Incorporation to increase the number of authorized
shares of Common Stock and to authorize a new class of Preferred
Stock;
(3) to consider and vote upon the Company's 1996 Non-Employee
Directors Stock Option Plan;
(4) to ratify the selection of Coopers & Lybrand, L.L.P. as the
Company's independent public accountants for the fiscal year
ending November 2, 1997; and
(5) to transact such other business as may properly be brought before
the Annual Meeting or any adjournment thereof.
The shareholders of record at the close of business on January 24, 1997,
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
/s/ KAREN S. CASTILLO, SECRETARY
--------------------------------------
Karen S. Castillo, Secretary
January 31, 1997
<PAGE> 3
[FARAH LOGO]
8889 GATEWAY WEST - EL PASO, TEXAS 79925
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MARCH 11, 1997
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 Fairmont Hotel,
Terrace Room, 1717 N. Akard, Dallas, Texas 75201, on March 11, 1997, 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 Annual Meeting and this Proxy Statement. The
persons named as proxies are Richard C. Allender and Russell G. Gibson, each of
whom is presently an executive officer of the Company.
This Proxy Statement and the related form of proxy are being mailed on
or about January 31, 1997, to all shareholders of record on January 24, 1997.
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 each of the other
proposals, 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 $7,500. 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 10,235,371 shares of Common Stock
outstanding on January 24, 1997, 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 present, the
affirmative vote of two-thirds (66.67%) of all the outstanding shares of Common
Stock shall be the act of the shareholders with respect to Proposal 2.
Proposals 3 and 4 require the affirmative vote of a majority of the shares of
Common Stock present. Once a quorum is present at a duly organized and
convened meeting, shareholders may continue to conduct business notwithstanding
the withdrawal of enough shareholders to leave less than a quorum. 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. If a broker has not received specific instructions with
respect to shares held for beneficial owners, the votes to which those shares
are entitled are deemed "broker non-votes." 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 and will have no effect with respect to Proposals 1, 3 and
4. With respect to Proposal 2, broker non-votes will be counted as votes
against the proposal.
ANNUAL REPORT
The annual report for the Company's fiscal year ended November 3,
1996, including audited financial statements, is being furnished with this
Proxy Statement to shareholders of record as of January 24, 1997. 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 13, 1997, to be beneficial owners of more than five percent (5%)
of the outstanding shares of Common Stock:
2
<PAGE> 5
<TABLE>
<CAPTION>
AMOUNT OF
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP CLASS
----------------------- ---------- ----------
<S> <C> <C>
Georges Marciano 765,900(1) 7.5%
Georges Marciano Trust
9756 Wilshire Boulevard
Beverly Hills, California 90212
Merrill Lynch & Co., Inc. 1,172,200(2) 11.5%
World Financial Center, North Tower
250 Vesey Street
New York New York 10281
Reich & Tang Asset Management L.P.(3) 926,500 9.1%
600 Fifth Avenue
New York, New York 10020
Strome Susskiend Investment Management(3) 684,400 6.7%
100 Wilshire Blvd.
15th Floor
Santa Monica, California 90401
Dimensional Fund Advisors, Inc(3) 542,100 5.3%
1299 Ocean Avenue
11th Floor
Santa Monica, California 90401
</TABLE>
_________________
(1) According to Amendment No. 18 to Schedule 13D dated January
13, 1997, Georges Marciano has sole voting and dispositive
power with respect to 765,900 shares of Common Stock
beneficially owned by the Georges Marciano Trust and by
various trusts of which Mr. Marciano is the sole trustee
(collectively with certain affiliates of such persons, the
"Marciano Interests"). 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 the Exchange Act.
(2) The following entities are the beneficial owners of, and have
shared voting and dispositive power with respect to, 1,172,200
shares of Common Stock: Merrill Lynch & Co., Inc.; Merrill
Lynch Group, Inc.; Princeton Services, Inc.; Fund Asset
Management, L.P.; and Merrill Lynch Special Value Fund, Inc.
(3) According to information provided by such persons as of
January 13, 1997.
3
<PAGE> 6
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth the number of shares of Common Stock
beneficially owned by each director, each named executive officer and by all
directors and executive officers as a group as of January 13, 1997.
<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 215,650 171,900 2.1%
Jackie L. Boatman 65,615 64,500 (2)
Clark L. Bullock 4,500 4,500 (2)
Christopher L. Carameros 7,000 4,500 (2)
John D. Curtis -- --
Russell G. Gibson 25,000 25,000 (2)
Sylvan Landau 17,000 12,000 (2)
Michael R. Mitchell 101,328 92,500 (2)
Timothy B. Page 45,000 45,000 (2)
Charles J. Smith 4,500 4,500 (2)
All directors and
executive officers
as a group (10 persons) 485,593 424,400 4.8%(3)
- ------------------
</TABLE>
(1) The shares of Common Stock that are either subject to options
that become exercisable within 60 days or subject to
restricted stock awards that vest within 60 days are also
included in the column entitled "Amount of Beneficial
Ownership."
(2) Less than one percent of the outstanding shares of Common
Stock.
(3) Percentage considers an aggregate of 424,400 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.
4
<PAGE> 7
PROPOSAL ONE: ELECTION OF DIRECTORS
On December 3, 1996, the Board of Directors amended the bylaws of the
Company to provide for a classified Board of Directors divided into three
classes. At the Annual Meeting, shareholders will elect two directors to serve
in Class I, three directors to serve in Class II, and three directors to serve
in Class III. Class I will serve a three-year term, expiring at the annual
meeting in 2000. Class II will serve for a one-year term, expiring at the
annual meeting in 1998. Class III will serve for a two-year term, expiring at
the annual meeting in 1999. Each of the persons listed below has been
nominated for election to the Board of Directors to serve in the Class set
opposite his name.
<TABLE>
<CAPTION>
Director Class
-------- -----
<S> <C>
Richard C. Allender I
Clark L. Bullock II
Christopher L. Carameros III
John D. Curtis I
Sylvan Landau III
Michael R. Mitchell II
Timothy B. Page III
Charles J. Smith II
</TABLE>
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/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 UNANIMOUSLY 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 51, 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 48, has been a director of the Company since March 1994.
For the last eight 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 43, 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.
5
<PAGE> 8
JOHN D. CURTIS, age 56, has served on the Board of Directors of the Company
since June, 1996. Mr. Curtis has served on the Board of Directors of Jayhawk
Acceptance Corporation since October, 1995. Since November, 1995, Mr. Curtis has
been the President of First Extended Service Corporation. Prior to joining
First Extended Service Corporation, Mr. Curtis was a partner in the law firm of
Baker & McKenzie from November 1992 until October 1995. Prior to November 1992,
he was a partner in the Dallas, Texas law firm of Johnson & Gibbs, P.C.
SYLVAN LANDAU, age 71, 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 43, 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., Inc. in March 1994.
TIMOTHY B. PAGE, age 44, 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 70, 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.
EXECUTIVE OFFICERS
The executive officers of the Company consist of Richard C. Allender,
Jackie L. Boatman, Michael R. Mitchell, Timothy B. Page, Russell G. Gibson and
Karen S. Castillo. Messrs. Allender, Mitchell, and Page are currently
directors of the Company. See "Nominees for Election as Directors."
JACKIE L. BOATMAN, age 38, 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.
KAREN S. CASTILLO, age 42, has been Secretary of the Company since March 1996.
Ms. Castillo has been employed by the Company since March 1973 in various
capacities.
RUSSELL G. GIBSON, age 44, has served as Executive Vice President, Chief
Financial Officer, Treasurer and Assistant Secretary of the Company since March
1996. Mr. Gibson served as Senior Vice President, Financial Planning and
Reporting of Farah U.S.A., Inc. from November 1994 until March 1996. Prior to
November 1994, Mr. Gibson served as Controller of El Paso Electric Company,
Inc., which filed a petition under the Federal bankruptcy laws in January
1992.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Company has an Executive Committee which during fiscal year 1996
was comprised of Richard C. Allender (Chairman), Christopher L. Carameros,
Timothy B. Page and Charles J. Smith. The Executive Committee
6
<PAGE> 9
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 two times during fiscal year 1996.
The Company has an Audit Committee which consisted of Christopher L.
Carameros (Chairman), Clark L. Bullock, Edward J. Monahan and Charles J. Smith
until Mr. Monahan's resignation as a director of the Company effective December
31, 1995. After January 1, 1996, the Audit Committee consisted of Christopher
L. Carameros (Chairman), Clark L. Bullock and Charles J. Smith until September
11, 1996, when Mr. Carameros resigned as a member of the Committee. After
September 11, 1996, the Audit Committee consisted of John D. Curtis (Chairman),
Clark L. Bullock and Charles J. Smith. 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 1996.
The Company has a Nominating Committee which during fiscal year 1996
consisted of Charles J. Smith (Chairman), Richard C. Allender and Sylvan
Landau. 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 and unanimously
voted on resolutions once during fiscal year 1996. 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/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 1996 consisted of Charles J. Smith (Chairman), Clark L. Bullock and
Christopher L. Carameros. Christopher L. Carameros resigned from the Stock
Option and Compensation Committee on September 11, 1996. 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 Company. The Stock Option
and Compensation Committee met or unanimously voted on resolutions five times
during fiscal year 1996.
The full Board of Directors met or unanimously voted on resolutions
four times during fiscal year 1996. 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 1996.
7
<PAGE> 10
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 named executive
officers during fiscal years 1994-1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------------------------------------------ ---------------------------------------------
OTHER RESTRICTED
NAME AND ANNUAL STOCK ALL OTHER
PRINCIPAL POSITION FISCAL YEAR SALARY BONUS COMPENSATION(1) AWARDS(2) OPTIONS COMPENSATION
- ------------------ ----------- -------- -------- --------------- ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard C. Allender, 1996 $344,083 $112,000 $16,379 $0 140,000 $131,014(3)
President & Chief 1995 300,000 0 15,000 0 0 128,050(3)
Executive Officer 1994 300,000 164,850 15,000 1,402,500 45,000 127,750(3)
Jackie L. Boatman, 1996 $202,217 $40,000 $10,105 $0 45,000 $25,227(4)
Executive Vice 1995 190,020 10,000 9,501 0 7,000 26,060(4)
President, Farah 1994 160,425 47,100 8,271 0 14,000 25,795(4)
U.S.A., Inc.
Russell G. Gibson,(5) 1996 $141,068 $20,000 $7,191 $0 30,000 $25,221(6)
Executive Vice
President and Chief
Financial Officer
Michael R. Mitchell, 1996 $249,718 $60,000 $12,170 $0 70,000 $35,976(7)
President, Farah 1995 240,000 0 12,000 0 0 36,510(7)
U.S.A., Inc. 1994 204,588 89,490 14,438 82,500 35,000 36,167(7)
Timothy B. Page,(8) 1996 $240,800 $40,000 $0 $0 35,000 $21,334(9)
Executive Vice 1995 160,000 0 0 0 1,340(10)
President and Chief
Operating Officer
</TABLE>
_________________________________
(1) Such amounts represent the Company's contribution, pursuant to
separate Deferred Compensation Agreements between the Company
and the Company's Chief Executive Officer and each other
executive officer, to a deferral account on behalf such
officer.
(2) The number and value of restricted stock holdings as of
November 3, 1996 are as follows:
<TABLE>
<CAPTION>
VESTING
--------------------------------------
Fiscal
Executive Officer Number Value($) Year Number
----------------- ------ ----- ------ ------
<S> <C> <C> <C> <C>
Richard C. Allender 25,000 175,000 1997 12,500
1998 12,500
</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
(3) Includes $4,500 for each of fiscal years 1996, 1995 and 1994,
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"), $5,514, $2,550 and $2,250
for fiscal years 1996, 1995 and 1994, respectively, for life
insurance premiums paid by the Company on behalf of Mr.
Allender, and $121,000 for each of fiscal years 1996, 1995 and
1994, for reverse split dollar life insurance premiums paid
by the Company on behalf of Mr. Allender.
(4) Includes $4,500 for each of fiscal years 1996, 1995 and 1994,
contributed by the Company on behalf of Mr. Boatman pursuant
to the 401(k) Plan, $727, $1,560 and $1,295 for fiscal years
1996, 1995 and 1994, respectively, for life insurance premiums
paid by the Company on behalf of Mr. Boatman, and $20,000 for
each of fiscal years 1996, 1995 and 1994, for reverse split
dollar life insurance premiums paid by the Company on behalf
of Mr. Boatman.
(5) Mr. Gibson was appointed Executive Vice President and Chief
Financial Officer of the Company in March 1996. See
"Directors and Executive Officers--Executive Officers."
(6) Includes $4,472 for fiscal year 1996, contributed by the
Company on behalf of Mr. Gibson pursuant to the 401(k) Plan
and $749 for fiscal year 1996, for life insurance premiums
paid by the Company on behalf of Mr. Gibson and $20,000 for
fiscal year 1996 for reverse split dollar life insurance
premiums paid by the Company on behalf of Mr. Gibson.
(7) Includes $4,500 for each of fiscal years 1996, 1995 and 1994,
contributed by the Company on behalf of Mr. Mitchell pursuant
to the 401(k) Plan, $1,476, $2,010 and $1,667, for fiscal
years 1996, 1995 and 1994, respectively, for life insurance
premiums paid by the Company on behalf of Mr. Mitchell, and
$30,000 for each of fiscal years 1996, 1995 and 1994, for
reverse split dollar life insurance premiums paid by the
Company on behalf of Mr. Mitchell.
(8) Mr. Page became an executive officer of the Company in March
1995. See "Directors and Executive Officers--Nominees for
Election as Directors."
(9) Includes $1,334 for fiscal year 1996, for life insurance
premiums paid by the Company on behalf of Mr. Page and $20,000
for fiscal year 1996, for reverse split dollar life insurance
premiums paid by the Company on behalf of Mr. Page.
(10) This amount is for life insurance premiums paid by the Company
on behalf of Mr. Page in fiscal year 1995.
9
<PAGE> 12
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table summarizes all individual grants of stock options
made during fiscal year 1996 to each of the named executive officers of the
Company.
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates
of Stock Price
Appreciation
Individual Grants for Option Term
- -------------------------------------------------------------------------------------- ---------------------------
Number of
Securities
Underlying % of Total
Options/ Options/SARs Exercise
SARs Granted to or Base
Granted Employees in Price Date of Expiration
Name (#) Fiscal Year ($/SH)(1) Grant Date 5%($)(2)(3) 10%($)(2)(3)
- -------- -------- ------------ ------ ------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard C. Allender 40,000 9.5 5.375 4/4/96 4/4/06 135,212 342,655
President & Chief 100,000 2.5 6.000 8/12/96 8/12/06 377,337 956,245
Executive Officer
Jackie L. Boatman 20,000 4.7 5.375 4/4/96 4/4/06 67,606 171,327
Executive Vice 25,000 6.2 6.375 9/11/96 9/11/06 100,230 254,003
President, Farah,
U.S.A., Inc.
Russell G. Gibson 15,000 3.5 5.375 4/4/96 4/4/06 50,705 128,495
Executive Vice 15,000 3.7 6.375 9/11/96 9/11/06 60,138 152,402
President and Chief
Financial Officer
Michael R. Mitchell 30,000 7.1 5.375 4/4/96 4/4/06 101,409 256,991
President, Farah, 40,000 9.9 6.375 9/11/96 9/11/06 160,368 406,404
U.S.A., Inc.
Timothy B. Page 20,000 4.7 5.375 4/4/96 4/4/06 67,606 171,327
Executive Vice 15,000 3.7 6.375 9/11/96 9/11/06 60,138 152,402
President and Chief
Operating Officer
</TABLE>
- ---------------------------
(1) The exercise price is the market price on the date of grant.
The market price is the closing price of the Common Stock as
reported by the New York Stock Exchange, Inc.
(2) These are hypothetical values using assumed growth as
prescribed by the Securities and Exchange Commission.
(3) The potential realizable value is calculated from the market
price of the option on the date of grant appreciated at the
specified rate (i.e. 5% or 10%) over the term of the option
minus the exercise price of the option.
10
<PAGE> 13
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END VALUES
The following table shows aggregate exercises of options during the
fiscal year ended November 3, 1996, by each of the named executive officers,
and the aggregate fiscal year-end value of the unexercised options held by the
named executive officers.
<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 - - 159,400/95,000 88,050/82,500
Jackie L. Boatman - - 64,500/22,500 36,188/24,063
Russell G. Gibson - - 25,000/15,000 23,750/16,685
Michael R. Mitchell - - 92,500/35,000 39,688/36,875
Timothy B. Page - - 19,000/17,500 20,938/20,938
</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. On June 4, 1996, the Board of
Directors increased Mr. Allender's base salary to $365,000 per year.
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 consent, from the city where
his office is located immediately prior to the change in control.
11
<PAGE> 14
If Mr. Allender's employment is terminated 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 and Michael R. Mitchell, which were amended and restated in
August 1994. The term of the Employment Agreements were originally for a term
of three-years, but they were both extended in February 1996 to be in effect
until March 1, 1998. The Employment Agreements provide for a minimum annual
salary of $175,000 and $225,000, 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 and Mitchell not to
exceed $20,000 and $30,000, respectively, per year. The terms of Messrs.
Boatman's and Mitchell'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 or Mitchell is terminated by reason of incapacity,
they shall be entitled to their annual salary for a period of 12 months. If
Messrs. Boatman or Mitchell's employment is terminated by the Company other
than for cause, death or disability, or by Messrs. Boatman or Mitchell for Good
Reason after a change in control, the Company shall be obligated to pay Mr.
Mitchell his 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.
In March 1996, the Company entered into a one-year employment contract
with Russell G. Gibson. Mr. Gibson's compensation is payable monthly, and his
minimum annual salary is to be approved by the Board of Directors. Mr.
Gibson's annual salary is currently $170,000.
Effective as of November 1, 1996, the Board of Directors increased
Messrs. Boatman's, Gibson's, Mitchell's and Page's base salary to $225,000,
$170,000, $280,000, and $241,000, respectively, per year.
COMPENSATION OF DIRECTORS
Each director who is not an officer or employee of the Company
receives $1,000 per month 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.
No payment is made for attendance of meetings by phone. 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.
During fiscal year 1996, the Company engaged Messrs. Landau and Smith
to provide consulting services. The Company paid Messrs. Landau and Smith
$38,780 and $3,000, respectively, during fiscal year 1996 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"). The
1988 Plan provided 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
12
<PAGE> 15
date on which it is granted. The exercise price of the options under the 1988
Plan is the fair market value of the Common Stock at the time the option is
granted. On September 1, 1996, the Company's Board of Directors adopted,
subject to approval by the Company's shareholders, the Company's 1996 Non-
Employee Director Stock Option Plan, which is discussed under Proposal 3.
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/her options for a
period of two years after he or she ceases to be a director, and his/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/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 12, 1996, the date of the 1996 Annual Meeting of
Shareholders, options to acquire 1,500 shares of Common Stock at $6.00 per
share were granted to each of Clark L. Bullock, Christopher L. Carameros,
Sylvan Landau and Charles J. Smith. Pursuant to the Company's 1996
Non-Employee Director Stock Option Plan, which is discussed in Proposal 3,
Clark L. Bullock, Christopher L. Carameros, John D. Curtis, Sylvan Landau and
Charles J. Smith were each granted, subject to shareholder approval, the
following numbers of options: on September 30, 1996, options to acquired 5,000
shares of Common Stock at $7.375 per share, and on December 31, 1996, options
to acquire 2,500 shares of Common Stock at $7.75 per share.
STOCK OPTION AND COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The Stock Option and Compensation Committee was composed of Clark L.
Bullock, Christopher L. Carameros and Charles J. Smith until September 1996,
after which it consisted of Clark L. Bullock, John D. Curtis and Charles J.
Smith. Mr. Carameros is the only person who served as a member of the Stock
Option and Compensation Committee and who was formerly an officer of the
Company.
CERTAIN TRANSACTIONS
In 1996, the Company entered into a joint venture agreement to form
Global Sourcing Services, Inc., a Cayman Islands corporation ("Global
Sourcing"). Global Sourcing is owned 50% by the Company and the other 50% is
owned by an unrelated corporation controlled by individuals involved in the
manufacturing of apparel in Mexico. The purpose of the joint venture is to
provide production sourcing in Mexico for Farah U.S.A. Global Sourcing is
currently negotiating a contract with a corporation in Mexico controlled by the
other joint venture partner. Christopher L. Carameros, a member of the
Company's Board of Directors, has a 10% profits interest in the Mexican
corporation with whom Global Sourcing intends to contract. During fiscal 1996,
the Company paid this Mexican corporation $154,000 for other production
sourcing. In December 1996, the Company guaranteed approximately $1.3 million
of indebtedness of the Mexican corporation and Global Sourcing, the proceeds of
which were used to acquire equipment to be used in providing production
sourcing.
13
<PAGE> 16
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, 1991.
[Graph]
14
<PAGE> 17
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 Russell G. Gibson
and Timothy B. Page who were not executive officers at the time. The
employment agreements for Richard C. Allender, the Company's Chief Executive
Officer, and the executive officers, excluding Mr. Gibson, were amended in
fiscal year 1995 but the amendment 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. Mr. Gibson's agreement gives the Board full
discretion in setting salary levels. The annual salary levels in the
agreements were based in part on advice received from an outside consulting
firm retained at the time the employment contracts were entered into, 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. The Committee did not consult with an outside consulting
firm in connection with changes in base compensation or grants of long-term
compensation for fiscal year 1996.
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.
Annual salary is determined by the skills and experience required by
the position, the impact of the individual on the Company, the performance of
the individual and as discussed above, the Company's existing employment
agreements. In fiscal year 1996, the base salary for Mr. Allender was
increased to $365,000 per year. Effective as of November 1, 1996, the base
salaries for Messrs. Boatman, Gibson, Mitchell and Page were increased to
$225,000, $170,000, $280,000, and $241,000 per year. Such adjustments were
based on the discretionary judgment of the Committee.
Annual incentive compensation is based on the discretionary judgement
of the Committee after recommendations are made by the Company's Chief
Executive Officer. In fiscal year 1996, the Committee awarded cash bonuses to
Messrs. Allender, Boatman, Gibson, Mitchell and Page of $112,000, $40,000,
$20,000, $60,000 and $40,000. In addition, the Committee made stock option
awards to each of the Company's executive officers in fiscal year 1996,
including, a grant to Mr. Allender of an option to acquire 100,000 shares of
the Company's common stock. The cash bonuses and stock option awards were made
by the Committee because of the improved financial performance of the Company
in fiscal year 1996. The net income for fiscal year 1996 was $6.8 million as
opposed to a loss in fiscal year 1995 of $12.9 million. The Company's
management undertook substantial costs savings measures in fiscal year 1996 to
return the Company to profitability and adopted a strategic plan for the
Company's operations which the Committee believes should position the Company
well for the next several years. The Committee believes the cash bonuses
compensate the Company's executive officers for their performance in fiscal
15
<PAGE> 18
1996 and the stock option awards will align the interests of the Company's
shareholders with the interest of management through long-term appreciation in
the Company's common stock. The amount of the cash bonuses and stock option
awards were based on the discretionary judgment of the Committee.
By: John D. Curtis, Chairman
Clark L. Bullock
Charles J. Smith
PROPOSAL TWO: INCREASE OF THE NUMBER OF AUTHORIZED SHARES
OF COMMON STOCK AND AUTHORIZATION OF PREFERRED STOCK
GENERAL
The Board of Directors has determined that it is in the best interest
of the Company and the shareholders to amend the Articles of Incorporation to
increase the number of authorized shares of Common Stock and provide for a
class of preferred stock (the "Preferred Stock"). The Board of Directors has
approved and adopted an amendment to Article Four of the Company's Articles of
Incorporation to allow the Board to issue a class of Preferred Stock. The full
text of the amended Article Four is set forth as follows:
ARTICLE FOUR
The aggregate number of shares that the Corporation shall have
the authority to issue is thirty million (30,000,000) shares,
consisting of twenty seven million, five hundred thousand
(27,500,000) shares of Common Stock, no par value, and two
million five hundred thousand (2,500,000) shares of Preferred
Stock, $0.01 par value.
The Preferred Stock may be issued from time to time in one or
more series; provided, however that all shares of the same
series shall be identical in all respects. The Board of
Directors is hereby authorized to fix by resolution or
resolutions, the designations, preferences, limitations and
relative rights, including voting rights, of the shares of any
series so established. Any of the designations, preferences,
limitations, and relative rights, including voting rights, of
any series may be made dependent upon facts ascertainable
outside these Articles of Incorporation, which facts may
include future acts of the Corporation, provided that the
manner in which such facts shall operate upon the
designations, preferences, limitations, and relative rights,
including voting rights, of such series is clearly and
expressly set out in the resolution or resolutions
establishing the series of Preferred Stock. The Board of
Directors is further authorized to increase or decrease the
number of shares within each such series; provided, however,
that the Board of Directors may not decrease the number of
shares within a series to less than the number of shares
within such series that are then issued. In case the number
of shares of a series shall be so decreased, the shares by
which the series is decreased shall resume the status of
authorized but unissued shares of the class of shares from
which such series was established. If no shares of a series
of Preferred Stock established by the Board of Directors are
outstanding, the Board of Directors shall have authority to
eliminate such series, and the shares of such eliminated
series shall resume the status of authorized but unissued
shares of the class of shares from which such series was
established.
16
<PAGE> 19
PURPOSE AND EFFECT OF INCREASING THE NUMBER OF AUTHORIZED SHARES OF COMMON
STOCK
The Company's Articles of Incorporation currently authorize the
issuance of up to twenty million (20,000,000) shares of Common Stock. As of
January 13, 1997, 10,235,371 shares of Common Stock were issued and outstanding
and an additional 1,360,386 shares of Common Stock were reserved for future
issuance, including issuance in connection with the Company's outstanding stock
options, leaving a balance of 8,404,243 shares of Common Stock available for
other purposes. If this amendment to the Company's Articles of Incorporation
is adopted by the shareholders at the Annual Meeting, the Company will have
15,904,243 shares of Common Stock available for issuance in addition to the
shares of Common Stock currently reserved for future issuance. The Company
does not currently have any agreements or understandings regarding the issuance
of any additional shares of Common Stock.
The Board of Directors believes that increasing the number of
authorized shares of Common Stock will provide the Company with additional
flexibility for possible future financing transactions, acquisitions, employee
benefit plans, and other corporate purposes. Having additional authorized
shares of Common Stock available may allow the Company to take advantage of
opportunities that arise and that require prompt action. In such cases, the
Company can issue available authorized shares of Common Stock without the delay
and expense of seeking shareholder approval each time. Future authorization
for the issuance of such Common Stock by a vote of the shareholders would not
be solicited prior to such issuance unless required by law or regulation of
applicable authority. In the event that shares of such Common Stock were
issued, other than pursuant to a stock split or stock dividend, the percentage
ownership of the Company of each shareholder would be proportionately reduced,
but no other rights of shareholders would be affected. Shareholders of the
Company have no preemptive right to subscribe for or purchase any additional
shares of Common Stock issued by the Company.
PURPOSE AND EFFECT OF THE SERIES PREFERRED STOCK
The Company's Articles of Incorporation currently do not authorize the
issuance of any shares of Preferred Stock. The Board of Directors believes
that a class of Preferred Stock will add flexibility to the Company's capital
structure by allowing the Company to issue Preferred Stock for such purposes as
the public or private sale of Preferred Stock for cash as a means of obtaining
additional capital for use in the Company's business and operations, and
issuance of Preferred Stock as part or all of the consideration required to be
paid by the Company for acquisitions of other businesses or properties. If the
proposed amendment is approved, the Board of Directors would be empowered to
authorize the issuance of the Preferred Stock from time to time for any proper
corporate purpose without the delay and expense of seeking shareholder approval
each time, unless required by applicable laws or regulations or stock exchange
rules. The Company does not currently have any agreements, understandings or
arrangements which would result in the issuance of any shares of Preferred
Stock.
The amendment would authorize the Board of Directors to determine,
among other things, with respect to each series of Preferred Stock that may be
issued: (a) the distinctive designation and number of shares constituting such
series; (b) whether, and upon what terms and conditions, the shares of that
series would be redeemable; (c) whether dividends would be cumulative,
noncumulative, or partially cumulative; (d) whether the shares will have
preference over any other class, classes or series of shares as to the payment
of dividends; (e) whether the shares will have preference in the assets of the
Company over any other class, classes or series of shares upon the voluntary or
involuntary liquidation of the Company; (f) whether, and upon what terms and
conditions the shares of that series would be exchangeable, at the option of
the corporation, the shareholder or another person, or upon the occurrence of a
designated event, for shares, obligations, indebtedness, evidence of ownership,
rights to purchase securities of the corporation or one or more other domestic
or foreign corporations or other entities, or for other property, or for any
combination of the foregoing; (g) whether, and upon what terms and conditions,
the shares of that series would be convertible into shares of any other class
or series; (h) whether the holders of such securities would have voting rights
and the extent of those voting rights; and (i) whether any of the designations,
preferences, limitations, and relative rights, including voting rights, of that
series is dependent upon facts ascertainable outside the Articles of
Incorporation; provided, however, that the manner in which such facts operate
upon the series of shares must be clearly and expressly set forth. Each series
of Preferred Stock could, as determined by the Board of Directors at the
17
<PAGE> 20
time of issuance, rank, with respect to dividends and redemption and
liquidation rights, senior to the Company's Common Stock. Holders of the
Company's Common Stock have no preemptive right to purchase or otherwise
acquire any Preferred Stock that may be issued in the future.
It is not possible to state the precise effect of the authorization of
the Preferred Stock upon the rights of holders of Common Stock until the Board
of Directors determines the respective preferences, limitations and relative
rights of the holders of one or more series of the Preferred Stock. However,
such effect might include: (a) reduction of the amount otherwise available for
payment of dividends on Common Stock, to the extent dividends are payable on
any issued shares of Preferred Stock, and restrictions on dividends on Common
Stock if dividends on the Preferred Stock are in arrears; (b) dilution of the
voting power of the Common Stock to the extent that the Preferred Stock has
voting rights; and (c) the holders of Common Stock not being entitled to share
in the Company's assets upon liquidation until satisfaction of any liquidation
preference granted to the Preferred Stock.
The authorization of Preferred Stock may be viewed as having the
effect of discouraging an unsolicited attempt by another person or entity to
acquire control of the Company. Issuances of authorized preferred shares can
be implemented, and have been implemented by some companies in recent years
with voting or conversion privileges intended to make acquisition of the
company more difficult or more costly. Such an issuance could discourage or
limit the shareholders' participation in certain types of transactions that
might be proposed (such as a tender offer), whether or not such transactions
were favored by the majority of the shareholders, and could enhance the ability
of officers and directors to retain their positions.
VOTE REQUIRED FOR APPROVAL AND RECOMMENDATION
The Board of Directors believes that this proposed amendment to
Article Four is in the best interest of the Company and the shareholders.
Approval of the proposed amendment to Article Four of the Articles of
Incorporation will require an affirmative vote of the holders of sixty-six and
two-thirds percent (66-2/3%) of the issued and outstanding shares of Common
Stock. Unless otherwise specified, shares represented by proxies will be voted
for the proposed amendment.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THIS
PROPOSAL.
PROPOSAL THREE: APPROVAL OF THE COMPANY'S
1996 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
GENERAL AND OTHER MATTERS
On September 11, 1996, the Company's Board of Directors adopted,
subject to approval by the Company's shareholders, the Company's 1996 Non-
Employee Directors Stock Option Plan (the "Plan") and reserved for issuance
thereunder 300,000 shares of Common Stock. The text of the Plan is attached
hereto as Appendix A. The material features of the Plan are discussed below,
but the description is subject to, and is qualified in its entirety by, the
full text of the Plan.
The purpose of the Plan is to provide non-employee Directors with a
proprietary interest in the Company through the granting of options which will
(a) increase the interest of such Directors in the Company's welfare, (b)
furnish incentives to non-employee Directors to continue their services for the
Company and (c) provide a means through which the Company may attract able
persons to serve on the Board of Directors. In furtherance of this purpose,
the Plan authorizes the granting of nonqualified stock options to purchase
Common Stock to non-employee Directors. For purposes of the Plan, a Director
is a non-employee Director if he or she is not an employee of the Company or
any of its subsidiaries. Currently, the Company has five non-employee
Directors, including Messrs. Bullock, Carameros, Curtis, Landau and Smith.
The Plan will be administered by the Board of Directors. The Board
may from time to time prescribe and amend such rules and procedures, consistent
with the terms of the Plan, as may be advisable in its opinion in the
administration of the Plan, and subject to the terms of the Plan shall
prescribe the provisions of the stock option
18
<PAGE> 21
agreements to be issued thereunder and make all other determinations necessary
for administering the Plan and the stock option agreements. The stock acquired
upon exercise of options granted under the Plan will be the Company's Common
Stock, which may be either authorized and unissued or treasury stock.
Pursuant to the Plan, and subject to shareholder approval,
non-employee Directors shall be granted options to purchase shares of Common
Stock as follows: (a) each non-employee Director was granted an option to
purchase 5,000 shares of Common Stock of the Company on September 30, 1996, and
thereafter shall be granted an option to purchase 2,500 shares of Common Stock
of the Company on the last day of March, June, September and December of each
year in which the Plan is in effect. The exercise price per share for all
options shall be equal to the average of the high and low selling price of
Common Stock of the Company on the date on which the options were granted (the
"Grant Date"). Fifty percent of each option granted under the Plan will vest
and become exercisable on the first anniversary of the Grant Date of such
option. The remaining fifty percent of each option granted under the Plan
shall vest and become exercisable on the second anniversary of the Grant Date
of such option.
Each option will remain exercisable for a period of five years after
the date on which it is granted. The unexercised portion of any option granted
to a non-employee Director under the Plan will automatically terminate sixty
days after the date on which such person ceases to be Director, except, in the
case of the death or disability of such person, the option will remain
exercisable for a period of 180 days by his/her estate or heirs in the event of
death or by such person or his/her personal representative in the event of
disability.
In the event of a proposed dissolution, merger or sale of
substantially all of the Company's assets, all options shall terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Board; provided, however, that, in such instances, the Board
may, in its sole discretion, declare that any option shall terminate as of a
date fixed by the Board and give each Non-employee Director the right to
exercise his/her option as to all or any part of the shares covered by such
option, including the shares of Common Stock as to which the option would not
otherwise be exercisable at that time. The Company's shareholders will not
have any preemptive rights to purchase or subscribe for the shares reserved for
issuance under the Plan. If any option granted under the Plan should expire or
terminate for any reason, other than by reason of having been exercised in
full, the unpurchased shares subject to that option will again be available for
issuance pursuant to the Plan.
Subject to any required action by the shareholders of the Company, the
Plan provides for adjustment of the number of shares authorized for issuance
under the Plan, the number of shares subject to outstanding options and the
exercise price of outstanding options in the event of any consolidation of
shares, stock dividend or recapitalization of the Common Stock of the Company.
In all other circumstances, the Board may not, without shareholder approval,
increase the total number of shares for which options may be granted, change
the manner of determining the exercise price, change the class of persons
eligible to participate in the Plan or change the provisions relating to the
administration of the Plan by the Board.
No option may be granted under the Plan after August 31, 2001, and any
option outstanding on such date will remain outstanding until it has either
expired or has been exercised. If this Plan is not approved by the holders of
a majority of the outstanding shares of Common Stock present or represented by
proxy and entitled to vote at the Annual Meeting, any options granted under the
Plan shall be null, void and of no force and effect as of their Grant Date, and
the Plan shall terminate.
FEDERAL INCOME TAX CONSEQUENCES
The Plan is not qualified under the provisions of Section 401(a) of
the Internal Revenue Code of 1986, as amended, nor is it subject to any of the
provisions of the Employee Retirement Income Security Act of 1974, as amended.
An optionee granted an option under the Plan will generally recognize, at the
date of exercise of such option, ordinary income equal to the difference
between the exercise price and the fair market value of the shares of Common
Stock subject to the option. This taxable ordinary income will be subject to
Federal income tax withholding and the Company will be entitled to a deduction
for Federal income tax purposes equal to the amount of ordinary income
recognized by the optionee, provided that such amount constitutes an ordinary
and necessary business expense to the Company and is reasonable.
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<PAGE> 22
VOTE REQUIRED FOR APPROVAL AND RECOMMENDATION
The Board of Directors approved the Directors Plan and is recommending
its approval by the shareholders because it believes that the Directors Plan,
as proposed, is in the Company's best interests. The affirmative vote of the
holders of a majority of the outstanding shares of Common Stock, present in
person or represented by proxy, will be required for approval of the Directors
Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF
THE 1996 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN.
PROPOSAL FOUR: RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
Upon the recommendation of the Board of Directors, the Board has
reappointed Coopers & Lybrand, L.L.P. as independent public accountants for the
Company to audit the consolidated financial statements of the Company and its
subsidiaries for the fiscal year ending November 2, 1997 ("Fiscal 1997").
The Company's Board of Directors recommends the ratification of the
appointment of Coopers & Lybrand, L.L.P. as independent public accountants for
the Company to audit the financial statements of the Company for Fiscal 1997.
If a majority of the shareholders voting at the Annual Meeting at which a
quorum is present, in person or by proxy, should not approve such appointment,
the Board of Directors of the Company will reconsider the appointment of
independent public accountants.
VOTE REQUIRED FOR APPROVAL AND RECOMMENDATION
The affirmative vote of holders of a majority of the outstanding
shares of Common Stock present and voting at the Annual Meeting at which a
quorum is present is required for the reappointment of Coopers & Lybrand,
L.L.P. as the Company's independent public accountants for Fiscal 1997.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS
VOTE FOR THE REAPPOINTMENT OF COOPERS & LYBRAND, L.L.P., AS INDEPENDENT PUBLIC
ACCOUNTANTS OF THE COMPANY FOR FISCAL 1997.
COMPLIANCE WITH SECTION 16(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10 percent of a registered
class of the Company's equity securities, to file with the Securities and
Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company.
Executive officers, directors and greater than 10 percent shareholders are
required by Securities and Exchange Commission regulations to furnish the
Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely upon review of the copies of
such reports furnished to the Company during the year ended November 3, 1996,
no director, officer or beneficial holder of more than ten percent of any class
of equity securities of the Company failed to file on a timely basis reports
required by Section 16(a) of the Exchange Act during the most recent fiscal
year.
CHANGE IN ACCOUNTANTS
The Board of Directors previously requested the Audit Committee of the
Board to seek proposals from other accounting firms with a view toward reducing
the Company's audit and accounting fees. On the basis of the proposals
received, the Board appointed the firm of Coopers & Lybrand L.L.P. as the
Company's principal accountants, replacing the firm of Arthur Andersen L.L.P.
On March 13, 1996, Coopers & Lybrand L.L.P. was informed of the Board's
decision. Also on March 13, 1996, Arthur Andersen L.L.P. was notified of their
dismissal.
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<PAGE> 23
The Board anticipates that this change in accountants will enable the
Company to effect a savings in audit and accounting fees. Arthur Andersen
L.L.P.'s reports on the Company's financial statements for the past two years
have not contained an adverse opinion or a disclaimer of opinion and were not
qualified as to uncertainty, audit scope, or accounting principles. During the
Company's two most recent fiscal years and the period from the end of the
Company's last fiscal year to the date of the Board's dismissal of Arthur
Andersen L.L.P., there have been no disagreements with Arthur Andersen L.L.P.
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not
resolved to the satisfaction of Arthur Andersen L.L.P., would have caused it to
make a reference to the subject matter of the disagreements in connection with
its reports.
INDEPENDENT PUBLIC ACCOUNTANTS
Coopers & Lybrand, L.L.P. has been the Company's independent public
accountant since fiscal year 1996. Representatives of Coopers & Lybrand,
L.L.P. 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 Annual Meeting, it is intended that the persons named in the
accompanying proxy will vote such proxy at their discretion.
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Any shareholder desiring to present a proposal to the shareholders at
the 1998 Annual Meeting of Shareholders, which currently is expected to be
scheduled on March 10, 1998, 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, 1997. All such proposals should be in compliance with applicable
Securities and Exchange Commission regulations.
By Order of the Board of Directors,
/s/ KAREN S. CASTILLO, SECRETARY
--------------------------------------
Karen S. Castillo, Secretary
January 31, 1997
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<PAGE> 24
APPENDIX A
FARAH INCORPORATED
1996 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
1. PURPOSE. The purpose of this 1996 Non-Employee Directors Stock
Option Plan (this "Plan") is to provide certain directors of Farah Incorporated
(the "Company") with a proprietary interest in the Company through the granting
of stock options ("Options") which will
a. increase the interest of the Non-Employee Directors (as defined
below) in the Company's welfare;
b. furnish an incentive to the Non-Employee Directors to continue
their services for the Company; and
c. provide a means through which the Company may attract able
persons to serve on the Board of Directors of the Company (the
"Board").
2. ADMINISTRATION.
a. This Plan shall be administered by the Board. The Board may from
time to time prescribe, amend and rescind such rules, regulations, provisions
and procedures, consistent with the terms of this Plan, as may be advisable in
its opinion in the administration of this Plan, and subject to the terms of
this Plan shall prescribe the provisions of the stock option agreements to be
issued hereunder and make all other determinations and interpretations
necessary or advisable for administrating this Plan and the stock option
agreements.
b. A majority of the Board shall constitute a quorum, and the acts
of a majority of the members present at any meeting at which a quorum is
present, or acts approved in writing by all members of the Board, shall be the
acts of the Board. All decisions, determinations and interpretations of the
Board shall be final and binding on all persons interested in this Plan.
3. PARTICIPANTS. Each director of the Company who is not at the
time of the grant of an Option an officer or employee of the Company (a "Non-
Employee Director") is to be granted Options under the Plan, and upon such
grant will become a participant in the Plan.
4. SHARES AND OPTIONS UNDER THIS PLAN.
a. The stock to be subject to Options granted under this Plan shall
be shares of the Company's common stock, no par value per share (the "Common
Stock"), which may be either authorized and unissued or treasury stock.
b. Subject to any required action by the shareholders of the
Company, the number of shares covered by each outstanding Option, the aggregate
number of shares that have been authorized for issuance under this Plan, and
the exercise price of any outstanding Option, 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,
recapitalization, combination or reclassification of 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. Such adjustment
shall be made by the Board in its sole discretion, which adjustment shall be
final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares subject to an Option.
c. In the event of the proposed dissolution or liquidation of the
Company, or a proposed sale of all or substantially all of the assets of the
Company, or the proposed merger of the Company with or into another
corporation, any Options shall terminate immediately prior to the consummation
of such proposed action, unless otherwise provided by the Board; provided,
however, that the Board may, in the exercise of its sole discretion, in such
instances declare that any Option shall terminate as of a date fixed by the
Board and give each Non-Employee Director
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<PAGE> 25
the right to exercise the participant's Option as to all or any part of the
shares covered by such Option, including shares of Common Stock as to which the
Option would not otherwise be exercisable at that time.
d. The total amount of stock reserved for issuance or sale upon the
exercise of Options shall be 300,000 shares (subject to adjustment in
accordance with Section 4(b)).
e. In the event any outstanding Option for any reason expires, is
canceled or otherwise terminates, the shares allocable to the unexercised
portion of such Option shall again be available for issuance under this Plan.
5. ALLOTMENT OF SHARES. Subject to approval by the Company's
shareholders pursuant to Section 5(b), grants of Options under the Plan shall
be as described in Section 5.
a. Each Non-Employee Director shall be granted an Option to purchase
5,000 shares of Common Stock of the Company on September 30, 1996 and
thereafter shall be granted an Option to purchase 2,500 shares of Common Stock
of the Company on the last day of each March, June, September, and December of
each year in which this Plan is in effect (each such date a "Grant Date").
Each such Option shall be effective as of the Grant Date therefor.
b. The Plan shall be submitted to the Company's shareholders for
approval except as provided below. The Board may grant Options under the Plan
prior to the time of shareholder approval, which Options will be effective when
granted, but if for any reason the shareholders of the Company do not approve
the Plan prior to one year after the date of adoption of the Plan by the Board,
all Options granted under the Plan will be terminated and of no effect, and no
Option may be exercised in whole or in part prior to such shareholder approval.
Notwithstanding the foregoing, in the event that Rule 16b-3 of the General
Rules and Regulations to the Securities Exchange Act of 1934 ("Rule 16b-3") and
the rules of the New York Stock Exchange, Inc. (the "NYSE") are amended to
eliminate the requirement of such shareholder approval from and after the date
of adoption of the Plan by the Board, no such shareholder approval shall be
required under this Plan and all Options granted hereunder shall continue in
full force and effect.
6. GRANT OF OPTIONS. All Options under the Plan shall be
automatically granted as provided in Section 5. The grant of Options shall be
evidenced by stock option agreements containing such terms and provisions as
are approved by the Board, but not inconsistent with the Plan.
7. OPTION PRICE. The exercise price of each share of Common Stock
covered by an Option under the Plan shall be equal to the average between the
high and low sales price of the Common Stock as reported by the NYSE or such
other exchange if the Common Stock is not traded on the NYSE on the Grant Date
(the "Fair Market Value"). In the event the Grant Date is not a business day
or the Common Stock is not traded otherwise on the NYSE or such other exchange
on such date, then the exercise price shall be the average between the high and
low sales price of the Common Stock as reported by the NYSE on the first
trading day immediately preceding the Grant Date.
8. OPTION PERIOD. The period during which a participant's Options
shall be in force will begin on the Grant Date and will terminate at the first
of the following:
a. 5 p.m. on the fifth anniversary of the Grant Date;
b. 5 p.m. on the date 180 days following the date of the Non-
Employee Director's death or disability; or
c. 5 p.m. on the date 60 days following the date the Non-Employee
Director ceases to be a director of the Company for any other
reason other than death or disability, or such longer period as
the Board may deem appropriate.
9. VESTING. Fifty percent (50%) of each Option granted under this
Plan shall vest and become exercisable on the first anniversary of the Grant
Date of such Option. The remaining fifty percent (50%) of each
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<PAGE> 26
Option granted under this Plan shall vest and become exercisable on the second
anniversary of the Grant Date of such Option. No Option shall be exercisable
after the fifth anniversary of the Grant Date of such Option.
10. CONDITIONS TO THE EXERCISE OF OPTIONS.
a. As a condition to the exercise of an Option and provided the Non-
Employee Director has not held the Option for a period of six months from the
Grant Date, the Non-Employee Director shall agree not to dispose of the Common
Stock obtained upon exercise of the Option until the expiration of six months
from the first anniversary of the Grant Date of the Option unless such
disposition is in a transaction which is exempt from the provisions of Section
16 of the Securities Exchange Act of 1934 as amended (the "Exchange Act").
b. An Option may not be exercised for fractional shares of stock of
the Company.
11. NON-ASSIGNABILITY. An Option may be transferred or assigned by
will or by the laws of descent and distribution upon the death of the Non-
Employee Director. In the Board's discretion and prior to the death of the
Non-Employee Director, Options may be transferred to a member of the
participant's family or to a trust, partnership or other entity which is,
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, the Non-Employee Director or
members of the participant's family. Any transfer or other assignment except
as expressly permitted herein, whether voluntary, involuntary, by operation of
law or otherwise, shall immediately void the Option.
12. RIGHTS IN EVENT OF DEATH OR DISABILITY. If the Non-Employee
Director dies or becomes disabled prior to termination of his/her right to
exercise an Option in accordance with the provisions of his/her stock option
agreement without having totally exercised the Option, the Option may be
exercised to the extent the Non-Employee Director could have exercised the
Option on the date of his/her death or disability at any time prior to the
earlier dates specified in Section 8(a) or (b) hereof by (I) the participant's
estate or by the person who acquired the right to exercise the Option by
bequest or inheritance or by reason of the death of the Non-Employee Director
in the event of the participant's death, or (ii) the Non-Employee Director or
his/her personal representative in the event of the participant's disability,
subject to other terms of the Plan and applicable laws, rules and regulations.
For purposes of the Plan, the Board shall determine the date of disability of
the Non-Employee Director.
13. PAYMENT. An Option, or portion thereof, shall be exercised by
delivery of a written notice of exercise to the Company and payment of the full
price of the shares being purchased pursuant to the Option. A Non-Employee
Director may exercise an Option with respect to less than the full number of
shares for which the Option may then be exercised, but the Non-Employee
Director must exercise the Option in full shares of Common Stock. The price of
Common Stock purchased pursuant to an Option, or portion thereof, may be paid:
(a) by certified check, bank draft or money order payable to
the order of the Company;
(b) with approval of the Board, through the delivery of shares
of Common Stock with an aggregate Fair Market Value on the
date of exercise equal to the Option Price; or
(c) by any combination of the above methods of payment or any
other method as permitted by the Board.
The Committee shall determine acceptable methods for tendering Common
Stock as payment upon exercise of an Option and may impose such limitations and
prohibitions on the use of Common Stock to exercise an Option as it deems
appropriate, including, without limitation, any limitation or prohibition
designed to avoid certain accounting consequences which may result from the use
of Common Stock as payment upon exercise of an Option. The Company may, in its
discretion, require a Non-Employee Director to pay to the Company at the time
of exercise the amount that the Company deems necessary to satisfy its
obligation to withhold federal, state or local income or other taxes incurred
by reason of the exercise. Upon the exercise of an Option requiring tax
withholding, the Non-Employee Director may make a written election to have
shares of Common Stock withheld by the Company from the shares otherwise to be
received. The number of shares so withheld shall have an aggregate Fair Market
Value on the
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<PAGE> 27
date of exercise sufficient to satisfy the applicable withholding taxes. The
acceptance of any such election by the Non-Employee Director shall be at the
sole discretion of the Board.
14. AMENDMENT AND DISCONTINUANCE. The Board may at any time amend
this Plan, provided that, except as permitted by Section 4(b), no amendment
without approval of the shareholders shall: (a) increase the total number of
shares for which Options may be granted, (b) change the manner of determining
the price at which shares may be purchased, (c) change the class of persons
eligible to receive Options under this Plan, or (d) change the provisions
relating to the administration of this Plan by the Board. Notwithstanding the
foregoing, in the event that Rule 16b-3 is amended to eliminate the requirement
of such shareholder approval from and after the date of adoption of the Plan by
the Board, no such shareholder approval of such amendments shall be required
under this Plan. The Board may terminate this Plan at any time but such
termination shall not affect Options previously granted and such Options shall
remain in full force and effect as if this Plan had not been terminated.
Notwithstanding any other provision hereof, in no event shall the provisions of
this Plan be amended more frequently than once every six months other than to
comport with changes in the Internal Revenue Code of 1986, as amended from time
to time, and the Employee Retirement Income Security Act, as amended from time
to time, or the rules thereunder.
15. EFFECT OF THE PLAN.
a. Neither the adoption of the Plan nor any action of the Board
shall be deemed to give any director any right to be granted an Option to
purchase Common Stock of the Company or any other rights except as may be
evidenced by the stock option agreement, or any amendment thereto, duly
authorized by the Board and executed on behalf of the Company, and then only to
the extent and on the terms and conditions expressly set forth therein.
b. Nothing in this Plan or in any Option granted pursuant to this
Plan shall confer on any individual any right to continue as a director of the
Company or interfere in any way with the removal of such person as a director
in accordance with the Company's Articles of Incorporation and Bylaws.
16. RESERVATION OF SHARES. During the term of this Plan and any
Option exercisable hereunder, the Company shall at all times reserve and keep
available, and shall obtain from any regulatory body having jurisdiction any
requisite authority in order to issue or sell, such number of shares of its
Common Stock as shall be sufficient to satisfy the requirements of this Plan.
Inability of the Company to obtain any authority deemed by the Company's
counsel to be necessary to the lawful issuance or sale of any shares of its
stock hereunder shall relieve the Company of any liability in respect of the
nonissuance or sale of such stock as to which such authority shall not have
been obtained.
17. SECURITIES ACT OF 1933. Unless (a) the shares to be issued upon
exercise of an Option granted under this Plan have been effectively registered
under the Securities Act of 1933, as now in force or hereafter amended; or (b)
in the opinion of counsel for the Company, no such registration is necessary,
the Company shall be under no obligation to issue any shares covered by any
Option.
18. SECTION 16. With respect to persons subject to Section 16 of the
Exchange Act, transactions under this Plan are intended to comply with all
applicable provisions of Rule 16b-3 or its successors under the Exchange Act.
To the extent any provision of this Plan or action by the Board fails to so
comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Board.
19. EFFECTIVE DATE; TERM OF PLAN. This Plan shall become effective
as of September 1, 1996; provided, however, if this Plan is not approved by a
majority of the shareholders of Common Stock of the Company present or
represented by proxy and entitled to vote at the first annual meeting of
shareholders of the Company following September 1, 1996, any Options granted
under this Plan shall be null, void and of no force and effect as of their
grant date, and this Plan shall terminate. Notwithstanding the foregoing, in
the event that Rule 16b-3 and the rules of the NYSE are amended to eliminate
the requirement of such shareholder approval from and after the date of
adoption of the Plan by the Board, no such shareholder approval shall be
required under this Plan and all Options granted hereunder shall continue in
full force and effect. This Plan shall terminate May 31, 2001, unless sooner
terminated as provided in this Plan. At the end of such term, this Plan shall
expire except for Options then outstanding.
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<PAGE> 28
P FARAH INCORPORATED
8889 GATEWAY WEST - EL PASO, TEXAS 79925
R ANNUAL MEETING OF SHAREHOLDERS - MARCH 11, 1997
O The undersigned hereby appoints Richard C. Allender and Russell G. Gibson,
and either of them, proxies of the undersigned, with full power of
X substitution, to vote all the shares of Common Stock of Farah Incorporated
(the "Company") held of record by the undersigned on January 24, 1997, at
Y the Annual Meeting of Shareholders to be held March 11, 1997, and at any
adjournment thereof.
Election of Directors, Nominees:
(change of address)
Richard C. Allender, Clark L. Bullock,
-----------------------------------
Christopher L. Carameros,
-----------------------------------
John D. Curtis, Sylvan Landau,
-----------------------------------
Michael R. Mitchell, Timothy B.
-----------------------------------
Page and Charles J. Smith
(If you have written in the above
space, please mark the corresponding
box on the reverse side of this
card.)
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES, SEE
REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN ACCORDANCE
WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE PROXIES CANNOT VOTE YOUR
SHARES UNLESS YOU SIGN AND RETURN THIS CARD.
[SEE REVERSE]
[ SIDE ]
Please mark your
/X/ votes as in this SHARES IN YOUR NAME REINVESTMENT SHARES
example.
FOR WITHHELD
1. To elect eight [ ] [ ]
directors to [ ] [ ]
serve on the [ ] [ ]
Company's [ ] [ ]
Board of Directors.
For, except vote withheld from the following nominee(s):
- --------------------------------------------------------
FOR AGAINST ABSTAIN
2. To consider and vote [ ] [ ] [ ]
on a proposal to amend [ ] [ ] [ ]
the Company's Articles [ ] [ ] [ ]
of Incorporation to [ ] [ ] [ ]
increase the number of
authorized shares of
Common Stock and to
authorize a new class
of Preferred Stock:
3. To consider and vote [ ] [ ] [ ]
upon the Company's [ ] [ ] [ ]
1996 Non-Employee [ ] [ ] [ ]
Directors Stock [ ] [ ] [ ]
Option Plan;
4. To ratify the selec- [ ] [ ] [ ]
tion of Coopers & [ ] [ ] [ ]
Lybrand, L.L.P. as [ ] [ ] [ ]
the Company's [ ] [ ] [ ]
independent public
accountants for the
fiscal year ending
November 2, 1997.
5. In their discretion [ ] [ ] [ ]
the proxies are [ ] [ ] [ ]
authorized to vote [ ] [ ] [ ]
upon such other [ ] [ ] [ ]
matters as properly
may come before the
meeting or any
adjournment thereof.
Change [ ]
of [ ]
Address [ ]
Check here [ ]
if you plan [ ]
to attend [ ]
the meeting
SIGNATURE(S) DATE
-------------------------------- ----------------
SIGNATURE(S) DATE
-------------------------------- ----------------
NOTE: Please sign exactly as name appears hereon. Joint owners
should each sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full
title as such.
