<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 Section 240.14a - 11(c) or
Section 240.14a-12
Farah Incorporated
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
/X/ 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 Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[FARAH LOGO]
FARAH INCORPORATED
4171 N. MESA, BLDG. D, SUITE 500 - EL PASO, TEXAS 79902-1433
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of Shareholders of Farah Incorporated (the
"Company") will be held at the Marriott Hotel, Salon E, 1600 Airway Blvd., El
Paso, Texas 79925, on March 10, 1998, at 9:00 a.m. (Central Standard Time), for
the following purposes:
(1) to re-elect three Class II Directors for terms expiring in 2001;
(2) to consider and vote upon the Company's 1998 Stock Option and
Restricted Stock Plan;
(3) to ratify the selection of Coopers & Lybrand, L.L.P. as the
Company's independent public accountants for the fiscal year
ending November 1, 1998; and
(4) 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 23,
1998, 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
Karen S. Castillo,
Secretary
El Paso, Texas
January 30, 1998
<PAGE> 3
[FARAH LOGO]
4171 N. MESA, BLDG. D, SUITE 500 - EL PASO, TEXAS 79902-1433
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
MARCH 10, 1998
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 Marriott Hotel, Salon
E, 1600 Airway Blvd., El Paso, Texas 79925, on March 10, 1998, 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 30, 1998, to all shareholders of record on January 23, 1998.
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." 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 "Performance of the Common Stock"
below and "Stock Option and Compensation Committee Report on Executive
Compensation" 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 10,278,989 shares of Common Stock
outstanding on January 23, 1998, 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. Abstentions may be specified on all
proposals (other than the election of directors) and will be counted towards a
quorum. 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.
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. Proposals 2 and 3 require the affirmative vote of
a majority of the shares of Common Stock present and represented.
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
through 3.
ANNUAL REPORT
The annual report for the Company's fiscal year ended November 2,
1997, including audited financial statements, is being furnished with this
Proxy Statement to shareholders of record as of January 23, 1998. The annual
report does not constitute a part of the proxy solicitation materials.
2
<PAGE> 5
OWNERSHIP OF COMMON STOCK
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth persons who were known to the Company
as of January 12, 1998, to be beneficial owners of more than five percent (5%)
of the outstanding shares of Common Stock:
<TABLE>
<CAPTION>
AMOUNT OF
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
BENEFICIAL OWNER OWNERSHIP CLASS
- ------------------- --------- ----------
<S> <C> <C>
Reich & Tang Asset Management L.P. 968,700(1) 9.4%
600 Fifth Avenue
New York, New York 10020
Dimensional Fund Advisors, Inc. 761,800(2) 7.4%
1299 Ocean Avenue
11th Floor
Santa Monica, California 90401
Wynnefield Partners Small Cap Value, L.P. 716,900(3) 7.0%
One Penn Plaza, Suite 4720
New York, New York 10119
</TABLE>
- --------------
(1) As of December 31, 1997, according to information provided by such persons
on January 15, 1998.
(2) As of September 30, 1997, according to information provided by such persons
on January 15, 1998.
(3) According to Schedule 13D dated December 19, 1997, the following entities
are the beneficial owners of 716,900 shares of Common Stock: Wynnefield
Partners Small Cap Value, L.P.; Wynnefield Small Cap Value Offshore Fund,
Ltd.; Wynnefield Partners Small Cap Value L.P. I; and Channel Partnership
II L.P.
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 12, 1998.
<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 248,518 196,900 2.4%
Jackie L. Boatman 73,000 73,000 (2)
Clark L. Bullock 9,750 9,750 (2)
Christopher L. Carameros 9,750 9,750 (2)
John D. Curtis 5,250 5,250 (2)
Russell G. Gibson 40,000 40,000 (2)
Sylvan Landau 23,750 18,750 (2)
Michael R. Mitchell 101,328 92,500 1.0%
Charles J. Smith 9,750 9,750 (2)
All directors and
executive officers
as a group (10 persons) 521,096 455,650 5.1%(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 639,250 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
The Company's Amended and Restated Bylaws provide that the Board of
Directors may establish the number of directors. The Board of Directors has
established the Board at seven members to be divided into three classes, Class
I (two), Class II (three) and Class III (two), each serving staggered
three-year terms. Three Class II directors, each to serve for a three-year term
expiring at the annual meeting in 2001, will be nominated for election at the
Annual Meeting. Management's three nominees for election are listed below and
are currently members of the Board of Directors:
<TABLE>
<CAPTION>
Director Nominee Class
---------------- -----
<S> <C>
Clark L. Bullock II
Michael R. Mitchell II
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.
Mr. Timothy B. Page resigned from the Board of Directors on September
2, 1997 and, at a meeting of the Board of Directors held September 4, 1997, the
Board of Directors accepted the resignation of Mr. Page. Mr. Page was a Class
III Director whose term would expire at the annual meeting in 1999. The Board
of Directors has not named anyone to complete the remainder of Mr. Page's term
and has not nominated anyone for election at the Annual Meeting to replace Mr.
Page. See "Compensation of Executive Officers--Employment Contracts and
Termination Agreements."
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
FOR EACH OF THE THREE NOMINEES NAMED ABOVE.
DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth certain information regarding the nominees
for election to the Company's Board of Directors, current members of the
Company's Board of Directors and the Company's Executive Officers:
NOMINEES FOR ELECTION AS DIRECTORS
CLARK L. BULLOCK, age 49, 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 served as director for the Fundamental Family
of Funds until 1997.
MICHAEL R. MITCHELL, age 44, 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., a subsidiary of the Company, in March 1994.
CHARLES J. SMITH, age 71, 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
5
<PAGE> 8
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.
DIRECTORS CONTINUING TO SERVE
RICHARD C. ALLENDER, age 52, 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.
CHRISTOPHER L. CARAMEROS, age 44, has been a director of the Company since
August 1987. Since September 1990, Mr. Carameros has been a business consultant
and until July 1, 1997, served as 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. See "Certain Transactions."
JOHN D. CURTIS, age 57, 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 November 1995.
SYLVAN LANDAU, age 72, 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 has served 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.
EXECUTIVE OFFICERS
The executive officers of the Company consist of Richard C. Allender,
Jackie L. Boatman, Michael R. Mitchell, Timothy B. Page (until September 2,
1997), Russell G. Gibson and Karen S. Castillo. Messrs. Allender and Mitchell
are currently directors of the Company. See "-- Nominees for Election as
Directors," "-- Directors Continuing to Serve" and "Compensation of Executive
Officers--Employment Contracts and Termination Agreements."
JACKIE L. BOATMAN, age 39, 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., a subsidiary of the Company, 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 43, 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 45, 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., a subsidiary of the Company, from November
1994 until March 1996. Prior to November 1994, Mr. Gibson served as Controller
of El Paso Electric Company, Inc.
6
<PAGE> 9
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Company has an Executive Committee which during fiscal year 1997
was comprised of Richard C. Allender (Chairman), Christopher L. Carameros,
Timothy B. Page (until September 2, 1997) and Charles J. Smith. The Executive
Committee has the power to exercise all of the authority of the Board of
Directors in the management of the business and affairs of the Company to the
extent provided in the Company's Bylaws and by applicable law. The Executive
Committee met or voted on resolutions five times during fiscal year 1997.
The Company has an Audit Committee which 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 nine times during fiscal year 1997.
The Company has a Nominating Committee which during fiscal year 1997
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 did not meet or vote on
resolutions during fiscal year 1997. 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, 4171 N. Mesa, Bldg. D, Suite 500, El Paso, Texas 79902-1433.
The Company has a Stock Option and Compensation Committee which during
fiscal year 1997 consisted of Charles J. Smith (Chairman), Clark L. Bullock and
John D. Curtis. See "Stock Option and Compensation Committee Interlocks and
Insider Participation" and "Stock Option and Compensation Committee Report on
Executive Compensation." 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 four times during fiscal year 1997.
The full Board of Directors met or unanimously voted on resolutions
four times during fiscal year 1997. Each of the directors attended or acted
upon at least 75% 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 1997.
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 1995-1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION(2)
--------------------------------------------------- -------------------------
OTHER
NAME AND ANNUAL ALL OTHER
PRINCIPAL POSITION FISCAL YEAR SALARY BONUS COMPENSATION(1) OPTIONS COMPENSATION
- ------------------ ----------- ---------- ------- --------------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Richard C. Allender, 1997 $365,000 $ 0 $ 16,921 0 $192,319(3)
President & Chief 1996 344,083 112,000 16,379 140,000 131,014(3)
Executive Officer 1995 300,000 0 15,000 0 128,050(3)
Jackie L. Boatman, 1997 $225,000 $ 0 $ 10,301 0 $ 25,625(4)
Executive Vice 1996 202,217 40,000 10,105 45,000 25,227(4)
President, Farah 1995 190,020 10,000 9,501 7,000 26,060(4)
U.S.A., Inc.
Russell G. Gibson,(5) 1997 $170,004 $ 0 $ 7,524 0 $ 25,740(6)
Executive Vice 1996 141,068 20,000 7,191 30,000 25,221(6)
President and Chief
Financial Officer
Michael R. Mitchell, 1997 $279,996 $ 0 $ 13,043 0 $ 36,411(7)
President, Farah 1996 249,718 60,000 12,170 70,000 35,976(7)
U.S.A., Inc. 1995 240,000 0 12,000 0 36,510(7)
Timothy B. Page,(8) 1997 $240,960 $ 0 $ 0 0 $ 20,915(9)
Executive Vice 1996 240,800 40,000 0 35,000 21,334(9)
President and Chief 1995 160,000 0 0 0 1,340(9)
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 of such officer.
(2) The number and value of aggregate restricted stock holdings as of November
2, 1997 are as follows:
<TABLE>
<CAPTION>
VESTING
------------------
FISCAL
EXECUTIVE OFFICER NUMBER VALUE($) YEAR NUMBER
- ----------------- ------ -------- ---- ------
<S> <C> <C> <C> <C>
Richard C. Allender 12,500 72,656 1998 12,500
</TABLE>
(3) Includes $4,800 for fiscal year 1997 and $4,500 for each of fiscal years
1996 and 1995, 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"), $6,019, $5,514 and $2,550 for fiscal years 1997,
1996 and 1995, respectively, for life insurance premiums paid by the
Company on behalf of Mr. Allender, and $181,500 for fiscal year 1997 and
$121,000 for each of fiscal years 1996 and 1995, respectively, for reverse
split-dollar life insurance premiums paid by the Company on behalf of Mr.
Allender.
(4) Includes $4,800 for fiscal year 1997 and $4,500 for each of fiscal years
1996 and 1995, contributed by the Company on behalf of Mr. Boatman pursuant
to the 401(k) Plan, $825, $727 and $1,560 for fiscal years 1997, 1996 and
1995, respectively, for life
8
<PAGE> 11
insurance premiums paid by the Company on behalf of Mr. Boatman, and
$20,000 for each of fiscal years 1997, 1996 and 1995, 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.
(6) Includes $4,800 for fiscal year 1997 and $4,472 for fiscal year 1996,
contributed by the Company on behalf of Mr. Gibson pursuant to the 401(k)
Plan, $940 for fiscal year 1997 and $749 for fiscal year 1996, for life
insurance premiums paid by the Company on behalf of Mr. Gibson, and $20,000
for each of fiscal years 1997 and 1996 for reverse split-dollar life
insurance premiums paid by the Company on behalf of Mr. Gibson.
(7) Includes $4,800 for fiscal year 1997 and $4,500 for each of fiscal years
1996 and 1995, contributed by the Company on behalf of Mr. Mitchell
pursuant to the 401(k) Plan, $1,612, $1,476 and $2,010, for fiscal years
1997, 1996 and 1995, respectively, for life insurance premiums paid by the
Company on behalf of Mr. Mitchell, and $30,000 for each of fiscal years
1997, 1996 and 1995, for reverse split-dollar life insurance premiums paid
by the Company on behalf of Mr. Mitchell.
(8) Mr. Page resigned as an executive officer of the Company on September 2,
1997. See "--Employment Contracts and Termination Agreements."
(9) Includes $915 for fiscal year 1997, $1,334 for fiscal year 1996 and $1,340
for fiscal year 1995 for life insurance premiums paid by the Company on
behalf of Mr. Page, and $20,000 for each of fiscal years 1997 and 1996, for
reverse split-dollar life insurance premiums paid by the Company on behalf
of Mr. Page.
9
<PAGE> 12
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END VALUES
The following table shows aggregate exercises of options during the
fiscal year ended November 2, 1997, by each of the named executive officers,
and the aggregate fiscal year-end value of the unexercised options held by the
named executive officers.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
NUMBER OPTIONS OPTIONS
OF AT FISCAL AT FISCAL
SHARES YEAR-END YEAR-END
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE ($)
---- ----------- -------- ------------- -----------------
<S> <C> <C> <C> <C>
Richard C. Allender - - 229,400/0(1) 17,500/0
Jackie L. Boatman - - 87,000/0 10,063/0
Russell G. Gibson - - 40,000/0 3,125/0
Michael R. Mitchell - - 127,500/0 13,125/0
Timothy B. Page (2) - - 35,000/0 8,750/0
</TABLE>
- ------------------------------------
(1) Does not include 12,500 award shares which vest March 1, 1998.
(2) Mr. Page resigned as an executive officer of the Company on September 2,
1997. See "--Employment Contracts and Termination Agreements."
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 currently 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 December 5, 1997, the
Board of Directors increased Mr. Allender's base salary to $400,000 per year
effective on January 1, 1998 and continued the annual premium on the reverse
split-dollar life insurance policy through the year 2000.
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, 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 (B), 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.
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<PAGE> 13
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 reverse 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 reverse 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 and were extended again in December 1997 to be in effect
until March 1, 1999. The Employment Agreements provide for a minimum annual
salary of $175,000 and $225,000, respectively. In March 1996, the Company
entered into a one-year employment contract with Russell G. Gibson. The Company
extended the contract in December 1997 to be in effect until March 1, 1999. 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 in 1997 was
$170,000. 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, Gibson and Mitchell not to exceed $20,000, $20,000
and $30,000, respectively, per year. The terms of Messrs. Boatman's, Gibson'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, Gibson 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, Gibson or Mitchell's employment is terminated by
the Company other than for cause, death or disability, or by Messrs. Boatman,
Gibson or Mitchell for Good Reason after a change in control, the Company shall
be obligated to pay Messrs. Boatman, Gibson and Mitchell their base salaries
for a period of 18 months, 12 months and 24 months, respectively, and shall
also be obligated to pay one additional annual premium on each of the reverse
split-dollar life insurance policies for each of Messrs. Boatman and Mitchell.
If Mr. Gibson's employment is terminated by the Company without cause, or by
Mr. Gibson for Good Reason after a change in control, the Company shall be
obligated to pay one additional annual premium on the reverse split-dollar life
insurance policy for Mr. Gibson.
On December 5, 1997, the Board of Directors increased Messrs.
Boatman's, Gibson's and Mitchell's base salary to $250,000, $185,000 and
$300,000, respectively, per year, effective January 1, 1998.
Timothy B. Page resigned as a director and executive officer of the
Company on September 2, 1997. The Company entered into a Severance Agreement
and Release in Full of All Claims (the"Severance Agreement") with Mr. Page
pursuant to his resignation. Under the Severance Agreement, the Company agreed
to pay Mr. Page $80,320, less lawful deductions, in four equal monthly
installments of $20,080 no later than September 30, 1997, October 31, 1997,
November 28, 1997 and December 31, 1997. The Company also agreed to pay Mr.
Page $120,480, less lawful deductions, in 12 equal monthly installments of
$10,040 no later than January 30, 1998, February 27, 1998, March 31, 1998,
April 30, 1998, May 29, 1998, June 30, 1998, July 31, 1998, August 31, 1998,
September 30, 1998, October 31, 1998, November 28, 1998 and December 31, 1998.
Mr. Page also received two payments of accrued vacation pay, less lawful
deductions. The Company additionally transferred a club membership issued to
Farah U.S.A., Inc. for Mr. Page to an individual membership for Mr. Page. In
return, Mr. Page agreed to release and indemnify the Company, its subsidiaries
and their officers, directors, agents, stockholders, insurers, legal
representatives and employees, including immediate family members, spouses,
heirs, executors, administrators, legal representatives, successors and
assigns.
11
<PAGE> 14
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. During fiscal
year 1997, the Company paid Messrs. Bullock, Curtis and Smith $1,000, $2,000
and $2,000, respectively, for such special assignment services. 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 1997, the Company engaged Mr. Landau to provide
consulting services. The Company paid Mr. Landau $38,780 during fiscal year 1997
for such consulting services. See "Directors and Executive Officers."
On September 1, 1996, the Company's Board of Directors adopted the
Company's 1996 Non-Employee Director Stock Option Plan (the "1996 Plan"). The
Company's shareholders approved the 1996 Plan on March 11, 1997, the date of
the 1997 Annual Meeting of Shareholders. The 1996 Plan provides for the grant
of options to purchase a total of 300,000 shares of Common Stock. Pursuant to
the 1996 Plan, 50% of the options granted may be exercised one year from the
date of grant and 50% two years from the date of grant. No options may be
granted under the 1996 Plan after August 31, 2001.
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 2,500 shares of Common Stock
following each Annual Meeting of Shareholders pursuant to the 1996 Plan. The
1996 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 60 days 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 180 days 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.
Pursuant to the Company's 1996 Plan, Clark L. Bullock, Christopher L.
Carameros, John D. Curtis, Sylvan Landau and Charles J. Smith were each granted
the following numbers of options: on March 31, 1997, options to acquire 2,500
shares of Common Stock at $10.0625 per share; on June 30, 1997, options to
acquire 2,500 shares of Common Stock at $6.6250 per share; on September 30,
1997, options to acquire 2,500 shares of Common Stock at $6.9065 per share; and
on December 31, 1997, options to acquire 2,500 shares of Common Stock at
$5.5625 per share.
The Company also has the Farah Incorporated 1988 Non-Employee
Directors Stock Option Plan (the "1988 Plan") which prior to the adoption of
the 1996 Plan provided for the granting of options to non-employee directors.
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 10 years from the 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. Pursuant to the 1988 Plan, on March 11, 1997, the
date of the 1997 Annual Meeting of Shareholders, options to acquire 1,500
shares of Common Stock at $10.375 per share were granted to each of Clark L.
Bullock, Christopher L. Carameros, John D. Curtis, Sylvan
12
<PAGE> 15
Landau and Charles J. Smith. The last date options could be granted under the
1988 Plan was April 30, 1997, the termination date for the 1988 Plan.
STOCK OPTION AND COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The Stock Option and Compensation Committee was composed of Clark L.
Bullock, John D. Curtis and Charles J. Smith. No member of the Stock Option and
Compensation Committee had any relationships during 1997 requiring disclosure
according to applicable rules and regulations of the Securities and Exchange
Commission.
CERTAIN TRANSACTIONS
The Company contracted with a company to establish and operate a
laundry in Mexico. Christopher L. Carameros, a member of the Company's Board of
Directors, had a 10% profits interest in this company. In fiscal 1997, the
Company paid the company $842,000 for finishing pants and shirts and $1,568,000
to reimburse it for the Company's share of the facility's start up and
installation costs. The Company and this company decided not to continue the
joint ownership of the laundry in fiscal 1997 and in connection therewith the
Company purchased from this company $500,000 of equipment. The amount of such
payment was based on arm's length negotiations and was based on the Company's
assessment of the equipment's fair market value. The Company is now the sole
operator of the new laundry and anticipates making no further payments to this
company for contract production. The Company has, however, entered into a
five-year lease with the company for the facility.
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<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 6, 1992.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
Fiscal Year Ending
-------------------------------------------------------------------
1992 1993 1994 1995 1996 1997
------ -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Farah Incorporated $ 100 $ 154.55 $ 150.00 $ 127.27 $ 129.55 $ 105.68
Dow Jones Industry Group Clothing 100 90.72 91.00 91.39 118.98 125.31
S&P 500 Index 100 114.95 119.40 150.97 187.35 247.52
</TABLE>
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,(4)
compensation of executive officers employed by companies in industries similar
to the Company and (5) meeting specific Company objectives. 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 Board to make
increases based on the performance of the executive and the Company. The
Company entered into an employment agreement with Mr. Gibson in March 1996. 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 in
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 bonus awards for fiscal year 1997.
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
this 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. The base salaries for Messrs. Allender, Boatman, Gibson and
Mitchell were increased to $400,000, $250,000, $185,000 and $300,000,
respectively, per year, effective as of January 1, 1998. Such adjustments were
based on the discretionary judgment of the Committee.
Annual incentive compensation is based on the discretionary judgment
of the Committee after recommendations are made by the Company's Chief
Executive Officer. In fiscal year 1997, the Company paid the Company's
executive officers no annual incentive compensation and there were no awards of
stock options or restricted stock awards.
By: John D. Curtis
Clark L. Bullock
Charles J. Smith, Chairman
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<PAGE> 18
PROPOSAL TWO: APPROVAL OF THE COMPANY'S 1998
STOCK OPTION AND RESTRICTED STOCK PLAN
On January 21, 1998, the Company's Board of Directors adopted, subject
to approval by the Company's shareholders, the Company's 1998 Stock Option and
Restricted Stock Plan (the "1998 Plan") and reserved for issuance thereunder
200,000 shares of Common Stock. The text of the 1998 Plan is attached hereto as
Appendix A. The material features of the 1998 Plan are discussed below, but the
description is subject to, and is qualified in its entirety by, the full text
of the 1998 Plan.
The purpose of the 1998 Plan is (i) to offer selected employees and
consultants of the Company or its subsidiaries an equity ownership interest in
the financial success of the Company, (ii) to provide the Company an
opportunity to attract and retain the best available personnel for positions of
substantial responsibility, and (iii) to encourage equity participation in the
Company by eligible Participants (as hereinafter defined). The 1998 Plan
provides for the grant by the Company of (i) options to purchase Shares, and
(ii) shares of Restricted Stock. Options granted under the Plan may include
nonstatutory options as well as incentive stock options intended to qualify
under Section 422 of the Internal Revenue Code of 1986, as amended, and as
interpreted by the regulations thereunder (the "Code").
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
FOR APPROVAL OF THE COMPANY'S 1998 STOCK OPTION AND RESTRICTED STOCK PLAN.
AMOUNT OF STOCK SUBJECT TO THE 1998 PLAN
Under the terms of the 1998 Plan, the Company may grant (i) options
("Options") to purchase shares of the Company's Common Stock, and (ii) awards
of shares of Common Stock containing certain restrictions ("Restricted Stock")
(collectively, grants of Options and Restricted Stock are referred to in this
Proxy Statement as "Plan Awards") with respect to an aggregate of 200,000
shares of Common Stock (the "Shares").
ADMINISTRATION OF THE 1998 PLAN
The Committee administers the 1998 Plan. The Committee must consist of
at least two persons and all Committee members must be a member of the Board of
Directors who is both (a) a Non-Employee Director within the meaning of Rule
16b-3 promulgated under the Exchange Act, as amended from time to time, and (b)
an Outside Director, within the meaning of Section 162(m) of the Code and the
regulations promulgated thereunder, as amended from time to time.
ELIGIBILITY FOR PLAN AWARDS
Plan Awards may be granted to selected employees and consultants of
the Company or its subsidiaries (the "Participants") in consideration for
services provided to the Company or its subsidiaries; provided, however, that
no Incentive Stock Option may be granted to any individual who is not an
employee of the Company or one of its subsidiaries on the date of grant. The
Company currently has two persons serving as directors who are also employees
of the Company and one person serving as a consultant to the Company. Any
employee-director or consultant-director is eligible to receive Plan Awards,
unless such person serves on the Committee. Therefore, the number of
Participants participating in the 1998 Plan cannot be determined precisely nor
can the benefits or amounts that will be received by or allocated to each of
the Participants. Similarly, the benefits which will be allocated to the
executive officers cannot be determined at this time.
OPTIONS UNDER THE 1998 PLAN
The exercise price for any Incentive Stock Option granted under the
1998 Plan shall be not less than 100% of the fair market value per share on the
date of grant of such Option. In the event that an Incentive Stock Option is
granted to any person who, at the time such Incentive Stock Option is granted,
owns more than ten percent of the
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<PAGE> 19
total combined voting power of classes of shares of the Company or of any
subsidiary corporation of the Company (a "Ten Percent Shareholder"), then the
exercise price of the shares shall be not less than 110% of the fair market
value of the shares on the date the Option is granted. The exercise price under
any Nonstatutory Option granted under the 1998 Plan shall be such amount as the
Committee may deem appropriate. If there is a public market for the Common
Stock and it is listed on a stock exchange, fair market value means the closing
sales price of the Common Stock per share as reported in the Wall Street
Journal as of the date of grant. The closing sale price on January 22, 1998 was
$5.5625.
Any Option granted under the 1998 Plan is exercisable at such times,
under such conditions (including without limitation, performance criteria with
respect to the Company and/or the optionee), in such amounts and during such
period or periods as the Committee determines on the date of the grant of such
Option. Such Options, however, shall not be exercisable after the expiration of
ten years from the date such Option is granted. In the case of an Incentive
Stock Option granted to a Ten Percent Shareholder, the Option shall not be
exercisable after the expiration of five years from the date such Option is
granted.
Payment for the shares upon exercise of an Option shall be made in
cash, by certified check or, if authorized by the Committee, by delivery of
other shares of Common Stock having a fair market value on the date of delivery
equal to the aggregate exercise price of the Shares as to which such Option is
being exercised, or by any combination of such methods or by any other method
of payment as may be permitted by applicable law.
With respect to Incentive Stock Options, Options that are granted to
Participants in the Plan, which allow such Participants to purchase in excess
of $100,000 (calculated as of the time the Option is granted) of the Company's
Common Stock in any one calendar year under the Plan and all of the Company's
other plans, are considered Nonstatutory Options that are not entitled to the
favorable tax treatment provided under Section 422 of the Code.
The Committee may establish procedures under the 1998 Plan for an
Optionee: (i) to pay the exercise price for the Shares by withholding from the
total number of Shares to be acquired upon exercise of an Option that number of
Shares having a fair market value equal to the exercise price; (ii) to have
withheld from the total number of Shares to be acquired, in the same manner as
(i) above, the withholding obligation for federal and state income and other
taxes; and (iii) to exercise a portion of the Option by delivering
already-owned Shares in payment of the exercise price.
In general, if an Optionee ceases to be an employee or Consultant (as
defined in the 1998 Plan) of the Company, as the case may be, for reasons other
than Permanent and Total Disability or Death (as defined in the 1998 Plan), he
will have until the earlier of 30 days or the date the Option expires to
exercise the Option, to the extent the Optionee was entitled to exercise the
Option on the date of termination.
If an Optionee is unable to continue to perform services for the
Company or any of its subsidiaries as a result of Permanent and Total
Disability, he will have until the earlier of 12 months from the date of such
disability or the date the Option expires to exercise the Option, in whole or
in part, notwithstanding that such Option may not be fully exercisable on such
date. In the case of an Incentive Stock Option, the Optionee must have been an
employee since the date of grant and must be an employee on the date of
Permanent and Total Disability to take advantage of this provision.
In the case of death of an Optionee, the same rule applies as in the
case of Permanent and Total Disability, as discussed above.
Except as may be permitted by the Committee, an Option granted under
the 1998 Plan may not be sold, pledged, assigned, hypothecated, transferred or
disposed of in any manner other than by will or by the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined by
the Code or Title I of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or the rules thereunder, and is not assignable by operation
of law or subject to execution, attachment or similar process.
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<PAGE> 20
The total number of Shares for which Options may be granted and which
may be awarded as Incentive Stock to any "covered employee" within the meaning
of Section 162(m) of the Code and the regulations promulgated thereunder, as
amended from time to time, during any one-year period shall not exceed 100,000
in the aggregate.
The Stock Option Agreement (as defined in the 1998 Plan) evidencing
any Incentive Stock Option granted under the Plan shall provide that if the
Optionee makes a disposition, within the meaning of Section 425(c) of the Code
and the regulations promulgated thereunder, of any share or shares issued to
him pursuant to the exercise of the Incentive Stock Option within the two-year
period commencing on the day after the Date of Grant (as defined in the 1998
Plan) of such Option or within a one-year period commencing on the day after
the date of transfer of the share or shares to him pursuant to the exercise of
such Option, he shall, within ten days of such disposition, notify the Company
thereof and immediately deliver to the Company any amount of federal income tax
withholding required by law.
RESTRICTED STOCK UNDER THE 1998 PLAN
The Committee may grant awards of Restricted Stock under the 1998 Plan
in accordance with the terms and conditions set forth in an agreement between
the Company and the Participant. Restricted Stock may be granted by the
Committee either separately or in combination with Options. Each grant of
Restricted Stock shall require a Participant to remain an employee or
consultant of the Company or its subsidiaries for at least six months from the
date of grant. Restricted Stock shall be granted to Participants for services
rendered to the Company, and at no additional cost to the Participant;
provided, however, that the value of such services must equal or exceed the par
value of the Restricted Stock granted to the Participant.
The Company shall establish a Restricted Stock Account for each
Participant, to which Restricted Stock granted to the Participant shall be
credited. Every credit of Restricted Stock shall be merely a bookkeeping entry
and every grant of Restricted Stock shall be considered contingent and unfunded
until the restrictions lapse. During the period of restriction such accounts
shall be subject to the claims of the Company's creditors. No Participant shall
have any rights in his Restricted Stock Account other than those of any
unsecured general creditor of the Company. On the date the restrictions lapse,
the Restricted Stock shall vest in the Participant.
The terms, conditions and restrictions of the Restricted Stock shall
be determined by the Committee on the date of grant. The restrictions shall
lapse based upon performance measures, targets, holding period requirements and
other criteria established by the Committee. Such criteria may vary among the
grants of Restricted Stock; provided, however, that once the Restricted Stock
has been granted and the criteria are established, such criteria may not be
further modified with respect to such grant. The Restricted Stock may not be
sold, assigned, transferred, redeemed, pledged or otherwise encumbered during
the period that the restrictions apply.
The Committee, in its sole discretion, may establish procedures by
which a Participant may defer the transfer of Restricted Stock to the
Participant.
The Committee may provide from time to time that amounts equivalent to
dividends paid with respect to Common Stock be payable with respect to the
Restricted Stock held in the Restricted Stock Account. Such amounts shall be
credited to the Restricted Stock Account but shall be payable to the
Participant only when the restrictions lapse.
If a Participant, with the consent of the Committee, ceases to be an
employee or ceases to provide services to the Company or any of its
subsidiaries, or suffers Permanent and Total Disability or death, the
restrictions applicable to the Participant's Restricted Stock shall lapse in
accordance with such determination as the Committee, in its sole discretion,
shall make. A Participant who ceases to be an employee or to perform services
for the Company or any of its subsidiaries for any other reason shall forfeit
all of his grants of Restricted Stock which are still under restriction.
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<PAGE> 21
CAPITALIZATION ADJUSTMENTS; MERGER; CHANGE IN CONTROL
Subject to any required action by the shareholders of the Company, the
number of Shares covered by each outstanding Option (as well as the exercise
price covered by any outstanding Option), the number of Shares of Restricted
Stock granted (but still subject to restrictions) and the aggregate number of
Shares that have been authorized for issuance under the 1998 Plan shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares resulting from a stock split, payment of a stock dividend with respect
to the Common Stock or any other increase or decrease in the number of issued
Shares effected without receipt of consideration by the Company.
In the event of the dissolution or liquidation of the Company, other
than pursuant to a Reorganization (as defined below), any Option granted under
the 1998 Plan shall terminate as of a date to be fixed by the Committee,
provided that not less than 30 days written notice of the date so fixed shall
be given to each Optionee and each such Optionee shall have the right during
such period to exercise his Options as to all or any part of the Shares covered
thereby including Shares as to which such Options would not otherwise be
exercisable by reason of an insufficient lapse of time.
In the event of a Reorganization in which the Company is not the
surviving or acquiring company, or in which the Company is or becomes a
wholly-owned subsidiary of another company after the effective date of the
Reorganization, then (i) if there is no plan or agreement respecting the
Reorganization ("Reorganization Agreement") or if the Reorganization Agreement
does not specifically provide for the change, conversion or exchange of the
Shares under outstanding unexercised Options for securities of another
corporation, then the Committee shall take such action, and the Options shall
terminate, as provided above; or (ii) if there is a Reorganization Agreement
and if the Reorganization Agreement specifically provides for the change,
conversion or exchange of the shares under outstanding or unexercised options
for securities of another corporation, then the Committee shall adjust the
shares under such outstanding unexercised Options (and shall adjust the Shares
which are then available to be optioned, if the Reorganization Agreement makes
specific provisions therefore) in a manner not inconsistent with the provisions
of the Reorganization Agreement for the adjustment, change, conversion or
exchange of such stock and such options.
For these purposes, the term "Reorganization" shall mean any statutory
merger, statutory consolidation, sale of all or substantially all of the assets
of the Company, or sale, pursuant to an agreement with the Company, of
securities of the Company pursuant to which the Company is or becomes a
wholly-owned subsidiary of another company after the effective date of the
Reorganization.
Except as provided in the 1998 Plan and except as otherwise provided
by the Committee in its sole discretion, any Options shall terminate
immediately prior to the consummation of such proposed action.
Subject to the above, upon a Change in Control (as defined below) of
the Company, (i) all the outstanding Options shall immediately become fully
exercisable, and (ii) any restrictions on the Restricted Stock will lapse and
such Restricted Stock shall immediately vest in the Participant. For these
purposes, a "Change in Control" shall have occurred if: (i) any person other
than the Company or its subsidiaries, or an employee benefit plan of the
Company or its subsidiaries, is or becomes the beneficial owner of 50% or more
of the Common Stock; or (ii) a majority of the present members of the Company's
Board of Directors cease to be members of the Board of Directors.
AMENDMENT TO THE 1998 PLAN
The Board of Directors in its sole discretion may, from time to time,
amend the Plan; provided that no amendment will be made without the requisite
approval of the shareholders of the Company that will (i) change the aggregate
number of Shares that may be issued under the 1998 Plan, other than any
increase or decease in the number of issued Shares resulting from a stock
split, payment of a stock dividend or any other increase or decrease in the
number of issued Shares effected without receipt of consideration by the
Company, (ii) change the designation of the Participants eligible to be granted
Plan Awards or (iii) change the 1998 Plan so as to materially increase the
benefits accruing to the Participants under the 1998 Plan.
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TERM AND TERMINATION OF THE 1998 PLAN
The 1998 Plan will continue in effect for a term of ten years, unless
sooner terminated. The Board of Directors may terminate the 1998 Plan at any
time in its sole discretion. Neither Restricted Stock nor Options may be
granted after the 1998 Plan is terminated. The termination of the 1998 Plan, or
any amendment thereto, shall not affect any Shares previously issued to a
Participant, any Option previously granted under this Plan or any shares of
Restricted Stock previously granted to a Participant.
MISCELLANEOUS
The 1998 Plan is not qualified under the provisions of Section 401(a)
of the Code, and is not subject to any of the provisions of ERISA.
FEDERAL INCOME TAX CONSEQUENCES
The following general summary is based upon the Code and does not
include a discussion of any state or local tax consequences.
INCENTIVE STOCK OPTIONS. An Optionee does not realize taxable income
upon the grant or exercise of an Incentive Stock Option.
The income tax treatment of any gain or loss realized upon an
Optionee's disposition of Shares received upon exercise of an Incentive Stock
Option depends on the timing of the disposition. If the Optionee does not
dispose of the Shares received upon exercise of an Incentive Stock Option
within two years from the date such Incentive Stock Option was granted, and
does not dispose of such shares within one year from the date of exercise, the
difference (if any) between the amount realized from the sale of such Shares
and the Optionee's tax basis will be taxed as capital gain or loss (at either
the mid- or long-term rate, depending on the Participant's holding period).
If an Optionee disposes of the Shares before the end of the applicable
holding periods described above (i.e., he makes a "disqualifying disposition"),
such Optionee may be deemed to be in receipt of taxable income in the year of
the disqualifying disposition, depending on the selling price. If the selling
price exceeds the fair market value of the Shares on the date of exercise, the
excess of the fair market value over the exercise price is taxable to the
Optionee as ordinary income, and the excess of the selling price over the fair
market value is taxable to the Optionee as capital gain. If the selling price
exceeds the exercise price but not the fair market value on the date of
exercise, the excess of the selling price over the exercise price is taxable to
the Optionee as ordinary income. If the selling price is less than the exercise
price, the difference is treated as capital loss.
The Company is not entitled to a deduction for federal income tax
purposes with respect to the grant or exercise of an Incentive Stock Option or
the disposition of Shares acquired upon exercise (if the applicable holding
periods have been met). In the event of a disqualifying disposition, however,
the Company is entitled to a federal income tax deduction in an amount equal to
the ordinary income recognized by the Optionee.
Certain Optionees may be subject to the alternative minimum tax which
in individual cases could reduce or eliminate any tax benefits to them under
the 1998 Plan.
If an Optionee exercises an Incentive Stock Option by delivering other
Shares of the Company that are substantially vested or with respect to which a
Section 83(b) Election has been filed, under proposed regulations, the Optionee
will not recognize any compensation income or gain with respect to the Shares
surrendered. The exchange Shares received will have a basis equal to the basis
of the Shares surrendered in payment (which generally will be the exercise
price). The holding period of such Shares will be determined in accordance with
proposed regulations. The Optionee will recognize no gain with respect to the
excess Shares received, the basis of such Shares will be zero, and the holding
period of such Shares will begin on the date of receipt thereof by the
Optionee.
If an Optionee exercises an Incentive Stock Option using Shares
received upon the prior exercise of an
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Incentive Stock Option (whether granted under the Plan or under another plan of
the Company) and the participant has not held such stock for the ISO Holding
Period, under proposed regulations, the participant will have made a
Disqualifying Disposition of the number of Shares of prior Incentive Stock
Option stock used as payment for the exercise price of the Incentive Stock
Option. Generally, the Optionee will recognize ordinary compensation income
with respect to the surrender of such Shares to the extent of the excess of the
fair market value of the Shares surrendered (determined as of the date the
Option relating to such Shares was exercised) over the exercise price. The
basis of the exchange Shares received will equal the amount of ordinary
compensation income recognized by the Optionee plus the Optionee's basis in the
Shares surrendered. The basis of excess Shares received will be zero.
NONSTATUTORY STOCK OPTIONS. An Optionee will not recognize any taxable
income upon the grant of a Nonstatutory Option. However, upon exercise of a
Nonstatutory Option, an Optionee must recognize ordinary income in an amount
equal to the excess of the fair market value of the Shares at the time of
exercise over the exercise price. Upon the subsequent disposition of the
Shares, the Optionee will realize a capital gain or loss, depending on whether
the selling price exceeds the fair market value of the Shares on the date of
exercise. The Optionee's holding period in the Shares, for capital gains and
losses purposes, begins on the date of exercise.
Different rules may apply with respect to exercises by Optionees
subject to the short-swing profit recapture provisions of Section 16(b) of the
Exchange Act (in general, executive officers, directors and Ten Percent
Shareholders who have not yet held their options for at least six months).
Section 83 of the Code provides that such an Optionee will not recognize
ordinary income upon exercise (and the capital gains holding period will not
begin) if the sale of Shares acquired by such Optionee pursuant to an Option
could subject the Optionee to suit under Section 16(b). Such an Optionee would
then recognize ordinary income (and the capital gains holding period would
begin) when the Optionee is no longer subject to suit under Section 16(b).
Persons acquiring Shares subject to such a restriction, however, may elect
(within 30 days of exercise of the Option) under Section 83(b) of the Code, to
be taxed as of the date of exercise, thereby fixing the ordinary income
recognized from the exercise to the spread between the fair market value on the
date of exercise and the exercise price paid for the Shares. Any change in the
value of the Shares after the date of exercise would be recognized as capital
gain or loss only if and when the Shares are disposed of by the Optionee. If
the Section 83(b) election is made, the Optionee's capital gains holding period
begins on the date of exercise.
An Optionee's tax basis in the Shares received on exercise of a
Nonstatutory Option will be equal to the amount of consideration paid by the
Optionee on exercise, plus the amount of ordinary income recognized as a result
of the receipt of such Shares. The Company will be entitled to a deduction for
federal income tax purposes at the same time and in the same amount as the
Optionee recognizes taxable income.
If an Optionee exercises a Nonstatutory Option by delivering other
Shares of the Company, the Optionee will not recognize gain or loss with
respect to the Shares delivered by the Optionee, even if the then fair market
value of such Shares is different from the Optionee's tax basis therein. The
portion of the shares of Common Stock received equal in number to the shares
surrendered will have a basis equal to the basis of the shares surrendered, and
the holding period for such number of shares received will include the holding
period of the shares surrendered. The remaining portion of the shares of Common
Stock received will be taxable to the employee as ordinary compensation income
in an amount equal to the fair market value of such Common Stock as of the
exercise date, and the Company likewise generally will be entitled to an
equivalent tax deduction. The participant's tax basis in the shares received in
excess of the number of shares surrendered will equal the amount of ordinary
compensation income recognized by the employee, and the holding period for such
number of shares received begins on the date such shares are acquired.
RESTRICTED STOCK. The Participant will not recognize taxable income
upon the grant of Restricted Stock because the Restricted Stock will be
nontransferable and subject to a substantial risk of forfeiture. The
Participant will recognize ordinary income at the time at which the
restrictions that impose a substantial risk of forfeiture of such Shares (the
"Restrictions") lapse, in an amount equal to the fair market value of such
Shares at such time. The ordinary income recognized by a Participant with
respect to Shares awarded pursuant to the 1998 Plan will be deemed compensation
income subject to applicable wage withholding.
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A Participant may elect, pursuant to Section 83(b) of the Code, to
include in gross income the fair market value of the Restricted Stock upon
grant, notwithstanding that the Restricted Stock would otherwise not be
includable in gross income at that time. If such election is made within 30
days of the date of grant, then the Participant would include in gross income
the fair market value of the Restricted Stock on the date of grant, and any
change in the value of the Shares after the date of grant would be capital gain
or capital loss only if and when the Shares are disposed of by the Participant.
If the Section 83(b) election is made, the Participant's capital gains holding
period begins on the date of grant.
If a Section 83(b) election is made and the Participant then forfeits
the Restricted Stock, the Participant may not deduct as a loss the amount
previously included in gross income.
Dividends received on the Shares when the Restrictions on such Shares
lapse will be treated as additional compensation, and not dividend income, for
federal income tax purposes and will be subject to applicable wage withholding.
A Participant's tax basis in Shares of Restricted Stock received
pursuant to the 1998 Plan will be equal to the ordinary income recognized by
such Participant. Unless a Section 83(b) election is made, the Participant's
holding period for such Shares for purposes of determining gain or loss on a
subsequent sale will begin on the date the Restrictions on such Shares lapse.
In general, the Company will be entitled to a deduction for federal
income tax purposes at the same time and in an amount equal to the ordinary
income recognized by a Participant with respect to Shares of Restricted Stock
awarded pursuant to the 1998 Plan.
If, subsequent to the lapse of Restrictions on Shares, the Participant
sells such Shares, the difference, if any, between the amount realized from
such sale and the tax basis of such Shares to the Participant will be taxed as
long-term or short-term capital gain or loss depending on whether the
Participant's holding period for such Shares exceeds the applicable holding
period at the time of sale.
THE SUMMARY OF FEDERAL INCOME TAX CONSEQUENCES SET FORTH ABOVE IS FOR
GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE TO ALL INDIVIDUALS.
PARTICIPANTS SHOULD CONSULT THEIR OWN TAX ADVISORS FOR A DETERMINATION AS TO
THE SPECIFIC TAX CONSEQUENCES APPLICABLE TO THEM.
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PROPOSAL THREE: 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 1, 1998 ("Fiscal 1998").
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 1998.
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 1998.
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 1998.
SECTION 16(A)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than 10% 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% 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 2, 1997,
no director, officer or beneficial holder of more than 10% 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. 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 its dismissal.
This change in accountants enabled the Company to effect a savings in
audit and accounting fees. Arthur Andersen L.L.P.'s report on the Company's
financial statements for fiscal 1995 did not contain an adverse opinion or a
disclaimer of opinion and was not qualified as to uncertainty, audit scope, or
accounting principles. During fiscal 1995 and the period from the end of that
fiscal year to the date of the Board's dismissal of Arthur Andersen L.L.P.,
there were 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.
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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 1999 ANNUAL MEETING
Any shareholder desiring to present a proposal to the shareholders at
the 1999 Annual Meeting of Shareholders, which currently is expected to be
scheduled on March 9, 1999, 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, 1998. 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,
Karen S. Castillo,
Secretary
El Paso, Texas
January 30, 1998
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APPENDIX A
FARAH INCORPORATED
1998 STOCK OPTION AND RESTRICTED STOCK PLAN
EFFECTIVE JANUARY 21, 1998
SECTION 1
ESTABLISHMENT AND PURPOSE
This Plan is established (i) to offer selected Employees and Consultants
of the Company or its Subsidiaries an equity ownership interest in the
financial success of the Company, (ii) to provide the Company an opportunity to
attract and retain the best available personnel for positions of substantial
responsibility, and (iii) to encourage equity participation in the Company by
eligible Participants. This Plan provides for the grant by the Company of (i)
Options to purchase Shares, and (ii) shares of Restricted Stock. Options
granted under this Plan may include nonstatutory options as well as ISOs
intended to qualify under section 422 of the Code.
SECTION 2
DEFINITIONS
"BOARD OF DIRECTORS" shall mean the board of directors of the Company,
as duly elected from time to time.
"CHANGE IN CONTROL" shall mean to have occurred at such time as either
(i) any "person", as such term is used in section 14(d) of the Exchange Act,
other than the Company, a wholly-owned subsidiary of the Company or any
employee benefit plan of the Company, or its Subsidiaries, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act (or any
successor rule), directly or indirectly, of fifty percent (50%) or more of the
combined voting power of the Company's common stock, or (ii) individuals who
constitute the Board of the Directors on the effective date of this Plan (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 (either by a specific vote or by approval of the proxy
statement of the Company in which such person is named as a nominee for the
director without objection to such nomination) shall be, for purposes of this
clause (ii) considered as though such person was a member of the Incumbent
Board.
"CODE" shall mean the Internal Revenue Code of 1986, as amended, and as
interpreted by the regulations thereunder.
"COMMITTEE" shall mean the Stock Option and Compensation Committee of
the Company, or such other Committee as may be appointed by the Board of
Directors from time to time.
"COMPANY" shall mean Farah Incorporated, a Texas corporation.
"CONSULTANT" shall mean any individual that is expressly designated as a
consultant of the Company or its Subsidiaries by the Committee in its sole
discretion.
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"DATE OF GRANT" shall mean the date on which the Committee resolves to
grant an Option to an Optionee or grant Restricted Stock to a Participant, as
the case may be.
"DISINTERESTED DIRECTOR" shall mean a member of the Board of Directors
who is both (a) a Non-Employee Director, within the meaning of Rule 16b-3
promulgated under the Exchange Act, as amended from time to time, and (b) an
Outside Director, within the meaning of Section 162(m) of the Code and the
regulations promulgated thereunder, as amended from time to time.
"EMPLOYEE" shall include every individual performing Services to the
Company or its Subsidiaries if the relationship between such individual and the
Company or its Subsidiaries is the legal relationship of employer and employee.
This definition of "Employee" is qualified in its entirety and is subject to
the definition set forth in section 3401(c) of the Code and the regulations
thereunder.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, and as interpreted by the rules and regulations promulgated
thereunder.
"EXERCISE PRICE" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Committee in the
applicable Stock Option Agreement, but in no event less than the par value per
Share.
"FAIR MARKET VALUE" shall mean such amount as the Board of Directors, in
its sole discretion, shall determine; provided, however, that if there is a
public market for the securities, the Fair Market Value shall be the mean of
the bid and asked prices of the securities per share or unit, as the case may
be, as reported in the Wall Street Journal (or, if not so reported, as
otherwise reported by the National Association of Securities Dealers Automated
Quotation System) as of the date in question or, in the event the securities
are listed on a stock exchange, the Fair Market Value shall be the closing
sales price of the securities per share or unit, as the case may be, on such
exchange, as reported in the Wall Street Journal, as of the date in question.
"ISO" shall mean a stock option which is granted to an individual and
which meets the requirements of section 422(b) of the Code, pursuant to which
the Optionee has no tax consequences resulting from the grant or, subject to
certain holding period requirements, exercise of the option and the employer is
not entitled to a business expense deduction with respect thereto.
"NONSTATUTORY OPTION" shall mean any Option granted by the Committee
that does not meet the requirements of sections 421 through 424 of the Code, as
amended.
"OPTION" shall mean either an ISO or Nonstatutory Option, as the context
requires.
"OPTIONEE" shall mean a Participant who holds an Option.
"PARTICIPANTS" shall mean those individuals described in Section 1 of
this Plan selected by the Committee who are eligible under Section 4 of this
Plan for grants of either Options or Restricted Stock under this Plan.
"PERMANENT AND TOTAL DISABILITY" shall mean that an individual is unable
to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than twelve (12) months. An individual shall not be considered to
suffer from Permanent and Total Disability unless such individual furnishes
proof of the existence thereof in such form and manner, and at such times, as
the Committee may reasonably require. The scope of this definition shall
automatically be
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reduced or expanded to the extent that section 22(e)(3) of the Code is amended
to reduce or expand the scope of the definition of Permanent and Total
Disability thereunder.
"PLAN" shall mean this Farah Incorporated 1998 Stock Option and
Restricted Stock Plan, as amended from time to time.
"PLAN AWARD" shall mean the grant of either an Option or Restricted
stock, as the context requires.
"RESTRICTED STOCK" shall have that meaning set forth in Section 7(a) of
this Plan.
"RESTRICTED STOCK ACCOUNT" shall have that meaning set forth in Section
7(a)(ii) of this Plan.
"RESTRICTED STOCK CRITERIA" shall have that meaning in Section 7(a)(iv)
of this Plan.
"RESTRICTION PERIOD" shall have that meaning in Section 7(a)(iii) of
this Plan.
"SERVICES" shall mean services rendered to the Company or any of its
Subsidiaries as an Employee or Consultant, as the context requires.
"SHARE" shall mean one share of Stock, as adjusted in accordance with
Section 9 of this Plan (if applicable).
"STOCK" shall mean the common stock of the Company, no par value per
share.
"STOCK OPTION AGREEMENT" shall mean the agreement executed between the
Company and an Optionee that contains the terms, conditions and restrictions
pertaining to the granting of an Option.
"SUBSIDIARY" shall mean any corporation as to which more than fifty
(50%) percent of the outstanding voting stock or shares shall now or hereafter
be owned or controlled, directly by a person, any Subsidiary of such person, or
any Subsidiary of such Subsidiary.
"TEN-PERCENT SHAREHOLDER" shall mean a person that owns more than ten
percent (10%) of the total combined voting power of all classes of outstanding
stock of the Company or any Subsidiary, taking into account the attribution
rules set forth in section 424 of the Code, as amended. For purposes of this
definition of "Ten Percent Shareholder" the term "outstanding stock" shall
include all stock actually issued and outstanding immediately after the grant
of an Option to an Optionee. "Outstanding stock" shall not include reacquired
shares or shares authorized for issuance under outstanding Options held by the
Optionee or by any other person.
"VEST DATE" shall have that meaning in Section 7(a)(v) of this Plan.
SECTION 3
ADMINISTRATION
(a) GENERAL ADMINISTRATION. This Plan shall be administered by the
Committee, which shall consist of at least two persons, each of whom shall be
Disinterested Directors. The members of the Committee shall be appointed by the
Board of Directors for such terms as the Board of Directors may determine. The
Board of Directors may from time to time remove members from, or add members
to, the Committee. Vacancies on the Committee, however caused, may be filled by
the Board of Directors.
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(b) COMMITTEE PROCEDURES. The Board of Directors shall designate
one of the members of the Committee as chairman. The Committee may hold
meetings at such times and places as it shall determine. The acts of a majority
of the Committee members present at meetings at which a quorum exists, or acts
reduced to or approved in writing by a majority of all Committee members, shall
be valid acts of the Committee. A majority of the Committee shall constitute a
quorum.
(c) AUTHORITY OF COMMITTEE. This Plan shall be administered by, or
under the direction of, the Committee constituted in such a manner as to comply
at all times with Rule 16b-3 (or any successor rule) under the Exchange Act.
The Committee shall administer this Plan so as to comply at all times with the
Exchange Act and, subject to the Code, shall otherwise have absolute and final
authority to interpret this Plan and to make all determinations specified in or
permitted by this Plan or deemed necessary or desirable for its administration
or for the conduct of the Committee's business including without limitation the
authority to take the following actions:
(i) To interpret this Plan and to apply its provisions;
(ii) To adopt, amend or rescind rules, procedures and forms
relating to this Plan;
(iii) To authorize any person to execute, on behalf of the
Company, any instrument required to carry out the purposes of this Plan;
(iv) To determine when Plan Awards are to be granted under
this Plan;
(v) To select the Optionees and Participants;
(vi) To determine the number of Shares to be made subject to
each Plan Award;
(vii) To prescribe the terms, conditions and restrictions of
each Plan Award, including without limitation the Exercise Price and the
determination whether an Option is to be classified as an ISO or a Nonstatutory
Option;
(viii) To amend any outstanding Stock Option Agreement (other
than the Exercise Price) or the terms, conditions and restrictions of a grant
of Restricted Stock, subject to applicable legal restrictions and the consent
of the Optionee or Participant, as the case may be, who entered into such
agreement, or accelerate the vesting of any Plan Award;
(ix) To establish procedures so that an Optionee may obtain
a loan through a registered broker-dealer under the rules and regulations of the
Federal Reserve Board, for the purpose of exercising an Option;
(x) To establish procedures for an Optionee (1) to have
withheld from the total number of Shares to be acquired upon the exercise of an
Option that number of Shares having a Fair Market Value, which, together with
such cash as shall be paid in respect of fractional shares, shall equal the
Exercise Price, and (2) to exercise a portion of an Option by delivering that
number of Shares already owned by an Optionee having a Fair Market Value which
shall equal the partial Exercise Price and to deliver the Shares thus acquired
by such Optionee in payment of Shares to be received pursuant to the exercise
of additional portions of the Option, the effect of which shall be that an
Optionee can in sequence utilize such newly acquired shares in payment of the
Exercise Price of the entire Option, together with such cash as shall be paid
in respect of fractional shares;
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(xi) To establish procedures whereby a number of Shares may
be withheld from the total number of Shares to be issued upon exercise of an
Option, to meet the obligation of withholding for federal and state income and
other taxes, if any, incurred by the Optionee upon such exercise; and
(xii) To take any other actions deemed necessary or advisable
for the administration of this Plan.
All interpretations and determinations of the Committee made with
respect to the granting of Plan Awards shall be final, conclusive, and binding
on all interested parties. The Committee may make grants of Plan Awards on an
individual or group basis. No member of the Committee shall be liable for any
action that is taken or is omitted to be taken if such action or omission is
taken in good faith with respect to this Plan or grant of any Plan Award.
(d) HOLDING PERIOD. The Committee may in its sole discretion
require as a condition to the granting of any Plan Award, that a Participant
hold the Plan Awards for a period of six months following the date of such
acquisition. This condition shall be satisfied with respect to a derivative
security if at least six months elapse from the date of acquisition of the
derivative security to the date of disposition of the derivative security
(other than upon exercise or conversion) or its underlying equity security.
SECTION 4
ELIGIBILITY
(a) GENERAL RULE. Subject to the limitations set forth in
subsection b below or elsewhere in this Plan, Participants shall be eligible to
participate in this Plan.
(b) NON-EMPLOYEE INELIGIBLE FOR ISOS. In no event shall an ISO be
granted to any individual who is not an Employee on the Date of Grant.
SECTION 5
SHARES SUBJECT TO PLAN
BASIC LIMITATION. Shares offered under this Plan may be
authorized but unissued Shares or Shares that have been reacquired by the
Company. The aggregate number of Shares that are available for issuance under
this Plan shall not exceed two hundred thousand (200,000) Shares, subject to
adjustment pursuant to Section 9 of this Plan. The Committee shall not issue
more Shares than are available for issuance under this Plan. The number of
Shares that are subject to unexercised Options at any time under this Plan
shall not exceed the number of Shares that remain available for issuance under
this Plan. The Company, during the term of this Plan, shall at all times
reserve and keep available sufficient Shares to satisfy the requirements of
this Plan.
ADDITIONAL SHARES. 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. In the event that Shares issued under this Plan revert to the
Company prior to the Vest Date under a grant of Restricted Stock, such Shares
shall again be available for issuance under this Plan.
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SECTION 6
TERMS AND CONDITIONS OF OPTIONS
(a) TERM OF OPTION. The term of each Option shall be ten (10) years
from the Date of Grant or such shorter term as may be determined by the
Committee; provided, however, in the case of an ISO granted to a Ten-Percent
Shareholder, the term of such ISO shall be five (5) years from the Date of
Grant or such shorter time as may be determined by the Committee.
(b) EXERCISE PRICE AND METHOD OF PAYMENT.
(i) EXERCISE PRICE. The Exercise Price shall be such price as
is determined by the Committee in its sole discretion and set forth in the
Stock Option Agreement; provided, however, in the case of an ISO granted to an
Optionee, the Exercise Price shall not be less than 100% of the Fair Market
Value of the Shares subject to such option on the Date of Grant (or 110% in the
case of an Option granted to a Participant who is a Ten-Percent Shareholder on
the Date of Grant).
(ii) PAYMENT OF SHARES. Payment for the Shares upon exercise of
an Option shall be made in cash, by certified check, or if authorized by the
Committee, by delivery of other Shares having a Fair Market Value on the date
of delivery equal to the aggregate exercise price of the Shares as to which
said Option is being exercised, or by any combination of such methods of
payment or by any other method of payment as may be permitted under applicable
law and this Plan and authorized by the Committee under Section 3(c) of this
Plan.
(c) EXERCISE OF OPTION.
(i) PROCEDURE FOR EXERCISE; RIGHTS OF SHAREHOLDER. Any Option
granted hereunder shall be exercisable at such times under such conditions as
shall be determined by the Committee, including without limitation performance
criteria with respect to the Company and/or the Optionee, and in accordance
with the terms of this Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Stock Option Agreement by the Optionee entitled to exercise the Option and full
payment for the Shares with respect to which the Option is exercised has been
received by the Company. Full payment may, as authorized by the Committee,
consist of any form of consideration and method of payment allowable under
Section 6(b)(ii) of this Plan. Upon the receipt of notice of exercise and full
payment for the Shares, the Shares shall be deemed to have been issued and the
Optionee shall be entitled to receive such Shares and shall be a shareholder
with respect to such Shares, and the Shares shall be considered fully paid and
nonassessable. No adjustment will be made for a dividend or other right for
which the record date is prior to the date on which the stock certificate is
issued, except as provided in Section 9 of this Plan.
Each exercise of an Option shall reduce, by an equal number, the total
number of Shares that may thereafter be purchased under such Option.
(ii) TERMINATION OF STATUS AS AN EMPLOYEE OR CONSULTANT. Except
as provided in Subsections 6(c)(iii) and 6(c)(iv) below, an Optionee holding an
Option who ceases to be an Employee or Consultant of the Company may, but only
until the earlier of the date (x) the Option held by the Optionee expires, or
(y) thirty (30) days after the date such Optionee ceases to be an Employee or a
Consultant, exercise the Option to the extent that the Optionee was entitled to
exercise it on such date; provided,
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however, that in the event the Optionee is an Employee and is terminated
without cause (as determined in the sole discretion of the Committee) then the
thirty (30) day period described in this sentence shall be automatically
extended to ninety (90) days (and in the case of a Nonstatutory Option, such
period shall be automatically extended to six (6) months), unless the Committee
further extends such period in its sole discretion. To the extent that the
Optionee was not entitled to exercise an Option on such date, or if the
Optionee does not exercise it within the time specified herein, such Option
shall terminate. The Committee shall have the authority to determine the date
an Optionee ceases to be an Employee or a Consultant.
(iii) PERMANENT AND TOTAL DISABILITY.
Notwithstanding the provisions of Section 6(c)(ii)
above, in the event an Optionee is unable to continue to perform Services for
the Company or any of its Subsidiaries as a result of such Optionee's Permanent
and Total Disability (and, for ISOs, at the time such Permanent and Total
Disability begins, the Optionee was an Employee and had been an Employee since
the Date of Grant), such Optionee may exercise an Option in whole or in part
notwithstanding that such Option may not be fully exercisable, but only until
the earlier of the date (x) the Option held by the Optionee expires, or (y)
twelve (12) months from the date of termination of Services due to such
Permanent and Total Disability. To the extent the Optionee is not entitled to
exercise an Option on such date or if the Optionee does not exercise it within
the time specified herein, such Option shall terminate.
(iv) DEATH OF AN OPTIONEE. Upon the death of an Optionee,
any Option held by an Optionee shall terminate and be of no further effect;
provided, however, notwithstanding the provisions of Section 6(c)(ii) above, in
the event an Optionee's death occurs during the term of an Option held by such
Optionee and, at the time of death, the Optionee was an Employee or Consultant
(and, for ISOs, at the time of death, the Optionee was an Employee and had been
an Employee since the Date of Grant), the Option may be exercised in whole or in
part notwithstanding that such Option may not have been fully exercisable on the
date of the Optionee's death, but only until the earlier of the date (x) the
Option held by the Optionee expires, or (y) twelve (12) months from the date of
the Optionee's death, by the Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance. To the extent the Option
is not entitled to be exercised on such date or if the Option is not exercised
within the time specified herein, such Option shall terminate.
(d) NON-TRANSFERABILITY OF OPTIONS. Except as may be permitted by
the Committee in its sole discretion, any Option granted under this Plan may
not be sold, pledged, assigned, hypothecated, transferred or disposed of in any
manner other than by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Code or
Title I of the Employee Retirement Income Security Act, or the rules
thereunder, and is not assignable by operation of law or subject to execution,
attachment or similar process. Any Option granted under this Plan can only be
exercised during the Optionee's lifetime by such Optionee. Any attempted sale,
pledge, assignment, hypothecation or other transfer of the Option contrary to
the provisions hereof and the levy of any execution, attachment or similar
process upon the Option shall be null and void and without force or effect. No
transfer of the Option by will or by the laws of descent and distribution shall
be effective to bind the Company unless the Company shall have been furnished
written notice thereof and an authenticated copy of the will and/or such other
evidence as the Committee may deem necessary to establish the validity of the
transfer and the acceptance by the transferee or transferees of the terms and
conditions of the Option. The terms of any Option transferred by will or by the
laws of descent and distribution shall be binding upon the executors,
administrators, heirs and successors of Optionee.
(e) TIME OF GRANTING OPTIONS. Any Option granted hereunder shall be
deemed to be granted on the Date of Grant. Written notice of the Committee's
determination to grant an Option to an
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Employee, evidenced by a Stock Option Agreement, dated as of the Date of Grant,
shall be given to such Employee within a reasonable time after the Date of
Grant.
(f) MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS. Within the
limitations of this Plan, the Committee may modify, extend or renew outstanding
Options or may accept the cancellation of outstanding Options (to the extent
not previously exercised) for the granting of new Options in substitution
therefor. The foregoing notwithstanding, no modification of an Option shall,
without the consent of the Optionee, alter or impair the Optionee's rights or
obligations under such Option; provided that the Committee may, in its sole
discretion, and without the consent of the Optionee or any other person,
accelerate the vesting of all or part of any Option.
(g) RESTRICTIONS ON TRANSFER OF SHARES. Any Shares issued upon
exercise of an Option shall be subject to such rights of repurchase and other
transfer restrictions as the Committee may determine in its sole discretion.
Such restrictions shall be set forth in the applicable Stock Option Agreement.
(h) SPECIAL LIMITATION ON ISOS. To the extent that the aggregate
Fair Market Value (determined on the Date of Grant) of the Shares with respect
to which ISOs are exercisable for the first time by an individual during any
calendar year under this Plan, and under all other plans maintained by the
Company, exceeds $100,000, such Options shall be treated as Options that are
not ISOs.
(i) LEAVES OF ABSENCE. Leaves of absence approved by the Committee
which conform to the policies of the Company shall not be considered
termination of employment if the employer-employee relationship as defined
under the Code or the regulations promulgated thereunder otherwise exists.
(j) LIMITATION ON GRANTS OF OPTIONS TO COVERED EMPLOYEES. The total
number of Shares for which Options may be granted and which may be awarded as
Incentive Stock to any "covered employee" within the meaning of Section 162(m)
of the Code and the regulations promulgated thereunder, as amended from time to
time, during any one-year period shall not exceed 100,000 in the aggregate.
(k) DISQUALIFYING DISPOSITIONS. The Stock Option Agreement
evidencing any ISO granted under this Plan shall provide that if the Optionee
makes a disposition, within the meaning of Section 425(c) of the Code and the
regulations promulgated thereunder, of any share or shares issued to him
pursuant to the exercise of the ISO within the two-year period commencing on
the day after the Date of Grant of such Option or within a one-year period
commencing on the day after the date of transfer of the share or shares to him
pursuant to the exercise of such Option, he shall, within ten days of such
disposition, notify the Company thereof and immediately deliver to the Company
any amount of federal income tax withholding required by law.
(l) WITHHOLDING TAXES. The Committee shall require an Optionee to
pay to the Company at the time of exercise of an Option 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, an Optionee may either pay
such taxes in cash or make a written election to have shares of Common Stock
withheld by the Company from the shares otherwise to be received. The
acceptance of any such election by an Optionee shall be at the sole discretion
of the Committee. In addition, the Committee may require to withhold shares of
Common Stock from the shares otherwise to be received by an Optionee upon
exercise of an option. The number of shares withheld pursuant to this paragraph
shall have an aggregate Fair Market Value on the date of exercise sufficient to
satisfy the applicable withholding taxes.
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SECTION 7
RESTRICTED STOCK
(a) AUTHORITY TO GRANT RESTRICTED STOCK. The Committee shall have
the authority to grant to Participants Shares that are subject to certain
terms, conditions and restrictions (the "Restricted Stock"). The Restricted
Stock may be granted by the Committee either separately or in combination with
Options. The terms, conditions and restrictions of the Restricted Stock shall
be determined from time to time by the Committee without limitation, except as
otherwise provided in this Plan; provided, however, that each grant of
Restricted Stock shall require the Participant to remain an Employee of (or
otherwise provide Services to) the Company or any of its Subsidiaries for at
least six (6) months from the Date of Grant. The granting, vesting and issuing
of the Restricted Stock shall also be subject to the following provisions:
(i) NATURE OF GRANT. Restricted Stock shall be granted to
Participants for Services rendered and at no additional cost to Participant;
provided, however, that the value of the Services performed must, in the
opinion of the Committee, equal or exceed the par value of the Restricted Stock
to be granted to the Participant.
(ii) RESTRICTED STOCK ACCOUNT. The Company shall establish a
restricted stock account (the "Restricted Stock Account") for each Participant
to whom Restricted Stock is granted, and such Restricted Stock shall be
credited to such account. No certificates will be issued to the Participant
with respect to the Restricted Stock until the Vest Date as provided herein.
Every credit of Restricted Stock under this Plan to a Restricted Stock Account
shall be considered "contingent" and unfunded until the Vest Date. Such
contingent credits shall be considered bookkeeping entries only,
notwithstanding the "crediting" of "dividends" as provided herein. Such
accounts shall be subject to the general claims of the Company's creditors. The
Participant's rights to the Restricted Stock Account shall be no greater than
that of a general creditor of the Company. Nothing contained herein shall be
construed as creating a trust or fiduciary relationship between the
Participants and the Company, the Board of Directors or the Committee.
(iii) RESTRICTIONS. The terms, conditions and restrictions of
the Restricted Stock shall be determined by the Committee on the Date of Grant.
The Restricted Stock may not be sold, assigned, transferred, redeemed, pledged
or otherwise encumbered during the period in which the terms, conditions and
restrictions apply (the "Restriction Period"). More than one grant of
Restricted Stock may be outstanding at any one time, and the Restriction
Periods may be of different lengths. Receipt of the Restricted Stock is
conditioned upon satisfactory compliance with the terms, conditions and
restrictions of this Plan and those imposed by the Committee.
(iv) RESTRICTED STOCK CRITERIA. At the time of each grant of
Restricted Stock, the Committee in its sole discretion may establish certain
criteria to determine the times at which restrictions placed on Restricted
Stock shall lapse (i.e., the termination of the Restriction Period), which
criteria may include without limitation performance measures and targets and/or
holding period requirements (the "Restricted Stock Criteria"). The Committee
may establish a corresponding relationship between the Restricted Stock
Criteria and (x) the number of Shares of Restricted Stock that may be earned,
and (y) the extent to which the terms, conditions and restrictions on the
Restricted Stock shall lapse. Restricted Stock Criteria may vary among grants
of Restricted Stock; provided, however, that once the Restricted Stock Criteria
are established for a grant of Restricted Stock, the Restricted Stock Criteria
shall not be modified with respect to such grant.
(v) VESTING. On the date the Restriction Period terminates, the
Restricted Stock shall vest in the Participant (the "Vest Date"), who may then
require the Company to issue certificates evidencing the Restricted Stock
credited to the Restricted Stock Account of such Participant.
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(vi) DIVIDENDS. The Committee may provide from time to time
that amounts equivalent to dividends shall be payable with respect to the
Restricted Stock held in the Restricted Stock Account of a Participant. Such
amounts shall be credited to the Restricted Stock Account and shall be payable
to the Participant on the Vest Date.
(vii) TERMINATION OF SERVICES. If a Participant (x) with the
consent of the Committee, ceases to be an Employee of, or otherwise ceases to
provide Services to, the Company or any of its Subsidiaries, or (y) dies or
suffers from Permanent and Total Disability, the vesting or forfeiture
(including without limitation the terms, conditions and restrictions) of any
grant under this Section 7 shall be determined by the Committee in its sole
discretion, subject to any limitations or terms of this Plan. If the
Participant ceases to be an Employee of, or otherwise ceases to provide
Services to, the Company or any of its Subsidiaries for any other reason, all
grants of Restricted Stock under this Plan shall be forfeited (subject to the
terms of this Plan).
(b) DEFERRAL OF PAYMENTS.
The Committee may establish procedures by which a Participant
may elect to defer the transfer of Restricted Stock to the Participant. The
Committee shall determine the terms and conditions of such deferral in its sole
discretion.
SECTION 8
ISSUANCE OF SHARES
As a condition to the transfer of any Shares issued under this Plan, the
Company may require an opinion of counsel, satisfactory to the Company, to the
effect that such transfer will not be in violation of the Securities Act of
1933, as amended (the "Securities Act"), or any other applicable securities
laws, rules or regulations, or that such transfer has been registered under
federal and all applicable state securities laws. The Company may refrain from
delivering or transferring Shares issued under this Plan until the Committee
has determined that the Participant has tendered to the Company any and all
applicable federal, state or local tax owed by the Participant as the result of
the receipt of a Plan Award, the exercise of an Option or the disposition of
any Shares issued under this Plan, in the event that the Company reasonably
determines that it might have a legal liability to satisfy such tax. The
Company shall not be liable to any person or entity for damages due to any
delay in the delivery or issuance of any stock certificate evidencing any
Shares for any reason whatsoever.
SECTION 9
CAPITALIZATION ADJUSTMENTS; MERGER; CHANGE IN CONTROL
(a) ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. 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 number of Shares of
Restricted Stock credited to any Restricted Stock Account of a Participant (as
well as the Exercise Price covered by 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 Stock or any other increase or decrease in the number of issued Shares
effected without receipt of consideration by the Company. Such adjustment shall
be made by the Committee 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.
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(b) DISSOLUTION, LIQUIDATION, SALE OF ASSETS OR MERGER. In the
event of the dissolution or liquidation of the Company, other than pursuant to
a Reorganization (hereinafter defined), any Option granted under the Plan shall
terminate as of a date to be fixed by the Committee, provided that not less
than 30 days written notice of the date so fixed shall be given to each
Optionee and each such Optionee shall have the right during such period to
exercise his Options as to all or any part of the Shares covered thereby
including Shares as to which such Options would not otherwise be exercisable by
reason of an insufficient lapse of time.
In the event of a Reorganization in which the Company is not the
surviving or acquiring company, or in which the Company is or becomes a
wholly-owned subsidiary of another company after the effective date of the
Reorganization, then
(i) if there is no plan or agreement respecting the
Reorganization ("Reorganization Agreement") or if the
Reorganization Agreement does not specifically provide
for the change, conversion or exchange of the Shares
under outstanding unexercised Options for securities
of another corporation, then the Committee shall take
such action, and the Options shall terminate, as
provided above; or
(ii) if there is a Reorganization Agreement and if the
Reorganization Agreement specifically provides for the
change, conversion or exchange of the shares under
outstanding or unexercised options for securities of
another corporation, then the Committee shall adjust
the shares under such outstanding unexercised Options
(and shall adjust the Shares which are then available
to be optioned, if the Reorganization Agreement makes
specific provisions therefore) in a manner not
inconsistent with the provisions of the Reorganization
Agreement for the adjustment, change, conversion or
exchange of such stock and such options.
The term "Reorganization" as used in this Subsection 9(b) shall mean any
statutory merger, statutory consolidation, sale of all or substantially all of
the assets of the Company, or sale, pursuant to an agreement with the Company,
of securities of the Company pursuant to which the Company is or becomes a
wholly-owned subsidiary of another company after the effective date of the
Reorganization.
Except as provided above in this Section 9(b) and except as otherwise
provided by the Committee in its sole discretion, any Options shall terminate
immediately prior to the consummation of such proposed action.
(c) CHANGE IN CONTROL. Subject to Section 9(b), in the event there
occurs a Change of Control, (i) the Optionees shall have the right to exercise
from and after the date of the Change in Control the Option held by such
Optionee in whole or in part notwithstanding that such Option may not be fully
exercisable, and (ii) any and all restrictions on any Restricted Stock credited
to a Restricted Stock Account shall lapse and such stock shall immediately vest
in the Participants notwithstanding that the Restricted Stock held in such
account was unvested.
SECTION 10
NO EMPLOYMENT RIGHTS
No provision of this Plan, under any Stock Option Agreement or under any
grant of Restricted Stock shall be construed to give any Participant any right
to remain an Employee of, or provide Services to, the Company or any of its
Subsidiaries or to affect the right of the Company to terminate any
Participant's service at any time, with or without cause.
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SECTION 11
TERM OF PLAN; EFFECT OF AMENDMENT OR TERMINATION
(a) EFFECTIVE DATE; TERM OF PLAN. This Plan shall be submitted to
the stockholders of the Company for approval and ratification at the next
regular or special meeting thereof to be held after March 1, 1998. Unless at
such meeting this Plan is approved and ratified by the affirmative vote of a
majority of the outstanding shares of Stock of the Company present in person or
by proxy and entitled to a vote, then, and in such event, this Plan and any
then outstanding Options or Incentive Stock that may have been conditionally
granted prior to such stockholder meeting shall become null and void and of no
further force or effect. Subject to the immediately preceding sentence, this
Plan shall become effective upon its adoption by the Board of Directors. This
Plan shall continue in effect for a term of ten (10) years unless sooner
terminated under this Section 11.
(b) AMENDMENT AND TERMINATION. The Board of Directors in its sole
discretion may terminate this Plan at any time. The Board of Directors may
amend this Plan at any time in such respects as the Board of Directors may deem
advisable; provided, that any change in the aggregate number of Shares that may
be issued under this Plan, other than in connection with an adjustment under
Section 9 of this Plan, shall require approval of the holders of a majority of
the outstanding Shares entitled to vote.
(c) EFFECT OF TERMINATION. In the event this Plan is terminated, no
Shares shall be issued under this Plan, except upon exercise of an Option
granted prior to such termination or issuance of Shares of Restricted Stock
previously credited to a Restricted Stock Account. The termination of this
Plan, or any amendment thereof, shall not affect any Shares previously issued
to a Participant, any Option previously granted under this Plan or any
Restricted Stock previously credited to a Restricted Stock Account.
SECTION 12
GOVERNING LAW
THIS PLAN AND ANY AND ALL STOCK OPTION AGREEMENTS AND AGREEMENTS
RELATING TO THE GRANT OF RESTRICTED STOCK EXECUTED IN CONNECTION WITH THIS PLAN
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
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PROXY
FARAH INCORPORATED
Annual Meeting of Shareholders
to be held March 10, 1998
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby (a) acknowledges receipt of the Notice of Annual Meeting
of Shareholders of Farah Incorporated (the "Company"), to be held on March 10,
1998, and the proxy statement in connection therewith, each dated January 30,
1998, (b) appoints Richard C. Allender and Russell G. Gibson, or either of
them, as Proxies, each with the power to appoint a substitute, (c) authorizes
the Proxies to represent and vote, as designated below, all the shares of
Common Stock of the Company held of record by the undersigned on January 23,
1998, at such annual meeting and at any adjournment(s) thereof, and (d) revokes
any proxies heretofore given.
THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS INDICATED, THIS
PROXY WILL BE VOTED FOR THE ADOPTION AND APPROVAL OF PROPOSALS 1, 2 AND 3, AND
ON ANY OTHER BUSINESS, IN THE DISCRETION OF THE PROXIES.
[PLEASE SIGN, DATE AND RETURN
THIS PROXY PROMPTLY IN THE
ACCOMPANYING ENVELOPE.]
<PAGE> 40
FARAH INCORPORATED
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
The Board of Directors recommends a vote FOR proposals 1, 2 and 3.
1. To elect as Class II Directors the following Nominees:
CLARK L. BULLOCK, MICHAEL R. MITCHELL AND CHARLES J. SMITH.
(terms to expire at 2001 Annual Meeting of Stockholders)
FOR all WITHHOLD
nominees AUTHORITY
[ ] [ ]
TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE THROUGH
THAT NOMINEE'S NAME. Unless authority to vote for all the foregoing nominees is
withheld, this proxy will be deemed to confer authority to vote for every
nominee whose name is not struck.
2. Approval of the proposal to adopt the Company's 1998 Stock Option and
Restricted Stock Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Approval of the proposal to ratify Coopers & Lybrand, L.L.P. as the
Company's independent public accountants for the fiscal year ending
November 1, 1998.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
IMPORTANT: Please date this proxy and sign exactly as your name or names appear
thereon. If stock is held jointly, signature should include both names.
Executors, administrators, trustees, guardians and others signing in the
representative capacity, please so indicate when signing.
- --------------------------------------------------------------------------------
Signature Date
- --------------------------------------------------------------------------------
Signature if held jointly Date
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON
