<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
FARR COMPANY
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
[End of Cover Page]
<PAGE>
FARR COMPANY
2221 PARK PLACE
EL SEGUNDO, CALIFORNIA 90245
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 3, 1995
The Annual Meeting of the Stockholders of Farr Company, a Delaware
corporation, will be held in the Company's offices located at 2221 Park Place,
El Segundo, California, on Wednesday, May 3, 1995, at 10:00 a.m. for the
following purposes:
1. To elect two directors to serve for three years and until their
successors are elected and have qualified. The Board of Directors'
nominees are named in the accompanying Proxy Statement which is part of
this Notice.
2. To consider and vote upon a proposal to amend the Company's 1993
Stock Option Plan for Key Employees.
3. To consider and vote upon a stockholder proposal which is opposed by
the Board of Directors.
4. To transact such other business as may properly come before the
meeting and any adjournments thereof.
The Board of Directors has fixed the close of business on March 10, 1995 as
the record date for the determination of stockholders entitled to vote at this
meeting.
All stockholders are cordially invited to attend the meeting.
Kenneth W. Gerstner
Secretary
El Segundo, California
April 3, 1995
- - --------------------------------------------------------------------------------
In order to ensure your representation at the meeting, you are requested to
sign and date the enclosed proxy as promptly as possible and return it in
the enclosed envelope (to which no postage need be affixed if mailed in the
United States). If you attend the meeting and file with the Secretary of the
Company an instrument revoking your proxy or a duly executed proxy bearing a
later date, your proxy will not be used.
- - --------------------------------------------------------------------------------
<PAGE>
FARR COMPANY
-------------------
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies for use at the Annual Meeting of Stockholders of Farr Company (the
"Company") to be held at 10:00 a.m. on Wednesday, May 3, 1995. This solicitation
is made by the Board of Directors of the Company, and the costs thereof, which
will be borne by the Company, are expected to be nominal. Brokerage houses,
custodians, nominees and others who hold stock in their names will be reimbursed
for expenses in sending proxy material to their principals.
The Company intends to send this Proxy Statement and form of proxy to its
stockholders on or about April 3, 1995. The principal executive offices of the
Company are located at 2221 Park Place, El Segundo, California 90245, telephone
(310) 536-6300.
The stockholders of record at the close of business on March 10, 1995 are
entitled to one vote for each share of stock held by them. On March 10, 1995
there were outstanding 3,685,932 shares of the Company's common stock, par value
$.10 per share (the "Common Stock"). A majority of the outstanding shares of
Common Stock will constitute a quorum for the transaction of business. Any proxy
may be revoked at any time before it is exercised by filing with the Secretary
of the Company an instrument revoking it or a duly executed proxy bearing a
later date. Proxies will be voted as directed.
Shares represented by proxies that reflect abstentions or "broker non-votes"
(i.e., shares held by a broker or nominee which are represented at the meeting,
but with respect to which such broker or nominee is not empowered to vote on a
particular proposal or proposals) will be counted as shares that are present and
entitled to vote for purposes of determining the presence of a quorum.
In voting for the election of directors, each share has one vote for each
position to be filled, and there is no cumulative voting. Directors will be
elected by a plurality of the shares voting, which means that abstentions or
broker non-votes will not affect the election of the candidates receiving the
plurality of votes. All other proposals to come before the Annual Meeting
require the approval of a majority of the shares of Common Stock present and
entitled to vote at the meeting. Therefore, as to any such particular proposal,
abstentions will have the same effect as a vote against that proposal and broker
non-votes will not be counted as votes for or against the proposal, and will not
be included in counting the number of votes necessary for approval of the
proposal.
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of February 28, 1995 with
respect to shares of the Common Stock which are held by persons known to the
Company to be beneficial owners of more than 5% of such stock and by all
officers and directors as a group based upon information received from such
persons. For purposes of this Proxy Statement, beneficial ownership of
securities is defined in accordance with the rules of the Securities and
Exchange Commission and means generally the power to vote or dispose of
securities, regardless of any economic interest therein.
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK BENEFICIALLY OWNED
--------------------------------------
AMOUNT AND
NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- - ------------------------------------ -------------------- --------
<S> <C> <C>
M.S. Farr and Thalis J. Farr 394,329(1) 10.7%
2221 Park Place
El Segundo, CA 90245
Wellington Management Company 312,000(2) 8.5%
75 State Street
Boston, Massachusetts 02109
Columbia Management Company 263,000(2) 7.1%
1300 S.W. 6th Avenue P.O. Box 1350
Portland, Oregon 97207
</TABLE>
- - ----------------
(1) M.S. Farr and his wife, Thalis J. Farr, hold these shares as trustees under
a revocable inter vivos trust established by M.S. Farr and Thalis J. Farr
for their benefit and for the benefit of their children. M.S. Farr and
Thalis J. Farr each have sole and shared power to vote and dispose of all
of such shares.
(2) Based on the information contained in a Schedule 13G filed with the
Securities and Exchange Commission reflecting beneficial ownership as of
December 31, 1994.
OWNERSHIP OF VOTING STOCK BY MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of the Common Stock by the Company's directors, its present and former
Chief Executive Officer, each of the other persons named in the Summary
Compensation Table and all directors and executive officers as a group as of
February 28, 1995.
<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY OF
NAME OF BENEFICIAL OWNER POSITION OWNED(1)(2) CLASS(1)
- - ------------------------ -------- ------------ --------
<S> <C> <C> <C>
Robert Batinovich Director 48,315 1.3%
Richard P. Bermingham Director 10,500 *
David J. Farr Director 45,000 1.2%
Richard L. Farr Director, Senior Vice President 99,770 2.7%
Kenneth W. Gerstner Senior Vice President, Chief 6,830 *
Financial Officer
John J. Kimes Director 0 *
H.J. Meany Chairman, President 90,500 2.5%
and Chief Executive Officer
Myron G. Rasmussen Vice President 18,667 *
Charles R. Wofford Former Chairman, President and Chief 5,000 *
Executive Officer
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
BENEFICIALLY PERCENT
NAME OF BENEFICIAL OWNER POSITION OWNED(1)(2) OF CLASS
- - ------------------------ -------- ------------ --------
<S> <C> <C> <C>
Directors and Executive -- 319,582 8.5%
Officers as a group (9
persons)
</TABLE>
- - -------------
* Less than 1%
(1) For purposes of computing the percentages, the number of shares of Common
Stock outstanding includes shares purchasable by such individual or group
within 60 days upon exercise of outstanding stock options.
(2) Includes shares purchasable within 60 days upon exercise of outstanding
stock options as follows: R.P. Bermingham, 8,000; R.L. Farr, 19,906; K.W.
Gerstner, 6,500; H.J. Meany, 8,000; M.G. Rasmussen 12,281; all directors and
executive officers as a group, 54,687.
PROPOSAL 1:
ELECTION OF DIRECTORS
Pursuant to the Company's Bylaws the Company has six directors, divided into
three classes. Two directors are to be elected at the Annual Meeting, each of
whom will serve until the 1998 Annual Meeting and until his respective successor
shall have been elected or appointed.
In the absence of instructions to the contrary, votes will be cast for the
election of the following as directors pursuant to the proxies solicited hereby.
Although the Board of Directors expects that each of the nominees will be
available to serve as a director, in the event any of them should become
unavailable prior to the Annual Meeting, the proxy will be voted for a nominee
or nominees designated by the Board of Directors, or the number of directors may
be reduced accordingly. However, the proxy cannot be voted for a greater number
of persons than the number of nominees designated by the Board of Directors.
3
<PAGE>
1995 NOMINEES
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS EXPERIENCE DURING PAST DIRECTOR
NAME AGE 5 YEARS AND CERTAIN OTHER DIRECTORSHIPS SINCE
- - -------------------- --- ------------------------------------------------- --------
<S> <C> <C> <C>
Robert Batinovich 58 President and Majority Owner Glenborough 1994
Corporation (since 1978), a real estate
investment company; Commissioner and past
President (from 1975 to 1980) California Public
Utilities Commission.
David J. Farr 57 Owner (since 1965) David J. Farr Insurance 1994
Services, Financial Consultant and Life
Underwriter; first cousin of Richard L. Farr
</TABLE>
CONTINUING DIRECTORS
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS EXPERIENCE DURING PAST DIRECTOR TERM
NAME AGE 5 YEARS AND CERTAIN OTHER DIRECTORSHIPS SINCE EXPIRES
- - -------------------- --- ------------------------------------------------- -------- -------
<S> <C> <C> <C> <C>
Richard P. 55 Vice Chairman (since July 1994) American Golf 1990 1996
Bermingham Corporation; President and Chief Executive
Officer (from May 1987 to June 1994) of
Sizzler International, Inc., operator and
franchisor of restaurants.
Richard L. Farr 51 Senior Vice President (since January 1995), 1988 1996
Vice President (from November 1987 to
December 1994) of the Company; first cousin of
David J. Farr.
John J. Kimes 52 President and Chief Executive Officer of 1995 1997
Computerized Security Systems (since 1988);
Vice President Administration and Controller
(from 1981 to 1988) of NI Industries, Inc.,
manufacturer of building, industrial and defense
products.
H.J. Meany 72 Chairman, President and Chief Executive 1976 1997
Officer (since April 1994), Director (from June
1976 to March 1994) of the Company; Retired,
Chairman of the Board and Chief Executive
Officer (from October 1975 to March 1988) of
NI Industries, Inc., manufacturer of building,
industrial and defense products; Director, APS
Inc.; Director, BWIP, Inc.
</TABLE>
4
<PAGE>
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Board of Directors held eight meetings during 1994. During 1994, no
director attended fewer than 75% of the meetings of the Board of Directors and
committees on which he served and which were held while such director was a
director.
Directors who are not employees of the Company are paid an annual retainer of
$9,000 and $600 for each Board of Directors and committee meeting attended.
Committee chairmen are paid $800 for each committee meeting attended. Directors
who are employees of the Company are not paid for attending Board of Directors
meetings.
Four directors left the Board of Directors during 1994. C.R. Wofford,
Chairman, President and Chief Executive Officer resigned in April 1994. Robert
Batinovich filled the vacancy created by Mr. Wofford's resignation in July 1994.
James J. McMorrow passed away in July 1994. John J. Kimes filled the vacancy
created by Mr. McMorrow's death in January 1995. M. Spencer Farr, the Company's
co-founder, resigned as a Director in July 1994 retaining the title of Chairman
Emeritus. David J. Farr replaced his father M. Spencer Farr as a Director in
July 1994. Charles M. Clough retired in November 1994.
On January 22, 1991, the Board of Directors adopted the 1991 Stock Option
Plan for Non-Employee Directors (the "Director Plan"). Pursuant to the Director
Plan, each non-employee director of the Company is automatically granted in each
calendar year, for four years, an option to purchase 2,000 shares of Common
Stock. The price for each option granted under the Director Plan will be the
greater of (a) the fair market value of the Common Stock on the date of grant
and (b) the minimum legal consideration necessary for the issuance of such
shares. As of March 1, 1995, options to purchase 8,000 shares of Common Stock
have been granted under the Director Plan to each of Messrs. Bermingham and
Meany and options to purchase 2,000 shares of Common Stock have been granted
under the Director Plan to each of Messrs. Batinovich, D.J. Farr and Kimes, none
of which has been exercised.
In 1980, the Board of Directors adopted a deferred compensation plan pursuant
to which directors may elect to defer all or a portion of their directors' fees.
Under such plan, Mr. Meany elected to receive his accumulated deferred
compensation from June 1976 through March 1994, in an aggregate amount of
$161,250, plus accrued interest, on March 29, 1994 prior to his assumption of
the position of Chairman, President and Chief Executive Officer of the Company.
Among the committees of the Board of Directors are an Executive Committee, an
Audit Committee and a Compensation Committee. The Board of Directors does not
have a standing Nominating Committee.
The Executive Committee is comprised of Messrs. Meany (Chairman), R.L. Farr
and Bermingham. The purpose of the Executive Committee is to expedite the
decision making process of the Board of Directors. The Executive Committee held
no meetings in 1994.
The Audit Committee is comprised of Messrs. Bermingham (Chairman) and Kimes.
The Committee held two meetings in 1994. The functions performed by the Audit
Committee include: recommending to the Board of Directors independent
accountants to serve the Company for the ensuing year; reviewing with the
independent accountants and management the scope and results of the audit;
assuring that the independent accountants act independently; reviewing and
approving any substantial change in the Company's accounting policies and
practices; reviewing with management and the independent accountants the
adequacy of the Company's system of internal controls; reviewing the Company's
annual proxy statement; and reviewing
5
<PAGE>
non-audit professional services provided by the independent accountants and the
range of audit and non-audit fees. To ensure independence of the audit, the
Committee consults separately and jointly with the independent accountants and
management.
The Compensation Committee is comprised of Messrs. Batinovich (Chairman) and
D.J. Farr. The Committee held three meetings in 1994. On September 20, 1994,
the Board of Directors voted to reduce the Compensation Committee membership to
two directors, each of whom must be a "disinterested person" as defined by Rule
16b-3 and an "outside director" for purposes of Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"). The functions performed by the
Compensation Committee include reviewing and approving management's
recommendations as to executive compensation and grants of stock options to key
employees.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE DIRECTORS NOMINATED
IN PROPOSAL 1. Unless otherwise instructed, proxies will be voted FOR the
election of management's two nominees as directors.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers and directors, and persons who
own more than ten percent of a registered class of the Company's equity
securities, to file reports of ownership and changes in ownership (Forms 3, 4
and 5) with the Securities and Exchange Commission. Officers, directors and
greater-than-ten-percent holders are required to furnish the Company with copies
of all such forms which they file.
To the Company's knowledge, based solely on the Company's review of such
reports or written representations from certain reporting persons, the Company
believes that during the fiscal year ended December 31,1994 all filing
requirements applicable to its officers, directors, greater-than-ten-percent
beneficial owners and other persons subject to Section 16(a) of the Exchange Act
were complied with except that Mr. Batinovich inadvertently failed to file a
Form 4 with respect to an August 1994 purchase of 10,000 shares of Common Stock
which transaction was subsequently reported on a Form 5.
EXECUTIVE COMPENSATION
The following table shows the compensation paid by the Company to the Chief
Executive Officer, former Chief Executive Officer and its three other most
highly compensated executive officers whose cash compensation for the fiscal
year ended December 31, 1994 for services rendered in all capacities to the
Company exceeded $100,000.
6
<PAGE>
SUMMARY COMPENSATION TABLE(1)
--------------------------
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------
ANNUAL COMPENSATION AWARDS
-------------
SECURITIES ALL OTHER
UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) ($)(2)
- - --------------------------------- ---- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
H.J. Meany (3), 1994 1 0 2,000 5,850
Chairman, President and Chief 1993 -- -- 2,000 10,950
Executive Officer 1992 -- -- 2,000 14,400
Charles R. Wofford (4), 1994 141,995 0 30,000 176,780
Former Chairman, President and 1993 217,887 10,000 0 12,988
Chief Executive Officer 1992 206,985 0 14,000 7,852
Kenneth W. Gerstner 1994 114,457 0 16,000 4,877
Senior Vice President 1993 64,510 10,000 10,000 1,478
Chief Financial Officer 1992 -- -- -- --
Myron G. Rasmussen, Vice 1994 113,654 0 4,000 7,786
President 1993 108,943 5,000 0 7,689
1992 110,866 0 2,000 8,594
Richard L. Farr, 1994 114,193 0 4,000 6,319
Senior Vice President 1993 110,925 5,000 0 6,360
1992 112,905 0 2,000 8,757
</TABLE>
- - --------------
(1) Amounts cover the Company's fiscal year which was a 52-week period for 1993
and 1994 and a 53-week period for 1992.
(2) The amounts reported in this column include for fiscal 1994:
(a) payment of 1994 premiums for term life insurance on behalf of each of
the named executive officers as follows: C.R. Wofford -- $2,511; K.W.
Gerstner -- $2,635; M.G. Rasmussen -- $4,092; and R.L. Farr -- $2,631.
(b) contributions under the Company's 401(k) Plan for 1994 as follows:
K.W. Gerstner -- $1,517; M.G. Rasmussen -- $2,524; and R.L. Farr --
$2,538. Amounts contributed by the Company under this Plan vest 20%
after three years of service and continue to vest in 20% increments,
until they are fully vested after seven years of service.
(c) 1994 allocations of shares in the Company's Employee Stock Ownership
Plans in the following amounts: K.W. Gerstner -- $725 (117 shares);
M.G. Rasmussen -- $1,170 (191 shares); and R.L. Farr -- $1,150 (188
shares). Distributions from the Employee Stock Ownership Plan are made
upon the participant's termination of employment or reaching the age
of seventy and one-half.
(d) per terms of Mr. Wofford's employment agreement, includes termination
benefits of $174,269.
(footnotes continued)
7
<PAGE>
(footnotes continued)
(e) payment of director compensation to Mr. Meany earned while serving as
a non-employee director of the Company.
(3) Mr. Meany assumed the role of Chairman, President and Chief Executive
Officer in April 1994 for a nominal annual compensation of $1.00. Prior to
that time he served the Company as a non-employee director. All of Mr.
Meany's options were granted pursuant to the Director Plan.
(4) Includes salary paid through the term of Mr. Wofford's employment agreement.
Mr. Wofford was granted options to purchase 30,000 shares of Common Stock in
March 1994, which options lapsed following the termination of his
employment.
EMPLOYMENT AGREEMENT - C.R. WOFFORD
Mr. Wofford was employed pursuant to a three-year employment agreement
entered into with the Company in July 1991 until his resignation in April 1994.
Pursuant to the agreement, Mr. Wofford would have received an annual salary in
1994 of $230,000. Pursuant to the agreement, upon termination of Mr. Wofford's
employment, the Company was obligated to pay Mr. Wofford one year's salary. In
1992, the Company advanced Mr. Wofford $350,000 to pay a portion of the purchase
price of a single family residence in Los Angeles. In connection with Mr.
Wofford's resignation, the Company satisfied all of its obligations under the
agreement and Mr. Wofford repaid the Company the amount of the advance, less
approximately $50,000 which was attributable to a portion of the depreciation in
value of the residence.
8
<PAGE>
STOCK OPTION GRANTS
The following table presents information regarding grants made during fiscal
1994 under the Company's stock option plans to all of the persons named in the
Summary Compensation Table.
OPTION GRANTS IN LAST FISCAL YEAR
---------------------------------
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(2)
------------------------------------------ POTENTIAL
% OF REALIZABLE VALUE AT
NUMBER OF TOTAL ASSUMED ANNUAL
SECURITIES OPTIONS RATES OF STOCK PRICE
UNDERLYING GRANTED TO EXERCISE APPRECIATION
OPTIONS EMPLOYEES OR BASE FOR OPTION TERM(4)
GRANTED IN FISCAL PRICE EXPIRATION -----------------------
NAME (#)(1) YEAR ($/SHARE)(3) DATE 5% ($) 10% ($)
----- ------ --------- ------------ ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
H.J. Meany(5) 2,000 1.6 6.375 3/28/04 9,057 23,627
Charles R. Wofford(6) 30,000 24.4 6.375 -- 0 0
Kenneth W. Gerstner 16,000 13.1 6.375 3/28/04 69,647 81,694
Myron G. Rasmussen 4,000 3.3 6.375 3/28/04 18,114 47,254
Richard L. Farr 4,000 3.3 6.375 3/28/04 18,114 47,254
</TABLE>
- - --------------
(1) All employee options granted in 1994 will become exercisable in cumulative
25% installments commencing one year from the date of grant, with full
vesting occurring on the fourth anniversary date of the grant.
(2) Under the terms of the 1993 Stock Option Plan for Key Employees, the
Compensation Committee retains discretion, subject to plan limits, to modify
the terms of outstanding employee options and to reprice employee options,
including accelerating the exercisability of options in the event of a
merger or consolidation of the Company or the acquisition of all or
substantially all of the Company's assets or 80% or more of the Company's
outstanding voting stock, or the liquidation or dissolution of the Company.
(3) All options were granted at market value (as defined in the Company's stock
option plans) at date of grant.
(4) The assumed annual rates of appreciation in the table are shown for
illustrative purposes only pursuant to applicable Securities and Exchange
Commission requirements. Actual values realized on stock options are
dependent on actual future performance of the Company's stock, among other
factors. Accordingly, the amounts shown may not necessarily be realized.
(5) In March 1994, Mr. Meany was granted options to purchase 2,000 shares of
Common Stock pursuant to the Director Plan for his services to the Company
as a non-employee director. These director options will become fully
exercisable one year from the date of grant. In the event of a merger or
consolidation of the Company or the acquisition of all or substantially all
of the Company's assets or 80% or more of the Company's outstanding voting
stock, or the liquidation or dissolution of the Company, the Board of
Directors may, in its discretion, provide for director options to be
exercisable for up to thirty days prior to such event.
(6) All options previously held by Mr. Wofford lapsed following the termination
of his employment.
9
<PAGE>
STOCK OPTION EXERCISES
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
-----------------------------------------------
AND FISCAL YEAR END OPTION VALUES
---------------------------------
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES VALUE FY-END (#) FY-END ($)(1)
ACQUIRED ON REALIZED --------------------------- ---------------------------
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
H.J. Meany(2) 0 -- 6,000 2,000 0 0
Charles R. Wofford(3) 0 -- 0 0 -- --
Kenneth W. Gerstner 0 -- 6,500 19,500 0 0
Myron G. Rasmussen 0 -- 13,296 3,500 0 0
Richard L. Farr 0 -- 23,031 3,500 0 0
</TABLE>
- - ----------------
(1) Calculated based on the closing price of the Company's Common Stock ($6.125
per share) as reported on the NASDAQ National Market System at the end of
the 1994 fiscal year.
(2) Mr. Meany holds total options to purchase 8,000 shares of Common Stock
received pursuant to the Director Plan for his services to the Company as a
non-employee director.
(3) All options previously held by Mr. Wofford lapsed following the termination
of his employment.
COMPENSATION COMMITTEE REPORT
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee at the fiscal year ended December
31, 1994 were Messrs. Batinovich (Chairman) and D.J. Farr. Both are non-
employee directors and none has any direct or indirect material interest in or
relationship with the Company outside of his position as director. During 1994,
the following persons also served as members of the Compensation Committee:
H.J. Meany (until April 1994 when he was appointed as Chairman and Chief
Executive Officer); J.J. McMorrow (until his death in July 1994); R.P.
Bermingham (until July 1994); and C.L. Clough (until his resignation from the
Board of Directors in November 1994). To the Company's knowledge, there were no
interrelationships involving members of the Committee or other directors of the
Company requiring disclosure in this Proxy Statement.
REPORT ON ANNUAL COMPENSATION OF EXECUTIVE OFFICERS
The report of the Compensation Committee shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933 or under the Exchange
Act, except to the extent that the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
10
<PAGE>
* * * *
The Compensation Committee's policy is to establish compensation levels for
the Chief Executive Officer (the "CEO") and the other executive officers which
reflect the Company's overall performance and the individual executive's
performance, responsibilities and contributions to the long-term growth and
profitability of the Company. The Compensation Committee's policy is to
determine the appropriate executive compensation levels which will enable the
Company to attract and retain qualified executives.
The Compensation Committee, with the assistance of the CEO, determines the
compensation of the executive officers including the former CEO based on its
evaluation of the Company's overall performance, primarily based on the
Company's sales and earnings performance compared with the Company's operating
plan, as well as various qualitative factors such as new product development,
the Company's product and service quality, the extent to which the executive
officer has contributed to forming a strong management team and other factors
which the Compensation Committee believes are indicative of the Company's
ongoing ability to achieve its long-term sales growth and profit objectives.
With respect to each executive, the Compensation Committee focuses on that
individual executive's areas of responsibility and his contribution toward
achieving corporate objectives.
Except for the present CEO, the principal component of the compensation of
each executive officer including the former CEO is the executive's base salary.
The directors who serve on the Compensation Committee review the corporate and
individual performance factors described above. The Compensation Committee meets
during the first quarter of the year, and based upon its review of performance
for the previous year, and its review of the Company's operating plan,
establishes salary levels and awards any bonuses to the executive officers. In
setting the executives' base salaries, the Compensation Committee also considers
the practices of various industry groups, including data obtained from time to
time from outside compensation consultants. These industry groups generally have
included companies in the Company's industry as well as other companies that are
of comparable size to the Company. Such companies are not included in the peer
group of companies referred to below in the Stock Price Performance Graph. The
Compensation Committee believes that the Company's overall executive
compensation levels generally are lower than the executive compensation levels
at other companies considered by the Compensation Committee. The former CEO's
annual salary was $230,000, an increase of 4.5% from 1993, based on overall 1993
corporate performance.
In April 1994, Mr. Meany, a member of the Board of Directors since 1976,
replaced Mr. Wofford as the Chairman, President and Chief Executive Officer. Mr.
Meany requested and the Compensation Committee approved, an annual base salary
of $1. The Compensation Committee has determined that it would be appropriate at
the time of Mr. Meany's termination as CEO, at the discretion of the Board of
Directors, that he be rewarded for his services in a lump sum payment or any
alternative method deemed appropriate by the Compensation Committee. In
determining the type and amount of such compensation, the Compensation Committee
will focus on Mr. Meany's success at achieving significant improvement in the
Company's operations, performance and resulting competitive business position.
The Compensation Committee will be sensitive to the balance between actions to
foster long-term improvement, as well as short-term performance, and accordingly
will further evaluate Mr. Meany's ability to build and maintain a strong
management team capable of both assessing the Company's needs and capable of
meeting its strategic operating goals on a consistent basis. The Compensation
Committee recognizes that these indications may not be immediately apparent in a
measurable change in stockholder value and will therefore also consider such
11
<PAGE>
measurements including decreased losses, enhanced efficiency and apparent change
in the core business momentum. The Compensation Committee will consider, but
will not emphasize, the salary, benefits and bonuses which would normally have
been paid to a person in the position under similar business conditions and
results. The Compensation Committee believes this compensation arrangement is
appropriate as it is entirely dependent upon the Company's performance and the
performance of the CEO.
Executive officers are eligible to receive bonuses under the Company's
Management Incentive Plan. Under this plan, bonuses are awarded based on the
Company achieving a targeted return on assets, calculated as income before
taxes, profit sharing provisions and extraordinary items as a percentage of the
assets. Based on actual operating results in 1994, corporate performance did not
meet the targeted return on assets and accordingly no bonuses were awarded under
the plan to the CEO or the other executive officers. The Compensation Committee
also retains the discretion to award bonuses based on corporate or individual
performance.
The Compensation Committee annually considers grants of stock options for
each of the executive officers, including the CEO. The purpose of the stock
option program is to provide incentives to the Company's management to work to
maximize stockholder value. The option program also utilizes vesting periods to
encourage key employees to continue in the employ of the Company. The
Compensation Committee determines the number of options for executives based on
the responsibility of the executive, the historic levels of option awards
granted to other executives and the Compensation Committee's judgment as to the
appropriate incentive level for purposes of achieving the objectives of the
stock option plan. The Compensation Committee also determines the number of
options based upon its review of overall corporate performance and individual
performance.
During 1993, the Internal Revenue Code of 1986 was amended to include Section
162(m) which denies a deduction to any publicly held corporation for
compensation paid to any "covered employee" (which is defined as the Chief
Executive Officer and the Company's other four most highly compensated officers,
as of the end of a taxable year) to the extent that the compensation exceeds $1
million in any taxable year of the corporation beginning after 1993.
Compensation which is payable pursuant to written binding agreements entered
into before February 18, 1993 and compensation which constitutes "performance
based compensation" is excludable in applying the $1 million limit. It is the
Company's policy to qualify compensation paid to its top executives for
deductibility under Section 162(m) in order to maximize the Company's income tax
deductions.
Robert Batinovich
David J. Farr
12
<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The Stock Price Performance Graph below shall not be deemed incorporated by
reference by any general statement incorporating by reference this Proxy
Statement into any filing under the Securities Act of 1933 or under the Exchange
Act, except to the extent the Company specifically incorporates this information
by reference, and shall not otherwise be deemed filed under such Acts.
The following table compares total stockholder returns over the last five
fiscal years to the Standard & Poors 500 Stock Index ("S&P 500") and the S&P
Pollution Control Index. Total return values for the S&P 500 and the Company
were calculated based on cumulative total return values assuming reinvestment of
dividends.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG FARR COMPANY, POLLUTION CONTROL INDEX AND S&P 500 INDEX
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION> POLLUTION
Measurement Period FARR CONTROL S&P
(Fiscal Year Covered) COMPANY INDEX 500 INDEX
- - ------------------- ---------- --------- ----------
<S> <C> <C> <C>
Measurement Pt-12/31/89 $100.00 $100.00 $100.00
FYE 12/31/90 $141.32 $ 97.73 $ 96.88
FYE 12/31/91 $127.21 $141.43 $126.82
FYE 12/31/92 $ 86.34 $164.34 $136.08
FYE 12/31/93 $ 86.34 $212.52 $149.80
FYE 12/31/94 $ 84.61 $203.31 $151.78
</TABLE>
13
<PAGE>
PROPOSAL 2:
APPROVAL OF THE FIRST AMENDMENT TO
THE 1993 STOCK OPTION PLAN
FOR KEY EMPLOYEES OF FARR COMPANY
The stockholders of the Company will be asked to approve an amendment (the
"Amendment") to the 1993 Stock Option Plan for Key Employees of Farr Company
(the "1993 Plan," and, as amended by the Board of Directors on September 20,
1994, the "Amended 1993 Plan"). The proposed Amendment among other things (i)
provides for an increase in the number of shares of Common Stock issuable by the
Company upon exercise of options granted pursuant to the 1993 Plan from 200,000
to 350,000, (ii) gives the Compensation Committee authority to issue options
with an exercise price below fair market value (as defined in the 1993 Plan) of
the underlying Common Stock, and (iii) contains certain amendments designed to
satisfy certain requirements of Section 162(m) of the Code.
The principal features of the Amended 1993 Plan are summarized below, but the
summary is qualified in its entirety by reference to the Amended 1993 Plan
itself, copies of which will be available at the Annual Meeting and may also be
obtained by making written request to the Company's Secretary at the address
provided on the last page of this Proxy Statement.
GENERAL
The Amended 1993 Plan is intended (1) to further the growth, development and
financial success of the Company by providing additional incentives to certain
of its key employees who have been or will be given responsibility for the
management or administration of the Company's business affairs, by assisting
them to become owners of the Common Stock and thus to benefit directly from its
growth, development and financial success, and (2) to enable the Company to
obtain and retain the services of the type of professional, technical and
managerial employees considered essential to the long-range success of the
Company by providing and offering them an opportunity to become owners of the
Common Stock under options, including options that are intended to qualify as
"incentive stock options" under Section 422 of the Code.
A total of 200,000 shares of Common Stock were originally reserved for
issuance upon the exercise of options granted under the 1993 Plan. As of March
10, 1994, 46,000 shares of Common Stock remained available for issuance under
the 1993 Plan. Subject to stockholder approval, the Amended 1993 Plan will
increase the number of shares of Common Stock issuable upon exercise of options
to 350,000. The Board of Directors believes that the increase in shares is
desirable in order to enable the Compensation Committee to continue to provide
stock-based incentive compensation to the Company's key employees and to attract
new key employees, thereby continuing to align the interests of such employees
with those of the stockholders. The Amended 1993 Plan also authorizes the
Compensation Committee to award non-qualified stock options having an exercise
price which is less than the market price. The Board of Directors determined
that it was desirable for the Compensation Committee to have the flexibility to
award options having an exercise price below market value in those circumstances
in which the Compensation Committee believes it is necessary in order to fulfill
the goals of the Amended 1993 Plan as described above. On January 10, 1995, the
14
<PAGE>
Compensation Committee granted options covering a total of 79,000 shares at an
exercise price of $5.00, subject to stockholder approval of the Amendment.
ADMINISTRATION OF THE AMENDED 1993 PLAN
The Amended 1993 Plan is administered by the Compensation Committee which has
been amended, subject to stockholder approval, to consist of at least two
members of the Board of Directors, each of whom is a "disinterested person" as
defined by Rule 16b-3 of the Exchange Act. The Amended 1993 Plan further
requires that the members be "outside" directors as defined by Section 162(m) of
the Code. The Compensation Committee is authorized to select from among the
eligible employees the individuals to whom options are to be granted and to
determine the number of shares to be subject to the options, whether such
options are to be incentive stock options or non-qualified options and whether
such options are to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code; and the terms and conditions of the options,
consistent with the Amended 1993 Plan. The Compensation Committee is also
authorized to adopt, amend and rescind rules relating to the administration of
the Amended 1993 Plan and the interpretation of options.
ELIGIBILITY TO RECEIVE OPTIONS
Options may be granted to individuals who are then officers or other
employees of the Company or any of its present or future subsidiaries (as
defined in Section 424(f) of the Code) and who are determined by the
Compensation Committee to be key employees. On March 10, 1995 there were
approximately 30 persons who were eligible to receive options under the Amended
1993 Plan. More than one option may be granted to a key employee. The maximum
number of shares which may be subject to options granted under the Amended 1993
Plan to any individual in any calendar year shall not exceed 100,000 and the
method of counting such shares shall conform to any requirements applicable to
performance-based compensation under Section 162(m) of the Code.
TERMS OF OPTIONS
The Amended 1993 Plan now requires that the price of the shares subject to
both incentive stock options and non-qualified options shall be no less than the
par value of a share of Common Stock and in the case of Incentive Stock Options
must be at least 100% of the fair market value of the shares on the date the
option is granted; provided, however, in the case of any person who then owns
(within the meaning of Section 424(d) of the Code) more than 10% of the total
combined voting power of all classes of Company stock (including the stock of
any subsidiary or any parent corporation), the price per share must be at least
110% of the fair market value of such shares on the date the option is granted.
In consideration of the granting of an option, the optionee must agree in the
written stock option agreement to remain in the employ of the Company or its
subsidiary for at least one year after the option is granted. During the first
year after an option is granted, it may not be exercised as to any shares.
Thereafter, options granted under the Amended 1993 Plan will become exercisable
at such times and in such installments (which may be cumulative) as the
Compensation Committee shall provide in the terms of the option. The
15
<PAGE>
Compensation Committee may subsequently determine to accelerate the time at
which an option becomes exercisable.
No incentive stock option and no non-qualified option can be exercised after
ten years from the date of grant; provided, however, that shorter option periods
may be established by the Compensation Committee. In the case of any person who
owns (within the meaning of Section 424(d) of the Code) more than 10% of the
total combined voting power of all classes of Company stock (including the stock
of any subsidiary or any parent corporation) at the time an incentive stock
option is granted, such incentive stock option cannot be exercised after five
years from the date of such grant. The Compensation Committee may provide in the
terms and conditions of an option that it will terminate upon the dissolution or
liquidation of the Company by another corporation; but in such event, the
Compensation Committee may also give optionees the right to exercise their
outstanding options in full during some period prior to such event, even though
the options have not yet become fully exercisable.
Options may be exercised by compliance with certain prescribed procedures and
the option price must be paid in full at the time of exercise. In any event, the
Common Stock will not be issued until the purchase price has been paid in full.
The option price may be paid in cash, or by the tendering of Common Stock or by
a combination of the two methods. The Compensation Committee may, as a condition
of the exercise of any option, require that the optionee deliver such
representations and documents as it deems necessary to effect compliance with
applicable federal and state securities laws and regulation. No option granted
under the Amended 1993 Plan may be assigned or transferred by the optionee
except upon death and, during the lifetime of the optionee, the option may be
exercised only by him. Subject to the other termination provisions in the
Amended 1993 Plan and in the respective option agreements, an option cannot be
exercised after one year from the date the optionee's employment terminates by
reason of death or disability or after three months from the date of an
employment termination for any other reason (unless the optionee dies in this
three-month period). The options of optionees who are terminated for cause
expire immediately upon the termination of their employment. The Compensation
Committee may provide in the terms of an option that said option expires
immediately upon termination of employment for any reason. The aggregate number
of such shares which may be issued upon exercise of options issued under the
Amended 1993 Plan may not exceed 350,000.
The Amended 1993 Plan provides for appropriate adjustments in the number and
kind of shares subject to the Amended 1993 Plan and to outstanding options in
the event of a stock split, stock dividend or certain other types of
recapitalizations. If any incentive stock option or non-qualified option becomes
unexercisable for any reason, the number of shares which were subject to the
unexercised portion of the option shall continue to be subject to the Amended
1993 Plan and new incentive stock options or non-qualified options may be
granted in respect of such shares. Any option that is intended to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of the Code
shall conform to any requirements applicable to such compensation under Section
162(m) of the Code or any additional regulations or rules issued thereunder.
AMENDMENT AND TERMINATION OF THE AMENDED 1993 PLAN
Future amendments of the Amended 1993 Plan to increase the share limit on the
number of shares which may be issued on exercise of options granted under the
Amended 1993 Plan (except for adjustments resulting from stock splits, etc.), to
reduce the minimum option price requirements, or to extend the period during
which options may be granted would each require the approval of the Company's
stockholders within
16
<PAGE>
twelve months before or after such amendments. In all other respects, the
Amended 1993 Plan can be amended, modified, suspended or terminated by the Board
of Directors.
FEDERAL INCOME TAX CONSEQUENCES
The Amended 1993 Plan is neither a qualified pension, profit sharing or
stock bonus plan under Section 401(a) of the Code nor an "employee benefit plan"
subject to the provisions of the Employee Retirement Income Security Act of
1974, as amended. The following discussion is a general summary of the material
U.S. federal income tax consequences to U.S. participants in the Amended 1993
Plan. The discussion is based on the Code, regulations thereunder, rulings and
decisions now in effect, all of which are subject to change. The summary does
not discuss all aspects of federal income taxation that may be relevant to a
particular participant in light of such participant's personal investment
circumstances.
Non-Qualified Options. Holders of non-qualified options do not realize income
as a result of a grant of the option, but normally realize compensation income
upon exercise of a non-qualified option to the extent that the fair market value
of the shares on the date of exercise of the option exceeds the aggregate option
exercise price paid. The Company (or other employer corporation) will be
entitled to a deduction in the same amount. The Company (or other employer
corporation) will be required to withhold taxes on the ordinary income realized
by an optionee upon the exercise of a non-qualified option.
The tax consequences resulting from the exercise of a non-qualified option
through delivery of already-owned shares of Common Stock are not completely
certain. In published rulings, the Internal Revenue Service has taken the
position that, to the extent an equivalent value of shares is acquired, the
employee will recognize no gain and the employee's basis in the shares acquired
upon such exercise is equal to the employee's basis in the surrendered shares,
that any additional shares acquired upon such exercise are compensation to the
employee taxable under the rules described above and that the employee's basis
in any such additional shares is their fair market value.
Incentive Stock Options. Holders of incentive stock options will not be
considered to have received taxable income upon either the grant of the option
or its exercise. Upon the sale or other taxable disposition of the shares, long-
term capital gain will normally be recognized in the full amount of the
difference between the amount realized and the option exercise price if no
disposition of the shares has taken place within either (a) two years from the
date of grant of the option of (b) one year from the date of transfer of the
shares to the optionee upon exercise. If the shares are sold or otherwise
disposed of before the end of the one-year or two-year periods, the difference
between the option price and the fair market value of the shares on the date of
the exercise of option will be taxed as ordinary income; the balance of the
gain, if any, will be taxed as capital gain. If the shares are disposed of
before the expiration of the one-year or two-year periods and the amount
realized is less than the fair market value of the shares at the date of
exercise, the employee's ordinary income is limited to the amount realized less
the option exercise price paid. The Company (or other employer corporation) will
be entitled to a tax deduction in regard to an incentive stock option only to
the extent the optionee has ordinary income upon sale or other disposition of
the shares received when the option was exercised.
Upon the exercise of an incentive stock option, the amount by which the fair
market value of the purchased shares at the time of exercise exceeds the option
price will be an "item of tax preference" for
17
<PAGE>
purposes of computing the optionee's alternative minimum tax for the years of
exercise. If the shares so acquired are disposed of in the same year, there
should be no "item of tax preference" arising from the option exercise. In
addition, if an employee transfers shares acquired upon the exercise of an
incentive stock option to acquire shares in connection with the exercise of an
incentive stock option, the employee will recognize income on the transaction if
the transferred shares have not been held for the required holding periods.
The tax consequences resulting from the exercise of an incentive stock option
through delivery of already-owned shares of Common Stock are not completely
certain. In published rulings and proposed regulations, the Internal Revenue
Service has taken the position that generally the employee will recognize no
income upon such stock-for-stock exercise (subject to the discussion above),
that, to the extent an equivalent number of shares is acquired, the employee's
basis in the shares acquired upon such exercise is equal to the employee's basis
in the surrendered shares increased by any compensation income recognized by the
employee, that the employee's basis in any additional shares acquired upon such
exercise is zero and that any sale or other disposition of the acquired shares
within one-year or two-year periods described above will be viewed first as a
disposition of the shares with the lowest basis.
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
FIRST AMENDMENT TO
THE 1993 PLAN
----------------------------------------
NAME AND POSITION DOLLAR VALUE ($)(1) NUMBER OF UNITS(#)
- - ------------------------------------------------- ------------------- ------------------
<S> <C> <C>
H.J. Meany, Chairman, President and Chief -- 0
Executive Officer
Charles R. Wofford, Former Chairman, President -- 0
and Chief Executive Officer
Kenneth W. Gerstner, Senior Vice President 36,000 18,000
Chief Financial Officer
Myron G. Rasmussen, Vice President -- 0
Richard L. Farr, Senior Vice President 34,000 17,000
All Executive Officers as a group 158,000 79,000
Non-Executive Directors -- 0
Non-Executive Officer Employees -- 0
</TABLE>
- - ---------------
(1) Based on the closing price per share of the Company's Common Stock of $7.00
as quoted on the NASDAQ National Market System on March 10, 1995. Options
having an exercise price of $5.00 per share were granted on January 10,
1995, at which time the closing sale price of the Common Stock on the NASDAQ
National Market System was $6.375 per share.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR STOCKHOLDER APPROVAL OF THE
AMENDMENTS. Unless otherwise instructed, proxies will be voted FOR approval of
the Amendments.
18
<PAGE>
PROPOSAL 3:
STOCKHOLDER PROPOSAL
The Company has been advised that a stockholder who owns directly 11,500
shares of Common Stock and owns beneficial interest in 16,500 shares of Common
Stock, will propose the following resolution at the Annual Meeting. The name and
address of the stockholder will be forwarded by the Company to any person,
orally or in writing, promptly upon receipt of any oral or written request
therefor.
STOCKHOLDER'S SUPPORTING STATEMENT
"I am a Registered Investment Advisor and have acted as an analyst on the
environmental and air filtration products industry for over 10 years. In this
capacity I have monitored Farr since 1986.
"Over two years ago, I became aware of what I believe to be a number of
unusual aspects to Farr's persistent inability to achieve industry operating
standards, its eroding market share and strategic vulnerability. Verbally, and
in several written letters to management and the Board I have cited Farr's
corporate culture and lack of industry vision and leadership as roots of the
problem. In my opinion, Farr's "problem" is not merely transient, substandard
operating results. In my view, Farr has been the worst performer in the industry
for 17 consecutive quarters. Throughout this period, management and the Board
have apparently done little to address and resolve the root problems.
"In the course of my research, I have become aware of several opportunities
available to the company that I believe would directly and favorably benefit
shareholders. I have communicated these opportunities to management.
"I believe that Farr's market share has continued to erode, and that complete
failure of the company has become a great possibility. According to our
analysis, operations persist as the worst in the industry. Farr has a collection
of employees deserving of leadership; and yet in our opinion the company has no
credible leadership providing direction and market vision. I believe that morale
is poor, and key employees are circulating resumes. I believe that customers and
distributors complain of poor product and service. Yet, in my opinion, there is
no sense of urgency or mission within the company to address and resolve the
problems. The company has neither a salaried CEO or Chairman with filtration
industry experience. In our opinion no one has communicated a credible vision
for recovery to employees or shareholders; nor has anyone communicated the
barest commitment to shareholders, to acknowledge what they have lost, to
prevent future losses, or to achieve minimal results. This situation demands a
very active and engaged Board aware of their fiduciary duty to the company, its
employees and stockholders. In our opinion there has been little or no evidence
of such commitment on Farr's Board.
"Pursuant to the Company's Bylaws, I would like the Board to introduce the
following resolution for the 1995 shareholder's meeting:
"BE IT RESOLVED, that the shareholders recommend that the Board
of Directors authorize and direct the president of the Company to
engage an independent management consulting firm to evaluate and make
specific recommendations to the Board and the shareholders regarding
options available to the Company and to improve its operating
19
<PAGE>
performance and realization of shareholder value, such as recruitment of a
proven strategic management team, merger or strategic alliances with others
in the air filtration products industry; or specific improvements in
marketing, sales, and/or internal operating and manufacturing controls."
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE AGAINST THE ADOPTION OF THIS
STOCKHOLDER PROPOSAL.
The Board of Directors believes that hiring a management consulting firm at
this time would be a costly and imprudent way to address the issues and
opportunities which the Company faces, and urges shareholders to vote AGAINST
the proposal.
Over the past year, the Company has made substantial progress toward
achieving its strategic goals. We have a new management structure in place,
profits during the second half of 1994 showed improvement over the losses
recorded in the first two quarters of the year, manufacturing operations are
improving, incoming orders have been encouraging and the business level in many
areas of our industry is improving. The Company has identified the issues which
need to be addressed, has considered alternatives and has developed a program
which is designed to improve Company performance.
The Company believes that the exercise of hiring a management consulting firm
would not serve any useful purpose at this time. To the contrary, hiring a
consulting firm at this time would distract management from its efforts to move
the Company forward. Now is the time to direct our efforts and resources toward
new products and innovations. Hiring a consulting firm would be costly and would
use resources which could be better invested in capital improvements, research
and development, marketing and other operational needs.
The Company is always looking for ways to improve and enhance shareholder
value. From time to time, we have consulted with outside professional experts
and expect to do so again in the future. From time to time, we have considered
strategic alliances. The Board does not believe that it would be in the best
interests of the shareholders for the Company at this time to use valuable
management time and the Company's capital to hire a consulting firm to identify
available "options." We believe that management knows the Company's business,
markets, products and customers better than a consulting firm would. We have
gone through the process of analyzing and determining what needs to be done to
improve shareholder value, and are taking steps to achieve that goal.
THE BOARD UNANIMOUSLY RECOMMENDS A VOTE AGAINST THE ADOPTION OF THIS
STOCKHOLDER PROPOSAL. Unless otherwise instructed, proxies will be voted AGAINST
approval of adoption of this stockholder proposal.
20
<PAGE>
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen & Co. audited the Company's financial statements for the year
ended December 31, 1994, and have been the Company's auditors since 1970. In
connection with its audit of the Company's financial statements for the year
ended December 31, 1994, Arthur Andersen & Co. reviewed the Company's Annual
Report to Stockholders, its filings with the Securities and Exchange Commission
and its unaudited quarterly financial information.
Representatives of Arthur Andersen & Co. are expected to be present at the
meeting and will be given the opportunity to make a statement if they desire to
do so. It is expected that they will be available to respond to appropriate
questions from the stockholders at the meeting.
The Board of Directors has selected Arthur Andersen & Co. as auditors for the
Company for the year ending December 30, 1995.
DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
FOR NEXT YEAR'S ANNUAL MEETING
The proxy rules adopted by the Securities and Exchange Commission provide
that certain stockholder proposals must be included in the proxy statement for
the Company's annual meeting. In order for a proposal to be considered for
inclusion in next year's proxy statement, it must be received by the Company no
later than December 4, 1995.
OTHER MATTERS
As of the date of this Proxy Statement, the Company is not aware of any
business that will be presented for consideration at the meeting other than
those referred to in the Notice of Annual Meeting of Stockholders. If any other
matter shall properly come before the meeting, the persons named in the
accompanying proxy form intend to vote thereon in accordance with their best
judgment.
The Company's Annual Report to Stockholders containing audited financial
statements for the year ended December 31, 1994 is being mailed herewith to all
stockholders of record.
By Order of the Board of Directors
Kenneth W. Gerstner
Secretary
El Segundo, California
April 3, 1995
STOCKHOLDERS OF RECORD ON MARCH 10, 1995 MAY OBTAIN COPIES OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BY
WRITING TO KENNETH W. GERSTNER, 2221 PARK PLACE, EL SEGUNDO, CALIFORNIA 90245.
21
<PAGE>
FIRST AMENDMENT TO
THE 1993 STOCK OPTION PLAN FOR
KEY EMPLOYEES OF FARR COMPANY
This First Amendment (the "Amendment") to The 1993 Stock Option Plan
for Key Employees of Farr Company (the "Plan") is hereby adopted as of the 20th
day of September, 1994.
Section 2.1 of the Plan is hereby amended and restated in its entirety
as follows:
"The shares subject to Options shall be shares of the Company's $.10 par
value Common Stock. The aggregate number of such shares which may be
issued upon exercise of Options shall not exceed 350,000. Furthermore, the
maximum number of shares which may be subject to Options granted under the
Plan to any individual in any calendar year shall not exceed 100,000 and
the method of counting such shares shall conform to any requirements
applicable to performance-based compensation under Section 162(m) of the
Code."
Section 3.3(a)(ii) of the Plan is hereby amended and restated in its
entirety as follows:
"(ii) Determine the number of shares to be subject to such Options granted
to such selected key Employees, and determine whether such Options are to
be Incentive Stock Options or Non-Qualified Options and whether such
Options are to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code; and"
Section 4.2(a) of the Plan is hereby amended and restated in its
entirety as follows:
"The price per share of Common Stock subject to each Option shall be set by
the Committee; provided, however, that such price shall be no less than the
-------- -------
par value of a share of Common Stock and in the case of Incentive Stock
Options such price shall not be less than 100% of fair market value of such
share of Common Stock on the date such Option is granted; provided,
--------
further, that, in the case of Incentive Stock Options, the price per share
-------
shall not be less than 110% of the fair market value of such shares on the
date such Option is granted in the case of an individual then owning
(within the meaning of Section 424(d) of the Code) more than 10% of the
total combined voting power of all classes of stock of the Company, any
Subsidiary or any Parent Corporation."
Section 6.1 of the Plan is hereby amended and restated in its entirety
as follows:
"The Compensation Committee shall consist of at least two Directors,
appointed by and holding office at the pleasure of the Board, each of whom
is both a "disinterested person" as defined by Rule 16b-3 and an "outside
director" for purposes of Section 162(m) of the Code. Appointment of
Committee members shall be effective upon acceptance of appointment.
Committee members may resign at any time by delivering written notice to
the Board. Vacancies in the Committee shall be filled by the Board."
<PAGE>
Section 7.6 of the Plan is hereby amended to add the following
sentence at the end of such Section 7.6:
"Furthermore, notwithstanding any other provision of this Plan, any Option
intended to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code shall be subject to any additional
limitations set forth in Section 162(m) of the Code (including any
amendment to Section 162(m) of the Code) or any regulations or rulings
issued thereunder that are requirements for qualification as performance-
based compensation as described in Section 162(m)(4)(C) of the Code, and
this Plan shall be deemed amended to the extent necessary to conform to
such requirements."
This Amendment has been authorized and approved as of the date first
above written by the Compensation Committee of the Board of Directors.
FARR COMPANY
By:
---------------------------------
Name: Kenneth W. Gerstner
Title: Chief Financial Officer
I hereby certify that the foregoing Amendment was duly approved by the
stockholders of Farr Company on ______________, 1995. Executed on this ____ day
of _____________, 1995.
------------------------------------
Secretary
2
<PAGE>
CONFIDENTIAL VOTING INSTRUCTIONS
PROXY FARR COMPANY
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 3, 1995
TO: BANK OF AMERICA AS TRUSTEE UNDER THE
FARR COMPANY EMPLOYEE STOCK OWNERSHIP PLAN
I hereby instruct the Trustee to vote (in person or by proxy) all the shares
of Farr Company Common Stock which are credited to my account at the Annual
Meeting of Stockholders of Farr Company to be held at the offices of the
corporation, 2221 Park Place, El Segundo, California, on May 3, 1995 or at any
adjournment thereof, on the following matters, as provided in the proxy
statement, and upon any other matter which may properly come before the
meeting.
PLEASE MARK YOUR CHOICE LIKE THIS [X] IN DARK INK AND
SIGN AND DATE ON THE REVERSE SIDE
(1) ELECTION OF TWO DIRECTORS [_] Vote FOR ALL (except as marked to the
contrary below) [_] WITHHELD for ALL
Robert Batinovich and David J. Farr
(Instruction: To withhold authority to vote for any individual nominee write
that nominee's name on the space provided below.)
- - --------------------------------------------------------------------------------
(2) APPROVAL OF FIRST AMENDMENT TO THE 1993 STOCK OPTION PLAN FOR KEY EMPLOYEES
OF FARR COMPANY:
FOR [_] AGAINST [_] ABSTAIN [_]
(3) STOCKHOLDER PROPOSAL TO ENGAGE AN INDEPENDENT MANAGEMENT CONSULTING FIRM
FOR [_] AGAINST [_] ABSTAIN [_]
(Continued and to be signed on other side.)
- - --------------------------------------------------------------------------------
-----------------
Shares of Common
Stock
PLEASE DATE AND SIGN EXACTLY AS YOUR NAME APPEARS BELOW AND RETURN IN THE
ENCLOSED ENVELOPE. YOUR SHARES WILL BE VOTED ACCORDING TO YOUR INSTRUCTIONS. IF
THIS CARD IS RETURNED SIGNED WITH NO VOTING INSTRUCTIONS, YOUR SHARES WILL BE
VOTED FOR THE ELECTION OF THE TWO DIRECTORS NAMED ABOVE; FOR ITEM 2 ABOVE AND
AGAINST ITEM 3 ABOVE.
Unless you sign and return this card so that it is received by the Trustee
before April 26, 1995 your shares will be voted as provided by the Plan.
Date: ........., 1995
.....................
.....................
(Please sign EXACTLY
as your
name appears hereon)
When signing as
attorney, executor,
administrator,
trustee or guardian,
please give full title.
If more than one
trustee, all should
sign. All joint owners
should sign.
<PAGE>
CONFIDENTIAL VOTING INSTRUCTIONS
PROXY FARR COMPANY
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 3, 1995
TO: BANK OF AMERICA AS TRUSTEE UNDER THE
FARR COMPANY TRESOP
I hereby instruct the Trustee to vote (in person or by proxy) all the shares
of Farr Company Common Stock which are credited to my account at the Annual
Meeting of Stockholders of Farr Company to be held at the offices of the
corporation, 2221 Park Place, El Segundo, California, on May 3, 1995 or at any
adjournment thereof, on the following matters, as provided in the proxy
statement, and upon any other matter which may properly come before the
meeting.
PLEASE MARK YOUR CHOICE LIKE THIS [ ] IN DARK INK AND
SIGN AND DATE ON THE REVERSE SIDE
(1) ELECTION OF TWO DIRECTORS [_] Vote FOR ALL (except as marked to the
contrary below) [_] WITHHELD for ALL
Robert Batinovich and David J. Farr
(Instruction: To withhold authority to vote for any individual nominee write
that nominee's name on the space provided below.)
- - --------------------------------------------------------------------------------
(2) APPROVAL OF FIRST AMENDMENT TO THE 1993 STOCK OPTION PLAN FOR KEY EMPLOYEES
OF FARR COMPANY:
FOR [_] AGAINST [_] ABSTAIN [_]
(3) STOCKHOLDER PROPOSAL TO ENGAGE AN INDEPENDENT MANAGEMENT CONSULTING FIRM
FOR [_] AGAINST [_] ABSTAIN [_]
(Continued and to be signed on other side.)
- - --------------------------------------------------------------------------------
----------------------
Shares of Common Stock
PLEASE DATE AND SIGN EXACTLY AS YOUR NAME APPEARS BELOW AND RETURN IN THE
ENCLOSED ENVELOPE. YOUR SHARES WILL BE VOTED ACCORDING TO YOUR INSTRUCTIONS. IF
THIS CARD IS RETURNED SIGNED WITH NO VOTING INSTRUCTIONS, YOUR SHARES WILL BE
VOTED FOR THE ELECTION OF THE TWO DIRECTORS NAMED ABOVE; FOR ITEM 2 ABOVE AND
AGAINST ITEM 3 ABOVE.
Unless you sign and return this card so that it is received by the Trustee
before April 26, 1995 your shares will be voted as provided by the Plan.
Date: ........., 1995
.....................
.....................
(Please sign EXACTLY
as your
name appears hereon)
When signing as
attorney, executor,
administrator,
trustee or guardian,
please give full title.
If more than one
trustee, all should
sign. All joint owners
should sign.
<PAGE>
FARR COMPANY
ANNUAL MEETING OF STOCKHOLDERS--MAY 3, 1995
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Farr Company does hereby nominate,
constitute and appoint H. J. Meany and Kenneth W. Gerstner, or either of
them, the true and lawful proxies, agents and attorneys of the
P undersigned, with full power of substitution, to vote for the undersigned
all of the common stock of said corporation standing in the name of the
R undersigned on its books at the close of business on March 10, 1995 at
the Annual Meeting of Stockholders to be held at the offices of the
O corporation, 2221 Park Place, El Segundo, California, on May 3, 1995 or
at any adjournment thereof, with all of the powers which would be
X possessed by the undersigned if personally present, as follows:
Y IF NO CONTRARY INSTRUCTION IS INDICATED, THIS PROXY WILL BE VOTED FOR THE
ELECTION OF MANAGEMENT'S TWO NOMINEES AS DIRECTORS; FOR APPROVAL OF THE
FIRST AMENDMENT TO THE 1993 STOCK OPTION PLAN FOR KEY EMPLOYEES OF FARR
COMPANY AND AGAINST THE STOCKHOLDER PROPOSAL TO ENGAGE AN INDEPENDENT
MANAGEMENT CONSULTING FIRM.
(Continued and to be signed on other side)
<PAGE>
IF NO CONTRARY INSTRUCTION IS INDICATED, THIS PROXY [ X ] Please mark
WILL BE VOTED FOR THE ELECTION OF MANAGEMENT'S TWO your votes
NOMINEES AS DIRECTORS, FOR PROPOSAL 2 AND AGAINST as this
PROPOSAL 3.
- - --------
COMMON
WITHHELD
FOR FOR ALL
1. Election of Directors [ ] [ ]
Robert Batinovich and
David J. Farr
(INSTRUCTION: To withhold authority to vote for any individual nominee write
that nominee's name on the space provided below.)
- - --------------------------------------
FOR AGAINST ABSTAIN
2. Approval of the First [ ] [ ] [ ]
Amendment to the
1993 Stock Option
Plan for Key
Employees of Farr
Company:
FOR AGAINST ABSTAIN
3. Stockholder Proposal to engage [ ] [ ] [ ]
an Independent management
consulting firm.
4. In their discretion, the Proxies
are authorized to vote upon such
other business as may properly
come before the meeting.
The undersigned hereby acknowledges receipt of the
Notice of Annual Meeting of Stockholders dated April 3,
1995 and the Proxy Statement of the same date
furnished therewith.
Signature(s) ___________________________ Date _______________________________
NOTE: Please sign name exactly as your name (or names) appear on the stock
certificate. When signing as attorney, executor, administrator, trustee or
guardian please give full title. If more than one trustee, all should
sign. All joint owners must sign.
