<PAGE>
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
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:
[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 Rule 0-11:
-------------------------------------------------------------------------
(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:
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<PAGE>
FARR COMPANY
2201 PARK PLACE
EL SEGUNDO, CALIFORNIA 90245
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
APRIL 28, 1998
The Annual Meeting of the Stockholders of Farr Company, a Delaware
corporation, will be held in the Company's offices located at 2201 Park Place,
El Segundo, California, on Tuesday, April 28, 1998, at 11:00 a.m. for the
following purposes:
1. To elect two directors to serve for three years. The Board of
Directors' nominees are named in the accompanying Proxy Statement
which is part of this Notice.
2. 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 6, 1998 as
the record date for determination of those stockholders entitled to vote at this
meeting.
All stockholders are cordially invited to attend the meeting.
Kenneth W. Gerstner
Secretary
El Segundo, California
March 25, 1998
- -------------------------------------------------------------------------------
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 11:00 a.m. on Tuesday, April 28, 1998. 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 materials to their principals.
The Company intends to send this Proxy Statement and form of proxy to its
stockholders on or about March 25, 1998. The principal executive offices of the
Company are located at 2201 Park Place, El Segundo, California 90245, and its
telephone number is (310) 727-6300.
The stockholders of record at the close of business on March 6, 1998 are
entitled to one vote for each share of stock held by them. At the close of
business on March 6, 1998, there were outstanding 5,517,010 shares of the
Company's common stock, par value $.10 per share (the "Common Stock") (such
figure does not include 238,556 shares held in treasury). 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.
<PAGE>
OWNERSHIP OF THE COMPANY'S SECURITIES
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of March 6, 1998 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 the Common Stock. 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.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) PERCENT OF CLASS
- ------------------------------------ ----------------------- ----------------
<S> <C> <C>
Wellington Management Company, LLP.................... 462,100(2) 8.4%
75 State Street
Boston, Massachusetts 02109
Wanger Asset Management, L.P.......................... 440,200(3) 8.0%
227 West Monroe Street, Suite 3000
Chicago, Illinois 60606
Fleet Financial Group, Inc............................ 353,500(4) 6.4%
One Federal Street
Boston, Massachusetts 02110
Wilen Management Company, Inc......................... 303,450(5) 5.5%
Greenspring Station, Suite 226
2360 West Joppa Road, Suite 226
Lutherville, Maryland 21093
Dimensional Fund Advisors Inc......................... 289,224(6) 5.2%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
</TABLE>
____________
(1) Based on 5,517,010 shares of the Company's Common Stock outstanding (not
including 238,556 shares held in treasury) as of March 6, 1998.
(2) Based on the information contained in a Schedule 13G/A filed with the
Securities and Exchange Commission reflecting beneficial ownership as of
February 11, 1998.
(3) Based on the information contained in a Schedule 13G filed with the
Securities and Exchange Commission reflecting beneficial ownership as of
February 6, 1998.
(4) Based on the information contained in a Schedule 13G filed with the
Securities and Exchange Commission reflecting beneficial ownership as of
February 13, 1998.
(5) Based on information contained in a Schedule 13G/A filed with the
Securities and Exchange Commission reflecting beneficial ownership as of
February 23, 1998.
(6) Based on the information contained in a Schedule 13G filed with the
Securities and Exchange Commission reflecting beneficial ownership as of
February 10, 1998.
2
<PAGE>
OWNERSHIP BY MANAGEMENT
The following table sets forth as of March 6, 1998 information with respect
to the beneficial ownership of the Common Stock by each director and nominated
director of the Company, each Named Officer (as defined below) of the Company,
and by all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES PERCENT
BENEFICIALLY OF
NAME OF BENEFICIAL OWNER POSITION OWNED(1)(2)(3) CLASS(2)(3)
- ------------------------ -------- -------------- -----------
<S> <C> <C> <C>
Robert Batinovich................ Director.......................... 162,000 2.9%
Richard P. Bermingham............ Director.......................... 24,750 *
Denis R. Brown................... Director.......................... 8,000 *
David J. Farr(4)................. Director.......................... 15,500 *
Kenneth W. Gerstner.............. Senior Vice President and
Chief Financial Officer........... 64,509 1.2%
John C. Johnston................. President and Chief Operating
Officer, Director................. 1,466 *
John J. Kimes.................... Director.......................... 10,000 *
H. Jack Meany.................... Chairman of the Board and
Chief Executive Officer...... 140,650 2.5%
Myron G. Rasmussen............... Vice President.................... 33,506 *
John A. Sullivan................. Director.......................... 10,500 *
Richard Larson................... Senior Vice President............. -- --
A. Frederick Gerstell............ Nominated Director................ -- --
Directors and Executive Officers as a group (11 persons).............. 470,881(3) 8.3%
</TABLE>
_________________
* Less than 1%.
(1) Based on 5,517,010 shares of the Company's Common Stock outstanding (not
including 238,556 shares held in treasury) as of March 6, 1998. Shares
shown as beneficially owned are those as to which the named persons possess
sole voting and investment power. However, under California law, personal
property owned by a married person may be community property that either
spouse may manage and control. The Company has no information as to
whether any shares shown in this table are subject to California community
property law.
(2) 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.
(3) Includes shares purchasable within 60 days upon exercise of outstanding
stock options as follows: R. Batinovich, 12,000; R.P. Bermingham, 21,000;
D. Brown, 3,000; D.J. Farr, 12,000; K.W. Gerstner, 59,250; J.J. Kimes,
9,000; H.J. Meany, 12,000; M.G. Rasmussen, 23,063; J. Sullivan, 6,000; all
Directors and Executives Officers as a group, 157,313.
(4) Does not include 200,000 shares of Common Stock held by the M.S. Farr
Family Trust as to which David J. Farr was appointed trustee in March 1996.
As trustee, Mr. Farr has sole power to vote and dispose of shares held by
such trust but has no economic interest in such shares. Mr. Farr has
decided not to seek re-election to the Board of Directors upon the
expiration of his term at the 1998 Annual Meeting.
3
<PAGE>
PROPOSAL
ELECTION OF DIRECTORS
Pursuant to the Company's Bylaws, the Company has eight directors divided
into three classes (two classes consisting of three directors, and one class
consisting of two directors). Two directors are to be elected at the Annual
Meeting, each of whom will serve until the 2001 Annual Meeting or until their
respective successors 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.
1998 NOMINEES
-------------
<TABLE>
<CAPTION>
PRINCIPAL BUSINESS EXPERIENCE DURING PAST DIRECTOR
NAME AGE 5 YEARS AND CERTAIN OTHER DIRECTORSHIPS SINCE
- ------------------- ----------- ---------------------------------------------------------- --------------
<S> <C> <C> <C>
Robert Batinovich 61 Chairman and Chief Executive Officer of Glenborough Realty 1994
Trust Incorporated (since 1996), a real estate investment
company; President and majority owner of Glenborough
Corporation (since 1978); Commissioner and past President
(from 1975 to 1980) of the California Public Utilities
Commission.
A. Frederick Gerstell 60 Chairman and Chief Executive Officer of CalMat Co., a --
producer of construction materials, since 1996; Chairman,
President, Chief Executive Officer and Chief Operating
Officer of CalMat from 1991 to 1996; President, Chief
Executive Officer and Chief Operating Officer of CalMat
from 1988 to 1991; President and Chief Operating Officer of
CalMat from 1984 to 1988; Director, Ameron, Inc., since
1997; Director and Vice Chairman of the National Stone
Association since 1997.
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
ELECTION OF THE NOMINEES FOR DIRECTOR NAMED ABOVE.
Unless otherwise instructed, proxies will be voted FOR the election of
management's two nominees for directors.
4
<PAGE>
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>
John J. Kimes 55 President and Chief Executive Officer of Computerized 1995 2000
Security Systems (since 1988), a manufacturer of
electronic and mechanical lock hardware and systems;
Vice President Administration and Controller (from
1981 to 1988) of NI Industries, Inc., a manufacturer
of building, industrial and defense products.
H. Jack Meany 75 Chairman and Chief Executive Officer of the Company 1976 2000
(since February 1996); Chairman, President and Chief
Executive Officer of the Company (from April 1994 to
February 1996); Director of the Company (from June
1976 to March 1994); Retired, Chairman of the Board
and Chief Executive Officer of NI Industries, Inc.
(from October 1975 to March 1988), a manufacturer of
building, industrial and defense products; Director,
APS Inc. since 1990; Director, BWIP, Inc. since 1987;
Director, ESI, Inc. since 1980.
Denis R. Brown 58 President and Chief Executive Officer and a Director 1997 2000
of Pinkerton, Inc. (since April 1994), a leading
supplier of global security solutions; President and
Chief Executive Officer of Concurrent Computer
Corporation, from 1990 to 1993; Director, CalMat Co.
since January 1997.
John C. Johnston 54 President and Chief Operating Officer of the Company 1996 1999
since February 1996; Senior Vice President of the
Company from January 1995 to February 1996; President
of Easton Aluminum, Inc., an athletic equipment
manufacturer, from 1986 to December 1994.
Richard P. Bermingham 58 Chairman of Bermingham Investment Company since 1997; 1990 1999
Vice Chairman of American Golf Corporation, a golf
course management company, from 1994 to 1997;
President and Chief Executive Officer (from May 1987
to June 1994) of Sizzler International, Inc., an
operator and franchisor of restaurants.
John A. Sullivan 43 Investment Advisor of Relational Investors, LLC since 1996 1999
1998; Financial Consultant with Batchelder &
Partners, Inc., from May 1996 to March 1998; Senior
Vice President of The Seidler Companies Incorporated
from August 1993 to April 1996, and Vice President
from October 1990 to August 1993; Director, American
Coin Merchandising, Inc. since October 1995.
</TABLE>
5
<PAGE>
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Board of Directors held five meetings during 1997. During 1997, 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 a sitting director.
Directors who are not employees of the Company were paid an annual retainer
of $9,000 and $600 for each Board and committee meeting attended. Committee
chairmen were paid $800 for each committee meeting attended. Directors who are
employees of the Company are not paid for attending Board of Directors or
committee meetings.
On January 22, 1991, the Board of Directors adopted the 1991 Stock Option
Plan for Non-Employee Directors (the "Director Plan"). On September 12, 1995,
the Board of Directors adopted the Second Amendment to the Director Plan, which
amendment was approved by the stockholders at the 1996 Annual Meeting of
Stockholders. The Second Amendment to the Director Plan increased the number of
shares subject to the plan from 72,000 to 150,000 and extended the duration of
the Director Plan from 1995 to 2001, among other things. Pursuant to the
Director Plan, each non-employee director of the Company is automatically
granted, on an annual basis, an option to purchase 3,000 shares of Common Stock.
The price for each option granted under the Director Plan is the greater of (a)
the fair market value of the Common Stock on the date of grant or (b) the
minimum legal consideration necessary for the issuance of such shares. Under
the Director Plan, as of March 1, 1998, the Company had granted options to
purchase its Common Stock to the following directors: (i) options for 24,000
shares to Mr. Bermingham; (ii) options for 12,000 shares to Mr. Meany; (iii)
options for 15,000 shares to each of Messrs. Batinovich and D.J. Farr; (iv)
options for 12,000 shares to Mr. Kimes; (v) options for 9,000 shares to Mr.
Sullivan; and (vi) options for 6,000 shares to Mr. Brown.
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.
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), Johnston
and Bermingham. The purpose of the Executive Committee is to expedite the
decision making process of the Board of Directors. The Executive Committee did
not meet in 1997.
The Audit Committee, which is comprised of Messrs. Bermingham (Chairman),
Sullivan and Kimes, held two meetings in 1997. The functions performed by the
Audit Committee include: recommending to the Board independent accountants to
serve the Company for the ensuing year; reviewing with the independent
accountants and management the scope and results of audits; 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 non-audit professional services provided by the independent
accountants and the range of audit and non-audit fees. To help ensure the
independence of the audit, the Audit Committee consults separately and jointly
with the independent accountants and management.
The Compensation Committee, which in 1997 was comprised of Messrs.
Batinovich (Chairman), D.J. Farr and Brown, held two meetings in 1997. Mr. Farr
has decided not to seek re-election to the Board of Directors upon the
expiration of his term at the 1998 Annual Meeting. The functions performed by
the Compensation Committee include reviewing management's recommendations as to
executive compensation and grants of stock options to key employees and the
hiring of outside consultants to study and report on the competitiveness of the
Company's compensation to its officers.
6
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 (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 year ended January 3, 1998, 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.
CORPORATE GOVERNANCE
The Board of Directors has adopted two policies which are significant steps
toward further enhancement of its corporate governance.
No less than once per year the Board of Directors selects at least three
employees of the Company from below the Senior Vice President level for an off-
the-record interview from which officers are excluded. The purpose of this
interview is to gain input from the lower-level employees as to their opinions
of how well the Company is being managed and answer any questions board members
may have regarding the Company from the employees' point of view.
A second policy of significance to sound corporate governance regards the
role of outside consultants who provide data, analyses and make recommendations
pertaining to executive pay and benefits. Under this policy all officers and
employees of the Company are excluded from both the selection and the hiring of
the consultants and from receiving information and reports direct from the
consultants. This is beneficial because it removes the consultant from any
position of risk of having a conflict of interest and it assures the Board of
Directors that the consultant is working only to the committee's instructions.
A further explanation of the application of this policy can be found in the
Compensation Committee Report contained herein.
7
<PAGE>
EXECUTIVE COMPENSATION
The following table shows the compensation paid by the Company to its Chief
Executive Officer and the four other most highly compensated officers whose cash
compensation for the fiscal year ended January 3, 1998 for services rendered in
all capacities to the Company exceeded $100,000 (collectively, the "Named
Officers").
SUMMARY COMPENSATION TABLE
--------------------------
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------
ANNUAL COMPENSATION AWARDS
------------------------- -------------
SECURITIES ALL OTHER
UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS(#) ($)(1)
- ------------------------------------ ------- ----------- ---------- ------------- --------------
<S> <C> <C> <C> <C> <C>
H. Jack Meany (2), 1997 246,002 247,834 0 --
Chairman and Chief Executive 1996 246,000 339,180 0 --
Officer 1995 246,000 337,512 0 --
John C. Johnston, 1997 170,000 137,013 20,000 --
President and Chief Operating 1996 170,000 140,636 0 --
Officer 1995 170,000 75,198 66,000 --
Kenneth W. Gerstner, 1997 140,001 50,776 0 --
Senior Vice President and Chief 1996 140,000 69,491 0 --
Financial Officer 1995 140,000 61,928 27,000 --
Richard L. Farr (3), 1997 140,001 50,776 0 --
Vice President 1996 140,000 69,491 0 --
1995 140,000 60,668 25,500
Myron G. Rasmussen, 1997 117,393 33,115 0 --
Vice President 1996 117,393 45,321 0 --
1995 116,749 38,533 3,000 --
</TABLE>
_________________
(1) Excludes compensation in the form of other personal benefits, which for
each of the Named Officers did not exceed the lesser of (i) $50,000 or (ii)
10% of the total annual salary and bonus reported for each year.
(2) In February 1996, Mr. Meany became Chairman and Chief Executive Officer of
the Company. Previously, Mr. Meany was Chairman, President and Chief
Executive Officer of the Company from April 1994 to February 1996. The
Compensation Committee set Mr. Meany's base salary in July 1996, effective
retroactively to April 1994. Prior to such retroactive adjustment, Mr.
Meany was paid nominal annual compensation of $1.00 for his services from
April 1994 to June 1996. In addition, the Compensation Committee in July
1996 established Mr. Meany as a participant in the Company's Management
Incentive Plan effective retroactively to April 1994. Mr. Meany's 1995 and
first half of 1996 wages and earned incentives were paid to him in July
1996. All wages and incentive compensation earned by Mr. Meany after June
1996 are paid to Mr. Meany concurrently as earned. The annual compensation
table set forth above reflects Mr. Meany's compensation for 1995 and 1996
based on the wages retroactively deemed to have been earned in those years.
(3) Mr. Farr resigned his position with the Company effective December 31,
1997.
8
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
Shown below is information concerning a grant of options issued by the
Company to one Named Officer in fiscal 1997:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION ------------------------------
NAME GRANTED(#)(1) FISCAL YEAR ($/SHARE) DATE 5% 10%
- ------------------------- ------------- ------------ --------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
John C. Johnston......... 20,000 42.6% $12.00 4/29/07 $150,935 $382,498
</TABLE>
________________
(1) Such options were granted on April 29, 1997 with an exercise price equal to
the closing sale price of the Common Stock as reported on the Nasdaq
National Market on such date.
(2) The 5% and 10% assumed rates of appreciation are specified under the rules
of the Securities and Exchange Commission and do not represent the Company's
estimate or projection of the future price of its Common Stock. The actual
value, if any, which a Named Officer may realize upon the exercise of stock
options will be based upon the difference between the market price of the
Common Stock on the date of exercise and the exercise price.
STOCK OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table sets forth for the Named Officers information with
respect to unexercised options and year-end option values, in each case with
respect to options to purchase shares of Common Stock.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED IN-THE-
SHARES NUMBER OF UNEXERCISED MONEY OPTIONS AT
ACQUIRED VALUE OPTIONS AT FY-END(#) FY-END ($)(1)
ON REALIZED --------------------------- -----------------------------
NAME EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
H. Jack Meany(2)............ 0 -- 12,000 0 120,500 --
John C. Johnston............ 0 -- 0 86,000 -- 830,000
Kenneth W. Gerstner......... 0 -- 46,500 19,500 503,500 222,000
Richard L. Farr............. 0 -- 40,500 14,250 400,000 164,875
Myron G. Rasmussen.......... 0 -- 20,812 3,000 186,808 31,750
</TABLE>
_________________
(1) Calculated based on the closing price of the Company's Common Stock ($15.00
per share) as reported on the Nasdaq National Market on January 3, 1998.
(2) Mr. Meany holds total options to purchase 12,000 shares of Common Stock
that were granted pursuant to the Director Plan for his services to the
Company as a non-employee director.
9
<PAGE>
COMPENSATION COMMITTEE REPORT
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee in the year ended January 3, 1998
were Messrs. Batinovich (Chairman), D.J. Farr and Brown, each of whom are non-
employee directors and none of whom has any direct or indirect material interest
in or relationship with the Company (outside of his position as director). Mr.
Farr has decided not to seek re-election to the Board of Directors upon the
expiration of his term at the 1998 Annual Meeting. To the Company's knowledge,
there were no interrelationships involving members of the Compensation 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 the Company specifically incorporates this information
by reference, and shall not otherwise be deemed filed under such the Securities
Act of 1933 or the Exchange Act.
* * * *
The policy of the Compensation Committee is to establish compensation
levels for the Chief Executive Officer and the other officers reflecting both
(i) the Company's overall performance and (ii) the executive's contribution to
the growth and profitability of the Company. The Compensation Committee strives
to determine the appropriate executive compensation levels that will allow the
Company to attract and retain qualified executives.
The Compensation Committee retains the services of an outside consultant
who is recruited, selected and retained solely by the Compensation Committee,
acting entirely independently of and without direction from management.
The consultant provides reports and information on a confidential basis to
the Compensation Committee. No reports or other information are provided to
management by the consultant other than by direction of the Compensation
Committee, at its sole discretion. No files or records of the consultant's
reports or work papers are kept by management or in the Company's files except
at the specific direction of the Chairman of the Compensation Committee and only
for specific documents or information.
The consultant's assignment is to use available current salary data for
companies of comparable size in manufacturing and related businesses, and make
comparative evaluations of salaries, incentive compensation and perquisites. To
facilitate this process, the Company provides to the consultant the value of all
options existing at the beginning of the year for each individual officer along
with a comparison of the value of all options existing at the end of the year
and any gain on options exercised during the year. This information is included
in the consultant's report to the Compensation Committee. Such information as
is reasonably available which may be of value to the Compensation Committee in
its deliberations is also provided by the consultant. Specific recommendations
are made by the consultant to the Compensation Committee, if and when requested
by the Committee.
The scope of the work to be performed and the fees and costs for such work
are determined between the consultant and the Chairman of the Compensation
Committee for each assignment. This is normally once each year, but may include
other work or at other times, as required by the Compensation Committee. The
positions covered are determined by the Compensation Committee and are the
entire officer staff as then-existing, and may include planned positions.
The Compensation Committee, with recommendations from the Chief Executive
Officer, determines the compensation of the other executive officers.
Compensation levels are generally based on the Company's overall
10
<PAGE>
performance, particularly in the areas of sales and earnings. Such performance
is typically measured by comparing the Company's operating plan for the year
versus actual achievement of that plan. In determining compensation levels, the
Compensation Committee also considers qualitative factors such as new product
development, organizational improvements and other factors considered vital to
the Company's success in meeting its long-term sales growth and profit
objectives. The Compensation Committee also focuses on each officer's area of
responsibility and contribution in helping to reach Company objectives.
A major part of the compensation of each officer is base salary. Upon its
review of the Company's operating plan measured against actual achievement, the
Compensation Committee establishes the salary levels for executives and awards
bonuses. The Compensation Committee considers data from the outside
compensation consultant and also considers the practices of various industry
groups. Such industry groups generally include companies in the same industry
as the Company as well as companies of comparable size in other industries. The
Compensation Committee believes that the Company's overall executive
compensation levels are generally in line with the compensation levels at other
companies studied by the Compensation Committee. This is made up of base
salaries, which are slightly lower, and incentive compensation, which is
generally higher, than the average of the comparable companies studied.
In February 1996, Mr. Meany became Chairman and Chief Executive Officer of
the Company. Previously, Mr. Meany was Chairman, President and Chief Executive
Officer of the Company from April 1994 to February 1996. Prior to April 1994,
Mr. Meany served as a non-employee director of the Company. At Mr. Meany's
request, and as set by the Compensation Committee, Mr. Meany received an annual
base salary of $1.00 from April 1994 to February 1996. The Compensation
Committee in July 1996 then re-established Mr. Meany's base salary retroactively
at $246,000 per year, effective April 1994. In addition, Mr. Meany became
retroactively eligible to participate in the Company's Management Incentive
Plan. Mr. Meany's 1994, 1995 and first half of 1996 wages and earned incentives
were paid to him in July 1996. No allowance was added to these payments for
interest to cover the deferral period and none is planned.
All wages and incentives earned by Mr. Meany after June 1996 were paid and
are being paid to him concurrently as earned. The annual compensation table set
forth above reflects Mr. Meany's compensation for the years 1995 and 1996 based
on the wages and incentive pay deemed to have been retroactively earned in those
years. Mr. Meany's base salary and incentive compensation levels were
determined by the Compensation Committee through reference to only the base
salaries and total compensation being paid to chief executives of comparable
manufacturing and other business companies, along with the Company's performance
and Mr. Meany's ability to build and maintain a strong management team, capable
of meeting the Company plan on a consistent basis.
Officers are eligible to receive bonuses under the Company's Management
Incentive Plan. Under this plan, bonuses are based on the Company achieving
profits above a minimum return on assets and certain income levels. Based on
1997 operating results, corporate performance exceeded the minimum return on
assets and certain income levels, thereby providing for bonuses to be awarded to
management. 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
employees; determines the recipients for such options; and the number of options
to be granted to each recipient. The purpose of the stock option program is to
provide incentives to the Company's management and other personnel to maximize
stockholder value. The option program also utilizes vesting periods to
encourage employees to continue in the employ of the Company. The aggregate
number of options granted to an employee is based on the responsibilities of the
employee, the historic levels of option awards granted to other employees, the
appropriate incentive level for purposes of achieving the objectives set for the
option plan and the potential dilution effect of additional options to the
overall earnings per share. In 1997, the Compensation Committee granted to John
C. Johnston options to purchase 20,000 shares of Common Stock at an exercise
price of $12.00 per share, the fair market value on the date of grant. In 1997,
the Compensation Committee did not make any option grants to other Named
Officers, but did grant options to certain other officers and employees.
11
<PAGE>
Section 162(m) of the Internal Revenue Code of 1986, as amended, denies a
deduction to a public corporation for compensation exceeding $1,000,000 to
"covered employee." A "covered employee" is defined as the Chief Executive
Officer and the Company's four other most highly compensated officers at the end
of any taxable year. Compensation which is payable pursuant to written binding
agreements entered into before February 18, 1993 and compensation which includes
performance-based compensation (as defined in Section 162(m)) in order to
maximize the Company's income tax deductions. However, this policy does not
rule out the possibility that the Compensation Committee may approve
compensation that may not qualify for the compensation deduction. This may be
done if in light of all applicable circumstances it would be in the best
interest of the Company for such compensation to be paid.
ROBERT BATINOVICH (Chairman)
DAVID J. FARR
DENIS R. BROWN
12
<PAGE>
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 the Securities Act
of 1933 or the Exchange Act. The following table compares total stockholder
returns over the last five fiscal years to the Standard & Poor's 500 Stock Index
("S&P 500 Index") and the Standard & Poor's Pollution Control Index (the "S&P
Pollution Control Index") over the period from January 1, 1992 to January 3,
1998.
COMPARISON OF CUMULATIVE TOTAL RETURN OF FARR COMPANY,
S&P 500 INDEX AND THE S&P POLLUTION CONTROL INDEX
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
=====================================================================================================
1992 1993 1994 1995 1996 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FARR COMPANY $100.00 $100.00 $ 98.00 $128.00 $266.00 $359.82
- -----------------------------------------------------------------------------------------------------
S&P POLLUTION CONTROL INDEX $100.00 $129.16 $123.56 $143.05 $153.10 $166.54
- -----------------------------------------------------------------------------------------------------
S&P 500 INDEX $100.00 $110.08 $111.54 $111.54 $188.69 $251.64
=====================================================================================================
</TABLE>
The cumulative total return shown on the stock performance graph indicates
historical results only and is not necessarily indicative of future results.
Each line on the stock performance graph assumes that $100 was invested in the
Company's Common Stock and the respective indices on January 1, 1992. The graph
then tracks the value of these investments, assuming reinvestment of dividends,
through January 3, 1998.
13
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP ("Arthur Andersen"), the Company's auditors since 1970,
audited the Company's financial statements for the year ended January 3, 1998.
In connection with its audit of the Company's financial statements for the year
ended January 3, 1998, Arthur Andersen 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
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 as the Company's
auditors for the fiscal year ending January 2, 1999.
STOCKHOLDER PROPOSALS
Any stockholder wishing to submit a proposal to be presented to all
stockholders at the Company's 1999 Annual Meeting must submit such proposal to
the Company so that it is received by the Company at its principal executive
offices no later than November 25, 1998.
ANNUAL REPORT
The Company's Annual Report to Stockholders containing audited financial
statements for the year ended January 3, 1998 is being mailed herewith to all
stockholders of record. The Annual Report does not form part of the material
for solicitation of proxies.
MISCELLANEOUS
Should any matter not described in the Proxy Statement properly come before
the meeting, the persons named in the accompanying proxy form will vote in
accordance with their best judgment.
By the Order of the Board of Directors,
Kenneth W. Gerstner
Secretary
El Segundo, California
March 25, 1998
STOCKHOLDERS OF RECORD ON MARCH 6, 1998 MAY OBTAIN COPIES OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-K AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
BY WRITING TO KENNETH W. GERSTNER, 2201 PARK PLACE, EL SEGUNDO, CALIFORNIA
90245, AND A COPY WILL BE SENT TO YOU.
14
<PAGE>
FARR COMPANY
ANNUAL MEETING OF STOCKHOLDERS--APRIL 28, 1998
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 UNDERSIGNED, WITH FULL POWER OF SUBSTITUTION,
P TO VOTE FOR THE UNDERSIGNED ALL OF THE COMMON STOCK
R OF SAID CORPORATION STANDING IN THE NAME OF THE
O UNDERSIGNED ON ITS BOOKS AT THE CLOSE OF BUSINESS
X ON MARCH 6, 1998, AT THE ANNUAL MEETING OF
Y STOCKHOLDERS TO BE HELD AT THE OFFICES OF THE
CORPORATION, 2201 PARK PLACE, EL SEGUNDO,
CALIFORNIA, ON APRIL 28, 1998 OR AT ANY ADJOURNMENT
THEREOF, WITH ALL OF THE POWERS WHICH WOULD BE
POSSESSED BY THE UNDERSIGNED IF PERSONALLY PRESENT,
AS FOLLOWS:
IF NO CONTRARY INSTRUCTION IS INDICATED, THIS
PROXY WILL BE VOTED FOR THE ELECTION OF
MANAGEMENT'S THREE NOMINEES AS DIRECTORS.
(Continued and to be signed on other side)
<PAGE>
IF NO CONTRARY INSTRUCTION IS INDICATED, THIS PROXY WILL BE VOTED FOR THE
ELECTION OF MANAGEMENT'S TWO NOMINEES AS DIRECTORS.
Please mark [X]
your votes
as this
WITHHELD
FOR FOR ALL
1. Election of Directors [X] [X]
Robert Batinovich and A. Frederick Gerstell
(INSTRUCTION: To withhold authority to vote for
any individual nominee write that nominee's name
on the space provided below.)
- --------------
2. 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 28, 1998 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.
<PAGE>
LOGO
CONFIDENTIAL VOTING INSTRUCTIONS
P R O X Y FARR COMPANY
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD APRIL 28, 1998
TO: WELLS FARGO BANK AS TRUSTEE UNDER THE
401(K) RETIREMENT PLAN OF FARR COMPANY
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, 2201 Park Place, El Segundo, California, on April 28, 1998 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 A. Frederick Gerstell
(Instruction: To withhold authority to vote for any individual nominee write
that nominee's name on the space provided below.)
________________________________________________________________________________
(Continued and to be signed on other side.)
LOGO
______________
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 DIRECTORS NAMED ABOVE.
Unless you sign and return this
card so that it is received by the
Trustee before April 21, 1998 your
shares will be voted as provided by
the Plan.
Date; ___________________, 1998
_______________________________
_______________________________
(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.
