SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to section 240.14a-11(c) or
section 240.14a-12
FARREL CORPORATION
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-
11.
1) Title of each class of securities to which transaction applies:
_____________________________________________
2) Aggregate number of securities to which transaction applies:
_____________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
_____________________________________________
4) Proposed maximum aggregate value of transaction:
_____________________________________________
5) Total fee paid:
_____________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
_____________________
2) Form, Schedule or Registration Statement No.:
_____________________
3) Filing Party:
_____________________
4) Date Filed:
_____________________
<PAGE>
[FARREL CORPORATION LOGO IN SHIELD]
FARREL CORPORATION
25 Main Street
Ansonia, Connecticut 06401
========================================
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
========================================
To Our Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Meeting") of Farrel Corporation, a Delaware corporation (the "Company"), will
be held at the offices of the Company, 25 Main Street, Ansonia, Connecticut,
06401, on May 23, 1997 at 10:00 a.m. (local time) for the following purposes:
1. to elect three directors of the Company to serve until the 1999
Annual Meeting of Stockholders of the Company;
2. to approve the adoption of the Company's 1997 Omnibus Stock
Incentive Plan;
3. to approve the adoption of the Company's 1997 Employees' Stock
Purchase Plan;
4. to ratify the selection of Ernst & Young LLP, as independent
accountants for the Company for the fiscal year ending December
31, 1997; and
5. to transact such other business as may properly come before the
Meeting or any adjournment thereof.
Only stockholders of record on the books of the Company at the close of
business on April 29, 1997 will be entitled to notice of and to vote at the
Meeting.
By Order of the Board of Directors,
/s/ Peter L. Hess
PETER L. HESS
General Counsel and Secretary
Ansonia, Connecticut
April 30, 1997
IMPORTANT: WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, IT IS
IMPORTANT THAT YOUR SHARES BE REPRESENTED AND VOTED AT THE MEETING.
ACCORDINGLY, YOU ARE URGED TO READ THE ENCLOSED PROXY STATEMENT AND
SIGN, DATE AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE ENVELOPE
PROVIDED, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
FARREL CORPORATION
25 Main Street
Ansonia, Connecticut 06401
===============
PROXY STATEMENT
===============
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 23, 1997
This Proxy Statement is being mailed to you in connection with the
solicitation of proxies by the Board of Directors of Farrel Corporation, a
Delaware corporation (the "Company") for use at the Annual Meeting of
Stockholders (the "Meeting"), to be held on May 23, 1997, at 10:00 a.m. (local
time), at the offices of the Company at 25 Main Street, Ansonia, Connecticut
06401.
SOLICITATION OF PROXIES
All shares represented by duly executed proxies in the form enclosed
herewith received by the Company prior to the Meeting will be voted as
instructed at the Meeting. There are boxes on the proxy card to vote for or to
withhold authority to vote for the director nominees. There are also boxes on
the proxy card to vote for or against or to abstain from voting on the approval
of the adoption of the Company's 1997 Omnibus Stock Incentive Plan (the "1997
Incentive Plan") and the Company's 1997 Employees' Stock Purchase Plan (the
"1997 Stock Purchase Plan"), and on the ratification of the Company's
independent accountants. If no instructions are given, the persons named in
the accompanying proxy intend to vote FOR the three nominees named herein, FOR
approval of the adoption of the 1997 Incentive Plan, FOR approval of the
adoption of the 1997 Stock Purchase Plan and FOR ratification of the selection
of the independent accountants named herein.
Any stockholder may revoke a previously executed proxy at any time prior
to its exercise (i) by delivery of a later-dated proxy, (ii) by giving written
notice of revocation to the Secretary of the Company at the address set forth
above at any time before such proxy is voted or (iii) by voting in person at
the Meeting. No proxy will be voted if the stockholder attends the Meeting and
elects to vote in person.
A copy of the 1996 Annual Report of the Company containing financial
statements for the fiscal year ended December 31, 1996 is enclosed herewith.
This Proxy Statement and the form of proxy enclosed herewith are first being
mailed to stockholders on or about May 5, 1997. The mailing address of the
Company's principal executive offices is 25 Main Street, Ansonia, Connecticut
06401.
The Board of Directors does not know of any matter other than as set
forth herein that is expected to be presented for consideration at the Meeting.
However, if any matters properly come before the Meeting, the persons named in
the accompanying proxy (each of whom is an officer and employee of the Company)
intend to vote thereon in accordance with their judgment.
<PAGE>
EXPENSES AND SOLICITATION
The Company will bear the cost of soliciting proxies, including expenses
in connection with the preparation and mailing of this Proxy Statement and all
papers which now accompany or may hereafter supplement it. Solicitation of
proxies will be primarily by mail. However, proxies may also be solicited by
directors, officers and regular employees of the Company (who will not be
specifically compensated for such services) by telephone or otherwise.
Brokerage houses and other custodians, nominees and fiduciaries will be
requested to forward proxies and proxy material to the beneficial owners of the
Company's Common Stock, and the Company will reimburse them for their expenses.
RECORD DATE, OUTSTANDING VOTING SECURITIES
AND VOTES REQUIRED
The Company's common stock, $.01 par value per share ("Common Stock"),
is the only outstanding class of voting securities of the Company. The record
date for determining the holders of Common Stock entitled to vote on the
actions to be taken at the Meeting is the close of business on April 29, 1997
(the "Record Date"). As of the Record Date, 5,941,835 shares of Common Stock
were outstanding. Each holder of Common Stock on the Record Date is entitled
to cast one vote per share at the Meeting on each matter.
Holders of a majority of the shares entitled to vote must be present at
the Meeting, in person or by proxy, so that a quorum may be present for the
transaction of business. For purposes of determining a quorum, broker non-
votes and abstentions will be considered present. The affirmative vote of the
holders of a plurality of the shares of Common Stock present at the Meeting, in
person or by proxy, is necessary for the election of directors of the Company.
The affirmative vote of the holders of a majority of the shares of Common Stock
present at the Meeting, in person or by proxy, is necessary for approval of the
adoption of the 1997 Incentive Plan and the 1997 Stock Purchase Plan and for
ratification of the selection of Ernst & Young LLP, as independent accountants
for the Company and any other matters. Abstentions from the proposal to approve
the adoption of the 1997 Incentive Plan, the proposal to approve the adoption
of the 1997 Stock Purchase Plan or the proposal to ratify the selection of the
independent accountants, as well as broker non-votes, will not be considered as
part of the shares present for voting purposes on these matters.
ELECTION OF DIRECTORS
The Company's Certificate of Incorporation provides for a Board of
Directors of two classes as nearly equal in number as practicable. Directors
are elected for two-year terms. At the Meeting, three persons will be elected
to serve as Class II directors to serve a two-year term expiring at the 1999
Annual Meeting of Stockholders. The Board's nominees are Glenn J. Angiolillo,
Charles S. Jones and Alberto Shaio, all of whom are currently directors of the
Company. Howard J. Aibel, Rolf K. Liebergesell and James A. Purdy were elected
last year to serve as Class I directors for a term expiring at the Annual
Meeting of Stockholders to be held in 1998.
The Board approved proposing to stockholders the reelection of Glenn J.
Angiolillo, Charles S. Jones and Alberto Shaio to a two-year term expiring in
1999. Glenn J. Angiolillo, Charles S. Jones and Alberto Shaio have consented
to be nominated and, if elected, to serve as directors of the Company.
Information about each nominee for director and each incumbent director whose
term will continue after the Meeting is listed below.
2
<PAGE>
NOMINEES FOR ELECTION FOR TERMS EXPIRING 1999
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS,
OTHER DIRECTORSHIPS AND YEAR FIRST
NAME OF DIRECTOR AGE POSITIONS WITH THE COMPANY BECAME DIRECTOR
<S> <C> <C> <C>
Glenn J. Angiolillo 43 Mr. Angiolillo is a member of the 1990
Legal Affairs Committee and the
Compensation Committee. He has been a
partner in the law firm of Cummings &
Lockwood since 1987. Mr. Angiolillo is a
director of the Waveny Care Center and
the Boys and Girls Club of Stamford,
each of which is a non-profit
corporation.
Charles S. Jones 49 Mr. Jones has served as Chairman 1987
of the Executive Committee of the Board
since January 1992, and was elected
Chairman of the Compensation Committee
in 1994. Mr. Jones joined the Company's
Board of Directors in 1987 when he was
the Managing Director of First Funding
Corporation. He was President and Chief
Executive Officer of Shandwick North
America, Inc. from 1987 to 1990, when he
was appointed Group Managing Director
and Chief Operating Officer of Shandwick
plc, a global public relations company
in London, England. In May 1991,
Mr. Jones rejoined First Funding
Corporation as Chairman and Chief
Executive Officer. In 1994, he was
elected a Director of Project Software &
Development, Inc. of Boston,
Massachusetts, and Chairman of its Audit
Committee.
Alberto Shaio 47 Mr. Shaio served as Vice 1986
President-Sales of the Company from 1986
to 1987 when he became Senior Vice
President-Sales. In 1995, Mr. Shaio was
appointed Senior Vice President, Large
Projects. In 1996, in addition to his
position as Senior Vice President, Mr.
Shaio was appointed General Manager of
the Plastics Machinery Division of the
Company. From 1981 until 1996,
Mr. Shaio was a director of New Energy
Corporation of Indiana.
</TABLE>
3
<PAGE>
INCUMBENT DIRECTORS WHOSE TERMS EXPIRE AT THE 1998 ANNUAL MEETING
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATIONS,
OTHER DIRECTORSHIPS AND YEAR FIRST
NAME OF DIRECTOR AGE POSITIONS WITH THE COMPANY BECAME DIRECTOR
<S> <C> <C> <C>
Howard J. Aibel 68 Mr. Aibel is the Chairman of the 1994
Legal Affairs Committee and a member of
the Audit Committee. He is currently a
partner of the law firm LeBoeuf, Lamb,
Greene & MacRae in New York, New York.
Mr. Aibel retired as Executive Vice
President and Chief Legal Officer of ITT
Corporation on March 31, 1994, after
thirty years of service. He also served
as a member of the ITT Management Policy
Committee, and had overall
responsibility for environmental,
safety, government relations, labor law,
intellectual property and taxes. He
also held posts as a director of the
Sheraton Corporation, ITT Financial
Corporation and ITT Europe, Inc. Prior
to joining ITT, Mr. Aibel served as
Anti-Trust Litigation Counsel to the
General Electric Company. He was
previously associated with White & Case.
Rolf K. Liebergesell 64 Mr. Liebergesell has served as 1986
Chairman of the Board, Chief Executive
Officer and President of the Company
since 1986. During the period March to
June 1996, he relinquished the post of
President to a newly appointed
executive, but resumed the Presidency
upon the resignation of that appointee.
Prior to joining the Company, Mr.
Liebergesell was Chairman and Chief
Executive Officer of Bailey Corporation,
a manufacturer of rubber and plastic
components for the automobile industry.
Mr. Liebergesell held various positions,
including Product Line Manager for the
Worldwide Automotive Group, with ITT
Corporation from 1973 to 1979.
4
<PAGE>
INCUMBENT DIRECTORS WHOSE TERMS EXPIRE AT THE 1998 ANNUAL MEETING Continued
PRINCIPAL OCCUPATIONS,
OTHER DIRECTORSHIPS AND YEAR FIRST
NAME OF DIRECTOR AGE POSITIONS WITH THE COMPANY BECAME DIRECTOR
Mr. Liebergesell also served in various
positions at Chrysler Corporation from
1959 to 1973, including Director,
Planning and Development of Chrysler
International, and Deputy Managing
Director of Mitsubishi Motors
Corporation, a joint venture of
Mitsubishi Heavy Industries, Ltd. and
Chrysler Corporation.
James A. Purdy 74 Mr. Purdy is the Chairman of the 1986
Audit Committee and a member of the
Compensation Committee. He is the
President of Purdy Investments, Inc., a
private investment and consulting firm.
He has performed consulting and advisory
services for the Company since 1987, and
from 1990-1992 for the State of
Connecticut Department of Economic
Development. Formerly, Mr. Purdy was a
Senior Vice President of ITT Corporation
responsible for all Asian, Pacific and
Latin American activities.
</TABLE>
5
<PAGE>
MEETINGS OF THE BOARD OF DIRECTORS;
COMMITTEES OF THE BOARD OF DIRECTORS
During the Company's most recent fiscal year, the Board of Directors held
six meetings. There are currently four standing committees of the Board of
Directors: the Audit Committee, the Executive Committee, the Compensation
Committee and the Legal Affairs Committee. Each current director attended at
least 75% of all Board meetings and all meetings of committees of which he was
a member held during the most recent fiscal year while he was in office.
The Audit Committee, which met two times in the Company's most recent
fiscal year, recommends to the Board for stockholder approval an independent
accounting firm to conduct the annual audit, and discusses with the Company's
independent accountants the scope of their examinations with particular
attention to areas where either the Committee or the independent accountants
believe special emphasis should be directed. The Committee reviews the
annual financial statements and independent accountants' report, invites
the accountants' recommendations on internal controls and on other matters,
and reviews the evaluation given and corrective action taken by management.
It reviews the independence of the accountants and their fees. It also
reviews the Company's internal accounting controls and submits reports and
proposals to the Board of Directors. The members of the Committee are
James A. Purdy, Chairman, and Howard J. Aibel.
The Compensation Committee, which met two times in the Company's most
recent fiscal year, oversees administration of the Company's 1992 Stock Option
Plan, which is described below, (the "1992 Stock Option Plan") and the 1992
Employees' Stock Purchase Plan of the Company. Assuming that the 1997
Incentive Plan and the 1997 Stock Purchase Plan are adopted by the stockholders
of the Company, the Compensation Committee would also oversee the
administration of such plans. The Compensation Committee also reviews and
recommends to the Board of Directors all forms of remuneration and perquisites
for the directors and senior management of the Company. The members of the
Committee are Charles S. Jones, Chairman, James A. Purdy, and Glenn J.
Angiolillo.
During the Company's most recent fiscal year, the Executive Committee met
as necessary to address matters within its purview. The members of the
Executive Committee are Charles S. Jones, Chairman and Rolf K. Liebergesell.
The Legal Affairs Committee, which met one time in the Company's most
recent fiscal year, oversees the Company's policies and practices, and
compliance with governmental laws and regulations. The members of the
Committee are Howard J. Aibel, Chairman, and Glenn J. Angiolillo.
DIRECTOR COMPENSATION
Directors who are officers or employees of the Company receive no
additional compensation for service as members of the Board of Directors or
committees thereof. Directors who are not officers or employees of the Company
receive such compensation for their services as the Board of Directors may from
time to time determine. Non-employee directors, other than Mr. Jones who has
declined such remuneration, currently receive a fee of $2,500 for each Board
meeting attended and $750 for each Committee meeting attended, plus expense
reimbursement. In addition, each non-employee director was granted an option
to purchase 3,000 shares of the Company's Common Stock on January 27th of each
year from 1992 through 1996 pursuant to the 1992 Stock Option Plan. Pursuant
thereto, on January 27, 1996, Messrs. Aibel, Angiolillo,
6
<PAGE>
Jones and Purdy were each granted an option to acquire 3,000 shares of the
Company's Common Stock at an exercise price of $3.75 per share, which price
was the fair market value per share on the business day immediately preceding
the date of grant.
During the Company's most recent fiscal year, the Company paid to
Cummings & Lockwood, the law firm of which Mr. Angiolillo is a member, certain
fees for professional services rendered to the Company. The Company is also a
party to an agreement with First Funding Corporation. Mr. Jones is an executive
officer and owner of a majority of the capital stock of First Funding
Corporation. Pursuant to this agreement, the Company paid fees for
professional services rendered to the Company during the most recent fiscal
year. This agreement, and the fees paid, are described below under the caption
"Certain Relationships and Related Transactions -- Agreement with First Funding
Corporation."
During the Company's most recent fiscal year, Mr. Aibel also received a
fee of $10,000 for consulting services rendered to the Company.
Mr. Purdy also receives a fee of $750 per day plus expense reimbursement
for consulting services rendered to the Company and its subsidiary, Farrel
Limited. During the Company's most recent fiscal year, the Company paid Mr.
Purdy an aggregate of $13,959 for such services.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS, DIRECTORS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of Common Stock as of March 19, 1997 unless otherwise indicated in
the footnotes, by (i) the Company's directors and executive officers named in
the Summary Compensation Table, (ii) the Company's directors and executive
officers as a group and (iii) each person known to the Company to own
beneficially more than 5% of the outstanding Common Stock. Except as otherwise
indicated below, each of the persons named in the table has sole voting and
investment power with respect to all shares of Common Stock beneficially owned
by him as set forth opposite his name. Unless otherwise indicated in the
footnotes, the address of each stockholder is c/o the Company, 25 Main Street,
Ansonia, Connecticut 06401.
BENEFICIAL OWNERSHIP
PERCENTAGE
DIRECTORS AND MANAGEMENT SHARES OWNED(1)
Rolf K. Liebergesell(2) 2,806,412 45%
Charles S. Jones(3) 365,413 6%
Alberto Shaio 282,581 5%
James A. Purdy(4) 20,000 *
Howard J. Aibel(5)(6) 7,000 *
Glenn J. Angiolillo(7) (8) 15,200 *
Karl N. Svensson(9) 26,507 *
Catherine M. Boisvert(10) 6,000 *
Peter L. Hess 0 *
Directors and Executive Officers
as a group (9 persons) 3,529,113 56%
7
<PAGE>
CERTAIN BENEFICIAL OWNERS
David L. Babson and Company Incorporated(11) 756,700 13%
T. Rowe Price Associates(12) 612,600 10%
_____________________
* Represents less than one percent of the Common Stock.
(1) Shares issuable upon the exercise of stock options owned by that person
which can be exercised within 60 days of the date hereof, are deemed
outstanding for the purpose of computing the number and percentage of
outstanding shares owned by that person (and any group that includes that
person) but are not deemed outstanding for the purpose of computing the
percentage of outstanding shares owned by any other person.
(2) Includes 240,000 shares subject to options granted under the 1992 Stock
Option Plan, as to which the owner has a right to acquire beneficial
ownership.
(3) Includes 9,000 shares subject to options granted under the 1992 Stock
Option Plan, as to which the owner has a right to acquire beneficial
ownership.
(4) Includes 15,000 shares subject to options granted under the 1992 Stock
Option Plan, as to which the owner has a right to acquire beneficial
ownership.
(5) Includes 6,000 shares subject to options granted under the 1992 Stock
Option Plan, as to which the owner has a right to acquire beneficial
ownership.
(6) Address is c/o LeBoeuf, Lamb, Greene & MacRae, 125 West 55th Street, New
York, N.Y. 10019.
(7) Includes 15,000 shares subject to options granted under the 1992 Stock
Option Plan, as to which the owner has a right to acquire beneficial
ownership.
(8) Address is c/o Cummings & Lockwood, Four Stamford Plaza, 107 Elm Street,
Stamford, Connecticut, 06904.
(9) Includes 20,000 shares subject to options granted under the 1992 Stock
Option Plan, as to which the owner has a right to acquire beneficial
ownership.
(10) Reflects shares subject to options granted under the 1992 Stock Option
Plan, as to which the owner has a right to acquire beneficial ownership.
(11) David L. Babson and Company Incorporated ("Babson") has indicated in an
amendment to a Schedule 13G filed with the Securities and Exchange
Commission (the "SEC") in February, 1997, that of the shares reported as
beneficially owned as of December 31, 1996, Babson has sole voting power
over 508,400 shares, sole dispositive power over 756,700 shares, and
shared voting power over 248,300 shares. Address is One Memorial Drive,
Cambridge, Massachusetts, 02142-1300.
(12) T. Rowe Price Associates, Inc. ("Price Associates") has indicated in an
amendment to a Schedule 13G filed with the SEC in February, 1997, that of
the shares reported as beneficially owned as of December 31, 1996, Price
Associates has sole voting power over 51,100 shares, and sole dispositive
power over 612,600 shares. Price Associates has indicated that (1) these
securities are owned by various individuals and institutional investors
which Price Associates serves as investment adviser with power to direct
investments and/or or sole power to vote the securities, and (2) for
purposes of the reporting requirements of the Securities Exchange Act of
1934, Price Associates is deemed to be a beneficial owner of such
securities but that Price Associates expressly disclaims that it is in
fact the beneficial owner of these securities. Address is 100 E. Pratt
Street, Baltimore, Maryland 21202.
8
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors, and persons who own more than
ten percent of the Company's Common Stock, to file reports of ownership and
changes in ownership of the Company's securities with the Securities and
Exchange Commission. Officers, directors and greater than ten percent
beneficial owners are required by applicable regulations to furnish the Company
with copies of all forms they file pursuant to Section 16(a). Based solely
upon a review of the copies of the forms furnished to the Company, and written
representations from certain reporting persons that no Form 5's were required,
the Company believes that during 1996, all filing requirements under Section
16(a) applicable to its officers, directors and ten percent beneficial owners
were complied with in a timely manner.
EXECUTIVE OFFICERS
The following table sets forth the current executive officers of the
Company. See "Election of Directors" for a description of the business
experience of Mr. Liebergesell and Mr. Shaio.
NAME AGE POSITION
Catherine M. Boisvert 42 Vice President, Controller and Chief
Accounting Officer
Peter L. Hess 54 General Counsel and Secretary
Rolf K. Liebergesell 64 Chairman of the Board, Chief Executive
Officer and President
Alberto Shaio 47 Director, Senior Vice President and
General Manager - Plastics Machinery
Division
Karl N. Svensson 61 Senior Vice President - Operations
CATHERINE M. BOISVERT Vice President, Controller and Chief Accounting
Officer has been the finance officer of the Company since September, 1992. From
1989 to 1992, Ms. Boisvert was Regional Controller of Shandwick North America,
Inc., a U.S. subsidiary of Shandwick plc, a London Stock Exchange-listed public
relations company. From 1983 to 1989, Ms. Boisvert was Director of Operations-
Finance for CBS, Inc.
PETER L. HESS has been General Counsel and Secretary of the Company since
July, 1995. Prior to joining the Company, Mr. Hess had been General Counsel
for the Resource Recovery Systems Division of ABB Combustion Engineering and
subsequently Of Counsel with LeBoeuf, Lamb, Greene & MacRae in its Hartford,
Connecticut office.
9
<PAGE>
KARL N. SVENSSON has been Senior Vice President - Operations, of the
Company since 1988. From 1973 to 1988, Mr. Svensson was employed by Bird
Machine Company, a manufacturer of capital equipment for the petrochemical and
coal industries and held various executive positions, including Vice President.
In 1995, he was appointed to the additional position of Managing Director of
Farrel Limited.
Executive officers of the Company are appointed by the Board of Directors
and serve at the discretion of the Board. Except as described below under
"Executive Compensation and Related Information," the Company has no employment
agreements with any of its executive officers.
REPORT OF
THE COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
EXECUTIVE OFFICERS GENERALLY
ROLE OF COMPENSATION COMMITTEE. The Compensation Committee (the
"Committee") reviews and recommends to the Board of Directors all forms of
remuneration for the directors and executive officers of the Company, including
salary, bonuses and awards under the 1992 Stock Option Plan. The Committee is
currently composed of three directors, none of whom is or has been at any time
an officer or employee of the Company.
OBJECTIVES OF EXECUTIVE COMPENSATION PROGRAMS. The Company's executive
compensation program's objectives are as follows:
o To provide a competitive basic compensation and benefits program in
order to attract and retain quality personnel.
o To provide further a performance-oriented environment and programs
that reward individual and team performance, and the success of the
Company.
o To align executives' financial interests with shareholders' values.
BASE SALARIES. Base salaries are targeted to be moderate yet competitive
in relation to salaries of executive officers in comparably sized companies in
our industry. The Committee reviews management recommendations for executives'
salaries, and also considers independent surveys that provide data on
compensation levels and benefit programs in similar companies. Individual
salary determinations are based on experience and sustained performance, as
well as on the general criteria set forth above.
BONUSES. Although the Company does not have a formal bonus program, the
Compensation Committee may recommend bonuses to be paid to executive officers
based on Company and individual performance.
1992 STOCK OPTION PLAN. The 1992 Stock Option Plan was designed to
secure for the Company and its stockholders the benefit of the incentives
inherent in increased Common Stock ownership by key employees.
10
<PAGE>
CHIEF EXECUTIVE OFFICER
The salary of Mr. Liebergesell, including his 1996 compensation, is
established pursuant to his employment agreement which sets an annual base
salary of $550,000 and provided for automatic grants of stock options under the
1992 Stock Option Plan. See "Executive Compensation and Related Information"
for more information concerning his employment agreement.
Charles S. Jones, Chairman
James A. Purdy
Glenn J. Angiolillo
-----------------------------------------
EXECUTIVE COMPENSATION AND RELATED INFORMATION
SUMMARY COMPENSATION TABLE
The following table sets forth the annual compensation, and all long term
compensation, for the past three fiscal periods for the Company's Chief
Executive Officer and each of the Company's other executive officers whose
compensation exceeded $100,000.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
NAME AND ANNUAL COMPENSATION OTHER SECURITIES ALL
PRINCIPAL ---------------------- ANNUAL UNDERLYING OTHER
POSITION YEAR SALARY(1) BONUS(2) COMPENSATION OPTIONS(3) COMPENSATION
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Rolf K. Liebergesell 1996 $550,000 --- --- 40,000 $34,862(4)
Chief Executive 1995 $550,000 --- --- 40,000 $34,862(4)
Officer, President 1994 $550,000 --- --- 40,000 $34,862(4)
and Chairman
of the Board
Alberto Shaio 1996 $230,000 --- --- 20,000 $ 4,600(5)
Senior Vice President 1995 $230,000 --- --- --- $ 4,600(5)
1994 $230,000 --- --- $ 4,600(5)
Karl N. Svensson 1996 $165,000 --- $102,812(6) 20,000 $ 2,375(5)
Senior Vice President 1995 $160,000 --- $ 66,035(7) --- $ 2,310(5)
Operations 1994 $160,000 $40,000 --- --- $ 2,400(5)
Catherine M. Boisvert 1996 $108,500 --- --- 20,000 $ 2,170(5)
Vice President, 1995 $105,000 $ 5,000 --- --- $ 2,100(5)
Controller and 1994 $ 96,250 $15,000 --- --- $ 1,915(5)
Chief Accounting
Officer
11
<PAGE>
Peter L. Hess 1996 $126,000 --- --- $ 975(5)
General Counsel and 1995 $ 57,383(8) --- --- $ ---
Secretary
</TABLE>
- ------------------------------
(1) Includes amounts deferred pursuant to the Company's Salary Retirement
Program.
(2) The cash bonuses for officers are stated for the fiscal year in respect
of which they were awarded, although payment was made after the period.
(3) Reflects options granted pursuant to the 1992 Stock Option Plan at an
exercise price equal to the fair market value on the date of grant.
Options granted to Mr. Liebergesell under the 1992 Stock Option Plan were
granted pursuant to the terms of his employment agreement, described
below.
(4) Other compensation is comprised of term life insurance premiums paid by
the Company pursuant to Mr. Liebergesell's employment agreement,
described below.
(5) Represents the Company's contributions under the Company's Salary
Retirement Program, pursuant to which the Company matches a percentage of
salary deferral contributions made by participating employees and may
make discretionary contributions.
(6) Includes $60,306 paid in connection with Mr. Svensson's reassignment
from the United States to the United Kingdom for the purpose of a tax
equalization payment adjusting Mr. Svensson's compensation in the most
recent fiscal year so that he is not adversely affected by differing tax
rates in the United States and the United Kingdom. The balance includes
housing and other assistance relating to Mr. Svensson's reassignment from
the United States to the United Kingdom.
(7) Includes $31,994 paid for the purpose of a tax equalization payment
adjusting Mr. Svensson's 1995 compensation so that he is not adversely
affected by differing tax rates in the United States and the United
Kingdom. The balance includes housing and other assistance relating to
Mr. Svensson's reassignment from the United States to the United Kingdom.
(8) Mr. Hess commenced employment with the Company on July 10, 1995.
The Company is a party to an employment agreement dated November 1, 1991
as amended, with Mr. Liebergesell which provides for his employment as Chairman
of the Board and Chief Executive Officer of the Company. The initial term of
the employment agreement ran from December 1, 1991 through November 30, 1994.
The agreement was automatically renewed for an additional three-year period
which will end on November 30, 1997. During his employment, Mr. Liebergesell
is entitled to receive an annual base salary of $550,000, subject to annual
increases as may be recommended by the Compensation Committee and approved by
the Board of Directors. Mr. Liebergesell also received, under the terms of his
employment agreement, options to purchase an aggregate of 240,000 shares of
Common Stock under the 1992 Stock Option Plan. The employment agreement does
not provide for any additional options to be granted to Mr. Liebergesell. See
"Compensation Plans and Arrangements of the Company - 1992 Stock Option Plan"
below. In addition to participation in benefit plans available generally to
its executive employees, Mr. Liebergesell is entitled to the use of a car
provided by the Company and is provided with a life insurance policy in an
amount equal to three times his annual base salary. Following Mr.
Liebergesell's termination as an employee of the Company for any reason and in
consideration of his agreement not to compete with the Company for a period of
two years following such termination, Mr. Liebergesell will be entitled to
receive, for the period while the non-compete provision remains in effect,
payments equal to his then current annual base salary. In the event of his
death, such consideration is payable to his estate.
12
<PAGE>
The Company is a party to agreements dated March 3, 1995 as amended as of
April 10, 1996 with Karl N. Svensson which provides for his serving as
Managing Director of Farrel Limited while retaining his office as Senior Vice
President of the Company. The agreement adjusts his compensation and benefits
for the purposes of tax equalization and for certain housing assistance costs.
It further states that in the event the Company terminates his employment for
reasons other than cause, he will be paid the salary and benefits at the time
of the commencement of his services as Managing Director of Farrel Limited or
his then current salary and benefits, whichever is higher, until his normal
retirement anticipated in the year 2000, less any salary he receives in
subsequent employment.
COMPENSATION PLANS AND ARRANGEMENTS
OF THE COMPANY
OPTION GRANTS TABLE
The following table sets forth information concerning stock options which
were granted during the most recent fiscal year to executive officers named in
the Summary Compensation Table. The options were granted pursuant to the 1992
Stock Option Plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION FOR
OPTION TERM(3)
- ------------------------------------------------------------------------------------- ---------------------------
(a) (b) (c) (d) (e) (f) (g)
% OF
TOTAL
OPTIONS
SECURITIES GRANTED TO
UNDERLYING EMPLOYEES
OPTIONS IN FISCAL EXERCISE EXPIRATION
NAME GRANTED(1) YEAR(2) PRICE DATE OF GRANT 5% 10%
- ---- ---------- ---------- -------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Catherine Boisvert 20,000 13% $3.88 August 1, 2006 $ 48,803 $123,671
Rolf K. Liebergesell 40,000 26% $4.00 January 30, 2006 $100,624 $254,992
Alberto Shaio 20,000 13% $3.88 August 1. 2006 $ 48,803 $123,671
Karl N. Svensson 20,000 13% $3.88 August 1, 2006 $ 48,803 $123,671
</TABLE>
________________________________
(1) All options were granted at an exercise price equal to the market value
of the underlying shares on the date of grant. Options granted to Ms.
Boisvert, Mr. Shaio and Mr. Svensson become exercisable as to one-quarter
of the underlying shares on each of the first through fourth anniversaries
of the grant date. Options granted to Mr. Liebergesell became exercisable
on January 30, 1997.
(2) Options with respect to a total of 153,000 shares were granted to
employees in 1996.
13
<PAGE>
(3) Represents the potential appreciation of the options over their stated
term of 10 years, based upon assumed compounded rates of appreciation of
5% per year and 10% per year. The amounts set forth in these columns
are not intended as forecasts of future appreciation, which is dependent
upon the actual increase, if any, in the market price of the underlying
shares, and there is no assurance that the amounts of appreciation shown
in the table actually will be realized.
OPTION VALUE AT DECEMBER 31, 1996
The following table sets forth, for the executive officers named in the
Summary Compensation Table, information with respect to holdings of unexercised
options at December 31, 1996.
FISCAL YEAR-END OPTION VALUES
NUMBER OF
UNEXERCISED
OPTIONS
AT YEAR END
EXERCISABLE/NON-EXERCISABLE
Catherine M. Boisvert........................ 4,500/21,500
Rolf K. Liebergesell ........................ 200,000/40,000
Alberto Shaio................................ 0/20,000
Karl N. Svensson............................. 15,000/25,000
At December 31, 1996, none of the options held by the executive officers
named above was "in the money."
1992 STOCK OPTION PLAN
Under the 1992 Stock Option Plan, awards of incentive stock options (as
defined in Section 422 of the Internal Revenue Code of 1986, as amended), and
non-qualified stock options were permitted to be granted to eligible employees
through January 27, 1997.
The exercise price of incentive stock options and non-qualified stock
options granted under the 1992 Stock Option Plan are not less than 100% of the
fair market value of the Common Stock at the time of grant. With respect to
any person who owns stock representing more than 10% of the voting power of the
outstanding capital stock of the Company, the exercise price of any incentive
stock options are not less than 110% of the fair market value of such shares at
the time of grant.
Pursuant to the 1992 Stock Option Plan, each non-employee director of the
Company, including members of the Compensation Committee, was granted a
non-qualified stock option to purchase 3,000 shares of Common Stock on January
27 of each year (beginning January 27, 1992) through January 27, 1996.
14
<PAGE>
Mr. Liebergesell was granted a non-qualified stock option to purchase 40,000
shares of Common Stock on the 30th day after the end of each fiscal year of
the Company through 1996. Accordingly, Mr. Liebergesell was granted a
non-qualified option to purchase 40,000 shares on January 30, 1996.
Options granted automatically to non-employee directors and Mr.
Liebergesell have a term of 10 years, and become exercisable as to all shares
covered by the option after one year continuous service after the date of grant
of the option. Options which were granted to employees have a term not in
excess of 10 years, and become exercisable in installments of 25% of the number
of shares covered by the option after the employee completes one, two, three
and four years, respectively, of cumulative service following the date of
grant.
PERFORMANCE GRAPH
Common Stock Performance: The following graph compares, for each of the
fiscal years indicated, the yearly percentage change in the Company's total
stockholder return on its Common Stock with the cumulative total return of a)
the NASDAQ (U.S. Market) Index, a broad equity market index, and b) the S & P
500 Machinery Diversified Group, a published industry index.
Comparison of Five Year-Cumulative Total Returns
Performance Graph for
FARREL CORPORATION
Source: Standard & Poor's Compustat
TOTAL SHAREHOLDER RETURNS
[Performance Graph]
<TABLE>
<CAPTION>
INDEXED RETURNS
Years Ending
Base
Period
Company/Index Dec91 Dec92 Dec93 Dec94 Dec95 Dec96
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FARREL CORPORATION 100 55.30 60.12 53.01 34.77 26.16
NASDAQ (U.S. MARKET) 100 112.84 129.53 126.61 179.05 220.24
MACHINERY (DIVERSIFIED)-500 100 95.97 142.10 138.32 170.70 212.76
</TABLE>
Farrel Corporation began trading on the NASDAQ (U.S. Market) on
January 17, 1992.
15
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists of Charles S. Jones, Chairman, James
A. Purdy, and Glenn J. Angiolillo. Mr. Jones is an executive officer of First
Funding Corporation and owner of a majority of its capital stock. First
Funding Corporation is a party to a Financial Services Agreement with the
Company, the terms of which are described below. See "Certain Relationships
and Related Transactions."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AGREEMENT WITH FIRST FUNDING CORPORATION
The Company is a party to an agreement with First Funding Corporation
("First Funding") dated June 17, 1986, as amended by a letter agreement dated
November 1, 1991 (the "Financial Services Agreement"), pursuant to which the
Company retains First Funding as its exclusive financial adviser. Charles S.
Jones, a director and a principal stockholder of the Company, is an executive
officer of First Funding and owner of a majority of its outstanding capital
stock. The Financial Services Agreement may be terminated by either party upon
a twelve-month prior written notice to the other. The agreement is also
terminable by the Company in the event that Mr. Jones is no longer an officer
or employee of First Funding.
Under the Financial Services Agreement, the Company pays First Funding an
annual retainer of $450,000 in respect of Mr. Jones' commitment to spend a
majority of his normal working time each year on behalf of the Company. Mr.
Jones has agreed to serve as Chairman of the Company's Executive Committee and
to provide certain other services as requested by the Company including
financial advisory services, strategic planning, budgeting and forecasting and
advice relating to the establishment and/or modification of the Company's
corporate goals and objectives. The Company is billed on an hourly basis for
other First Funding employees who work on the Company's account and will pay a
transaction fee to First Funding in the event of certain transactions, such
as acquisitions, divestitures, mergers, joint ventures and debt or equity
investments.
The compensation paid or accrued to First Funding for services under the
Financial Services Agreement during the Company's most recent fiscal year was
approximately $948,460, which includes $261,000 of reimbursement for out-of-
pocket expenses. From January 1, 1997 through March 31, 1997, the Company has
paid or accrued to First Funding approximately $221,964, which includes $43,300
of reimbursement for out-of-pocket expenses, for services performed under the
Financial Services Agreement in 1997.
APPROVAL OF ADOPTION OF 1997 INCENTIVE PLAN
PROPOSED APPROVAL
The Board of Directors has adopted and recommends that the stockholders
of the Company vote to approve the 1997 Incentive Plan. The 1997 Incentive
Plan is intended to provide incentives to key employees of the Company tied to
shareholder value in a way similar to the Company's 1992 Stock Option Plan.
The period during which options could be granted under the 1992 Stock Option
Plan expired in January 1997, and the 1997 Incentive Plan is intended to permit
the grant of options and other stock-based incentive awards to key employees of
the Company, including directors who are also employees of the
16
<PAGE>
Company. The terms of the 1997 Incentive Plan are summarized below, and a
copy of the 1997 Incentive Plan is attached as Exhibit A to this Proxy
Statement. Capitalized terms used in this description will, unless otherwise
defined in this Proxy Statement, have the meanings given to them in the 1997
Incentive Plan.
GENERAL
The 1997 Incentive Plan is intended to promote the interests of the
Company and the stockholders of the Company by providing officers and other key
employees of the Company (including directors who are also employees of the
Company) with appropriate incentives and rewards to encourage them to enter
into and/or to continue in the employ of the Company and to acquire a
proprietary interest in the long-term success of the Company.
The 1997 Incentive Plan is intended to comply with the requirements of
Rule 16b-3 under the Securities Exchange Act of 1934. In addition, the 1997
Incentive Plan is intended in general to provide performance-based compensation
to the Executive Officers of the Company as required under Section 162(m)
("Section 162(m)") of the Internal Revenue Code of 1986, as amended (the
"Code") in order to assure deductibility of such compensation by the Company
for federal income tax purposes.
Section 162(m) denies a deduction by a publicly traded corporation for
certain compensation in excess of $1 million per year paid by such corporation
to the following individuals who are employed by the corporation at the end of
its taxable year ("Covered Employees"): the chief executive officer and the
four most highly compensated executive officers (other than the chief executive
officer) for whom compensation disclosure is required under the proxy rules.
(In the case of the Company, these would generally be the individuals named in
the Summary Compensation Table included in the Company's annual proxy
statement.) Certain compensation, including compensation based on the
attainment of performance goals, is excluded from this deduction limit if
certain requirements are met. Among the requirements for compensation to
qualify for this exception is that the material terms pursuant to which the
compensation is to be paid are disclosed to, and approved by, the stockholders
of the corporation in a separate vote prior to the payment. Approval by the
stockholders of the Company of the 1997 Incentive Plan at the Meeting will
constitute such approval based on the provisions of the 1997 Incentive Plan and
applicable regulations under the Code. Accordingly, if the 1997 Incentive Plan
is approved by stockholders at the Meeting and the other conditions of
Section 162(m) relating to performance-based compensation are satisfied,
compensation paid to Covered Employees pursuant to the 1997 Incentive Plan will
not be subject to the deduction limit of Section 162(m) or to further approval
by the stockholders of the Company.
SUMMARY OF THE TERMS OF THE 1997 INCENTIVE PLAN
If the 1997 Incentive Plan is approved, the Compensation Committee of the
Board of Directors (or other committee appointed in accordance with the terms
of the 1997 Incentive Plan) (the "Committee") would be authorized to make
certain types of awards (collectively, "Incentive Awards"). Incentive Awards
can be of different types: incentive stock options, nonqualified stock options,
stock appreciation rights granted in tandem with options, stand-alone stock
appreciation rights, restricted stock awards, phantom stock awards or bonuses
payable in stock. Each of these types of awards is described in greater detail
below.
The 1997 Incentive Plan authorizes an aggregate of five hundred thousand
(500,000) shares of the Company's Common Stock that may be subject to Incentive
Awards. This number is subject to adjustment
17
<PAGE>
under certain circumstances described below. Shares delivered under the 1997
Incentive Plan may be authorized and unissued shares, treasury shares or
shares acquired by the Company for purposes of the 1997 Incentive Plan.
Generally, shares subject to an Incentive Award will again become available
for purposes of the 1997 Incentive Plan to the extent that the Incentive
Award terminates without the intended benefit having been paid or distributed
to the participant. The total number of shares of Common Stock subject to
Incentive Awards (including Incentive Awards paid in cash but denominated in
shares of Common Stock) granted to any participant in the 1997 Incentive Plan
during any taxable year of the Company will not exceed one hundred thousand
(100,000). On April 24, 1997, the Fair Market Value of a share of Common
Stock was $3.125.
In the event that the Committee determines that any dividend (other than
a regular cash dividend paid in accordance with the Company's dividend policy
as in effect from time to time) or other distribution, stock split,
recapitalization, reorganization, merger or other similar corporate transaction
or event affects the Common Stock such that an adjustment is appropriate in
order to prevent dilution or enlargement of the rights of participants under
the 1997 Incentive Plan, then the Committee will make such equitable changes or
adjustments as it deems necessary to the aggregate number of shares available
under the 1997 Incentive Plan, the limit on individual Incentive Awards, the
number of shares subject to each Incentive Award then outstanding, and the
exercise price of each outstanding Option or the Reference Value of each stock
appreciation right.
The Committee shall, at all times, consist of two or more persons each of
whom is an "outside director" within the meaning of Section 162(m) and a Non-
Employee Director within the meaning of Rule 16b-3. The Committee is
authorized, among other things, to construe, interpret and implement the
provisions of the 1997 Incentive Plan, to select the persons to whom awards
will be granted, to determine the terms and conditions of such awards including
terms and conditions as to vesting, and to make all other determinations deemed
necessary or desirable for the administration of the 1997 Incentive Plan.
The Board of Directors of the Company may suspend, discontinue, revise,
terminate or amend the 1997 Incentive Plan at any time, provided, however, that
shareholder approval will be obtained if and to the extent that the Board deems
it appropriate to satisfy Section 162(m), if such approval is required by the
rules of any exchange on which the Common Stock is then listed or if such
approval is required by the rules of the National Association of Securities
Dealers, Inc. if the Common Stock is then authorized for quotation on The
Nasdaq Stock Market.
INCENTIVE AWARDS UNDER THE 1997 INCENTIVE PLAN
INCENTIVE STOCK OPTIONS AND NONQUALIFIED STOCK OPTIONS
The Committee will determine the time for exercise of each option and
each option's expiration date; provided that no incentive stock option may be
exercised more than ten years after the date of grant and no incentive stock
option granted to a 10% Stockholder may be exercised more than five years after
the date of grant. For these purposes, a "10% Stockholder" is any individual
who, at the time of grant, owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company. The purchase
price per share payable upon the exercise of an option (the "option exercise
price") will be established by the Committee, but may not be less than the Fair
Market Value (or 110% of the Fair Market Value in the case of an incentive
stock option granted to a 10% Stockholder) of a share of Common Stock on the
date of grant.
18
<PAGE>
The option exercise price is payable by one or a combination of the
following means: (i) in cash, (ii) by delivering a properly executed exercise
notice to the Company together with a copy of irrevocable instructions to a
broker to deliver promptly to the Company the amount of sale or loan proceeds
to pay the full amount of the option exercise price for the shares as to which
the option is being exercised, (iii) by delivering shares of Common Stock owned
by the participant with appropriate stock powers or (iv) by electing to have
the Company retain shares of Common Stock which would otherwise be issued on
the exercise of the option. For these purposes, the value of shares delivered
to, or retained by, the Company shall be valued by the Committee at their Fair
Market Value as of the exercise date.
STAND-ALONE AND TANDEM STOCK APPRECIATION RIGHTS
Stock appreciation rights may be granted in connection with all or any
part of, or independently of, any option granted under the 1997 Incentive Plan.
A stock appreciation right granted independently of any option may, at the
election of the Committee, be subject to such vesting terms and conditions as
determined by the Committee. A stock appreciation right granted in tandem with
a stock option will be exercisable only when, and to the extent, the option to
which it relates is exercisable. A participant receiving a stock appreciation
right has the right to surrender the stock appreciation right and receive a
cash payment from the Company. In the case of a stock appreciation right
granted in tandem with an option, the cash payment would equal the excess of
the Fair Market Value of a share of Common Stock on the date of exercise over
the option exercise price for each share of Common Stock in respect of which
the stock appreciation right is being exercised. In the case of a stock
appreciation right granted independently of an option, the cash payment would
equal the excess of the Fair Market Value of a share of Common Stock on the
date of exercise over the Reference Value for each share of Common Stock in
respect of which such stock appreciation right is being exercised. (For these
purposes, "Reference Value" is the amount established by the Committee at the
time the stock appreciation right is granted provided that the Reference Value
may not be less than the Fair Market Value of a share of Common Stock on the
date of grant of the stock appreciation right.)
RESTRICTED STOCK
The Committee may grant restricted shares of Common Stock to such
persons, in such amounts, and subject to such terms and conditions (including
the attainment of performance goals) as the Committee shall determine in its
discretion. If the requirements specified by the Committee are met, the
grantee of an award of restricted stock will be entitled to keep such stock (or
the portion of it with respect to which the conditions are satisfied). Awards
of Restricted Stock granted to Executive Officers will be contingent on the
attainment by the Company of one or more pre-established performance goals
(the "Performance Goals") established by the Committee. The Performance
Goals may be based on the attainment by the Company (and/or its subsidiaries
or divisions, if applicable) of any one or more of the following criteria:
(i) a specified percentage return on total shareholder equity of the Company;
(ii) a specified percentage increase in earnings per share of Common Stock;
(iii) a specified percentage increase in net income of the Company; and
(iv) a specified percentage increase in profit before taxation of the Company.
PHANTOM STOCK
The Committee may grant shares of Phantom Stock to such persons, in such
amounts, and subject to such terms and conditions (including the attainment of
performance goals) as the Committee shall determine in its discretion. If the
requirements specified by the Committee are met, the grantee of a Phantom
19
<PAGE>
Stock award will receive a cash payment equal to the Fair Market Value of the
shares as to which the conditions are met as of the date such conditions are
met plus the dividends that would have been paid on such shares had they
actually been outstanding following the grant date. Awards of Phantom Stock
granted to Executive Officers of the Company will be contingent on the
attainment by the Company of any one or more of the Performance Goals.
STOCK BONUS
The Committee may grant bonuses consisting of shares of Common Stock free
of restrictions to such persons and in such amounts as the Committee shall
determine in its discretion. No stock bonus may be granted to an Executive
Officer if the value thereof would not be deductible by the Company for federal
income tax purposes because of the limits contained in Section 162(m).
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a brief summary of the principal United
States federal income tax consequences under current federal income tax laws
relating to awards under the 1997 Incentive Plan. This summary is not intended
to be exhaustive and, among other things, does not describe state, local or
foreign income and other tax consequences.
NONQUALIFIED STOCK OPTIONS
An optionee will not recognize any taxable income upon the grant of a
Nonqualified Stock Option. The Company will not be entitled to a tax deduction
with respect to the grant of a Nonqualified Stock Option. Upon the exercise of
a Nonqualified Stock Option, the excess of the Fair Market Value of the Common
Stock on the exercise date over the option exercise price will be taxable as
compensation income to the optionee and will be subject to applicable
withholding taxes. The Company will generally be entitled to a tax deduction
at such time in the amount of such compensation income. The Optionee's tax
basis for the Common Stock received upon the exercise of a Nonqualified Stock
Option will equal the sum of the compensation income recognized and the option
exercise price.
In the event of a sale of the Common Stock received upon the exercise of
a Nonqualified Stock Option, any appreciation or depreciation after the
exercise date generally will be taxed as capital gain or loss and will be long-
term capital gain or loss if the holding period for such Common Stock is more
than one year from the date of exercise.
INCENTIVE STOCK OPTIONS
An optionee will not recognize any taxable income at the time of grant or
exercise of an Incentive Stock Option, and the Company will not be entitled to
a tax deduction with respect to such grant or exercise. Exercise of an
Incentive Stock Option may, however, give rise to taxable compensation income
subject to applicable withholding taxes, and a tax deduction to the Company,
if the optionee subsequently engages in a "disqualifying disposition," as
described below.
A sale or exchange by an optionee of shares acquired upon the exercise of
an Incentive Stock Option more than one year after the transfer of the shares
to such optionee and more than two years after the
20
<PAGE>
date of grant of the Incentive Stock Option will result in any difference
between the net sale proceeds and the exercise price being treated as
long-term capital gain (or loss) to the optionee. If such sale or exchange
takes place within two years after the date of grant of the Incentive Stock
Option or within one year from the date of exercise, such sale or exchange
will generally constitute a "disqualifying disposition" of such shares. A
disqualifying disposition will have the following results: any excess of (i)
the lesser of (a) the Fair Market Value of the shares at the time of
exercise of the Incentive Stock Option and (b) the amount realized on such
disqualifying disposition of the shares over (ii) the option exercise price
of such shares will be ordinary income to the optionee, subject to applicable
withholding taxes, and the Company will be entitled to a tax deduction in the
amount of such income.
Any gain or loss after the date of exercise generally will qualify as
capital gain or loss and will not result in any deduction by the Company.
RESTRICTED STOCK
A grantee will not recognize any income upon the receipt of Restricted
Stock unless the holder elects under Section 83(b) of the Code, within 30 days
of such receipt, to recognize ordinary income in an amount equal to the Fair
Market Value of the Restricted Stock, at the time of receipt. If the election
is made, the holder will not be allowed a deduction for amounts subsequently
required to be returned to the Company. If the election is not made, the
holder will generally recognize ordinary income, on the date that the
restrictions to which the shares of Restricted Stock are removed, in an amount
equal to the Fair Market Value of such shares on such date. At the time the
holder recognizes ordinary income, the Company generally will be entitled to a
deduction in the same amount.
Generally, upon a sale or other disposition of Restricted Stock with
respect to which the holder has recognized ordinary income (I.E., a
Section 83(b) election was previously made or the restrictions were previously
removed), the holder will recognize capital gain or loss in an amount equal to
the difference between the amount realized on such sale or other disposition
and the holder's basis in such shares. Such gain or loss will be long-term
capital gain or loss if the holding period for such shares is more than one
year.
OTHER AWARDS
The grant of a stock appreciation right or a Phantom Stock award will not
result in income for the grantee or in a tax deduction for the Company. Upon
the settlement of such a stock appreciation right or a Phantom Stock award, the
grantee will recognize ordinary income equal to the aggregate value of the
payment received, and the Company generally will be entitled to a tax deduction
in the same amount. A Stock Bonus generally will result in compensation income
for the grantee and a tax deduction for the Company equal to the Fair Market
Value of the shares of Common Stock granted.
NEW PLAN BENEFITS
Inasmuch as Incentive Awards under the 1997 Incentive Plan will be
granted at the sole discretion of the Committee and that performance goal
criteria may vary from year to year and from participant to participant,
benefits under the 1997 Incentive Plan are not determinable. Compensation paid
and other benefits granted for 1996 to the Company's Chief Executive Officer
and certain of its other executive officers are set forth above under the
caption "Executive Compensation and Related Information."
21
<PAGE>
STOCKHOLDER APPROVAL
The 1997 Incentive Plan is not effective unless and until it has been
approved by the stockholders of the Company within twelve (12) months after
adoption by the Board of Directors of the Company.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares of Common
Stock present at the Meeting, in person or by proxy, is necessary for approval
of adoption of the 1997 Incentive Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF
THE ADOPTION OF THE 1997 INCENTIVE PLAN.
APPROVAL OF ADOPTION OF 1997 STOCK PURCHASE PLAN
PROPOSED APPROVAL
The Board of Directors has adopted and recommends that the stockholders
of the Company vote to approve the 1997 Stock Purchase Plan. The 1997 Stock
Purchase Plan, which is similar to the Company's Employees' 1992 Stock Purchase
Plan, is intended to enable the Company's employees to purchase Common Stock in
a convenient fashion and at a favorable price. The terms of the 1997 Stock
Purchase Plan are summarized below, and a copy of the 1997 Stock Purchase Plan
is attached as Exhibit B to this Proxy Statement. Capitalized terms used in
this description will, unless otherwise defined in this Proxy Statement, have
the meanings given to them in the 1997 Stock Purchase Plan.
SUMMARY OF THE TERMS OF THE 1997 STOCK PURCHASE PLAN
On the offering date in July, 1997 and in May of the next succeeding
four years, each employee of the Company would be eligible to purchase that
number of shares of Common Stock having a purchase price equal to a whole
percentage (not more than 5%) of the employee's annual compensation, subject to
the maximum number of shares authorized by the Board of Directors for such
annual grant. The price would be the lower of 85% of the Fair Market Value of
the Common Stock on the day the right is granted or 85% of the Fair Market
Value of the Common Stock on the date the 24-month purchase period applicable
to each right to purchase terminates.
The principal features of the 1997 Stock Purchase Plan may be summarized
as follows: a right to purchase shares of Common Stock of the Company may be
granted, subject to the discretion of the Board of Directors, to Eligible
Employees within the first 15 days of July, 1997 and within the first 15 days
of May in each of the years 1998 through 2001, but not more than an aggregate
of 500,000 shares of Common Stock may be purchased pursuant to such grants,
which shares may be newly issued shares, treasury shares or shares purchased by
the Company in the open market. Any person who is an employee of the Company
or of a designated majority-owned subsidiary as of the date of each offering
shall be eligible to participate in the 1997 Stock Purchase Plan except (i)
directors who are not officers of the Company, (ii) any person who, after
grant of a right to purchase, would hold 5% or more of the Common Stock of the
Company, (iii) any person employed by the Company for less than two (2) years,
(iv) any employee whose customary employment is twenty (20) hours per week or
less, and (v) any employee whose employment is for not more
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than five (5) months in any calendar year. In addition, the granting of a
right to any employee to purchase shares under the 1997 Stock Purchase Plan
is limited to $25,000 in fair market value of such shares (determined as of
the date of grant of such right) for each calendar year. On April 24, 1997,
the Fair Market Value of a share of Common Stock was $3.125.
The purchase price of the shares of Common Stock covered by the right to
purchase granted by the Company will be the lower of 85% of the Fair Market
Value of the Common Stock on the respective date of grant of the rights or the
respective ending date of the applicable 24-month purchase period. Therefore,
if the purchase price under a particular grant becomes 85% of the Fair Market
Value on the ending date of the applicable purchase period, this will result in
the issuance of more shares under that grant than would have been the case if
this feature were not included in the 1997 Stock Purchase Plan. However, the
total number of shares eventually issued in respect of a particular annual
grant will in no event exceed the number of shares originally subscribed for by
all Eligible Employees accepting rights to purchase pursuant to that grant.
The total purchase price of the shares of stock covered by the grants will be
paid through payroll deductions over a 24-month period. A participating
employee will have none of the rights or privileges of a stockholder of the
Company (including rights to dividends) until the shares are fully paid for and
delivered. An Eligible Employee's rights under the 1997 Stock Purchase Plan
are exercisable during such Eligible Employee's lifetime only by such Eligible
Employee and may not be transferred other than by will or the laws of descent
and distribution.
At any time prior to the last payroll deduction, the employee will be
entitled to cancel a right to buy shares of stock and receive a cash refund of
payroll deductions, without interest, unless the employee waives such right.
In the event an employee's payroll deductions are discontinued at the request
of the employee, or temporarily discontinued because of leave of absence,
layoff, temporary disability or other similar reasons, the number of shares
subject to purchase under the employee's option shall be automatically reduced
to that number of whole shares which the aggregate payroll deductions actually
made are sufficient to purchase. However, the employee may make payment to the
Company (through increased payroll deductions during the remainder of the 24-
month purchase period) in an amount equal to the amount which was not subject
to payroll deductions because of the temporary discontinuance thereof, and
thereby be entitled to purchase the total number of shares covered by the
original grant. In addition, an employee who has accepted a grant may, at any
time prior to the last scheduled payroll deduction, direct the Company to make
no further payroll deductions on such employee's behalf. In such case, the
amount theretofore deducted under the grant shall be retained by the Company
until the end of the purchase period, at which time the employee shall receive
that number of whole shares which can be purchased with the amount so retained,
and any remaining balance shall be paid to the employee in cash. Upon death,
total and permanent disability or retirement, the employee or the employee's
legal representative will have the privilege, where such privilege has not been
irrevocably waived, of canceling the right to purchase and receiving a cash
refund, without interest, of the employee's entire payroll deductions, or
purchasing at the conclusion of the applicable purchase period the whole number
of shares of stock which such payroll deductions will purchase, any excess
being refunded in cash. Upon resignation or discharge, the employee will
receive a cash refund of his payroll deductions, without interest.
The 1997 Stock Purchase Plan will be administered by the Compensation
Committee of the Board of Directors of the Company. The Compensation
Committee, whose members are not eligible to participate in the 1997 Stock
Purchase Plan, will be authorized to determine any questions arising in the
administration, interpretation and application of the 1997 Stock Purchase Plan,
except that certain amendments, including
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an amendment to increase the number of shares reserved under the 1997 Stock
Purchase Plan, would require stockholder approval. The Company will pay all
costs and expenses of administration and record keeping under the 1997 Stock
Purchase Plan as well as original issue taxes on the shares of stock issued
pursuant to the exercise of rights to purchase under the 1997 Stock Purchase
Plan.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
It is intended that the rights to purchase shares of stock to be granted
by the Company shall constitute options issued pursuant to an "employee stock
purchase plan" within the meaning of Section 423 of the Internal Revenue Code.
If such shares of the Common Stock are issued to a participating employee
upon the exercise of a right to purchase granted under the 1997 Stock Purchase
Plan, and if no disposition of such shares is made by him within two years of
the granting of the right to purchase, nor within one year after the transfer
to him of such shares, (a) no income will be realized by the employee at the
time of the transfer of the shares to him and (b) when he sells such shares (or
dies holding the shares), ordinary income will be realized to the extent of the
lesser of (i) the amount by which the Fair Market Value of the shares on the
Date of Offering exceeds the purchase price for the shares or (ii) the amount
by which the Fair Market Value at time of disposition exceeds the purchase
price. Any further gain will be treated for tax purposes as long-term capital
gain, provided the employee holds the shares for more than one year after the
last day of the purchase period applicable to such shares. No deduction will
be allowed to the Company for federal income tax purposes in connection with
the granting or exercise of any right to purchase under the 1997 Stock Purchase
Plan if there is no disposition of the shares within either the two-year or the
one-year periods referred to above. If there is a disposition of shares within
either of those periods, the employee will realize ordinary income in the year
of the disposition in an amount equal to the difference between the purchase
price and the Fair Market Value of the shares at the time of exercise of the
grant, and the Company will be entitled to a deduction in the same amount. Any
difference between the amount realized by an employee upon such a disposition
and the Fair Market Value of the shares at the time of exercise of the right to
purchase will be capital gain or loss, as the case may be.
The number and class of shares covered by the rights to purchase granted
by the Company will be subject to adjustment to avoid dilution upon changes in
capitalization, provided that the Company is satisfied that any such adjustment
will not have the effect of disqualifying the 1997 Stock Purchase Plan as an
"employee stock purchase plan" under the Internal Revenue Code.
An individual who is subject to taxation in a jurisdiction other than the
United States may be liable for taxation in accordance with the laws of that
jurisdiction and is encouraged to seek independent tax advice.
STOCKHOLDER APPROVAL
The 1997 Stock Purchase Plan is not effective unless and until it has
been approved by the stockholders of the Company within twelve (12) months
after adoption by the Board of Directors of the Company.
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NEW PLAN BENEFITS
It cannot be determined at this time what benefits or amounts, if any,
will be received by or allocated to any person or group of persons under the
1997 Stock Purchase Plan if the 1997 Stock Purchase Plan is approved by the
stockholders of the Company at the Meeting, or what benefits or amounts, if
any, would have been received or allocated to any person or group of persons
for the fiscal year ended December 31, 1996 if the 1997 Stock Purchase Plan
had been in effect during such fiscal year.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares of
Common Stock present at the Meeting, in person or by proxy, is necessary for
approval of adoption of the 1997 Stock Purchase Plan.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF
THE ADOPTION OF THE 1997 STOCK PURCHASE PLAN.
RATIFICATION OF SELECTION OF INDEPENDENT ACCOUNTANTS
The Company has selected the firm of Ernst & Young LLP, independent
certified public accountants, to serve as independent accountants for the
Company for the fiscal year ending December 31, 1997. The decision to retain
Ernst & Young LLP, to serve as independent accountants of the Company was
recommended by the Audit Committee and approved by the Board of Directors.
It is expected that a representative of Ernst & Young LLP, will be
present at the Meeting and will be available to make a statement (if he or she
desires to do so) and to respond to appropriate questions at the Meeting. If
the stockholders do not ratify the selection of Ernst & Young LLP, the Board of
Directors may consider selection of other independent certified public
accountants to serve as independent accountants, but no assurance can be made
that the Board of Directors will do so or that any other independent certified
public accountants would be willing to serve.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
RATIFICATION OF THIS SELECTION.
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STOCKHOLDER PROPOSALS
It is presently contemplated that the 1998 Annual Meeting of Stockholders
will be held on or about May 22, 1998. Proposals by stockholders intended for
inclusion in the proxy statement to be furnished to all stockholders entitled
to vote at the next annual meeting of the Company must be received at the
Company's principal executive offices not later than December 31, 1997. In
order to curtail controversy as to the date on which a proposal was received by
the Company, it is suggested that proponents submit their proposals by
certified mail, return receipt requested.
By Order of the Board of Directors,
/s/ Peter L. Hess
PETER L. HESS
General Counsel and Secretary
Ansonia, Connecticut
April 30, 1997
THE COMPANY WILL FURNISH, WITHOUT CHARGE, A COPY OF ITS ANNUAL REPORT ON
FORM 10-K, INCLUDING THE FINANCIAL STATEMENTS AND SCHEDULES THERETO, FOR THE
YEAR ENDED DECEMBER 31, 1996, TO EACH STOCKHOLDER WHO FORWARDS A WRITTEN
REQUEST TO THE SECRETARY, FARREL CORPORATION, 25 MAIN STREET, ANSONIA
CONNECTICUT 06401. SUCH WRITTEN REQUEST MUST INCLUDE A GOOD FAITH
REPRESENTATION THAT, AS OF APRIL 29, 1997 (THE RECORD DATE), THE PERSON MAKING
THE REQUEST WAS THE BENEFICIAL OWNER OF SECURITIES ENTITLED TO VOTE AT THE 1997
ANNUAL MEETING OF THE COMPANY.
COPIES OF SUCH FORM 10-K FURNISHED WITHOUT CHARGE WILL NOT INCLUDE ALL OF
THE EXHIBITS THERETO, IF ANY, BUT WILL INCLUDE A LIST DESCRIBING ALL OF THE
EXHIBITS NOT INCLUDED, COPIES OF WHICH WILL BE AVAILABLE AT A COST OF $1.00 PER
PAGE.
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EXHIBIT A
FARREL CORPORATION
1997 OMNIBUS STOCK INCENTIVE PLAN
1. ESTABLISHMENT AND PURPOSE.
The Farrel Corporation 1997 Omnibus Stock Incentive Plan (the
"Plan") is intended to promote the interests of the Company and the
stockholders of the Company by providing officers and other employees of the
Company (including directors who are also employees of the Company) and of its
Subsidiaries with appropriate incentives and rewards to encourage them to enter
into and continue in the employ of the Company and to acquire a proprietary
interest in the long-term success of the Company, thereby aligning their
interest more closely to the interest of stockholders.
2. DEFINITIONS.
As used in the Plan, the following definitions apply to the terms
indicated below:
a) "Award Agreement" shall mean the written agreement
between the Company and a Participant evidencing an Incentive Award.
b) "Board of Directors" shall mean the Board of Directors
of the Company.
c) "Cause," when used in connection with the termination
of a Participant's employment by the Company, shall mean (i) the willful and
continued failure by the Participant substantially to perform his duties and
obligations to the Company (other than any such failure resulting from his
incapacity due to physical or mental illness) or (ii) the willful engaging by
the Participant in misconduct which is materially injurious to the Company or
any of its Subsidiaries. For purposes of this Section 2(c), no act, or failure
to act, on a Participant's part shall be considered "willful" unless done, or
omitted to be done, by the Participant in bad faith and without reasonable
belief that the Participant's action or omission was in the best interest of
the Company. The Committee shall determine whether a termination of employment
is for Cause, and any such determination by the Committee shall be binding on
the Participant, the Company and its Subsidiaries.
d) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
e) "Committee" shall mean the Compensation Committee of
the Board of Directors. The Committee shall consist of two or more persons
each of whom is an "outside director" within the meaning of Section 162(m) of
the Code and a "Non-Employee Director" within the meaning of Rule 16b-3 under
the Exchange Act (or who satisfies any other criteria for administering
employee benefit plans as may be specified by the Securities and Exchange
Commission in order for transactions under such plan to be exempt from the
provisions of Section 16(b) of the Exchange Act).
f) "Company" shall mean Farrel Corporation, a Delaware
corporation.
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g) "Company Stock" shall mean the common stock of the
Company, par value $0.01 per share.
h) "Delivery Date" shall mean the date established by the
Company on which certificates representing shares of Restricted Stock shall be
issued by the Company pursuant to the terms of Section l0(e) of the Plan.
i) "Disability" shall mean: (i) any physical or mental
condition that would qualify a Participant for a disability benefit under the
long-term disability plan maintained by the Company or a Subsidiary of the
Company and applicable to such Participant or (ii) when used in connection with
the exercise of an Incentive Stock Option following termination of employment,
disability within the meaning of Section 22(e)(3) of the Code.
j) "Effective Date" shall mean the date upon which this
Plan is adopted by the Board of Directors.
k) "Exchange Act" shall mean the Securities Exchange Act
of 1934, as amended from time to time.
l) "Executive Officer" shall have the meaning set forth in
Rule 3b-7 promulgated under the Exchange Act.
m) "Exercise Date" shall mean the date on which a
Participant may exercise an Incentive Award.
n) "Fair Market Value" of a share of Company Stock, as of
a date of determination, shall mean (i) the closing sales price per share of
Company Stock on the national securities exchange on which such stock is
principally traded for the last preceding date on which there was a sale of
such stock on such exchange, or (ii) if the shares of Company Stock are not
listed or admitted to trading on any such exchange, the closing price as
reported by The Nasdaq Stock Market, Inc. for the last preceding date on which
there was a sale of such stock on such exchange, or (iii) if the shares of
Company Stock are not then listed on The Nasdaq Stock Market, Inc., the average
of the highest reported bid and lowest reported asked prices for the shares of
Company Stock as reported by the National Association of Securities Dealers,
Inc. Automated Quotations System for the last preceding date on which bid and
asked prices for the Common Stock were so reported or (iv) if the shares of
Company Stock are not then listed on a national securities exchange or traded
in an over-the-counter market, such value as determined by the Committee in
good faith.
o) "Incentive Award" shall mean an Option, Tandem SAR,
Stand-Alone SAR, Restricted Stock grant, Phantom Stock grant or Stock Bonus
granted pursuant to the terms of the Plan.
p) "Incentive Stock Option" shall mean an Option that is
an "incentive stock option" within the meaning of Section 422 of the Code.
q) "Non-Qualified Stock Option" shall mean an Option that
is not an Incentive Stock Option.
r) "Option" shall mean an option to purchase shares of
Company Stock granted pursuant to Section 7 of the Plan.
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s) "Participant" shall mean an employee of the Company or
a subsidiary of the Company to whom an Incentive Award is granted pursuant to
the Plan, and, upon his death, his successors, heirs, executors and
administrators, as the case may be.
t) "Phantom Stock" shall mean the right, granted pursuant
to Section 11 of the Plan, to receive in cash the Fair Market Value of a share
of Company Stock.
u) "Plan" shall mean this 1997 Omnibus Stock Incentive
Plan, as amended from time to time.
v) "Reference Value" shall mean the value determined by
the Committee pursuant to Section 9(a) of the Plan.
w) "Restricted Stock" shall mean a share of Common Stock
which is granted pursuant to the terms of Section 10 hereof and which is
subject to the restrictions set forth in Section 10 of the Plan and the
applicable Award Agreement.
x) "Rule 16b-3" shall mean the Rule 16b-3 promulgated
under the Exchange Act.
y) "Section 162(m)" shall mean Section 162(m) of the Code
and the regulations promulgated thereunder.
z) "Securities Act" shall mean the Securities Act of 1933,
as amended from time to time.
aa) "Stand-Alone SAR" shall mean a stock appreciation right
granted pursuant to Section 9 of the Plan which is not related to any Option.
bb) "Stock Bonus" shall mean a bonus payable in shares of
Company Stock granted pursuant to Section 12 of the Plan.
cc) "Subsidiary" shall mean a "subsidiary corporation"
within the meaning of Section 424(f) of the Code.
dd) "Tandem SAR" shall mean a stock appreciation right
granted pursuant to Section 8 of the Plan which is related to an option.
ee) "Vesting Date" shall mean the date established by the
Committee on which a share of Restricted Stock or Phantom Stock may vest or an
Option, Tandem-SAR or Stand-Alone SAR may vest, as the case may be.
3. STOCK SUBJECT TO THE PLAN
a) SHARES AVAILABLE FOR AWARDS.
The maximum number of shares of Company Stock reserved for issuance
under the Plan shall be five hundred thousand (500,000) shares (subject to
adjustment as provided herein). Such shares may
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be authorized but unissued Company Stock or authorized and issued Common Stock
held in the Company's treasury or acquired by the Company for the purposes of
the Plan. The Committee may direct that any stock certificate evidencing shares
issued pursuant to the Plan shall bear a legend setting forth such restrictions
on transferability as may apply to such shares pursuant to the Plan.
The grant of a Tandem SAR shall not reduce the number of shares of
Company Stock with respect to which Incentive Awards may be granted pursuant to
the Plan.
b) INDIVIDUAL LIMITATION.
The total number of shares of Common Stock subject to Incentive
Awards (including Incentive Awards payable in cash but denominated as shares of
Common Stock, I.E., Stand-Alone SAR's and Phantom Stock), awarded to any
employee during any tax year of the Company, shall not exceed one hundred
thousand (100,000) shares. Determinations under the preceding sentence shall
be made in a manner that is consistent with Section 162(m) of the Code.
c) ADJUSTMENT FOR CHANGE IN CAPITALIZATION.
In the event that the Committee shall determine that any dividend
(other than regular cash dividends payable in accordance with the Company's
policies as in effect from time to time) or other distribution (whether in the
form of cash, Company Stock, or other property), recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, spin-off,
combination, repurchase, or share exchange, or other similar corporate
transaction or event, affects the Company Stock (or the class of stock then
subject to issuance under the Plan if not the Company Stock) such that an
adjustment is appropriate in order to prevent dilution or enlargement of the
rights of Participants under the Plan, then the Committee shall make such
equitable changes or adjustments as it deems necessary or appropriate to any or
all of (i) the number and kind of shares of stock which may thereafter be
issued in connection with Incentive Awards, (ii) the number and kind of shares
of stock issued or issuable in respect of outstanding Incentive Awards, and
(iii) the exercise price, grant price, or Reference Value relating to any
Incentive Award; provided that, with respect to Incentive Stock Options, such
adjustment shall be made in accordance with Section 424 of the Code and with
respect to all Incentive Awards, such adjustment shall be made in accordance
with Section 162(m) of the Code.
d) RE-USE OF SHARES.
The following shares of Company Stock shall again become available
for Incentive Awards: (i) any shares subject to an Option that remain unissued
upon the cancellation, surrender, exchange or termination of such Option for
any reason whatsoever (other than the cancellation of an Option resulting from
the exercise of a Tandem SAR related to such Option); (ii) any shares subject
to a Stand-Alone SAR that remain not settled for cash upon cancellation,
surrender, exchange or termination of such Stand-Alone SAR for any reason
whatsoever; (iii) any Restricted Stock which is forfeited by a Participant; and
(iv) any shares subject to a Phantom Stock grant that remain not settled for
cash upon cancellation, surrender, exchange or termination of such Phantom
Stock grant for any reason whatsoever. If an Option of a Participant is
canceled, the shares subject to the canceled Option continue to be counted
against the maximum number of shares for which Options may be granted to the
Participant under the Plan.
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4. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by the Committee. The Committee
shall have the authority in its sole discretion, subject to and not
inconsistent with the express provisions of the Plan, to administer the Plan
and to exercise all the powers and authorities either specifically granted to
it under the Plan or necessary or advisable in the administration of the Plan,
including, without limitation, the authority to grant Incentive Awards; to
determine the persons to whom and the time or times at which Incentive Awards
shall be granted; to determine the type and number of Incentive Awards to be
granted, the number of shares of Company Stock to which an Award may relate and
the terms, conditions, restrictions and performance criteria relating to any
Incentive Award; to determine whether, to what extent, and under what
circumstances an Incentive Award may be settled, canceled, forfeited,
exchanged, or surrendered (provided that in no event shall the foregoing be
construed to permit the repricing of an Option, Tandem SAR or Stand-Alone SAR
(whether by amendment, cancellation and regrant or otherwise) to a lower
exercise price or Reference Value other than in compliance with Section 162(m)
of the Code); to make adjustments in the performance goals in recognition
of unusual or non-recurring events affecting the Company or the financial
statements of the Company (to the extent in accordance with Section 162(m) of
the Code, if applicable, with respect to an Executive Officer), or in response
to changes in applicable laws, regulations, or accounting principles; to
construe and interpret the Plan and any Incentive Award; to prescribe, amend
and rescind rules and regulations relating to the Plan; to determine the terms
and provisions of Award Agreements; and to make all other determinations deemed
necessary or advisable for the administration of the Plan.
The Committee may, in its absolute discretion, without amendment to
the Plan, (i) accelerate the date on which any Option, Tandem SAR, Stand-Alone
SAR or Incentive Award relating to Phantom Stock granted under the Plan becomes
exercisable, waive or amend the operation of Plan provisions respecting
exercise after termination of employment or otherwise adjust any of the terms
of such Option, Tandem SAR, Stand-Alone SAR or Phantom Stock grant, and (ii)
accelerate the Delivery Date, or waive any condition imposed hereunder, with
respect to any share of Restricted Stock or otherwise adjust any of the terms
applicable to such share.
No member of the Committee shall be liable for any action, omission
or determination relating to the Plan, and the Company shall indemnify and hold
harmless each member of the Committee and each other director or employee of
the Company to whom any duty or power relating to the administration or
interpretation of the Plan has been delegated against any cost or expense
(including counsel fees) or liability (including any sum paid in settlement of
a claim with the approval of the Committee) arising out of any action, omission
or determination relating to the Plan, if, in either case, such action,
omission or determination was taken or made by such member, director or
employee in good faith and in a manner such member, director or employee
reasonably believes to be in or not opposed to the best interests of the
Company.
5. ELIGIBILITY.
The persons who shall be eligible to receive Incentive Awards
pursuant to the Plan shall be such employees of the Company or its Subsidiaries
(including officers of the Company or its Subsidiaries, whether or not they are
directors of the Company or its Subsidiaries) as the Committee shall select
from time to time. Directors who are not employees or officers of the Company
shall not be eligible to receive Incentive Stock Option Awards under the Plan.
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6. AWARDS UNDER THE PLAN; AWARD AGREEMENT.
The Committee may grant Options, Tandem SAR's, Stand-Alone SAR's,
shares of Restricted Stock, shares of Phantom Stock and Stock Bonuses, in such
amounts and with such terms and conditions as the Committee shall determine,
subject to the provisions of the Plan.
Each Incentive Award granted under the Plan (except an
unconditional Stock Bonus) shall be evidenced by an Award Agreement which shall
contain such provisions as the Committee may in its sole discretion deem
necessary or desirable. By accepting an Incentive Award, a Participant thereby
agrees that the award shall be subject to all of the terms and provisions of
the Plan and the applicable Award Agreement.
7. OPTIONS.
a) IDENTIFICATION OF OPTIONS.
Each Option shall be clearly identified in the applicable Award
Agreement as either an Incentive Stock Option or a Non-Qualified Stock Option.
b) EXERCISE PRICE.
Each Award Agreement with respect to an Option shall set forth
the amount (the "option exercise price") payable by the Participant to the
Company upon exercise of the Option. The option exercise price per share
shall be determined by the Committee but shall in no event be less than the
Fair Market Value of a share of Common Stock on the date the Option is
granted provided however, that the option exercise price of Non-Qualified
Stock Options may be less than such value provided the exercise of any such
Non-Qualified Stock Option shall comply with the provisions of Section 162(m)
of the Code.
c) TERM AND EXERCISE OF OPTIONS.
(1) An Option shall become exercisable in
accordance with the terms of the applicable Award Agreement. The Committee
shall determine the expiration date of each option; provided, however, that no
Incentive Stock Option shall be exercisable more than ten (10) years after the
date of grant.
(2) An Option may be exercised for all or any
portion of the shares as to which it is exercisable, provided, that no partial
exercise of an Option shall be for an aggregate exercise price of less than
$1,000. The partial exercise of an Option shall not cause the expiration,
termination or cancellation of the remaining portion thereof.
(3) An Option shall be exercised by delivering
notice to the Company's principal office, to the attention of its Secretary.
Such notice shall be accompanied by a copy of the applicable Award Agreement,
shall specify the number of shares of Company Stock with respect to which the
Option is being exercised and shall be signed by the Participant or other
person then having the right to exercise the Option. Payment for shares of
Common Stock purchased upon the exercise of an Option shall also accompany the
exercise notice and be provided by one or a combination of the following means:
(i) in cash, by certified check, bank cashier's check or wire transfer; (ii) by
delivering a properly executed exercise notice to the Company together with a
copy of irrevocable instructions to a broker to deliver
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promptly to the Company the amount of sale or loan proceeds to pay the full
amount of the option exercise price for the shares as to which the Option is
being exercised, (iii) by delivering shares of Company Stock owned by the
Participant with appropriate stock powers, or (iv) by electing to have the
Company retain shares of Company Stock which would otherwise be issued on the
exercise of the Option. In determining the number of shares of Company Stock
necessary to be delivered to or retained by the Company, such shares shall be
valued by the Committee at their Fair Market Value as of the exercise date.
An Option shall be deemed to be exercised on the date on which the above
conditions to exercise have been satisfied.
(4) Certificates for shares of Company Stock
purchased upon the exercise of an Option (net of any shares retained by the
Company in accordance with Section 7(c)(3)(iv) of the Plan) shall be issued in
the name of the Participant or other person entitled to receive such shares,
and delivered to the Participant or such other person as soon as practicable
following the date on which the Option is exercised.
d) LIMITATIONS ON INCENTIVE STOCK OPTIONS.
(1) To the extent that the aggregate Fair
Market Value of shares of Company Stock with respect to which Incentive Stock
Options are exercisable for the first time by a Participant during any calendar
year under the Plan and any other stock option plan of the Company (or any
Subsidiary of the Company) shall exceed $100,000, or such higher value as may
be permitted under Section 422 of the Code, such Options shall be treated as
Non-Qualified Stock Options. Such Fair Market Value shall be determined as of
the date on which each such Incentive Stock Option is granted.
(2) No Incentive Stock Option may be granted
to an individual if, at the time of the grant, such individual owns stock
possessing more than ten percent of the total combined voting power of all
classes of stock of the Company unless (i) the exercise price per share of such
Incentive Stock Option is at least one hundred ten percent (110%) of the Fair
Market Value of a share of Common Stock at the time such Incentive Stock Option
is granted and (ii) such Incentive Stock Option is not exercisable after the
expiration of five years from the date such Incentive Stock Option is granted.
e) EFFECT OF TERMINATION OF EMPLOYMENT.
(1) Unless the applicable Award Agreement
provides otherwise, in the event that the employment of a Participant with the
Company or a Subsidiary of the Company shall terminate for any reason other
than death, Disability or Cause, (i) Options granted to such Participant, to
the extent that they are exercisable at the time of such termination, shall
remain exercisable until the date that is three (3) months after such
termination, on which date they shall expire, and (ii) Options granted to such
Participant, to the extent that they were not exercisable at the time of such
termination, shall expire at the close of business on the date of such
termination. Notwithstanding the foregoing, no Option shall be exercisable
after the expiration of its term.
(2) Unless the applicable Award Agreement
provides otherwise, in the event that the employment of a Participant with the
Company or a Subsidiary of the Company shall terminate on account of the
Disability or death of the Participant: (i) Options granted to such
Participant, to the extent that they were exercisable at the time of such
termination, shall remain exercisable until the first anniversary of such
termination, on which date they shall expire, and (ii) Options granted to
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such Participant, to the extent that they were not exercisable at the time
of such termination shall expire at the close of business on the date of such
termination. Notwithstanding the foregoing, no Option shall be exercisable
after the expiration of its term.
(3) If a Participant's employment with the
Company or a Subsidiary of the Company is terminated for Cause, all outstanding
Options granted to such Participant shall expire at the commencement of
business on the date of such termination.
f) CONDITIONS TO VESTING.
At the time of the grant of Options, the Committee may impose such
restrictions or conditions to the vesting of such shares as it, in its absolute
discretion, deems appropriate.
8. TANDEM SAR'S.
The Committee may grant in connection with any Option granted
hereunder one or more Tandem SAR's relating to a number of shares of Common
Stock less than or equal to the number of shares of Company Stock subject to
the related Option. A Tandem SAR may be granted at the same time as or, in the
case of a Non-Qualified Stock Option, subsequent to the time that, its related
Option is granted.
a) BENEFIT UPON EXERCISE.
The exercise of a Tandem SAR with respect to any number of shares
of Company Stock shall entitle the Participant to a cash payment, for each such
share, equal to the excess of (i) the Fair Market Value of a share of Company
Stock on the exercise date over (ii) the option exercise price per share of the
related Option. Such payment shall be made as soon as practicable after the
effective date of such exercise.
b) TERM AND EXERCISE OF TANDEM SAR.
(1) A Tandem SAR shall be exercisable only if
and to the extent that its related Option is exercisable.
(2) The exercise of a Tandem SAR with respect
to a number of shares of Company Stock shall cause the immediate and automatic
cancellation of its related Option with respect to an equal number of shares.
The exercise of an Option, or the cancellation, termination or expiration of an
Option (other than pursuant to this Section 8(b)(2)), with respect to a number
of shares of Company Stock shall cause the automatic and immediate cancellation
of any related Tandem SAR's to the extent that the number of shares of Company
Stock remaining subject to such Option is less than the number of shares then
subject to such Tandem SAR. Such Tandem SAR's shall be canceled in the order
in which they become exercisable.
(3) A Tandem SAR may be exercised for all or
any portion of the shares as to which the related Option is exercisable;
provided, that no partial exercise of a Tandem SAR shall be for less than a
number of shares having an aggregate option exercise price of less than $1,000.
The partial exercise of a Tandem SAR shall not cause the expiration,
termination or cancellation of the remaining portion thereof.
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(4) No Tandem SAR shall be assignable or
transferable otherwise than together with its related Option, and any such
transfer or assignment will be subject to the provisions of Section 20 of the
Plan.
(5) A Tandem SAR shall be exercised by
delivering notice to the Company's principal office, to the attention of its
Secretary. Such notice shall be accompanied by a copy of the applicable Award
Agreement, shall specify the number of shares of Company Stock with respect to
which the Tandem SAR is being exercised and shall be signed by the Participant
or other person then having the right to exercise the Option to which the
Tandem SAR is related. A Tandem SAR shall be deemed to be exercised on the
date on which the above conditions to exercise have been satisfied.
c) CONDITIONS TO VESTING.
At the time of the grant of a Tandem SAR, the Committee may impose
such restrictions or conditions to the vesting of such Tandem SAR as it, in its
absolute discretion, deems appropriate.
9. STAND-ALONE SAR'S.
a) REFERENCE VALUE.
The Reference Value per share of a Stand-Alone SAR shall be
determined by the Committee at the time of grant, but shall in no event be less
than the Fair Market Value of a share of Company Stock on the date of grant.
b) BENEFIT UPON EXERCISE.
The exercise of a Stand-Alone SAR with respect to any number of
shares of Company Stock shall entitle the Participant to a cash payment, for
each such share, equal to the excess of (i) the Fair Market Value of a share of
Company Stock on the exercise date over (ii) the reference value of the
Stand-Alone SAR. Such payments shall be made as soon as practicable after the
effective date of such exercise.
c) TERM AND EXERCISE OF STAND-ALONE SAR'S.
(1) The Committee shall determine the
expiration date of each Stand-Alone SAR.
(2) A Stand-Alone SAR may be exercised for all
or any portion of the shares as to which it is exercisable; provided, that no
partial exercise of a Stand-Alone SAR shall be for an aggregate reference value
of less than $1,000. The partial exercise of a Stand-Alone SAR shall not cause
the expiration, termination or cancellation of the remaining portion thereof.
(3) A Stand-Alone SAR shall be exercised by
delivering notice to the Company's principal office, to the attention of its
Secretary, no less than one business day in advance of the effective date of
the proposed exercise. Such notice shall be accompanied by a copy of the
applicable Award Agreement, shall specify the number of shares of Company Stock
with respect to which the Stand-Alone SAR is being exercised, and shall be
signed by the Participant. A Stand-Alone SAR shall be deemed to be exercised
on the date on which the above conditions to exercise have been satisfied
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d) EFFECT OF TERMINATION of EMPLOYMENT.
The provisions set forth in Section 7(e) with respect to the
exercise of Options following termination of employment shall apply as well to
the exercise of Stand-Alone SAR's.
e) CONDITIONS TO VESTING.
At the time of the grant of a Stand-Alone SAR, the Committee may
impose such restrictions or conditions to the vesting of such Stand-Alone SAR
as it, in its absolute discretion, deems appropriate.
10. RESTRICTED STOCK.
a) DELIVERY DATE AND VESTING DATE.
At the time of the grant of shares of Restricted Stock, the
Committee shall establish a Delivery Date or Delivery Dates and a Vesting Date
or Vesting Dates with respect to such shares. The Committee may divide such
shares into classes and assign a different Delivery Date and/or Vesting Date
for each class. If the Participant is employed by the Company or a Subsidiary
of the Company on a Delivery Date (which may be the date of grant), the
specified number of shares of Restricted Stock shall be issued in accordance
with the provisions of Section l0(e) of the Plan. Provided that all conditions
to the vesting of a share of Restricted Stock imposed pursuant to Section l0(b)
of the Plan are satisfied, and except as provided in Section l0(g) of the Plan,
upon the occurrence of the Vesting Date with respect to a share of Restricted
Stock, such share shall vest and the restrictions of Section l0(c) of the Plan
shall lapse.
b) CONDITIONS TO VESTING.
At the time of the grant of shares of Restricted Stock, the
Committee may impose such restrictions or conditions to the vesting of such
shares as it, in its absolute discretion, deems appropriate.
c) RESTRICTIONS ON TRANSFER PRIOR TO VESTING.
Prior to the vesting of a share of Restricted Stock, no transfer of
a Participant's rights with respect to such share, whether voluntary or
involuntary, by operation of law or otherwise, shall be permitted.
Immediately upon any attempt to transfer such rights, such share, and all of
the rights related thereto, shall be forfeited by the Participant.
d) DIVIDENDS ON RESTRICTED STOCK.
The Committee in its discretion may require that any dividends paid
on shares of Restricted Stock shall be held in escrow until all restrictions on
such shares have lapsed.
e) ISSUANCE OF CERTIFICATES.
(1) Reasonably promptly after the Delivery Date
with respect to shares of Restricted Stock, the Company shall cause to be
issued a stock certificate, registered in the name of the Participant to whom
such shares were granted, evidencing such shares; provided, that the Company
shall not cause such a stock certificate to be issued unless it has received a
stock power duly endorsed in blank with respect to such shares. Each such
stock certificate shall bear the following legend:
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The transferability of this certificate and the shares of
stock represented hereby are subject to the restrictions,
terms and conditions (including forfeiture provisions and
restrictions against transfer) contained in the 1997 Omnibus
Stock Incentive Plan of Farrel Corporation and an Award
Agreement entered into between the registered owner of such
shares and Farrel Corporation. A copy of such Plan and Award
Agreement is on file in the office of the Secretary of Farrel
Corporation, 25 Main Street, Ansonia, Connecticut 06401.
Such legend shall not be removed until such shares vest pursuant to
the terms of the applicable Award Agreement.
(2) Each certificate issued pursuant to this
Section l0(e), together with the stock powers relating to the shares of
Restricted Stock evidenced by such certificate, shall be held by the Company
unless the Committee determines otherwise.
f) CONSEQUENCES OF VESTING.
Upon the vesting of a share of Restricted Stock pursuant to the
terms of the applicable Award Agreement, the restrictions of Section 10(c) of
the Plan shall lapse. Reasonably promptly after a share of Restricted Stock
vests, the Company shall cause to be delivered to the Participant to whom such
shares were granted, a certificate evidencing such share, free of the legend
set forth in Section 10(e) of the Plan.
g) EFFECT OF TERMINATION OF EMPLOYMENT.
(1) Subject to such other provision as the
Committee may set forth in the applicable Award Agreement, and to the
Committee's amendment authority pursuant to Section 4 of the Plan, upon the
termination of a Participant's employment by the Company or any Subsidiary of
the Company for any reason other than Cause, any and all shares to which
restrictions on transferability apply shall be immediately forfeited by the
Participant and transferred to the Company; provided that if the Committee, in
its sole and absolute discretion and within thirty (30) days after such
termination of employment notifies the Participant in writing of its decision
not to terminate the Participant's rights in such shares, then the Participant
shall continue to be the owner of such shares subject to such continuing
restrictions as the Committee may prescribe in such notice. If shares of
Restricted Stock are forfeited in accordance with the provisions of this
Section 10, the Company shall also have the right to require the return
of all dividends paid on such shares, whether by termination of any escrow
arrangement under which such dividends are held or otherwise.
(2) In the event of the termination of a
Participant's employment for Cause, all shares of Restricted Stock granted to
such Participant which have not vested as of the date of such termination shall
immediately be forfeited to the Company, together with any dividends paid on
such shares.
h) SPECIAL PROVISIONS REGARDING RESTRICTED STOCK AWARDS TO
EXECUTIVE OFFICERS.
Notwithstanding anything to the contrary contained herein, the
lapse of restrictions on
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Restricted Stock granted pursuant to this Section 10 to Executive Officers
shall be based on the attainment by the Company (or a Subsidiary or division
of the Company if applicable) of performance goals pre-established by the
Committee, based on one or more of the following criteria and such other
or alternative criteria as may be established from time to time under
Section 162(m) of the Code: (i) the attainment of a specified percentage
return on total stockholder equity of the Company; (ii) the attainment
of a specified percentage increase in earnings per share of Common Stock;
(iii) the attainment of a specified percentage increase in net income of
the Company; and (iv) the attainment of a specified percentage increase in
profit before taxation of the Company (or a Subsidiary or division of the
Company if applicable). Attainment of any such performance criteria shall be
determined in accordance with generally accepted accounting principles as in
effect from time to time. Such shares of Restricted Stock shall be released
from restrictions only after the attainment of such performance measures have
been certified by the Committee in accordance with the requirements of Section
162(m) of the Code.
11. PHANTOM STOCK.
a) VESTING DATE.
At the time of the grant of shares of Phantom Stock, the Committee
shall establish a Vesting Date or Vesting Dates with respect to such shares.
The Committee may divide such shares into classes and assign a different
Vesting Date for each class. Provided that all conditions to the vesting of a
share of Phantom Stock imposed pursuant to Section 11(c) of the Plan are
satisfied, and except as provided in Section 11(d) of the Plan, upon the
occurrence of the Vesting Date with respect to a share of Phantom Stock, such
share shall vest.
b) BENEFIT UPON VESTING.
Upon the vesting of a share of Phantom Stock, the Participant shall
be entitled to receive in cash, within thirty (30) days of the Vesting Date of
such share, an amount equal to the sum of (i) the Fair Market Value of a share
of Common Stock on the date on which such share of Phantom Stock vests and (ii)
the aggregate amount of cash dividends paid with respect to a share of Common
Stock during the period commencing on the date on which the share of Phantom
Stock was granted and terminating on the Vesting Date of such share.
c) CONDITIONS TO VESTING.
At the time of the grant of shares of Phantom Stock, the Committee
may impose such restrictions or conditions to the vesting of such shares as it,
in its absolute discretion, deems appropriate.
d) EFFECT OF TERMINATION OF EMPLOYMENT.
Subject to such other provision as the Committee may set forth in
the applicable Award Agreement, and to the Committee's amendment authority
pursuant to Section 4 of the Plan, shares of Phantom Stock that have not
vested, together with any dividends credited on such shares, shall be
forfeited upon the Participant's termination of employment for any reason.
e) SPECIAL PROVISIONS REGARDING PHANTOM STOCK AWARDS.
Notwithstanding anything to the contrary contained herein, the
vesting of Phantom Stock granted pursuant to this Section 11 to Executive
Officers shall be based on the attainment by the Company (or a Subsidiary or
division of the Company if applicable) of performance goals pre-established by
the
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Committee, based on one or more of the following criteria and such other or
alternative criteria as may be established from time to time under Section
162(m) of the Code: (i) the attainment of a specified percentage return on
total stockholder equity of the Company; (ii) the attainment of a specified
percentage increase in earnings per share of Common Stock from continuing
operations; (iii) the attainment of a specified percentage increase in net
income of the Company; and (iv) the attainment of a specified percentage
increase in profit before taxation of the Company (or a Subsidiary or division
of the Company if applicable). Attainment of any such performance criteria
shall be determined in accordance with generally accepted accounting principles
is in effect from time to time. No cash payment in respect of any Phantom
Stock award will be paid to an Executive Officer until the attainment of the
respective performance measures have been certified by the Committee in
accordance with the requirements of Section 162(m) of the Code.
12. STOCK BONUSES.
In the event that the Committee grants a Stock Bonus, a certificate
for the shares of Company Stock comprising such Stock Bonus shall be issued in
the name of the Participant to whom such grant was made and delivered to such
Participant as soon as practicable after the date on which such Stock Bonus is
payable.
13. RIGHTS AS A STOCKHOLDER.
No Participant shall have any rights as a stockholder with respect to any
shares of Company Stock covered by or relating to any Incentive Award until the
date of issuance of a stock certificate with respect to such shares. Except as
otherwise expressly provided in Section 3(c) of the Plan, no adjustment to any
Incentive Award shall be made for dividends or other rights for which the
record date occurs prior to the date such stock certificate is issued.
14. NO SPECIAL EMPLOYMENT RIGHTS; NO RIGHT TO INCENTIVE AWARD.
Nothing contained in the Plan or any Award Agreement shall confer
upon any Participant any right with respect to the continuation of employment
by the Company or any Subsidiary of the Company or interfere in any way with
the right of the Company or any Subsidiary of the Company, subject to the terms
of any separate employment agreement to the contrary, at any time to terminate
such employment or to increase or decrease the compensation of the Participant.
No person shall have any claim or right to receive an Incentive
Award hereunder. The Committee's granting of an Incentive Award to a
Participant at any time shall neither require the Committee to grant any other
Incentive Award to such Participant or other person at any time or preclude the
Committee from making subsequent grants to such Participant or any other
person.
15. SECURITIES MATTERS.
a) The Company shall be under no obligation to effect the
registration pursuant to the Securities Act of any interests in the Plan or any
shares of Company Stock to be issued hereunder or to effect similar compliance
under any state laws. Notwithstanding anything herein to the contrary, the
Company shall not be obligated to cause to be issued or delivered any
certificates evidencing shares of Company Stock pursuant to the Plan unless and
until the Company is advised by its counsel that the issuance and delivery of
such certificates is in compliance with all applicable laws, regulations of
governmental authorities and the requirements of any securities exchange on
which shares of Company
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Stock are traded. The Committee may require, as a condition of the issuance
and delivery of certificates evidencing shares of Company Stock pursuant to
the terms of the Plan, that the recipient of such shares make such covenants,
agreements and representations, and that such certificates bear such legends,
as the Committee, in its sole discretion, deems necessary or desirable.
b) The transfer of any shares of Company Stock
hereunder shall be effective only at such time as counsel to the Company shall
have determined that the transfer of such shares is in compliance with all
applicable laws, regulations of governmental authorities and the requirements
of any securities exchange on which shares of Common Stock are traded. The
Committee may, in its sole discretion, defer the effectiveness of any transfer
of shares of Company Stock hereunder in order to allow the transfer of such
shares to be made pursuant to registration or an exemption from registration or
other methods for compliance available under federal or state securities laws.
The Committee shall inform the Participant in writing of its decision to defer
the effectiveness of a transfer. During the period of such deferral in
connection with the exercise of an Option, the Participant may, by written
notice, withdraw such exercise and obtain the refund of any amount paid with
respect thereto.
16. WITHHOLDING TAXES.
Whenever cash is to be paid pursuant to an Incentive Award, the
Company shall have the right to deduct therefrom an amount sufficient to
satisfy any federal, state and local withholding tax requirements related
thereto.
Whenever shares of Common Stock are to be delivered pursuant to an
Incentive Award, the Company shall have the right to require the Participant to
remit to the Company in cash an amount sufficient to satisfy any federal, state
and local withholding tax requirements related thereto. With the approval of
the Committee, a Participant may satisfy the foregoing requirement by electing
to have the Company withhold from delivery shares of Company Stock having a
Fair Market Value equal to the amount of tax to be withheld. Such shares shall
be valued at the Fair Market Value on the date on which the amount of tax to be
withheld is determined (the "Tax Date"). Fractional share amounts shall be
settled in cash. Such a withholding election may be made with respect to all
or any portion of the shares to be delivered pursuant to an Incentive Award.
17. NOTIFICATION OF ELECTION UNDER SECTION 83(B) OF THE CODE.
If any Participant shall, in connection with the acquisition of
shares of Company Stock under the Plan, make the election permitted under
Section 83(b) of the Code (I.E., an election to include in gross income in the
year of transfer the amounts specified in Section 83(b)), such Participant
shall notify the Company of such election within ten (10) days of filing notice
of the election with the Internal Revenue Service, in addition to any filing
and notification required pursuant to regulations issued under the authority of
Code Section 83(b).
18. NOTIFICATION UPON DISQUALIFYING DISPOSITION UNDER SECTION 421(B) OF THE
CODE.
Each Award Agreement with respect to an Incentive Stock Option
shall require the Participant to notify the Company of any disposition of
shares of Common Stock delivered upon the exercise of such Option under the
circumstances described in Section 421(b) of the Code (relating to certain
disqualifying dispositions), within ten (10) days of such disposition.
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19. AMENDMENT OR TERMINATION OF THE PLAN.
The Board of Directors may, at any time, suspend or terminate the
Plan or revise or amend it in any respect whatsoever; provided, however, that
stockholder approval shall be required if and to the extent the Board of
Directors determines that such approval is appropriate for purposes of
satisfying Section 162(m) or 422 of the Code or to the extent such approval is
required by the rules of any stock exchange on which the Common Stock is
listed. Nothing herein shall restrict the Committee's ability to exercise its
discretionary authority pursuant to Section 4 of the Plan, which discretion may
be exercised without amendment to the Plan. No action hereunder may, without
the consent of a Participant, reduce the Participant's rights under any
outstanding Incentive Award.
20. TRANSFERS UPON DEATH; NONASSIGNABILITY.
Upon the death of a Participant, outstanding Incentive Awards
granted to such Participant may be exercised only by the executor or
administrator of the Particip0ant's estate or by a person who shall have
acquired the right to such exercise by will or by the laws of descent and
distribution. No transfer of an Incentive Award by will or the laws of descent
and distribution shall be effective to bind the Company unless the Committee
shall have been furnished with (a) written notice thereof and with a copy of
the will and/or such evidence as the Committee may deem necessary to establish
the validity of the transfer and (b) an agreement by the transferee to comply
with all the terms and conditions of the Incentive Award that are or would have
been applicable to the Participant and to be bound by the acknowledgments made
by the Participant in connection with the grant of the Incentive Award.
During a Participant's lifetime, the Committee may permit the
transfer, assignment or other encumbrance of an outstanding Option or
outstanding shares of Restricted Stock unless such Option is an Incentive Stock
Option and the Committee and the Participant intend that it shall retain such
status. Notwithstanding the foregoing, but subject to any conditions as the
Committee may prescribe, a Participant may, upon providing written notice to
the Secretary of the Company, elect to transfer any or all Options granted to
such Participant pursuant to the Plan to members of his or her immediate
family, including, but not limited to, children, grandchildren and spouse or to
trusts for the benefit of such immediate family members or to partnerships in
which such family members or trusts are the only partners; provided, however,
that no such transfer by any Participant may be made in exchange for
consideration and each such transferee agrees to comply with all applicable
provisions of the relevant Award Agreement.
21. EXPENSES AND RECEIPTS.
The expenses of the Plan shall be paid by the Company. Any
proceeds received by the Company in connection with any Incentive Award will be
used for general corporate purposes.
22. FAILURE TO COMPLY.
In addition to the remedies of the Company elsewhere provided for
herein, failure by a Participant (or beneficiary or transferee) to comply with
any of the terms and conditions of the Plan or the applicable Award Agreement,
unless such failure is remedied by such Participant (or beneficiary or
transferee) within ten (10) days after notice of such failure by the Committee,
shall be grounds for the cancellation and forfeiture of such Incentive Award,
in whole or in part, as the Committee, in its absolute discretion, may
determine.
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23. EFFECTIVE DATE AND TERM OF PLAN.
The Plan became effective on the Effective Date, but the Plan (and
any grants of Incentive Awards made prior to stockholder approval of the Plan)
shall be subject to the requisite approval of the stockholders of the Company.
In the absence of such approval, such Incentive Awards shall be null and void.
Unless earlier terminated by the Board of Directors, the right to grant
Incentive Awards under the Plan will terminate on the tenth anniversary of the
Effective Date. Incentive Awards outstanding at Plan termination will remain
in effect according to their terms and the provisions of the Plan.
24. APPLICABLE LAW.
Except to the extent preempted by any applicable federal law, the
Plan will be construed and administered in accordance with the laws of the
State of Delaware, without reference to the principles of conflicts of law.
25. PARTICIPANT RIGHTS.
No Participant shall have any claim to be granted any Incentive
Award under the Plan, and there is no obligation for uniformity of treatment
for Participants. Except as provided specifically herein, a Participant or a
transferee of an Incentive Award shall have no rights as a stockholder with
respect to any shares covered by any award until the date of the delivery of a
Company Stock certificate to him for such shares.
26. UNFUNDED STATUS OF AWARDS.
The Plan is intended to constitute an "unfunded" plan for incentive
and deferred compensation. With respect to any payments not yet made to a
Participant pursuant to an Incentive Award, nothing contained in the Plan or
any Award Agreement shall give any such Participant any rights that are greater
than those of a general creditor of the Company.
27. NO FRACTIONAL SHARES.
No fractional shares of Company Stock shall be issued or delivered
pursuant to the Plan. The Committee shall determine whether cash, other
Incentive Awards, or other property shall be issued or paid in lieu of such
fractional shares or whether such fractional shares or any rights thereto shall
be forfeited or otherwise eliminated.
28. BENEFICIARY.
A Participant may file with the Committee a written designation of
a beneficiary on such form as may be prescribed by the Committee and may, from
time to time, amend or revoke such designation. If no designated beneficiary
survives the Participant, the executor or administrator of the Participant's
estate shall be deemed to be the Participant's beneficiary.
29. INTERPRETATION.
The Plan is designed and intended to comply with Rule 16b-3
promulgated under the Exchange Act and, with Section 162(m) of the Code, and
all provisions hereof shall be construed in a manner to so comply.
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EXHIBIT B
FARREL CORPORATION
1997 EMPLOYEES' STOCK PURCHASE PLAN
1. PURPOSES
The purposes of the Farrel Corporation 1997 Employees' Stock
Purchase Plan (this "Plan") are to provide an incentive for Eligible Employees
to continue devoting their best efforts to the success of the Company, and to
afford such employees an opportunity to obtain a proprietary interest in the
continued growth and prosperity of the Company through ownership of its Common
Stock acquired in a convenient fashion.
2. DEFINITIONS
Whenever used in this Plan:
A. "Board of Directors" means the Board of Directors of Farrel
Corporation.
B. "Code" means the Internal Revenue Code of 1986, as amended.
C. "Committee" means the Compensation Committee of the Board of
Directors of Farrel Corporation.
D. "Common Stock" means the Common Stock, par value $.01 per
share, of Farrel Corporation.
E. "Company" means Farrel Corporation and each of its
subsidiaries now existing as of the effective date of the adoption of this Plan
or thereafter acquired (corporations in respect of which Farrel Corporation
owns, directly or indirectly, at least 51% of the total issued and outstanding
voting capital stock) as may be designated from time to time by its Board of
Directors and which would nonetheless be a subsidiary corporation of Farrel
Corporation as such term is defined in Section 424 of the Code.
F. "Compensation" means the rate of salary in effect for an
Eligible Employee on a Date of Offering excluding bonus or overtime pay. For
employees paid a salary plus sales commission, "Compensation" means the rate of
salary in effect on a Date of Offering plus an estimate, determined by the
Company, of the sales commission for the ensuing year.
G. "Date of Offering" means the day within the first fifteen
(15) days of July, 1997 and the day within the first fifteen (15) days of May
in 1998, 1999, 2000 and 2001 specified by the Board of Directors for any
offering made under this Plan.
H. "Eligible Employee" means any person who is in the service
of the Company on a Date of Offering during the term of this Plan. Directors
of the Company who are not officers and any employee who, immediately after the
grant of an option hereunder, would own (within the meaning of Section 424(d)
of the Code) Common Stock (including stock which such employee may purchase
under outstanding options) possessing 5% or more of the total combined voting
power or value of all classes of the
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capital stock of the Company or of a subsidiary of the Company, shall be
ineligible to participate in this Plan. Notwithstanding the foregoing, the
term Eligible Employee shall not include: (1) any person who has been
employed by the Company for less than two (2) years, (2) any employee whose
customary employment is twenty (20) hours per week or less, and (3) any
employee whose employment is for not more than five (5) months in any
calendar year. The preceding sentence shall be interpreted in accordance
with Section 423(b) of the Code.
I. "Fair Market Value" of a share of the Common Stock, as of a
date of determination, shall mean (i) the closing sales price per share of
the Common Stock on the national securities exchange on which such stock is
principally traded for the last preceding date on which there was a sale of
such stock on such exchange, or (ii) if the shares of Common Stock are not
listed or admitted to trading on any such exchange, the closing price as
reported by The Nasdaq Stock Market, Inc. for the last preceding date on
which there was a sale of such stock on such exchange, or (iii) if the shares
of Common Stock are not then listed on The Nasdaq Stock Market, Inc., the
average of the highest reported bid and lowest reported asked prices for
the shares of the Common Stock as reported by the National Association of
Securities Dealers, Inc. Automated Quotation System for the last preceding
date on which bid and asked prices for the Common Stock were so reported or
(iv) if the shares of Common Stock are not then listed on a national
securities exchange or traded in an over-the-counter market, such value as
determined by the Committee in good faith.
J. "Offering Price" means 85% of the Fair Market Value of Common
Stock on a Date of Offering.
3. SCOPE OF THE PLAN
Options to purchase shares of Common Stock may be granted by the
Company to Eligible Employees during the five-year period commencing May 1,
1997 as hereinafter provided, but not more than 500,000 shares of Common Stock
shall be purchased pursuant to such options. All options granted pursuant to
this Plan shall be subject to the same rights and privileges. The shares of
Common Stock delivered by the Company pursuant to this Plan may be treasury
shares, newly issued shares or shares purchased by the Company on the open
market.
4. OFFERINGS
Subject to the terms and conditions of this Plan, the Board of
Directors may make an annual offering during the first fifteen (15) days of
July, 1997 and during the first fifteen (15) days of May in 1998, 1999, 2000
and 2001 to Eligible Employees to purchase Common Stock under this Plan. The
terms and conditions for each such offering shall specify the Date of Offering,
the Offering Price and the amount of Common Stock that may be purchased
thereunder. The fixed term of any offering (the "Purchase Period") shall be
the twenty-four (24) months during which payroll deductions shall be made from
the Compensation of Eligible Employees accepting an option under an offering
hereunder.
5. AMOUNT OF COMMON STOCK EACH ELIGIBLE EMPLOYEE MAY PURCHASE
A. Subject to the provisions of this Plan, and as to any
offering made hereunder, each Eligible Employee shall be offered an option to
purchase that number of whole shares of Common Stock
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which has on the Date of Offering an aggregate purchase price (determined
on the basis of the Offering Price) equal to any whole percentage of his
Compensation up to a maximum of 5%, I.E., 1%, 2%, 3%, 4%, or 5%. In the
event such an option would involve the purchase of a fractional share, the
number of shares which may be purchased shall be increased to the next whole
number.
B. If Eligible Employees elect, in any one offering, to accept
options to an extent which would result (if options were granted on that basis)
in the granting of options for that offering to purchase more than the
aggregate number of shares of Common Stock specified by the Board of Directors
for that offering, the Committee shall adjust such options on a pro rata basis
so that the aggregate number of shares subject to purchase under that offering
does not exceed such specified number of shares.
C. No Eligible Employee may be granted an option to purchase
shares of Common Stock which would permit his total rights to purchase shares
of stock under all employee stock purchase plans of the Company and its
subsidiaries to accrue at a rate which exceeds $25,000 of Fair Market Value of
such stock (determined as of the date of grant of such option) for each
calendar year during which any such option granted to such individual is
outstanding at any time.
6. METHOD OF PARTICIPATION
A. The Committee shall give notice to Eligible Employees of each
offering of options to purchase shares of Common Stock pursuant to this Plan
and the terms and conditions for each offering. Such notice shall specify the
maximum number of shares of Common Stock which may be covered by the option to
be offered to each Eligible Employee, the Offering Price, and such other
information as the Committee may determine.
B. Each Eligible Employee who desires to accept all or any part
of the option to purchase shares of Common Stock under an offering shall
signify his election to do so in the form and manner prescribed by the
Committee. Each such Eligible Employee shall also authorize the Company, in
the form and manner prescribed by the Committee, to make payroll deductions to
cover the aggregate purchase price of those shares of Common Stock in respect
of which he has elected to accept an option. Such election and authorization
shall continue in effect unless and until such Eligible Employee withdraws from
this Plan or terminates his employment with the Company, as hereinafter
provided.
C. The Company shall thereafter provide each Eligible Employee
accepting an option under each offering a notice indicating the number of
shares covered by such option, the Offering Price, and any pro rata reduction
in accordance with Paragraph 5.B. hereof.
D. Each Eligible Employee who does not wish to accept any part
of an option to purchase shares of Common Stock under an offering shall be
requested to so signify in the form and manner prescribed by the Committee. An
election not to accept any part of such option shall be irrevocable for such
offering, and the failure by any Eligible Employee to accept an option under an
offering in accordance with Paragraph 5.B. hereof shall be deemed an
irrevocable election not to accept any part of such option.
7. PAYROLL DEDUCTIONS
A. The aggregate purchase price for those shares of Common Stock
as to which each
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Eligible Employee has elected to accept the option offered to him shall be
deducted from his compensation during the Purchase Period specified in the
offering through payroll deductions, based on the frequency of Compensation
payments applicable to such Eligible Employee, in substantially equal
installments. Such payroll deductions shall commence with the first
applicable payroll period beginning in the month after the applicable Date
of Offering and shall continue until the last day of the Purchase Period.
An Eligible Employee electing to accept an option shall sign and provide
such documents as the Company may require with respect to the authorization
of payroll deductions under applicable law.
B. In the event the payroll deductions of an Eligible Employee
participating in this Plan are temporarily discontinued because of leave of
absence, lay-off, temporary disability or other similar reasons, then the
number of shares of Common Stock subject to purchase under his option shall be
automatically reduced to that number of whole shares which his aggregate
payroll deductions actually made within the Purchase Period are sufficient to
purchase. The balance of such payroll deductions, if any, shall be refunded to
the Eligible Employee in cash, without interest. Notwithstanding the
foregoing, however, such Eligible Employee may elect to pay to the Company
(through increased payroll deductions during the remainder of the Purchase
Period) an amount equal to the amount which was not subject to payroll
deductions by reason of the temporary discontinuance thereof, and, in that
event, such Eligible Employee shall then be entitled to purchase the total
number of shares of Common Stock for which he has accepted an option.
C. If any law, rule or regulation applicable to any Eligible
Employee prohibits the use of payroll deductions for purposes of this Plan, or
if such deductions impair or hinder the operation of this Plan, an alternative
method of payment approved by the Committee may be substituted for such
Eligible Employee.
8. RIGHT TO WITHDRAW
An Eligible Employee who has accepted an option to purchase shares
of Common Stock may, at any time prior to his last regular payroll deduction
under the related offering, direct the Company to make no further deductions
from his Compensation with respect to such option, or may cancel the entire
option. Upon either of such actions, all payroll deductions with respect to
such option shall cease. If the employee has directed that payroll deductions
be discontinued but has not cancelled his option, any sums theretofore deducted
in respect of the offering shall be retained by the Company until the end of
the applicable Purchase Period, at which time there shall be issued to the
employee the number of whole shares which can be purchased with the sum
deducted and any remaining balance of the sum shall be paid to him in cash,
without interest. If the employee has cancelled his option, the Company shall
refund in cash, without interest, all amounts credited to the account of such
employee with respect to the applicable offering.
Notification of an Eligible Employee's election to terminate
deductions or to cancel an option shall be made by the filing of an appropriate
notice to such effect with the Committee.
Any Eligible Employee may, at any time prior to the expiration of
any Purchase Period, irrevocably elect to waive both his right to direct the
Company to make no further deductions from his Compensation with respect to any
option granted hereunder and his right to cancel the entire option, which
election shall be made by the filing of an appropriate notice to such effect
with the Committee. Upon the filing of such a notice, such Eligible Employee
shall be irrevocably obligated to purchase all the shares covered by the option
to which such notice relates.
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9. TERMINATION OF EMPLOYMENT
A. In the event the employment of an Eligible Employee who has
accepted an option to purchase shares of Common Stock is terminated prior to
his final payroll deduction with respect to such option because of death, total
and permanent disability, or retirement and if the Eligible Employee has not
made an irrevocable election as provided in Paragraph 8 hereof, he or his legal
representative, as applicable, may either:
(1) cancel his option for all offerings in
which he is participating, in which event the Company shall refund in cash,
without interest, all amounts credited to his account under all offerings in
which he is participating under the Plan; or
(2) elect to receive at the conclusion of each
applicable Purchase Period that number of whole shares of Common Stock which
his payroll deductions actually made are sufficient to purchase, plus the
balance of such payroll deductions, if any, in cash, without interest.
B. The election of an Eligible Employee or his legal
representative, as applicable, pursuant to Paragraph 9.A. above, shall be made
within three months of the event causing the termination of employment but in
any event not later than the conclusion of the applicable Purchase Period.
Notification of the election shall be filed with the Committee and, in the
event no notification has been filed within the prescribed period, the Company
shall act in accordance with provision (1) of Paragraph 9.A. hereof.
C. In the event the employment of an Eligible Employee who has
accepted an option to purchase shares of Common Stock is terminated for any
reason other than those specified in paragraph 9.A., the Company shall refund
in cash, without interest, all amounts credited to his account under all
offerings in which he is participating under this Plan.
10. EXERCISE OF OPTION AND PURCHASE OF SHARES
A. As of the last day of the Purchase Period specified in each
offering, the Committee shall determine an alternative Offering Price (the
"Alternative Offering Price"), which shall be 85% of the Fair Market Value of
Common Stock on such last day of the Purchase Period specified in the
applicable offering. Unless an Eligible Employee who has accepted an option
under the offering has subsequently withdrawn from the offering pursuant to
Paragraph 8 hereof, his option shall be deemed to have been exercised as of the
last day of the applicable Purchase Period and become on such date an
irrevocable obligation to purchase Common Stock in accordance with the
provisions of this Plan. The number of whole shares of Common Stock so
purchased by each such Eligible Employee shall be determined by dividing the
amount accumulated in his account by payroll deductions during the applicable
Purchase Period by the lower of either the Offering Price or the Alternative
Offering Price, rounded down to a whole number of shares. As soon as
practicable thereafter, certificates for the number of whole shares of Common
Stock purchased by each Eligible Employee shall be issued to him. Any balance
remaining in the account of an Eligible Employee relating to such offering
shall be refunded to him, without interest.
B. In the event that, with respect to any offering hereunder,
the Alternative Offering Price is lower than the Offering Price to such an
extent that Eligible Employees participating in the offering become entitled to
purchase more shares of Common Stock than were originally subscribed for by all
Eligible Employees accepting options under such offering, the Committee shall
apportion the aggregate
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shares of Common Stock available for purchase under the offering among
Eligible Employees participating in the offering on a pro rata basis in
accordance with the number of shares of Common Stock actually subscribed
for by each such Eligible Employee, and any amount remaining in the accounts
of Eligible Employees relating to such offering shall be refunded in cash,
without interest.
11. RIGHTS AS A SHAREHOLDER
An Eligible Employee who has accepted an option to purchase shares
of Common Stock under this Plan shall not be entitled to any of the rights or
privileges of a shareholder of the Company, including the right to receive any
dividends which may be declared by the Company, until such time as he has
actually paid the purchase price for such shares and certificates have been
issued to him in accordance with Paragraph 10 hereof.
12. RIGHTS NOT TRANSFERABLE
An Eligible Employee's rights under this Plan are exercisable,
during his lifetime, only by him and may not be sold, pledged, assigned or
transferred in any manner other than by will or the laws of descent and
distribution. Any attempt to sell, pledge, assign or transfer any such right
shall be void and shall automatically cause all options held by the Eligible
Employee under this Plan to be terminated. In such event, the Company shall
refund in cash, without interest, all amounts credited to the account of such
Eligible Employee in all offerings under this Plan.
13. ADMINISTRATION OF THIS PLAN
A. This Plan shall be administered by the Committee, which is
authorized to make such uniform rules as may be necessary to carry out its
provisions. The Committee shall determine any questions arising in the
administration, interpretation and application of this Plan, and all such
determinations shall be conclusive and binding on all parties.
B. If any option granted under this Plan shall lapse or
terminate, the number of shares of Common Stock as to which such option shall
have lapsed or terminated shall become available for sale under this Plan.
14. ADJUSTMENT UPON CHANGES IN CAPITALIZATION
In the event of any change in the Common Stock of the Company by
reason of stock dividends, split-ups, corporate separations, recapitalizations,
mergers, consolidations, combinations, exchanges of shares and the like, the
aggregate number and class of shares available under this Plan and the number
and class of shares under option but not yet issued under this Plan shall be
adjusted appropriately; provided, however, that no adjustment shall be made
which would result in a modification of the options granted hereunder and
thereby disqualify this Plan as an employee stock purchase plan under the
provisions of Section 423 of the Code.
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15. REGISTRATION OF CERTIFICATES
Stock certificates may be registered in the name of the Eligible
Employee, or, if he so designates, in his name jointly with his spouse, with
right of survivorship.
16. AMENDMENT OF PLAN
The Board of Directors may at any time amend this Plan in any
respect except that, without the approval, in the manner prescribed by law, by
the shareholders of the Company, no amendment shall be made (i) increasing the
number of shares to be reserved under this Plan (other than as provided in
Paragraph 14 hereof), (ii) decreasing the purchase price per share (other than
as provided in Paragraph 14 hereof), (iii) withdrawing the administration of
this Plan from the Committee or (iv) changing the definition of subsidiaries
eligible to participate in this Plan.
17. TERMINATION OF THIS PLAN
This Plan and all rights of Eligible Employees in any offering
hereunder shall terminate at the earliest of:
A. The conclusion of the last Purchase Period authorized herein;
B. On the day that Eligible Employees participating in offerings
under this Plan purchase a number of shares of Common Stock equal to or greater
than the number of shares remaining available for purchase; or
C. At any time, at the discretion of the Board of Directors.
Upon termination of this Plan, shares of Common Stock shall be
issued to Eligible Employees, and cash, if any, remaining in the accounts of
the Eligible Employees shall be refunded to them, as if this Plan were
terminated at the end of a Purchase Period.
18. GOVERNMENTAL REGULATIONS AND LISTING
All rights granted or to be granted to Eligible Employees under
this Plan are expressly subject to all applicable laws and regulations and to
the approval of all governmental authorities required in connection with the
authorization, issuance, sale or transfer of the shares of Common Stock
reserved for this Plan including, without limitations, there being a current
registration statement of the Company under the Securities Act of 1933, as
amended, covering the offer of shares of Common Stock purchasable under the
options on the last day of the Purchase Period applicable to such options,
and if a registration statement shall not then be effective the term of such
options and the Purchase Period shall be extended until the first business
day after the effective date of such registration statement or post-effective
amendment thereto.
Notwithstanding any other provision of this Plan, this Plan is
intended to comply with all applicable provisions of Section 423 of the Code or
the Treasury Regulations promulgated thereunder. To the extent that any
provision of this Plan or any action by the Committee under this Plan fails to
comply with Section 423 of the Code or the Treasury Regulations promulgated
thereunder, such provision or action shall,
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<PAGE>
without further action by any person, be deemed automatically amended to the
extent necessary to effect compliance with Section 423 of the Code and the
Treasury Regulations promulgated thereunder, provided that if any such
provision or action cannot be amended to effect such compliance, such
provision or action shall be deemed null and void, to the extent permitted
by law and deemed advisable by the Committee. Each option granted to an
Eligible Employee under this Plan shall be deemed issued subject to the
foregoing qualification.
19. AWARDS IN FOREIGN COUNTRIES
The Committee shall have the authority and discretion to adopt such
modifications, procedures and subplans as it shall deem necessary or desirable
to comply with the provisions of the laws of foreign countries in which the
Company may operate in order to assure the viability of the benefits of the
options made to individuals employed in such countries and to meet the
objectives of this Plan.
20. MISCELLANEOUS
A. This Plan shall not become effective unless and until it has
been approved, in the manner prescribed by law, by the shareholders of the
Company within twelve (12) months after the date this Plan was adopted by the
Board of Directors.
B. This Plan shall not be deemed to constitute a contract of
employment between the Company and any Eligible Employee, nor shall it
interfere with the right of the Company to terminate any Eligible Employee and
treat him without regard to the effect which such treatment might have upon him
under this Plan.
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<TABLE>
[x] PLEASE MARK VOTES AS IN
THIS EXAMPLE
With- For All
For hold Except For Against Abstain
<S> <C> <C> <C> <C> <C> <C> <C>
1.) Election of Directors [ ] [ ] [ ] 2.) To consider and act upon the approval [ ] [ ] [ ]
of the adoption of the Company's 1997
Omnibus Stock Incentive Plan.
For Against Abstain
Glenn J. Angiolillo, Charles S. Jones, 3.) To consider and act upon the approval [ ] [ ] [ ]
Alberto Shaio of the adoption of the Company's 1997
Employees' Stock Purchase Plan.
For Against Abstain
Instruction: To withhold authority for 4.) To consider and act upon the [ ] [ ] [ ]
any individual nominee, mark the "For ratification of the selection of Ernst
All Except" box and strike a line & Young LLP as independent accountants
through the nominee's name in the for the Company for the fiscal year
list above ending December 31, 1997.
RECORD DATE SHARES:
Please be sure to sign and date this Proxy Date -----------
-------------------------- ---------------------
Stockholder sign here Co-owner sign here Mark box at right if comment or address change [ ]
have been noted on the reverse side of this card.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
DETACH CARD
FARREL CORPORATION
Dear Stockholder:
Please take note of the important information enclosed with this Proxy Ballot.
There are a number of issues related to the management and operation of your
Company that require your immediate attention and approval. These are
discussed in detail in the enclosed proxy materials.
Your vote counts, and you are strongly encouraged to exercise your right to
vote your shares.
Please mark the boxes on the proxy card to indicate how your shares shall be
voted. Then sign the card, detach it and return your proxy vote in the
enclosed postage paid envelope.
Your vote must be received prior to the Annual Meeting of Stockholders, on May
23, 1997.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
Farrel Corporation
<PAGE>
FARREL CORPORATION
25 Main Street, Ansonia, Connecticut 06401
THE PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The
undersigned hereby appoints Peter Hess and Catherine Boisvert, and each
of them, as proxies, with full powers of substitution, and hereby
authorizes them to represent and vote as designated on the reverse hereof,
all shares of common stock of Farrel Corporation (the "Company") held of
record by the undersigned on April 29, 1997 at the Annual Meeting of
Stockholders of the Company to be held on May 23, 1997 or any adjournment
thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN, THIS
PROXY WILL BE VOTED "FOR" ALL PROPOSALS.
PLEASE VOTE, DATE AND SIGN ON OTHER SIDE
AND RETURN PROMPTLY IN ENCLOSED ENVELOPE
Please sign this proxy exactly as your name appears on the reverse side of this
card. If a corporation, please sign in full corporate name by president or
other authorized person. When signing as trustee, please give full title as
such.
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
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