<PAGE> 1
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
FAFCO, INC
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(Name of Registrant as Specified In Its Charter)
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(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:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] 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
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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<PAGE> 2
FAFCO, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
May 14, 1998
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of FAFCO, Inc., a
California corporation (the "Company"), will be held on Thursday, May 14, 1998
at 3:00 p.m., local time, at the Company's executive offices, 2690 Middlefield
Road, Redwood City, California 94063 (telephone (650) 363-2690) for the
following purposes:
1. To elect three (3) directors to serve for the ensuing year and
until their successors are elected.
2. To ratify the appointment of Burr, Pilger & Mayer as the
independent auditors of the Company for the fiscal year ending
December 31, 1998.
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy Statement
accompanying this Notice.
Only shareholders of record at the close of business on March 20, 1998 are
entitled to notice of, and to vote at, the meeting and any adjournment thereof.
All shareholders are cordially invited to attend the meeting in person. However,
to assure your representation at the meeting, you are urged to mark, sign, date
and return the enclosed proxy card as promptly as possible in the postage
prepaid envelope enclosed for that purpose. Any shareholder attending the
meeting may vote in person even if such shareholder returned a proxy.
Sincerely,
Alex N. Watt, Secretary
Redwood City, California
April 6, 1998
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<PAGE> 3
FAFCO, INC.
PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of FAFCO, Inc. (the "Company") for use
at the Annual Meeting of Shareholders of the Company (the "Annual Meeting") to
be held on Thursday, May 14, 1998 at 3:00 p.m. local time, or at any adjournment
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting of Shareholders. The Annual Meeting will be held at the Company's
principal executive offices, 2690 Middlefield Road, Redwood City, California.
Its telephone number at that address is (650) 363-2690.
These proxy solicitation materials were mailed on or about April 6, 1998 to all
shareholders entitled to vote at the meeting.
RECORD DATE AND OUTSTANDING SHARES
Shareholders of record at the close of business on March 20, 1998 (the "Record
Date") are entitled to notice of and to vote at the Annual Meeting.
At the Record Date, 3,303,311 shares of the Company's Common Stock, $0.125 par
value, were issued and outstanding. The only person known by the Company to be
the beneficial owner of more than 5% of the Company's Common Stock as of the
Record Date was Freeman A. Ford. See "ELECTION OF DIRECTORS - Security
Ownership."
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company a written
notice of revocation or a duly executed proxy bearing a later date or by
attending the meeting and voting in person.
VOTING AND SOLICITATION
Every shareholder voting in the election of directors may cumulate such
shareholder's votes and give one candidate a number of votes equal to the number
of directors to be elected (three) multiplied by the number of shares held by
such shareholder, or distribute such number of votes on the same principle among
as many candidates as the shareholder thinks fit, provided that votes cannot be
cast for more than the number of directors to be elected. However, no
shareholder shall be entitled to cumulate votes for a candidate unless such
candidate's name has been properly placed in nomination prior to the voting and
the shareholder, or any other shareholder, has given notice at the meeting prior
to the voting of the intention to cumulate votes. On all other matters, each
share has one vote.
The cost of this solicitation will be borne by the Company. The Company will
reimburse brokerage firms and other persons representing beneficial owners of
shares for their expenses in forwarding solicitation material to such beneficial
owners in accordance with applicable regulations. Proxies may also be solicited
by certain of the Company's directors, officers and regular employees, without
additional compensation, personally or by telephone, telegram or electronic
mail.
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<PAGE> 4
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The required quorum for the transaction of business at the Annual Meeting is a
majority of the shares of Common Stock issued and outstanding on the Record
Date. Shares that are voted "FOR", "AGAINST" or "WITHHELD FROM" a matter are
treated as being present at the meeting for purposes of establishing a quorum
and are also treated as shares "represented and voting" at the Annual Meeting
(the "Votes Cast") with respect to such matter.
While there is no definitive statutory or case law authority in California as to
the proper treatment of abstentions, the Company believes that abstentions
should be counted for purposes of determining the presence or absence of a
quorum for the transaction of business, but should not be counted as Votes Cast
with respect to a proposal since the shareholder has expressly declined to vote
on such proposal. Similarly, broker non-votes will be counted for purposes of
determining the presence or absence of a quorum for the transaction of business,
but will not be counted for purposes of determining the number of Votes Cast
with respect to a proposal on which the broker has expressly not voted.
Accordingly, abstentions and broker non-votes will not affect the outcome of the
voting on a proposal that requires a majority of the Votes Cast.
SHAREHOLDER PROPOSALS
Proposals of shareholders of the Company that are intended to be presented by
such shareholders at the Company's next Annual Meeting of Shareholders must be
received by the Company no later than December 7, 1998 in order to be considered
for possible inclusion in the Company's proxy statement and form of proxy
relating to that meeting.
PROPOSAL 1
ELECTION OF DIRECTORS
NOMINEES
A Board of three directors is proposed to be elected at the meeting. Unless
otherwise instructed, the proxy holders will vote the proxies received by them
for the Company's three nominees named below, all of whom are currently
directors of the Company. In the event that any nominee of the Company is unable
or declines to serve as a director at the time of the Annual Meeting of
Shareholders, the proxies will be voted for any nominee who shall be designated
by the current Board of Directors to fill the vacancy. In the event that
additional persons are nominated for election as directors, the proxy holders
intend to vote all proxies received by them in such a manner in accordance with
cumulative voting (if it is invoked) as will assure the election of as many of
the nominees listed below as possible, and, in such event, the specific nominees
to be voted for will be determined by the proxy holders. It is not expected that
any nominee will be unable or will decline to serve as a director. The term of
office of each person elected as a director will continue until the next Annual
Meeting of Shareholders or until his successor has been elected and qualified.
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<PAGE> 5
The names of the nominees, and certain information about them, are set forth
below.
<TABLE>
<CAPTION>
DIRECTOR
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
--------------- --- -------------------- -----
<S> <C> <C> <C>
Freeman A. Ford 57 Chairman of the Board, President and Chief 1972
Executive Officer of the Company
William A. Berry 59 Senior Vice President and Chief Financial 1974
Officer of the Electric Power Research
Institute, an energy industry research
consortium
Robert W. Selig, Jr. 58 President of Davis Instruments Corporation, 1974
a manufacturer and distributor of marine and
weather equipment
</TABLE>
Except as set forth below, each of the nominees has been engaged in his
principal occupation set forth above during the past five years. There is no
family relationship between any directors or executive officers of the Company.
Mr. Ford is also a director of H.B. Fuller Company.
From April 1992 to May 1996, Mr. Berry served as Senior Vice President and Chief
Financial Officer of Compression Labs, Inc., a supplier of video-conferencing
equipment. In May 1996, Mr. Berry joined the Electric Power Research Institute,
an energy industry research consortium, as Senior Vice President and Chief
Financial Officer.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR EACH OF THE
COMPANY'S NOMINEES FOR DIRECTOR.
VOTE REQUIRED
The three nominees receiving the highest number of affirmative votes of the
shares entitled to be voted for them shall be elected as directors. Votes
withheld from any director are counted for purposes of determining the presence
or absence of a quorum, but have no other legal effect under California law.
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<PAGE> 6
SECURITY OWNERSHIP
The following table sets forth the beneficial ownership of Common Stock of the
Company as of the Record Date by (1) each person known by the Company to
beneficially own more than 5% of the Company's Common Stock, (2) each director,
(3) the current executive officers of the Company named in the Summary
Compensation Table below (the "Named Executive Officers"), and (4) all current
directors and executive officers as a group:
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED
------------------
NUMBER OF PERCENT OF TOTAL
NAME OF BENEFICIAL OWNER SHARES(1) (2)
- ------------------------ --------- ----------------
<S> <C> <C>
Freeman A. Ford 2,095,033(3) 57.5%
c/o FAFCO, Inc.
2690 Middlefield Road
Redwood City, California 94063
Alex N. Watt 100,950(4) 3.0%
David K. Harris 78,334(5) 2.3%
Robert W. Selig, Jr. 48,528(6) 1.5%
William A. Berry 22,500(7) *
All current directors and executive officers as a 2,345,345(8) 61.4%
group (5 persons)
</TABLE>
- ----------
* Less than 1%.
(1) Except as otherwise indicated in the footnotes to this table or as
otherwise provided by community property laws, the beneficial owner has
sole voting and investment power with respect to all shares.
(2) Based on 3,303,311 shares of Common Stock outstanding as of the Record
Date.
(3) Includes (i) 298,000 shares held of record by trusts for the benefit of
Mr. Ford's children for which he and his spouse serve as trustees and as
to which shares he disclaims beneficial ownership, (ii) 209,344 shares
jointly owned by Mr. Ford and his spouse, (iii) 30,937 shares issuable
upon conversion of a promissory note held by Mr. Ford's daughter, as to
which he disclaims beneficial ownership, (iv) 70,250 shares issuable
upon exercise of options held by Mr. Ford exercisable within 60 days of
the Record Date, and (v) 240,000 shares issuable upon exercise of
outstanding warrants held by Mr. Ford exercisable within 60 days of the
Record Date.
(4) Includes (i) 80,764 shares issuable upon exercise of outstanding options
exercisable within 60 days of the Record Date held by Mr. Watt and (ii)
1,000 shares held by Mr. Watt and Sandra S. Watt as joint tenants.
(5) Includes 64,085 shares issuable upon exercise of outstanding options
exercisable within 60 days of the Record Date held by Mr. Harris.
(6) Includes (i) 15,000 shares issuable upon exercise of outstanding options
exercisable within 60 days of the Record Date held by Mr. Selig, and
(ii) 5,700 shares held by trusts for the benefit of Mr. Selig's
children, as to which shares he disclaims beneficial ownership.
(7) Includes 15,000 shares issuable upon exercise of outstanding options
exercisable within 60 days of the Record Date held by Mr. Berry.
(8) Includes (i) 215,099 shares issuable upon exercise of outstanding
options exercisable within 60 days of the Record Date held by three
executive officers (one of whom is also a director), (ii) 30,000 shares
issuable upon exercise of outstanding options exercisable within 60 days
of the Record Date held by two outside directors,
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<PAGE> 7
(iii) 240,000 shares issuable upon exercise of warrants held
by a director who is also an executive officer, and (iv)
30,397 shares issuable upon conversion of a promissory note
held by the daughter of a director who is also an executive
officer.
By virtue of his position as Chairman of the Board, President and Chief
Executive Officer of the Company and his beneficial ownership of approximately
57.5% of the Company's Common Stock as of the Record Date, Freeman A. Ford may
be deemed to be a "parent" and/or "control person" of the Company within the
meaning of the rules and regulations promulgated under the Securities Act of
1933, as amended. Mr. Ford can elect a majority of the Board of Directors and
controls any shareholder vote that does not require a supermajority with respect
to which his shares are eligible to be voted.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on its review of the copies of Forms 3, 4 and 5 received by the
Company, or written representations from certain reporting persons that no Forms
5 were required for such persons, the Company believes that, during the fiscal
year ended December 31, 1997, all filing requirements under Section 16(a) of the
Securities Exchange Act applicable to its officers, directors and 10%
shareholders were complied with.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of three (3) meetings during
the year ended December 31, 1997 (the "Last Fiscal Year").
The Audit Committee of the Board of Directors, which currently consists of
outside directors Berry and Selig, held two (2) meetings during the Last Fiscal
Year. This Committee recommends engagement of the Company's independent
accountants and is primarily responsible for approving the services performed by
the Company's independent accountants and for reviewing and evaluating the
Company's accounting principles and its system of internal accounting controls.
There is no compensation committee or nominating committee or any committee
performing those functions. During the Last Fiscal Year, no director attended
fewer than 75% of the aggregate of the meetings of the Board of Directors and
the committees on which such director served.
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<PAGE> 8
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation paid
by the Company for services rendered during the Last Fiscal Year to the Company
by the Chief Executive Officer and the other Named Executive Officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------------------------- -------------------------------
AWARDS
OTHER ANNUAL SECURITIES
NAME AND COMPENSATION UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($) (2) OPTIONS(#) COMPENSATION($)
- ---------------------------- ---------- ---------- ---------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Freeman A. Ford 1997 $ 123,302 $ 77,031 -- 0 $ 1,705(1)
Chairman of the Board, 1996 105,805 35,459 -- 57,250 1,748(1)
President and Chief 1995 115,211 0 -- 0 2,582(1)
Executive Officer
Alex N. Watt 1997 117,000 64,110 -- 0 2,218(1)
Vice President, Finance and 1996 109,333 4,992 -- 47,950 2,403(1)
Administration, and Chief 1995 106,047 0 -- 0 2,218(1)
Financial Officer
David K. Harris 1997 117,000 72,106 -- 0 370(1)
Vice President, 1996 114,392 5,193 -- 47,950 332(1)
Pool Products 1995 107,207 0 -- 0 296(1)
</TABLE>
- ----------
(1) Represents life insurance premiums paid by the Company on behalf of
Messrs. Ford, Watt, and Harris.
(2) Under applicable SEC rules, perquisites are excluded if the aggregate
value is less than the lesser of $50,000 or 10% of the executive
officer's salary plus bonus.
No stock options were granted to Named Executive Officers during the Last Fiscal
Year.
-6-
<PAGE> 9
The following table sets forth information regarding the value
of all unexercised stock options and warrants held by the Named Executive
Officers as of the end of the last Fiscal Year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION AND WARRANT VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING UNEXERCISED THE-MONEY
OPTIONS/WARRANTS AT OPTIONS/WARRANTS AT
FISCAL YEAR-END(#) FISCAL YEAR-END($)(1)
SHARES ACQUIRED VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) ($) UNEXERCISABLE UNEXERCISABLE
- ----------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Freeman A. Ford 0 N/A 306,250/16,000 $182,031/10,000
Alex N. Watt 0 N/A 76,764/12,000 28,718/7,500
David K. Harris 0 N/A 64,085/16,000 26,219/10,000
</TABLE>
- ----------
(1) Based on the last reported sale price for the Company's Common Stock for
the last trading day prior to 1997 fiscal year-end of $0.75, minus the
exercise price of the option or warrant.
DIRECTOR COMPENSATION
Directors who are not employees of the Company are entitled to receive
directors' fees in the amount of $750 for each board meeting attended and $750
for each committee meeting attended, provided that such committee meeting is
held on a different day than that of the board meeting. Directors who are not
employees of the Company are also entitled to an annual retainer of $2,500.
The Board of Directors has adopted and the shareholders of the Company have
approved the 1991 Directors' Stock Option Plan (the "Directors' Plan") pursuant
to which each non-employee director of the Company is automatically granted a
nonstatutory stock option to purchase 10,000 shares (a "Director's Option") on
the later to occur of the date of adoption of the Plan (April 15, 1991) or the
date of his or her appointment or election to the Board. Each Director's Option
has a term of ten years and becomes exercisable as to 20% of the shares subject
thereto on each anniversary date of its grant. In addition, in April 1993,
Messrs. Berry and Selig were each granted options to purchase 5,000 shares of
Common Stock at an exercise price of $0.50 per share. Such warrants become
exercisable as to 20% of the shares on the first, second, third, fourth and
fifth anniversaries of date of grant.
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected Burr, Pilger & Mayer,
independent auditors, to audit the financial statements of the Company for the
fiscal year ending December 31, 1998. Burr, Pilger & Mayer audited the Company's
financial statements for the Last Fiscal Year. If the shareholders do not ratify
the appointment of Burr, Pilger & Mayer, the selection of independent auditors
will be reconsidered by the Board of Directors. Representatives of Burr, Pilger
& Mayer are expected to be present at the meeting, will have the opportunity to
make a statement if they desire to do so, and are expected to be available to
respond to appropriate questions.
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<PAGE> 10
On December 11, 1996, the Company dismissed Price Waterhouse
LLP as its independent accountants. The reports of Price Waterhouse LLP on the
financial statements of the Company for 1994 and 1995 contain no adverse opinion
or disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles. In connection with its audits for the 1994
and 1995 fiscal years and service as outside accountants through December 11,
1996, there were no disagreements with Price Waterhouse LLP on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements if not resolved to the satisfaction of
Price Waterhouse LLP would have caused them to make reference thereto in their
report on the financial statements for such years. During 1994, 1995 and 1996
(through December 11, 1996) there were no "reportable events" within the meaning
of applicable SEC rules. The Company's Audit Committee and Board of Directors
participated in and approved the decision to change independent accountants.
As described in Note 2 to the Financial Statements in the
Company's 1997 Annual Report to Shareholders, the Company has changed its
inventory accounting principle from LIFO to FIFO, after discussions with Burr,
Pilger & Mayer as to the appropriate method.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE
APPOINTMENT OF BURR, PILGER & MAYER AS THE COMPANY'S AUDITORS FOR FISCAL 1998
AND RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THIS PROPOSAL.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If any
other matters properly come before the meeting, it is the intention of the
persons named in the enclosed proxy card to vote the shares they represent as
the Board of Directors may recommend.
THE BOARD OF DIRECTORS
Dated: April 6, 1998
-8-
<PAGE> 11
THE PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FAFCO, INC.
PROXY FOR 1998 ANNUAL MEETING OF SHAREHOLDERS -- MAY 14, 1998
The undersigned shareholder of FAFCO, Inc. (the 'Company') hereby
acknowledges receipt of the Notice of Annual Meeting of Shareholders and Proxy
Statement for the 1998 Annual Meeting of Shareholders of the Company to be held
on May 14, 1998 at 3:00 p.m., local time, at the Company's principal place of
business, 2690 Middlefield Road, Redwood City, California 94063 (telephone (650)
363-2690), and hereby revokes all previous proxies and appoints Freeman A. Ford
and Alex N. Watt, or either of them, with full power of substitution, as Proxies
and Attorneys-in-Fact, on behalf and in the name of the undersigned, to vote and
otherwise represent all of the shares registered in the name of the undersigned
at said Annual Meeting, or any adjournment thereof, with the same effect as if
the undersigned were present and voting such shares, on the matters and in the
manner specified on the reverse side:
The shares represented by this Proxy will be voted in accordance with the
specifications made. If no specification is made, the shares represented by this
Proxy will be voted for each of the nominees and the proposal listed below and
will be voted on such other matters as may properly come before the meeting as
the proxyholders deem advisable.
(1) Election of Directors
Nominees: Freeman A. Ford, William A. Berry, Robert W. Selig, Jr.
[ ] FOR ALL NOMINEES [ ] WITHHELD FROM ALL NOMINEES
[ ] FOR ALL NOMINEES EXCEPT ANY WHOSE NAME IS CROSSED OUT ABOVE.
(Continued and to be signed on reverse side)
<PAGE> 12
(continued from the other side)
(2) Proposal to ratify the appointment of Burr, Pilger & Mayer as the
independent auditors of the Company for the fiscal year ending December
31, 1998. [ ] FOR [ ] AGAINST [ ] ABSTAIN
In their discretion, the Proxies are entitled to vote as they deem advisable
upon such other matters as may properly come before the meeting or any
adjournments thereof.
Dated , 1998
-------------------------------
Signature of Stockholder
-------------------------------
Signature of Co-Owner
I plan to attend the meeting: [
]
(This proxy should be marked,
dated and signed by each
shareholder exactly as such
shareholder's name appears
hereon, and returned promptly
in the enclosed envelope.
Persons signing in a fiduciary
capacity should so indicate. A
corporation or other entity is
requested to sign its name by
its President or other
authorized officer, with the
office held designated. If
shares are held by joint
tenants or as community
property, both holders should
sign.)
TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE MARK, SIGN AND DATE
THIS PROXY AND RETURN IT AS PROMPTLY AS POSSIBLE.
