FAFCO, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
May 6, 1999
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 6, 1999 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 five (5) 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, 1999.
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 12, 1999
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 8, 1999
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 6, 1999 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 8, 1999
toall shareholders entitled to vote at the meeting.
Record Date and Outstanding Shares
Shareholders of record at the close of business on March 12, 1999 (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 (five) 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, telecopy or electronic mail.
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 and that such shareholders desire to have included in the
Company's proxy statement relating to such meeting must be received by the
Company no later than December 9, 1999 in order to be considered for possible
inclusion in the Company's proxy statement and form of proxy relating to that
meeting.
If a shareholder wishes to present a proposal at the Company's annual
meeting in the year 2000 and the proposal is not intended to be included in
the Company's proxy statement relating to that meeting, the shareholder must
give advance notice to the Company prior to February 22, 2000 (45 calendar
days prior to the anniversary of the mailing date of this proxy statement) in
order to be timely. If a shareholder gives notice of such a proposal after
that deadline, the Company's proxy holders will be allowed to use their
discretionary voting authority to vote against the shareholder proposal when
and if the proposal is raised at the Company's year 2000 annual meeting.
he Company has not been notified by any shareholder of his or her intent
to present a shareholder proposal from the floor at this year's Annual
Meeting. The enclosed proxy card grants the proxy holders discretionary
authority to vote on any matter properly brought before the Annual Meeting.
PROPOSAL 1
ELECTION OF DIRECTORS
Nominees
Effective as of the Annual Meeting, the Board of Directors has amended
the Bylaws of the Company to increase the number of directors from three to
five. Accordingly, a Board of five 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 five nominees named below, of whom
Messrs. Freeman A. Ford, William A. Berry and Robert W. Selig, Jr. are
currently directors of the Company. The Company has decided to expand the
size of its Board from three to five members to conform more closely to
industry norms, and Messrs. William F. Chisholm and David F. Ford are
nominated to fill the new Board positions. 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.
The names of the nominees, and certain information about them, are set
forth below.
<TABLE>
DIRECTOR
<S> <C> <C> <C>
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION SINCE
Freeman A. Ford 59 Chairman of the Board,
President and Chief 1972
Executive Officer of the Company
William A. Berry(*) 60 Senior Vice
President and Chief Financial 1974
Officer of the Electric Power
Research Institute, an energy
industry research consortium
Robert W. Selig, Jr.(*) 59 President
of Davis Instruments Corporation, 1974
a manufacturer and distributor
of marine and weather equipment
William F. Chisholm 30 Management Consultant
at Bain & Company, Nominee
an international strategy
consulting firm
David F. Ford 31 President of Danger! Books,
a book publisher Nominee
and distributor
</TABLE>
(*) Member of Audit Committee
Except as set forth below, each of the nominees has been engaged in his
principal occupation set forth above during the past five years. Except as
set forth below, there is no family relationship between any directors,
director nominees or executive officers of the Company.
Mr. Freeman 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.
From January 1994 to August 1994, Mr. Chisholm served as Chief Financial
Officer of International Sports Publishing, a newspaper publisher. From
January 1994 to August 1996, Mr. Chisholm attended Wharton Business School
where he received a Master of Business Administration degree. Since joining
Bain & Company, an international strategy consulting firm, in August 1996,
Mr. Chisholm has served as a management consultant. Mr. Chisholm is the
son-in-law of Mr. Freeman A. Ford, Chairman of the Board, President and
Chief Executive Officer of the Company.
From February 1993 to January 1995, Mr. David Ford served as Managing
Editor of Beach Magazine, an outdoor recreation-focused publication. In
February 1995, Mr. David Ford joined the H.B. Fuller Company as a
Communications Specialist and served in that capacity until May 1997, after
which Mr. David Ford assumed the position of Marketing Analyst, and remained
in that capacity until May 1998. Since February 1996, Mr. David Ford has
managed and served as President of Danger! Books, a book publisher and
distributor. Mr. David Ford is the son of Mr. Freeman A. Ford, Chairman of
the Board, President and Chief Executive Officer of the Company.
Recommendation
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR EACH OF THE
COMPANY'S NOMINEES FOR DIRECTOR.
Vote Required
The five 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.
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 and nominee for 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>
Shares of Common Stock
Beneficially Owned
Number of Percent of
<S> <C> <C>
Name of Beneficial Owner Shares(1) Total(2)
Freeman A. Ford 2,068,096(3) 57.2%
c/o FAFCO, Inc.
2690 Middlefield Road
Redwood City, California 94063
Alex N. Watt 104,950(4) 3.1%
David K. Harris 82,334(5) 2.4%
Robert W. Selig, Jr. 48,528(6) 1.5%
William A. Berry 22,500(7) *
William F. Chisholm ? ?
David F. Ford 65,050(8) 1.9%
All current directors and executive 2,326,408(9) 61.3%
officers as a group (5 persons)
* 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 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) 74,250 shares issuable
upon exercise of options held by Mr. Ford exercisable within 60 days of
the Record Date, and (iv) 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 68,085 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 49,688 shares issuable upon exercise of outstanding warrants
held by David F. Ford exercisable within 60 days of the record date.
(9) Includes (i) 223,099 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, and (iii) 240,000 shares
issuable upon exercise of warrants held by a director who is also an
executive officer. Does not include shares, options or warrants held by
the director nominees.
By virtue of his position as Chairman of the Board, President and Chief
Executive Officer of the Company and his beneficial ownership of approximately
57.2% 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. If the Company's
nominees for director are all elected, Freeman Ford, his son and his
son-in-law will comprise three out of five directors of the Company.
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, 1998, 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, 1998 (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.
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 executive
officers of the Company (collectively, the "Named Executive Officers").
Summary Compensation Table
Annual Compensation
</TABLE>
<TABLE>
Long-Term
Compensation
Awards
Name and Other Securities
Principal Annual Underlying All Other
<S> <C> <C> <C> <C> <C> <C>
Position Year Salary Bonus Compensation Options Compensation
($)(1) ($) ($) ($)(1) (#) ($)(2)
Freeman A. 1998 $147,525 $52,569 -- 0 $1,662
Ford
Chairman of 1997 $123,302 $77,031 -- 0 $1,705
the Board,
President 1996 $105,805 $35,459 -- $57,250 $1,748
and Chief
Executive
Officer
Alex N. Watt 1998 $122,978 $51,771 -- 0 $2,218
Vice
President, 1997 $117,000 $64,110 -- 0 $2,218
Finance
and 1996 $109,333 $ 4,992 -- $47,950 $2,403
Administration
and
Chief
Financial
Officer
David K. 1998 $131,360 $43,771 -- 0 $ 414
Harris
Vice 1997 $117,000 $72,106 -- 0 $ 370
President,
Pool 1996 $114,392 $ 5,193 -- $47,950 $ 332
Products
</TABLE>
(1) Under applicable SEC rules, perquisites are excluded if the aggregate
value is less than the lesser of $50,000 or 10% of the executive officer's
salary plus bonus.
(2) Represents life insurance premiums paid by the Company on behalf of
Messrs. Ford, Watt, and Harris.
No stock options were granted to Named Executive Officers during the Last
Fiscal Year.
The following table sets forth information regarding the value of all
unexercised stock options and warrants held by the Named Executive Officers
as of the end of the last Fiscal Year.
Aggregated Option Exercises In Last Fiscal Year And
Fiscal Year-End Option And Warrant Values
<TABLE>
Number of
Securities Value of
Underlying Unexercised
Shares Unexercised In-The-Money
Aquired Options/Warrants Options/Warrants
On Exercise Value At Fiscal At Fiscal
<S> <C> <C> <C> <C>
Name (#) Realized Year-end (#) Year-end ($) (1)
Exercisable/ Exercisable/
Unexercisable Unexercisable
Freeman
A. Ford 0 N/A 310,250/12,000 $0/0
Alex N.
Watt 0 N/A 76,764/12,000 $0/0
David K.
Harris 0 N/A 64,085/12,000 $0/0
</TABLE>
(1) Based on the last reported sale price for the Company's Common Stock for
the last trading day prior to 1998 fiscal year-end of $0.125, 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 options become exercisable as to 20% of the shares on the first, second,
third, fourth and fifth anniversaries of date of grant.
If Messrs. William Chisholm and David Ford are elected as directors,
they will each receive an automatic grant of a Director's Option to purchase
10,000 shares of Common Stock at the fair market value on the date of the
Annual Meeting.
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, 1999. 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.
Recommendation
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE APPOINTMENT OF BURR,
PILGER & MAYER AS THE COMPANY'S AUDITORS FOR FISCAL 1999 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 8, 1999
