FAFCO, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
May 4, 2000
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 4, 2000 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, 2000.
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 10, 2000 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 12, 2000
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 4, 2000 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 12, 2000
to all shareholders entitled to vote at the meeting.
Record Date and Outstanding Shares
Shareholders of record at the close of business on March 10, 2000 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting.
As of the Record Date, the Company had 692 shareholders of record.
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
willreimburse 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 13, 2000 (120 calendar days prior to the anniversary of the
mailing date of this proxy statement) 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 26, 2001
(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 2001 annual meeting.
The 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
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, 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.
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(*) 61 Senior Vice President and
Chief Financial 1974
Officer of the Electric
Power Research Institute,
an energy industry research
consortium
Robert W. Selig, Jr.(*) 60 President of Davis
Instruments Corporation, 1974
a manufacturer and distributor
of marine and weather equipment
William F. Chisholm 31 Management Consultant at
Bain & Company, 1999
an international strategy
consulting firm
David F. Ford 32 President of Danger! Books,
a book publisher 1999
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 1996, Mr. Chisholm attended Wharton Business
Schoolwhere he received a Master of Business Administration degree. Since
joiningBain & 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 2,072,096(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 86,334(5) 2.6%
Robert W. Selig, Jr. 48,528(6) 1.5%
William A. Berry 22,500(7) *
William F. Chisholm 2,000(8) *
David F. Ford 68,350(9) 2.0%
</TABLE>
All current directors and executive officers as a 2,439,025(10) 63.5%
group (8 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
Freeman 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 Freeman Ford and his spouse, (iii) 78,250 shares
issuable upon exercise of options held by Freeman Ford exercisable
within 60 days of the Record Date, and (iv) 240,000 shares issuable
upon exercise of outstanding warrants held by Freeman Ford exercisable
within 60 days of the Record Date.
(4) Includes (i) 84,764 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 72,085 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 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) Consists of 2,000 shares issuable upon exercise of outstanding options
exerciseable within 60 days of the Record Date by Mr. Chisholm.
(9) Includes (i) 49,688 shares issuable upon exercise of outstanding
warrants held by David F. Ford exercisable within 60 days of the record
date and (ii) 2,000 shares issuable upon exercise of outstanding options
held by David Ford exerciseable within 60 days of the Record Date.
(10) Includes (i) 262,959 shares issuable upon exercise of outstanding options
exercisable within 60 days of the Record Date held by four executive
officers (one of whom is also a director), (ii) 34,000 shares issuable
upon exercise of outstanding options exercisable within 60 days of the
Record Date held by four outside directors, and (iii) 240,000 shares
issuable upon exercise of warrants held by 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 57.2% 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. Freeman 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. In addition, Freeman Ford, his son and his son-in-law
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, 1999, 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, 1999 (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. Messrs. William Chisholm and David F. Ford
each attended two of the three meetings of the Board of Directors held
during the Last Fiscal Year. During the Last Fiscal Year, no other 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 who received salary and bonus compensation of $100,000 or
more in the Last Fiscal Year (collectively, the "Named Executive Officers").
Summary Compensation Table
<TABLE>
Long-Term
Annual Compensation Compensation Awards
Name and Other Annual Securities
Principal Compansation Underlying All Other
<S> <C> <C> <C> <C> <C> <C>
Position Year Salary($) Bonus($) ($)(1) Options(#) Compensation($)
Freeman A. 1999 155,793 4,569 - 25,000 1,662 (2)
Ford 1998 147,525 52,569 - 0 1,662 (2)
Chairman of 1997 123,302 77,031 - 0 1,705 (2)
the Board,
President and ChiefExecutive Officer
Alex N. 1999 131,779 3,865 - 25,000 2,218 (2)
Watt 1998 122,978 51,771 - 0 2,218 (2)
Executive 1997 117,000 64,110 - 0 2,218 (2)
Vice
President
David K. 1999 131,779 3,865 - 25,000 494 (2)
Harris 1998 131,360 43,771 - 0 414 (2)
Vice 1997 117,000 72,106 - 0 370 (2)
President,
Pool Products
</TABLE>
(1) Under applicable SEC rules, perquisites are excluded if the aggregate
value is less than the lesser of $50,000 or 10% of the executive
officer's salary plus bonus.
(2) Represents life insurance premiums paid by the Company on behalf of
Messrs. Ford, Watt, and Harris.
The following table sets forth each grant of stock options made during the
Last Fiscal Year to each Named Executive Officer:
Option Grants in Fiscal 1999
<TABLE>
Individual Grants
Number of % of Total Potential Realizable
Securities Options Value at Assumed
Underlying Granted to Exercise or Annual Rates of
Options Employees Base Price Expiration Stock Price
Appreciation for
Granted(#)(1) in 1999 ($/sh.) Date 5%($) 10%($)
Name
Freeman A.
<S> <C> <C> <C> <C> <C> <C>
Ford 25,000 29.4% $0.55 7/1/2009 $8,647 $21,914
Alex N.
Watt 25,000 29.4% 0.50 7/1/2009 $7,861 $19,922
David K.
Harris 25,000 29.4% 0.50 7/1/2009 $7,861 $19,922
</TABLE>
(1) All options were exercisable as to all underlying shares as of the date
of grant, and were granted to replace options whose terms had expired.
(2) The dollar amounts under these columns are the result of calculations
at the 5% and 10% rates set by the SEC and therefore are not intended
to forecast the possible future appreciation, if any, of the Company's
stock price. The Company did not use an alternative formula for a grant
date valuation, as the Company does not believe that any formula will
determine with reasonable accuracy a present value based on future
unknown or volatile factors.
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 Value of
Securities Unexercised
Underlying In-The-Money
Unexercised Options/Warrants
Options/Warrants At Fiscal
Shares At Fiscal
Acquired Year-End(#) Year-End(#)
On Value Exercisable/ Exercisable/
<S> <C> <C> <C> <C>
Name Exercise(#) Realized Unexercisable Unexercisable
Freeman
A. Ford 0 N/A 310,250/8,000 $7,406.25/$1,000
Alex N.
Watt 0 N/A 80,764/8,000 $1,500/$1,000
David K.
Harris 0 N/A 68,085/8,000 $4,937.50/$1,000
</TABLE>
(1) Based on the last reported sale price for the Company's Common Stock for
the last trading day prior to 1999 fiscal year-end of $0.25, minus the ]
exercise price of the in-the-money 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 $4,000.
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 May 1999, Messrs. William Chisholm and David Ford
each received an automatic grant of a Director's Option to purchase 10,000
shares of Common Stock at $0.50, the fair market value on the 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, 2000. 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 2000 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 12, 2000
