-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F0zFOVvCr7O/l8K54gW1P7/f6P1e9CoCXWgyrQ6nH851xXWyuWnZ9DCsAuUHOSmA OZ0f0e1dodbX2FspAZCetw== 0000912057-00-016129.txt : 20000405 0000912057-00-016129.hdr.sgml : 20000405 ACCESSION NUMBER: 0000912057-00-016129 CONFORMED SUBMISSION TYPE: SC 14D9 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20000404 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: FARR CO CENTRAL INDEX KEY: 0000034629 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT, NEC [3569] IRS NUMBER: 951288401 STATE OF INCORPORATION: DE FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: SC 14D9 SEC ACT: SEC FILE NUMBER: 005-11029 FILM NUMBER: 593596 BUSINESS ADDRESS: STREET 1: 2201 PARK PLACE CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: (310) 727- MAIL ADDRESS: STREET 1: PO BOX 92187 STREET 2: AIRPORT STATION CITY: LOS ANGELES STATE: CA ZIP: 90009-2187 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: FARR CO CENTRAL INDEX KEY: 0000034629 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT, NEC [3569] IRS NUMBER: 951288401 STATE OF INCORPORATION: DE FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: SC 14D9 BUSINESS ADDRESS: STREET 1: 2201 PARK PLACE CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: (310) 727- MAIL ADDRESS: STREET 1: PO BOX 92187 STREET 2: AIRPORT STATION CITY: LOS ANGELES STATE: CA ZIP: 90009-2187 SC 14D9 1 SC 14D9 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ SCHEDULE 14D-9 SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934 FARR COMPANY (Name of Subject Company) FARR COMPANY (Name of Person Filing Statement) COMMON STOCK, $0.10 PAR VALUE (INCLUDING THE ASSOCIATED COMMON SHARE PURCHASE RIGHTS) (Title of Class of Securities) 311648 109 (COMMON STOCK) (CUSIP Number of Class of Securities) ------------------------ STEPHEN E. PEGG SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER FARR COMPANY 2201 PARK PLACE EL SEGUNDO, CA 90245 (310) 727-6300 (Name, Address and Telephone Number of Person Authorized to Receive Notice and Communications on Behalf of the Person Filing Statement) COPY TO: ROBERT K. MONTGOMERY, ESQ. GIBSON, DUNN & CRUTCHER, LLP 2029 CENTURY PARK EAST, SUITE 4000 LOS ANGELES, CA 90067 (310) 552-8500 / / Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ITEM 1. SUBJECT COMPANY INFORMATION. The name of the subject company is Farr Company, a Delaware corporation (the "Company"). The address of the principal executive offices of the Company is 2201 Park Place, El Segundo, CA 90245. The telephone number of the Company at its principal executive offices is (310) 727-6300. The title of the class of equity securities to which this Solicitation/Recommendation Statement on Schedule 14D-9 (this "Statement") relates is the Common Stock, par value $0.10 per share, of the Company (the "Common Stock") and the associated common share purchase rights (the "Rights") issued pursuant to the Rights Agreement, dated as of April 3, 1989, between the Company and Chase Mellon Shareholder Services, L.L.C. (successor rights agent to Security Pacific National Bank), as Rights Agent, as amended by the First Amendment thereto, dated as of March 23, 1999, and the Second Amendment thereto, dated as of March 26, 2000 (as amended, the "Rights Agreement"). As of March 24, 2000, there were 7,294,519 shares of Common Stock outstanding and there were 697,200 shares of Common Stock reserved for issuance under then-current outstanding stock options pursuant to the Company's stock option and incentive plans. ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSONS. The filing person is the subject company. The Company's name, business address and business telephone number are set forth in Item 1 above. This Statement relates to the tender offer by Ratos Acquisition Corp. (the "Purchaser"), a Delaware corporation and a wholly owned subsidiary of Forvaltnings AB Ratos (publ.), a Swedish corporation ("Parent"), to purchase all of the outstanding shares of Common Stock and the associated Rights (the shares of Common Stock together with any associated Rights are referred to in this Statement as the "Shares"), at a purchase price of $17.45 per Share, net to the seller in cash (the "Offer Price"), upon the terms and subject to the conditions set forth in the Purchaser's Offer to Purchase, dated April 4, 2000, and in the related Letter of Transmittal (which, together with any amendments or supplements thereto, collectively constitute the "Offer"). The Offer is described in a Tender Offer Statement on Schedule TO (as amended or supplemented from time to time, the "Schedule TO"), filed by Parent and the Purchaser with the Securities and Exchange Commission (the "Commission") on April 4, 2000. The Offer is being made in accordance with the Agreement and Plan of Merger, dated as of March 26, 2000, among Parent, the Purchaser and the Company (the "Merger Agreement"). The Merger Agreement provides that, subject to the satisfaction or waiver of certain conditions, following completion of the Offer, and in accordance with the General Corporation Law of the State of Delaware (the "DGCL"), the Purchaser will be merged with and into the Company (the "Merger"). Following the consummation of the Merger, the Company will continue as the surviving corporation (the "Surviving Corporation") and will be a wholly owned subsidiary of Parent. As more fully described in Item 3 below, at the effective time of the Merger (the "Effective Time"), each issued and outstanding Share (other than Shares owned by Parent, the Purchaser, any of their respective subsidiaries, the Company or any of its subsidiaries, which will be cancelled, and Shares, if any, held by stockholders who did not vote in favor of the Merger Agreement and who comply with all of the relevant provisions of Section 262 of the DGCL relating to dissenters' rights of appraisal) will be converted into the right to receive $17.45 in cash or any greater amount per Share paid pursuant to the Offer (the "Merger Consideration"). The Schedule TO states that the principal executive offices of Purchaser and Parent are located at Drottninggatan 2, SE-111 96, Stockholm, Sweden (telephone number: +46-8-700-17-00). ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS. Certain contracts, agreements, arrangements or understandings between the Company or its affiliates and certain of its directors and executive officers are, except as noted below, described in the Information Statement pursuant to Rule 14f-1 under the Securities Exchange Act (the "Information Statement") that is attached as Annex B to this Statement and is incorporated herein by reference. Except as described in this Statement (including in the Exhibits hereto and in Annex B hereto) or incorporated herein by reference, to the knowledge of the Company, as of the date of this Statement there exists no material agreement, arrangement or understanding or any actual or potential conflict of interest between the Company or its affiliates and (1) the Company's executive officers, directors or affiliates or (2) Parent, the Purchaser or the their respective executive officers, directors or affiliates. THE MERGER AGREEMENT. The summary of the Merger Agreement and the description of the conditions of the Offer contained in Sections 11 and 13, respectively, of the Offer to Purchase of Parent and the Purchaser, dated April 4, 2000 and filed as Exhibit (a)(1) to the Schedule TO, which is being mailed to stockholders together with this Statement, are incorporated herein by reference. Such summary and description are qualified in their entirety by reference to the Merger Agreement, which has been filed as Exhibit (e)(1) hereto and is incorporated herein by reference. EFFECTS OF THE OFFER AND THE MERGER UNDER COMPANY STOCK PLANS AND AGREEMENTS BETWEEN THE COMPANY AND ITS EXECUTIVE OFFICERS. The Merger Agreement provides that each outstanding option (whether vested or unvested) to purchase shares of Common Stock granted under any stock option or compensation plan or arrangement of the Company or its subsidiaries (collectively, the "Company Option Plans") will be cancelled and only entitle each holder thereof, and each holder thereof shall receive from the surviving corporation in the Merger, an amount in cash equal to, for each share with respect to such option, the excess, if any, of the Offer Price over the per share exercise price under such option, subject to withholding as required pursuant to applicable tax laws. The purchase of Shares pursuant to the Offer will constitute a "change of control" for purposes of the change-of-control employment agreements that the Company has entered into with Messrs. Richard Larson, Steve Pegg, and John Vissers. If Messrs. Larson, Pegg and Vissers were to be terminated other than "for cause" or if they were to have "good reason" to terminate their employment under their agreements, the Company would be obligated to pay them severance benefits to which they are entitled under the above agreements. In such case, the severance amounts payable to these individuals, assuming the Merger occurs on June 1, 2000, would be: Mr. Larson, $371, 944, Mr. Pegg $310,000 and Mr. Vissers, $226,977. If Messrs. Larson, Pegg or Vissers were to voluntarily terminate their employment with the Company, other than for "good reason," during the period between the six-month anniversary of the closing of the Offer and the one-year anniversary of the closing of the Offer, they would be entitled to receive from the Company as cash severance an amount equal to: Mr. Larson, $185,972, Mr. Pegg $155,000, and Mr. Vissers, $113,489. The severance amounts payable to the above individuals may be subject to adjustment per application of "excess parachute payment" regulations as defined in Section 280G of the Code pertaining to excise taxes. An Amended and Restated Employment Continuation Agreement was entered into as of March 27, 2000, effective as of the effective time of the Merger, by and between Mr. John C. Johnston and the Company, a copy of which is attached as Exhibit (e)(5) hereto. ITEM 4. THE SOLICITATION OR RECOMMENDATION. (A) RECOMMENDATION OF THE BOARD OF DIRECTORS. The Board of Directors of the Company (the "Board" or the "Board of Directors"), at a meeting held on March 26, 2000, determined that the terms of the Offer and the Merger are fair to and in the best interests of the stockholders of the Company. At this meeting, the Board approved the Offer and the Merger and the other transactions contemplated by the Merger Agreement, and approved the Merger Agreement, including for purposes of the "interested stockholder" provisions of the DGCL. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES IN THE OFFER. 2 (B) (I) BACKGROUND OF THE OFFER; CONTACTS WITH PARENT. On October 20, 1999, Tucker Anthony Cleary Gull ("Tucker Anthony") made a presentation to the Company regarding long-term strategic planning alternatives, including a sale of the Company and discussed those alternatives on a preliminary basis given the unsolicited proposal that had been received from a potential buyer (the "Potential Buyer"). On November 9, 1999, the Company retained Tucker Anthony to pursue a possible transaction with the Potential Buyer as well as other potentially interested parties. During November and December 1999 at the instruction of the Board of Directors and in consultation with the Company's management, Tucker Anthony contacted the Potential Buyer and other potential strategic acquirors regarding their interest in a possible transaction involving of the Company. On December 8, 1999, John Johnston, President and Chief Executive Officer of the Company, contacted Jan Eric Larson, President and Chief Executive Officer of Camfil AB ("Camfil") via telephone and informed Mr. Larson that the Company had retained Tucker Anthony to explore strategic alternatives to maximize shareholder value. Mr. Johnston asked Mr. Larson if Camfil would be interested in participating in a controlled auction process. Mr. Larson responded that Camfil would be interested in such an opportunity. On December 31, 1999, the Company and Camfil entered into a customary confidentiality and standstill agreement under which the Company would provide the Buyer with certain non-public information. The Company also entered into similar confidentiality and standstill agreements with other possible buyers, including the Initial Buyer. During the first two weeks in January 2000, the Company made presentations to potential strategic acquirors, including Camfil, regarding the Company's business, operations and projected results of operations. On January 7, 2000, Tucker Anthony, together with the senior management of the Company, including H. Jack Meany, John Johnston, Richard Larson and Stephen Pegg, made a presentation to Jan Eric Larson, Alan O'Connell, Johan Ryrberg and Armando Brunetti of Camfil regarding the Company's business, operations and projected results of operations. The meeting took place in Denver, Colorado. On January 25, 2000, Tucker Anthony distributed final bid procedures to those parties who had participated in the management presentations. The package of information also included updated financial information regarding the Company's fiscal year 1999 results. On February 4, 2000, two parties, including Parent, submitted preliminary non-binding indications of interest. On February 4, 2000, Parent and Camfil submitted a preliminary non-binding proposal letter to Tucker Anthony in which they indicated that they would be interested in acquiring the Company for a total purchase price of between $102,042,321--$117,997,097, i.e., between $13.50-$15.50 per Share. On February 8, 2000, a representative from Tucker Anthony contacted the other potential buyer and indicated that their proposal was too low. After reviewing their valuation work, the other potential buyer decided not to raise their offer at that time. On February 9, 2000, Tucker Anthony indicated that the Company would not pursue a transaction at the valuation range indicated in the February 4, 2000 non-binding proposal of Parent and Camfil. On or around February 10, 2000, a conference call was held between Parent, Camfil and Tucker Anthony for the purpose of discussing the Company's projections. The relationship between Parent and Camfil was also discussed. On February 11, 2000, Parent and Camfil submitted an amendment to their non-binding proposal, which amendment increased the parties' non-binding aggregate valuation of the Company, subject to the findings of a due diligence investigation of the Company, to $137,940,567, or $18 per share. In this February 11, 2000 letter the parties also (i) explained that any acquisition of the Company would be 3 effected by Parent and not by Camfil, and (ii) indicated that they considered the Company's management to be integral to the success of the Company and the acquisition by Parent of the Company would be conditioned on the execution of employment agreements with certain key employees of the Company. On February 14, 2000, a representative of Tucker Anthony reviewed a number of items with representatives of Parent and Camfil regarding the corporations' February 11, 2000 amendment to their non-binding proposal. On February 15, 2000, Parent and Camfil delivered to Tucker Anthony a final amendment to their non-binding proposal, which amendment confirmed the valuation the interested parties had placed on the Company in their February 11, 2000 letter and addressed several due diligence issues raised by a representative of Tucker Anthony, including, among other things, concerns over the financing of the transaction, the identity of the individuals whom the interested parties considered to be key employees, the amount of the break up fee and the identification of the regulatory approvals that would be required to consummate the transaction. A representative of Tucker Anthony talked with representatives of Parent on two separate occasions on February 16, 2000 to further clarify Parent's proposal. On February 16, 2000, the other potential buyer submitted a new proposal to acquire the Company at a higher price than was initially bid, but lower than $18.00 per share. On February 17, 2000, in a telephone conference to consider the two proposals, the Board of Directors of the Company, based upon its judgment as to the two formal qualifying proposals received, approved the Company's entering into a letter agreement pursuant to which Parent would obtain a period to conduct its due diligence investigation on an exclusive basis through midnight Friday, March 10, 2000. On February 19, 2000, an Exclusive Negotiating Agreement was entered into between the Company and Parent, the term of the exclusive negotiating period thereunder expiring at midnight on March 10, 2000. From February 21, 2000, until March 1, 2000, representatives of Parent conducted a due diligence investigation of the Company in Los Angeles. Between February 23, 2000 and February 25, 2000, Mr. Larson and Mr. O'Connell traveled to most of the Company's domestic manufacturing facilities with Mr. Johnston. On February 25, 2000, a representative of Tucker Anthony discussed the status of the due diligence efforts with a representative of Parent. On March 4, 2000, a representative of Tucker Anthony discussed with a representative of Parent the Company's desire that the merger agreement not be subject to any "outs," including environmental due diligence. As a result, it was decided that the exclusivity period needed to be extended. Prior to extending the exclusivity period, it was important that any outstanding due diligence issues between Parent and the Company be identified. A conference call between Parent, Camfil, the Company and their respective advisors was conducted on March 6, 2000, regarding, among other things, environmental due diligence issues. On March 7, 2000, Mr. Johnston discussed valuation issues with representatives of both Parent and Camfil. During these discussions, Parent indicated that, owing to certain due diligence findings, Parent was no longer willing to pay the $18.00 per Share suggested in the February 11, 2000 amendment to the non-binding proposal. The parties negotiated a tentative valuation for the Company of approximately $17.50 per Share, subject to the outcome of Parent's investigation of its remaining due diligence concerns, which by this time were limited to certain litigation, environmental and real property matters. On March 10, 2000, Parent indicated that it needed more time to conduct additional environmental due diligence. On March 10, 2000, the Board of Directors of the Company approved an extension of the exclusive negotiating period to permit Parent to complete its due diligence investigation of the Company. By action of the Board of Directors, the exclusivity period was extended through the execution by the Company and Parent of an amendment to the Exclusive Negotiating Agreement, effective as of March 10, 4 2000, which extended the exclusive negotiating period until midnight on March 25, 2000. It was agreed that the definitive merger agreement could be negotiated over the next two weeks. On March 22, 2000, representatives of Parent met with members of the senior management of the Company, including Mr. Johnston, at the Los Angeles offices of Sullivan & Cromwell to discuss employment-related matters. It was determined that the employment agreements already in place for the senior executives of the Company, with the exception of Mr. Johnston and Mr. Meany, were satisfactory and did not require revision prior to the commencement of the Offer. On March 23, 2000, representatives of Parent and the Company met to negotiate the definitive Merger Agreement at the Los Angeles (Century City) offices of Counsel to the Company, Gibson, Dunn & Crutcher, LLP. A draft of the Merger Agreement reflecting the negotiations to such date and a draft of Tucker Anthony's fairness opinion were distributed to the members of the Board of Directors of the Company in the early evening. Negotiations continued the following day and included representatives of Parent, Camfil and the Company. Parent and the management of the Company reached an agreement on the acquisition by Parent, through Purchaser, of all of the outstanding Shares of the Company for $17.45 per Share, subject to Board approval. In addition, Mr. Johnston entered into a long term Amended and Restated Employment Continuation Agreement ("Employment Agreement") with the Company, the effective date of the Agreement being the effective date of the Merger. The terms of the Employment Agreement of Mr. Johnston are set forth in Section 11 of the Offer to Purchase and are incorporated herein by reference. A copy of the Employment Agreement is attached as Exhibit (e)(5) hereto. Prior to the conclusion of the negotiations, the Company and Parent executed an agreement that extended the exclusive negotiating period until midnight on March 27, 2000. On March 26, 2000, the Board of Directors of the Company met to determine whether or not it was advisable for the Company to enter into the Merger Agreement as negotiated by the Company's management and advisers. The Board of Directors of the Company received presentations from the Company's legal and financial advisors and considered the Offer, the Merger and the Merger Agreement. At the meeting, Tucker Anthony delivered its opinion that, as of such date, and based upon and subject to certain matters and assumptions, the consideration to be received by the holders of Shares pursuant to the Merger Agreement is fair from a financial point of view to such holders. After considerable deliberation, including a discussion of Tucker Anthony's fairness opinion, the Board of Directors of the Company determined that the terms of the Offer and the Merger are fair to and in the best interests of the stockholders of the Company, approved the Merger Agreement and the transactions contemplated thereby, including the Offer and the Merger, and determined to recommend that the Company's stockholders accept the Offer and tender their Shares pursuant to the Offer and approve and adopt the Merger Agreement. Subsequently, signature pages being held in escrow were released and the Merger Agreement became effective as of March 26, 2000. Also as of March 26, 2000, the individual members of the Board of Directors of the Company each executed an Agreement whereby each member agreed to, among other things, tender his Shares (including any and all options to purchase Shares) into the Offer, subject to a right of withdrawal should the Company receive an offer that is, among other things, more favorable to the Company's stockholders from a financial point of view than the Offer. Finally, Mr. Meany executed an Amendment to his Employment Agreement on March 26, 2000, whereby Mr. Meany agreed to relinquish his duties of Chairman of the Board of Directors of the Company following the Merger and to accept the role of Director of Corporate Development. The terms of the Merger Agreement and the Agreement to Tender Shares are set forth in Section 11 of the Offer to Purchase and are incorporated herein by reference. On April 4, 2000, in accordance with the Merger Agreement, the Purchaser commenced the Offer. Copies of the Merger Agreement and the Agreement to Tender Shares have been filed as Exhibits to the Schedule TO filed by Parent with the SEC, and are available for inspection and copying at the principal 5 office of the SEC in the manner set forth in Section 8 of the Offer to Purchase. The foregoing descriptions of these documents are qualified in their entireties by reference to such documents. (II) REASONS FOR THE RECOMMENDATION OF THE BOARD OF DIRECTORS. In reaching its recommendations described above in paragraph (a) of this Item 4, the Board of Directors considered a number of factors, including the following: 1. TRANSACTION FINANCIAL TERMS/PREMIUM TO MARKET PRICE. The relationship of the Offer Price and the Merger Consideration to the historical market prices of the Shares. The $17.45 Offer Price and Merger Consideration exceed the highest trading price of the Shares during the twelve-month period preceding the announcement of the Merger Agreement ($11.00) and represent a 47% premium over the closing price of the Shares on the Nasdaq National Market on March 24, 2000 (the last trading day prior to the Board meeting at which the Board of Directors approved the Merger Agreement) and a 67% premium over the 30 day average closing price of the Shares prior to such Board meeting. The Board also considered the form of consideration to be paid to holders of Shares in the Offer and the Merger, and the certainty of value of such cash consideration compared to stock. The Board was aware that the consideration received by holders of Shares in the Offer and Merger would be taxable to such holders for federal income tax purposes. 2. COMPANY OPERATING AND FINANCIAL CONDITION. The current and historical financial condition and results of operations of the Company, as well as the prospects and strategic objectives of the Company, including the risks involved in achieving those prospects and objectives, and the current and expected conditions in the industries in which the Company's businesses operate. 3. STRATEGIC ALTERNATIVES. The presentation of the Company's financial advisor and the Board's review with respect to trends in the industries in which the Company's businesses operate and the strategic alternatives available to the Company, including the Company's alternative to remain an independent public company, the possibility of acquisitions or mergers with other companies in such industries, a break-up or leveraged buy-out of the Company and other extraordinary corporate transactions, as well as the risks and uncertainties associated with such alternatives. 4. TUCKER ANTHONY FAIRNESS OPINION. Presentations from Tucker Anthony and the opinion of Tucker Anthony, dated March 26, 2000, that, based upon and subject to certain considerations and assumptions, the consideration to be received by holders of Shares pursuant to the Merger Agreement is fair from a financial point of view to such holders. A copy of the opinion delivered by Tucker Anthony to the Board of Directors, setting forth the procedures followed, the matters considered and the assumptions made by Tucker Anthony in arriving at its opinion, is attached hereto as Annex A and incorporated herein by reference. Stockholders are urged to read this opinion in its entirety. The Board of Directors was aware that Tucker Anthony becomes entitled to certain fees described in Item 5 upon the consummation of the Offer. 5. TIMING OF COMPLETION. The Board of Directors considered the anticipated timing of consummation of the transactions contemplated by the Merger Agreement, including the structure of the transactions as a tender offer for all of the Shares, which should allow stockholders to receive the transaction consideration earlier than in an alternative form of transaction, followed by the Merger in which stockholders will receive the same consideration as received by stockholders who tender their Shares in the Offer. The Board of Directors also considered the financial condition and business reputation of Parent and the ability of Parent to complete the Offer and Merger in a timely manner. 6. LIMITED CONDITIONS TO CONSUMMATION. Parent's obligation to consummate the Offer and the Merger is subject to a limited number of conditions, with no financing condition. The Board also considered the likelihood of obtaining required regulatory approvals, and the terms of the Merger Agreement regarding the obligations of both companies to pursue such regulatory approvals. 6 7. AUCTION PROCESS. The Board of Directors considered the auction process conducted by Tucker Anthony and the extensive arms-length negotiations between the Company and Parent and the Company and another potential buyer that resulted in the Merger Agreement and the $17.45 per share Offer Price. 8. ALTERNATIVE TRANSACTIONS. The Board of Directors considered that under the terms of the Merger Agreement, while the Company is prohibited from initiating, soliciting or facilitating acquisition proposals from third parties, the Company may engage in discussions or negotiations with, and may furnish non-public information to, a third party who makes a written acquisition proposal if, among other things, the Board determines in good faith, after taking into consideration the advice of its outside legal counsel, that it is likely to be required to do so in order for the Board members to comply with their fiduciary duties under applicable law. The Board considered that the terms of the Merger Agreement permit the Company to terminate the Merger Agreement to enter into an alternative transaction, in which more than 50% of the Shares or all or substantially all of the assets of the Company and its Subsidiaries would be acquired, if the Board determines in its good faith judgment (after consultation with its financial advisors) that the alternative transaction is reasonably capable of being completed and is more favorable to the Company's stockholders from a financial point of view than the transactions contemplated hereby, and if the Company pays Parent a $5,360,972.34 termination fee (representing 4% of the Transaction Value (as defined in the Merger Agreement) plus an expense allowance of $1,000,000) prior to terminating the Merger Agreement. The Board considered the possible effect of these provisions of the Merger Agreement on third parties who might be interested in exploring an acquisition of the Company. In this regard, the Board recognized that the provisions of the Merger Agreement relating to termination fees and solicitation of acquisition proposals were insisted upon by Parent as a condition to entering into the Merger Agreement. The Board of Directors also considered the preliminary contacts that the Company had had with third parties regarding a potential transaction involving the Company, and took into account the views of management and Tucker Anthony as to the likelihood that a third party would be prepared to pay a higher price for the Shares than the consideration offered in the Offer and the Merger in a transaction that could be completed on a timely basis. The foregoing includes all material factors considered by the Board of Directors. In view of its many considerations, the Board did not find it practical to, and did not, quantify or otherwise assign relative weights to the specific factors considered. In addition, individual members of the Board may have given different weights to the various factors considered. After weighing all of these considerations, the Board determined to approve the Merger Agreement and recommend that holders of Shares tender their Shares in the Offer. (c) INTENT TO TENDER. Simultaneously with entering into the Merger Agreement, Parent and Purchaser entered into an Agreement, dated as of March 26, 2000 (the "Tender Agreement"), with Robert Batinovich, Richard P. Bermingham, Dennis R. Brown, Frederick Gerstell, John C. Johnston, John J. Kimes, H. Jack Meany and John A. Sullivan (each a "Director") wherein each Director agreed to tender his Shares (including any and all options to purchase Shares) into the Offer, subject to a right of withdrawal should the Company receive an offer that is, among other things, more favorable to the Company's stockholders from a financial point of view than the Offer. See "Background of the Offer; Contacts with the Company." ITEM 5. PERSONS/ASSETS RETAINED, EMPLOYED, COMPENSATED OR USED. Pursuant to the terms of a letter agreement, dated November 9, 1999, between Tucker Anthony and the Company (the "Tucker Anthony Engagement Letter"), the Company's Board of Directors retained Tucker Anthony to act as the Company's exclusive financial advisor in connection with the proposed sale of the Company. The Board of Directors retained Tucker Anthony based upon Tucker Anthony's qualifications, experience and expertise. Tucker Anthony is a well-recognized investment banking and advisory firm. Tucker Anthony, as part of its investment banking and financial advisory business, is continuously engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated 7 underwritings, secondary distributions of listed and unlisted securities, private placements, leveraged buyouts, recapitalizations, and valuations for corporate and other purposes. Additionally, Tucker Anthony has been involved in a number of transactions in the filtration industry. In the ordinary course of business, Tucker Anthony and its affiliates may actively trade in the securities of the Company for their own account and for the accounts of their customers and, accordingly, may at any time hold a long or short position in such securities. Tucker Anthony currently provides research coverage on the Company and makes a market in the Shares on the Nasdaq National Market. Tucker Anthony has never provided investment banking services to the Parent. Pursuant to the terms of the Tucker Anthony Engagement Letter, the Company agreed to pay Tucker Anthony a $50,000 retainer ("Retainer Fee") upon signing the Tucker Anthony Engagement Letter and a $200,000 fairness opinion fee ("Fairness Opinion Fee") within three business days after the delivery of the written fairness opinion to the Board of Directors. Tucker Anthony's Fairness Opinion Fee was not contingent upon the content of the opinion or the approval and consummation of the Offer and the Merger. In addition, in the event of a consummation of the Offer and the Merger, Tucker Anthony would earn a transaction fee net of the Retainer Fee and Fairness Opinion Fee equal to approximately $2,100,000. Also, the Company has agreed to reimburse Tucker Anthony for its reasonable out-of-pocket expenses (including the fees and disbursements of its attorneys), and in addition, the Company has also agreed to indemnify Tucker Anthony and certain persons affiliated with Tucker Anthony against certain liabilities and expenses, including certain liabilities under the federal securities laws, arising out of Tucker Anthony's engagement. Except as described above, neither the Company nor any person acting on its behalf currently intends to employ, retain or compensate any other person to make solicitations or recommendations to stockholders on its behalf concerning the Offer. ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY. No transactions in Shares have been effected during the past 60 days by the Company or, to the knowledge of the Company, by any executive officer, director, affiliate or subsidiary of the Company. ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS. Except as set forth in this Statement, the Company is not currently undertaking or engaged in any negotiations in response to the Offer that relate to (1) a tender offer for or other acquisition of the Company's securities by the Company, any subsidiary of the Company or any other person; (2) an extraordinary transaction, such as a merger, reorganization or liquidation, involving the Company or any subsidiary of the Company; (3) a purchase, sale or transfer of a material amount of assets of the Company or any subsidiary of the Company; or (4) any material change in the present dividend rate or policy, or indebtedness or capitalization of the Company. Except as set forth in this Statement, there are no transactions, resolutions of the Board of Directors, agreements in principle, or signed contracts in response to the Offer that relate to one or more of the events referred to in the preceding paragraph. ITEM 8. ADDITIONAL INFORMATION. INFORMATION PROVIDED PURSUANT TO RULE 14F-1 UNDER THE EXCHANGE ACT. The Information Statement attached hereto as Annex B is being furnished to the stockholders of the Company in connection with the possible designation by Parent, pursuant to the Merger Agreement, of certain persons to be appointed to the Company's Board other than at a meeting of the Company's stockholders, and such information is incorporated herein by reference. 8 CERTAIN FINANCIAL PROJECTIONS (UNAUDITED). In the course of discussions between representatives of the Company and Parent, the Company provided Parent' representatives with certain projections of future operating performance of the Company prepared by the Company's management (the "Plan Projections"). Such information has been set forth for the limited purpose of giving stockholders access to projections by the Company's management that were available for review by Parent in connection with the Offer. The projected financial information set forth below necessarily reflects numerous assumptions with respect to general business and economic conditions and other matters, many of which are inherently uncertain or beyond the Company's or Parent' control, and does not take into account any changes in the Company's operations or capital structure which may result from the Offer and the Merger. It is not possible to predict whether the assumptions made in preparing the projected financial information will be valid, and actual results may prove to be materially higher or lower than those contained in the projections. The inclusion of this information should not be regarded as an indication that the Company or any other person who received this information considered it a reliable predictor of future events, and this information should not be relied on as such. None of Parent, the Company or any of their respective representatives assumes any responsibility for the validity, reasonableness, accuracy or completeness of the projected financial information, and the Company has made no representations to Parent or Purchaser regarding such information.
YEARS ENDED DECEMBER 31, ----------------------------------------- 2000 2001 2002 2003 -------- -------- -------- -------- (IN THOUSANDS) Revenue............................. $129,666 $152,463 $182,919 $213,690 EBITDA.............................. $ 16,124 $ 22,118 $ 30,984 $ 40,287
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS. Certain matters discussed herein, including without limitation, the Plan Projections, are forward-looking statements that involve risks and uncertainties. Such information has been included in this Schedule 14D-9 for the limited purpose of giving stockholders access to projections by the Company's management that were made available to Parent. Information was prepared by the Company's management for internal use and not with a view to publication. The foregoing Plan Projections were based on assumptions concerning the Company's operations and business prospects in 2000 through 2003, including the assumption that the Company would continue to operate under the same ownership structure as then existed. The Plan Projections were also based on other revenue, expense and operating assumptions. Information of this type is based on estimates and assumptions that are inherently subject to significant economic and competitive uncertainties and contingencies, all of which are difficult to predict and many of which are beyond the Company's control. Such uncertainties and contingencies include, but are not limited to: changes in the economic conditions in which the Company operates; greater than anticipated competition or price pressures; new product offerings; better or worse than expected customer growth resulting in the need to expand operations and make capital investments; and the impact of investments required to enter new markets. Accordingly, there can be no assurance that the projected results would be realized or that actual results would not be significantly higher or lower than those set forth above. In addition, the Plan Projections were not prepared with a view to public disclosure or compliance with the published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants regarding projections and forecasts, and are included in this Offer to Purchase only because such information was made available to Parent by the Company. Neither Parent' nor the Company's independent accountants have examined or applied any agreed upon procedures to this information, and, accordingly, assume no responsibility for this information. Neither Parent nor the Company nor any other party assumes any responsibility for the accuracy or validity of the Plan Projections. Neither Parent nor the Company intends to provide any updated information with respect to any forward-looking statements. 9 RIGHTS AGREEMENT. Each Right issued pursuant to the Rights Agreement entitles the registered holder thereof to purchase one half of one Share at a price of $40 per whole Share, subject to adjustment. On the earlier of (1) the tenth day following a public announcement that a person or group of affiliated or associated persons (an "Acquiring Person") has acquired beneficial ownership of 20% or more of the outstanding Shares or (2) the tenth business day following the commencement of, or announcement of an intention to make, a tender offer or exchange offer the consummation of which would result in the Beneficial Ownership by a person or group of at least 30% of the Shares (the earlier of such dates being the "Distribution Date"), the Rights would become exercisable and trade separately from the Common Stock. After the Distribution Date, each holder of a Right (other than the Acquiring Person) would thereafter have the right to acquire Shares having a market value of two times the exercise price of the Right. The Rights may be redeemed at a price of $0.01 per Right at any time prior to the tenth Business Day following the public announcement that a person has become an Acquiring Person. The Company and the Rights Agent under the Rights Agreement amended the Rights Agreement as of March 26, 2000 to provide that (1) so long as the Merger Agreement has not been terminated pursuant to the termination provisions thereof, a Distribution Date will not occur or be deemed to occur, and neither Parent nor the Purchaser will become an Acquiring Person, as a result of the execution, delivery or performance of the Merger Agreement, the announcement, making or consummation of the Offer, the acquisition of Shares pursuant to the Offer or the Merger, the consummation of the Merger or any other transaction contemplated by the Merger Agreement and (2) the Rights will expire immediately prior to the consummation of the Offer. CERTAIN LEGAL MATTERS. Except as otherwise disclosed herein, the Company is not aware of any licenses or other regulatory permits which appear to be material to the business of the Company and which might be adversely affected by the acquisition of Shares by Purchaser pursuant to the Offer or of any approval or other action by any governmental, administrative or regulatory agency or authority which would be required for the acquisition or ownership of shares by Purchaser pursuant to the Offer. Should any such approval or other action be required, Parent and Purchaser have stated that it is currently contemplated that such approval or action would be sought or taken. There can be no assurance that any such approval or action, if needed, would be obtained or, if obtained, that it will be obtained without substantial conditions or that adverse consequences might not result to the Company's or Parent's business or that certain parts of the Company's or Parent's business might not have to be disposed of in the event that such approvals were not obtained or such other actions were not taken, any of which could cause Purchaser to elect to terminate the Offer without the purchase of the Shares thereunder. Purchaser's obligation under the Offer to accept for payment and pay for shares is subject to certain conditions, which are set forth in Section 13 of the Offer to Purchase and are incorporated herein by reference. The transactions contemplated by the Offer and Merger are or may be subject to a number of applicable laws and regulations, including but not limited to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the rules that have been promulgated thereunder by the Federal Trade Commission (the "FTC"), certain foreign laws and regulations, certain regulations of the Federal Reserve Board, certain state takeover laws and regulations and Section 721 of Title VII of the United States Defense Production Act of 1950, as amended by Section 5021 of the Omnibus Trade and Competitiveness Act of 1988 ("Exon-Florio"). Information concerning these matters is set forth in Section 15 of the Offer to Purchase and is incorporated herein by reference. 10 ITEM 9. MATERIAL TO BE FILED AS EXHIBITS. The following Exhibits are filed herewith:
EXHIBIT NO. DESCRIPTION - ----------- ----------- (a)(1) Letter to Stockholders of the Company, dated April 4, 2000.* (a)(2) Opinion of Tucker Anthony Cleary Gull, dated March 26, 2000 (included as Annex A to the Statement).* (a)(3) Press Release issued by Parent on March 26, 2000 (incorporated by reference to press release under cover of Schedule TO filed by Purchaser and Parent on March 27, 2000). (a)(4) The Offer to Purchase dated March 26, 2000 (incorporated by reference to Exhibit (a)(1) to the Schedule TO of Parent and the Purchaser filed on April 4, 2000). (a)(5) Letter of Transmittal (incorporated herein by reference to Exhibit (a)(2) to the Schedule TO of Parent and the Purchaser filed on April 4, 2000). (a)(6) Second Amendment to Rights Agreement, dated as of March 26, 2000. (a)(7) Audit Committee Charter (included as Annex C to the Statement).* (e)(1) Agreement and Plan of Merger, dated as of March 26, 2000, among Parent, the Purchaser and the Company (incorporated by reference to Exhibit (d)(1) to the Schedule TO of Parent and the Purchaser filed on April 4, 2000). (e)(2) The Information Statement of the Company dated April 4, 2000 (included as Annex B to the Statement).* (e)(3) Items 10, 11 and 12 of the Annual Report on Form 10-K of Farr Company for the fiscal year ended January 1, 2000, filed by the Company on March 27, 2000.* (e)(4) Agreement to Tender, dated as of March 26, 2000, among Parent, Purchaser and Messrs. Batinovitch, Bermingham, Brown, Gerstell, Johnston, Kimes, Meany and Sullivan (incorporated by reference to Exhibit (d)(2) to the Schedule TO of Parent and Purchaser filed on April 4, 2000). (e)(5) Amended and Restated Employment Continuation Agreement, dated as of March 27, 2000, by and between the Company and John C. Johnston. (g) None.
* Included with the Statement mailed to stockholders. 11 SIGNATURE After reasonable inquiry and to the best of its knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. FARR COMPANY By: /s/ STEPHEN E. PEGG ----------------------------------------- Stephen E. Pegg SENIOR VICE PRESIDENT, CHIEF FINANCIAL OFFICER Dated: April 4, 2000
12 ANNEX A [Letterhead of Tucker Anthony Cleary Gull] March 26, 2000 Board of Directors Farr Company 2201 Park Place El Segundo, CA 90245 Gentlemen: You have requested our opinion as to the fairness, from a financial point of view, to the holders (the "Stockholders") of shares of common stock, $0.10 par value per share ("Farr Common Stock"), of Farr Company ("Farr") of the consideration to be received by the Stockholders pursuant to the terms of the draft Agreement and Plan of Merger dated as of March 24, 2000 (the "Merger Agreement") by and among Forvaltnings AB Ratos, a Swedish corporation ("Parent"), Merger Sub, a Delaware corporation and a direct wholly-owned subsidiary of Parent ("Subsidiary"), and Farr. Pursuant to the Merger Agreement, Subsidiary will offer to purchase all of the outstanding Farr Common Stock in a tender offer (the "Tender Offer") and, following completion of the Tender Offer, the Subsidiary will be merged (the "Merger") with and into Farr and Farr will become a wholly-owned subsidiary of Parent. The Tender Offer and the Merger are collectively referred to herein as the "Acquisition." Under the Merger Agreement, Subsidiary will offer to purchase all of the issued and outstanding shares of Farr Common Stock in the Tender Offer for $17.45 per share, net to the seller in cash (the "Offer Consideration"). Upon consummation of the Merger, any shares of Farr Common Stock not acquired in the Tender Offer will be converted into the right to receive the Offer Consideration in the Merger. In arriving at our opinion, we have reviewed, among other things, the Merger Agreement and certain business and financial information relating to Farr, including certain financial projections, estimates and analyses provided to us by Farr. We have also reviewed and discussed the business and prospects of Farr with representatives of Farr's management. In arriving at our opinion, we have considered (a) certain financial and stock market data relating to Farr and have compared that information to similar data for other publicly held companies in businesses considered to be generally comparable to Farr; (b) certain publicly available information concerning the nature and terms of certain transactions that we believed to be relevant on a comparative basis; (c) an unleveraged, after-tax discounted cash flow analysis of Farr; (d) a leveraged buy out analysis of Farr; (e) a comparison of the purchase price premium to be paid for the Farr Common Stock based on the Offer Consideration to certain other similar-sized acquisitions; (f) a discounted stand-alone trading valuation of Farr; (g) a historical review of Farr's stock market price; and (h) such other information, financial studies and analyses and financial, economic and market criteria as we deemed relevant and appropriate. In connection with our review, we have not independently verified any of the foregoing information and have relied on its being complete and accurate in all material respects. We have not made an independent evaluation or appraisal of any assets or liabilities (contingent or otherwise) of Farr, nor have we been furnished with any such evaluation or appraisal. With respect to the financial plans, estimates and analyses provided to us by Farr, we have assumed, with your permission, that all such information was A-1 Farr Company March 26, 2000 Page 2 reasonably prepared on bases reflecting the best currently available estimates and judgments of management of Farr as to future financial performance and was based upon the historical performance of Farr and certain estimates and assumptions which were reasonable at the time made. Finally, we have assumed that the executed Merger Agreement will be in the same form as the draft Merger Agreement reviewed by us, and that the Tender Offer and the Merger will be consummated on the terms described in the Merger Agreement, without any waiver of any material term or condition, and that obtaining any necessary regulatory or third party approval for the Tender Offer and the Merger will not have an adverse effect on the Company. Our opinion is based on economic, monetary and market conditions existing on the date hereof. We have not been requested to evaluate the reasonableness, adequacy, or feasibility of Parent's plans for financing the Acquisition and this opinion assumes that Parent has, or at closing will have, financing adequate to complete the Acquisition in accordance with the Merger Agreement. Based upon and subject to the foregoing, it is our opinion that, as of the date hereof, the Offer Consideration to be received by the Stockholders in the Tender Offer and the subsequent Merger pursuant to the Merger Agreement is fair, from a financial point of view, to the Stockholders. We are acting as financial advisor to the Board of Directors of Farr in this transaction pursuant to an engagement letter dated November 9, 1999. Under the engagement letter, we are entitled to a retainer from Farr, an additional fee for our services, payable upon delivery of this opinion to Farr's Board of Directors, a success fee payable at the closing of the Acquisition and an incentive fee payable based on the Offer Consideration. Our fee for this opinion is not contingent upon the contents of this opinion or the approval and consummation of the Acquisition. In addition, Farr has agreed to indemnify us for certain liabilities that may arise out of the rendering of this opinion. Farr has also agreed to reimburse us for our reasonable and properly documented expenses incurred in connection with the performance of its services under the engagement letter. Tucker Anthony Cleary Gull ("Tucker Anthony") provides research coverage on Farr. In the ordinary course of business, we also actively trade the Farr Common Stock for our own account and for the accounts of our customers (including Farr) and, accordingly, may at any time hold a long or short position in the Farr Common Stock. We currently make a market in the Farr Common Stock on the Nasdaq National Market. This opinion is for the use and benefit of the Board of Directors of Farr and is rendered to the Board of Directors of Farr in connection with its consideration of the Acquisition. We are not making any recommendation regarding whether or not it is advisable for Stockholders to tender their shares of Farr Common Stock in the Tender Offer. We have not been requested to opine as to, and our opinion does not in any manner address, Farr's underlying business decision to proceed with or consummate the Acquisition (or whether stockholders should vote in favor of the Merger). Very truly yours, /s/ Tucker Anthony Cleary Gull TUCKER ANTHONY CLEARY GULL A-2 ANNEX B FARR COMPANY 2201 PARK PLACE EL SEGUNDO, CA 90245 INFORMATION STATEMENT PURSUANT TO SECTION 14(f) OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER This Information Statement is being mailed on or about April 4, 2000 as part of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the "Statement") of Farr Company (the "Company"). You are receiving this Information Statement in connection with the possible election of persons designated by Forvaltnings AB Ratos (publ.), a Swedish corporation ("Parent") to a majority of seats on the Board of Directors (the "Board of Directors" or the "Board") of the Company. On March 26, 2000, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Parent and Ratos Acquisition Corp. (the "Purchaser"), a Delaware corporation and a wholly owned subsidiary of Parent, pursuant to which the Purchaser is required to commence a tender offer to purchase all outstanding shares of Common Stock, par value $0.10 per share, of the Company (the "Common Stock") and the associated common share purchase rights (the shares of Common Stock and any associated common share purchase rights are referred to in this Statement as the "Shares"), at a price per Share of $17.45, net to the seller in cash (the "Offer Price"), upon the terms and conditions set forth in the Purchaser's Offer to Purchase, dated April 4, 2000, and in the related Letter of Transmittal (which, together with any amendments and supplements thereto, collectively constitute the "Offer"). Copies of the Offer to Purchase and the Letter of Transmittal have been mailed to stockholders of the Company and are filed as Exhibits (a)(1) and (a)(2) respectively, to the Tender Offer Statement on Schedule TO (as amended from time to time, the "Schedule TO") filed by Parent and the Purchaser with the Securities and Exchange Commission (the "Commission") on April 4, 2000. The Merger Agreement provides that, subject to the satisfaction or waiver of certain conditions, following completion of the Offer, and in accordance with the General Corporation Law of the State of Delaware (the "DGCL"), the Purchaser will be merged with and into the Company (the "Merger"). Following consummation of the Merger, the Company will continue as the surviving corporation and will be a wholly owned subsidiary of Parent. At the effective time of the Merger (the "Effective Time"), each issued and outstanding Share (other than Shares that are owned by Parent, the Purchaser, any of their respective subsidiaries, the Company or any of its subsidiaries, and Shares held by stockholders of the Company who did not vote in favor of the Merger Agreement and who comply with all of the relevant provisions of Section 262 of the DGCL) will be converted into the right to receive $17.45 in cash or any greater amount per Share paid pursuant to the Offer. The Offer, the Merger, and the Merger Agreement are more fully described in the Statement to which this Information Statement forms Annex B, which was filed by the Company with the Commission on April 4, 2000 and which is being mailed to stockholders of the Company along with this Information Statement. This Information Statement is being mailed to you in accordance with Section 14(f) of the Securities Exchange Act and Rule 14f-1 promulgated thereunder. The information set forth herein supplements certain information set forth in the Statement. Information set forth herein related to Parent, the Purchaser or the Parent Designees (as defined herein) has been provided by Parent. You are urged to read this Information Statement carefully. You are not, however, required to take any action in connection with the matters set forth herein. B-1 Pursuant to the Merger Agreement, the Purchaser commenced the Offer on April 4, 2000. The Offer is currently scheduled to expire at 12:00 midnight, New York City time, on Monday, May 1, 2000, unless the Purchaser extends it. GENERAL The Common Stock is the only class of equity securities of the Company outstanding which is entitled to vote at a meeting of the stockholders of the Company. As of the close of business on [March 24, 2000], there were 7,294,519 shares of Common Stock outstanding of which Parent and the Purchaser own no shares as of the date hereof. RIGHTS TO DESIGNATE DIRECTORS AND PARENT DESIGNEES The Merger Agreement provides that, promptly upon the purchase of and payment for Shares by the Purchaser pursuant to the Offer, Parent will be entitled to designate such number of directors (the "Parent Designees") on the Board of Directors, rounded up to the next whole number, as is equal to the product obtained by multiplying the total number of directors on the Board by the percentage that the number of Shares so purchased and paid for bears to the total number of Shares then outstanding. The Merger Agreement provides that the Company will, upon request of the Purchaser, promptly increase the size of the Board of Directors or exercise its best efforts to secure the resignations of such number of directors, or both, as is necessary to enable the Parent Designees to be elected to the Board and, subject to Section 14(f) of the Securities Exchange Act and Rule 14f-1 promulgated thereunder, will cause the Parent Designees to be so elected. At such time, the Company will, if requested by Parent, also cause directors designated by Parent to constitute at least the same percentage (rounded up to the next whole number) of each committee of the Board of Directors as is on the Board of Directors. Notwithstanding the foregoing, if Shares are purchased pursuant to the Offer, there will be until the Effective Time at least two members of the Board who were directors on the date of the Merger Agreement and who are not employees of the Company. The Parent Designees will be selected by Parent from among the individuals listed below. Each of the following individuals has consented to serve as a director of the Company if appointed or elected. None of the Parent Designees currently is a director of, or holds any positions with, the Company. Parent has advised the Company that, to the best of Parent' knowledge, except as set forth below, none of the Parent Designees or any of their affiliates beneficially owns any equity securities or rights to acquire any such securities of the Company, nor has any such person been involved in any transaction with the Company or any of its directors, executive officers or affiliates that is required to be disclosed pursuant to the rules and regulations of the Commission other than with respect to transactions between Parent and the Company that have been described in the Schedule TO or the Statement. The name, age, present principal occupation or employment and five-year employment history of each of the individuals who may be selected as Parent Designees are set forth below. Unless otherwise indicated, each such individual has held his or her present position as set forth below for the past five years and each occupation refers to employment with Parent. Each such person is a citizen of Sweden, and the business address of each person listed below is c/o Forvaltnings AB Ratos, Drottninggatan 2, SE-111 96, Stockholm, Sweden. The information contained in this Information Statement concerning Parent Designees has been furnished to the Company by Parent and its designees. Accordingly, the Company assumes no responsibility for the accuracy or completeness of this information. B-2 PARENT
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT, NAME MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS - ---- ------------------------------------------------------------ Arne Karlsson.......... PRESENT PRINCIPAL OCCUPATIONS: Chief Executive Officer of Forvaltnings AB Ratos (since January 1, 1999). MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS: Chief Analyst, Atle AB (private equity firm) (1993-1998); Managing Director of Atle Mergers & Acquisitions AB (private equity firm) (1996-1998). Thomas Mossberg........ PRESENT PRINCIPAL OCCUPATIONS: Executive Vice President of Directors, Forvaltnings AB Ratos (since 1988). MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS: Employed by Forvaltnings AB Ratos since 1977. Bo Jungner............. PRESENT PRINCIPAL OCCUPATIONS: Senior Investment Manager of Forvaltnings AB Ratos (since 1998). MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS: Employed by Brummer & Partners (investment bank) (1996-1998); SEB Enskilda Securities (1983-1996).
B-3 STOCK OWNERSHIP COMMON STOCK OWNERSHIP BY 5% STOCKHOLDERS, OFFICERS, AND DIRECTORS Information is set forth in Item 12 of the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 2000 (and such information is incorporated herein by reference) concerning the Common Stock ownership (1) for each person or group known by the Company to beneficially own more than 5% of the Common Stock as of March 15, 2000; and (2) for each director of the Company, the executive officers named in the Summary Compensation Tables referred to below, and all of the directors and executive officers of the Company as a group, in each case as of March 25, 2000. BOARD OF DIRECTORS TERMS OF DIRECTORS Information with respect to the directors of the Company is set forth in Item 10 of the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 2000 and is incorporated herein by reference. DIRECTOR COMPENSATION Directors who are not employees of the Company were paid an annual retainer of $12,000 and $700 for each Board and committee meeting attended. Committee chairmen were paid $1,000 for each committee meeting attended. Directors who are employees of the Company are not paid for attending Board of Directors or committee meetings. On January 22, 1991, the Board of Directors adopted the 1991 Stock Option Plan for Non-Employee Directors (the "Director Plan"). On September 12, 1995, the Board of Directors adopted the Second Amendment to the Director Plan, which amendment was approved by the stockholders at the 1996 Annual Meeting of Stockholders. The Second Amendment to the Director Plan increased the number of shares subject to the plan from 108,000 to 225,000 and extended the duration of the Director Plan from 1995 to 2001, among other things. Pursuant to the Director Plan, each non-employee director of the Company is automatically granted, on an annual basis, an option to purchase 4,500 shares of Common Stock. The price for each option granted under the Director Plan is the greater of (a) the fair market value of the Common Stock on the date of grant or (b) the minimum legal consideration necessary for the issuance of such shares. Under the Director Plan, as of March 1, 2000, the Company had granted options to purchase shares of Common Stock to the following directors: options for 18,000 shares to Mr. Meany, options for 27,000 shares to Mr. Batinovich, options for 40,500 shares to Mr. Bermingham, options for 22,500 shares to Mr. Kimes, options for 18,000 shares to Mr. Sullivan, options for 13,500 shares to Mr. Brown and options for 9,000 shares to Mr. Gerstell. In 1980, the Board of Directors adopted a deferred compensation plan pursuant to which directors may elect to defer all or a portion of their directors' fees. 1999 BOARD MEETINGS The Board of Directors held 7 meetings during 1999. During 1999, all directors attended at least 75% of the meetings of the Board of Directors and committees on which he served and which were held while a sitting director except Messrs. Kimes and Bermingham, who attended five of the seven Board meetings. Among the committees of the Board of Directors are an Executive Committee, an Audit Committee and a Compensation Committee. The Board of Directors does not have a standing Nominating Committee. EXECUTIVE COMMITTEE The Executive Committee is comprised of Messrs. Meany (Chairman), Johnston and Bermingham. The purpose of the Executive Committee is to expedite the decision making process of the Board of Directors. The Executive Committee held two meetings in 1999. B-4 AUDIT COMMITTEE The Audit Committee, which is comprised of Messrs. Bermingham (Chairman), Sullivan and Kimes, held one meeting in 1999. The functions performed by the Audit Committee include: - recommending to the Board independent accountants to serve the Company for the ensuing year, - reviewing with the independent accountants and management the scope and results of audits, - assuring that the independent accountants act independently, - reviewing and approving any substantial change in the Company's accounting policies and practices, - reviewing with management and the independent accountants the adequacy of the Company's system of internal controls, - reviewing the Company's annual proxy statement, and - reviewing non-audit professional services provided by the independent accountants and the range of audit and non-audit fees. To help ensure the independence of the audit, the Audit Committee consults separately and jointly with the independent accountants and management. The Board of Directors adopted a written charter for the Audit Committee, a copy of which is attached as Exhibit (e)(2) to the Schedule 14D-9 to which this Information Statement is annexed. COMPENSATION COMMITTEE The Compensation Committee, which is comprised of Messrs. Batinovich (Chairman), Brown and Gerstell, held two meetings in 1999. The functions performed by the Compensation Committee include: - reviewing management's recommendations as to grants of stock options to key employees, - the hiring of outside consultants to study and report on the competitiveness of the Company's compensation to its officers and - the setting of executive compensation levels. COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act") requires the Company's officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership (Forms 3, 4 and 5) with the SEC. Officers, directors and greater-than-ten-percent holders are required to furnish the Company with copies of all such forms which they file. To the Company's knowledge, based solely on its review of such reports or written representations from certain reporting persons, the Company believes that during its fiscal year ended January 1, 2000, all filing requirements applicable to its officers, directors, greater-than-ten-percent beneficial owners and other persons subject to Section 16(a) of the Exchange Act were complied with. CORPORATE GOVERNANCE The Board of Directors has adopted two policies which are significant steps toward further enhancement of the Company's corporate governance. No less than once per year the Board of Directors selects at least three employees of the Company from below the Senior Vice President level for an off- the-record interview from which officers are excluded. The purpose of this interview is to gain input from the lower-level employees as to their opinions of how well the Company is being managed and answer any questions board members may have regarding the Company from the employees' point of view. A second policy of significance to sound corporate governance regards the role of outside consultants who provide data and analyses to the Board and make recommendations pertaining to executive pay and benefits. Under this policy all officers and employees of the Company are excluded from both the selection and the hiring of the consultants and from receiving information and reports direct from the consultants. This is beneficial because it removes the consultant from any position of risk of having a conflict of interest B-5 and it assures the Board of Directors that the consultant is working only to the committee's instructions. A further explanation of the application of this policy can be found in the Compensation Committee Report contained herein. EXECUTIVE COMPENSATION COMPENSATION OF EXECUTIVE OFFICERS The Summary Compensation Table setting forth the compensation earned by the Company's Chief Executive Officer and the four other most highly compensated officers whose cash compensation for the fiscal year ended January 1, 2000 exceeded $100,000 (collectively, the "Named Officers"), is set forth in Item 11 of the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 2000 and is incorporated herein by reference. OPTION/SAR GRANTS IN 1999 Information with respect to grants of options by the Company to the Named Officers in 1999 is set forth in Item 11 of the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 2000 and is incorporated herein by reference. AGGREGATED OPTION/SAR EXERCISES IN 1999 AND YEAR-END OPTION/SAR VALUES Information with respect to unexercised options and year-end option vales, in each case with respect to options to purchase shares of Common Stock held as of January 1, 2000 is set forth in Item 11 of the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 2000 and is incorporated herein by reference. TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS The Company has entered into change of control agreements with Messrs. Richard Larson, Steve Pegg and John Vissers. These agreeements are intended to provide for continuity of employment in the event of a change in control as defined by the agreements, including the following events: (i) any person or persons acquires "beneficial ownership" (within the meaning of Rule 13d-3, as promulgated under section 13(d) of the Securities Exchange Act of 1934, as amended of securities of the Company representing 50 percent or more of the combined Voting Power, of the Company's securities; (ii) certain changes occur in the composition of the Board of Directors; or (iii) the stockholders of the Company approve a merger, consolidation, share exchange, division, sale or other disposition of all or substantially all of the assets of the Company (Corporate Event), as a result of which the shareholders of the Company immediately prior to such Corporate Event shall not hold, directly or indirectly, immediately following such Corporate Event, a majority of the Voting Power of (x) in the case of a merger or consolidation, the surviving or resulting corporation, (y) in the case of a share exchange, the acquiring corporation or (z) in the case of a division or a sale or other disposition of assets, each surviving, resulting or acquiring corporation which, immediately following the relevant Corporate Event, holds more than 10 percent of the consolidated assets of the Company immediately prior to such Event. An Amended and Restated Employment Continuation Agreement was entered into as of March 27, 2000, effective as of the effective time of the Merger, by and between Mr. John C. Johnston and the Company, the terms of which are set forth in Section 11 of the Offer to Purchase and a copy of which is attached as Exhibit (e)(8) to the Schedule 14D-9 to which this Information Statement is annexed. B-6 COMPENSATION COMMITTEE REPORT COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The members of the Compensation Committee in the fiscal year ended January 1, 2000 were Messrs. Batinovich (Chairman), Brown and Gerstell, each of whom is a non-employee director and none of whom has any direct or indirect material interest in or relationship with the Company (outside of his position as director). To the Company's knowledge, there were no interrelationships involving members of the Compensation Committee or other directors of the Company requiring disclosure herein. REPORT ON ANNUAL COMPENSATION OF EXECUTIVE OFFICERS The report of the Compensation Committee shall not be deemed incorporated by reference by any general statement incorporating by reference this Information Statement into any filing under the Securities Act of 1933 or under the Exchange Act, except to the extent the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under the Securities Act or the Exchange Act. * * * * The policy of the Compensation Committee is to establish compensation levels for the Chief Executive Officer and the other officers reflecting both (i) the Company's overall performance and (ii) the executive's contribution to the growth and profitability of the Company. The Compensation Committee determines the appropriate executive compensation levels that it believes will allow the Company to attract and retain qualified executives. The Compensation Committee retains the services of an outside consultant who is recruited, selected and retained solely by the Compensation Committee, acting entirely independently of and without direction from management. The consultant provides reports and information on a confidential basis to the Compensation Committee. No reports or other information are provided to management by the consultant other than by direction of the Compensation Committee, at its sole discretion. No files or records of the consultant's reports or work papers are kept by management or in the Company's files except at the specific direction of the Chairman of the Compensation Committee and only for specific documents or information. The consultant's assignment is to use available current salary data for companies of comparable size in manufacturing and related businesses, and make comparative evaluations of salaries, incentive compensation and perquisites. To facilitate this process, the Company provides to the consultant the value of all options existing at the beginning of the year for each individual officer along with a comparison of the value of all options existing at the end of the year and any gain on options exercised during the year. This information is included in the consultant's report to the Compensation Committee. Such information as is reasonably available which may be of value to the Compensation Committee in its deliberations is also provided by the consultant. Specific recommendations are made by the consultant to the Compensation Committee, if and when requested by the Committee. The scope of the work to be performed and the fees and costs for such work are determined between the consultant and the Chairman of the Compensation Committee for each assignment. This is normally once each year, but may include other work or at other times, as required by the Compensation Committee. The positions covered are determined by the Compensation Committee and are the entire officer staff as then-existing, and may include planned positions. The Compensation Committee considers recommendations from the Chief Executive Officer in determining the compensation of the other executive officers. Compensation levels are generally based on the Company's overall performance, particularly in the areas of sales and earnings. Such performance is typically measured by comparing the Company's operating plan for the year versus actual achievement of B-7 that plan. In determining compensation levels, the Compensation Committee also considers qualitative factors such as new product development, organizational improvements and other factors considered vital to the Company's success in meeting its long-term sales growth and profit objectives. The Compensation Committee also focuses on each officer's area of responsibility and contribution in helping to reach Company objectives. A major part of the compensation of each officer is base salary. Upon its review of the Company's operating plan measured against actual achievement, the Compensation Committee establishes the salary levels for executives and awards bonuses. The Compensation Committee considers data from the outside compensation consultant and also considers the practices of various industry groups. Such industry groups generally include companies in the same industry as the Company as well as companies of comparable size in other industries. The Compensation Committee believes that the Company's overall executive compensation levels are generally in line with the compensation levels at other companies studied by the Compensation Committee. This is made up of base salaries, which are slightly lower, and incentive compensation, which is generally higher, than the average of the comparable companies studied. In February 1996, Mr. Meany became Chairman and Chief Executive Officer of the Company (Mr. Meany resigned as Chief Executive Officer on February 16, 1999). Previously, Mr. Meany was Chairman, President and Chief Executive Officer of the Company from April 1994 to February 1996. Prior to April 1994, Mr. Meany served as a non-employee director of the Company. At Mr. Meany's request, and as set by the Compensation Committee, Mr. Meany received an annual base salary of $1.00 from April 1994 to February 1996. The Compensation Committee in July 1996 then re-established Mr. Meany's base salary retroactively at $246,000 per year, effective April 1994. In addition, Mr. Meany became retroactively eligible to participate in the Company's Management Incentive Plan. Mr. Meany's base salary and incentive compensation levels were determined by the Compensation Committee through reference to the base salaries and total compensation being paid to chief executives of comparable manufacturing and other business companies, along with the Company's performance and Mr. Meany's ability to build and maintain a strong management team, capable of meeting the Company plan on a consistent basis. As the Company's new Chief Executive Officer, Mr. Johnston's compensation levels will be determined in a similar fashion. Officers are eligible to receive bonuses under the Company's Management Incentive Plan. Under this plan, bonuses are based on the Company achieving profits above a minimum return on assets and certain income levels. Based on 1999 operating results, corporate performance exceeded the minimum return on assets and certain income levels, thereby providing for bonuses to be awarded to management. The Compensation Committee also retains the discretion to award bonuses based on corporate or individual performance. The Compensation Committee annually considers grants of stock options for employees; determines the recipients for such options; and the number of options to be granted to each recipient. The purpose of the stock option program is to provide incentives to the Company's management and other personnel to maximize stockholder value. The option program also utilizes vesting periods to encourage employees to continue in the employ of the Company. The aggregate number of options granted to an employee is based on the responsibilities of the employee, the historic levels of option awards granted to other employees, the appropriate incentive level for purposes of achieving the objectives set for the option plan and the potential dilution effect of additional options to the overall earnings per share. In 1999, the Compensation Committee granted options to four of the Named Officers (as set forth in the option-grant table referred to above) and to two other employees. ROBERT BATINOVICH (Chairman) DENIS R. BROWN A. FREDERICK GERSTELL B-8 PERFORMANCE GRAPH The following graph compares cumulative stockholder return on the Common Stock for the five-year period beginning January 1, 1995, and ending December 31, 1999, as measured against (i) the Standard & Poor's 500 Stock Index ("S&P 500 Index") and (ii) the Standard & Poor's Waste Management Index (formerly the Standard & Poor's Pollution Control Index) ("S&P Waste Management Index"). The cumulative total return shown on the stock performance graph indicates historical results only and is not necessarily indicative of future results. Each line of the stock performance graph assumes that $100 was invested in the Company's Common Stock and in the respective indices on January 1, 1995. The graph then tracks the value of these investments, assuming reinvestment of dividends, through December 31, 1999. Stockholders are cautioned against drawing any conclusions from the data contained therein, as past performance is no guarantee of future results. COMPARISON OF CUMULATIVE TOTAL RETURN OF FARR COMPANY, S&P 500 INDEX AND THE S&P POLLUTION CONTROL INDEX EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
S&P POLLUTION Farr Company Control Index S&P 500 Index 12/94 $100.00 $100.00 $100.00 12/95 $130.60 $143.04 $137.58 12/96 $271.40 $157.27 $169.18 12/97 $367.15 $195.97 $225.61 12/98 $371.56 $103.20 $290.09 12/99
B-9 ANNEX C AUDIT COMMITTEE CHARTER MEMBERS. The Audit Committee is appointed annually to serve at the pleasure of the Board. The Committee will be composed of three or more "outside" Directors. The Chairman of the Committee will be appointed by the Board and will preside at all meetings of the Committee. If not present, the senior outside Director shall preside at all meetings of the Committee. The Chief Financial Officer of the Company is the Secretary of the Committee. Minutes of the meetings are to be prepared and following approval by the Committee, sent to Committee members and Directors who are not members of the Committee. MEETINGS. The Audit Committee is to hold regular meetings at least two times per year, once at the beginning and once at the end of the normal audit cycle. Special meetings may be held at such times as the Committee Chairman may request. QUORUM. For the transaction of business at any meeting of the Committee, two members shall constitute a quorum. AUTHORITY. The Audit Committee is granted the authority to investigate any activity of the Company and its subsidiaries. All employees are directed to cooperate as requested by members of the Committee. The Committee is empowered to retain persons having special competency as necessary to assist the Committee in fulfilling its responsibility. The Committee may recommend a special audit in event of unusual circumstances to be conducted by independent accountants or internal auditors. The Committee may require the attendance of the independent accountants and/ or any of the internal audit staff at meetings of the Committee and to direct either to furnish reports and information to the Committee. RESPONSIBILITIES: Recommend to the Board the selection of independent accountants for the ensuing year including proposed fees. Review and approve scope of the independent accountants audit activity based on reports concerning evaluation of internal controls and procedures. Instruct the independent accountants and internal auditors to communicate directly with the committee and each other at all times. Particularly the following: (a) Any matter which in their judgment the accountants have not resolved with management (b) Any defalcation (c) Lack of cooperation with any level of management Review the results of internal audit activities Review internal audit budget and staffing level During the year, consult with management and the independent public accountants on matters related to the annual audit, the published financial statements and the accounting principles and auditing procedures being applied. Determine if changes in accounting and financial reporting practices or other unusual events may have a significant impact on published financial statements. C-1 Meet with the independent accountants after year end to discuss the results of their examination and submit to the Board of Directors any recommendations requiring Board approval. To monitor compliance with the Foreign Corrupt Practices Act and the Company's policies on ethical business practices and report same to the Board of Directors annually. The Committee should meet regularly with the Company's General Counsel and outside counsel when appropriate, to discuss legal matters that may have a significant impact on the Company's financial statements. Review the findings of internal auditors and independent accountants from the annual audit and interim work, including comments on controls and procedures. Review management responses relating to recommended changes in controls and/or accounting procedures. C-2 EX-99.A1 2 EXHIBIT 99(A)(1) Exhibit 99(a)(1) [LOGO] April 4, 2000 Dear Stockholder: I am pleased to inform you that Farr Company has entered into a merger agreement with Forvaltnings AB Parent (publ.), a Swedish corporation ("Parent"), pursuant to which a wholly owned subsidiary of Parent has commenced a tender offer to purchase all of the outstanding shares of Farr's common stock for $17.45 per share in cash. The tender offer is conditioned upon, among other things, a minimum of a majority of Farr's shares outstanding on a fully diluted basis being tendered and not withdrawn and the receipt of required regulatory approvals. The tender offer will be followed by a merger, in which each share of Farr common stock not purchased in the tender offer will be converted into the right to receive $17.45 per share in cash. YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE TERMS OF THE OFFER AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF FARR'S STOCKHOLDERS, AND UNANIMOUSLY RECOMMENDS THAT FARR'S STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES OF FARR COMMON STOCK PURSUANT TO THE OFFER. In arriving at its recommendation, the Board of Directors considered a number of factors, as described in the attached Schedule 14D-9, including the written opinion of the Company's financial advisor, Tucker Anthony Cleary Gull, that, as of the date of the opinion, the consideration to be received by the holders of Farr common stock pursuant to the merger agreement with Parent is fair from a financial point of view to Farr's stockholders. A copy of Tucker Anthony's written opinion, which sets forth the assumptions made, procedures followed and matters considered by Tucker Anthony in rendering its opinion, can be found in Annex A to the Schedule 14D-9. You should read the opinion carefully and in its entirety. Enclosed are the Offer to Purchase, dated April 4, 2000, Letter of Transmittal and related documents. These documents set forth the terms and conditions of the tender offer. The Schedule 14D-9 describes in more detail the reasons for your Board's conclusions and contains other information relating to the tender offer. We urge you to consider this information carefully.
/s/ H. JACK MEANY /s/ JOHN C. JOHNSTON ------------------------------------------- ------------------------------------------- H. Jack Meany John C. Johnston CHAIRMAN OF THE BOARD PRESIDENT AND CHIEF EXECUTIVE OFFICER
EX-99.A6 3 EXHIBIT 99(A)(6) EXHIBIT 99(a)(6) SECOND AMENDMENT TO RIGHTS AGREEMENT SECOND AMENDMENT, dated as of March 26, 2000 ("Second Amendment"), to that certain Rights Agreement, dated as of April 3, 1989, between Farr Company, a Delaware corporation (the "Company"), and ChaseMellon Shareholder Services, L.L.C., a New Jersey limited liability company (the "Rights Agent"), as successor to Security Pacific National Bank, the original rights agent under the Rights Agreement, as amended by that certain First Amendment to Rights Agreement dated as of March 23, 1999 (the "First Amendment")(as amended, the "Rights Agreement"). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Rights Agreement. All section and exhibit references are to sections and exhibits of the Rights Agreement. WHEREAS, pursuant to Section 26 of the Rights Agreement, the Company and the Rights Agent may from time to time supplement or amend any provision of the Rights Agreement in accordance with the terms of such Section 26. NOW, THEREFORE, in connection of the foregoing premises and mutual agreements set forth in this Second Amendment, the parties hereby amend the Rights Agreement as follows: 1. A new Section 33 is hereby added, which shall read in its entirety as follows: "33. Notwithstanding anything to the contrary contained in this Rights Agreement: (1) so long as that certain Agreement and Plan of Merger, dated as of March 26, 2000 (the "Merger Agreement"), among the Company, Forvaltnings AB Ratos (publ.), a Swedish corporation ("Ratos") and Ratos Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Ratos (the "Purchaser") has not been terminated pursuant to the termination provisions thereof, a Distribution Date will not occur or be deemed to occur, and neither Ratos, the Purchaser nor Camfil AB, a Swedish corporation ("Camfil") will become an Acquiring Person, as a result of the execution, delivery or performance of the Merger Agreement, the announcement, making or consummation of the tender offer contemplated thereby (the "Offer"), the acquisition of Common Shares pursuant to the Offer or the merger contemplated by the Merger Agreement (the "Merger"), the consummation of the Merger or any other transaction contemplated by the Merger Agreement, provided, however, that the Company will promptly notify the Rights Agent upon the termination of the Merger Agreement; and (2) the Rights will expire immediately prior to the consummation of the Offer." 2. A new paragraph is hereby inserted immediately prior to the final paragraph of Exhibit B; such new paragraph shall read, in its entirety, as follows: "Notwithstanding anything to the contrary contained in the Rights Agreement or in this Summary of Rights to Purchase Common Shares: (1) so long as that certain Agreement and Plan of Merger, dated as of March 26, 2000 (the "Merger Agreement"), among the Company, Forvaltnings AB Ratos (publ.), a Swedish corporation ("Ratos") and Ratos Acquisition Corp., a Delaware corporation and a wholly- owned subsidiary of Ratos (the "Purchaser") has not been terminated pursuant to the termination provisions thereof, a Distribution Date will not occur or be deemed to occur, and neither Ratos, the Purchaser nor Camfil AB, a Swedish corporation ("Camfil") will become an Acquiring Person, as a result of the execution, delivery or performance of the Merger Agreement, the announcement, making or consummation of the tender offer contemplated thereby (the "Offer"), the acquisition of Common Shares pursuant to the Offer or the merger contemplated by the Merger Agreement (the "Merger"), the consummation of the Merger or any other transaction contemplated by the Merger Agreement, provided, however, that the Company will promptly notify the Rights Agent upon the termination of the Merger Agreement; and (2) the Rights will expire immediately prior to the consummation of the Offer." 3. This Second Amendment shall be effective as of the date first above written and, except as expressly set forth herein, the Rights Agreement shall remain in full force and effect and be otherwise unaffected hereby. 4. This Second Amendment may be executed in any number of counterparts, each of which, when executed, shall be deemed to be an original and all such counterparts shall together constitute one and the same document. IN WITNESS WHEREOF, the parties have executed this Second Amendment as of the date first written above. FARR COMPANY By: /s/ STEVE PEGG --------------------------------- Name: Steve Pegg Title: Sr. Vice President & CFO CHASEMELLON SHAREHOLDER SERVICES, L.L.C. By: /s/ MARY ANN MCELROY --------------------------------- Name: Mary Ann McElroy Title: Relationship Manager 2 EX-99.E3 4 EXHIBIT 99(E)(3) Item 10. Directors and Executive Officers of the Registrant. In accordance with the Company's Bylaws, the Board of Directors is divided into three classes (two classes consisting of three directors and one class consisting of two directors). Three directors are to be elected at the Annual Meeting, each of whom will serve until the 2003 Annual Meeting or until their respective successors shall have been elected or appointed. Although the Board of Directors expects that each of the nominees will be available to serve as a director, in the event any of them should become unavailable prior to the Annual Meeting, the proxy will be voted for a nominee or nominees designated by the Board of Directors, or the number of directors may be reduced accordingly. However, the proxy cannot be voted for a greater number of persons than the number of nominees designated by the Board of Directors.
2000 Nominees Principal Business Experience During Past Director Name Age 5 Years and Certain Other Directorships Since - --------------- ----- ---------------------------------------------------------- --------- Denis R. Brown 59 President and Chief Executive Officer and a Director of 1997 Pinkerton, Inc. since April 1994, a leading supplier of global security solutions; Director, CalMat Co. since January 1997. John J. Kimes 56 President and Chief Executive Officer of Computerized 1995 Security Systems since 1988, a manufacturer of electronic and mechancial lock hardware and systems. H. Jack Meany 76 Chairman of the Board since April 1994; Chief Excutive 1976 Officer of the Company from February 1996 to February 1999; President and Chief Executive Officer of the Company from April 1994 to February 1996; Director, APS Inc. since 1990; Director, ESI, Inc. since 1980.
Continuing Directors Principal Business Experience During Past Director Term Name Age 5 Years and Certain Other Directorships Since Expires - ---------------- ----- ---------------------------------------------- ----------- ----------- Robert Batinovich 63 Chairman and Chief Executive Officer of Glenborough 1994 2001 Realty Trust Incorporated since 1996, a real estate investment company; President and majority owner of Glenborough Corporation since 1978. Richard P. Bermingham 60 Chairman of Bermingham Investment Company since 1997; 1990 2002 Vice Chairman of American Golf Corporation, a golf course management company, from 1994 to 1997. A. Frederick Gerstell 62 Vice Chairman, Director and Consultant of Vulcan 1998 2001 Materials Company since January 1999; Chairman and Chief Executive Officer of CalMat Co., a producer of construction materials, from 1996 to January 1999; Chairman, President, Chief Executive Officer and Chief Operating Officer of CalMat from 1991 to 1996; Director, Ameron, Inc., since 1997; Director and Vice Chairman of the National Stone Association since 1997. John C. Johnston 56 President and Chief Executive Officer of the Company 1996 2002 since February 1999; President and Chief Operating Officer of the Company from February 1996 to February 1999; Senior Vice President of the Company from January 1995 to February 1996; President of Easton Aluminum, Inc. an atheletic equipment manufacturer, from 1986 to December 1994. John A. Sullivan 45 Investments Advisor of Relational Investors, LLC 1996 2002 since 1998; Financial Consultant with Batchelder & Partners, Inc., from May 1996 to March 1998; Senior Vice President of The Seidler Companies Incorporated from August 1993 to April 1996; Director, American Coin Merchandising, Inc. since October 1995.
Item 11. Executive Compensation The following table shows the compensation earned by the Company's Chief Executive Officer and the four other most highly compensated officers whose cash compensation for the fiscal year ended January 1, 2000 exceeded $100,000 (collectively, the "Named Officers").
Summary Compensation Table Long Term Compensation ------------- Annual Compensation Awards ---------------------------- ------------- Securities All Other Underlying Compensation Name and Principal Position Year Salary ($) Bonus ($) Options (#) ($)(1) - ---------------------------- ------ ----------- ------------ ------------- ------------- H. Jack Meany, 1999 187,615 82,729 250,000 21,688(3) Chairman of the Board (2) 1998 246,002 203,307 0 23,546(3) 1997 246,002 247,834 0 25,829(3) John C. Johnston, 1999 195,500 119,804 15,000 18,881(4) President and Chief Executive 1998 170,000 112,397 22,500 13,187(4) Officer (2) 1997 170,000 137,013 30,000 14,522(4) Richard Larson, 1999 147,500 56,493 5,000 13,962(6) Executive Vice President (5) 1998 140,000 57,851 22,500 59,065(6) 1997 72,693 36,617 15,000 30,728(6) Steve Pegg, 1999 124,000 49,600 5,000 16,987(8) SeniorVice President and Chief 1998 50,077 20,031 20,000 18,090(8) Financial Officer (7) Myron Rasmussen, 1999 117,393 25,179 0 15,945(9) Vice President 1998 117,393 27,165 0 16,613(9) 1997 117,393 33,115 0 18,090(9) - ----------------------------------------
(1) Excludes compensation in the form of perquisites and other personal benefits that do not exceed the lesser of (i) $50,000 or (ii) 10% of the total annual salary and bonus reported for each year. (2) Effective February 16, 1999, Mr. Meany resigned from the position of the Company's Chief Executive Officer, though he still serves the Company as its Chairman of the Board and remains an officer of the Company. Effective the same date, Mr. Johnston, who previously served as President and Chief Operating Officer, assumed the role of President and Chief Executive Officer of the Company. (3) Consists of contributions by the Company under its Supplemental Executive Savings Plan and 401(k) Retirement Plan (collectively, the "Retirement Plans") except in 1999 that included $2,301 of certain life insurance premiums paid on behalf of Mr. Meany. (4) In 1999, consists of $15,731 of contributions by the Company under the Retirement Plans and $3,150 of certain life insurance premiums paid on behalf of Mr. Johnston. In 1998, consists of $9,002 of contributions by the Company under the Retirement Plans and $4,185 of certain life insurance premiums paid on behalf of Mr. Johnston. In 1997, consists of $11,666 of contributions by the Company under the Retirement Plans and $2,856 of certain life insurance premiums paid on behalf of Mr. Johnston. (5) Mr. Larson's employment with the Company commenced in June 1997. (6) In 1999 , consists of $12,652 of contributions by the Company under the retirement Plans and $1,310 of certain life insurance premiums paid on behalf of Mr. Larson. In 1998, consists of $47,662 for reimbursement of relocation costs, $6,517 of contributions by the Company under the Retirement Plans and $800 of certain life insurance premiums paid on behalf of Mr. Larson. In 1997, includes $27,180 for reimbursement of relocation costs and $770 of certain life insurance premiums paid on behalf of Mr. Larson. (7) Mr. Pegg's employment with the Company commenced in August 1998. (8) In 1999, consists of $10,389 for reimbursement for relocation cost, $6,150 of contributions by the Company under the Retirement Plans and $448 of certain life insurance premiums paid on behalf of Mr. Pegg. In 1998, consists of $2,850 for reimbursement of relocation costs and $140 of certain life insurance premiums paid on behalf of Mr. Pegg. (9) In 1999, consists of $11,057 of contributions by the Company under the Retirement Plans and $ ,000 of certain life insurance premiums paid on behalf of Mr. Rasmussen. In 1998, consists of $10,084 of contributions by the Company under the Retirement Plans and $6,529 of certain life insurance premiums paid on behalf of Mr. Rasmussen. In 1997, consists of $11,130 of contributions by the Company under the Retirement Plans and $6,960 of certain life insurance premiums paid on behalf of Mr. Rasmussen.
OPTION GRANTS IN LAST FISCAL YEAR Shown below is information concerning grants of options by the Company to the Named Officers in 1999: Potential Realizable Value at Assumed Annual Rates of Stock Number of % of Total Price Appreciation Securities Options For Option Term (2) Underlying Granted to Exercise ------------------------------------ Options Employees in Price Expiration Name Granted(#)(1) Fiscal Year ($/Share) Date 5% 10% - --------------- ------------- ------------- ---------- ----------- ------------------ -------------- H. Jack Meany 250,000 86.5% $9.50 2/16/09 $1,493,624 $3,785,138 John C. Johnston 15,000 5.2% $9.50 2/16/09 $ 89,617 $ 227,108 Richard Larson 5,000 1.7% $9.50 2/16/09 $ 29,872 $ 75,703 Steve Pegg 5,000 1.7% $9.50 2/16/09 $ 29,872 $ 75,703 - -------------------------------------------------------------------------------------------------------------------
(1) Such options were granted on February 16, 1999 with an exercise price equal to the closing sale price of the Common Stock as reported on the Nasdaq National Market on such date. (2) The 5% and 10% assumed rates of appreciation are specified under the rules of the SEC and do not represent the Company's estimate or projection of the future price of the Common Stock. The actual value, if any, which a Named Officer may realize upon the exercise of stock options will be based upon the difference between the market price of the Common Stock on the date of exercise and the exercise price. STOCK OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES The following table sets forth for the Named Officers information with respect to unexercised options and year-end option values, in each case with respect to options to purchase shares of Common Stock held as of January 1, 2000.
Value of Unexercised In-the- Shares Number of Unexercised Money Options at Acquired Value Options at FY-End (#) FY-End ($) (1) on Realized ------------------------------- --------------------------------- Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable - ---------------- ------------- --------- -------------- -------------- -------------- --------------- H. Jack Meany(2) 0 -- 268,000 -- 178,500 -- John C. Johnston 0 -- 119,625 46,875 771,500 30,000 Richard Larson 0 -- 13,125 29,375 -- 1,250 Steve Pegg 0 -- 5,000 20,000 -- 3,125 Myron G. Rasmussen 1,406 $6,452 34,313 -- 201,422 -- - ----------------------------------------------------------------------------------------------------------------------------
(1) Calculated based on the closing price of the Company's Common Stock ($9.75 per share) as reported on the Nasdaq National Market on January 1, 2000. (2) Mr. Meany holds options to purchase 18,000 shares of Common Stock that were granted pursuant to the Director Plan for his services to the Company as a non-employee director. Item 12. Security Ownership of Certain Beneficial Owners and Management The following table sets forth information as of March 15, 2000 with respect to shares of the Common Stock which are held by persons known to the Company to be beneficial owners of more than 5% of the Common Stock. For purposes of this proxy statement, beneficial ownership of securities is defined in accordance with the rules of the SEC and means generally the power to vote or dispose of securities, regardless of any economic interest therein.
Amount and Nature of Name and Address of Beneficial Owner Beneficial Ownership Percent of Class(1) - ----------------------------------------------- -------------------- ---------------------- Wellington Management Company, LLP 693,150(2) 9.5% 75 State Street Boston, Massachusetts 02109 Fleet Boston Corporation 553,375(3) 7.6% One Federal Street Boston, Massachusetts 02110 DimensionalFund Advisors, Inc. 423,985(4) 5.8% 1299 Ocean Ave, 11th Floor Santa Monica, CA 90401 Reed Conner & Birdwell, Inc. 375,060(5) 5.2% 11111 Santa Monica Boulevard, Suite 1700 Los Angeles, California 90025 - ------------------------------------
(1) Based on 7,278,207 shares of Common Stock outstanding as of March 15, 2000 (not including 1,635,445 shares held in treasury). (2) Based on information contained in a Schedule 13G/A filed with the SEC on February 4, 2000. (3) Based on information contained in a Schedule 13G filed with the SEC on February 14, 2000. (4) Based on information contained in a Schedule 13G/A filed with the SEC on January 24, 2000. (5) Based on information contained in a Schedule 13G/A filed with the SEC on February 14, 2000. OWNERSHIP BY MANAGEMENT The following table sets forth as of March 15, 2000 information with respect to the beneficial ownership of the Common Stock by each director, each Named Officer (as defined below) and by all of the Company's directors and executive officers as a group:
Shares Percent Beneficially of Name of Beneficial Owner Position Owned(1)(2) Class(1)(3) - -------------------------- -------------------------------- ------------- --------------- H. Jack Meany...................... Chairman of the Board........... 480,975 6.4% Robert Batinovich.................. Director........................ 252,000 3.4% Richard P. Bermingham.............. Director........................ 46,125 * Denis R. Brown..................... Director........................ 24,000 * John J. Kimes...................... Director........................ 24,000 * John A. Sullivan................... Director........................ 26,550 * A. Frederick Gerstell.............. Director........................ 13,500 * John C. Johnston................... President and Chief Executive Officer, Director............... 138,699 1.9% Richard Larson..................... Executive Vice President........ 20,000 * Stephen Pegg....................... Senior Vice President........... 31,250 * Myron G. Rasmussen................. Vice President.................. 43,758 * Directors and Executive Officers as a group (11 persons)............. 1,100,857 14.0% - -----------------------------------
* = Less than 1%. (1) Based on 7,278,207 shares of Common Stock outstanding as of March 15, 2000 (not including 1,635,445 shares held in treasury). Shares shown as beneficially owned are those as to which the named persons possess sole voting and investment power. However, under California law, personal property owned by a married person may be community property that either spouse may manage and control. The Company does not have any information as to whether any shares shown in this table are subject to California community property law. (2) Includes shares purchasable within 60 days upon exercise of outstanding stock options as follows: H.J. Meany, 268,000; R. Batinovich, 27,000; R.P. Bermingham, 40,500; D. Brown, 13,500; J.J. Kimes, 22,500; J. Sullivan, 18,000; A.F. Gerstell, 9,000; J. Johnston, 136,500; R. Larson, 20,000; M.G. Rasmussen, 16,312; Steve Pegg, 6,250; and all Directors and Executives Officers as a group, 577,562. (3) For purposes of computing the percentages, the number of shares of Common Stock outstanding includes shares purchasable by such individual or group within 60 days upon exercise of outstanding stock options. EX-99.E4 5 EXHIBIT 99.(E)(4) AGREEMENT TO TENDER AGREEMENT (this "AGREEMENT"), dated as of March 26, 2000, among Forvaltnings AB Ratos (publ.), a Swedish corporation ("PARENT"), Ratos Acquisition Corp., a Delaware corporation ("MERGER SUB"), Robert Batinovich, Richard P. Bermingham, Dennis R. Brown, A. Frederick Gerstell, John C. Johnston, John J. Kimes, H. Jack Meany and John A. Sullivan (each a "Director" and collectively, the "DIRECTORS"). RECITALS WHEREAS, Parent, Merger Sub and Farr Company, a Delaware corporation (the "COMPANY"), have entered into an Agreement and Plan of Merger, dated as of the date hereof (the "MERGER AGREEMENT"), pursuant to which Merger Sub will commence a cash tender offer to acquire all of the outstanding shares of common stock, par value $.10 per share, of the Company (the "COMPANY COMMON STOCK") and the Company and Merger Sub will merge, with the Company as the surviving corporation in the merger; WHEREAS, as of the date hereof, each Director is a member of the board of directors of the Company (the "BOARD"); WHEREAS, each Director is the record and beneficial owner of the number of shares of Company Common Stock set forth opposite such Director's name on Schedule A hereto and the number of options to purchase shares of Company Common Stock set forth opposite such Director's name on Schedule B hereto; such shares and options, as they may be adjusted by stock dividend, stock split, recapitalization, combination or exchange of shares, merger, consolidation, reorganization or other transaction or event involving the Company, together with any shares of Company Common Stock or options to purchase shares of Company Common Stock that may be acquired after the date hereof by such Director, being collectively referred to herein as the "SHARES"; and WHEREAS, as a condition to their willingness to enter into the Merger Agreement, Parent and Merger Sub have requested that the Directors enter into this Agreement; NOW, THEREFORE, to induce Parent and Merger Sub to enter into, and in consideration of their entering into, the Merger Agreement, the parties hereto agree as follows: 1. TENDER OF SHARES. Each Director hereby agrees that he or she shall tender his or her Shares into the Offer (as defined in the Merger Agreement) and that he -1- or she shall not withdraw any Shares so tendered, unless the Board determines not to recommend the Offer pursuant to Section 1.2(b) or Section 6.2(b) of the Merger Agreement. 2. APPOINTMENT OF NEW DIRECTORS AND RESIGNATION OF CURRENT DIRECTORS. (a) Subject to the terms and conditions contained in Section 1.3 of the Merger Agreement, each Director hereby agrees (i) to take all actions necessary to appoint such number of new members of the Board designated by Parent as provided for in Section 1.3(a) of the Merger Agreement and (ii) to resign as director of the Company upon request of Parent and/or Merger Sub, in each case, to the extent required in order to allow the Company to comply with Section 1.3(a) of the Merger Agreement and in accordance with the terms and conditions contained therein. (b) In the event that one or more Directors fail to resign from the Board in accordance with the terms of paragraph 2(a), above, the Board shall immediately call a special meeting of the shareholders of the Company in order to vote upon the removal of such Director or Directors from the Board. 3. REPRESENTATIONS AND WARRANTIES OF THE DIRECTORS. Each Director hereby represents and warrants severally and not jointly to Parent and Merger Sub as follows: (a) AUTHORITY. The Director has all requisite power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by the Director and, assuming this Agreement constitutes a valid and binding obligation of Parent and Merger Sub, constitutes a valid and binding obligation of the Director enforceable against the Director in accordance with its terms. (b) THE SHARES. The Director's Shares and the certificates representing such Shares are now, and at all times during the term hereof will be, held by such Director, or by a nominee or custodian for the benefit of such Director, and the Director has good and marketable title to such Shares, free and clear of any liens, proxies, voting trusts or agreements, understandings or arrangements, except for any such liens or proxies arising hereunder. 4. COVENANTS OF THE DIRECTORS. Each Director hereby agrees as follows: (a) The Director shall not, except as contemplated by the terms of this Agreement and the Merger Agreement, sell, transfer, pledge, assign or otherwise dispose of, or enter into any contract, option or other arrangement or understanding with respect to the sale, transfer, pledge, assignment or other disposition of, or grant of any lien with -2- respect to, the Shares to any person other than Parent or Merger Sub or take any other action that would in any way restrict, limit or interfere with the performance of his/her obligations hereunder or the transactions contemplated hereby. (b) Each Director will, from time to time, execute and deliver, or cause to be executed and delivered, such additional or further transfers, assignments, endorsements, consents and other instruments as Parent or Merger Sub may reasonably request for the purpose of effectively carrying out the transactions contemplated by this Agreement. 5. ASSIGNMENT. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. Each Director agrees that the obligations to tender the Shares hereunder shall attach to such Director's Shares and shall be binding upon any person or entity to which legal or beneficial ownership of such Shares shall pass, whether by operation of law or otherwise, including without limitation such Director's heirs or successors. 6. AMENDMENT; WAIVER. This Agreement may be amended only by a written instrument signed by all of the parties hereto. No provision of this Agreement may be waived orally, but only by a written instrument signed by the party against whom enforcement of such waiver is sought. 7. COUNTERPARTS. For the convenience of the parties hereto, this Agreement may be executed in any number of counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement. 8. GOVERNING LAW. This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of Delaware without giving effect to Delaware conflicts of law principles. 9. NOTICES. Any notice, request, instruction or other document to be given hereunder by any party to the others shall be deemed given if in writing and delivered personally or sent by registered mail (return receipt requested) or overnight courier (providing proof of delivery), postage prepaid or facsimile (which is confirmed): IF TO PARENT OR MERGER SUB, ADDRESSED TO: Arne Karlsson Forvaltnings AB Ratos (publ.) Drottninggatan 2 SE-111 96 Stockholm, Sweden -3- Attention: President Fax: +46 810 2559 IF TO ANY DIRECTOR, ADDRESSED TO HIM OR HER C/O: Robert K. Montgomery Gibson, Dunn & Crutcher LLP 2029 Century Park East Los Angeles, California 90067-3026 Fax: (310) 551-8741 or to such other addresses as may be designated in writing by the party to receive such notice as provided above. 10. ENTIRE AGREEMENT. This Agreement (i) constitutes the entire agreement, and supersedes all other prior agreements and understandings, both written and oral, among the parties, with respect to the subject matter hereof; and (ii) is for the benefit only of the parties hereto and is not intended to create any obligations to, or rights in respect of, any other persons or entities. 11. ILLEGALITY. In case any provision in this Agreement shall be declared or held invalid, illegal or unenforceable, in whole or in part, whether generally or in any particular jurisdiction, such provision shall be deemed amended to the extent, but only to the extent, necessary to cure such invalidity, illegality or unenforceability, and the validity, legality and enforceability of the remaining provisions, both generally and in every other jurisdiction, shall not in any way be affected or impaired thereby. 12. INJUNCTIVE RELIEF. The parties hereto acknowledge and agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, the parties hereto acknowledge their intention that, to the fullest extent permissible under applicable laws, the parties shall be entitled to an injunction or injunctions to prevent or cure breaches of the provisions of this Agreement, this being in addition to any other remedy to which they may be entitled by law or equity. 13. HEADINGS. The paragraph headings herein are for convenience of reference only, do not constitute part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions hereof. -4- IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the parties hereto or their duly authorized officers on the date first hereinabove written. FORVALTNINGS AB RATOS (PUBL.) By: ______________________ Name: Title: RATOS ACQUISITION CORP. By: ______________________ Name: Title: - --------------------------- --------------------------- ROBERT BATINOVICH RICHARD P. BERMINGHAM - --------------------------- --------------------------- DENNIS R. BROWN A. FREDERICK GERSTELL - --------------------------- --------------------------- JOHN C. JOHNSTON JOHN J. KIMES - --------------------------- --------------------------- H. JACK MEANY JOHN A. SULLIVAN -5- SCHEDULE A HOLDINGS OF SHARES OF FARR COMPANY -6- SCHEDULE B HOLDINGS OF OPTIONS TO PURCHASE SHARES OF FARR COMPANY -7- EX-99.E5 6 EXHIBIT 99.(E)(5) EXHIBIT 99(e)(5) AMENDED AND RESTATED EMPLOYMENT CONTINUATION AGREEMENT THIS AGREEMENT is between FARR COMPANY, a Delaware corporation (the "Company"), and John C. Johnston (the "Executive"), dated as of this 27th day of March, 2000. WHEREAS, the Company has entered into the Agreement and Plan of Merger (the "Merger Agreement") dated as of March 26, 2000 among the Company, Forvaltnings AB Ratos, a Swedish corporation and Ratos Acquisition Corp., a Delaware corporation. WHEREAS, the Company and the Executive have entered into an Employment Continuation Agreement dated February 15, 2000. WHEREAS, in connection with the Merger Agreement, the Company and the Executive agree to amend and restate such Employment Continuation Agreement in its entirety as set forth in this Amended and Restated Employment Continuation Agreement (this "Agreement"). NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, it is hereby agreed by and between the Company and the Executive as follows: 1. EFFECTIVE DATE. The effective date of this Agreement (the "Effective Date") shall be the Effective Time of the merger of Ratos Acquisition Corp. with and into Farr Company, as defined in the Merger Agreement. 2. EMPLOYMENT PERIOD. Subject to Section 5 of this Agreement, the Company agrees to continue the Executive in its employ, and the Executive agrees to remain in the employ of the Company, for the period (the "Employment Period") commencing on the Effective Date and ending on December 31, 2003. 3. NO REDUCTION IN POSITION. During the Employment Period, the Executive's position, authority and responsibilities shall be at least commensurate with those held, exercised and assigned immediately prior to the Effective Date. The Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date, or at another location within 75 miles of it. 4. COMPENSATION. (a) BASE SALARY. During the Employment Period, the Executive shall receive a base salary at a rate at least equal to $204,000. The Executive's base salary, as it may be increased from time to time, shall hereafter be referred to as "Base Salary". Neither the Base Salary nor any increase in Base Salary after the Effective Date shall serve to limit or reduce any other obligation of the Company hereunder. (b) ANNUAL BONUS. During the Employment Period, in addition to the Base Salary, for each fiscal year of the Company ending during the Employment Period or partial year beginning during the Employment Period, the Executive shall participate in an annual bonus plan on the same terms and conditions as the annual bonus plan the Executive had participated in during the fiscal year ended immediately prior to the Effective Date, the Executive's annual bonus hereunder to be calculated in accordance with the April 27, 1999, summary of the plan attached hereto as Exhibit A (the "Annual Bonus") provided that: (i) the yearly target operating income shall be established pursuant to the four year plan forecast contained in the January, 2000 Management Presentation of Farr Company prepared by Tucker Anthony Cleary Gull (ii) the Executive's participation level in connection with the annual bonus plan shall be 100% of the Base Salary (the "Target Incentive Payment"); and (iii) the maximum Annual Bonus that may be earned by the Executive in any year should Farr Company exceed its target operating profit under the annual bonus plan shall be 180% of the Target Incentive Payment. (c) BENEFIT PLANS. During the Employment Period, the Executive (and, to the extent applicable, his dependents) shall be entitled to participate in or be covered under any pension, retirement deferred compensation, savings, medical, dental, health, disability, group life, accidental death and travel accident insurance plans and programs of the Company for which Executive is eligible at a level that is commensurate with the Executive's participation in such plans immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available to the Executive or other similarly situated officers at any time thereafter. (d) PERQUISITES AND FRINGE BENEFITS. During the Employment Period, the Executive shall be entitled to perquisites and fringe benefits at a level that is commensurate with the perquisites and fringe benefits available to the Executive immediately prior to the Effective Date, or, if more favorable to the Executive, at the level made available from time to time to the Executive or other similarly situated officers at any time thereafter. (e) INDEMNIFICATION. During and after the Employment Period, to the extent permitted by law and under the Certificate of Incorporation and By-laws of the Company, the Company shall indemnify the Executive and hold the Executive harmless from and against any claim, loss or cause of action arising from or out of the Executive's performance as an officer, director or employee of the Company or any of its Subsidiaries or in any other capacity, including any fiduciary capacity, in which the Executive serves at the request of the Company. 5. TERMINATION. (a) DEATH, DISABILITY OR RETIREMENT. This Agreement shall terminate automatically upon the Executive's death or termination due to "Disability". For purposes of this Agreement, Disability shall mean the Executive's inability to perform the duties of his position, as determined in accordance with the policies and procedures applicable with respect to the Company's long-term disability plan, as in effect immediately prior to the Effective Date or its equivalent. -2- (b) VOLUNTARY TERMINATION. Notwithstanding anything in this Agreement to the contrary, the Executive may, upon not less than 30 days' written notice to the Company, voluntarily terminate employment for any reason (including early retirement under the terms of any of the Company's retirement plans as in effect from time to time), PROVIDED THAT any termination by the Executive pursuant to Section 5(d) on account of Good Reason (as defined therein) shall not be treated as a voluntary termination under this Section 5(b). (c) CAUSE. The Company may terminate the Executive's employment for Cause. For purposes of this Agreement, "Cause" means (I) the Executive's conviction of a felony or the entering by the Executive of a plea of non contendere to a felony charge, (II) the Executive's gross neglect, willful malfeasance or willful gross misconduct in connection with his employment hereunder which has had a significant adverse effect on the business of the Company and its subsidiaries, unless the Executive reasonably believed in good faith that such act or nonact was in or not opposed to the best interests of the Company, (III) the Executive's repeated failure to substantially perform his duties hereunder following receipt by Executive of written notice specifying the nature of such unsatisfactory performance, or (IV) use of alcohol or drugs to an extent determined by the board of directors in its sole discretion to be excessive. (d) GOOD REASON. During the Employment Period, the Executive may terminate his employment for Good Reason. For purposes of this Agreement, "Good Reason" means the occurrence of any of the following, without the express written consent of the Executive: (i) (A) the assignment to the Executive of any duties inconsistent in any material adverse respect with the Executive's position, authority or responsibilities as contemplated by Section 3 of this Agreement, or (B) any other material adverse change in such position (not including changes in title), authority or responsibilities, provided, however, that Good Reason shall not be deemed to occur upon a change in duties or responsibilities that is solely a result of the Company no longer being a publicly traded entity and does not involve any other event set forth in this paragraph (d); (ii) any failure by the Company to comply with any of the provisions of Section 4 of this Agreement, other than an insubstantial or inadvertent failure remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location more than 75 miles from that location at which he performed his services specified under the provisions of Section 3 immediately prior to the Effective Date; (iv) any other material breach of this Agreement by the Company; or -3- (v) any failure by the Company to obtain the assumption and agreement to perform this Agreement by a successor as contemplated by Section 11(b). For purposes of this Section 5(d), no action or inaction shall give rise to the right of Executive to terminate the Employment Period and Executive's employment hereunder for Good Reason unless a written notice is given by Executive to the Company, within ninety (90) days after Executive has actual knowledge of the occurrence of the event giving rise to Executive's right to terminate pursuant to this Section 5(e), and such event has not been cured within fifteen (15) days after such notice. Executive's continued employment during the ninety (90) day period referred to above in this Section 5(d) shall not constitute consent to, or a waiver of rights with respect to, any act or failure to act constituting Good Reason hereunder. (e) NOTICE OF TERMINATION. Any termination by the Company for Cause or by the Executive for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(e). For purposes of this Agreement, a "Notice of Termination" means a written notice given within a reasonable time after the event or action believed to constitute the reason for giving notice. (f) DATE OF TERMINATION. For purposes of this Agreement, the term "Date of Termination" means (I) in the case of a termination for which a Notice of Termination is required, the date of receipt of such Notice of Termination, or if later, the date specified therein up to 30 days after receipt, as the case may be, and (II) in all other cases, the actual date on which the Executive's employment terminates during the Employment Period. 6. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) DEATH OR DISABILITY. If the Executive's employment is terminated during the Employment Period by reason of the Executive's death or Disability, this Agreement shall terminate without further obligations to the Executive or the Executive's legal representatives under this Agreement other than those obligations accrued hereunder at the Date of Termination, and the Company shall pay to the Executive (or his beneficiary or estate) (I) the Executive's full Base Salary through the Date of Termination (the "Earned Salary"), (II) any vested amounts or vested benefits owing to the Executive under the Company's otherwise applicable employee benefit plans and programs, including any compensation previously deferred by the Executive (together with any accrued earnings thereon) and not yet paid by the Company (the "Accrued Obligations") which in each instance under this Agreement shall be paid in accordance with the terms of the applicable plan, program or arrangement, and (III) any other benefits payable due to the Executive's Death or Disability under the Company's plans, policies or programs (the "Additional Benefits"). (b) CAUSE AND VOLUNTARY TERMINATION. If, during the Employment Period, the Executive's employment shall be terminated for Cause or voluntarily terminated by the Executive, the Company shall pay the Executive (A) the Earned Salary in cash in a single lump sum as soon -4- as practicable, but in no event more than 10 days, following the Date of Termination, and (B) the Accrued Obligations. (c) TERMINATION BY THE COMPANY OTHER THAN FOR CAUSE AND TERMINATION BY THE EXECUTIVE FOR GOOD REASON. (i) PAYMENTS. If, during the Employment Period, the Company terminates the Executive's employment other than for Cause, or the Executive terminates his employment for Good Reason, the Company shall pay to the Executive the following amounts: (A) the Executive's Earned Salary; (B) a cash amount (the "Severance Amount") equal to two times the sum of (X) the Executive's annual Base Salary and (Y) an amount equal to the last Annual Bonus earned by the Executive during the full year preceding the Effective Date; and (C) the Accrued Obligations. The Earned Salary shall be paid in accordance with the Company's regular payroll practices. The Severance Amount shall be paid in fifty-two (52) equal payments at dates concurrent with the Company's regular payroll cycle commencing with the next payroll cycle following the Date of Termination. (ii) CONTINUATION OF BENEFITS. If, during the Employment Period, the Company terminates the Executive's employment other than for Cause, the Executive terminates his employment for Good Reason, the Executive (and, to the extent applicable, his dependents) shall be entitled, after the Date of Termination until the second anniversary of the Date of Termination (the "End Date") to continue participation in any medical, health, dental, group life and group disability insurance plans in which executive participated prior to his termination (the "Benefit Plans"). To the extent any such benefits cannot be provided under the terms of the applicable plan, policy or program, the Company shall provide a comparable benefit under another plan or from the Company's general assets. The Executive's participation in the Benefit Plans will be on the same terms and conditions (including required contributions by the Executive) that would have applied had the Executive continued to be employed by the Company through the End Date. (d) DISCHARGE OF THE COMPANY'S OBLIGATIONS. Except as expressly provided in the last sentence of this Section 6(d), the amounts payable to the Executive pursuant to this Section 6 (whether or not reduced pursuant to Section 6(e)) following termination of his employment shall be in full and complete satisfaction of the Executive's rights under this Agreement and any other claims he may have in respect of his employment by the Company or any of its Subsidiaries. Such amounts shall constitute liquidated damages with respect to any and all such rights and claims and, upon the Executive's receipt of such amounts, the Company shall be released and discharged from any and all liability to the Executive in connection with this Agreement or otherwise in connection with the Executive's employment with the Company and -5- its Subsidiaries. Nothing in this Section 6(d) shall be construed to release the Company from its commitment to indemnify the Executive pursuant to Section 4(e). (e) LIMIT ON PAYMENTS BY THE COMPANY. (i) APPLICATION OF SECTION 6(e). In the event that any amount or benefit paid or distributed to the Executive pursuant to this Agreement, taken together with any amounts or benefits otherwise paid or distributed to the Executive by the Company or any affiliated company (collectively, the "Covered Payments"), would be an "excess parachute payment" as defined in Section 280G of the Code and would thereby subject the Executive to the tax (the "Excise Tax") imposed under Section 4999 of the Code (or any similar tax that may hereafter be imposed), the provisions of this Section 6(e) shall apply to determine the amounts payable to Executive pursuant to this Agreement. (ii) CALCULATION OF BENEFITS. Immediately following delivery of any Notice of Termination, the Company shall notify the Executive of the aggregate present value of all termination benefits to which he would be entitled under this Agreement and any other plan, program or arrangement as of the projected Date of Termination, together with the projected maximum payments, determined as of such projected Date of Termination that could be paid without the Executive being subject to the Excise Tax. (iii) IMPOSITION OF PAYMENT CAP. If the aggregate value of all compensation payments or benefits to be paid or provided to the Executive under this Agreement and any other plan, agreement or arrangement with the Company exceeds the amount which can be paid to the Executive without the Executive incurring an Excise Tax, then the amounts payable to the Executive under this Section 6 shall be reduced (but not below zero) to the maximum amount which may be paid hereunder without the Executive becoming subject to such an Excise Tax (such reduced payments to be referred to as the "Payment Cap"). In the event that the Executive receives reduced payments and benefits hereunder, the Executive shall have the right to designate which of the payments and benefits otherwise provided for in this Agreement that he will receive in connection with the application of the Payment Cap. (iv) APPLICATION OF SECTION 280G. For purposes of determining whether any of the Covered Payments will be subject to the Excise Tax and the amount of such Excise Tax, (A) (X) whether Covered Payments are "parachute payments" within the meaning of Section 280G of the Code, and (Y) whether there are "parachute payments" in excess of the "base amount" (as defined under Section 280G(b)(3) of the Code) shall be determined in good faith by the Company's independent certified public accountants appointed prior to the -6- Effective Date (the "Accountants") or tax counsel selected by such Accountants, and (B) the value of any non-cash benefits or any deferred payment or benefit shall be determined by the Accountants in accordance with the principles of Section 280G of the Code. (v) ADJUSTMENTS IN RESPECT OF THE PAYMENT CAP. If the Executive receives reduced payments and benefits under this Section 6(e) (or this Section 6(e) is determined not to be applicable to the Executive because the Accountants conclude that Executive is not subject to any Excise Tax) and it is established pursuant to a final determination of a court or an Internal Revenue Service proceeding (a "Final Determination") that, notwithstanding the good faith of the Executive and the Company in applying the terms of this Agreement, the aggregate "parachute payments" within the meaning of Section 280G of the Code paid to the Executive or for his benefit are in an amount that would result in the Executive's being subject to an Excise Tax, then any amounts actually paid to or on behalf of the Executive which are treated as excess parachute payments shall be deemed for all purposes to be a loan to the Executive made on the date of receipt of such excess payments, which the Executive shall have an obligation to repay to the Company on demand, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the date of the payment hereunder to the date of repayment by the Executive. If the Executive receives reduced payments and benefits by reason of this Section 6(e) and it is established pursuant to a Final Determination that the Executive could have received a greater amount without exceeding the Payment Cap, then the Company shall promptly thereafter pay the Executive the aggregate additional amount which could have been paid without exceeding the Payment Cap, together with interest on such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code) from the original payment due date to the date of actual payment by the Company. 7. NON-EXCLUSIVITY OF RIGHTS. Except as expressly provided herein, nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Company for which the Executive may qualify, nor shall anything herein limit or otherwise prejudice such rights as the Executive may have under any other agreements with the Company, including employment agreements or stock option agreements. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan or program. 8. NO MITIGATION OR OFFSET. The Executive shall have no obligation to seek other employment and there shall be no offset against amounts due to Executive under the Agreement on account of any remuneration attributable to subsequent employment that he may -7- obtain or on account of other claims. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right which the Company may have against the Executive or others whether by reason of the subsequent employment of the Executive or otherwise. 9. LEGAL FEES AND EXPENSES. If the Executive asserts any claim in any contest (whether initiated by the Executive or by the Company) as to the validity, enforceability or interpretation of any provision of this Agreement, the Company shall pay the Executive's legal expenses (or cause such expenses to be paid) including, without limitation, his reasonable attorney's fees, on a quarterly basis, upon presentation of proof of such expenses in a form acceptable to the Company, PROVIDED THAT the Executive shall reimburse the Company for such amounts, plus simple interest thereon at the 90-day United States Treasury Bill rate as in effect from time to time, compounded annually, if the Executive shall not prevail, in whole or in part, as to any material issue as to the validity, enforceability or interpretation of any provision of this Agreement. 10. CONFIDENTIAL INFORMATION; COMPANY PROPERTY. By and in consideration of the salary and benefits to be provided by the Company hereunder, including the severance arrangements set forth herein, the Executive agrees that: (a) CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, (I) obtained by the Executive during his employment by the Company or any of its affiliated companies and (II) not otherwise public knowledge (other than by reason of an unauthorized act by the Executive). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company, unless compelled pursuant to an order of a court or other body having jurisdiction over such matter, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. (b) COMPANY PROPERTY. Except as expressly provided herein, promptly following the Executive's termination of employment, the Executive shall return to the Company all property of the Company and all copies thereof in the Executive's possession or under his control, except that the Executive may retain his personal notes, diaries, Rolodexes, calendars and correspondence. (c) NON-COMPETE. During the Employment Period and during the period that Executive is receiving payments in respect of the Severance Amount or is participating in any continued benefit plans in accordance with Section 6(c)(ii), Executive shall not directly or indirectly own, manage, control, participate in, consult with render services for or otherwise engage in any business (including as an employee, agent, or partner by himself or through any -8- other entity that is in competition with the business of the Company. Nothing herein shall prohibit the Executive from being a passive owner of not more than 2% of the outstanding stock or other equity interests of a corporation or other entity which is publicly traded, so long as the Executive has no active participation in the business of such corporation. 11. SUCCESSORS. (a) This Agreement is personal to the Executive and, without the prior written consent of the Company, shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors. The Company shall require any successor to all or substantially all of the business and/or assets of the Company, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock, or otherwise, by an agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as the Company would be required to perform if no such succession had taken place. 12. MISCELLANEOUS. (a) APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, applied without reference to principles of conflict of laws. (b) ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be resolved by binding arbitration. The arbitration shall be held in the county of Los Angeles, California and except to the extent inconsistent with this Agreement, shall be conducted in accordance with the Expedited Employment Arbitration Rules of the American Arbitration Association (or such other voluntary arbitration rules applicable to employment contract disputes) in effect at the time of the arbitration, supplemented, as necessary, by those principles which would be applied by a court of law or equity. The arbitrator shall be acceptable to both the Company and the Executive. If the parties cannot agree on an acceptable arbitrator, the dispute shall be heard by a panel of three arbitrators, one appointed by each of the parties and the third appointed by the other two arbitrators. (c) AMENDMENTS. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (d) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties hereto with respect to the matters referred to herein. No other agreement relating to the terms of the Executive's employment by the Company, oral or otherwise, shall be binding between the parties unless it is in writing and signed by the party against whom enforcement is sought. There are no promises, representations, inducements or statements -9- between the parties other than those that are expressly contained herein. The Executive acknowledges that he is entering into this Agreement of his own free will and accord, and with no duress, that he has read this Agreement and that he understands it and its legal consequences. (e) NOTICES. All notices and other communications hereunder shall be in writing and shall be given by hand-delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: at the home address of the Executive noted on the records of the Company If to the Company: FARR COMPANY with a copy to: John D. Hannesson, Esq. 2201 Park Place 18661 Via Palatino E1 Segundo, California 90245 Irvine, California 92612 Attn.: Chief Financial Officer or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (f) TAX WITHHOLDING. The Company shall withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (g) SEVERABILITY: REFORMATION. In the event that one or more of the provisions of this Agreement shall become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. In the event that any of the provisions of any of Section 11(a) are not enforceable in accordance with its terms, the Executive and the Company agree that such Section shall be reformed to make such Section enforceable in a manner which provides the Company the maximum rights permitted at law. (h) WAIVER. Waiver by any party hereto of any breach or default by the other party of any of the terms of this Agreement shall not operate as a waiver of any other breach or default, whether similar to or different from the breach or default waived. No waiver of any provision of this Agreement shall be implied from any course of dealing between the parties hereto or from any failure by either party hereto to assert its or his rights hereunder on any occasion or series of occasions. (i) COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. -10- (j) CAPTIONS. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. IN WITNESS WHEREOF, the Executive has hereunto set his hand and the Company has caused this Agreement to be executed in its name on its behalf, and its corporate seal to be hereunto affixed and attested by its Secretary, all as of the day and year first above written. FARR COMPANY By: - -------------------------- -------------------------------- WITNESSED Name: Title: EXECUTIVE: - -------------------------- -------------------------------- WITNESSED: John C. Johnston -11- EXHIBIT A -12- -----END PRIVACY-ENHANCED MESSAGE-----