<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
THE TORO COMPANY
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
J. LAWRENCE MC INTYRE
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11
1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:*
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
* Set forth the amount on which the filing fee is calculated and state how it
was determined.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------------
4) Date Filed:
------------------------------------------------------------------------
<PAGE>
[LOGO] THE TORO COMPANY
- - ---------- -------------------------------------------------------
8111 Lyndale Avenue South, Bloomington, Minnesota
55420-1196
612/888-8801 - Telex 290928 - FAX NBR 887-8258
KENDRICK B. MELROSE
Chairman and CEO
November 1, 1994
Dear Stockholder:
You are cordially invited to join us for the Toro Annual
Meeting of Stockholders, to be held at 3:00 p.m. C.S.T. on
Thursday, December 15, 1994, at the corporate offices of The
Toro Company, 8111 Lyndale Avenue South, Bloomington,
Minnesota. Details about the meeting, nominees for the Board
of Directors and other matters to be acted upon are
presented in the Notice of Annual Meeting and Proxy
Statement which follow.
In addition to Annual Meeting formalities, we plan to report
to stockholders generally on the Company, and will be
pleased to answer stockholders' questions relating to the
Company.
As a stockholder of Toro, you have a vested interest in the
future of the Company and we therefore hope you plan to
attend the Annual Meeting. However, if you will not be able
to join us, we urge you to exercise your right as a
stockholder and to vote by proxy. For this purpose, please
promptly sign, date and return the enclosed proxy card.
On behalf of your Toro Board of Directors and management, it
is my pleasure to express our appreciation for your
continued support during 1994.
Sincerely,
[SIGNATURE]
Kendrick B. Melrose
IT IS IMPORTANT THAT YOU VOTE, SIGN AND RETURN THE ACCOMPANYING
PROXY CARD AS SOON AS POSSIBLE. BY DOING SO, YOU MAY SAVE THE COMPANY THE
EXPENSE OF ADDITIONAL SOLICITATION.
<PAGE>
[LOGO]
NOTICE OF ANNUAL MEETING
Notice is hereby given that the Annual Meeting of Stockholders of The Toro
Company will be held on Thursday, December 15, 1994, at 3:00 p.m. C.S.T. at the
corporate offices of The Toro Company, 8111 Lyndale Avenue South, Bloomington,
Minnesota, for the purpose of considering and acting upon the following matters
as described in the accompanying Proxy Statement:
1. To elect two directors, each to serve for a term of three years;
2. To approve a Chief Executive Officer Succession Incentive Plan;
3. To approve the selection of auditors for the Company for Fiscal 1995 (the
fiscal year ending July 31, 1995; and
4. To transact such other business as may properly come before the Annual
Meeting and any adjournment thereof.
A list of stockholders entitled to vote at the Annual Meeting will be available
at the corporate offices of The Toro Company, 8111 Lyndale Avenue South,
Bloomington, Minnesota, commencing December 1, 1994, during ordinary business
hours, for examination by any stockholder registered on the Company's Stock
Ledger as of the record date, for any purpose germane to the Annual Meeting. An
additional list for the same purpose will be available at the Annual Meeting.
Only stockholders of record on October 17, 1994, will be entitled to vote at the
meeting. Since a majority of the outstanding shares of the Company's Common
Stock must be represented either in person or by proxy to constitute a quorum
for the conduct of business, PLEASE SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY.
November 1, 1994
BY ORDER OF THE BOARD OF DIRECTORS
[SIGNATURE]
J. LAWRENCE MCINTYRE
Vice President, Secretary and General Counsel
<PAGE>
THE TORO COMPANY
8111 Lyndale Avenue South
Bloomington, Minnesota 55420-1196
PROXY STATEMENT
The enclosed proxy is solicited by the Board of Directors of The Toro
Company (the "Company" or "Toro") for use at the Annual Meeting of Stockholders
(the "Annual Meeting") to be held in the corporate offices of the Company, 8111
Lyndale Avenue South, Bloomington, Minnesota, on Thursday, December 15, 1994, at
3:00 p.m. C.S.T. Any stockholder giving a proxy has the power to revoke it at
any time before it is voted by filing with an officer of the Company a revoking
instrument or duly executed proxy bearing a later date. This Notice, Proxy
Statement and enclosed form of proxy are first being mailed to stockholders of
the Company on or about November 1, 1994.
ANNUAL REPORT
The Annual Report of the Company for Fiscal 1994 (the fiscal year ended
July 31, 1994), including financial statements, is enclosed.
COST AND METHOD OF SOLICITATION
The cost of soliciting proxies will be borne by the Company. Arrangements
may be made with brokerage houses, custodians, nominees and other fiduciaries to
send proxy material to the beneficial owners of the Common Stock, par value
$1.00 (the "Common Stock"), and the Company will reimburse them for their
reasonable out-of-pocket expenses. In addition to solicitation by mail, certain
officers and employees of the Company, who will receive no compensation for
their services other than regular salaries, may solicit proxies by telephone,
electronic transmission and personally.
VOTING RIGHTS
Holders of record of the Common Stock at the close of business on October
17, 1994 will be entitled to vote at the Annual Meeting and any adjournment
thereof. On that date, the Company had outstanding and entitled to vote
12,627,782 shares of Common Stock. Each of such shares is entitled to one vote
on each matter presented at the Annual Meeting. The presence at the Annual
Meeting, in person or by proxy, of the holders of a majority of the issued and
outstanding shares of Common Stock constitutes a quorum for the transaction of
business. As of the record date, there were 9,575 shares held by the Company in
its treasury which will not be counted to determine a quorum, and will not be
voted. Abstentions and "broker non-votes" will be counted in determining whether
a quorum is present. "Broker non-votes" will not be counted, but abstentions
will be counted, in determining the total number of votes cast on a proposal.
Abstentions will thus be the equivalent of negative votes.
If a stockholder of record is also a participant in the Company's Dividend
Reinvestment Plan, the enclosed proxy card will present the number of shares
held of record by the participant, including the shares held for the account of
the participant in that plan. If a stockholder of record is also a participant
in a Company employee benefit plan allowing for participant-directed voting of
Common Stock held in such plan, the enclosed proxy card will contain separate
entries for the number of shares held by the participant in each such plan, as
well as shares held of record. If a participant in such plans does not otherwise
hold Common Stock of record, the participant will receive a proxy card
containing entries for the number of shares held in each plan. The trustee for
each plan will cause votes to be cast confidentially in accordance with the
participant's instructions. In accordance with the terms of the respective
plans, plan shares not voted by participants will be voted by the trustee in the
same proportion as the votes cast by participants.
Business at the Annual Meeting will be conducted in accordance with the
procedures determined by the presiding officer and will be limited to matters
properly brought before the Annual Meeting by or at the direction of the Board
of Directors or, in the case of nominations of candidates for the Board by a
stockholder, pursuant to the procedures prescribed by the Company's Bylaws.
No matter will be considered at the Annual Meeting except upon a motion
duly made and seconded. Any motion or second of a motion may be made only by a
natural person present at the Annual Meeting who either is a Company stockholder
or is acting on behalf of a Company stockholder. If the person is acting on
behalf of a stockholder, a written statement must be presented, executed by the
stockholder or the duly authorized representative of the stockholder on whose
behalf the person purports to act.
1
<PAGE>
PROCEDURE FOR NOMINATIONS
Stockholders who propose to nominate a candidate for election to the Board
of Directors at an annual meeting must give timely written notice to the
Secretary of the Company, in accordance with the Company's Bylaws. In order to
be timely, the notice must be received by the Company not less than 60 days nor
more than 90 days prior to the first anniversary of the preceding year's regular
meeting; provided, however, that in the event that the date of the regular
meeting is advanced by more than 30 days or delayed by more than 60 days from
such anniversary date, notice by the stockholder to be timely must be so
delivered not earlier than the 90th day prior to such regular meeting and not
later than the close of business on the later of the 60th day prior to such
regular meeting or the 10th day following the day on which public announcement
of the date of such meeting is first made. The notice shall set forth all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required,
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (including such person's written consent to being named in
the Proxy Statement as a nominee and to serving as a director if elected). In
addition, the notice must contain the name and address of the nominating
stockholder(s) as they appear on the Company's books, and the class and number
of shares of the Common Stock beneficially owned.
PRINCIPAL HOLDERS OF COMPANY STOCK
The following table sets forth information as of October 17, 1994
regarding the beneficial ownership of the Common Stock of the Company by each of
the directors and nominees, each of the named executive officers, holders of
more than 5% of the Common Stock and by all directors and executive officers as
a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME OF OF BENEFICIAL PERCENT
TITLE OF CLASS BENEFICIAL OWNER (1) OWNERSHIP OF CLASS
- - -------------- -------------------------- ---------------------- -------------
<S> <C> <C> <C>
Common Stock David L. Babson & Co., 666,660(2) 5.3
Inc.
One Memorial Drive
Cambridge, MA 02142
Janet K. Cooper 207 *
William W. George 4,668 *
Gerald T. Knight 30,195 (3) *
J. David McIntosh 58,595 (3) *
Kendrick B. Melrose 367,165 (3) 2.9
Alex A. Meyer 2,472 *
David H. Morris 56,403 (3) *
Robert H. Nassau 1,355 *
Dale R. Olseth 5,639 *
John G. Szafranski 30,379 (3) *
Dale W. Turnbull 5,316 *
Edwin H. Wingate 1,821 *
Common Stock All directors & executive 684,165 (3) 5.4
officers as a group
(20 persons)
<FN>
- - ------------------------
* Less than 1% of the outstanding shares of Common Stock.
(1) Shares are deemed to be "beneficially owned" by a person if such person,
directly or indirectly, has or shares (i) the power to vote or to direct
the voting of such shares or (ii) the power to dispose or direct the
disposition of such shares. In addition, beneficial ownership includes
shares which such person has the right to acquire within 60 days.
(2) David L. Babson & Company, Inc. (Babson) is a registered investment advisor
and has filed a Form 13G reflecting indirect beneficial ownership of all of
these shares. Babson has the sole power to dispose of the entire holdings,
sole voting power with respect to 466,700 shares and shared voting power
with respect to 199,900 shares. This information is as of January 24, 1994,
the date of the first and most recent report on Form 13G received by the
Company. Babson may have acquired or disposed of shares since that date.
(3) Includes shares that may be acquired by executive officers upon exercise of
stock options within 60 days and shares allocated under employee stock
plans. Also includes shares reported as being held of record by First
Trust, but which are allocated to executive officers under employee benefit
plans.
</TABLE>
2
<PAGE>
PROPOSAL ONE
ELECTION OF DIRECTORS
Pursuant to Article VI, Section 1 of the Certificate of Incorporation of
the Company, the number of directors is to consist of not less than eight nor
more than eleven directors. During this past fiscal year, the Board of Directors
elected Janet K. Cooper to fill the vacancy created by N. Bud Grossman, who
retired December 1991. With the retirement of Dale W. Turnbull as of the Annual
Meeting, the Board has currently fixed the number of directors at eight. The
maximum and minimum number of directors can be changed only by amendment of the
Certificate of Incorporation approved by the affirmative vote of holders of 80%
of the outstanding Common Stock of the Company. The Board is divided into three
classes, with each class elected in a different year for a term of three years,
except that shorter terms may be used from time to time in order to effect an
appropriate balance among the members of the classes. The class standing for
election to a three year term this year is comprised of Messrs. William W.
George and Robert H. Nassau. The two nominees have consented to serve if
elected.
The following information with respect to business experience of nominees
for election to the Board and the continuing directors has been furnished by the
respective directors or obtained from the records of the Company.
- - --------------------------------------------------------------------------------
NOMINEES FOR ELECTION TO BOARD OF DIRECTORS
(TERM ENDING 1997)
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C>
[PHOTO] WILLIAM W. GEORGE, age 52.
President and Chief Executive Officer since May 1991,
Medtronic, Inc., Minneapolis, Minnesota (therapeutic
medical devices manufacturing and marketing). He also
served as President and Chief Operating Officer from March
1989 to May 1991. First elected to the Toro Board in 1989,
he is also a member of the Audit Committee and the
Nominating Committee.
Prior to March of 1989 he served in various executive
positions with Honeywell, Inc., including President, Space
and Aviation Systems and President and Executive Vice
President, Industrial Automation and Control. Mr. George
is a director of The Valspar Corporation, Medtronic, Inc.
and Dayton Hudson Corporation, Minneapolis, Minnesota.
</TABLE>
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C>
[PHOTO] ROBERT H. NASSAU, age 52.
Senior Vice President since September 1994, Ply Gem
Industries, Inc., New York, New York and has served since
July 1991 and continues to serve as President and Chief
Executive Officer, Allied Plywood Corporation, Concord,
Massachusetts, its wholly-owned subsidiary (wood
distribution). He served as President and Chief Executive
Officer of Amdura Corporation, Denver, Colorado (hardware
and equipment) from September 1982 to September 1989, and
from 1989 to 1991, he was a private investor. First
elected to the Toro Board in 1988, he is also a member of
the Compensation Committee and the Nominating Committee.
</TABLE>
3
<PAGE>
- - --------------------------------------------------------------------------------
MEMBERS OF BOARD OF DIRECTORS CONTINUING IN OFFICE
(TERM ENDING 1995)
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C>
[PHOTO] ALEX A. MEYER, age 63.
Retired. From January 1986 through April 1992 was Senior
Vice President of Amana Refrigeration, Inc., a subsidiary
of Raytheon, Inc., Amana, Iowa (manufacturing). First
elected to the Toro Board in 1986, he is also a member of
the Audit Committee and the Compensation Committee.
Mr. Meyer is a director of Cedar Income Fund, Ltd., Cedar
Rapids, Iowa.
</TABLE>
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C>
[PHOTO] DAVID H. MORRIS, age 53.
President and Chief Operating Officer of the Company since
December 1988. Employed by The Toro Company since February
1979. First elected to the Toro Board of Directors in
1990, he is also a member of the Executive Committee.
He has served in various executive capacities during his
employment with Toro. He was named President and Chief
Operating Officer in December 1988, served as Chief
Operating Officer from August 1988 through December 1988
and served as Vice President and General Manager of the
Company's Irrigation Division from February 1985 through
July 1988.
Mr. Morris is a director of Inter-City Products
Corporation, Toronto, Canada.
</TABLE>
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C>
[PHOTO] DALE R. OLSETH, age 64.
President and Chief Executive Officer since November 1986,
BSI (formerly Bio-Metric Systems, Inc.), Eden Prairie,
Minnesota (biotechnology). First elected to the Toro Board
of Directors in 1980, he is also a member of the Audit
Committee, the Nominating Committee and the Executive
Committee.
Mr. Olseth is a director of Graco, Inc.
</TABLE>
4
<PAGE>
- - --------------------------------------------------------------------------------
MEMBERS OF BOARD OF DIRECTORS CONTINUING IN OFFICE
(TERM ENDING 1996)
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C>
[PHOTO] JANET K. COOPER, age 41.
Vice President and Treasurer since July 1992, The Quaker
Oats
Company, Chicago, Illinois (foods, pet foods and
beverages). She previously served as Assistant Treasurer
from March 1990 to July 1992, as Director-Planning of
North American Foods from September 1989 to March 1990 and
as Director-Planning of Grocery Specialties and Market
Development for The Quaker Oats Company. First elected to
the Toro Board in 1993, she is also a member of the
Nominating Committee.
Ms. Cooper is a director of Midwest Region Advisory Board
of Arkwright Insurance Company.
</TABLE>
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C>
[PHOTO] KENDRICK B. MELROSE, age 54.
Chairman of Toro since December 1987 and Chief Executive
Officer of Toro since December 1983. Employed by The Toro
Company since 1970. Mr. Melrose is also Chairman of the
Executive Committee and an ex-officio member of the
Nominating Committee. First elected to the Toro Board in
February 1981.
He has served in various executive capacities during his
employment with the Company. He was named Chairman in
December 1987, served as President from February 1981
through December 1988 and has been Chief Executive Officer
since December 1983. Mr. Melrose is a director of The
Valspar Corporation and Donaldson Company, Inc.,
Minneapolis, Minnesota.
</TABLE>
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C>
[PHOTO] EDWIN H. WINGATE, age 62.
Senior Vice President-Personnel since June 1980, Dayton
Hudson Corporation, Minneapolis, Minnesota (retailing).
First elected to the Toro Board in 1989, he is also
Chairman of the Compensation Committee and a member of the
Executive Committee.
</TABLE>
5
<PAGE>
COMMITTEES OF THE BOARD. The Board of Directors is responsible for the
overall affairs of the Company. There were six Board meetings during the fiscal
year. Each incumbent director attended at least 75% of the aggregate total
number of meetings of the Board and of all committees on which he or she served,
held during the year. To assist in carrying out its duties, the Board has
delegated certain authority to four standing committees: Executive, Audit,
Compensation and Nominating.
The Executive Committee's primary function is to exercise all of the
powers and authority of the Board, including the power to declare dividends on
the Company's Common Stock, during intervals between meetings of the Board. No
meetings of the committee were held during Fiscal 1994.
The Audit Committee, which is comprised of directors approved by the Board
from among those members who are not employees of the Company ("outside
directors"), assists the Board of Directors in fulfilling the Board's
responsibility to oversee the Company's accounting controls and policies, and
financial reporting practices. Principal functions of the Audit Committee
include: making recommendations regarding the selection, retention and
termination of the Company's independent auditors; review of the professional
services, proposed fees and independence of such auditors; review with the
independent auditors on matters such as the scope of the audit and authorization
for special reviews or audits; review of internal auditing procedures and the
adequacy of internal controls; and review of policies and practices regarding
conflict of interest and compliance with applicable laws. Two meetings of the
committee were held during Fiscal 1994.
The functions of the Compensation Committee, which is comprised only of
outside directors, include: study and analysis of and recommendations to the
Board concerning specific and general matters of management compensation;
periodic review of management compensation policies and practices;
recommendations to the Board regarding incentive compensation awards and officer
salary adjustments; and administrative oversight of stock option plans and other
incentive and compensation plans. Two meetings of the committee were held during
Fiscal 1994.
The functions of the Nominating Committee, which is comprised of outside
directors (except that the Chief Executive Officer serves as an ex officio
non-voting member), include: determining an appropriate size and composition of
the Board of Directors; considering qualifications of prospective Board member
candidates, including stockholder recommendations; conducting research to
identify and recommend nomination of suitable candidates who are willing to
serve as members of the Board of Directors; reviewing the experience,
background, interests, ability and availability of prospective nominees to meet
time commitments of the Board and committee responsibilities; consideration of
nominees recommended by stockholders who comply with the procedures set forth in
the Company's Bylaws, as described on page 2; and determining whether any
prospective member of the Board has any economic or familial relationship with
the Company which may impair the member's suitability for such service. The
committee also has responsibility to monitor current members of the Board in
light of the same guidelines used to select candidates, and to direct the
activities of the Board and management in matters of corporate governance. No
meetings of the committee were held during Fiscal 1994.
BOARD COMPENSATION. During Fiscal 1994, each outside director was paid a
retainer of $10,500 per year plus a fee of $500 for each meeting of the Board or
committees attended, except that no more than one committee meeting fee was paid
for committee meetings held in a single day. Effective August 1, 1994, the
retainer was increased to $12,000 and the meeting fee of $500 to $1,000 with the
same one committee meeting fee per day. In addition, pursuant to the 1992
Directors Stock Plan, each outside director is granted shares of the Common
Stock having a value of $5,000 (valued at the average of the closing prices of
the Common Stock from May 1 through July 31) each year on August 1. The Company
also supplies directors with certain Company products for their personal use.
An outside director may elect to receive the annual retainer fee and
meeting fees in cash or shares of Common Stock of the Company, or a combination
of both. Shares issued pursuant to this alternative may be authorized but
unissued Common Stock of the Company or shares of Common Stock held in the
Company's treasury.
An outside director may elect to defer receipt of any portion of or all
Board compensation until a future date or until occurrence of specified events,
including disability or death, resignation, retirement or other termination from
the Board. Distribution of deferred amounts may be accelerated at the discretion
of the Board of Directors. Amounts deferred are not subject to federal and state
income tax until received by the participant, are commingled with the Company's
general operating funds and earn interest at the average
6
<PAGE>
prime rate charged by First Bank National Association, Minneapolis, Minnesota.
Although deferred funds remain a part of the general assets of the Company, upon
occurrence of a threat of or change of control of the Company (as defined in the
plan), or upon election by a qualified participant to direct investment of the
participant's account, the Company will transfer to a trust an amount in cash
equal to the total amount of all accrued compensation and interest for all
participants or for the electing participant, as the case may be. Amounts
deferred will be paid to the director at retirement or such other time as may be
permitted by the plan.
Under a director retirement plan, an outside director who has completed
five years of service and ceases to be a member of the Board of Directors for
any reason is entitled to receive, for a period of years equal to the number of
full years the director served on the Board but not more than ten years, an
annual payment equal to the amount paid as an annual retainer to outside
directors at the date of termination. In the event of the death of a director
who qualifies for the plan, the retirement benefit will be paid to the
director's beneficiary, in quarterly or annual installments or a lump sum
(discounted to then present value), as previously elected by the director.
Each director is also a party to an indemnification agreement which
assures the director of indemnification and advancement of expenses to the
fullest extent permitted by Delaware law and the Company's Certificate of
Incorporation (regardless of, among other things, any amendment to or revocation
of the Certificate of Incorporation, any change in the composition of the Board
of Directors or the occurrence of any acquisition of the Company) and of
continued coverage under the Company's directors and officers liability
insurance, to the extent it is maintained.
VOTE REQUIRED. THE AFFIRMATIVE VOTE OF HOLDERS OF A MAJORITY OF SHARES OF
COMMON STOCK REPRESENTED AT THE MEETING IS REQUIRED FOR THE ADOPTION OF ITEM 1.
ALL PROXIES WILL BE VOTED FOR ITEM 1 UNLESS A CONTRARY CHOICE IS INDICATED.
COMPENSATION COMMITTEE REPORT
The Compensation Committee is responsible for establishing compensation
policy and administering the compensation plan for executive officers of the
Company. The Company's compensation policies are intended to align total
compensation for its executive officers and employees with the financial
performance of the Company, as compared with the financial results and
compensation practices of companies with revenues in the $500 million to $1
billion range.
The Company's compensation program for executive officers as well as other
key management is composed of cash compensation and equity-based compensation.
Cash compensation consists of base salary, an annual incentive bonus and
long-term incentive compensation under the Continuous Performance Award Plan.
Equity-based compensation in the form of stock option grants under the 1985
Incentive Stock Option Plan, the 1989 Stock Option Plan and the 1993 Stock
Option Plan constitutes an additional component of long-term incentive
compensation. While the policies of the Company are designed to compensate
executive officers for personal performance, a substantial portion of annual
compensation of each executive officer, especially that of the Chief Executive
Officer, is contingent upon the financial performance of the Company.
Each of the named executive officers, including the Chief Executive
Officer, is a party to an employment agreement providing for employment until
July 31, 1996 at his compensation rate at the commencement of the agreement or
as determined by the Compensation Committee from time to time, subject to such
reduction as may be imposed on all management employees in order to meet
economic conditions. For additional information on these agreements, see Summary
Compensation Table -- Employment Agreements below.
BASE SALARY
Base salaries for executive officers, including the Chief Executive
Officer, are reviewed annually. Based on independent evaluation by professional
compensation consulting firms, a base salary range for each executive position
is established, reflecting average base salaries for similar positions in
businesses with revenues comparable to that of the Company. A base salary for
each executive is set within that market range by considering the experience and
individual performance of the executive. For Fiscal 1994, base salaries for
executive officers were near the mid-point of the market range.
7
<PAGE>
In Fiscal 1992, the Committee and Mr. Melrose agreed to increase the "at
risk" portion of Mr. Melrose's total compensation by reducing his base salary in
a total amount of $500,000 (at a rate of $100,000 per year for each of the five
years through Fiscal 1997) and by granting a salary replacement option to
purchase 300,000 shares of the Company's Common Stock. The ten year option
becomes exercisable with respect to one-third of the shares at the end of each
of Fiscal 1994, 1995 and 1996, subject to acceleration under certain
circumstances. The purpose of this option is to encourage Mr. Melrose to focus
his attention on increasing stockholder value. Mr. Melrose's salary with respect
to Fiscal 1994, for the purpose of calculating incentive compensation, was set
at $455,304, based on the same method used in establishing other executive
officers' base salaries. After the $100,000 reduction, Mr. Melrose's base salary
was $355,304.
The Committee conducts a performance evaluation of Mr. Melrose on an
annual basis. The other named executive officers receive evaluations by Mr.
Melrose, which are used by the Committee in establishing base salaries.
INCENTIVE COMPENSATION
An executive of the Company will earn total compensation that is market
competitive only if incentive payments are earned. In order for an executive to
earn incentive compensation sufficient to bring total compensation to average
market levels, Company financial performance targets must be achieved, and the
targets achieved must be above the 50th percentile when compared with financial
results of the Company's peer group.
The incentive components of compensation are intended to encourage
achievement of both short-term and long-term objectives. Short-term performance
is evaluated in relation to the Company's earnings per share ("EPS") and return
on beginning stockholders equity ("ROBE") compared to its peer group and, in
certain cases, on division performance. Performance is thus evaluated both
against management's plan for earnings and against financial performance of the
Company's competitors, measured by ROBE. Long-term performance is evaluated by
reference to the Company's ROBE on a relative basis compared with the
performance of the peer group over a three year period.
For Fiscal 1994, 61% of Mr. Melrose's total cash compensation was
comprised of incentive payments under the Company's short-term and long-term
plans. If the Company had not met its performance targets and Mr. Melrose had
received no incentive payments, his total cash compensation would have equalled
only 39% of average market levels for chief executive officers in businesses
with revenues comparable to the Company's.
ANNUAL CASH INCENTIVE COMPENSATION. Under the Company's annual incentive
compensation plans, executive officers and other key employees are eligible to
receive an annual cash bonus component of compensation, based on a percentage of
base salary. The size of each award is determined by the executive officer's
position, the Company's achievement of performance goals and, for certain
participants, corporate division performance. If performance goals are exceeded,
award amounts increase, but if goals are not met, awards are reduced or not paid
at all. For instance, no awards were paid for Fiscal 1991 or 1992. Proposed
participants in the plan are recommended by management and reviewed and approved
by the Committee.
Under the 1994 Management Recovery Incentive Plan, the Compensation
Committee established an EPS performance target of $1.50 per share for Fiscal
1994 and a threshold ROBE of at least the 25th percentile in the peer group. The
targets were met. Earnings exceeding a performance threshold of 85% of the
performance target were allocated for payout. In order for 100% of a target
bonus to be paid, the Company was required to meet the EPS performance target
and to rank in the top 35 to 40% of companies in its peer group. Company
performance met this requirement. If the Company's ROBE had ranked higher than
the top 35% to 40% level, the bonus would have been increased proportionately to
a high of 125% of the participation factor or a low of zero. If the Company's
ROBE had ranked lower, the bonus would have been reduced proportionately and
could have been eliminated entirely. No payment would have been made if EPS had
been below $1.27 or if the Company's ROBE fell in the lowest 25th percentile.
Because the Company met the EPS target and its ROBE fell within the
required ranking in the peer group, a bonus in the amount of 100% of the
executive's participation factor was paid. An officer's participation factor,
which is set by the Committee, is a percentage of base salary ranging from a
high of 50% for Mr. Melrose to a low of 35% for certain other named executive
officers. Levels of participation are based on the executive's salary grade and
not on individual factors.
8
<PAGE>
The payment of annual incentive bonuses equal to 100% of the participation
factor for Fiscal 1994 contributed to a market average level of total annual
compensation for executives.
A similar plan (the 1995 Annual Management Incentive Plan) is in effect
for Fiscal 1995. Payment of performance awards will be contingent upon
achievement of an EPS performance goal, and award amounts may increase if the
Company also achieves pre-established goals for return on average net assets
(ROANA).
LONG-TERM INCENTIVE COMPENSATION. Under the Continuous Performance Award
Plan, a performance award may be earned by eligible executive officers if the
Company achieves a financial goal based on average ROBE for the three year award
term, as established by the Committee, and if the relative rank of the Company's
average ROBE achieved compares favorably with ROBE rankings of all companies in
the Company's peer group (the Fortune 500 Industrial and Farm Equipment Group,
excluding companies for which data is unavailable). The maximum value of a
performance award (100%) can be earned only if the Company achieves a ROBE that
ranks among the top 25% of companies in the peer group. The amount of an award
payment is reduced proportionately the lower the Company's ROBE ranks compared
with the peer group, and no award is paid if the Company does not rank in the
top 75%. While performance awards have a term of three years, new participants
may be granted one year and two year awards in order to be integrated into the
plan.
If the Company's performance goals are achieved, the amount of an
individual participant's award payment is determined based on the individual's
participation factor. Individual participation factors are based on a percentage
of base salary ranging from 25% to 100%, and are established by the Committee
based on the individual's position and responsibility within the Company. Mr.
Melrose participates in the Continuous Performance Award Plan at a factor of 1.0
(one times base salary), which means that if the Company's three year average
ROBE ranks in the top 25% of companies in the peer group, Mr. Melrose will
receive a long-term incentive payment equal to his base salary during the most
recent fiscal year. Mr. Melrose's participation factor was set by the Committee
at a relatively high level so that a significant portion of Mr. Melrose's
compensation is "at risk". In Fiscal 1994, 33% of his cash compensation was
comprised of payments pursuant to the Continuous Performance Award Plan.
If the Company does not meet performance goals under this plan, Mr.
Melrose's total compensation would be substantially below the average paid to
chief executive officers of manufacturing businesses with revenues comparable to
the Company's. For instance, no incentive compensation payments were made to Mr.
Melrose or the other executive officers with respect to Fiscal 1992 because the
Company did not meet the Committee's financial performance goals. The Company's
three year (Fiscal 1992, 1993 and 1994) average ROBE performance ranked at the
52nd percentile level among its peer group, so that the amount of awards was
only 69.74% of the potential maximum for each named executive officer, including
Mr. Melrose. This award is reflected in the Summary Compensation Table.
Under the Continuous Performance Award Plan, the Committee also grants to
each participant a nonqualified stock option to purchase shares of the Common
Stock. If ROBE goals for the related performance award are not achieved, the
number of shares subject to the option is reduced in accordance with the formula
applicable to reduction of the performance award. These options are exercisable
for a limited period of 90 days commencing after the end of the three year
performance award term, and payment of the exercise price is intended to be
facilitated by the incentive compensation payments made near the time the option
becomes exercisable. One of the purposes of this option is to encourage stock
ownership by executive officers of the Company.
The number of shares with respect to which a three year option award is
granted is determined under a formula based on base salary, the participant's
performance factor fixed by the Committee and the average price of the Common
Stock on the New York Stock Exchange during the three months prior to the grant.
In Fiscal 1994, the Committee granted options in accordance with the formula, in
connection with three year performance awards granted to the named executive
officers. Mr. Melrose received an option grant covering 26,709 shares. These
options become exercisable after the conclusion of Fiscal 1996.
STOCK OPTION PLANS. In addition to options granted in connection with the
Continuous Performance Award Plan, the Committee makes stock option grants
pursuant to the 1985 Incentive Stock Option Plan, the 1989 Stock Option Plan and
the 1993 Stock Option Plan. Options are granted to all key management
9
<PAGE>
employees, including executive officers, in amounts determined based on annual
base salary, salary grade and the fair market value price of the Common Stock on
the date of grant. In Fiscal 1994, Mr. Melrose was granted options to purchase
18,212 shares pursuant to these plans.
APPROVAL OF INCENTIVE PLANS. All of the recommendations of the
Compensation Committee with respect to compensation attributable to Fiscal 1994
were approved and adopted by the Board of Directors. Decisions regarding the
grant of stock options are made by the Compensation Committee and reported to
the Board, in order to assure compliance with the requirements of the rules
under Section 16 of the Exchange Act, relating to plan administration by
disinterested persons.
Under new Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), no deduction by a publicly held corporation is allowed for
remuneration paid to certain highly compensated employees to the extent that the
amount of such remuneration for a taxable year for such individual exceeds
$1,000,000. Section 162(m) provides for the exclusion of performance based
compensation from the remuneration that is subject to the deduction limitation.
It is the policy of the Company that the components of executive compensation
that are inherently performance based should qualify for the exclusion from the
deduction limitation under Section 162(m). Those components, as described above,
currently consist of annual incentive awards, stock options and long-term
incentive awards. Under proposed regulations, including transition rules,
promulgated by the Internal Revenue Service, it is not necessary that any of the
Company's stock option plans or the Continuous Performance Award Plan be amended
at this time to maintain deductibility of compensation payable thereunder. The
Company anticipates that the remaining components of individual executive
compensation for each highly compensated employee of the Company that do not
qualify for any exclusion from the deduction limitation of Section 162(m) should
not exceed $1,000,000 in any year for such employees, and should therefore
qualify for deductibility. Should any of the plans be amended or should
compensation approach the Section 162(m) limits, the Company will submit such
compensation plan to stockholders for approval at that time.
Edwin H. Wingate, Chairman
Alex A. Meyer
Robert H. Nassau
Dale W. Turnbull
10
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and non-cash compensation paid for
services in all capacities to the Company for the Chief Executive Officer and
each of its four highest paid executive officers other than the Chief Executive
Officer for each of the past three fiscal years.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
--------------------------
ANNUAL COMPENSATION
------------------------------------------- AWARDS PAYOUTS
OTHER ANNUAL -------------------------- ------------ ALL OTHER
NAME AND SALARY BONUS COMPENSATION RESTRICTED OPTIONS LTIP PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) STOCK($) (#)(3) ($)(4) ($)(5)
- - -------------------- ---- ----------- -------------- ------------ ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kendrick B. Melrose 1994 $355,304(6) $227,652 $123,628 -0- 44,921 $317,529 $100,029
Chairman of the 1993 337,760(6) 218,880 -0- -0- 67,208 245,102 45,443
Board, Chief 1992 318,174(6) -0- $ 1,354 -0- 410,989 -0- 28,835
Executive Officer &
Director
David H. Morris 1994 $293,556 $132,100 $ 53,388 -0- 23,710 $153,544 59,242
President, Chief 1993 287,852 129,533 $314,154 -0- 36,597 120,876 38,696
Operating Officer & 1992 270,795 -0- -0- -0- 57,304 -0- 18,388
Director
Gerald T. Knight 1994 $218,463 $ 87,385 $ 22,176 -0- 37,685 $ 38,089 15,678
Vice 1993 211,575 64,245(7)(8) -0- -0- 24,788 See note(8) 2,950
President Finance & 1992 53,160 80,000(8) -0- -0- 5,000 -0- -0-
Chief Financial
Officer
J. David McIntosh 1994 $179,976 $ 89,988 $ 10,188 -0- 7,982 $ 31,379 40,903
Vice President, 1993 167,418 73,021 -0- -0- 12,142 23,443 -0-
Consumer Products 1992 148,240 -0- -0- -0- 26,194 -0- 9,564
Division
John G. Szafranski 1994 $170,596 $ 73,781 $ 12,300 -0- 7,934 $ 29,473 41,619
Vice President 1993 160,903 66,724 $124,274 -0- 11,801 22,522 21,961
Commercial Products 1992 149,535 -0- -0- -0- 17,609 -0- 9,658
Division
<FN>
- - ------------------------
(1) Amounts indicated include payments made or deferred at the election of the
officer pursuant to the 1994 Management Recovery Incentive Plan and the
1993 Management Turnaround Incentive Plan. See the Compensation Committee
Report.
(2) Includes the dollar value of the difference between the fair market value
and the option exercise price (before payment of applicable income taxes).
Fair market value is based on the closing price on the New York Stock
Exchange as reported in THE WALL STREET JOURNAL on the date of purchase.
The value of executive perquisites otherwise includable as Other Annual
Compensation did not exceed $50,000 or 10% of the compensation reported in
the table for any named individual.
(3) Includes options granted pursuant to the Company's Continuous Performance
Award Plan, which are subject to cancellation or reduction in the number of
shares covered in the event the Company does not achieve its performance
goals. Such options were cancelled in their entirety with respect to Fiscal
1992 and the number of shares covered was reduced with respect to Fiscal
1993.
(4) Amounts reflect payments made pursuant to the Continuous Performance Award
Plan. Based on the Company's ROBE performance compared with its peer group
of businesses, payments of 69.74% of the maximum possible award amount were
paid or deferred with respect to Fiscal 1994. For a description of the
plan, see the Compensation Committee Report.
(5) Amounts include Company contributions to defined contribution retirement
plans and the Company's Matching Stock Plan and allocations to the
Company's Employee Stock Ownership Plan. Also includes amounts accrued
pursuant to the Company's Supplemental Management Retirement Plan for
executive officers who receive annual compensation of $200,000 or more.
Participants' accounts are credited with an amount equal to the difference
between the aggregate amount that would have been allocated to tax-
qualified profit-sharing and other defined contribution plans without
regard to limitations imposed by the Code, and the aggregate amount of
contributions actually allocated. Although deferred funds remain a part of
the general assets of the Company, upon occurrence of a threat of or change
of control of the Company (as defined in the plan), or upon election by a
qualified participant to direct investment of the account, the Company will
transfer to a trust an amount in cash equal to the total amount of all
accrued benefits for all participants (or for the electing participant, as
the case may be).
(6) The salary shown reflects the $100,000 reduction for each fiscal year,
discussed in the Compensation Committee Report.
(7) Includes Continuous Performance Award Plan payment with respect to a one
year transition performance award. Payment is not included under LTIP
Payouts column.
(8) Mr. Knight was paid $80,000 at the time of his employment by the Company in
April 1992, with the understanding that if the Company reached its
financial performance goal for Fiscal 1992 and Fiscal 1993, any bonus
payment to which he would be entitled under the Company's Management
Turnaround Incentive Plan would be reduced by $30,000 and $50,000,
respectively.
</TABLE>
11
<PAGE>
EMPLOYMENT AGREEMENTS. Each of the named executive officers, including the
Chief Executive Officer, is a party to an employment agreement providing for
employment until July 31, 1996 at his compensation rate at the commencement of
the agreement or as determined by the Compensation Committee from time to time,
subject to such reduction as may be imposed on all management employees in order
to meet economic conditions. The agreements provide that the executive officers
are eligible for and entitled to participate in all employee benefit programs
and incentive compensation plans. The agreements also provide that in the event
of termination of the officer (except for death, disability, willful misconduct
or normal retirement) within two years after a change of control of the Company,
as defined in the agreements, the Company will make payments to a terminated
officer in amounts equal to two times the highest annual compensation during the
officer's employment with the Company, except that the payment is limited so as
to avoid any excess parachute payments as defined in Section 280G of the
Internal Revenue Code. Annual compensation for this purpose includes salary and
all taxable incentive compensation. Officers would also be entitled to receive
compensation for relocation costs and legal expenses related to enforcement of
the agreements. As of July 31, 1994, the potential aggregate cost with respect
to the named executive officers under those agreements, assuming the "excess
parachute payment" requirement would not be deemed to limit the Company's
payment, was approximately $4,737,000. The Company has also established a trust
for the benefit of these officers which, in the event of a threatened or actual
change of control, will be funded in an amount equal to the Company's accrued
liability related to such employment agreements.
STOCK OPTIONS
The following table summarizes options granted under the Company's stock
option plans during the last fiscal year.
OPTION GRANTS IN FISCAL 1994
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- - ---------------------------------------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
PERCENT OF VALUE
TOTAL AT ASSUMED ANNUAL RATES
OPTIONS EXERCISE OF
GRANTED TO OR MARKET STOCK PRICE APPRECIATION
OPTIONS EMPLOYEES BASE PRICE ON FOR OPTION TERM
GRANTED IN PRICE ($ DATE OF EXPIRATION ------------------------
NAME (#)(1) FISCAL 1994 PER SHARE) GRANT (2) DATE 0%$ (3) 5%$ (4)
- - ------------------------------------- ----------- ------------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Kendrick B. Melrose 26,709(5) 10.10% $ 18.75 $ 19.75 (5) $ 26,709 $ 78,938
3,921 1.48 25.50 25.50 10/19/98 0 27,624
14,291 5.40 20.40 25.50 10/19/98 72,884 80,546
David H. Morris 13,142(5) 4.97 18.75 19.75 (5) 13,142 38,841
3,921 1.48 25.50 25.50 10/19/98 0 27,624
6,647 2.51 20.40 25.50 10/19/98 33,900 37,463
Gerald T. Knight 3,204 1.21 18.75 19.75 (5) 3,204 9,469
3,921 1.48 25.50 25.50 10/19/98 0 27,624
3,001 1.13 20.40 25.50 10/19/98 15,305 16,914
J. David McIntosh 2,543(5) 0.96 18.75 19.75 (5) 2,543 7,516
3,921 1.48 25.50 25.50 10/19/98 0 27,624
1,518 .57 20.40 25.50 10/19/98 7,742 8,556
John G. Szafranski 2,493(5) 0.94 18.75 19.75 (5) 2,493 7,368
3,921 1.48 25.50 25.50 10/19/98 0 27,624
1,520 0.57 20.40 25.50 10/19/98 7,752 8,567
<CAPTION>
- - -------------------------------------
NAME 10%$ (4)
- - ------------------------------------- -----------
<S> <C>
Kendrick B. Melrose $ 165,763
61,042
177,986
David H. Morris 81,563
61,042
82,784
Gerald T. Knight 19,885
61,042
37,376
J. David McIntosh 15,782
61,042
18,906
John G. Szafranski 15,472
61,042
18,931
<FN>
- - ------------------------------
(1) Options are granted pursuant to the 1985 Incentive Stock Option Plan, the
1989 Stock Option Plan and the 1993 Stock Option Plan (the "Plans") The
Plans are administered by the Compensation Committee which selects
employees to whom options are granted. The exercise price of each incentive
stock option is equal to 100% of the fair market value of the Common Stock
on the date of grant. The exercise price of each nonqualified stock option
may be determined by the Committee, but may not be less than 50% of the
fair market value of the Common Stock on the date of grant. The options are
not transferable except by will or the laws of descent and distribution. An
option granted under any of the plans may be exercised in whole or in part
from time to time as specified in the option agreement until the expiration
of the option. Most options are subject to cancellation upon termination of
the option holder's employment; however, some nonqualified stock options
can be exercised for up to four years following retirement at or after age
60, but not later than the expiration date of the option.
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
(2) Based on the closing price on the New York Stock Exchange as reported in
THE WALL STREET JOURNAL.
(3) Shows value based on market price of the underlying security at the date of
grant of options having an exercise price below the market price of the
underlying security.
(4) SEC rules require the information set forth in the 5% and 10% columns. The
actual gains, if any, on stock option exercises depend on the future
performance of the Company's Common Stock. Since there is no means of
accurately predicting the future price of the Company's Common Stock, no
determination can be made as to any future value of a stock option at the
time of grant.
(5) Number of shares and exercisability subject to performance goal
achievement. Expected to become exercisable in September 1996, after the
Company first makes a public announcement of its earnings for Fiscal 1996.
Expiration date will be 90 days later. For more information, see the
Compensation Committee Report.
</TABLE>
The following table summarizes stock options exercised by the named
executive officers during the last fiscal year and the total number of options
held by each listed individual as of the end of Fiscal 1994.
AGGREGATED OPTION EXERCISES IN FISCAL 1994 AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
JULY 31, 1994 (#) JULY 31, 1994 ($)*
SHARES ------------------------- -------------------------
ACQUIRED ON VALUE UNEXER- UNEXER-
NAME EXERCISE (#) REALIZED ($) EXERCISABLE CISABLE EXERCISABLE CISABLE
- - ------------------- ------------- ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Kendrick B. Melrose 15,244 123,628 151,913(1) 388,764 1,383,250 2,920,980(2)
David H. Morris 7,509 53,388 38,111(1) 44,056 242,283 277,907(2)
Gerald T. Knight 2,109 22,176 24,848(1) 11,300 173,235 79,328(2)
J. David McIntosh 1,276 10,188 47,782(1) 8,185 362,100 51,639(2)
John G. Szafranski 1,369 12,300 24,866(1) 8,218 139,853 51,776(2)
<FN>
- - ------------------------------
* Market value less option exercise price before payment of applicable income
taxes. Market value based on July 29,1994 closing price on the New York
Stock Exchange as reported in THE WALL STREET JOURNAL.
(1) Includes out-of-the-money options.
(2) Includes options subject to reduction under Continuous Performance Award
Plan based on level of achievement of performance goals.
</TABLE>
LONG-TERM INCENTIVE COMPENSATION
The following table summarizes all awards of long-term incentive
compensation made under the Company's Continuous Performance Award Plan to the
named individuals during Fiscal 1994. Amounts paid pursuant to the plan during
Fiscal 1994 are set forth in the Summary Compensation Table which appears
elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
PERFORMANCE UNDER NON-STOCK
NUMBER OF OR OTHER PRICE-BASED PLANS (3)
SHARES, UNITS OR PERIOD UNTIL -----------------------------------
OTHER MATURATION THRESHOLD TARGET MAXIMUM
NAME RIGHTS (#)(1) OR PAYOUT(2) ($ OR #) ($ OR #) ($ OR #)
- - --------------------------------------------------- ---------------- ------------ ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Kendrick B. Melrose 1 Award 3 fiscal $ 13,328 $ 332,966 $ 499,200
years
26,709 shares
David H. Morris 1 Award 3 fiscal 6,352 158,681 237,904
years
13,142 shares
Gerald T. Knight 1 Award 3 fiscal 1,575 29,364 59,016
years
3,204 shares
J. David McIntosh 1 Award 3 fiscal 1,298 32,428 48,619
years
2,543 shares
John G. Szafranski 1 Award 3 fiscal 1,230 30,739 46,085
years
2,493
<FN>
- - ------------------------------
(1) An award is the right to receive designated target percentages of annual
salary at the end of the performance period if the Company achieves
financial performance objectives, based on return on
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
beginning stockholders equity compared with ROBE rankings of the Company's
peer group of competitors, as established by the Compensation Committee.
The value of an award is based on a participant's actual base compensation
(increased by $100,000 in the case of Mr. Melrose to reflect the salary
reduction plan) paid during the last fiscal year of an award term (which is
normally 3 years), multiplied by an individual performance factor
determined by the Committee, which is intended to reflect the participant's
ability to implement policy decisions which influence the financial results
of the Company or its divisions or subsidiaries. Each award recipient also
receives an option to purchase shares of the Company's Common Stock if
performance goals are achieved. See the Compensation Committee Report for
additional information on the plan.
(2) The performance period includes Fiscal 1994, 1995 and 1996.
(3) Calculated based on estimated Fiscal 1996 salaries.
</TABLE>
The following graph depicts total cumulative stockholder return (assuming
reinvestment of dividends) of the Company's Common Stock, the S&P 500 Index and
an industry peer index for the preceding five fiscal years commencing with
Fiscal 1990. The industry peer index is based on the Fortune 500 Industrial and
Farm Equipment Index, excluding companies for which data is unavailable, and is
comprised of the companies listed below.
COMPARISON OF FIVE YEAR TOTAL RETURN
AMONG THE TORO COMPANY, S&P 500,
AND PEER GROUP
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
The Toro Co. S&P 500 Peer Group
<S> <C> <C> <C>
1989 100 100 100
1990 115 107 114
1991 78 120 101
1992 66 135 110
1993 103 147 157
1994 121 154 189
</TABLE>
- - -- This graph assumes $100 invested on August 1, in the Company's Common
Stock, the S&P 500 Index and the peer group index.
- - -- The peer group index includes: York International, Briggs & Stratton,
Stewart & Stevenson Services, Dover Corp., Pentair Corp., Cummins Engine,
Cincinnati Milacron Inc., Applied Materials, Harnischfeger Industries Inc.,
Crane Co., Figgie International, Tecumseh Products Co., Ingersoll-Rand Co.,
Nacco Industries, Parker-Hannifin Corp., Terex Corp., Dresser Industries
Inc., Trinova Corp., Deere & Co., Timken Co., Outboard Marine Corp.,
Baker-Hughes Inc., Caterpillar Inc., Black & Decker Corp., Clark Equipment
Co., Nortek Inc., IMO Industries Inc., Tenneco Inc., as well as the
Company. The peer group index does not include Lincoln Electric Co., which
is included in the Fortune 500 Industrial and Farm Equipment Index, but for
which data is not available. The Fortune 500 removed the following six
14
<PAGE>
companies from the Industrial and Farm Group Index in 1994: AM
International Inc., Dresser Rand Inc., Giddings & Lewis Inc., Great
American Management and Investment, Joy Technologies Inc. and Kennametal
Inc.
The following graph depicts total stockholder return, assuming $100
invested on August 1, 1993, of the Company's Common Stock and the same two
indices through July 31, 1994.
COMPARISON OF ONE YEAR TOTAL RETURN
AMONG THE TORO COMPANY, S&P 500,
AND PEER GROUP
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
The Toro Co. S&P 500 Peer Group
<S> <C> <C> <C>
7/93 100 100 100
10/93 129 105 106
1/94 138 109 122
4/94 136 103 122
7/94 117 105 120
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For Fiscal 1994, the members of the Compensation Committee were all
outside members of the Board, and included Messrs. Wingate, Chairman, Meyer,
Nassau and Turnbull. Although Mr. Melrose is not a member of the Committee, he
attends the meetings for the purpose of providing continuity and specific
information about individuals and the Company's compensation plans. Mr. Melrose
does not participate in any option grant or award decisions or any decisions of
the Committee that might affect him personally. Mr. Wingate was an officer of
the Company from March 1969 to June 1974.
15
<PAGE>
PROPOSAL TWO
CHIEF EXECUTIVE OFFICER SUCCESSION INCENTIVE PLAN
The Board of Directors is seeking the approval of stockholders of the
Company for a Chief Executive Officer Succession Incentive Plan (the "Plan") as
a special incentive compensation plan for Mr. Melrose, in connection with
encouraging Mr. Melrose to remain with the Company until the year 2000 while
also assuring the timely development and election of a successor for Mr. Melrose
as Chief Executive Officer of the Company.
BACKGROUND
A special committee of the Compensation Committee of the Board of
Directors noted that Mr. Melrose will become 60 years of age on July 31, 2000,
at which time he will have served as Chief Executive Officer of the Company for
approximately 17 years. The special committee recommended to the Board of
Directors that it is in the best interests of the Company to plan for Mr.
Melrose's retirement not later than his 60th birthday, and to begin the planning
process for succession in the senior management of the Company. Upon the advice
of the special committee, the Board of Directors adopted the Plan to provide an
incentive to Mr. Melrose to identify, develop and have in place a successor
chief executive officer prior to his retirement. In order for Mr. Melrose to
earn incentive compensation under the Plan, the succession plan and development
of succession management must be approved by the Board of Directors not later
than certain target dates and Mr. Melrose's successor must be elected as chief
executive officer of the Company prior to Mr. Melrose's retirement, but not
later than July 31, 2000. The Plan is also intended to discourage Mr. Melrose
from seeking employment with, consulting for or serving on the board of
directors of any competitor of the Company. Mr. Melrose has agreed to the
retirement date set by the Board and has indicated his intention to seek to earn
an incentive under the Plan.
The Board of Directors seeks the approval of the Plan by stockholders of
the Company in order to qualify certain of the compensation under the Plan as
performance-based compensation in compliance with Section 162(m) of the Code and
proposed regulations thereunder and to maximize the deductibility of that
compensation to the Company. Stockholder approval is also sought to assure
compliance of the Plan with Rule 16b-3 under the Exchange Act. If stockholder
approval is not obtained, the Board of Directors will reconsider the Plan.
SUMMARY OF PLAN FEATURES
EFFECTIVE DATE. The Plan was adopted by the Board of Directors on October
18, 1994 and will become effective on July 31, 1995, subject to approval by the
stockholders at the Annual Meeting.
ADMINISTRATION. The Plan will be administered by the Special CEO
Succession Subcommittee of the Compensation Committee of the Board of Directors
of the Company ("the Committee"), which will be comprised of not fewer than two
members of the Board of Directors of the Company who must meet the requirements
for service pursuant to Rule 16b-3 under the Exchange Act and Section 162(m)
under the Code, and the rules, regulations and interpretations thereunder. The
Committee has the authority to interpret the Plan; to prescribe, amend and
rescind the rules and regulations relating to it, and to make all other
determinations deemed necessary or advisable for the administration of the Plan.
SHARES SUBJECT TO THE PLAN. Subject to provisions relating to adjustment
in the event of changes in the capital structure of the Company, the maximum
aggregate number of shares of Common Stock that may be awarded as Restricted
Stock under the Plan is 23,960. The actual number of shares to be issued will be
based on the price of the Common Stock on July 31, 1995. If the closing price of
the Common Stock on October 19, 1994 were used, the number of shares required to
be issued under the Plan would be 16,878. Using the lowest price for the Common
Stock during the previous 12 months (prior to October 20, 1994), however, 23,952
shares would be required to meet the terms of the Plan. If on July 31, 1995, the
price of the Common Stock is below the lowest price for the prior 12 months and
additional shares are required, stockholder approval may be sought for
additional shares to meet the terms of the Plan. The shares may be in whole or
in part authorized but unissued shares of Common Stock or shares of Common Stock
previously issued and outstanding and reacquired by the Company.
16
<PAGE>
AWARD. The Plan authorizes the Company to enter into an agreement with Mr.
Melrose, to become effective as of July 31, 1995, for the grant of an award
comprised of the components described below.
GRANT OF RESTRICTED STOCK. The Company will grant to Mr. Melrose on July
31, 1995 the number of whole shares of Common Stock and related Preferred Share
Purchase Rights having an aggregate fair market value of $500,000 on that date
(the "Restricted Stock"), subject to forfeiture or reduction of the number of
shares in the event certain performance goals set forth in the Plan (the
"Performance Goals") are not achieved and to the other terms and conditions of
the Plan. If the fair market value of the Common Stock on the date of vesting of
the Restricted Stock is less than the fair market value on July 31, 1995, the
Company must make an aggregate payment to Mr. Melrose of the difference between
the fair market value on the date of vesting of the Restricted Stock and the
fair market value on July 31, 1995. Fair market value means the closing price of
the Common Stock on the New York Stock Exchange as reported in THE WALL STREET
JOURNAL.
GRANT OF PERFORMANCE UNITS AND ANNUITY PURCHASE. The Company will also
grant to Mr. Melrose on July 31, 1995, performance units equal to the number of
whole shares of Common Stock having an aggregate fair market value of $500,000
on that date (the "Performance Units"), subject to forfeiture or reduction in
the event the Performance Goals set forth in the Plan are not achieved, and
subject to Mr. Melrose's entering into and complying with the terms and
conditions of a noncompetition agreement. Each Performance Unit will have a
value equal to the fair market value of one share of Common Stock, from time to
time, except that the value may not be less than the fair market value of one
share of Common Stock on July 31, 1995. An amount equal to the aggregate value
of the Performance Units remaining at the date of Mr. Melrose's retirement,
after forfeiture, if any, will be utilized by the Company to purchase a
retirement annuity payable to Mr. Melrose until his 75th birthday, or to his
estate or beneficiaries, subject to the condition that Mr. Melrose enter into
and comply with the terms and conditions of a noncompetition agreement.
POST-RETIREMENT CONSULTING AND NONCOMPETITION AGREEMENT. The Company will
also enter into a post-retirement consulting and noncompetition agreement with
Mr. Melrose, pursuant to which Mr. Melrose will agree not to serve as an
employee, consultant or member of the board of directors of competitors of the
Company for a period of five years following his retirement. Compensation to be
paid in connection with this five year agreement is not "performance based"
under Section 162(m) and accordingly is not intended to meet the requirements
for qualification under Rule 16b-3 or Section 162(m).
TERMS, CONDITIONS AND RESTRICTIONS.
RESTRICTED STOCK AND PERFORMANCE UNIT PERFORMANCE GOAL RESTRICTIONS. The
obligations of the Company to deliver certificates representing the Restricted
Stock granted under the Plan and to utilize the aggregate value of the
Performance Units to purchase a retirement annuity are subject to the terms,
conditions and restrictions described below.
VESTING OF RESTRICTED STOCK AND PERFORMANCE UNITS. Mr. Melrose's right to
receive the Restricted Stock and the value of the Performance Units will be
subject to the requirement that he achieve specified Performance Goals not later
than the last day of the period specified to achieve each such Performance Goal
(the "Restricted Period"). Upon achievement of a performance goal within the
Restricted Period, the restrictions will lapse on a specified portion of
Restricted Stock and Performance Units, which will then vest and become
nonforfeitable, except that the obligation of the Company to pay the value of
the Performance Units will be subject to the condition that Mr. Melrose enter
into and comply with terms and conditions of a noncompetition agreement.
Goal 1 is the development of a senior management succession plan, which
includes the chief executive officer, and progress towards fulfillment of such a
plan which are approved by the Board of Directors, which must be accomplished
not later than July 31, 1998 and the accomplishment of which will result in the
vesting of 15% of the Restricted Stock and the Performance Units. Goal 2 is
continued development of the senior management team and the identification of a
potential chief executive officer successor, who is approved as such by the
Board of Directors, not later than July 31, 1999. Upon accomplishment of Goal 2,
an additional 15% of the Restricted Stock and Performance Units will vest. Goal
3 is the employment by the Company of a chief executive officer identified and
developed by Mr. Melrose, and elected as chief executive officer by the Board of
Directors, not later than July 31, 2000. Upon accomplishment of this goal, the
remaining 70% of the Restricted Stock and Performance Units will vest.
17
<PAGE>
Notwithstanding any other provision of the Plan, in the event that Mr.
Melrose elects to retire prior to the last day of the final Restricted Period,
but not earlier than July 31, 1997, and the Board of Directors elects as Mr.
Melrose's successor an individual identified and developed by Mr. Melrose, and
such successor is in place as chief executive officer of the Company, all
Restricted Stock and Performance Units will vest in full and become
nonforfeitable, except that payment of the value of the Performance Units for
the purchase of a retirement annuity will be subject to the further condition
that Mr. Melrose enter into and comply with the terms and conditions of a
noncompetition agreement.
The Committee will be responsible for certifying in writing to the Company
that the applicable Performance Goals have been met by Mr. Melrose prior to
release and delivery of certificates representing the shares of Restricted Stock
or payment of the value of Performance Units for the purchase of a retirement
annuity to Mr. Melrose.
LIMITS ON TRANSFER OF RESTRICTED STOCK AND PERFORMANCE UNITS. Shares of
the Restricted Stock which have not vested in accordance with the provisions
described above may not be sold, transferred, pledged, assigned or otherwise
encumbered. Performance Units may not be sold, transferred, pledged, assigned or
otherwise encumbered at any time and the value of Performance Units may be
utilized only for the purpose of purchasing the retirement annuity.
TERMINATION, DEATH OR DISABILITY. In the event that the Board of Directors
terminates Mr. Melrose's employment other than for cause and elects as Mr.
Melrose's successor a chief executive officer who was identified and developed
by Mr. Melrose, or in the event of the termination of Mr. Melrose's employment
due to his death or disability, then all shares of Restricted Stock and
Performance Units will automatically vest and become nonforfeitable, effective
in the fiscal year following the year of the date of such event.
TERMINATION OF EMPLOYMENT. If Mr. Melrose resigns his employment with the
Company prior to July 31, 1997, or if his employment is terminated by the Board
of Directors for cause during any Restricted Period, all shares of Restricted
Stock and all Performance Units then subject to restrictions and all other
rights under the Plan will be forfeited by Mr. Melrose and the Restricted Stock
will be reacquired by the Company.
STOCK CERTIFICATES. The Company will issue stock certificates representing
the shares of Restricted Stock granted and those certificates will be physically
held by the Company or its nominee during any Restricted Period. If any shares
of Restricted Stock are forfeited, certificates representing such shares will be
delivered to the Company for reissuance in the name of the Company or
cancellation and Mr. Melrose will have no further interest in such stock. When
the Performance Goals described above have been achieved with respect to any
portion of the shares of the Restricted Stock, the Company will deliver a
certificate representing shares of Common Stock to Mr. Melrose or his legal
representative, beneficiary or heir.
RIGHT TO VOTE AND DIVIDENDS. With certain exceptions, Mr. Melrose will
have, with respect to the shares of Restricted Stock, all of the rights of a
stockholder of the Company, including the right to vote the shares and the right
to receive cash dividends with respect to the shares.
ADJUSTMENTS. In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split or other change in corporate
structure affecting the Common Stock, the Committee will make such substitution
or adjustment in the aggregate number of shares of Common Stock reserved for
issuance under the Plan or in the number of shares outstanding as Restricted
Stock and in the number of Performance Units, as may be determined to be
appropriate by the Committee, acting in its sole discretion, provided that the
number of shares or Performance Units will always be a whole number.
CHANGE IN CONTROL. In the event of a threatened or actual change of
control of the Company, whether or not approved by the Board of Directors, all
shares of Restricted Stock and Performance Units will immediately fully vest and
be nonforfeitable. A change of control means the earliest to occur of (a) a
public announcement that a party shall have acquired or obtained the right to
acquire beneficial ownership of 20% or more of the outstanding shares of Common
Stock of the Company, (b) the commencement 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 party of 30% or more of the outstanding shares of
Common Stock of the Company or (c) the occurrence of a tender offer, exchange
offer, merger, consolidation, sale of assets or contested election or any
18
<PAGE>
combination thereof, that causes (or would cause) the persons who were directors
of the Company immediately before such change of control to cease to constitute
a majority of the Board of Directors of the Company or any parent of or
successor to the Company.
WITHHOLDING TAXES. The Company has the right to deduct from any settlement
made under the Plan any federal, state or local taxes of any kind, including
FICA and related taxes, required by law to be withheld with respect to the
vesting of rights to receive or payment of remuneration or to take such other
action as may be necessary in the opinion of the Company to satisfy all
obligations for the payment of such taxes. If Common Stock is withheld or
surrendered to satisfy tax withholding, such stock will be valued at its fair
market value as of the date such Common Stock is withheld or surrendered or the
obligation to pay such taxes becomes fixed.
REGISTRATION RIGHTS. Mr.Melrose will have the right to require the Company
to register or qualify the Restricted Stock, or Common Stock issued upon vesting
of the Restricted Stock, under the Securities Act of 1933, as amended, and the
securities laws of such states as Mr. Melrose may reasonably request. The
Company is required to bear all fees, costs and expenses of such registration,
qualification, notification or approval.
COMPLIANCE WITH RULE 16B-3 AND SECTION 162(M). The grant to be made under
the Plan and the remuneration to be paid to Mr. Melrose as a consequence of the
grant are intended to comply with all applicable conditions of Rule 16b-3 under
the Exchange Act and to avoid the loss of the deduction referred to in paragraph
(1) of Section 162(m) of the Code. To the extent any provision of the Plan or
action by the Committee fails to comply or to avoid the loss of such deductions,
it will be deemed null and void to the extent permitted by law and deemed
advisable by the Committee.
EMPLOYMENT. The Plan is not intended to be an employment agreement and
nothing in the Plan is to interfere with or limit in any way the right of the
Board of Directors to terminate Mr. Melrose's employment at any time.
NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the Board
nor the submission of the Plan to stockholders for approval is to be construed
to limit the power of the Board or the Committee to adopt such other incentive
arrangements as either may deem desirable, including the award of stock and cash
awards otherwise than under the Plan, or to set compensation and retirement
benefits and make such awards to Mr. Melrose as either may deem desirable.
EXCLUSION FROM PENSION, PROFIT SHARING AND OTHER BENEFIT CALCULATIONS. The
award or vesting of Restricted Stock and Performance Units under the Plan is to
constitute special incentive compensation that is not taken into account as
"salary" or "compensation" or "bonus" in determining the amount of any payment
under any pension, retirement or profit sharing plan of the Company or in
determining the amount of any life insurance coverage, short or long-term
disability coverage or any other pay-based benefit provided by the Company.
AMENDMENT. The Plan may be amended, modified or terminated from time to
time, except that no amendment may be adopted without the approval of the
stockholders of the Company if the amendment requires stockholder approval
pursuant to Rule 16b-3 or Section 162(m). No amendment, modification or
termination may be adopted without the written agreement of Mr. Melrose if the
amendment, modification or termination would adversely affect his rights.
Subject to the foregoing and the requirements of Section 162(m), the Board may
amend the Plan to preserve the employer compensation deduction under Section
162(m).
The following table sets forth information with respect to the maximum
benefits or amounts under the Plan that will be received by or allocated to Mr.
Melrose.
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
DOLLAR
NAME VALUE ($) NUMBER OF UNITS
- - ------------------------------------------- -------------- --------------------
<S> <C> <C>
Kendrick B. Melrose $ 500,000 Restricted Stock (1)
$ 500,000 Performance
Units (1)
<FN>
- - ------------------------------
(1) The number of units is not presently determinable but will not exceed
23,960, without further stockholder approval.
</TABLE>
19
<PAGE>
VOTE REQUIRED. THE AFFIRMATIVE VOTE OF THE MAJORITY OF SHARES OF COMMON
STOCK PRESENT IN PERSON OR REPRESENTED BY PROXY AT THE ANNUAL MEETING IS
REQUIRED FOR THE ADOPTION OF ITEM 2. ALL PROXIES WILL BE VOTED FOR ITEM 2 UNLESS
A CONTRARY CHOICE IS INDICATED.
PROPOSAL THREE
SELECTION OF INDEPENDENT AUDITORS
The Audit Committee of the Board of Directors has selected KPMG Peat
Marwick LLP to serve as independent auditors to the Company for Fiscal 1995.
Although it is not required to do so, the Board of Directors wishes to submit
the selection of KPMG Peat Marwick LLP for stockholder approval at the meeting.
A representative of KPMG Peat Marwick LLP is expected to be present at the
Annual Meeting with the opportunity to make a statement if so desired, and to be
available to respond to appropriate questions.
VOTE REQUESTED. THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO APPROVE THE
SELECTION OF KPMG PEAT MARWICK LLP. IF THE HOLDERS OF A MAJORITY OF THE SHARES
OF COMMON STOCK REPRESENTED AT THE MEETING DO NOT APPROVE THE SELECTION OF
PUBLIC ACCOUNTANTS, THE BOARD OF DIRECTORS WILL RECONSIDER ITS SELECTION. ALL
PROXIES WILL BE VOTED FOR ITEM 3 UNLESS A CONTRARY CHOICE IS INDICATED.
STOCKHOLDER PROPOSALS FOR 1995 ANNUAL MEETING
The 1995 Annual Meeting is expected to be held on December 14, 1995.
Unless the date of the 1994 Annual Meeting is changed, a stockholder proposal
must be received by the Secretary of the Company no later than the close of
business on July 7, 1995, in order to be included in the Company's Proxy
Statement for the 1995 Annual Meeting of Stockholders. Procedures for
nominations by a stockholder of a person for election as a director at the 1995
Annual Meeting, or any other meeting, are described on page 2.
SECTION 16 COMPLIANCE
The rules of the Securities and Exchange Commission require disclosure of
late Section 16 filings by directors and executive officers of the Company.
Based solely on its review of copies of those filings received by the Company,
or written representations from certain persons that no Form 5's were required
for those persons, all Section 16(a) filing requirements applicable to directors
and executive officers have been complied with, except that one late filing
each, to correct clerical and administrative errors, was made on behalf of
Messrs. Richard Pollick and John Szafranski, executive officers of the Company.
OTHER MATTERS
The management of the Company knows of no other matters that may come
before the Annual Meeting. However, if matters other than those referred to
above should properly come before the Annual Meeting, it is the intention of the
persons named on the enclosed proxy card to vote such proxy in accordance with
their best judgment.
Dated: November 1, 1994 BY ORDER OF THE BOARD OF DIRECTORS
[SIGNATURE]
J. LAWRENCE MCINTYRE
Vice President, Secretary and General Counsel
20
<PAGE>
CHIEF EXECUTIVE OFFICER SUCCESSION INCENTIVE PLAN
1. PURPOSE. The purpose of this Chief Executive Officer Succession Plan (the
"Plan") is to assist The Toro Company (the "Company") in preparing for
succession in the management of the Company at the retirement of Kendrick B.
Melrose, Chairman and Chief Executive Officer of the Company ("Mr. Melrose") not
later than his 60th birthday; to encourage Mr. Melrose to assure the
identification, development and readiness of his successor prior to his
retirement, subject to such successor's approval by the Board of Directors; and
to discourage Mr. Melrose from seeking employment with, consulting for or
serving on the board of directors of any competitor of the Company.
2. EFFECTIVE DATE. The Plan was adopted by the Board of Directors on
October 18, 1994, and shall become effective on July 31, 1995, subject to
approval by the holders the Common Stock, par value $1.00 per share, of the
Company (the "Common Stock") at the 1994 Annual Meeting of Stockholders or any
adjournment thereof.
3. ADMINISTRATION. The Plan shall be administered by the Special CEO
Succession Subcommittee of the Compensation Committee of the Board of Directors
of the Company ("the Committee"), which shall be comprised of not fewer than two
members of the Board of Directors of the Company who shall meet the requirements
for service pursuant to Rule 16b-3 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and Section 162(m) under the Internal Revenue
Code of 1986, as amended (the "Code"), and the rules, regulations and
interpretations thereunder. The Committee shall have the authority to
interpret the Plan; to prescribe, amend and rescind the rules and regulations
relating to it, and to make all other determinations deemed necessary or
advisable for the administration of the Plan. Such determinations shall be
conclusive.
4. SHARES SUBJECT TO THE PLAN. Subject to the provisions of Section 5.a. and
Section 8.b, the maximum aggregate number of shares of Common Stock that may be
awarded as Restricted Stock under the Plan shall be 23,960. Such shares may be
in whole or in part authorized but unissued shares of Common Stock or shares of
Common Stock previously issued and outstanding and reacquired by the Company.
5. AWARD. The Company shall have the authority to enter into an agreement
with Mr. Melrose, to become effective as of July 31, 1995, embodying the terms
and conditions of this Plan, pursuant to which Mr. Melrose shall be granted an
award comprised of the components set forth in Sections 5.a. through 5.c. Mr.
Melrose shall not have any rights with respect to the award authorized under
this Plan until and unless he shall have executed an agreement or other
instrument evidencing the award and containing the terms and conditions set
forth in this Plan and shall have delivered a fully executed copy thereof to the
Company, and otherwise complied with the then applicable terms and conditions.
A. GRANT OF RESTRICTED STOCK. The Company shall grant to Mr. Melrose on
July 31, 1995 the number of whole shares of Common Stock having an aggregate
fair market
<PAGE>
value of $500,000 on such date of grant (the "Restricted Stock"), subject to
forfeiture or reduction of the number of shares in the event performance goals
set forth in Section 6 (the "Performance Goals") are not achieved and to the
other terms and conditions of the Plan; provided however that in the event the
fair market value of the Common Stock on the date of vesting of the Restricted
Stock is less than the fair market value on July 31, 1995, the Company shall
make an aggregate payment to Mr. Melrose of the difference between the fair
market value on the date of vesting of the Restricted Stock and the fair market
value on July 31, 1995. Fair market value shall mean the closing price of the
Common Stock on the New York Stock Exchange as reported in THE WALL STREET
JOURNAL.
B. GRANT OF PERFORMANCE UNITS AND ANNUITY PURCHASE. Subject to the terms
and conditions of this Plan, the Company shall grant to Mr. Melrose on July 31,
1995, performance units equal to the number of whole shares of Common Stock
having an aggregate fair market value of $500,000 on such date of grant (the
"Performance Units"), subject to forfeiture or reduction in the event the
Performance Goals set forth in Section 6 are not achieved and to the other terms
and conditions of the Plan. Each Performance Unit shall have a value equal to
the fair market value of one share of Common Stock, from time to time, provided
however that the value shall not be less than the fair market value of one share
of Common Stock on July 31, 1995. Performance Units shall be evidenced by the
agreement to be entered into between Mr. Melrose and the Company pursuant to the
preamble to this Section 5. An amount equal to the aggregate value of the
Performance Units remaining at the date of Mr. Melrose's retirement, after
forfeiture, if any, shall be utilized by the Company to purchase a retirement
annuity payable to Mr. Melrose until his 75th birthday, or to his estate or
beneficiaries, and for no other purpose, subject to the condition that Mr.
Melrose enter into and comply with the terms and conditions of a noncompetition
agreement, in accordance with Section 5.c. and 6.b.
C. POST-RETIREMENT CONSULTING AND NONCOMPETITION AGREEMENT. Subject to
the terms and conditions of this Plan, the Company shall have the authority to
enter into a post-retirement consulting and non-competition agreement with Mr.
Melrose, providing for the payment of an aggregate amount of up to $500,000,
which amount shall be adjusted not less than once annually to reflect increases
in the consumer price index and which may be utilized to pay expenses of office
and support services for Mr. Melrose for a period of five years following the
date of his retirement.
6. TERMS, CONDITIONS AND RESTRICTIONS.
A. RESTRICTED STOCK AND PERFORMANCE UNIT PERFORMANCE GOAL RESTRICTIONS.
The obligation of the Company to deliver certificates representing the
Restricted Stock granted hereunder and to utilize the aggregate value of the
Performance Units to purchase a retirement annuity shall be subject to the
terms, conditions and restrictions set forth in this Section 6.a.
2
<PAGE>
i. Vesting of Restricted Stock and Performance Units. Mr. Melrose's
right to receive the Restricted Stock and the value of the Performance Units
shall be subject to the vesting requirements set forth in this Section 6.a.i.
and to the achievement by Mr. Melrose of the Performance Goals set forth in
Section 6.a.i. hereof not later than the last day of the period specified to
achieve such performance (the "Restricted Period"). Upon achievement of a
Performance Goal within an applicable Restricted Period, the restrictions shall
lapse with respect to the specified portion of Restricted Stock, which specified
portion shall vest and become nonforfeitable. Upon achievement of a Performance
Goal within an applicable Restricted Period, the restrictions shall lapse with
respect to the specified portion of Performance Units, which specified portion
shall vest and become nonforfeitable, subject to the further condition that Mr.
Melrose enter into and comply with the terms and conditions of a noncompetition
agreement in accordance with Section 6.b. If Mr. Melrose does not enter into a
noncompetition agreement or does not comply with the terms and conditions of
such a noncompetition agreement, then Mr. Melrose shall forfeit his rights to
the Performance Units and the right to receive the benefits of the retirement
annuity referred to in Section 5.b.
(A) The following table sets forth the Performance Goals, the
schedule for achievement of each Performance Goal and the portion of Restricted
Stock and Performance Units in which rights vest upon such achievement.
<TABLE>
<CAPTION>
Performance Goal Restricted Period Portion of Portion of
to be Achieved (July 31, 1995 Shares of Re- Performance
through earlier of stricted Stock Units to
date shown or to Vest Upon Vest Upon
Goal Achievement) Achievement Achievement
<S> <C> <C> <C>
Goal 1:
CEO and senior management
succession plan developed
and progress toward fulfillment
of the plan, both approved by
Board of Directors July 31, 1998 15% 15%
3
<PAGE>
Goal 2:
Continued development of
senior management team and
identification of potential CEO
successor identified with
approval of Board of Directors July 31, 1999 15% 15%
Goal 3:
CEO identified and developed
by Mr. Melrose and elected as
CEO by the Board of Directors July 31, 2000 70% 70%
</TABLE>
(B) Early Selection of Successor. Notwithstanding any other
provision of the Plan, in the event that the Board of Directors elects as Mr.
Melrose's successor the individual identified and developed by Mr. Melrose, and
such successor is in place as chief executive officer of the Company and Mr.
Melrose elects to retire prior to the last day of the final Restricted Period,
but no earlier than July 31, 1997, all Restricted Stock and Performance Units
shall vest in full and become nonforfeitable, subject to the condition with
respect to the Performance Units that Mr. Melrose enter into and comply with the
terms and conditions of a noncompetition agreement in accordance with Section
6.b.
(C) The Committee shall be responsible for certifying in writing
to the Company that the applicable Performance Goal has been met by Mr. Melrose
prior to release and delivery of certificates representing the shares of
Restricted Stock or payment of the value of Performance Units for the purchase
of a retirement annuity to Mr. Melrose.
ii. Limits on Transfer of Restricted Stock and Performance Units.
Shares of the Restricted Stock which have not vested in accordance with the
provisions of Section 6.a. hereof may not be sold, transferred, pledged,
assigned or otherwise encumbered. Performance Units may not be sold,
transferred, pledged, assigned or otherwise encumbered at any time.
iii. Termination, Death or Disability. In the event that the Board of
Directors terminates Mr. Melrose's employment other than for cause and elects as
Mr. Melrose's successor a chief executive officer who was identified and
developed by Mr. Melrose, or in the event of the termination of Mr. Melrose's
employment due to his death or disability, then all shares of Restricted Stock
and Performance Units shall automatically and immediately vest in full and
become nonforfeitable.
B. POST-RETIREMENT CONSULTING AND NONCOMPETITION AGREEMENT. The Company's
agreement to pay any amount in connection with post-retirement consulting
services to be provided by Mr. Melrose and the Company's agreement to pay the
value of Performance Units to purchase a retirement annuity payable to Mr.
Melrose pursuant to Section 5.c. shall
4
<PAGE>
be subject to and in consideration of Mr. Melrose's execution, not later than
July 31, 1995, of an agreement not to compete with the Company by serving as an
employee or member of the board of directors of or consultant to any competitor
to the Company identified in an SEC Annual Report on Form 10-K or any successor
thereof or similar competitor of the Company for a period of five years
following the date of Mr. Melrose's retirement as Chief Executive Officer of the
Company. The Company's agreement to pay any amount in connection with post-
retirement consulting services to be provided by Mr. Melrose shall be subject to
his agreement to provide consulting services to the Company for a period of five
years following the date of his retirement; provided however that Mr. Melrose
may elect to terminate the consulting agreement, but not the agreement not to
compete, in which event any balance of the $500,000 amount referred to in
Section 5.c. not then expended for Mr. Melrose's benefit shall be paid to Mr.
Melrose over the remainder of the five year period. Mr. Melrose shall not have
any right to receive payments pursuant to Section 5.c. or this Section 6.b.
until and unless he shall have executed an agreement not to compete with the
Company and delivered a fully executed copy thereof to the Company, not later
than July 31, 1995, and otherwise complied with the then applicable terms and
conditions of the Plan.
C. TERMINATION OF EMPLOYMENT. Except as otherwise provided by Section
6.a. hereof, if Mr. Melrose resigns his employment with the Company or if his
employment is terminated by the Board of Directors for cause during any
Restricted Period, all shares of Restricted Stock and all Performance Units then
subject to restrictions and all other rights under this Plan shall be forfeited
by Mr. Melrose and the Restricted Stock shall be reacquired by the Company.
"Cause" shall mean willful misconduct which, for purposes of this Plan, unless
due to physical or mental illness, shall mean commission of a crime of moral
turpitude, conduct known by him to be contrary to the best interests of the
Company, or willful and continued failure to substantially perform duties after
a demand for substantial performance is delivered by the Committee or the Board
of Directors which specifically identifies the manner in which the Committee or
the Board believes such duties have not substantially been performed, or
voluntarily or involuntarily with or without cause prior to a Change of Control
(as defined in Section 6.f.)
D. STOCK CERTIFICATES.
I. ISSUANCE. The Company shall issue a stock certificate or
certificates representing the shares of Restricted Stock granted under the Plan.
Such certificates shall be registered in Mr. Melrose's name and shall bear an
appropriate legend referring to the terms, conditions and restrictions
applicable to the grant, substantially in the following form:
The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the Chief Executive Officer Succession Incentive Plan
and an agreement entered into between the registered owner and The
Toro Company. Copies of the plan and agreement are on file in the
offices of The Toro Company, 8111 Lyndale Avenue South, Bloomington,
Minnesota 55420.
5
<PAGE>
II. ESCROW. Certificates representing the Restricted Stock shall be
physically held by the Company or its nominee during any Restricted Period, and
the Company may require, as a condition of the grant, that Mr. Melrose shall
have delivered a stock power, endorsed in blank, with respect to any shares of
the Restricted Stock. Upon the achievement of the Performance Goals with
respect to any shares of Restricted Stock, as certified to by the Committee, the
Company shall cause the certificate representing such shares of Restricted Stock
to be removed from escrow and delivered to the Company for reissuance and
delivery of Common Stock in the name of Mr. Melrose in accordance with
instructions from or agreed upon with Mr. Melrose. If any shares of Restricted
Stock are to be forfeited, certificates representing such shares shall be
delivered to the Company for reissuance in the name of the Company or
cancellation and Mr. Melrose shall have no further interest in such stock.
III. LAPSE OF RESTRICTIONS. When the Performance Goals set forth in
Section 6.a. have been achieved with respect to any portion of the shares of the
Restricted Stock, the Company shall not later than 60 days thereafter, cause the
certificate or certificates representing the Restricted Stock to be reissued
without the legend referred to in Section 6.d.i. hereof. The number of shares
of Common Stock to be reissued shall be the same number as to which the
Performance Goals have been achieved in accordance with Section 6.a.
E. RIGHTS AS STOCKHOLDER.
I. RIGHT TO VOTE AND DIVIDENDS. Except as provided in Section 5 and
this Section 6, Mr. Melrose shall have, with respect to the shares of Restricted
Stock, all of the rights of a stockholder of the Company, including the right to
vote the shares and the right to receive cash dividends with respect to the
shares. Certificates for shares of Restricted Stock shall be delivered to Mr.
Melrose after, and only after, the Restricted Period shall expire without
forfeiture of such shares of Restricted Stock, in accordance with the provisions
of Section 5.a.
II. ADJUSTMENTS. In the event of any merger, reorganization,
consolidation, recapitalization, stock dividend, stock split or other change in
corporate structure affecting the Common Stock, the Committee shall make such
substitution or adjustment in the aggregate number of shares of Common Stock
reserved for issuance under this Plan or in the number of shares outstanding as
Restricted Stock or in the number of Performance Units, as may be determined to
be appropriate by the Committee, acting in its sole discretion, provided that
the number of shares or Performance Units shall always be a whole number.
F. CHANGE IN CONTROL. In the event of a threatened or actual Change of
Control of the Company as hereinafter defined, whether or not approved by the
Board of Directors, all shares of Restricted Stock shall immediately fully vest
and be freely transferable. A Change of Control means the earliest to occur of
(i) a public announcement that a party shall
6
<PAGE>
have acquired or obtained the right to acquire beneficial ownership of 20% or
more of the outstanding shares of Common Stock of the Company, (ii) the
commencement 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
party of 30% or more of the outstanding shares of Common Stock of the Company or
(iii) the occurrence of a tender offer, exchange offer, merger, consolidation,
sale of assets or contested election or any combination thereof, that causes (or
would cause) the persons who were directors of the Company immediately before
such Change of Control to cease to constitute a majority of the Board of
Directors of the Company or any parent of or successor to the Company.
7. WITHHOLDING TAXES. The Company shall have the right to deduct from any
settlement made under the Plan any federal, state or local taxes of any kind,
including FICA and related taxes, required by law to be withheld with respect to
the vesting of rights to receive or payment of remuneration or to take such
other action as may be necessary in the opinion of the Company to satisfy all
obligations for the payment of such taxes. If Common Stock is withheld or
surrendered to satisfy tax withholding, such stock shall be valued at its fair
market value as of the date such Common Stock is withheld or surrendered or the
obligation to pay such taxes becomes fixed.
8. REGISTRATION RIGHTS. Mr. Melrose shall have the right to require that the
Company promptly take all necessary steps to register or qualify the Restricted
Stock, or Common Stock issued upon vesting of the Restricted Stock, under the
Securities Act of 1933, as amended, and the securities laws of such states as
Mr. Melrose may reasonably request. The Company shall keep effective and
maintain any registration, qualification, notification or approval for such
period as is reasonably necessary for Mr. Melrose to dispose of the Restricted
Stock or Common Stock and from time to time shall amend or supplement the
prospectus used in connection therewith to the extent necessary in order to
comply with applicable law. The Company shall bear all fees, costs and expenses
of such registration, qualification, notification or approval.
9. COMPLIANCE WITH RULE 16B-3 AND SECTION 162(M).
The grants of Restricted Stock and Performance Units made under this Plan
and the remuneration to be paid to Mr. Melrose as a consequence of the grants
are intended to comply with all applicable conditions of Rule 16b-3 under the
Exchange Act and to avoid the loss of the deduction referred to in paragraph (1)
of Section 162(m) of the Code. Anything in this Plan to the contrary
notwithstanding, to the extent any provision of this Plan or action by the
Committee fails to so comply or to avoid the loss of such deduction, it shall be
deemed null and void to the extent permitted by law and deemed advisable by the
Committee.
10. EMPLOYMENT. Nothing in this Plan shall interfere with or limit in any way
the right of the Company to terminate Mr. Melrose's employment at any time, with
the Company or any subsidiary of the Company, or shall confer upon Mr. Melrose
any right to continue in the employ of the Company.
7
<PAGE>
11. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the Board
nor the submission of the Plan to stockholders for approval shall be construed
to limit the power of the Board or the Committee to adopt such other incentive
arrangements as either may deem desirable, including without limitation, the
award of stock and cash awards otherwise than under the Plan, or to set
compensation and retirement benefits and make such awards to Mr. Melrose as
either may deem desirable.
12. EXCLUSION FROM PENSION, PROFIT SHARING AND OTHER BENEFIT CALCULATIONS. By
acceptance of an award under the Plan, Mr. Melrose shall be deemed to have
agreed that the award or vesting of Restricted Stock and Performance Units under
the award constitutes special incentive compensation that is not taken into
account as "salary" or "compensation" or "bonus" in determining the amount of
any payment under any pension, retirement or profit sharing plan of the Company
or any subsidiary. In addition, Mr. Melrose shall be deemed to have agreed that
such award shall not be taken into account in determining the amount of any life
insurance coverage, short or long-term disability coverage or any other pay-
based benefit provided by the Company or any subsidiary.
13. AMENDMENT. This Plan may be amended, modified or terminated from time to
time, provided however that no amendment may be adopted without the approval of
the stockholders of the Company if such amendment requires stockholder approval
pursuant to Rule 16b-3 or Section 162(m). No amendment, modification or
termination may be adopted without the written agreement of Mr. Melrose if such
amendment, modification or termination would adversely affect his rights.
Subject to the foregoing and the requirements of Section 162(m), the Board may,
in accordance with the recommendation of the Committee and without further
action on the part of stockholders of the Company or the consent of Mr. Melrose,
amend the Plan to preserve the employer deduction under Section 162(m).
14. GOVERNING LAW. This Plan shall be construed in accordance with and
governed by the laws of the State of Delaware.
15. SUCCESSORS. Except as otherwise provided in this Plan, this Plan shall be
binding upon and inure to the benefit of the Company, its successors and assigns
and Mr. Melrose, his beneficiaries, heirs, executors, administrators and legal
representatives.
kdmsucc.pln
8
<PAGE>
THE TORO COMPANY
8111 LYNDALE AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55420
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints K.B. Melrose and J.L. McIntyre, or either of
them, with full power of substitution to each, as attorneys and proxies to
represent the undersigned at the Annual Meeting of Stockholders of The Toro
Company, to be held in the corporate offices of The Toro Company, 8111
Lyndale Avenue South, Bloomington, Minnesota on the 15th day of December,
1994 at 3:00 p.m. C.S.T. and at any adjournment(s) thereof, and to vote all
shares of Common Stock which the undersigned may be entitled to vote at said
meeting as directed below with respect to the proposals as set forth in the
Proxy Statement, and in their discretion upon any other matters that may
properly come before said meeting.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES
ON THE REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN
ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS EXCEPT THAT SHARES
HELD IN EMPLOYEE BENEFIT PLANS FOR WHICH A PROXY IS NOT RECEIVED WILL BE
VOTED BY THE TRUSTEE IN THE SAME PROPORTION AS VOTES ACTUALLY CAST BY PLAN
PARTICIPANTS. THE TABULATOR CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND
RETURN THIS PROXY CARD.
SEE REVERSE SIDE
<PAGE>
UNLESS YOU INDICATE OTHERWISE, THIS PROXY WILL BE VOTED IN ACCORDANCE WITH
THE BOARD OF DIRECTORS' RECOMMENDATIONS.
1. Election of Directors
/ / FOR all nominees listed below / / WITHHOLD AUTHORITY
(except as marked to the contrary below)
William W. George Robert H. Nassau
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ONE OR MORE INDIVIDUAL
NOMINEES, STRIKE A LINE THROUGH THE NOMINEE'S NAME).
2. Approval of CEO Succession Incentive Plan
FOR / / AGAINST / / ABSTAIN / /
3. Approval of Selection of Independent Auditors
FOR / / AGAINST / / ABSTAIN / /
4. To consider and act upon such other matters as may properly come before
the meeting or any adjournments thereof.
- - ----------------------------------------
- - ----------------------------------------
SIGNATURE(S) DATE
This Proxy Card Must be Signed
Exactly as Name Appears Hereon
When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full corporate name by
president or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
<PAGE>
THE TORO COMPANY
8111 LYNDALE AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55420
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints K.B. Melrose and J.L. McIntyre, or either of
them, with full power of substitution to each, as attorneys and proxies to
represent the undersigned at the Annual Meeting of Stockholders of The Toro
Company, to be held in the corporate offices of The Toro Company, 8111
Lyndale Avenue South, Bloomington, Minnesota on the 15th day of December,
1994 at 3:00 p.m. C.S.T. and at any adjournment(s) thereof, and to vote all
shares of Common Stock which the undersigned may be entitled to vote at said
meeting as directed below with respect to the proposals as set forth in the
Proxy Statement, and in their discretion upon any other matters that may
properly come before said meeting.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES
ON THE REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN
ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS EXCEPT THAT SHARES
HELD IN EMPLOYEE BENEFIT PLANS FOR WHICH A PROXY IS NOT RECEIVED WILL BE
VOTED BY THE TRUSTEE IN THE SAME PROPORTION AS VOTES ACTUALLY CAST BY PLAN
PARTICIPANTS. THE TABULATOR CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND
RETURN THIS PROXY CARD.
SEE REVERSE SIDE
<PAGE>
UNLESS YOU INDICATE OTHERWISE, THIS PROXY WILL BE VOTED IN ACCORDANCE WITH
THE BOARD OF DIRECTORS' RECOMMENDATIONS.
1. Election of Directors
/ / FOR all nominees listed below / / WITHHOLD AUTHORITY
(except as marked to the contrary below)
William W. George Robert H. Nassau
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ONE OR MORE INDIVIDUAL
NOMINEES, STRIKE A LINE THROUGH THE NOMINEE'S NAME).
2. Approval of CEO Succession Incentive Plan
FOR / / AGAINST / / ABSTAIN / /
3. Approval of Selection of Independent Auditors
FOR / / AGAINST / / ABSTAIN / /
4. To consider and act upon such other matters as may properly come before
the meeting or any adjournments thereof.
ESOP
MATCHING STOCK
REGISTERED STOCK
- - ----------------------------------------
- - ----------------------------------------
SIGNATURE(S) DATE
This Proxy Card Must be Signed
Exactly as Name Appears Hereon
When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full corporate name by
president or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
