<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 7, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
THE TORO COMPANY
(Exact Name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3524 41-0580470
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>
J. LAWRENCE MCINTYRE, ESQ.
THE TORO COMPANY
8111 LYNDALE AVENUE SOUTH 8111 LYNDALE AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55420-1196 MINNEAPOLIS, MINNESOTA 55420-1196
(612) 888-8801 (612) 888-8801
(Address, including zip code, and (Name, address, including zip code,
telephone number, including area code, and telephone number, including area
of Registrant's principal executive code, of agent for service)
offices)
--------------------------
COPIES TO:
J. ANDREW HERRING, ESQ. RICHARD A. DEWITT, ESQ.
Dorsey & Whitney LLP Croker, Huck, Kasher, DeWitt,
Pillsbury Center South Anderson & Gonderinger, P.C.
220 South Sixth Street Commercial Federal Tower, Suite 1250
Minneapolis, Minnesota 55402 2120 South 72nd Street
Omaha, Nebraska 68124
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As promptly as practicable after this Registration Statement becomes
effective and the effective time of the proposed merger (the "Merger") of a
subsidiary of the Registrant with and into Exmark Manufacturing Company
Incorporated, as described in the Agreement and Plan of Merger, dated as of
October 23, 1997, attached as Exhibit A to the Proxy Statement/ Prospectus
forming a part of this Registration Statement.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / _____________________________.
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ____________________________________________________.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED(1) BE REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common/Preferred Contingent Payment
Rights.................................... 22,847(2) (2) (2) (2)
Class B Contingent Payment Rights........... 10,000(3) (3) (3) (3)
Common Stock, $1.00 par value............... 1,646,600(4) Not Applicable Not Applicable $1,756.10
</TABLE>
(1) This Registration Statement relates to the securities of the Registrant
issuable to holders of capital stock of Exmark Manufacturing Company
Incorporated in connection with the Merger, including the preferred share
purchase rights associated with the Common Stock of the Registrant as
described herein.
(2) Based on the estimated maximum number of shares of Common Stock and
Preferred Stock of Exmark Manufacturing Company Incorporated that may be
outstanding immediately prior to the Merger.
(3) Based on the estimated maximum number of shares of Class B Preferred Stock
of Exmark Manufacturing Company Incorporated that may be outstanding
immediately prior to the Merger.
(4) Pursuant to Rule 457(f)(2) and (3), the registration fee was calculated
based upon the book value, calculated as of August 31, 1997 (the latest
practicable date before filing this Registration Statement) of the
securities to be received by the Registrant in the Merger (or $9,167,121),
less $3,372,000 representing cash to be provided by the Registrant in such
Merger based on the minimum potential payments under the terms of the
contingent payments described in the Merger.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[EXMARK MANUFACTURING COMPANY INCORPORATED LETTERHEAD]
, 1997
Dear Stockholder of Exmark Manufacturing Company Incorporated:
You are cordially invited to attend a Special Meeting of Stockholders of
Exmark Manufacturing Company Incorporated ("Exmark"), to be held at Exmark's
corporate offices, 2101 Ashland Avenue, P.O. Box 808, Beatrice, Nebraska 68310,
on , 1997, at 9:00 a.m. local time. A notice of the Special Meeting,
Proxy Statement/Prospectus and proxy card containing information about the
matters to be acted upon are enclosed. All holders of outstanding shares of
common stock, $10.00 par value, of Exmark ("Exmark Common Stock"), and preferred
stock, $40.00 par value, of Exmark ("Exmark Preferred Stock"), as of
, 1997 (the "Record Date"), will be entitled to notice of and to vote
at the Special Meeting and any postponement or adjournment thereof.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt an Agreement and Plan of Merger (as it may be
amended, the "Merger Agreement"), dated as of October 23, 1997, by and among
Exmark, The Toro Company, a Delaware corporation ("Toro"), and EMCI Acquisition
Corp., a Nebraska corporation and wholly owned subsidiary of Toro ("Merger
Subsidiary"), pursuant to which, among other things, Merger Subsidiary will
merge with and into Exmark (the "Merger"), with Exmark continuing as the
surviving corporation (the "Surviving Corporation"). If the Merger Agreement is
approved and the Merger becomes effective, then, except for shares of Exmark
capital stock with respect to which dissenters' rights have been properly
exercised ("Dissenting Shares") and shares of Exmark capital stock issued and
outstanding prior to the effective time of the Merger that are owned by Toro,
Exmark or Merger Subsidiary ("Canceled Shares") (1) each issued and outstanding
share of Exmark Common Stock will be converted into and become a right to
receive (a) cash and shares of common stock, $1.00 par value, of Toro ("Toro
Common Stock") representing the Initial Per Share Payment Consideration (as
defined in the Merger Agreement) and (b) one Common/Preferred Contingent Payment
Right (as defined in the Merger Agreement), (2) each issued and outstanding
share of Exmark Preferred Stock will be converted into and become a right to
receive (a) four times the Initial Per Share Payment Consideration and (b) four
Common/Preferred Contingent Payment Rights, (3) each issued and outstanding
share of Class B preferred stock, $.01 par value, of Exmark ("Exmark Class B
Stock") will be converted into and become a right to receive (a) one-tenth of a
share of Toro Common Stock and (b) one Class B Contingent Payment Right (as
defined in the Merger Agreement), and (4) each issued and outstanding share of
Class C preferred stock, $.01 par value, of Exmark ("Exmark Class C Stock") will
be converted into and become a right to receive the Initial Per Share Payment
Consideration. The cash portion of the aggregate Merger Consideration (as
defined in the Merger Agreement) will be approximately 12% and the remainder
will be shares of Toro Common Stock; however, Exmark stockholders may elect to
receive a greater or lesser percentage of their portion of the Merger
Consideration in cash.
The aggregate amount of cash and shares of Toro Common Stock to be paid by
Toro with respect to the total Initial Per Share Payment Consideration (in the
aggregate, the "Initial Payment") to be exchanged for the Exmark Common Stock,
Exmark Preferred Stock and Exmark Class C Stock will be equal to $28,100,000
(subject to the holdback of 15% of such amount plus an additional $100,000 of
such amount, certain offsets and other adjustments described in the enclosed
Proxy Statement/Prospectus). Based on the Initial Toro Share Price (as defined
in the Merger Agreement) as of October 31, 1997, the Initial Per Share
Consideration would be 576.01 consisting of 12.239 shares of Toro Common Stock
and cash equal to $69.12 (or a total of $487.56 in cash and Toro Common Stock
after such holdbacks and certain other adjustments), in the absence of any
election to receive more or less of the Merger Consideration in cash. However,
in the event the Merger is not consummated prior to November 30, the Initial
Toro Share Price may be a different amount and may result in the payment of more
or less shares of Toro Common Stock as part of Initial Per Share Consideration.
<PAGE>
Each Common/Preferred Contingent Payment Right and Class B Contingent
Payment Right entitles the holder thereof to receive cash and shares of Toro
Common Stock based on the performance of the Surviving Corporation from November
1, 1997 until October 31, 1999, subject to certain limitations and offsets. The
maximum amount of cash and shares of Toro Common Stock that may be paid by Toro
with respect to the Common/Preferred Contingent Payment Rights will not exceed
$14,000,000 (subject to certain offsets and other adjustments described in the
enclosed Proxy Statement/Prospectus). Similarly, the maximum amount of cash and
shares of Toro Common Stock that may be paid by Toro with respect to the Class B
Contingent Payment Rights will not exceed $14,000,000 (subject to certain
offsets and other adjustments described in the enclosed Proxy
Statement/Prospectus). No assurance can be given that any cash and shares of
Toro Common Stock will be paid with respect to either of such rights.
Details of the proposed Merger and other important information are set forth
in the accompanying Proxy Statement/Prospectus, which you are urged to read
carefully. The Merger is subject to the satisfaction of a number of conditions,
including, among others, approval of the Merger Agreement by the holders of
two-thirds of the number of outstanding shares of Exmark Common Stock and Exmark
Preferred Stock, voting together as one class. Each share of Exmark Common Stock
and Exmark Preferred Stock is entitled to one vote per share.
Pursuant to agreements with Toro dated October 23, 1997, certain
stockholders of Exmark, in their individual capacities as stockholders, have
agreed to vote all of their shares of Exmark Common Stock and Exmark Preferred
Stock (approximately 63.8% of the combined voting power of the outstanding
shares of Exmark Common Stock and Exmark Preferred Stock of record as of the
Record Date) in favor of approval of the Merger Agreement, the Merger and the
other proposals described below and have granted an irrevocable proxy to Toro to
vote their respective shares.
Your Board of Directors has carefully reviewed and considered the terms and
conditions of the Merger Agreement and proposed Merger. In addition, your Board
of Directors has received the opinion of its financial advisor, McCarthy & Co.,
that the Merger Consideration is fair, from a financial point of view, to the
stockholders of Exmark.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
THE MERGER AND RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND
THE MERGER.
In addition, you will be asked to consider and act upon three other
proposals relating to the Merger Agreement and the Merger. First, you will be
asked to consider and act upon a proposal to adopt amended and restated articles
of incorporation (the "New Articles of Incorporation"), which authorize the
issuance of the Exmark Class B Stock and the Exmark Class C Stock and clarify
the four-to-one distribution preference associated with the Exmark Preferred
Stock. The Exmark Class B Stock will be issued to certain officers, directors
and employees of Exmark pursuant to the exercise of certain previously issued
stock purchase rights. The Exmark Class C Stock will be issued in exchange for
all of the outstanding shares of capital stock of the Holiman Co., Inc., all of
which shares are owned by Roger Smith, an officer and director of Exmark.
Second, you will be asked to consider and act upon a proposal to approve the
payment in connection with the Merger of signing bonuses (the "Signing Bonuses")
to H. John Smith and Ray Rickard, each of whom is an officer and director of
Exmark, to be paid by Toro in cash in the aggregate amount of $2,075,000
pursuant to new employment agreements between each of Messrs. Smith and Rickard,
respectively, and Exmark and Toro, which employment agreements also include
noncompete covenants. Stockholder approval of such signing bonuses is being
requested so that such bonuses will not constitute "excess parachute payments"
pursuant to Section 280G of the Internal Revenue Code of 1986, as amended. If
treated as excess parachute payments, the bonuses would not be deductible and
Messrs. Smith and Rickard and each would be subject to a 20% excise tax on a
portion of such payments. Finally, you will be asked to consider and act upon a
proposal to ratify the appointment of H. John Smith, Ray Rickard and Roger Smith
as the initial stockholders' representatives as described in the Merger
Agreement ("Stockholders' Representatives"). The Stockholders' Representatives
will act on behalf of the Exmark stockholders who participate in the Merger and
as such will assist in the calculation of the amount of merger consideration to
be paid by Toro in connection with the Merger, including the calculation of the
amount to be paid with respect to the Common/Preferred Contingent Payment Rights
and Class B
<PAGE>
Contingent Payment Rights, and may sign and deliver certificates and notices on
behalf of such Exmark stockholders, among other things described in the Merger
Agreement.
The New Articles of Incorporation are required to be approved by the
affirmative vote of the holders of a majority of each of the outstanding shares
of Exmark Common Stock and Exmark Preferred Stock, voting as a separate class.
For tax purposes, such that the Signing Bonuses will not be "excess parachute
payments," the approval of the Signing Bonuses will require the affirmative vote
of the holders of 75% of the voting power of all disinterested Exmark
stockholders. Consequently, such approval will require the affirmative vote of
the holders of at least 75% of the number of outstanding shares of Exmark Common
Stock and Exmark Preferred Stock (excluding such shares held by H. John Smith
and Ray Rickard), voting together as one class. The ratification of the
appointment of the Stockholders' Representatives will require the affirmative
vote of the holders of a majority of the shares of Exmark Common Stock and
Exmark Preferred Stock, voting together as one class, present in person or by
proxy at the Special Meeting, providing a quorum for the transaction of business
is present at the meeting.
Your Board of Directors has carefully reviewed and considered the foregoing
proposals. YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THESE PROPOSALS AND
RECOMMENDS THAT YOU VOTE FOR APPROVAL OF EACH OF THEM. The approval by Exmark's
stockholders of each proposal described above (except for the proposal regarding
the ratification of the Stockholders' Representatives) is a condition to
consummation of the Merger.
Whether or not you plan to attend the Special Meeting, please complete, sign
and date the accompanying proxy card and return it in the enclosed prepaid
envelope. If you attend the Special Meeting, you may revoke such proxy and vote
in person if you wish, even if you have previously returned your proxy card. If
you do not attend the Special Meeting, you may still revoke such proxy at any
time prior to the Special Meeting by providing written notice of such revocation
to Roger Smith, Secretary of Exmark.
Very truly yours,
H. John Smith
PRESIDENT
<PAGE>
EXMARK MANUFACTURING COMPANY INCORPORATED
2101 ASHLAND AVENUE
P.O. BOX 808
BEATRICE, NEBRASKA 68310
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1997
AT 9:00 A.M. LOCAL TIME
------------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Exmark
Manufacturing Company Incorporated, a Nebraska corporation ("Exmark"), will be
held at Exmark's corporate offices, 2101 Ashland Avenue, P.O. Box 808, Beatrice,
Nebraska 68310, on , 1997, at 9:00 a.m. local time, for the following
purposes:
1. To consider and vote upon a proposal to approve an Agreement and Plan of
Merger (as it may be amended, supplemented or modified from time to time,
the "Merger Agreement"), dated as of October 23, 1997, by and among
Exmark, The Toro Company, a Delaware corporation ("Toro"), and EMCI
Acquisition Corp., a Nebraska corporation and wholly owned subsidiary of
Toro ("Merger Subsidiary"), pursuant to which, among other things, Merger
Subsidiary will merge with and into Exmark (the "Merger"), with Exmark
continuing as the surviving corporation (the "Surviving Corporation"). If
the Merger Agreement is approved and the Merger becomes effective, then,
except for shares of Exmark capital stock with respect to which
dissenters' rights have been properly exercised and shares of Exmark
capital stock issued and outstanding prior to the effective time of the
Merger that are owned by Toro, Exmark or Merger Subsidiary, (1) each
issued and outstanding share of common stock, $10.00 par value, of Exmark
("Exmark Common Stock") will be converted into and become a right to
receive (a) cash and shares of common stock, $1.00 par value, of Toro
("Toro Common Stock") representing the Initial Per Share Payment
Consideration (as defined in the Merger Agreement) and (b) one
Common/Preferred Contingent Payment Right (as defined in the Merger
Agreement), (2) each issued and outstanding share of preferred stock,
$40.00 par value, of Exmark ("Exmark Preferred Stock") will be converted
into and become a right to receive (a) four times the Initial Per Share
Payment Consideration and (b) four Common/Preferred Contingent Payment
Rights, (3) each issued and outstanding share of Class B preferred stock,
$.01 par value, of Exmark ("Exmark Class B Stock") will be converted into
and become a right to receive (a) one-tenth of a share of Toro Common
Stock and (b) one Class B Contingent Payment Right (as defined in the
Merger Agreement), and (4) each issued and outstanding share of Class C
preferred stock, $.01 par value, of Exmark ("Exmark Class C Stock") will
be converted into and become a right to receive the Initial Per Share
Payment Consideration. The terms of the Merger Agreement are described in
more detail in the attached Proxy Statement/Prospectus.
2. To consider and vote upon a proposal to adopt amended and restated
articles of incorporation (the "New Articles of Incorporation"), which
authorize the issuance of the Exmark Class B Stock and the Exmark Class C
Stock and clarify the four-to-one distribution preference associated with
the Exmark Preferred Stock.
3. To consider and vote upon a proposal to approve the payment in
connection with the Merger of signing bonuses ("Signing Bonuses") to H.
John Smith and Ray Rickard. Such bonuses will be paid by Toro in cash in
the aggregate amount of $2,075,000 pursuant to new employment agreements,
which employment agreements also include noncompete covenants.
<PAGE>
4. To consider and vote upon a proposal to ratify the appointment of H.
John Smith, Ray Rickard and Roger Smith as the initial stockholders'
representatives as described in the Merger Agreement ("Stockholders'
Representatives").
5. To transact such other business as may properly come before the Special
Meeting or any adjournment or postponement thereof.
The close of business on , 1997, has been fixed as the record
date (the "Record Date") for the determination of the stockholders of Exmark
entitled to notice of and to vote at the Special Meeting and any adjournment or
postponement thereof. Accordingly, only holders of record of issued and
outstanding shares of Exmark Common Stock and Exmark Preferred Stock at the
close of business on the Record Date shall be entitled to notice of and to vote
at the Special Meeting and any adjournment or postponement thereof.
The Merger Agreement is required to be approved by the affirmative vote of
the holders of two-thirds of the outstanding shares of Exmark Common Stock and
Exmark Preferred Stock, voting together as one class. The New Articles of
Incorporation are required to be approved by the affirmative vote of the holders
of a majority of each of the outstanding shares of Exmark Common Stock and
Exmark Preferred Stock, voting as a separate class. For tax purposes, such that
the Signing Bonuses will not be "excess parachute payments," the approval of the
Signing Bonuses will require the affirmative vote of the holders of 75% of the
voting power of all disinterested Exmark stockholders. Consequently, such
approval will require the affirmative vote of the holders of at least 75% of the
number of outstanding shares of Exmark Common Stock and Exmark Preferred Stock
(excluding such shares held by H. John Smith and Ray Rickard), voting together
as one class. The ratification of the appointment of the Stockholders'
Representatives will require the affirmative vote of the holders of a majority
of the number of outstanding shares of Exmark Common Stock and Exmark Preferred
Stock, voting together as one class. The meeting may be postponed or adjourned
from time to time without notice other than such notice as may be given at the
meeting or any postponement or adjournment thereof, and any business for which
notice is hereby given may be transacted at any such postponed or adjourned
meeting.
Pursuant to agreements with Toro dated October 23, 1997, certain directors
and officers of Exmark, in their individual capacities as stockholders, have
agreed to vote all of their shares of Exmark Common Stock and Exmark Preferred
Stock (approximately 63.8% of the combined voting power of the outstanding
shares of Exmark Common Stock and Exmark Preferred Stock of record as of the
Record Date) in favor of approval of the Merger Agreement and the Merger and
have granted an irrevocable proxy to Toro to vote their respective shares.
A summary of certain provisions of Sections 21-20,137 to 21-20,150 of the
Nebraska Business Corporation Act pertaining to the rights of dissenting
stockholders if the Merger is consummated is included in the accompanying Proxy
Statement/Prospectus under the heading THE "MERGER--Dissenters' Rights." A copy
of Sections 21-20,137 to 21-20,150 of the Nebraska Business Corporation Act is
set forth in Exhibit B to the attached Proxy Statement/Prospectus.
<PAGE>
Whether or not you plan to attend the Special Meeting, please complete, sign
and date the accompanying proxy card and return it promptly in the enclosed
prepaid envelope. If you attend the Special Meeting, you may revoke such proxy
and vote in person if you wish, even if you have previously returned your proxy
card. If you do not attend the Special Meeting, you may still revoke such proxy
at any time prior to the Special Meeting by providing written notice of such
revocation to Roger Smith, Secretary of Exmark.
Beatrice, Nebraska
, 1997
By Order of the Board of Directors,
Roger Smith
SECRETARY
TO ASSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, PLEASE COMPLETE, SIGN
AND DATE YOUR PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE,WHICH
REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. DO NOT SEND ANY STOCK
CERTIFICATES WITH THE ENCLOSED PROXY CARD. THE PROCEDURE FOR THE EXCHANGE OF
YOUR SHARES AFTER THE MERGER IS CONSUMMATED IS SET FORTH IN THE ATTACHED PROXY
STATEMENT/PROSPECTUS.
THE BOARD OF DIRECTORS OF EXMARK MANUFACTURING COMPANY INCORPORATED
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE TO APPROVE THE MERGER AGREEMENT
AND THE MERGER AND EACH OF THE OTHER PROPOSALS TO BE PRESENTED AT THE SPECIAL
MEETING.
<PAGE>
PROXY STATEMENT
OF
EXMARK MANUFACTURING COMPANY INCORPORATED
----------------
PROSPECTUS
OF
THE TORO COMPANY
------------------------
This Proxy Statement/Prospectus is being furnished by Exmark Manufacturing
Company Incorporated, a Nebraska corporation ("Exmark"), to holders of its
common stock and preferred stock in connection with the solicitation of proxies
by the board of directors of Exmark for use for a Special Meeting of
Stockholders of Exmark to be held on , 1997, at Exmark's corporate offices
at 2101 Ashland Avenue, P.O. Box 808, Beatrice, Nebraska 68310, commencing at
9:00 a.m. local time, and at any adjournment or postponement thereof (the
"Special Meeting").
The Special Meeting has been called (1) to consider and vote upon a proposal
to approve an Agreement and Plan of Merger (as it may be amended, the "Merger
Agreement"), dated as of October 23, 1997, by and among Exmark, The Toro
Company, a Delaware Corporation ("Toro"), and EMCI Acquisition Corp., a Nebraska
corporation and wholly owned subsidiary of Toro ("Merger Subsidiary"), pursuant
to which, among other things, Merger Subsidiary will merge (the "Merger") with
and into Exmark, with Exmark continuing as the surviving corporation (the
"Surviving Corporation"), (2) to consider and vote upon a proposal to adopt
amended and restated articles of incorporation (the "New Articles of
Incorporation"), which authorize the issuance of two new classes of preferred
stock of Exmark and clarify the four-to-one distribution preference associated
with the Exmark Preferred Stock, (3) to consider and vote upon a proposal to
approve the payment in connection with the Merger of signing bonuses ("Signing
Bonuses") to H. John Smith and Ray Rickard, which bonuses shall be paid by Toro
pursuant to new employment agreements, which employment agreements also will
include noncompete covenants, (4) to consider and vote upon a proposal to ratify
the appointment of H. John Smith, Ray Rickard and Roger Smith as the initial
stockholders' representatives as described in the Merger Agreement (the
"Stockholders' Representatives") and (5) to transact such other business as may
properly come before the Special Meeting. A copy of the Merger Agreement is
attached hereto as Exhibit A and constitutes a part of this Proxy Statement/
Prospectus.
If the Merger Agreement is approved and the Merger becomes effective, then,
except for shares of Exmark capital stock with respect to which dissenters'
rights have been properly exercised ("Dissenting Shares") and shares of Exmark
capital stock issued and outstanding prior to the effective time of the Merger
that are owned by Toro, Exmark or Merger Subsidiary ("Canceled Shares"), (1)
each issued and outstanding share of common stock, $10.00 par value, of Exmark
("Exmark Common Stock") will be converted into and become a right to receive (a)
cash and shares of common stock, $1.00 par value, of Toro ("Toro Common Stock")
representing the Initial Per Share Payment Consideration (as defined in the
Merger Agreement) and (b) one Common/Preferred Contingent Payment Right (as
defined in the Merger Agreement), (2) each issued and outstanding share of
preferred stock, $40.00 par value, of Exmark
(CONTINUED ON NEXT PAGE)
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Proxy Statement/Prospectus is , 1997
<PAGE>
("Exmark Preferred Stock") will be converted into and become a right to receive
(a) four times the Initial Per Share Payment Consideration and (b) four
Common/Preferred Contingent Payment Rights, (3) each issued and outstanding
share of Class B preferred stock, $.01 par value, of Exmark ("Exmark Class B
Stock") will be converted into and become a right to receive (a) one-tenth of a
share of Toro Common Stock and (b) one Class B Contingent Payment Right (as
defined in the Merger Agreement), and (4) each issued and outstanding share of
Class C preferred stock, $.01 par value, of Exmark ("Exmark Class C Stock") will
be converted into and become a right to receive the Initial Per Share Payment
Consideration. For a more complete description of the Merger Agreement and the
terms and conditions of the Merger, see "THE MERGER AGREEMENT" and "THE MERGER."
Notwithstanding the foregoing, 15% of the aggregate amount of cash and
shares of Toro Common Stock representing the Initial Per Share Payment
Consideration (in the aggregate, the "Initial Payment") will be held in escrow
in order to satisfy (1) any right of offset Toro and certain other related
parties may have with respect to certain losses, liabilities and other costs
that Toro or any of such other related parties may suffer as a result of certain
matters described in the Merger Agreement and (2) a "net worth" adjustment based
on the difference between a pre-closing estimated net worth of Exmark and the
actual net worth of Exmark at the Effective Time. Further, an additional
$100,000 will be withheld from the Initial Payment in order to reimburse the
Stockholders' Representatives for certain out-of-pocket expenses they may incur
while acting on behalf of Exmark's stockholders in connection with the Merger.
See "THE MERGER--Holdback Amount; Actual Net Worth Adjustment," "--Stockholders'
Representatives Expense Fund," "THE MERGER AGREEMENT--Stockholders'
Representatives" and "--Offset Right." For a more complete description of the
Merger Agreement and the terms and conditions of the Merger, see "THE MERGER
AGREEMENT" and "THE MERGER."
The aggregate amount of cash and shares of Toro Common Stock to be delivered
by Toro with respect to the Initial Payment to be exchanged for the Exmark
Common Stock, Exmark Preferred Stock and Exmark Class C Stock will be equal to
$28,100,000 (subject to the holdback of 15% of such amount plus an additional
$100,000 of such amount, certain offsets and other adjustments described in this
Proxy Statement/Prospectus). Based on the Initial Toro Share Price (as defined
in the Merger Agreement) as of October 31, 1997 the Initial Per Share
Consideration would be 12.239 shares of Toro Common Stock and cash equal to
$69.12 (10.39 shares of Toro Common Stock and cash equal to $58.51 after such
holdback and adjustments), in the absence any election to receive more or less
of the Merger Consideration in cash. However, in the event the Merger is not
consummated prior to November 30, the Initial Toro Share Price may be a
different amount and may result in the payment of more or less shares of Toro
Common Stock as part of the Initial Per Share Consideration.
Each Common/Preferred Contingent Payment Right and Class B Contingent
Payment Right entitles the holder thereof to receive cash and shares of Toro
Common Stock based on the performance of the Surviving Corporation from November
1, 1997 until October 31, 1999, subject to certain limitations and offsets. The
maximum amount of cash and shares of Toro Common Stock that may be paid by Toro
with respect to the Common/Preferred Contingent Payment Rights will not exceed
$14,000,000 (subject to certain offsets and other adjustments described in the
enclosed Proxy Statement/Prospectus). Similarly, the maximum amount of cash and
shares of Toro Common Stock that may be paid by Toro with respect to the Class B
Contingent Payment Rights will not exceed $14,000,000 (subject to certain
offsets and other adjustments described in the enclosed Proxy
Statement/Prospectus).
This Proxy Statement/Prospectus also constitutes a Prospectus of Toro with
respect to the shares of Toro Common Stock, the Common/Preferred Contingent
Payment Rights and the Class B Contingent Payment Rights issuable to the
stockholders of Exmark in connection with consummation of the Merger. Toro has
supplied all information in this Proxy Statement/Prospectus relating to Toro and
its subsidiaries, and Exmark has supplied all information contained in this
Proxy Statement/Prospectus relating to Exmark.
2
<PAGE>
This Proxy Statement/Prospectus is included as part of a Registration
Statement on Form S-4 filed with the Securities and Exchange Commission by Toro,
relating to the registration under the Securities Act of 1933, as amended (the
"Securities Act"), of 22,847 Common/Preferred Contingent Payment Rights, 10,000
Class B Contingent Payment Rights and up to 1,646,600 shares of Toro Common
Stock that may be issued in connection with the Merger.
This Proxy Statement/Prospectus and the accompanying form of proxy are first
being mailed to stockholders of Exmark on or about , 1997.
AVAILABLE INFORMATION
Toro is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "SEC"). The reports, proxy statements and other information
filed by Toro with the SEC may be inspected and copied, at prescribed rates, at
the public reference facilities maintained by the SEC at Judiciary Plaza, Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Regional
Offices of the SEC at Seven World Trade Center, 13th Floor, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. The SEC maintains a web site that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the SEC at http://www.sec.gov.com. Toro Common Stock is
listed on the New York Stock Exchange (the "NYSE") and materials filed by Toro
may be inspected at the offices of the NYSE, Inc., 20 Broad Street, New York,
New York 10005.
Toro has filed with the SEC a Registration Statement on Form S-4 (together
with any amendments thereto, the "Registration Statement") under the Securities
Act with respect to the shares of Toro Common Stock to be issued in the Merger.
This Proxy Statement/Prospectus does not contain all the information set forth
in the Registration Statement, as certain portions have been omitted as
permitted by the rules and regulations of the SEC. Such additional information
may be obtained from the SEC's principal office in Washington, D.C. Statements
contained in this Proxy Statement/Prospectus as to the contents of any contract
or other document referred to herein are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference.
DOCUMENTS INCLUDED IN EXHIBIT D
The following documents filed with the SEC by Toro are included in Exhibit D
to this Proxy Statement/Prospectus and constitute a part hereof: (1) Toro's
Quarterly Report on Form 10-Q for the quarter ended August 1, 1997, filed with
the SEC on September 10, 1997; (2) Toro's Quarterly Report on Form 10-Q for the
quarter ended May 2, 1997, filed with the SEC on June 16, 1997; (3) Toro's
Quarterly Report on Form 10-Q for the quarter ended January 31, 1997, filed with
the SEC on March 17, 1997; (4) Toro's Annual Report on Form 10-K for the year
ended October 31, 1996, filed with the SEC on January 29, 1997, including Toro's
Annual Report to Stockholders for the fiscal year ended October 31, 1996, filed
with the SEC on June 30, 1997 as exhibit 13 thereto; (5) Toro's Current Report
on Form 8-K, filed with the SEC on June 27, 1997; (6) Toro's Current Report on
Form 8-K, filed with the SEC on December 16, 1996 (as amended by Amendment No. 2
on Form 8-K/A, filed with the SEC on June 6, 1997); (7) Toro's Annual Report on
Form 11-K, filed with the SEC on June 30, 1997; (8) Toro's definitive proxy
statement included in Schedule 14A, filed with the SEC on February 11, 1997; and
(9) the description of the Toro Common Stock contained in Toro's Registration
Statement on Form 8-A, filed with the SEC on August 18, 1978 and the description
of Toro's preferred share purchase rights associated with each share of Toro
Common Stock in Toro's Registration Statement on Form 8-A, filed with the SEC on
April 11, 1986 (as amended by Amendment No. 1 on Form 8-A, filed May 15, 1987),
and Toro's Registration Statement on Form 8-A, filed with the SEC on June 17,
1988 (as amended by Amendment No. 1 on Form 8-A, filed August 30, 1990).
3
<PAGE>
The foregoing documents contain financial and other information concerning
Toro, the Toro Common Stock and the related preferred share purchase rights. See
"DESCRIPTION OF TORO CAPITAL STOCK." Such documents constitute a part of this
Proxy Statement/Prospectus, and the information contained therein should be
reviewed together with all of the other information contained herein.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATION OF PROXIES OR THE OFFERING OF SECURITIES MADE
HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY TORO, EXMARK OR ANY OTHER PERSON. THIS
PROXY STATEMENT/ PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION OF A PROXY,
IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY
SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. THIS PROXY STATEMENT/PROSPECTUS
DOES NOT COVER ANY RESALES OF THE TORO COMMON STOCK OFFERED HEREBY TO BE
RECEIVED BY STOCKHOLDERS OF EXMARK DEEMED TO BE "AFFILIATES" OF EXMARK OR TORO
UPON THE CONSUMMATION OF THE MERGER. NO PERSON IS AUTHORIZED TO MAKE USE OF THIS
PROXY STATEMENT/PROSPECTUS IN CONNECTION WITH SUCH RESALES. NEITHER THE DELIVERY
OF THIS PROXY STATEMENT/ PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF TORO OR EXMARK SINCE THE DATE HEREOF OR THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: THIS PROXY STATEMENT/PROSPECTUS AND THE DOCUMENTS INCLUDED IN EXHIBIT D
HERETO CONTAIN VARIOUS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. STATEMENTS THAT
ARE NOT HISTORICAL ARE FORWARD-LOOKING. WHEN USED IN THESE DOCUMENTS, THE WORDS
"EXPECT," "ANTICIPATE," "ESTIMATE," AND SIMILAR EXPRESSIONS ARE INTENDED TO
IDENTIFY FORWARD-LOOKING STATEMENTS. IN ADDITION, FORWARD-LOOKING STATEMENTS MAY
BE MADE ORALLY IN THE FUTURE BY OR ON BEHALF OF TORO.
FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES, INCLUDING, BUT
NOT LIMITED TO, CHANGES IN BUSINESS CONDITIONS AND THE ECONOMY IN GENERAL IN
BOTH FOREIGN AND DOMESTIC MARKETS; WEATHER CONDITIONS AFFECTING DEMAND; SEASONAL
FACTORS AFFECTING TORO'S INDUSTRY; LACK OF GROWTH IN TORO'S MARKETS; LITIGATION;
FINANCIAL MARKET CHANGES, INCLUDING INTEREST RATES AND FOREIGN EXCHANGE RATES;
TREND FACTORS, INCLUDING HOUSING STARTS, NEW GOLF COURSE STARTS AND MARKET
DEMOGRAPHICS; GOVERNMENT ACTIONS, INCLUDING BUDGET LEVELS, REGULATION, AND
LEGISLATION, PRIMARILY LEGISLATION RELATING TO THE ENVIRONMENT, COMMERCE AND
INFRASTRUCTURE, AND HEALTH AND SAFETY; LABOR RELATIONS; AVAILABILITY OF
MATERIALS; ACTIONS OF COMPETITORS; ABILITY TO INTEGRATE ACQUISITIONS; AND TORO'S
ABILITY TO PROFITABLY DEVELOP, MANUFACTURE AND SELL BOTH NEW AND EXISTING
PRODUCTS. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS AS A RESULT OF THESE RISK FACTORS AND SHOULD NOT BE
RELIED UPON AS A PREDICTION OF ACTUAL FUTURE RESULTS. TORO UNDERTAKES NO
OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENT TO REFLECT EVENTS OR
CIRCUMSTANCES AFTER THE DATE ON WHICH SUCH STATEMENT IS MADE OR TO REFLECT THE
OCCURRENCE OF UNANTICIPATED EVENTS.
4
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION................................................................. 3
DOCUMENTS INCLUDED IN EXHIBIT D....................................................... 3
TABLE OF CONTENTS..................................................................... 5
SUMMARY............................................................................... 9
General............................................................................. 9
The Special Meeting................................................................. 11
Date, Time and Place.............................................................. 11
Purposes of the Special Meeting................................................... 11
Record Date; Shares Entitled to Vote.............................................. 12
Required Vote; Quorum............................................................. 12
Recommendation of Exmark's Board of Directors..................................... 12
Opinion of Exmark's Financial Advisor............................................. 13
The Parties to the Merger........................................................... 13
The Toro Company.................................................................. 13
Exmark Manufacturing Company Incorporated......................................... 13
EMCI Acquisition Corp............................................................. 14
The Merger.......................................................................... 14
Effective Time.................................................................... 14
Effects of the Merger............................................................. 14
Management of Exmark After the Merger............................................. 14
Contingent Payment Rights......................................................... 15
Toro Control...................................................................... 15
Holdback Amount; Actual Net Worth Adjustment; Stockholders' Representatives
Expense Fund..................................................................... 15
Payment of Merger Consideration................................................... 16
Cash Election..................................................................... 17
Interests of Certain Persons in the Merger........................................ 18
Stockholder Agreements............................................................ 19
Acquisition of Holiman............................................................ 19
Accounting Treatment.............................................................. 19
Certain Federal Income Tax Consequences........................................... 19
Dissenters' Rights................................................................ 19
Regulatory Approvals.............................................................. 20
The Merger Agreement................................................................ 20
Limitations on Negotiations by Exmark............................................. 20
Conditions to the Merger.......................................................... 20
Offset Right...................................................................... 20
Termination of the Merger Agreement; Termination Fees............................. 21
Summary Consolidated Financial Data of Toro......................................... 22
Summary Financial Data of Exmark.................................................... 23
Market Price Data................................................................... 24
Comparative Unaudited Per Common Share Data......................................... 25
THE SPECIAL MEETING................................................................... 26
General; Date, Time and Place....................................................... 26
Purposes of the Special Meeting..................................................... 26
Exmark Board of Directors' Recommendations.......................................... 26
Record Date; Shares Entitled to Vote; Required Vote; Quorum......................... 26
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Proxies............................................................................. 27
Security Ownership of Certain Beneficial Owners and Management of Exmark............ 28
THE MERGER............................................................................ 30
Effective Time...................................................................... 30
Effects of the Merger............................................................... 30
Management of Exmark After the Merger............................................... 30
Synergies Council................................................................... 31
Stockholders' Representatives....................................................... 31
Toro Control........................................................................ 31
Holdback Amount; Actual Net Worth Adjustment........................................ 32
Stockholders' Representatives Expense Fund.......................................... 32
Payment of Merger Consideration..................................................... 33
Contingent Payment Rights........................................................... 34
Valuation Formula................................................................. 35
Procedure for Determining Contingent Payments..................................... 37
Cash Election....................................................................... 37
Conversion of Exmark Stock.......................................................... 37
Fractional Shares................................................................... 39
Interests of Certain Persons in the Merger.......................................... 39
Voting Agreements................................................................. 39
Employment and Noncompete Agreements.............................................. 39
Issuance of Class B Stock to Insiders............................................. 39
Holiman Acquisition............................................................... 40
Manufacturer's Representatives and Distributors................................... 40
Stockholder Agreements.............................................................. 40
Acquisition of Holiman.............................................................. 41
Excess Parachute Payments........................................................... 41
Certain Federal Income Tax Consequences............................................. 42
Accounting Treatment................................................................ 44
Background of the Merger............................................................ 44
Exmark's Reasons for the Merger; Recommendation of Exmark's Board of Directors...... 45
Financial Resources............................................................... 45
Market Position................................................................... 45
Engineering and Product Development............................................... 45
Manufacturing and Facilities...................................................... 46
Working Relationship.............................................................. 46
Fairness of the Transaction....................................................... 46
Toro's Reasons for the Merger....................................................... 46
Opinion of McCarthy as Exmark's Financial Advisor................................... 46
Discounted Cash Flow Analysis..................................................... 48
Weighted Average of Historical Earnings........................................... 48
Book Value Multiple Analysis...................................................... 48
Other Factors and Analyses........................................................ 48
Dissenters' Rights.................................................................. 49
General........................................................................... 49
Procedure......................................................................... 49
Stock Exchange Listing.............................................................. 50
Regulatory Approvals................................................................ 51
Resales of Toro Common Stock Issued in the Merger................................... 51
Affiliate Agreements................................................................ 52
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
THE MERGER AGREEMENT.................................................................. 52
General............................................................................. 52
Representations and Warranties...................................................... 52
Covenants........................................................................... 53
Limitations on Negotiations by Exmark............................................... 54
Conditions.......................................................................... 54
Survival............................................................................ 56
Offset Right........................................................................ 56
Termination......................................................................... 58
Termination Fees.................................................................... 59
Fees and Expenses................................................................... 59
CERTAIN INFORMATION CONCERNING TORO................................................... 60
General............................................................................. 60
Recent Developments................................................................. 60
Selected Summary Consolidated Financial Data Of Toro................................ 61
CERTAIN INFORMATION CONCERNING EXMARK................................................. 62
SELECTED FINANCIAL DATA OF EXMARK..................................................... 63
MANAGEMENT'S DISCUSSION AND ANALYSIS OF EXMARK........................................ 64
Results of Operations............................................................... 64
Financial Position at August 31, 1997............................................... 64
Liquidity and Capital Resources..................................................... 65
Inflation........................................................................... 65
DESCRIPTION OF TORO CAPITAL STOCK..................................................... 65
General............................................................................. 65
Common Stock........................................................................ 65
Preferred Stock..................................................................... 66
Rights Plan......................................................................... 66
DESCRIPTION OF EXMARK CAPITAL STOCK................................................... 68
General............................................................................. 68
Common Stock........................................................................ 68
Preferred Stock..................................................................... 68
Exmark Preferred Stock if the New Articles of Incorporation are Approved............ 69
COMPARISON OF STOCKHOLDER RIGHTS...................................................... 70
Stockholders' Dissenters' Rights.................................................... 70
Board of Directors.................................................................. 70
Removal of Directors................................................................ 71
Amendments to Bylaws................................................................ 71
Amendments to Certificate or Articles............................................... 71
Indemnification..................................................................... 72
Liability of Directors.............................................................. 72
Stockholder Meetings................................................................ 73
Preemptive Rights................................................................... 73
Mergers, Consolidations and Other Business Combinations............................. 73
Other Anti-takeover Provisions...................................................... 74
LEGAL MATTERS......................................................................... 75
EXPERTS............................................................................... 75
OTHER MATTERS......................................................................... 75
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
FINANCIAL STATEMENTS.................................................................. F-1
</TABLE>
<TABLE>
<S> <C>
Exhibit A Agreement and Plan of Merger, dated as of October 23, 1997, among Toro, Merger
Subsidiary and Exmark
--Exhibit 2.01(a)
Exhibit B Sections 21-20,137 to 21-20,150 of the Nebraska Business Corporation Act
(Dissenters' Rights)
Exhibit C Opinion of McCarthy & Co.
Exhibit D Additional Toro Documents
-- Toro's Quarterly Report on Form 10-Q for the quarter ended August 1, 1997,
filed with the SEC on September 10, 1997
-- Toro's Quarterly Report on Form 10-Q for the quarter ended May 2, 1997, filed
with the SEC on June 16, 1997
-- Toro's Quarterly Report on Form 10-Q for the quarter ended January 31, 1997,
filed with the SEC on March 17, 1997
-- Toro's Annual Report on Form 10-K for the year ended October 31, 1996, filed
with the SEC on January 29, 1997, including Toro's Annual Report to Stockholders
for the fiscal year ended October 31, 1996, filed with the SEC on June 30, 1997
as exhibit 13 thereto
-- Toro's Current Report on Form 8-K, filed with the SEC on June 27, 1997
-- Toro's Current Report on Form 8-K, filed with the SEC on December 16, 1996, as
amended by Amendment No. 2 on Form 8-K/A, filed with the SEC on June 6, 1997
-- Toro's Annual Report on Form 11-K, filed with the SEC on June 30, 1997
-- Toro's definitive proxy statement included in Schedule 14A, filed with the SEC
on February 11, 1997
-- Toro's Registration Statement on Form 8-A, filed with the SEC on August 18,
1978
-- Toro's Registration Statement on Form 8-A, filed with the SEC on April 11,
1986, as amended by Amendment No. 1 on Form 8-A, filed May 15, 1987
-- Toro's Registration Statement on Form 8-A, filed with the SEC on June 17,
1988, as amended by Amendment No. 1 on Form 8-A, filed with the SEC on August 30,
1990
</TABLE>
8
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS. THIS SUMMARY IS NOT INTENDED TO BE COMPLETE AND IS
QUALIFIED IN ALL RESPECTS BY THE MORE DETAILED INFORMATION INCLUDED IN THIS
PROXY STATEMENT/PROSPECTUS AND ITS EXHIBITS. STOCKHOLDERS ARE URGED TO READ
CAREFULLY THE ENTIRE PROXY STATEMENT/PROSPECTUS, INCLUDING THE EXHIBITS. TORO
HAS SUPPLIED ALL INFORMATION CONCERNING TORO AND ITS SUBSIDIARIES INCLUDED
HEREIN, AND EXMARK HAS SUPPLIED ALL INFORMATION CONCERNING EXMARK AND ITS
SUBSIDIARIES INCLUDED HEREIN.
GENERAL
This Proxy Statement/Prospectus relates to the proposed merger (the
"Merger") of EMCI Acquisition Corp., a Nebraska corporation ("Merger
Subsidiary") and wholly owned subsidiary of The Toro Company, a Delaware
corporation ("Toro"), with and into Exmark Manufacturing Company Incorporated, a
Nebraska corporation ("Exmark"), pursuant to an Agreement and Plan of Merger,
dated as of October 23, 1997 (as it may be amended, the "Merger Agreement"), by
and among Exmark, Toro and Merger Subsidiary, a copy of which is attached to
this Proxy Statement/Prospectus as Exhibit A. Pursuant to the Merger Agreement,
Exmark will continue as the surviving corporation (the "Surviving Corporation").
If the Merger Agreement is approved and the Merger becomes effective, then
except for shares of Exmark capital stock with respect to which dissenters'
rights have been properly exercised ("Dissenting Shares") and shares of Exmark
capital stock issued and outstanding prior to the effective time of the Merger
that are owned by Toro, Exmark or Merger Subsidiary ("Canceled Shares"), (1)
each issued and outstanding share of Exmark Common Stock will be converted into
and become a right to receive (a) cash and shares of common stock, $1.00 par
value, of Toro ("Toro Common Stock") representing the Initial Per Share Payment
Consideration (as defined in the Merger Agreement) and (b) one Common/Preferred
Contingent Payment Right (as defined in the Merger Agreement), (2) each issued
and outstanding share of Exmark Preferred Stock will be converted into and
become a right to receive (a) four times the Initial Per Share Payment
Consideration and (b) four Common/Preferred Contingent Payment Rights, (3) each
issued and outstanding share of Class B preferred stock, $.01 par value, of
Exmark ("Exmark Class B Stock") will be converted into and become a right to
receive (a) one-tenth of a share of Toro Common Stock (the "Class B Initial Per
Share Payment Consideration") and (b) one Class B Contingent Payment Right (as
defined in the Merger Agreement), and (4) each issued and outstanding share of
Class C preferred stock, $.01 par value, of Exmark ("Exmark Class C Stock") will
be converted into and become a right to receive the Initial Per Share Payment
Consideration. See "THE MERGER AGREEMENT" and "THE MERGER."
The aggregate amount of cash and shares of Toro Common Stock to be paid by
Toro with respect to the total Initial Per Share Payment Consideration to be
exchanged for the Exmark Common Stock, Exmark Preferred Stock and Exmark Class C
Stock will be equal to $28,100,000 (subject to the holdback of 15% of such
amount plus an additional $100,000 of such amount, certain offsets and other
adjustments described herein). Based on the Initial Toro Share Price (as defined
in the Merger Agreement) as of October 31, 1997 and assuming there are no
Dissenting Shares nor Canceled Shares, the Initial Per Share Consideration would
be $576.01, consisting of 12.239 shares of Toro Common Stock and cash equal to
$79.01 (I.E., $487.56, consisting of 10.359 shares of Toro Common Stock and cash
equal to $58.51, after such holdbacks and adjustments), in the absence any
election to receive more or less of the Merger Consideration in cash. However,
in the event the Merger is not consummated prior to November 30, the Initial
Toro Share Price may be a different amount and may result in the payment of more
or less cash and shares of Toro Common Stock pursuant to the Initial Per Share
Consideration. See "THE MERGER-- Payment of Merger Consideration," "--Holdback
Amount; Actual Net Worth Adjustment," "--Stockholders' Representatives Expense
Fund" and "THE MERGER AGREEMENT--Offset Right."
9
<PAGE>
Each Common/Preferred Contingent Payment Right and Class B Contingent
Payment Right entitles the holder thereof to receive cash and shares of Toro
Common Stock based on the performance of the Surviving Corporation from November
1, 1997 until October 31, 1999, subject to certain limitations and offsets. The
maximum amount of cash and shares of Toro Common Stock that may be paid by Toro
with respect to the Common/Preferred Contingent Payment Rights will not exceed
$14,000,000 (subject to certain offsets and other adjustments described in the
enclosed Proxy Statement/Prospectus). Similarly, the maximum amount of cash and
shares of Toro Common Stock that may be paid by Toro with respect to the Class B
Contingent Payment Rights will not exceed $14,000,000 (subject to certain
offsets and other adjustments described in the enclosed Proxy
Statement/Prospectus). See "THE MERGER--Effects of the Merger," "--Holdback
Amount; Actual Net Worth Adjustment," "--Stockholders' Representatives Expense
Fund," "THE MERGER AGREEMENT--Offset Right" and "--Contingent Payments."
The Common/Preferred Contingent Payment Rights and the Class B Contingent
Payment Rights are collectively referred to herein as the "Contingent Payment
Rights." The aggregate amount of the cash and shares of Toro Common Stock to be
paid by Toro with respect to the Contingent Payment Rights, the Class B Initial
Per Share Payment Consideration and the Initial Per Share Payment Consideration
is referred to herein as the "Merger Consideration." The shares of Exmark Common
Stock, Exmark Preferred Stock, Exmark Class B Stock and Exmark Class C Stock
that are issued and outstanding immediately prior to the Effective Time, other
than Dissenting Shares and Canceled Shares, are collectively referred to herein
as the "Shares," and the holders thereof are referred to herein as the
"Holders." Other capitalized terms not defined herein shall have the meanings
ascribed to them in the Merger Agreement.
On , 1997, the latest practicable date before the date of this
Proxy Statement/Prospectus, the closing price per share of Toro Common Stock was
$ . Stockholders of Exmark are advised to obtain current market
quotations for Toro Common Stock. No assurance can be given as to the market
price of Toro Common Stock at any time before the Effective Time or as to the
market price of Toro Common Stock at any time thereafter.
The close of business on , 1997 has been fixed as the record date
(the "Record Date") for the determination of the stockholders of Exmark entitled
to notice of and to vote at the Special Meeting of Stockholders of Exmark to be
held on , 1997 (the "Special Meeting"). Accordingly, only holders of
record of outstanding shares of Exmark Common Stock and Exmark Preferred Stock
at the close of business on the Record Date shall be entitled to notice of and
to vote at the Special Meeting and any business for which notice is hereby given
may be transacted at any postponed or adjourned meeting thereof.
In addition to voting on the Merger Agreement and the Merger, Exmark
stockholders will be asked to consider and act upon three other proposals
relating to the Merger Agreement and the Merger. First, Exmark stockholders will
be asked to consider and act upon a proposal to adopt amended and restated
articles of incorporation (the "New Articles of Incorporation"), which authorize
the issuance of the Exmark Class B Stock and the Exmark Class C Stock and
clarify the four-to-one distribution preference associated with the Exmark
Preferred Stock. The Exmark Class B Stock will be issued to certain officers,
directors and employees of Exmark pursuant to the exercise of certain previously
issued stock purchase rights. The Exmark Class C Stock will be issued in
exchange for all of the outstanding shares of capital stock of the Holiman Co.,
Inc., all of which shares are owned by Roger Smith. Second, Exmark stockholders
will be asked to consider and act upon a proposal to approve the payment in
connection with the Merger of signing bonuses (the "Signing Bonuses") to H. John
Smith and Ray Rickard, each of whom is an officer of Exmark, to be paid by Toro
in cash in the aggregate amount of $2,075,000 pursuant to new employment
agreements between each of Messrs. Smith and Rickard, respectively, and Exmark
and Toro, which employment agreements also include noncompete covenants.
Stockholder approval of such signing bonuses is being requested so that such
bonuses will not constitute "excess parachute payments" pursuant to Section 280G
of the Internal Revenue Code of 1986, as amended. If treated as excess parachute
10
<PAGE>
payments, the bonuses would not be deductible and Messrs. Smith and Rickard and
each would be subject to a 20% excise tax on that portion of such payments that
is greater than his respective average income during the past five years.
Finally, Exmark stockholders will be asked to consider and act upon a proposal
to ratify the appointment of H. John Smith, Ray Rickard and Roger Smith as the
initial stockholders' representatives as described in the Merger Agreement
("Stockholders' Representatives"). The Stockholders' Representatives will act on
behalf of the Exmark stockholders who participate in the Merger and as such will
assist in the calculation of the amount of merger consideration to be paid by
Toro in connection with the Merger, including the calculation of the amount to
be paid with respect to the Common/Preferred Contingent Payment Rights and Class
B Contingent Payment Rights, and may sign and deliver certificates and notices
on behalf of such Exmark stockholders, among other things described in the
Merger Agreement.
The Merger Agreement and the Merger are required to be approved by the
affirmative vote of the holders of two-thirds of the outstanding shares of
Exmark Common Stock and Exmark Preferred Stock, voting together as one class.
The New Articles of Incorporation are required to be approved by the affirmative
vote of the holders of a majority of each of the outstanding shares of Exmark
Common Stock and Exmark Preferred Stock, voting as a separate class. For tax
purposes, such that the Signing Bonuses will not be "excess parachute payments,"
the approval of the Signing Bonuses will require the affirmative vote of the
holders of 75% of the voting power of all disinterested Exmark stockholders.
Consequently, such approval will require the affirmative vote of the holders of
at least 75% of the number of outstanding shares of Exmark Common Stock and
Exmark Preferred Stock (excluding such shares held by H. John Smith and Ray
Rickard), voting together as one class. The ratification of the appointment of
the Stockholders' Representatives will require the affirmative vote of the
holders of a majority of the number of outstanding shares of Exmark Common Stock
and Exmark Preferred Stock, voting together as one class. The meeting may be
postponed or adjourned from time to time without notice other than such notice
as may be given at the meeting or any postponement or adjournment thereof, and
any business for which notice is hereby given may be transacted at any such
postponed or adjourned meeting. It is a condition to the consummation of the
Merger that all of the foregoing proposals, other than the proposal to ratify
the appointment of the Stockholders' Representatives, be approved by Exmark's
stockholders.
Pursuant to agreements with Toro dated October 23, 1997 (the "Stockholder
Agreements"), certain stockholders of Exmark, in their individual capacities as
stockholders, have agreed to vote all of their shares of Exmark Common Stock and
Exmark Preferred Stock (approximately 63.8% of the combined voting power of the
outstanding shares of Exmark Common Stock and Exmark Preferred Stock of record
as of the Record Date) in favor of approval of the Merger Agreement, the Merger
and the other proposals described herein and have granted an irrevocable proxy
to Toro to vote their respective shares. See "THE MERGER--Stockholder
Agreements."
THE SPECIAL MEETING
DATE, TIME AND PLACE
The Special Meeting will be held at 9:00 a.m., local time, on ,
1997, at Exmark's executive offices, 2102 Ashland Avenue, Beatrice, Nebraska,
68310. See "THE SPECIAL MEETING-- General; Date, Time and Place."
PURPOSES OF THE SPECIAL MEETING
The Special Meeting has been called (1) to consider and vote upon a proposal
to approve the Merger Agreement by and among Exmark, Toro and Merger Subsidiary,
pursuant to which, among other things, Merger Subsidiary will merge with and
into Exmark, with Exmark continuing as the Surviving Corporation, (2) to
consider and vote upon a proposal to adopt the New Articles of Incorporation,
which authorize the issuance of two new classes of preferred stock of Exmark and
clarify the four-to-one distribution
11
<PAGE>
preference associated with the Exmark Preferred Stock, (3) to consider and vote
upon a proposal to approve the payment in connection with the Merger of the
Signing Bonuses to H. John Smith and Ray Rickard, which bonuses shall be paid by
Toro pursuant to new employment agreements, which employment agreements also
include noncompete covenants, (4) to consider and vote upon a proposal to ratify
the appointment of H. John Smith, Ray Rickard and Roger Smith as the initial
Stockholders' Representatives and (5) to transact such other business as may
properly come before the Special Meeting. See "THE SPECIAL MEETING--Purposes of
the Special Meeting."
RECORD DATE; SHARES ENTITLED TO VOTE
Only holders of record of shares of Exmark Common Stock and Exmark Preferred
Stock on the close of business on , 1997 (the "Record Date") are
entitled to notice of and to vote at the Special Meeting. As of the Record Date,
there were 15,431 shares of Exmark Common Stock outstanding and 7,416 shares of
Exmark Preferred Stock outstanding, each of which will be entitled to one vote
on each matter which may properly come before the Special Meeting. See "THE
SPECIAL MEETING--Record Date; Shares Entitled to Vote; Required Vote; Quorum."
REQUIRED VOTE; QUORUM
The Merger Agreement and the Merger are required to be approved by the
affirmative vote of the holders of two-thirds of the outstanding shares of
Exmark Common Stock and Exmark Preferred Stock, voting together as one class.
The New Articles of Incorporation are required to be approved by the affirmative
vote of the holders of a majority of each of the outstanding shares of Exmark
Common Stock and Exmark Preferred Stock, voting as a separate class. For tax
purposes, such that the Signing Bonuses will not be "excess parachute payments,"
the approval of the Signing Bonuses will require the affirmative vote of the
holders of 75% of the voting power of all disinterested Exmark stockholders.
Consequently, such approval will require the affirmative vote of the holders of
at least 75% of the number of outstanding shares of Exmark Common Stock and
Exmark Preferred Stock (excluding such shares held by H. John Smith and Ray
Rickard), voting together as one class. The ratification of the appointment of
the Stockholders' Representatives will require the affirmative vote of the
holders of a majority of the number of outstanding shares of Exmark Common Stock
and Exmark Preferred Stock, voting together as one class.
The presence, in person or by properly executed proxy, of the record holders
of a majority of the voting power of the outstanding shares of Exmark Common
Stock and Exmark Preferred Stock, considered as one class, is necessary to
constitute a quorum at the Special Meeting. As of the Record Date, approximately
15,086 shares of Exmark Common Stock and Exmark Preferred Stock (approximately
66.0% of the voting power of the outstanding shares of record as of the Record
Date) were held by directors, executive officers and their affiliates. Pursuant
to the Stockholder Agreements, certain officers and directors of Exmark, in
their individual capacities as stockholders, have agreed to vote all of their
shares of Exmark Common Stock and Exmark Preferred Stock (approximately 63.8% of
the combined voting power of the outstanding shares of Exmark Common Stock and
Exmark Preferred Stock of record as of the Record Date) in favor of approval of
the Merger Agreement, the Merger and the other proposals described herein and
have granted an irrevocable proxy to Toro to vote their respective shares. As of
the Record Date, neither Toro, its officers, its directors nor any of their
respective affiliates owned any shares of Exmark capital stock. See "THE SPECIAL
MEETING--Record Date; Shares Entitled to Vote; Required Vote; Quorum."
RECOMMENDATION OF EXMARK'S BOARD OF DIRECTORS
The Board of Directors of Exmark believes that the Merger is in the best
interests of Exmark and its stockholders and has unanimously approved the Merger
Agreement and the Merger. THE BOARD OF DIRECTORS OF EXMARK UNANIMOUSLY
RECOMMENDS THAT STOCKHOLDERS VOTE TO APPROVE THE MERGER AGREEMENT. FURTHERMORE,
THE BOARD OF DIRECTORS OF EXMARK UNANIMOUSLY RECOMMENDS TO ITS STOCKHOLDERS
APPROVAL OF
12
<PAGE>
(1) THE PROPOSED NEW ARTICLES OF INCORPORATION (2) THE PAYMENT OF SIGNING
BONUSES TO H. JOHN SMITH AND RAY RICKARD AND (3) THE RATIFICATION OF THE
APPOINTMENT OF H. JOHN SMITH, RAY RICKARD AND ROGER SMITH AS THE INITIAL
STOCKHOLDERS' REPRESENTATIVES. This recommendation is based on a number of
factors discussed in this Proxy Statement/Prospectus. See "THE MERGER--Exmark's
Reasons for the Merger; Recommendation of Exmark's Board of Directors."
OPINION OF EXMARK'S FINANCIAL ADVISOR
McCarthy & Co. ("McCarthy") has delivered its written opinion to the Board
of Directors of Exmark to the effect that as of the date hereof, the
consideration to be received by the holders of Exmark capital stock pursuant to
the Merger is fair to such holders from a financial point of view. A copy of the
opinion, which sets forth the assumptions made, matters considered and limits on
the review undertaken, is attached as Exhibit C to this Proxy
Statement/Prospectus and is incorporated herein by reference. Exmark
stockholders are urged to read carefully the opinion in its entirety. See "THE
MERGER--Opinion of McCarthy as Exmark's Financial Advisor."
THE PARTIES TO THE MERGER
THE TORO COMPANY
Toro is a leading manufacturer of consumer lawn mowers, snowthrowers,
trimmers, commercial mowing and turf maintenance equipment and underground
automatic irrigation systems. These products are sold under the
Toro-Registered Trademark-, Wheel Horse-Registered Trademark-,
Lawn-Boy-Registered Trademark- and other brand names to the consumer and
professional markets, which includes entities that manage or construct golf
courses, parks and other large turf areas. The consumer product line includes
walk-behind mowers; riding mowers and lawn and garden tractors; electrical home
improvement products, such as low voltage lighting, electric trimmers and leaf
blowers; and snow removal products. The professional product line includes
commercial products for professional turf and golf course maintenance, such as
precision cutting mowers and turf aeration equipment, and irrigation products
such as sprinkler heads and control devices for underground irrigation systems.
Toro sells most of its products through domestic and foreign distributors and
mass merchandisers.
Toro was incorporated in Minnesota in 1935 as the successor to a business
founded in 1914. It was reincorporated in Delaware in 1983. The principal
executive offices of Toro are located at 8111 Lyndale Avenue South, Bloomington,
Minnesota 55420, telephone number (612) 888-8801. For further information
concerning Toro, see "CERTAIN INFORMATION CONCERNING TORO" and the Toro
documents included in Exhibit D.
EXMARK MANUFACTURING COMPANY INCORPORATED
Exmark is a leading manufacturer of commercial turf care equipment. It is
principally engaged in the design and manufacturing of mid-size commercial walk
behind and riding lawn mowers, which are sold to distributors for sale
throughout the continental United States and Europe.
Exmark's product line consists of mid-size commercial walk behind and riding
mowers (E.G., 32", 36", 44", 48" and 60" cutting widths), and various
accessories such as grass catchers and riding sulkies. Management has placed
emphasis on new product generation because of the belief that in order to retain
current dealers, attract new dealers and increase market share, new product
offerings are critical. Examples of recent new product introductions are the
Turf Tracer Hydro introduced in 1991, the Exmark Viking Hydro in 1992, Exmark
Explorer Two in 1992, the Exmark Metro in 1993, the Exmark Lazer Z introduced in
the Spring of 1995, the Turf Tracer HP introduced in the Fall of 1996 and the
Metro HP introduced in the fall of 1997.
Exmark sells its products throughout the United States and Canada. Sales
volume is generated primarily through Exmark's manufacturer's representative,
Holiman. It is a condition to the Merger that Exmark acquire Holiman prior to
Toro's acquisition of Exmark.
13
<PAGE>
Exmark was incorporated in Nebraska in 1982. The principal executive offices
of Exmark are located at 2102 Ashland Avenue, Beatrice, Nebraska 68310,
telephone number (402) 223-4010. For further information concerning Exmark, see
"CERTAIN INFORMATION CONCERNING EXMARK," "SELECTED FINANCIAL DATA OF EXMARK,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF EXMARK," and "FINANCIAL STATEMENTS OF
EXMARK."
EMCI ACQUISITION CORP.
EMCI Acquisition Corp., a Nebraska corporation and wholly owned subsidiary
of Toro ("Merger Subsidiary"), was incorporated on September 29, 1997, solely
for purposes of the transactions contemplated by the Merger Agreement. Merger
Subsidiary engages in no other business. The principal executive offices of
Merger Subsidiary are located at 8111 Lyndale Avenue South, Bloomington,
Minnesota 55420, telephone number (612) 888-8801.
THE MERGER
EFFECTIVE TIME
The Merger will become effective upon the filing of the Articles of Merger
with the Secretary of State of the State of Nebraska (the "Effective Time").
Such filing is required by the Nebraska Business Corporation Act (the "NBCA") in
connection with the Merger and will be made as soon as practicable after the
approval by the stockholders of Exmark of the Merger Agreement and the
satisfaction or waiver of all other conditions to the Merger. See "THE
MERGER--Effective Time" and "--Effects of the Merger."
EFFECTS OF THE MERGER
At the Effective Time, pursuant to the Merger Agreement, (1) Merger
Subsidiary will be merged with and into Exmark, which will be the Surviving
Corporation, (2) Exmark will become a wholly owned subsidiary of Toro, (3) each
issued and outstanding share of Exmark Common Stock will be converted into and
become a right to receive (a) the Initial Per Share Payment Consideration and
(b) one Common/ Preferred Contingent Payment Right, (4) each issued and
outstanding share of Exmark Preferred Stock will be converted into and become a
right to receive (a) the Initial Per Share Payment Consideration and (b) four
Common/Preferred Contingent Payment Rights, (5) each issued and outstanding
share of Exmark Class B Stock will be converted into and become a right to
receive (a) the Class B Initial Per Share Payment Consideration and (b) one
Class B Contingent Payment Right, and (6) each issued and outstanding share of
Exmark Class C Stock will be converted into and become a right to receive the
Initial Per Share Payment Consideration. See "THE MERGER--Effects of the
Merger."
MANAGEMENT OF EXMARK AFTER THE MERGER
Exmark, as the Surviving Corporation, will become a direct, wholly owned
subsidiary of Toro upon consummation of the Merger. Notwithstanding the
foregoing, Exmark will be operated as a stand-alone entity during the Contingent
Payment Period (as defined in "THE MERGER--Management of Exmark After the
Merger") and will be overseen by Exmark's existing management and their
successors, subject to certain limitations described in the Merger Agreement.
See "THE MERGER--Toro Control." The directors of Merger Subsidiary immediately
prior to the Effective Time will be the initial directors of the Surviving
Corporation. See "THE MERGER--Management of Exmark After the Merger." In
addition, the parties have agreed to form a committee to act as an inter-company
management team and as a dispute resolution panel for a period following the
Merger (the "Synergies Council"). See "THE MERGER--Synergies Council."
14
<PAGE>
CONTINGENT PAYMENT RIGHTS
The Contingent Payment Rights qualify Holders to receive up to two separate
payments (the 1998 Contingent Payment and the 1999 Contingent Payment) based on
the financial performance of the Surviving Corporation on a stand-alone basis
during each of the twelve-month periods ending October 31, 1998 and 1999,
respectively. Only Holders of Exmark Common Stock, Exmark Preferred Stock and
Exmark Class B Stock are entitled to receive Contingent Payment Rights in
exchange for the surrender of their Shares. Holders of Exmark Class C Stock are
not entitled to receive Contingent Payment Rights. See "THE MERGER--Effects of
the Merger." Holders of Exmark Class B Stock will receive one-half of any
Contingent Payment; Holders of Exmark Common Stock and Exmark Preferred Stock
collectively will receive the other half of any Contingent Payment.
The Contingent Payment Rights are based on Exmark's financial performance
during the Contingent Payment Period, and no Contingent Payments will be made
unless Exmark obtains certain financial results during the Contingent Payment
Period. In addition, Contingent Payments are subject to Toro's Offset Right. See
"THE MERGER AGREEMENT--Offset Right." Moreover, the maximum amount of Contingent
Payments may not exceed $14,000,000 for Holders of Exmark Class B Stock and
$14,000,000 for Holders of Exmark Common Stock and Exmark Preferred Stock
(provided further that the number of shares of Toro Common Stock issued for all
Contingent Payments may not exceed 821,334 shares). Furthermore, if Exmark fails
to meet certain financial goals outlined in the Merger Agreement, then Toro
shall have the option to take full control of Exmark's operations, in which case
Contingent Payments would be extremely unlikely. See "THE MERGER--Toro Control."
The amount of each Contingent Payment will be determined using a valuation
formula that compares a multiple of Exmark's recast earnings before interest and
taxes ("REBIT") for the appropriate twelve-month period ending October 31, 1998
or 1999, subject to numerous adjustments, with a base amount of $30,000,000 plus
the amount of any prior Contingent Payment, subject to certain adjustments. The
multiplier is 3.5 times the compound annual growth rate ("CAGR") of Exmark's
revenues, subject to certain adjustments, in each of 1998 and 1999 compared to
$40,808,850, which is the amount of Exmark's gross sales for the twelve-month
period ended October 31, 1996. See "THE MERGER--Contingent Payment Rights." By
way of example, and assuming a compound annual growth rate of zero and no
working capital adjustment, REBIT for the twelve-month period ending October 31,
1998 would have to exceed $8,571,429 before there would be a 1998 Contingent
Payment.
THERE CAN BE NO ASSURANCE THAT ANY CONTINGENT PAYMENTS WILL BE MADE.
TORO CONTROL
If Exmark fails to obtain financial results equal to or greater than certain
predetermined financial results for two successive fiscal quarters (as set forth
in the Merger Agreement), Toro shall have the option to take full control of
Exmark's operations. In the event Toro takes control of Exmark's operations, the
financial results of Exmark accruing after such date will not be taken into
account in computing the amount of any Contingent Payments to be made after such
date. See "THE MERGER--Toro Control."
HOLDBACK AMOUNT; ACTUAL NET WORTH ADJUSTMENT; STOCKHOLDERS' REPRESENTATIVES
EXPENSE FUND
An amount equal to 15% of the Initial Payment Fund (as defined in the Merger
Agreement) will be placed in escrow (the "Holdback Amount") with Norwest Bank
Minnesota, National Association (the "Escrow Agent" and "Paying Agent") and used
to pay any claims Toro may have pursuant to its Offset Right with respect to
breaches of Exmark's representations and warranties and covenants contained in
the Merger Agreement and certain other losses and costs Toro and its affiliates
may incur or suffer in connection with the Merger. In addition, $100,000 of the
Initial Payment Fund will be held in escrow by the Escrow Agent and used to fund
the expenses of the Stockholders' Representatives (the "Stockholders'
Representatives Expense Fund").
15
<PAGE>
Additionally, prior to the Effective Time, Toro and Exmark will estimate the
net worth (total assets minus total liabilities) of Exmark as of the Effective
Time. In the event that such estimate is less than $8,243,000, the difference
will, in effect, further reduce the Initial Payment Fund and increase the
Holdback Amount. Within 90 days after the Effective Time, Toro and Exmark will
determine the actual net worth of Exmark as of the Effective Time. In the event
that such amount is less than $8,243,000, the difference will be subtracted from
the Holdback Amount and subsequently paid to Toro (the "Actual Net Worth
Adjustment"). Exmark and Toro currently do not anticipate that there will be an
Actual Net Worth Adjustment. Such estimate and the Actual Net Worth Adjustment
will be determined without giving effect to the acquisition of Holiman by
Exmark. The Holdback Amount also will be used to satisfy Toro's Offset Right, if
any. Subject to Toro's Offset Right and the Actual Net Worth Adjustment, if any,
two-thirds of the Holdback Amount will be paid to the Holders on approximately
December 31, 1999 and the remainder will be paid to the Holders on December 31,
2000. Subject to any deduction for Stockholders' Representatives' expenses, the
Stockholders' Representatives Expense Fund will be paid to the Holders on
December 31, 2000 (the "Expense Fund Payment"). See "THE MERGER--Holdback
Amount; Actual Net Worth Adjustment," "--Stockholders' Representatives Expense
Fund" and "THE MERGER AGREEMENT-- Offset Right."
PAYMENT OF MERGER CONSIDERATION
Subject to Toro's Offset Right and the escrow of the Holdback Amount and the
Stockholder's Representatives Expense Fund, the Merger Consideration will be
paid in the form of cash and shares of Toro Common Stock to the Holders as
follows: the Initial Payment, the Class B Initial Payment, the 1998 Contingent
Payment, the 1999 Contingent Payment, the Holdback Payments and the payment of
any remainder of the Stockholders' Representatives Expense Fund. The Initial
Payment, consisting of the Initial Per Share Payment Consideration, will be made
as promptly as practicable after the Effective Time and following surrender of
shares of Exmark Common Stock, Exmark Preferred Stock or Exmark Class C Stock.
The Class B Initial Payment, consisting of the Class B Initial Per Share Payment
Consideration, will be made as promptly as practicable after the Effective Time
and following surrender of shares of Exmark Class B Stock. The 1998 Contingent
Payment, consisting of cash and shares of Toro Common Stock payable by Toro
pursuant to the Contingent Payment Rights, will be paid as promptly as
practicable following the later to occur of (1) December 31, 1998 or (2) 10 days
after the amount of the 1998 Contingent Payment has been determined by Toro and
the Stockholders' Representatives. The 1999 Contingent Payment, consisting of
cash and shares of Toro Common Stock payable by Toro pursuant to the Contingent
Payment Rights, will be paid as promptly as practicable following the later to
occur of (1) December 31, 1999 or (2) 10 days after the amount of the 1999
Contingent Payment has been determined by Toro and the Stockholders'
Representatives. Subject to any offset pursuant to Toro's Offset Right,
two-thirds of the cash and shares of Toro Common Stock initially included in the
Holdback Amount shall be paid concurrently with the 1999 Contingent Payment and
the remainder will be paid on or before December 31, 2000. Subject to claims for
payment of the expenses of the Stockholders' Representatives, the remainder of
the Stockholders' Representatives Expense Fund will be paid on or before
December 31, 2000. The cash portion of the Merger Consideration will be
approximately 12% of the aggregate amount of each payment and the remainder of
the Merger Consideration will be paid in shares of Toro Common Stock.
The aggregate amount of cash and shares of Toro Common Stock to be paid by
Toro with respect to the total Initial Per Share Payment Consideration to be
exchanged for the Exmark Common Stock, Exmark Preferred Stock and Exmark Class C
Stock will be equal to $28,100,000 (subject to the holdback of 15% of such
amount plus $100,000 of such amount, certain offsets and other adjustments
described herein). The Initial Per Share Payment Consideration shall be cash and
Toro Common Stock in an amount equal to a quotient, the numerator of which is
$28,100,000 and the denominator of which is the sum of (1) the number of shares
of Exmark Common Stock, (2) the number of shares of Exmark Class C Stock and (3)
four times the number of shares of Exmark Preferred Stock, which in all cases
are issued and
16
<PAGE>
outstanding immediately prior to the Effective Time, other than Canceled Shares.
For purposes of calculating the number of shares of Toro Common Stock included
in the Initial Payment Consideration, the value per share of Toro Common Stock
shall be the Initial Toro Share Price. Therefore, if the Merger is consummated
on or prior to November 30, 1997, the Initial Toro Share Price would be $41.4167
(I.E., the average closing price per share of Toro Common Stock as reported on
the NYSE for the 30 trading days ending on October 31, 1997) and the Initial Per
Share Consideration would be 12.239 shares of Toro Common Stock and cash equal
to $69.12 (10.39 shares of Toro Common Stock and $58.51 after the Holdback
Amount and the Stockholder Representatives Expense Fund are placed in escrow),
in the absence of a Cash Election to receive more or less of the Merger
Consideration in cash. However, in the event the Merger is not consummated prior
to November 30, the Initial Toro Share Price would be calculated differently
(I.E., the average closing price per share of Toro Common Stock as reported on
the NYSE for the 30 trading days ending on the third trading day immediately
preceding the Effective Date of the Merger) and, consequently, may be a
different amount and may result in the payment of more or less cash and shares
of Toro Common Stock pursuant to the Initial Per Share Consideration. See "THE
MERGER--Payment of Merger Consideration" "--Holdback Amount; Actual Net Worth
Adjustment," "--Stockholders' Representatives Expense Fund" and "THE MERGER
AGREEMENT--Offset Right."
Each Common/Preferred Contingent Payment Right and Class B Contingent
Payment Right entitles the holder thereof to receive cash and shares of Toro
Common Stock based on the performance of the Surviving Corporation from November
1, 1997 until October 31, 1999, subject to certain limitations and offsets. The
maximum amount of cash and shares of Toro Common Stock to be paid by Toro with
respect to the Common/Preferred Contingent Payment Rights will not exceed
$14,000,000 (subject to certain offsets and other adjustments described in the
enclosed Proxy Statement/Prospectus). Similarly, the maximum amount of cash and
shares of Toro Common Stock to be paid by Toro with respect to the Class B
Contingent Payment Rights may not exceed $14,000,000 (subject to certain offsets
and other adjustments described in the enclosed Proxy Statement/Prospectus). For
purposes of calculating the number of shares of Toro Common Stock included in
the 1998 Contingent Payment, the value per share of Toro Common Stock will be
the average closing price per share of Toro Common Stock as reported on the NYSE
for the 30 trading days ending on the third day immediately preceeing December
31, 1998 (the "1998 Toro Share Price"). For purposes of calculating the number
of shares of Toro Common Stock included in the 1999 Contingent Payment, the
value per share of Toro Common Stock will be the average closing price per share
of Toro Common Stock as reported on the NYSE for the 30 trading days ending on
the third day immediately preceding December 31, 1999 (the "1999 Toro Share
Price"). See "THE MERGER--Effects of the Merger," "--Holdback Amount; Actual Net
Worth Adjustment," "--Stockholders' Representatives Expense Fund," "THE MERGER
AGREEMENT--Offset Right" and "--Contingent Payments."
Fractional shares of Toro Common Stock will not be issued in connection with
the Merger. Stockholders of Exmark otherwise entitled to fractional shares of
Toro Common Stock will be paid cash in lieu of such factional shares. See "THE
MERGER--Fractional Shares."
CASH ELECTION
The cash portion of the Merger Consideration will be approximately 12% of
the aggregate amount of each payment and the remainder of the Merger
Consideration will be paid in shares of Toro Common Stock. Each Exmark
stockholder, however, will be allowed to elect to receive more or less than 12%
of his or her portion of the Merger Consideration in Cash (subject to certain
adjustments), with the remainder to be paid in the form of Toro Common Stock. In
the event that the aggregate of all cash elections exceed 12%, then all
percentages elected will be adjusted downward proportionately. The percentage of
the Holder's Merger Consideration each Exmark stockholder elects, or is deemed
to have elected, to receive in cash shall be referred to herein as the "Cash
Election." Exmark stockholders will receive a cash election form to indicate
their desired percentage cash. See "THE MERGER--Cash Election."
17
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER
EMPLOYMENT AGREEMENTS. In connection with the Merger Agreement, Toro has
entered into employment and noncompete agreements with certain employees and
officers of Exmark. In connection therewith, H. John Smith and Ray Rickard will
receive cash Signing Bonuses from Toro in the aggregate amount of $2,075,000
pursuant to new employment agreements, which contain noncompete covenants. H.
John Smith is a director and the President of Exmark. Ray Rickard is a director
and the Executive Vice President of Exmark. In approving the Signing Bonuses,
Exmark's Board of Directors considered Exmark's financial performance during the
tenure of Messrs. Smith and Rickard and the anticipated reduction to their
overall compensation that will occur as a result of the Merger. Stockholder
approval of such signing bonuses is being requested so that such bonuses will
not constitute "excess parachute payments" pursuant to Section 280G of the
Internal Revenue Code of 1986, as amended. If treated as excess parachute
payments, the bonuses would not be deductible and Messrs. Smith and Rickard and
each would be subject to a 20% excise tax on that portion of such payments that
is greater than his respective average income during the past five years.
Stockholder approval of the Signing Bonuses is a condition to consummation of
the Merger. See "THE MERGER--Interests of Certain Persons in the Merger" and
"--Excess Parachute Payments."
STOCKHOLDER AGREEMENTS. Pursuant to the Stockholder Agreements, certain
officers and directors of Exmark, in their individual capacities as
stockholders, have agreed to vote all shares of Exmark Common Stock and Exmark
Preferred Stock owned by them for approval and adoption of the Merger Agreement
and have granted to Toro irrevocable proxies so to vote their respective shares.
See "THE MERGER-- Stockholder Agreements" and "--Interests of Certain Persons in
the Merger."
ISSUANCE OF CLASS B STOCK TO INSIDERS. Prior to the Effective Time and
subject to approval of the New Articles of Incorporation by the requisite vote
of the Holders, Exmark will issue 10,000 shares of Exmark Class B Stock to
certain officers, directors and employees of Exmark pursuant to the exercise of
certain previously issued stock purchase rights, including (1) 2,000 shares to
each of H. John Smith, Ray Rickard and Roger Smith, (2) 210 shares to each of
Merrell Clark and Robert Martin and (3) 120 shares to each of Gary Kuck and
Keith Dietzen. Roger Smith is a director and the Secretary of Exmark and a
Director and the President of Holiman. Merrell Clark is a director and the
Treasurer of Exmark. Robert Martin, Gary Kuck and Keith Dietzen are directors of
Exmark. Each share of Exmark Class B Stock will receive the Class B Initial Per
Share Payment Consideration (I.E., one-tenth of a share of Toro Common Stock)
and one Class B Contingent Payment Right. If the Class B Contingent is maximized
and subject to Toro's Offset Right, each Class B Contingent Payment Right would
entitle the holder thereof to receive cash and Toro Common Stock with a face
value of $1,400. As a result, Messrs. Smith, Rickard and Smith each may receive
up to approximately $2,810,000 in exchange for their respective shares of Exmark
Class B Stock. Messrs. Clark and Martin each may receive up to approximately
$295,000 in exchange for their respective shares of Exmark Class B Stock.
Messrs. Kuck and Dietzen each may receive up to approximately $175,000 in
exchange for their respective shares of Exmark Class B Stock. See "THE
MERGER--Interests of Certain Persons in the Merger."
ROGER SMITH; HOLIMAN ACQUISITION. As a condition to the Merger, Exmark must
first acquire all of the outstanding capital stock of Holiman. Roger Smith, a
Director of Exmark and a major stockholder of Exmark, is the owner of all of the
outstanding shares of Holiman. As a result of Exmark's acquisition of Holiman,
Roger Smith will receive 3,689 shares of Exmark Class C Stock, which represents
approximately $2,125,000 of the total Initial Payment Consideration. See "THE
MERGER--Acquisition of Holiman" and "--Interests of Certain Persons in the
Merger."
The Board of Directors of Exmark was aware of the interests of each of the
above described persons in the Merger and considered them, among other matters,
in approving the Merger Agreement and the transactions contemplated thereby.
18
<PAGE>
STOCKHOLDER AGREEMENTS
Concurrently with the execution of the Merger Agreement, H. John Smith, Ray
Rickard, Roger T. Smith, Merrell F. Clark and Robert F. Martin, who collectively
had record ownership of approximately 14,015 shares of Exmark Common Stock and
550 shares of Exmark Preferred Stock as of the Record Date (representing
approximately 63.8% of the total voting power of the outstanding shares of
Exmark Common Stock and Exmark Preferred Stock on such date), entered into
separate Stockholder Agreements with Toro. Pursuant to the Stockholder
Agreements, such stockholders have agreed to vote, and have granted to Toro an
irrevocable proxy to vote, such shares in favor of approval of the Merger
Agreement, the Merger, the New Articles of Incorporation and the Signing
Bonuses. In addition, under the Stockholder Agreements, such stockholders have
agreed to vote, and have granted to Toro an irrevocable proxy to vote, such
shares against approval of any proposal made in opposition to or competition
with consummation of the Merger and against any merger, consolidation, sale of
assets, reorganization or recapitalization, with any party other than Toro and
against any liquidation or winding up of Exmark. The Stockholder Agreements,
other than the provisions relating to the grant of an irrevocable proxy,
terminate on the earlier to occur of (1) the Effective Time or (2) such date and
time as the Merger Agreement shall be terminated pursuant to Article IX of the
Merger Agreement. See "THE MERGER--Stockholder Agreements."
ACQUISITION OF HOLIMAN
As a condition to the Merger, Exmark has entered into a stock-for-stock
exchange agreement (the "Holiman Agreement") with Roger Smith to acquire
Holiman, the primary manufacturer's representative of Exmark. Roger Smith is the
sole owner of all of the issued and outstanding capital stock of Holiman. Under
the terms of the Holiman Agreement, Roger Smith will receive 3,689 shares of
Exmark Class C Stock, which represents approximately $2,125,000 of the total
Initial Payment Consideration. See "THE MERGER--Effects of the Merger" and
"--Payment of Merger Consideration." Mr. Smith, as the sole holder of Exmark
Class C Stock is not entitled to receive Contingent Payment Rights. Under the
terms of the Holiman Agreement, the net book value of Holiman must be not less
than $200,000. During Exmark's fiscal year ended August 31, 1997, Exmark paid
Holiman $2,217,402 in commissions. See "THE MERGER--Contingent Payment Rights."
See "THE MERGER--Acquisition of Holiman" and "--Interests of Certain Persons in
the Merger."
ACCOUNTING TREATMENT
The Merger will be accounted for under the purchase method of accounting.
See "THE MERGER-- Accounting Treatment."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
It is intended that the Merger will qualify as a reorganization under the
provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended.
If the Merger qualifies as a reorganization under the Code, (1) no gain or loss
will be recognized by the stockholders of Exmark with respect to the shares of
Toro Common Stock received in the Merger, and (2) gain, if any, but not loss,
will be recognized by any Exmark stockholder upon the exchange of Exmark capital
stock for cash in the Merger. See "THE MERGER--Certain Federal Income Tax
Consequences."
DISSENTERS' RIGHTS
All record holders of Exmark securities as of the Record Date have the right
to dissent from approval and adoption of the Merger Agreement and, if the Merger
is consummated, to receive payment of the fair value of their shares (determined
in accordance with Nebraska law) upon compliance with the provisions of Sections
21-20,137 to 21-20,150 of the Nebraska Business Corporation Act, a summary of
which is
19
<PAGE>
provided in "THE MERGER--Dissenters' Rights" and the full text of which is
attached to this Proxy Statement/Prospectus as Exhibit B. All holders of Exmark
securities are urged to read Sections 21-20,137 to 21-20,150 carefully. The
value determined for such dissenters' rights could be more than, the same as, or
less than the value of the consideration to be received under the Merger
Agreement by Exmark stockholders who do not dissent from the Merger.
REGULATORY APPROVALS
Consummation of the Merger was conditioned upon, among other things, the
expiration or termination of all applicable waiting periods pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"). The HSR Act requires that parties to certain acquisitions file
notifications with the federal antitrust authorities and observe a waiting
period prior to consummation. The waiting period under the HSR Act expired on
August 13, 1997. See "THE MERGER--Regulatory Approvals."
THE MERGER AGREEMENT
The following is a summary of certain other material provisions of the
Merger Agreement. The following descriptions do not purport to be complete and
are qualified in their entirety by reference to the Merger Agreement included as
Exhibit A to this Proxy Statement/Prospectus. All stockholders are urged to read
the Merger Agreement in its entirety. See also "THE MERGER" and "THE MERGER
AGREEMENT."
LIMITATIONS ON NEGOTIATIONS BY EXMARK
Prior to the termination of the Merger Agreement, Exmark is prohibited from
soliciting, initiating or encouraging submission of any proposal or offer from
any person, group or entity relating to any acquisition of the capital stock or
business of Exmark, or all or a material portion of the assets of Exmark or
other similar transaction or business combination involving the business of
Exmark. Likewise, Exmark may not participate in any negotiations regarding, or
furnish to any other person any information with respect to, or otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage,
any effort or attempt by any other person or entity to do or seek any of the
above actions. Notwithstanding the foregoing, Exmark and its board of directors
may, pursuant to their fiduciary duties and subject to certain limitations,
engage in negotiations with a third party in response to a bona fide proposal
regarding such transactions and combinations. See "THE MERGER
AGREEMENT--Limitations on Negotiations by Exmark."
CONDITIONS TO THE MERGER
The obligations of Toro and Exmark to effect the Merger are subject to the
satisfaction of certain conditions, including among others: effectiveness of the
Registration Statement, stockholder approval of the Merger Agreement and the
Merger, the absence of any action, proceeding or injunction prohibiting
consummation of the Merger, the receipt of necessary regulatory and other
approvals and consents, continuing accuracy of representations and warranties in
the Merger Agreement, performance or compliance with the agreements and
covenants in the Merger Agreement and receipt by Toro and Exmark of various
agreements. See "THE MERGER AGREEMENT--Conditions."
OFFSET RIGHT
Pursuant to the Merger Agreement, Toro will have the right to offset certain
losses, liabilities, deficiencies, damages, penalties, expenses or costs against
the Holdback Amount and the Contingent Payments, if any, that Toro or the
Surviving Corporation or their affiliates, officers, directors, employees or
agents may incur as a result of certain misrepresentations of Exmark contained
in, or for breaches by
20
<PAGE>
Exmark of certain provisions of, the Merger Agreement or certain related
agreements. The Offset Right for any breach of a representation of Exmark in the
Merger Agreement or for certain environmental losses is subject to a one-time
deductible of at least $50,000 and expires on the later to occur of (1) the date
on which the 1999 Contingent Payment, if any, is fully paid and (2) the date on
which the last payment of the Holdback Amount is made, subject to extension for
any pending claims. An individual loss shall not give rise to an Offset Right
unless such loss equals or exceeds $10,000. Notwithstanding anything to the
contrary in the preceding sentence, the limitation set forth in such sentence
shall not apply to any loss that relates to a claim or action that arises from
the same or substantially the same facts as one or more other claims or actions
and the aggregate amount of losses so arising is at least $10,000. See "THE
MERGER AGREEMENT--Offset Right."
TERMINATION OF THE MERGER AGREEMENT; TERMINATION FEES
The Merger Agreement may be terminated at any time prior to the Effective
Time: (1) by mutual consent of Toro, Merger Subsidiary and Exmark; (2) by Toro
or Exmark in the event that, among other things, (a) there has been a material
misrepresentation, breach of warranty or breach of covenant on the part of the
other in the representations, warranties and covenants set forth in the Merger
Agreement; (b) there shall be a final nonappealable order of a federal or state
court in effect preventing the consummation of the Merger, or there shall be any
action taken, or any statute, rule, regulation or order enacted, promulgated or
issued or deemed applicable to the Merger by any governmental authority or
agency, which would make the consummation of the Merger illegal; (c) there shall
be any action taken, or any statute, rule, regulation or order enacted,
promulgated or issued or deemed applicable to the Merger by any governmental
authority or agency which would prohibit Exmark's or Toro's ownership or
operation of all or a portion of Exmark's business or compel Toro or Exmark to
dispose of or hold separate all or a portion of the business or assets of Exmark
or Toro as a result of the Merger; (d) the transactions contemplated by the
Merger Agreement or the Articles of Merger have not been consummated on or
before January 31, 1998; or (e) if the stockholders of Exmark shall have failed
to approve the Merger Agreement, the Merger, the New Articles of Incorporation
and the Signing Bonus; or (3) by Toro, if (a) more than 8% of the outstanding
shares of Exmark Common Stock and Exmark Preferred Stock shall be qualified to
be Dissenting Shares or (b) after the date of the Merger Agreement, there shall
have been a material adverse change in the assets, properties, financial
condition, operating results or business condition of Exmark which shall
continue to constitute such a material adverse change. In addition, the Merger
Agreement may be terminated by Toro if the Initial Toro Share Price is less than
$30 per share or terminated by Exmark if the Initial Toro Share Price exceeds
$44 per share. See "THE MERGER AGREEMENT--Termination."
In the event of termination of the Merger Agreement by either Toro or
Exmark, under certain circumstances, Exmark could be required to pay to Toro a
termination fee of $1,500,000. See "THE MERGER AGREEMENT--Termination Fees."
21
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA OF TORO
Set forth below is selected consolidated historical financial information of
Toro derived from the unaudited consolidated financial statements of Toro for
the nine months ended August 1, 1997 and August 2, 1996, the audited
consolidated financial statements of Toro for the fiscal year ended October 31,
1996, the three months ended October 31, 1995 and the years ended July 31, 1995,
1994, 1993 and 1992. In November 1995, Toro changed its fiscal year from July 31
to October 31. The information should be read in conjunction with the
consolidated financial statements of Toro and related notes thereto, included in
Exhibit D or included elsewhere in this Proxy Statement/Prospectus. In the
opinion of Toro's management, the operating results for the nine months ended
August 1, 1997 and August 2, 1996 reflect all adjustments (consisting of normal
recurring accruals) necessary to present fairly the information contained
therein. Results for the nine months ended August 1, 1997 are not necessarily
indicative of the results for the full year. See "CERTAIN INFORMATION CONCERNING
TORO" and the documents included in Exhibit D.
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE
YEAR MONTHS YEARS ENDED
---------------------- ENDED ENDED ------------------------------------------
8/1/97(1) 8/2/96 10/31/96 10/31/95 7/31/95 7/31/94 7/31/93 7/31/92
----------- --------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.............. $ 810,434 $ 732,712 $ 930,909 $ 192,278 $ 932,853 $ 794,341 $ 684,324 $ 643,748
Cost of sales.......... 517,695 466,689 589,186 120,575 598,275 506,816 445,495 419,138
----------- --------- --------- --------- --------- --------- --------- ---------
Gross profit......... 292,739 266,023 341,723 71,703 334,578 287,525 238,829 224,610
Selling, general and
administrative
expense.............. 231,255 210,273 278,284 65,048 269,757 244,943 203,377 223,166
Restructuring
expense.............. -- -- -- -- -- -- -- 24,900
----------- --------- --------- --------- --------- --------- --------- ---------
Earnings (loss) from
operations........... 61,484 55,750 63,439 6,655 64,821 42,582 35,452 (23,456)
Interest expense....... 15,408 10,858 13,590 2,532 11,902 13,562 17,150 18,726
Other (income)
expense.............. (5,957) (7,642) (10,331) (2,483) (8,193) (8,030) (3,053) (7,279)
----------- --------- --------- --------- --------- --------- --------- ---------
Earnings (loss)
before income taxes
and extraordinary
loss............... 52,033 52,534 60,180 6,606 61,112 37,050 21,355 (34,903)
Provision for income
taxes................ 20,553 20,751 23,771 2,609 24,445 14,820 8,315 (11,150)
----------- --------- --------- --------- --------- --------- --------- ---------
Net earnings (loss)
before
extraordinary
loss............... 31,480 31,783 36,409 3,997 36,667 22,230 13,040 (23,753)
Extraordinary loss, net
of income tax benefit
of $1,087............ (1,663) -- -- -- -- -- -- --
----------- --------- --------- --------- --------- --------- --------- ---------
Net earnings
(loss)............. $ 29,817 $ 31,783 $ 36,409 $ 3,997 $ 36,667 $ 22,230 $ 13,040 $ (23,753)
----------- --------- --------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- --------- --------- ---------
Net earnings (loss)
per common and
common equivalent
share before
extraordinary
loss............... $ 2.53 $ 2.52 $ 2.90 $ 0.32 $ 2.81 $ 1.71 $ 1.05 $ (1.98)
Extraordinary loss,
net of income tax
benefit............ (0.13) -- -- -- -- -- -- --
----------- --------- --------- --------- --------- --------- --------- ---------
Net earnings (loss) per
common and common
equivalent share..... $ 2.40 $ 2.52 $ 2.90 $ 0.32 $ 2.81 $ 1.71 $ 1.05 $ (1.98)
----------- --------- --------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- --------- --------- ---------
BALANCE SHEET DATA:
Working capital........ $ 221,094 $ 197,896 $ 197,144 $ 165,086 $ 168,951 $ 175,783 $ 193,870 $ 210,430
Total assets........... 704,970 531,930 496,877 472,653 468,315 443,639 419,203 421,310
Short-term debt
(including current
portion of long-term
debt)................ 95,365 83,973 41,375 56,909 38,625 20,300 15,000 --
Long-term debt (less
current portion)..... 177,650 53,046 53,015 53,365 64,935 81,025 122,970 164,100
Common shareholders'
equity............... 233,667 209,562 213,567 190,892 185,471 168,652 144,601 132,614
OTHER DATA:
Dividends per common
share................ $ 0.36 $ 0.36 $ 0.48 $ 0.12 $ 0.48 $ 0.48 $ 0.48 $ 0.48
</TABLE>
- ------------------------
Notes:
(1) Toro's consolidated financial statements include the results of operations
of the James Hardie Irrigation Group from the date of acquisition, December
2, 1996.
22
<PAGE>
SUMMARY FINANCIAL DATA OF EXMARK
Set forth below is selected historical financial information of Exmark
derived from the audited financial statements of Exmark for the fiscal years
ended August 31, 1997, 1996, 1995, 1994 and 1993. The information should be read
in conjunction with the Management's Discussion and Analysis of Exmark, the
financial statements of Exmark and related notes thereto included elsewhere
herein. See "CERTAIN INFORMATION CONCERNING EXMARK," "SELECTED FINANCIAL DATA OF
EXMARK," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF EXMARK," and "FINANCIAL
STATEMENTS OF EXMARK."
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
8/31/97 8/31/96 8/31/95 8/31/94 8/31/93
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Sales.................................................... $ 53,420 $ 38,372 $ 25,265 $ 19,375 $ 14,680
Cost of goods sold....................................... 35,687 25,217 16,535 12,372 9,585
--------- --------- --------- --------- ---------
Gross profit......................................... 17,733 13,155 8,730 7,003 5,095
Operating expenses....................................... 12,614 9,819 6,518 5,317 4,022
--------- --------- --------- --------- ---------
Earnings from operations............................. 5,119 3,336 2,212 1,686 1,073
Interest expense......................................... 1,155 1,057 776 553 440
Other income, net........................................ (324) (232) (177) (113) (82)
--------- --------- --------- --------- ---------
Earnings before income taxes......................... 4,288 2,511 1,613 1,246 715
Provision for income taxes............................... 1,492 846 550 488 252
--------- --------- --------- --------- ---------
Net earnings........................................... $ 2,796 $ 1,665 $ 1,063 $ 758 $ 463
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net earnings per common and common equivalent
share.............................................. $ 62.01 $ 36.95 $ 24.47 $ 17.36 $ 10.61
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
BALANCE SHEET DATA:
Working capital.......................................... $ 4,380 $ 3,795 $ 2,440 $ 2,842 $ 2,489
Total assets............................................. 15,667 9,966 8,466 6,919 6,156
Short-term debt (including current portion of long-term
debt).................................................. 1,712 371 963 356 276
Long-term debt (less current portion).................... 415 934 1,308 1,690 2,052
Stockholders' equity..................................... 9,167 5,742 4,117 3,071 2,332
OTHER DATA:
Dividends per common share............................... $ 1.50 $ 1.00 $ 0.75 $ 0.50 $ --
</TABLE>
23
<PAGE>
MARKET PRICE DATA
Toro Common Stock is listed on the NYSE under the symbol "TTC." There is no
public market for shares of Exmark capital stock. On June 3, 1997, the last full
trading day before Toro and Exmark announced the execution of the letter of
intent relating to the Merger, the closing price per share of Toro Common Stock
was $37.25, and on October 22, 1997, the closing price per share of Toro Common
Stock was $43.125. Stockholders of Exmark are advised to obtain current market
quotations for Toro Common Stock. No assurance can be given as to the market
price of Toro Common Stock at any time before the Effective Time or as to the
market price of Toro Common Stock at any time thereafter.
The following table sets forth the Toro Initial Share Price of $41.4167,
which is based upon the average closing price per share of Toro Common Stock as
reported on the NYSE for the 30 trading days ending on October 31, 1997. This
amount is subject to change if the Merger is not consummated on or prior to
November 30, 1997. In the event the Merger is not consummated prior to November
30, the Initial Toro Share Price would be equal to the average closing price per
share of Toro Common Stock as reported on the NYSE for the 30 trading days
ending on the third trading day immediately preceding the Effective Date of the
Merger. The following table also sets forth the "equivalent per share price" for
shares of Exmark capital stock (as defined below). The "equivalent per share
price" of the Exmark capital stock shown below equals the sum of (a) the Toro
Initial Share Price of $41.4167 (which price is subject to change if the Merger
is not consummated prior to November 30, 1997) multiplied by the number derived
by dividing $23,785,000 (I.E., the Initial Payment Fund, which is equal to
$28,100,000 less the Holdback Amount and the Stockholders' Representatives
Expense Fund) by the sum of the number of shares of Exmark Common Stock, the
number of shares of Exmark Class B Stock, and four times the number of shares of
Exmark Preferred Stock, which in each case are issued and outstanding
immediately prior to the Effective Time, other than Canceled Shares. The effects
of any Contingent Payments have not been included. See "THE MERGER--Effect of
the Merger."
<TABLE>
<CAPTION>
EQUIVALENT
EQUIVALENT EQUIVALENT PER SHARE
PER SHARE PER SHARE PRICE FOR
PRICE PRICE FOR EXMARK
FOR EXMARK EXMARK PREFERRED
MARKET PRICE PER SHARE COMMON STOCK CLASS C STOCK STOCK
- -------------------------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
$41.416 (Initial Toro Share Price).......... $ 487.56 $ 487.56 $ 1,950.24
$37.25 (at June 3, 1997).................... $ 487.56 $ 487.56 $ 1,950.24
</TABLE>
The following table sets forth the market price per share of Toro Common
Stock on each of June 3, 1997 and October 22, 1997 and the equivalent per share
price of the Exmark Class C Stock, which equals one-tenth of the price per share
of Toro Common Stock.
<TABLE>
<CAPTION>
EQUIVALENT
PER SHARE
PRICE
TORO FOR EXMARK
MARKET PRICE PER SHARE AT: COMMON STOCK CLASS B STOCK
- ------------------------------------------------------------- -------------- --------------
<S> <C> <C>
June 3, 1997................................................. $ 37.25 $ 3.725
October 22, 1997............................................. $ 43.125 $ 4.3125
</TABLE>
Apart from the publicly disclosed information concerning Toro, Toro does not
know what factors account for changes in the market price of its stock. Exmark
stockholders are advised to obtain current market quotations for Toro Common
Stock. As a result, in the event the market price of Toro Common Stock decreases
compared to the Initial Toro Share Price, the value of the Toro Common Stock to
be received in the Merger in exchange for Exmark capital stock would decrease.
On the other hand, in the event the market price of Toro Common Stock increases
compared to the Initial Toro Share Price, the value of the Toro Common Stock to
be received in the Merger in exchange for Exmark capital stock would increase.
See "THE MERGER--Effect of the Merger" and "--Payment of Merger Consideration."
24
<PAGE>
COMPARATIVE UNAUDITED PER COMMON SHARE DATA
The following table presents selected comparative unaudited per common share
data with respect to Toro Common Stock and Exmark Common Stock on a historical
basis and a pro forma combined basis, giving effect to the Merger using the
purchase method of accounting. This information is derived from the historical
financial statements and the related notes thereto included in Exhibit D or
included elsewhere in this Proxy Statement/Prospectus. The per share data set
forth below are presented for informational purposes only and are not
necessarily indicative of the results of the future operations of the combined
entity or the actual results that would have been achieved had the Merger been
consummated at the dates assumed in preparing such data.
The pro forma information that follows was prepared assuming that the
Initial Payment of an estimated $28,100,000 will be comprised of cash of
approximately $3,372,000 (I.E., 12% of the aggregate amount of the cash and
shares of Toro Common Stock to be paid by Toro that represent the total Initial
Per Share Payment Consideration) and approximately 597,054 shares of Toro Common
Stock, based upon a Toro Initial Share Price of $41.4167 per share, calculated
assuming the Merger is consummated on or before November 30, 1997 (I.E., the
average closing sale price of Toro Common Stock for the 30 trading days ending
October 31, 1997). The effects of any Contingent Payments have not been
included.
<TABLE>
<CAPTION>
EXMARK TORO EXMARK
TORO COMMON STOCK COMMON STOCK COMMON STOCK
COMMON STOCK (HISTORICAL AT (HISTORICAL AT (HISTORICAL AT
(HISTORICAL AT AUGUST 31, PRO FORMA OCTOBER 31 AUGUST 31, PRO FORMA
AUGUST 1, 1997) 1997)(4) COMBINED(1) 1996) 1996)(4) COMBINED(2)
--------------- -------------- ------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Book value per share: $ 19.29 $ 203.28 $ 20.67 $ 17.75 $ 142.65 $ 18.94
Cash dividends per share (3): 0.48 1.50 0.48 0.48 1.00 0.48
Earnings per share before
extraordinary loss: 2.90 62.01 2.88 2.90 36.95 2.79
Net earnings per share: 2.77 62.01 2.75 2.90 36.95 2.79
</TABLE>
- ------------------------
(1) The pro forma combined book value per share was derived from the combined
historical book value of Toro at August 1, 1997 and Exmark at August 31,
1997, giving effect to the Merger using the purchase method of accounting.
The pro forma combined net income per share of Toro Common Stock is derived
from the combined historical net income of Toro for the year ended August 1,
1997 and the historical net income of Exmark for the fiscal year ended
August 31, 1997, including those pro forma adjustments appropriate to
reflect the Merger as though it had occurred at the beginning of the period
using the purchase method of accounting.
(2) The pro forma combined book value per share was derived from the combined
historical book value of Toro at October 31, 1996 and Exmark at August 31,
1996, giving effect to the Merger using the purchase method of accounting.
The pro forma combined net income per share of Toro Common Stock is derived
from the combined historical net income of Toro for the fiscal year ended
October 31, 1997 and the historical net income of Exmark for the fiscal year
ended August 31, 1996, including those pro forma adjustments appropriate to
reflect the Merger as though it had occurred at the beginning of the period
using the purchase method of accounting.
(3) Assumes no changes in cash dividends per share by Toro after the completion
of the Merger.
(4) Historical book value per common share is computed by dividing total
stockholders' equity by the total common shares outstanding assuming that
the participating preferred shares have been converted to common shares at a
ratio of 4 common shares for each preferred share.
25
<PAGE>
THE SPECIAL MEETING
GENERAL; DATE, TIME AND PLACE
This Proxy Statement/Prospectus is being furnished to holders of Exmark
Common Stock and Exmark Preferred Stock in connection with the solicitation of
proxies by the Board of Directors of Exmark for use at a Special Meeting to be
held on , 1997 at Exmark's corporate offices, 2101 Ashland Avenue,
P.O. Box 808, Beatrice, Nebraska 68310, commencing at 9:00 A.M. local time, and
at any adjournment or postponement thereof.
This Proxy Statement/Prospectus and accompanying forms of proxy are first
being mailed to stockholders of Exmark on or about , 1997.
PURPOSES OF THE SPECIAL MEETING
At the Special Meeting, holders of Exmark Common Stock and Exmark Preferred
Stock will (1) consider and vote upon a proposal to approve the Merger Agreement
by and among Exmark, Toro and Merger Subsidiary, pursuant to which, among other
things, Merger Subsidiary will merge with and into Exmark, with Exmark
continuing as the Surviving Corporation, (2) consider and vote upon a proposal
to adopt the New Articles of Incorporation, which authorize the issuance of two
new classes of preferred stock of Exmark and clarify the four-to-one
distribution preference associated with the Exmark Preferred Stock, (3) consider
and vote upon a proposal to approve the payment in connection with the Merger of
the Signing Bonuses to H. John Smith and Ray Rickard, which bonuses shall be
paid by Toro pursuant to new employment agreements, which employment agreements
also include noncompete covenants, (4) consider and vote upon a proposal to
ratify the appointment of H. John Smith, Ray Rickard and Roger Smith as the
initial Stockholders' Representatives and (5) transact such other business as
may properly come before the Special Meeting. A copy of the Merger Agreement is
attached hereto as Exhibit A and is incorporated herein by reference.
EXMARK BOARD OF DIRECTORS' RECOMMENDATIONS
THE BOARD OF DIRECTORS OF EXMARK BELIEVES THAT THE MERGER IS IN THE BEST
INTEREST OF EXMARK AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS APPROVAL OF
THE MERGER AGREEMENT AND THE MERGER TO ITS STOCKHOLDERS.
FURTHERMORE, THE BOARD OF DIRECTORS OF EXMARK UNANIMOUSLY RECOMMENDS TO ITS
STOCKHOLDERS APPROVAL OF (1) THE PROPOSED NEW ARTICLES OF INCORPORATION, (2) THE
PAYMENT OF SIGNING BONUSES TO H. JOHN SMITH AND RAY RICKARD AND (3) THE
RATIFICATION OF THE APPOINTMENT OF H. JOHN SMITH, RAY RICKARD AND ROGER SMITH AS
THE INITIAL STOCKHOLDERS' REPRESENTATIVES.
RECORD DATE; SHARES ENTITLED TO VOTE; REQUIRED VOTE; QUORUM
Exmark has fixed , 1997 as the Record Date for the determination
of the holders of Exmark Common Stock and Exmark Preferred Stock entitled to
notice of and to vote at the Special Meeting. Only holders of record of Exmark
Common Stock and Exmark Preferred Stock on the Record Date will be entitled to
notice of and to vote at the Special Meeting. As of the Record Date, there were
15,431 outstanding shares of Exmark Common Stock and 7,416 outstanding shares of
Exmark Preferred Stock entitled to vote, which shares were held in the aggregate
by approximately 52 holders of record. Each holder of record of Exmark Common
Stock and Exmark Preferred Stock on the Record Date is entitled to cast one vote
per share on all matters properly submitted for the vote of Exmark stockholders,
exercisable in person or by properly executed proxy, at the Special Meeting. The
presence, in person or by properly executed proxy, of the holders of a majority
of the voting power of the outstanding shares of Exmark
26
<PAGE>
Common Stock and Exmark Preferred Stock entitled to vote at the Special Meeting,
considered as one class, is necessary to constitute a quorum at the Special
Meeting.
The Merger Agreement and the Merger are required to be approved by the
affirmative vote of the holders of two-thirds of the outstanding shares of
Exmark Common Stock and Exmark Preferred Stock, voting together as one class.
The New Articles of Incorporation are required to be approved by the affirmative
vote of the holders of a majority of each of the outstanding shares of Exmark
Common Stock and Exmark Preferred Stock, voting as a separate class. For tax
purposes, such that the Signing Bonuses will not be "excess parachute payments,"
the approval of the Signing Bonuses will require the affirmative vote of the
holders of 75% of the voting power of all disinterested Exmark stockholders.
Consequently, such approval will require the affirmative vote of the holders of
at least 75% of the number of outstanding shares of Exmark Common Stock and
Exmark Preferred Stock (excluding such shares held by H. John Smith and Ray
Rickard), voting together as one class. The ratification of the appointment of
the Stockholders' Representatives will require the affirmative vote of the
holders of a majority of the number of outstanding shares of Exmark Common Stock
and Exmark Preferred Stock, voting together as one class. If an executed proxy
card is returned and the stockholder has abstained from voting on any matter,
the shares represented by such proxy will be considered present at the meeting
for purposes of determining a quorum and for purposes of calculating the vote,
but will not be considered to have been voted in favor of such matter.
Accordingly, such abstentions will have the same effect as a vote against
adoption of such matter.
As of the Record Date, the executive officers and directors of Exmark
collectively owned, directly or indirectly, approximately 15,086 shares of
Exmark Common Stock and Exmark Preferred Stock combined (approximately 66.0% of
the voting power of outstanding Exmark Common Stock and Exmark Preferred Stock).
Pursuant to the Stockholder Agreements, certain stockholders, including certain
executive officers and directors, have agreed to vote, and have granted Toro an
irrevocable proxy to vote, all shares of Exmark Common Stock and Exmark
Preferred Stock collectively owned by them (approximately 14,015 shares of
Exmark Common Stock and 550 shares of Exmark Preferred Stock, representing
approximately 63.8% of the outstanding shares of Exmark Common Stock and Exmark
Preferred Stock as of the Record Date) for approval of the Merger Agreement, the
Merger and the other proposals described herein. See "THE MERGER--Stockholder
Agreements." As of the Record Date, neither Toro, its officers, its directors
nor any of their respective affiliates owned any shares of Exmark capital stock.
As of the Record Date, neither Toro nor any of its directors and executive
officers nor their affiliates beneficially owned any shares of Exmark Common
Stock or Exmark Preferred Stock.
PROXIES
All shares of Exmark Common Stock and Exmark Preferred Stock represented at
the Special Meeting by properly executed proxies received prior to or at the
Special Meeting, and not revoked, will be voted at the Special Meeting in
accordance with the instructions indicated on such proxies. If no instructions
are indicated, such proxies will be voted for approval of the Merger Agreement
and the Merger and the other proposals described herein. If any other matters
are properly presented at the Special Meeting for consideration, including,
among other things, consideration of a motion to adjourn the Special Meeting to
another time or place, the persons named in the enclosed form of proxy and
acting thereunder will have discretion to vote on such matters in accordance
with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (1) filing
with the Secretary of Exmark, at or before the taking of the vote at the Special
Meeting, a written notice of revocation bearing a later date than the proxy, (2)
duly executing a later-dated proxy relating to the same shares and delivering it
to the Secretary of Exmark before the taking of the vote at the Special Meeting
or (3) attending the Special Meeting and voting in person (although attendance
at the Special Meeting will not in and of itself constitute a revocation of a
27
<PAGE>
proxy). Any written notice of revocation or subsequent proxy should be sent so
as to be delivered to Exmark Manufacturing Company Incorporated, 2101 Ashland
Avenue, P.O. Box 808, Beatrice, Nebraska 68310, Attention: Secretary, or hand
delivered to the Secretary of Exmark, at or before the taking of the vote at the
Special Meeting.
If a quorum is not obtained, or if fewer shares of Exmark Common Stock and
Exmark Preferred Stock are likely to be voted for approval of the Merger
Agreement and the Merger and the other proposals described herein than the
number required for approval, the Special Meeting may be adjourned for the
purpose of obtaining additional proxies or votes or for any other purpose, and,
at any subsequent reconvening of the Special Meeting, all proxies will be voted
in the same manner as such proxies would have been voted at the original
convening of the Special Meeting (except for any proxies which have theretofore
effectively been revoked or withdrawn), notwithstanding that they may have been
effectively voted on the same or any other matter at a previous meeting.
Pursuant to the Merger Agreement, all expenses of this solicitation,
including the cost of preparing and mailing this Proxy Statement/Prospectus,
will be borne by Toro, except that each party shall pay its own attorneys' and
accountants' fees. In addition to use of the mails, proxies may be solicited
personally or by telephone or facsimile by directors, officers and employees of
Exmark, who will not be specially compensated for such activities. See "THE
MERGER--Cash Election."
STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF EXMARK
Set forth below are the names and addresses of and the number of shares held
as of the Record Date for the Special Meeting by (1) those persons who may be
deemed to own beneficially, whether directly or indirectly, 5% or more of the
outstanding shares of Exmark Common Stock and Exmark Preferred Stock, (2) each
executive officer or director of Exmark and (3) all directors and executive
officers of Exmark as a group. Each stockholder named below has sole voting and
investment power over the shares shown in the table, unless otherwise indicated.
<TABLE>
<CAPTION>
TOTAL
COMMON AND
PREFERRED
EXMARK COMMON STOCK EXMARK PREFERRED STOCK STOCK
BENEFICIALLY
BENEFICIALLY OWNED(1) BENEFICIALLY OWNED(1) OWNED
------------------------ ------------------------ -----------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF NUMBER OF
NAME AND ADDRESS SHARES CLASS(1) SHARES CLASS(2) SHARES
- ---------------------------------------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Virgil H. and Betty C. Greenley, ......................... -- --% 625 8.43% 625
Co-Trustees of the Virgil H. Greenley Trust
529 Cuesta Drive
Aptos, CA 95003
Mary Jane Holiman, ....................................... -- --% 625 8.43% 625
Trustee(4)
Francine Smith,
Trustee(5)
1720 Palm Street
Sebring, FL 33870
Francine Smith(5) ........................................ -- --% 500 6.74% 500
108 Valley View Road
New Cumberland, PA 17070
<CAPTION>
PERCENT OF
NAME AND ADDRESS CLASS(3)
- ---------------------------------------------------------- -----------
<S> <C>
Virgil H. and Betty C. Greenley, ......................... 2.74%
Co-Trustees of the Virgil H. Greenley Trust
529 Cuesta Drive
Aptos, CA 95003
Mary Jane Holiman, ....................................... 2.74%
Trustee(4)
Francine Smith,
Trustee(5)
1720 Palm Street
Sebring, FL 33870
Francine Smith(5) ........................................ 2.19%
108 Valley View Road
New Cumberland, PA 17070
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
TOTAL
COMMON AND
PREFERRED
EXMARK COMMON STOCK EXMARK PREFERRED STOCK STOCK
BENEFICIALLY
BENEFICIALLY OWNED(1) BENEFICIALLY OWNED(1) OWNED
------------------------ ------------------------ -----------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF NUMBER OF
NAME AND ADDRESS SHARES CLASS(1) SHARES CLASS(2) SHARES
- ---------------------------------------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
W.H. and Rosalie Tegtmeier ............................... -- --% 550 7.42% 550
1408 Oak
Beatrice, NE 68310
Robert Louis Zucker, Sr. ................................. -- --% 625 8.43% 625
6829 Greystone Drive
Raleigh, NC 27615
Doris J. (Lewis) Mehlig .................................. -- --% 400 5.39% 400
5507 Osage Drive
St. Joseph, MO 64503
H. John Smith,(6) ........................................ 2,044 13.25% 150 2.02% 2,194
Director and President
Ray Rickard,(6) .......................................... 1,914 12.40% 175 2.36% 2,089
Director and Executive
Vice President
Roger T. Smith,(6) ....................................... 4,225 27.38% -- --% 4,225
Director and Secretary
Merrell F. Clark,(6) ..................................... 2,935 19.02% -- --% 2,935
Director and Treasurer
Robert A. Martin,(6) ..................................... 2,897 18.77% 225 3.03% 3,122
Director
Keith Dietzen,(6) ........................................ 14 0.09% -- --% 14
Director
Gary Kuck,(6) ............................................ 24 0.16% 25 0.33% 49
Director
All Directors and Officers as a group (7 persons)......... 14,053 91.07% 575 7.75% 14,628
<CAPTION>
PERCENT OF
NAME AND ADDRESS CLASS(3)
- ---------------------------------------------------------- -----------
<S> <C>
W.H. and Rosalie Tegtmeier ............................... 2.41%
1408 Oak
Beatrice, NE 68310
Robert Louis Zucker, Sr. ................................. 2.74%
6829 Greystone Drive
Raleigh, NC 27615
Doris J. (Lewis) Mehlig .................................. 1.75%
5507 Osage Drive
St. Joseph, MO 64503
H. John Smith,(6) ........................................ 9.60%
Director and President
Ray Rickard,(6) .......................................... 9.14%
Director and Executive
Vice President
Roger T. Smith,(6) ....................................... 18.49%
Director and Secretary
Merrell F. Clark,(6) ..................................... 12.85%
Director and Treasurer
Robert A. Martin,(6) ..................................... 13.66%
Director
Keith Dietzen,(6) ........................................ 0.06%
Director
Gary Kuck,(6) ............................................ 0.02%
Director
All Directors and Officers as a group (7 persons)......... 64.03%
</TABLE>
- ------------------------
(1) Applicable percentage ownership is based on 15,431 shares of Exmark Common
Stock outstanding.
(2) Applicable percentage ownership is based on 7,416 shares of Exmark Preferred
Stock outstanding.
(3) Applicable percentage ownership is based on a combined total of 22,847
shares of Exmark Common Stock and Exmark Preferred Stock outstanding.
(4) Mary Jane Holiman is the mother-in-law of Roger Smith.
(5) Francine Smith is the wife of Roger Smith.
(6) Unless otherwise indicated, each officer's and director's mailing address is
2101 Ashland Avenue, P.O. Box 808, Beatrice, Nebraska 68310.
29
<PAGE>
THE MERGER
THE FOLLOWING INFORMATION SUMMARIZES CERTAIN ASPECTS OF THE MERGER. THIS
DESCRIPTION DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE EXHIBITS HERETO, INCLUDING THE MERGER AGREEMENT, WHICH IS
ATTACHED TO THIS PROXY STATEMENT/PROSPECTUS AS EXHIBIT A AND IS INCORPORATED
HEREIN BY REFERENCE. ALL STOCKHOLDERS ARE URGED TO READ EXHIBIT A IN ITS
ENTIRETY. SEE ALSO "THE MERGER AGREEMENT."
EFFECTIVE TIME
If the Merger Agreement is approved by the requisite vote of the
stockholders of Exmark and the other conditions to the Merger are satisfied (or
waived to the extent permitted), the Merger will be effected at the time and
date the Articles of Merger are filed with the Secretary of State of the State
of Nebraska. The Merger Agreement may be terminated prior to the Effective Time
by either Toro or Exmark in certain circumstances. See "THE MERGER
AGREEMENT--Termination" and "--Termination Fees."
EFFECTS OF THE MERGER
At the Effective Time, pursuant to the Merger Agreement, Merger Subsidiary
will be merged with and into Exmark, which will be the Surviving Corporation and
a wholly owned subsidiary of Toro. Upon consummation of the Merger, then, except
for Dissenting Shares and Canceled Shares, (1) each issued and outstanding share
of Exmark Common Stock will be converted into and become a right to receive (a)
the Initial Per Share Payment Consideration and (b) one Common/Preferred
Contingent Payment Right, (2) each issued and outstanding share of Exmark
Preferred Stock will be converted into and become a right to receive (a) four
times the Initial Per Share Payment Consideration and (b) four Common/Preferred
Contingent Payment Rights, (3) each issued and outstanding share of Exmark Class
B Stock will be converted into and become a right to receive (a) the Class B
Initial Per Share Payment Consideration and (b) one Class B Contingent Payment
Right, and (4) each issued and outstanding share of Exmark Class C preferred
stock will be converted into and become a right to receive the Initial Per Share
Payment Consideration. See "--Contingent Payment Rights."
As of the Record Date, there were 15,431 outstanding shares of Exmark Common
Stock and 7,416, outstanding shares of Exmark Preferred Stock. Immediately prior
to the Effective Time, there will be 15,431 outstanding shares of Exmark Common
Stock, 7,416 outstanding shares of Exmark Preferred Stock, 10,000 outstanding
shares of Exmark Class B Stock and 3,689 outstanding shares of Exmark Class C
Stock. The aggregate amount of cash and shares of Toro Common Stock to be
delivered by Toro with respect to all of such shares of Exmark Common Stock,
Exmark Preferred Stock, Exmark Class B Stock and Exmark Class C Stock in the
Merger will be approximately $28,100,000 with respect to the Initial Payment,
1,000 shares of Toro Common Stock with respect to the Class B Initial Payment
and, in addition, up to $28,000,000 if the Contingent Payments are maximized,
subject to Toro's Offset Right and any Actual Net Worth Adjustment (as defined
below). See "--Holdback Amount; Actual Net Worth Adjustment," "--Stockholders'
Representatives Expense Fund" and "THE MERGER AGREEMENT--Offset Right."
MANAGEMENT OF EXMARK AFTER THE MERGER
Exmark will be the Surviving Corporation in the Merger and will become a
wholly owned subsidiary of Toro upon consummation of the Merger. The directors
of Merger Subsidiary immediately prior to the Effective Time will be the initial
directors of the Surviving Corporation, and the officers of Exmark immediately
prior to the Effective Time will be the initial officers of the Surviving
Corporation. Notwithstanding the foregoing, the Stockholders' Representatives
may designate one Stockholders' Representative to serve as a director of the
Surviving Corporation until the end of the period from the Effective Time until
the earlier of the date on which Toro takes control of Exmark's operations
pursuant to Section 7.03 of the Merger Agreement or October 31, 1999 (the
"Contingent Payment Period"). See "--Toro Control." Furthermore, during the
Contingent Payment Period, Exmark will operate as a stand-alone entity.
30
<PAGE>
During the Contingent Payment Period, Toro and Exmark intend to continue to
produce their products under separate brand names and to sell their products
through dual distribution channels. Based on this intention, each of Toro and
Exmark will have its own distinct distributor and dealer organizations and its
own marketing and pricing strategy. Further, each of Toro and Exmark intent to
continue to produce new but differentiated products, allowing each of their
respective product lines to adapt to the changing needs of the commercial
landscape segment of the industry. There will be similar products in both lines;
however, Toro's products will have distinctive Toro features and the Exmark
products will have distinctive Exmark features. The focus of this strategy is to
enhance the value of both brand names in the commercial landscape segment of the
industry.
SYNERGIES COUNCIL
In order to effectuate the transition of Exmark from a separate company to a
subsidiary of Toro following the Merger, the parties have agreed to form the
Synergies Council following the Effective Time, to be maintained until the end
of the Contingent Payment Period. The Synergies Council will consist of the
Stockholders' Representatives, who will represent the interests of the Holders,
and three executives of Toro who will represent the interests of Toro. The
Synergies Council will, among other things, approve proposed actions that Toro
and Exmark may want to take that would be inconsistent with certain covenants
contained in the Merger Agreement relating to the conduct of Exmark following
the acquisition or which materially affect Exmark as a stand-alone entity prior
to the end of the Contingent Payment Period. Further, the Synergies Council will
act as an inter-company management team and as a dispute resolution panel during
the Contingent Payment Period.
STOCKHOLDERS' REPRESENTATIVES
Pursuant to the terms of the Merger Agreement, the Holders of Shares will
ratify the appointment of H. John Smith, Ray Rickard and Roger Smith as the
initial Stockholders' Representatives. The Stockholders' Representatives will
act on behalf of the Holders with respect to the Merger after the Effective Time
and as such will assist in the calculation of the amount of Merger Consideration
to be paid by Toro in connection with the Merger, including the calculation of
the amount to be paid with respect to the Contingent Payments, and may sign and
deliver certificates and notices on behalf of such Exmark stockholders, among
other things described in the Merger Agreement. The Stockholders'
Representatives will be members of the Synergies Council. The number of
Stockholders' Representatives cannot exceed more than three persons. A majority
of the voting power of the Shares may remove existing Stockholders'
Representatives and elect Stockholders' Representatives to fill vacancies,
subject to the terms of the Merger Agreement. The Stockholders' Representatives
are authorized to take action by majority vote and to make and deliver any
certificate, notice, consent or instrument required or permitted to be made or
delivered under the Merger Agreement, including without limitation any such
actions with respect to the Initial Per Share Payment Consideration and the
Contingent Payment Rights. The Stockholders' Representatives also will act as
members of the Synergies Council.
TORO CONTROL
Upon consummation of the Merger, Exmark will become a wholly owned
subsidiary of Toro. Notwithstanding the foregoing, Exmark will be operated as a
stand-alone entity and the day-to-day management of the business of Exmark
during the Contingent Payment Period will be overseen by Exmark's existing
management and their successors, subject to certain limitations described in the
Merger Agreement. See "--Management of Exmark After the Merger." However, if
Exmark fails to earn REBIT equal to or greater than the REBIT shown below for
two successive fiscal quarters, Toro shall have the
31
<PAGE>
option to give notice to the Stockholders' Representatives of Toro's intent to
take full control of Exmark's operations and, immediately thereafter, to take
full control of Exmark's operations:
<TABLE>
<CAPTION>
QUARTER ENDING QUARTER ENDING QUARTER ENDING QUARTER ENDING
JANUARY 31 APRIL 30 JULY 31 OCTOBER 31
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Fiscal 1998................ $ 1,200,000 $ 1,740,000 $ 700,000 $ 500,000
Fiscal 1999................ $ 1,500,000 $ 2,160,000 $ 875,000 $ 620,000
</TABLE>
For purposes of determining the REBIT, REBIT for each immediately preceding
fiscal quarter earned in excess of the applicable threshold amount may be added
to the next succeeding fiscal quarter's REBIT. In the event Toro takes control
of Exmark's operations, REBIT and CAGR (as defined in "--Contingent Payment
Rights.") accruing after such date will not be taken into account in computing
the amount of any Contingent Payments to be made after such date.
HOLDBACK AMOUNT; ACTUAL NET WORTH ADJUSTMENT
The Escrow Agent shall place the Holdback Amount (I.E., 15% of the Initial
Payment Fund) in escrow. The Holdback Amount will be held for purposes of, among
other things, satisfying Toro's Offset Right, under which Toro is entitled to
recoveries for certain losses, liabilities, deficiencies, damages, penalties,
expenses or costs Toro or its affiliates officers, directors, employees or
agents may suffer in connection with the Merger. See "THE MERGER
AGREEMENT--Offset Right." Subject to Toro's Offset Right and the Actual Net
Worth Adjustment, if any, two-thirds of the cash and two-thirds of the shares of
Toro Common Stock included in the Holdback Amount shall be delivered by the
Paying Agent to the Holders of Exmark Common Stock, Exmark Preferred Stock and
Exmark Class C Stock, as part of their respective Initial Payment Consideration
and based on their Cash Elections, concurrently with the payment of the 1999
Contingent Payment (approximately December 31, 1999) and the remainder will be
delivered by the Paying Agent to such Holders on or before December 31, 2000,
subject to delay pending the outcome of any then-pending dispute regarding any
such offset amount.
The Holdback Amount also is subject to a net worth adjustment. Prior to the
Effective Time, Toro and Exmark will estimate the net worth (total assets minus
total liabilities) of Exmark as of the Effective Time. In the event that such
estimate is less than $8,243,000, the difference will, in effect, be subtracted
from the Initial Payment Fund and added to the Holdback Amount. As a result, the
Holdback Amount may be greater than 15% of the Initial Payment Fund. Within 90
days after the Effective Time, the parties will prepare a statement of the book
value of Exmark's total assets as of the Effective Time, minus Exmark's total
liabilities as of the Effective Time (the "Actual Net Worth"). The Actual Net
Worth Adjustment means the amount, determined on a dollar-for-dollar basis, by
which the Actual Net Worth of Exmark is less than $8,243,000. If the Actual Net
Worth is equal to or greater than $8,243,000, then the Actual Net Worth
Adjustment shall be zero. If the Actual Net Worth is less than $8,243,000, then
the Actual Net Worth Adjustment shall equal the difference, and Toro shall be
paid from the Holdback Amount cash and shares of Toro Common Stock in an amount
equal to such difference, plus interest and dividends thereon. Such estimate and
the Actual Net Worth Adjustment will be determined without giving effect to the
acquisition of Holiman by Exmark.
STOCKHOLDERS' REPRESENTATIVES EXPENSE FUND
The Escrow Agent also will deduct $100,000, in the form of $12,000 in cash
and $88,000 worth of shares of Toro Common Stock (based on the Initial Toro
Share Price), from the Initial Payment Fund and will hold such cash and shares
in escrow as the Stockholders' Representatives Expense Fund. This fund will be
used to pay the expenses of the Stockholders' Representatives that they may
incur in connection with their actions as Stockholders' Representatives,
including legal, banking and accounting fees. Subject to any deduction for
Stockholders' Representatives expenses, the Stockholders' Representatives
Expenses Fund will be paid to the Holders of Exmark Common Stock, Exmark
Preferred Stock and Exmark Class C Stock,
32
<PAGE>
as part of their respective Initial Payment Consideration and based on their
Cash Elections, on or before December 31, 2000.
PAYMENT OF MERGER CONSIDERATION
Subject to Toro's Offset Right and the escrow of the Holdback Amount and the
Stockholder's Representatives Expense Fund, the Merger Consideration will be
paid in the form of cash and shares of Toro Common Stock to the Holders as
follows: the Initial Payment, the Class B Initial Payment, the 1998 Contingent
Payment, the 1999 Contingent Payment, the Holdback Payment and the payment of
any remainder of the Stockholders' Representatives Expense Fund. The Initial
Payment, consisting of the Initial Per Share Payment Consideration, will be made
as promptly as practicable after the Effective Time and following surrender of
shares of Exmark Common Stock, Exmark Preferred Stock or Exmark Class C Stock.
The Class B Initial Payment, consisting of the Class B Initial Per Share Payment
Consideration, will be made as promptly as practicable after the Effective Time
and following surrender of shares of Exmark Class B Stock. The 1998 Contingent
Payment, consisting of cash and shares of Toro Common Stock payable by Toro
pursuant to the Contingent Payment Rights, will be paid as promptly as
practicable following the later to occur of (1) December 31, 1998 or (2) 10 days
after the amount of the 1999 Contingent Payment has been determined by Toro and
the Stockholders' Representatives. The 1999 Contingent Payment, consisting of
cash and shares of Toro Common Stock payable by Toro pursuant to the Contingent
Payment Rights, will be paid as promptly as practicable following the later to
occur of (1) December 31, 1999 or (2) 10 days after the amount of the 1999
Contingent Payment has been determined by Toro and the Stockholders'
Representatives. Subject to any offset pursuant to Toro's Offset Right,
two-thirds of the cash and shares of Toro Common Stock initially included in the
Holdback Amount shall be paid concurrently with the 1999 Contingent Payment and
the remainder will be paid on or before December 31, 2000. Subject to claims for
payment of the expenses of the Stockholders' Representatives, the remainder of
the Stockholders' Representatives Expense Fund will be paid on or before
December 31, 2000. The cash portion of the Merger Consideration will be
approximately 12% of the aggregate amount of each payment and the remainder of
the Merger Consideration will be paid in shares of Toro Common Stock. See
"--Holdback Amount; Actual Net Worth Adjustment," "--Stockholders'
Representatives Expense Fund," "Cash Election" and "--Contingent Payment
Rights."
The aggregate amount of cash and shares of Toro Common Stock to be delivered
by Toro with respect to the total Initial Per Share Payment Consideration to be
exchanged for the Exmark Common Stock, Exmark Preferred Stock and Exmark Class C
Stock will be equal to $28,100,000 (I.E., $23,785,000 after deducting the amount
to be held in escrow for the Holdback Amount and the Stockholders'
Representatives Expense Fund), certain offsets and other adjustments described
herein). The Initial Per Share Payment Consideration shall be cash and Toro
Common Stock in an amount equal to a quotient, the numerator of which is
$28,100,000 and the denominator of which is the sum of (1) the number of shares
of Exmark Common Stock, (2) the number of shares of Exmark Class C Stock and (3)
four times the number of shares of Exmark Preferred Stock, which in all cases
are issued and outstanding immediately prior to the Effective Time, other than
Canceled Shares. For purposes of calculating the number of shares of Toro Common
Stock included in the Initial Payment Consideration, the value per share of Toro
Common Stock shall be the Initial Toro Share Price. Therefore, if the Merger is
consummated on or prior to November 30, 1997, the Initial Toro Share Price would
be $41.4167 (I.E., the average closing price per share of Toro Common Stock as
reported on the NYSE for the 30 trading days ending on October 31, 1997) and, if
there are no Dissenting Shares nor Canceled Shares, the Initial Per Share
Consideration would be $506.89, consisting of 12.239 shares of Toro Common Stock
and cash equal to $69.12, in the absence of a Cash Election to receive more or
less of the Merger Consideration in cash. Based on this example, after
subtracting the Holdback Amount and the Stockholders' Representatives Expense
Fund, each share of Exmark Common Stock and each share of Exmark Class C Stock
exchanged in the Merger would receive 10.359 shares of Toro Common Stock and
cash equal to $58.51 pursuant to the Initial Payment and each share of Exmark
Preferred Stock exchanged in the Merger would receive 41.436 shares of Toro
Common
33
<PAGE>
Stock and cash equal to $234.04 pursuant to the Initial Payment. However, in the
event the Merger is not consummated prior to November 30, the Initial Toro Share
Price would be calculated differently (I.E., the average closing price per share
of Toro Common Stock as reported on the NYSE for the 30 trading days ending on
the third trading day immediately preceding the Effective Date of the Merger)
and, consequently, may be a different amount and may result in the payment of
more or less shares of Toro Common Stock pursuant to the Initial Per Share
Consideration. See "--Payment of Merger Consideration" "--Holdback Amount;
Actual Net Worth Adjustment," "--Stockholders' Representatives Expense Fund" and
"THE MERGER AGREEMENT--Offset Right."
Each Common/Preferred Contingent Payment Right and Class B Contingent
Payment Right entitles the holder thereof to receive cash and shares of Toro
Common Stock based on the performance of the Surviving Corporation from November
1, 1997 until October 31, 1999, subject to certain limitations and offsets. The
maximum amount of cash and shares of Toro Common Stock that may be paid by Toro
with respect to the Common/Preferred Contingent Payment Rights may not exceed
$14,000,000 (subject to certain offsets and other adjustments described in the
enclosed Proxy Statement/Prospectus). Similarly, the maximum amount of cash and
shares of Toro Common Stock that may be paid by Toro with respect to the Class B
Contingent Payment Rights may not exceed $14,000,000 (subject to certain offsets
and other adjustments described in the enclosed Proxy Statement/Prospectus). For
purposes of calculating the number of shares of Toro Common Stock included in
the 1998 Contingent Payment, the value per share of Toro Common Stock will be
the average closing price per share of Toro Common Stock as reported on the NYSE
for the 30 trading days ending on the third trading day immediately preceding
December 31, 1998 (the "1998 Toro Share Price"). For purposes of calculating the
number of shares of Toro Common Stock included in the 1999 Contingent Payment,
the value per share of Toro Common Stock will be the average closing price per
share of Toro Common Stock as reported on the NYSE for the 30 trading days
ending on the third trading day immediately preceding December 31, 1999 (the
"1999 Toro Share Price"). See "--Effects of the Merger," "--Holdback Amount;
Actual Net Worth Adjustment," "--Stockholders' Representatives Expense Fund,"
"THE MERGER AGREEMENT--Offset Right" and "--Contingent Payments."
Fractional shares of Toro Common Stock will not be issued in connection with
the Merger. Stockholders of Exmark otherwise entitled to fractional shares of
Toro Common Stock will be paid cash in lieu of such factional shares. See
"--Fractional Shares."
CONTINGENT PAYMENT RIGHTS
The Contingent Payment Rights qualify the Holders to receive up to two
separate payments (the 1998 Contingent Payment and the 1999 Contingent Payment)
based on the financial performance of the Surviving Corporation during each of
the twelve-month periods ending October 31, 1998 and 1999, respectively. During
these periods, existing management will continue to operate Exmark on a
stand-alone basis, subject to Toro's right to take control of the day-to-day
management of Exmark if certain financial requirements are not satisfied.
Only Holders of Exmark Common Stock, Exmark Preferred Stock and Exmark Class
B Stock are entitled to receive Contingent Payment Rights in exchange for the
surrender of their Shares. Holders of Exmark Class C Stock are not entitled to
receive Contingent Payment Rights. See "--Effects of the Merger." Holders of
Exmark Class B Stock will receive one-half of any Contingent Payment; Holders of
Exmark Common Stock and Exmark Preferred Stock will receive the other half of
any Contingent Payment. The cash portion of any Contingent Payment will equal
12% of the total amount of such payment, with the remainder to be paid in shares
of Toro Common Stock, valued at either the 1998 Toro Share Price or the 1999
Toro Share Price, as appropriate.
The Contingent Payment Rights are based on Exmark's financial performance
during the Contingent Payment Period, and no Contingent Payments will be made
unless Exmark obtains certain financial results during the Contingent Payment
Period. In addition, Contingent Payments are subject to Toro's Offset
34
<PAGE>
Right. See "THE MERGER AGREEMENT--Offset Right." Moreover, the total aggregate
amount of Contingent Payments may not exceed $14,000,000 for Holders of Exmark
Class B Stock and $14,000,000 for Holders of Exmark Common Stock and Exmark
Preferred Stock (provided further that the number of shares of Toro Common Stock
issued for all Contingent Payments may not exceed 821,334 shares) (the
"Contingent Payment Cap").
Furthermore, if Exmark fails to meet certain financial goals outlined in the
Merger Agreement, then Toro shall have the option to take full control of
Exmark's operations. In the event Toro takes control of Exmark, the amount of
any REBIT and CAGR following the date of such control will not be taken into
account in computing the Contingent Payments, thus making any Contingent Payment
extremely unlikely. See "--Toro Control."
VALUATION FORMULA
The amount of each Contingent Payment will be determined using the following
valuation formula (the "Valuation Formula"):
<TABLE>
<S> <C>
Contingent Payment = [(3.5) * REBIT * (1 + CAGR)] - [$30,000,000 +
the amount of any prior Contingent Payment]
- [Working Capital Adjustment]
</TABLE>
Under the Valuation Formula, the 1998 Contingent Payment will be based on
Exmark's recast earnings before interest and Taxes (as such term is defined in
the Merger Agreement) ("REBIT") for the twelve-month period ending October 31,
1998, and its compound annual growth rate ("CAGR") in Adjusted Revenue (as
defined below) for the twelve-month period ending October 31, 1998, compared to
$40,808,850 ("Base Year Revenue"). Under the Valuation Formula, the 1999
Contingent Payment will be based on Exmark's REBIT for the twelve-month period
ending October 31, 1999 and its CAGR in Adjusted Revenue for the twelve-month
period ending October 31, 1999, compared to the Base Year Revenue. The amount of
the Contingent Payments, either individually or collectively, cannot exceed the
Contingent Payment Cap.
To determine REBIT for any period, the net earnings before interest and
Taxes (as such term is defined in the Merger Agreement) ("EBIT") of Exmark for
such period must be determined. EBIT will be calculated based on the actual EBIT
of Exmark for such period, determined in conformity with generally accepted
accounting principles ("GAAP"), subject to certain clarifications and
adjustments, if necessary, including the following: (1) only interest paid by
Exmark with respect to bank debt, intercompany debt and long-term debt will be
added back to net earnings; (2) no costs or expenses incurred during such period
that are related to or that result from the Merger will be included as either a
cost or expense to Exmark; (3) if and to the extent that Toro transfers to
Exmark Toro manufactured products (including parts) that are branded for Exmark
for sale by Exmark through its distribution system ("Toro Supplied Products"),
the transfer price for such Toro Supplied Products will be Toro's distributor
net price minus Exmark's per unit sales, marketing, distribution and warranty
costs related to the sale thereof and minus an amount equal to 1.5% of Toro's
distributor net price; (4) Exmark's gross sales from Exmark manufactured
products (including parts) that are branded for Toro, transferred to Toro and
sold by Toro ("Exmark Cross-Branded Products") will only include an amount equal
to the standard cost of such Exmark Cross-Branded Products plus, for products
sold in the United States and Canada, a management fee equal to 3% of such
amount; (5) Exmark will receive, and its EBIT will include, a sales commission
equal to 1% of the gross sales of Exmark Cross-Branded Products that are sold by
Toro outside of the United States and Canada; and (6) EBIT will be reduced by
the amount of all compensation and benefits paid by Toro or the Toro Sales
Company to former employees of Exmark or Holiman after the Effective Time,
except for the Signing Bonuses.
After the adjusted EBIT of Exmark has been calculated for any period, the
REBIT for such period will be determined. REBIT equals the EBIT of Exmark for
such period, (1) plus the amount of the Cross-
35
<PAGE>
Branding REBIT Factor (as defined below) for such period; (2) minus 100% of all
cost savings realized during such period by Exmark, (a) resulting from Exmark
being a subsidiary of Toro and (b) relating to insurance and risk management
expenses, and legal, human resources, administration and floor plan expenses;
(3) minus 50% of all operating cost savings realized during such period by
Exmark directly or indirectly resulting from Exmark being a subsidiary of Toro,
other than certain cost savings resulting from, among other things, reduced
purchasing costs related to Exmark becoming a part of Toro's purchasing group or
changes in the senior management compensation structure following the Merger;
(4) minus 50% of all cost savings realized during such period by Exmark
resulting from changes in the stand-alone status of Exmark; (5) plus 100% of any
additional costs incurred during such period by Exmark resulting from changes in
the stand-alone status of Exmark; (6) minus all management fees paid by Toro to
Exmark during such period with respect to Exmark Cross-Branded Products; and (7)
in the event Exmark does not maintain certain minimum marketing and engineering
expenditure levels, minus the difference between such minimum amount(s) and
Exmark's actual respective expenditure levels.
For purposes of determining CAGR, the "Adjusted Revenue" of Exmark for any
period will be calculated based on the actual gross sales of Exmark for such
period determined in accordance with GAAP, but subject to certain adjustments,
including the following: (1) no gross sales of any Exmark Cross-Branded Products
(including parts) supplied to Toro during such period will be included in the
gross sales of Exmark; (2) an amount equal to the Cross-Branding Revenue Factor
(as defined below) for such period will be added to the gross sales of Exmark
for such period; and (3) no gross sales from the sale by Exmark of any Toro
Supplied Products will be included in the gross sales of Exmark.
The "Cross-Branding REBIT Factor" for determining the 1998 Contingent
Payment will equal 12.5% of the Cross-Branding Revenue Factor used to determine
the 1998 Contingent Payment. The "Cross-Branding REBIT Factor" for determining
the 1999 Contingent Payment will equal 10% of the Cross-Branding Revenue Factor
used to determine the 1999 Contingent Payment. The "Cross-Branding Revenue
Factor" for determining the 1998 Contingent Payment will equal (1) the aggregate
sum of the number of Toro-branded Exmark products sold by Toro in the United
States or Canada (whether manufactured by Toro or by Exmark) during the period
from the Effective Time to October 31, 1998, multiplied by (2) the applicable
"Cross-Branding Revenue Per Unit" for each such product. The "Cross-Branding
Revenue Factor" for determining the 1999 Contingent Payment will equal (1) the
aggregate sum of the number of different Toro-branded Exmark products sold by
Toro in the United States or Canada (whether manufactured by Toro or by Exmark)
during the twelve-month period ending October 31, 1999, multiplied by (2) the
applicable "Cross-Branding Revenue Per Unit" for each such product.
The "Working Capital Adjustment" will be the greater of (1) 10% of the
excess, if any, of (a) the Average Working Capital (as defined below) of Exmark
during such period over (b) 22% of the actual cost of goods sold of Exmark
during such period determined in conformity with GAAP and (2) zero. The "Average
Working Capital" of Exmark for any period will be the average of the month-end
differences between the current assets, excluding cash, of Exmark and the
current liabilities, excluding intercompany debt and the current portion of
long-term debt, of Exmark during such period, in each case, determined in
accordance with GAAP.
As an example of calculating the 1998 Contingent Payment, and assuming a
CAGR equal to zero and no Working Capital Adjustment, REBIT for the twelve-month
period ending October 31, 1998 would have to exceed $8,571,429 for there to be a
1998 Contingent Payment. In this example, the aggregate amount of the 1998
Contingent Payment would be $3.50 for each dollar of REBIT for the period in
excess of $8,571,429. As an example of calculating the 1999 Contingent Payment,
and assuming a CAGR equal to zero, no Working Capital Adjustment and, for
illustrative purposes only, an aggregate 1998 Contingent Payment of $500,000,
REBIT for the twelve-month period ending October 31, 1999 would have to exceed
$8,714,286 for there to be a 1999 Contingent Payment. In this example, the
aggregate amount of the 1999 Contingent Payment would be $3.50 for each dollar
of REBIT for the period in excess of $8,714,286. By way of example and for
illustrative purposes only, EBIT for Exmark for the years ended August 31, 1995,
1996 and 1997 was $1,438,653, $2,691,931, and $4,354,959, respectively.
36
<PAGE>
PROCEDURE FOR DETERMINING CONTINGENT PAYMENTS
Within 60 days after the end of each fiscal year during the Contingent
Payment Period, the parties shall prepare and deliver to the Synergies Council a
statement (a "Contingent Payment Statement"), which shall identify the gross
sales, EBIT, REBIT, CAGR and Working Capital Adjustment of Exmark for such
fiscal year (including the manner of determination) in reasonable detail and the
amount of the Contingent Payment to be made with respect to such fiscal year.
All amounts used in a Contingent Payment Statement to determine a Contingent
Payment will be based on the final audited financial statements of Toro, subject
to adjustment by the Synergies Council to reflect differences between Toro's
accounting practices and those used by Exmark in its audited financial
statements for the two year period ended August 31, 1996. The Contingent Payment
Statement shall be subject to review and verification by the Stockholders'
Representatives. In the event there is a dispute concerning the amount of the
Contingent Payment, dispute resolutions specified in the Merger Agreement must
be followed.
CASH ELECTION
The cash portion of the Merger Consideration will be approximately 12% of
the aggregate amount of each payment and the remainder of the Merger
Consideration will be paid in shares of Toro Common Stock. Each Holder, however,
will be allowed to elect to receive more or less than 12% of his or her portion
of the Merger Consideration in Cash, with the remainder to be paid in the form
of Toro Common Stock. Prior to the Special Meeting, each record stockholder will
receive a cash election form to be used to indicate if such stockholder desires
to receive more or less than 12% of such stockholder's Merger Consideration in
cash. Any Holder who wants to receive more or less than 12% of such Holder's
Merger Consideration in the form of cash must properly complete the form, sign
it and return it to the Escrow Agent prior to the Special Meeting. Any Holder
that does not return such form, properly completed and signed, to the Escrow
Agent prior to the Special Meeting, will be deemed to have elected to receive
12% of such Holder's Merger Consideration in the form of cash. The percentage of
the Holder's Merger Consideration each Holder elects, or is deemed to have
elected, to receive in cash is referred to herein as the "Cash Election." In the
event that the weighted average of all of the Cash Elections does not equal 12%,
the portion of the Holder's Merger Consideration that each Holder will be
entitled to receive in cash will be proportionately adjusted (either increased
or decreased), so that the aggregate cash consideration to be paid pursuant to
the Initial Payment, the 1998 Contingent Payment, the 1999 Contingent Payment or
any payment made upon release of the Holdback Amount, will be 12% of the Merger
Consideration, subject only to the payment of additional cash in lieu of
fractional shares. (For the mechanics of how these adjustments may be made, see
the Merger Agreement attached hereto as Exhibit A.) The remaining portion of
each Holder's Merger Consideration will be in the form of shares of Toro Common
Stock as described below. Based on the Cash Elections of record Holders of
Exmark Class B Stock and Exmark Class C Stock, the cash that record Holders of
Exmark Common Stock and Exmark Preferred Stock receive in connection with the
Initial Payment, expressed as a percentage of such payment, may be different
than the cash that such Holders receive in connection with the Contingent
Payment Rights, expressed as a percentage of each such payment.
CONVERSION OF EXMARK STOCK
At or prior to the Effective Time, Toro will deposit, or will cause to be
deposited, cash and shares of Toro Common Stock representing the Initial Payment
Fund with the Escrow Agent, to be exchanged for shares of Exmark Common Stock,
Exmark Preferred Stock, and Exmark Class C Stock , and will deposit, or will
cause to be deposited, cash and shares of Toro Common Stock representing the
Class B Initial Payment Fund with the Escrow Agent, to be exchanged for shares
of Exmark Class B Stock. On or before the later to occur of December 31, 1998,
or 10 days after the amount of the 1998 Contingent Payment has been determined,
Toro shall deposit, or shall cause to be deposited, cash and shares of Toro
Common Stock representing the 1998 Contingent Payment with the Escrow Agent.
Similarly, on or before the later
37
<PAGE>
to occur of December 31, 1999, or 10 days after the amount of the 1999
Contingent Payment has been determined, Toro shall deposit, or shall cause to be
deposited, cash and shares of Toro Common Stock representing the 1999 Contingent
Payment with the Escrow Agent. The Escrow Agent shall hold these funds,
including any interest earned thereon and any dividends paid in respect thereof,
for the benefit of the Holders, subject to Toro's Offset Right and any Actual
Net Worth Adjustment (as defined below). See "--Holdback Amount; Actual Net
Worth Adjustment," "--Stockholders' Representatives Expense Fund" and "THE
MERGER AGREEMENT--Offset Rights."
As soon as reasonably practicable after the Effective Time, the Paying Agent
will mail to each holder of record of a certificate or certificates which
immediately prior to the Effective Time represented shares of Exmark capital
stock (the "Certificates") (1) a letter of transmittal in customary form (which
will specify that delivery will be effected, and risk of loss and title to the
Certificates will pass, only upon proper delivery of the Certificates to the
Paying Agent), and (2) instructions for use in effecting the surrender of the
Certificates in exchange for such holder's portion of the Merger Consideration.
Upon surrender of a Certificate that immediately prior to the Effective Time
represented outstanding shares of Exmark Common Stock, Exmark Preferred Stock or
Exmark Class C Stock, for cancellation to the Paying Agent, together with such
letter of transmittal, duly executed, and such other documents as may be
required pursuant to such instructions, the Paying Agent shall distribute in
exchange therefor, subject to escrow of the appropriate portion thereof included
in the Holdback Amount, (1) a certificate or certificates representing the
number of whole shares of Toro Common Stock issuable to such Holder pursuant to
the Initial Payment and based on such Holder's Cash Election, (2) cash
representing the amount payable to such Holder pursuant to the Initial Payment
and based on such Holder's Cash Election, (3) cash in lieu of any fractional
share thereof, (4) any interest earned or dividends paid with respect to such
Holder's Merger Consideration and (5) except for holders of Exmark Class C
Stock, the right to receive such Holder's portion of the Contingent Payment
Rights, which right shall be uncertificated. Upon surrender of a Certificate
that immediately prior to the Effective Time represented outstanding shares of
Exmark Class B Stock, for cancellation to the Paying Agent, together with such
letter of transmittal, duly executed, and such other documents as may be
required pursuant to such instructions, the Paying Agent shall distribute in
exchange therefor (1) a certificate or certificates representing the number of
whole shares of Toro Common Stock issuable to such Holder pursuant to the Class
B Initial Payment, (2) cash in lieu of any fractional share thereof, (3) any
interest earned or dividends paid with respect to such Holder's Merger
Consideration and (4) the right to receive such Holder's portion of the
Contingent Payment Rights, which right shall be uncertificated. All Certificates
so surrendered will forthwith be canceled. Until surrendered, each Certificate
shall be deemed at any time after the Effective Time to represent only the right
to receive the appropriate Merger Consideration with respect to the shares of
Exmark securities formerly represented by such Certificate.
If there is a transfer of Share ownership that is not registered in the
transfer records of Exmark, that portion of the Merger Consideration to be
issued in exchange for any such transferred Shares in connection with the Merger
may be issued to a person other than the person in whose name such Shares are
registered, if, upon presentation to the Paying Agent, the Certificate
representing such Shares shall be properly endorsed or otherwise be in proper
form for transfer and the person requesting such payment shall pay any transfer
or other taxes required by reason of the issuance of such portion of the Merger
Consideration to a person other than the registered holder of such Certificate
or establish to the reasonable satisfaction of Toro that such tax has been paid
or is not applicable.
Subject to Toro's Offset Right, as promptly as practicable following the
deposit by Toro of each of the 1998 Contingent Payment and the 1999 Contingent
Payment, the Paying Agent shall distribute to the holders of Exmark Common
Stock, Exmark Preferred Stock and Exmark Class B Stock cash and shares of Toro
Common Stock in an amount equal to their respective portions of such Contingent
Payment. See "--Contingent Payment Rights" and "THE MERGER AGREEMENT--Offset
Rights."
38
<PAGE>
STOCKHOLDERS OF EXMARK SHOULD NOT FORWARD THEIR STOCK CERTIFICATES TO THE
PAYING AGENT WITHOUT A LETTER OF TRANSMITTAL AND SHOULD NOT RETURN THEIR STOCK
CERTIFICATES WITH THE ENCLOSED PROXY.
FRACTIONAL SHARES
No certificates or scrip representing fractional shares of Toro Common Stock
shall be issued upon the surrender for exchange of Certificates, and such
fractional share interests will not entitle the owner thereof to vote or to any
rights of a stockholder of Toro. Holders otherwise entitled to fractional shares
of Toro Common Stock will be paid cash by the Paying Agent in lieu of such
factional shares.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
VOTING AGREEMENTS
Pursuant to the Stockholder Agreements, H. John Smith, Ray Rickard, Roger T.
Smith, Merrell F. Clark and Robert F. Martin, in their individual capacities as
stockholders, have agreed to vote all shares of Exmark Common Stock and Exmark
Preferred Stock owned by them for approval and adoption of the Merger Agreement
and have granted to Toro an irrevocable proxy so to vote their respective
shares. H. John Smith is a director and the President of Exmark. Ray Rickard is
a director and the Executive Vice President of Exmark. Roger Smith is a director
and the Secretary of Exmark and a director and the President of Holiman. Merrell
Clark is a director and the Treasurer of Exmark. Robert Martin is a director of
Exmark. Such officers and directors collectively own approximately 14,015 shares
of Exmark Common Stock and 550 shares of Exmark Preferred Stock as of the Record
Date (representing approximately 63.8% of the total voting power of the
outstanding shares of Exmark Common Stock and Exmark Preferred Stock on such
date). See "--Stockholder Agreements."
EMPLOYMENT AND NONCOMPETE AGREEMENTS
In connection with the Merger Agreement, Toro has entered into employment
and noncompete agreements with certain employees or officers of Exmark. In
connection therewith, H. John Smith and Ray Rickard will receive cash Signing
Bonuses from Toro in the aggregate amount of $2,075,000 pursuant to new
employment agreements, which contain noncompete covenants. In approving the
Signing Bonuses, Exmark's Board of Directors considered Exmark's financial
performance during the tenure of Messrs. Smith and Rickard and the reduction to
their overall compensation that will occur as a result of the Merger. Exmark's
stockholders are being asked to approve the payment of the Signing Bonuses.
Stockholder approval of the Signing Bonuses is a condition to consummation of
the Merger. See "--Excess Parachute Payments."
ISSUANCE OF CLASS B STOCK TO INSIDERS
Prior to the Effective Time and subject to approval of the New Articles of
Incorporation by the requisite vote of the Holders, Exmark will issue 10,000
shares of Exmark Class B Stock to certain officers, directors and employees of
Exmark pursuant to the exercise of certain previously issued stock purchase
rights, including (1) 2,000 shares to each of H. John Smith, Ray Rickard and
Roger Smith, (2) 210 shares to each of Merrell Clark and Robert Martin and (3)
120 shares to each of Gary Kuck and Keith Dietzen. Gary Kuck and Keith Dietzen
are directors of Exmark. Each share of Exmark Class B Stock will receive the
Class B Initial Per Share Payment Consideration (I.E., one-tenth of a share of
Toro Common Stock) and one Class B Contingent Payment Right. If the Class B
Contingent is maximized and subject to Toro's Offset Right, each Class B
Contingent Payment Right would entitle the holder thereof to receive cash and
Toro Common Stock with a face value of $1,400. As a result, Messrs. Smith,
Rickard and Smith each may receive up to approximately $2,810,000 in exchange
for their respective shares of Exmark Class B Stock. Messrs. Clark and Martin
each may receive up to approximately $295,000 in exchange for their respective
39
<PAGE>
shares of Exmark Class B Stock. Messrs. Kuck and Dietzen each may receive up to
approximately $175,000 in exchange for their respective shares of Exmark Class B
Stock. Stockholder approval of the New Articles of Incorporation is a condition
to consummation of the Merger.
HOLIMAN ACQUISITION
As a condition to the Merger, Exmark must first acquire all of the issued
and outstanding capital stock of Holiman. Roger Smith, the Secretary of Exmark,
a director of Exmark and a major stockholder of Exmark, is the sole stockholder
of Holiman. Under the terms of the Holiman Agreement, Roger Smith will receive
3,689 shares of Exmark Class C Stock which represents approximately $2,125,000
of the total Initial Payment Consideration. See "THE MERGER--Effects of the
Merger" and "--Payment of Merger Consideration." In addition, prior to the
Effective Time, Holiman may pay to Roger Smith a one-time bonus or dividend in
the amount by which the book value of Holiman exceeds $200,000, which, based on
a current book value of approximately $900,000, would be approximately $700,000.
See "--Acquisition of Holiman."
MANUFACTURER'S REPRESENTATIVES AND DISTRIBUTORS
Exmark is highly dependent upon Holiman, which is Exmark's primary
manufacturer's representative. Exmark is also highly dependent upon a select few
distributors. One of these distributors is Lawn Equipment Part Co. ("Lawn
Equipment"). Merrell Clark, who is the majority stockholder of Lawn Equipment,
is a major stockholder of Exmark. Merrell Clark is also Treasurer and a director
of Exmark.
The Board of Directors of Exmark was aware of the interests of certain
persons in the Merger described above and considered them, among other matters,
in approving the Merger Agreement and the transactions contemplated thereby.
STOCKHOLDER AGREEMENTS
As a condition to the willingness of Toro to execute the Merger Agreement,
and concurrently with the execution of the Merger Agreement, H. John Smith, Ray
Rickard, Roger T. Smith, Merrell F. Clark and Robert F. Martin, who collectively
had record ownership of approximately 14,015 shares of Exmark Common Stock and
550 shares of Exmark Preferred Stock as of the Record Date (representing
approximately 63.8% of the total voting power of the outstanding shares of
Exmark Common Stock and Exmark Preferred Stock on such date), entered into
separate Stockholder Agreements with Toro, pursuant to which such stockholders,
in such capacity, have agreed to vote, and have granted to Toro an irrevocable
proxy to vote, such shares (and any other shares of Exmark Common Stock and
Exmark Preferred Stock acquired by them after the date of the Merger Agreement)
in favor of approval of the Merger Agreement, the Merger, the New Articles of
Incorporation and the Signing Bonuses and any other matter reasonably necessary
to facilitate the Merger. In addition, under the Stockholder Agreements, such
stockholders have agreed to vote, and have granted to Toro an irrevocable proxy
to vote, such shares against approval of any proposal made in opposition to or
competition with consummation of the Merger and against any merger,
consolidation, sale of assets, reorganization or recapitalization, with any
party other than Toro, the Merger Subsidiary and their affiliates and against
any liquidation or winding up of Exmark. Also, under the Stockholder Agreements,
such stockholders have agreed (1) not to solicit, initiate or encourage
submission of any proposal or offer from any person, group or entity relating to
any acquisition of the assets, business or capital stock of Exmark, or other
similar transaction or business combination involving the business of Exmark,
(2) not to participate in any negotiations or discussions regarding or furnish
to any other person or entity any information with respect to, or otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage
any effort or attempt by any other person or entity to do or seek such
acquisition or transaction and (3) to inform Toro of any inquiry. The
Stockholder Agreements, other than the provisions relating to the grant of an
irrevocable proxy, terminate on the earlier to occur of (1) the Effective Time
or
40
<PAGE>
(2) such date and time as the Merger Agreement shall be terminated pursuant to
Article IX of the Merger Agreement.
ACQUISITION OF HOLIMAN
As a condition to the Merger, Exmark has entered into the Holiman Agreement
whereby Exmark will acquire all of the issued and outstanding capital stock of
Holiman from Roger Smith. Prior to the Merger, Holiman will thus become a wholly
owned subsidiary of Exmark.
Under the terms of the Holiman Agreement, Roger Smith will receive 3,689
shares of Exmark Class C Stock, which represents approximately $2,125,000 of the
total Initial Payment. See "THE MERGER-- Effects of the Merger" and "--Payment
of Merger Consideration." Mr. Smith, as the sole holder of Exmark Class C Stock,
is not entitled to receive Contingent Payment Rights for such shares. See "THE
MERGER--Contingent Payment Rights."
The Holiman Agreement requires that, at the Effective Time, the book value
of Holiman (equal to total assets minus total liabilities) must not be less than
$200,000. Consequently, prior the Effective Time, Holiman may pay to Smith a
one-time bonus or dividend in the amount by which the book value of Holiman
exceeds $200,000. Based on the book value of Holiman as of October 31, 1997,
which was approximately $970,000, the bonus or dividend could be up to
approximately $770,000.
Presently, Exmark pays a commission of 5.0% to Holiman for all sales by
Holiman of Exmark's products, and the total amounts of the commissions paid to
Holiman for 1995, 1996 and 1997 have been $1,071,225, $1,651,063 and $2,217,402,
respectively. Following the acquisition of the capital stock of Holiman, Exmark
will cease paying commissions to Holiman.
In the Holiman Agreement, Roger Smith has made certain representations and
warranties to Exmark and has agreed to indemnify Exmark for certain breaches of
the representations and warranties contained therein, subject to a maximum
aggregate amount of $318,000 (excluding matters relating to taxes). Similarly,
Exmark has made certain representations and warranties to Roger Smith. Toro is
expressly named as a third party beneficiary to the Holiman Agreement. See
"--Effects of the Merger."
EXCESS PARACHUTE PAYMENTS
It is a condition to the consummation of the Merger that the Singing Bonuses
be approved by Exmark's stockholders. For tax purposes, such that the Signing
Bonuses will not be "excess parachute payments" within the meaning of Section
280G of the Code, the approval of the Signing Bonuses will require the
affirmative vote of the holders of 75% of the voting power of all disinterested
Exmark stockholders. Generally speaking, excess parachute payments result when
there is a change in control of an employer, such as contemplated by the Merger,
and as a result, certain employee/officers receive compensation equal to or in
excess of three times their average annual compensation for the five years
preceding the taxable year in which the change in control occurs (the "base
amount"). The amount of any such "parachute payment" in excess of the base
amount (1) will not be deductible by the payor and (2) will be subject to an
excise tax payable by the recipient of such payment. It is probable that the
Signing Bonuses would constitute excess parachute payments. Section 280G of the
Code contains an exemption for such payments by a corporation if (1) such
corporation's stock is not publicly traded on an established securities market
and (2) the holders of at least 75% of the voting power of such corporation's
stock that is held by disinterested stockholders approve the payment. In order
to avoid the denial of deductibility and the imposition of the excise tax with
respect to the Signing Bonuses, Exmark's stockholders are being asked to approve
the payment of the Signing Bonuses. Approval of the Signing Bonuses by Exmark's
stockholders is a condition to consummation of the Merger, but will not affect
the amount of the Merger Consideration to be received by Holders of Exmark's
Shares. For a discussion of the compensation to be received by H. John Smith and
Ray Rickard in connection with the Merger, see "--Interests of Certain Persons
in the Merger."
41
<PAGE>
FOR TAX PURPOSES, APPROVAL OF THE SIGNING BONUSES REQUIRES THE AFFIRMATIVE
VOTE OF MORE THAN 75% OF THE VOTING POWER OF ALL OUTSTANDING SHARES OF EXMARK
COMMON STOCK AND EXMARK PREFERRED STOCK, EXCLUDING THOSE SHARES HELD OR
CONSTRUCTIVELY OWNED BY H. JOHN SMITH AND RAY RICKARD. THE BOARD OF DIRECTORS OF
EXMARK RECOMMENDS THAT EXMARK'S STOCKHOLDERS VOTE FOR APPROVAL OF THE SIGNING
BONUSES.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discusses only the federal income tax consequences of the
Merger to United States persons who hold shares of Exmark capital stock and its
capital assets. It does not discuss all of the tax consequences that might be
relevant to Exmark stockholders entitled to special treatment under the federal
income tax law or to Exmark stockholders who acquired their shares of Exmark's
capital stock or Toro capital stock through the exercise or cancellation of
employee stock options, pursuant to a separate merger or acquisition or
otherwise as compensation, specifically including but not limited to
stockholders who have or will acquire Exmark Class B Stock or Exmark Class C
Stock.
It is a condition to the consummation of the Merger that Exmark receive an
opinion (the "Tax Opinion") from its counsel, Croker, Huck, Kasher, DeWitt,
Anderson & Gonderinger, P.C., substantially to the effect that, if the Merger is
consummated in accordance with the terms of the Merger Agreement and as
described in this Proxy Statement/Prospectus, under current law, for federal
income tax purposes, the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code. The opinion is conditioned upon the
receipt and accuracy of certain representations made to Croker, Huck, Kasher,
DeWitt, Anderson & Gonderinger, P.C. with respect to certain factual matters
required to qualify the Merger as a reorganization under the Code. Moreover, the
opinion is based on the Code, regulations and rulings in effect as of the date
of such opinion, current administrative rulings and practice and judicial
precedent, all of which are subject to change. Any change, which may or may not
be retroactive, could alter the tax consequences discussed herein. Such opinion
is neither binding to the Internal Revenue Service (the "Service") nor precludes
the Service from adopting a contrary position. The parties will not request and
the Merger is not conditioned upon a ruling from the Service with respect to any
of the federal income tax consequences of the Merger.
Accordingly, if the Merger qualifies as a reorganization under the Code, (1)
no gain or loss will be recognized by the stockholders of Exmark with respect to
the shares of Toro received in the Merger, (2) the basis of the Toro Common
Stock received by an Exmark stockholder who exchanges Exmark capital stock for
Toro Common Stock and cash will be the same as the basis of the Exmark capital
stock surrendered in exchange therefor, decreased by the amount of cash received
by such stockholder, and increased by the amount of capital gain, but not
dividend income, recognized by such stockholder (subject to any adjustments
required as the result of receipt of cash in lieu of a fractional share of Toro
Common Stock), (3) for purposes of determining whether a gain or loss on a
disposition of shares of Toro capital stock is long term or short term, the
holding period of the shares of Toro capital stock received pursuant to the
merger by the Exmark stockholders will include the holding period of the Exmark
capital stock exchanged therefor, provided the shares of Exmark capital stock
were held as a capital asset on the date of the Merger, and (4) gain, if any,
but not loss, will be recognized by any Exmark stockholder upon the exchange of
Exmark capital stock for cash in the Merger.
The gain described in (4) above will be recognized, but not in excess of the
amount of cash received, in an amount equal to the difference, if any, between
the fair market value of the Toro Common Stock and cash received and the Exmark
stockholder's adjusted tax basis in the Exmark Capital Stock surrendered in
exchange therefor pursuant to the Merger. If, as described below, the exchange
has the effect of a distribution of a dividend, some or all of the gain
recognized will be treated as a dividend. If the exchange does not have the
effect of a distribution of a dividend, all of the gain recognized would be a
capital gain
42
<PAGE>
(provided that the Exmark capital stock of such Exmark stockholder was held as a
capital asset at the Effective Time).
The determination of whether the exchange of Exmark capital stock for cash
pursuant to the Merger has the effect of a distribution of a dividend will be
made, on a stockholder by stockholder basis, by applying the rules of Section
302 of the Code and by comparing the proportionate, percentage interest of a
former Exmark stockholder in Toro after the Merger with the proportionate,
percentage interest such stockholder would have had if such stockholder had
received solely Toro Common Stock pursuant to the Merger. This comparison is
made as though Toro had issued in the Merger to such stockholder solely its Toro
Common Stock and in a hypothetical redemption Toro had then redeemed such
portion of its Toro Common Stock at the time of the Merger for the amount of
cash the stockholder actually received pursuant thereto. In making this
comparison, there must be taken into account (1) any other shares of Toro Common
Stock or other shares of capital stock of Toro actually owned by such Exmark
stockholder, and (2) any such shares considered to be owned by such holder by
reason of the constructive ownership rules set forth in Section 318 of the Code.
These constructive ownership rules apply in certain specified circumstances to
attribute ownership of shares of a corporation from the stockholder actually
owning the shares, whether an individual, trust, partnership or corporation, to
certain members of such individual's family or to certain other individuals,
trusts, partnerships or corporations. Under these rules, a stockholder is also
considered to own any shares with respect to which a stockholder holds
exercisable stock options.
Under applicable Internal Revenue Service guidelines, generally such a
hypothetical redemption, as described above, involving a holder of a minority
interest in Toro whose relative stock interest in Toro is minimal, who exercises
no control over the affairs of Toro and who experiences a reduction in the
stockholder's proportionate interest in Toro, both directly and by application
of the foregoing constructive ownership rules, will not be deemed to have
resulted in a distribution of a dividend under the rules set forth in Section
302(b)(1) of the Code. Because the determination of whether cash received
pursuant to the Merger will be treated as the distribution of a dividend
generally will depend upon the facts and circumstances peculiar to each Exmark
stockholder, such stockholders are strongly advised to consult with their own
tax advisers regarding the tax treatment of cash received pursuant to the
Merger.
The opinion described above will be based upon certain assumptions,
including the assumption that the stockholders of Exmark do not have any plan or
intention to dispose, sell, exchange or otherwise dispose of a number of shares
of Toro Common Stock received pursuant to the Merger that would reduce the
ownership by such stockholders of Exmark of Toro Common Stock to a number of
shares having a value, as of the date of the Merger, which is less than 50% of
the value of all of the formerly outstanding Exmark capital stock held by such
Exmark stockholders as of the same date.
No information is provided herein with respect to the tax consequences, if
any, of the Merger under applicable foreign, state, local and other tax laws.
The foregoing discussion is based upon the provisions of the Code, applicable
treasury regulations thereunder, Internal Revenue Service rulings and judicial
decisions, as in effect as of the date hereof. There can be no assurance that
future legislative, administrative or judicial changes or interpretations will
not affect the accuracy of the statements or conclusions set forth herein. Any
such change could apply retroactively and could affect the accuracy of such
discussion. No rulings have or will be sought from the Service concerning the
tax consequences of the Merger. Because of the complexity of the tax laws, and
because the tax consequences of any particular Exmark stockholder may be
affected by matters not discussed herein, it is recommended that each Exmark
stockholder consult his or her personal tax advisor concerning the applicability
of any foreign laws as well as other federal, state and local income tax
consequences of the Merger.
43
<PAGE>
ACCOUNTING TREATMENT
The Merger will be accounted for under the purchase method of accounting
under which the total consideration paid in the Merger by Toro will be allocated
among the Surviving Corporation's consolidated assets and liabilities based on
the fair values of the assets acquired and liabilities assumed as provided for
under generally accepted accounting principles.
BACKGROUND OF THE MERGER
Toro first became interested in acquiring Exmark, including Holiman, its
primary manufacturers' representative, in May 1996 after learning, from industry
conferences, trade journals and Toro's distributor network, of Exmark's focused
product line and excellent reputation. Shortly thereafter, The Geneva Companies,
acting on Toro's behalf, made an informal inquiry of Exmark's interest in being
acquired by Toro. In July 1996, Dennis Himan, Toro's Vice President of
Distributor Development and Mergers/ Acquisitions, met with H. John Smith and
Ray Rickard, Exmark's Chief Executive Officer and Executive Vice President,
respectively, to discuss a business combination of the two companies. In August
1996, Toro and Exmark entered into a confidentiality agreement pertaining to the
sharing of certain non-public information about Exmark. Between August 1996 and
May 1997, Exmark internally explored and considered a variety of strategic
financial alternatives, including a public sale of common stock and potential
business combinations with several larger turf care equipment manufacturers,
including Toro.
From August 1996 until May 1997, Messrs. Himan, H. John Smith and Rickard
met on several occasions to discuss in a general way whether there existed a
basis for considering a possible business combination between the two companies.
Beginning in October 1996, Roger Smith also joined these discussions regarding
Toro's potential acquisition of Holiman, as part of Toro's acquisition of
Exmark. Following several telephone conversations and meetings, members of
Toro's management and Exmark's management and their respective legal advisors
met in May 1997 to hold detailed discussions regarding the possible terms of a
merger of the two companies, including the structure, valuation alternatives and
documentation of such a transaction. On June 3, 1997, Toro, Exmark and Holiman
entered into a letter of intent regarding Exmark's acquisition of Holiman and
Toro's subsequent acquisition of Exmark, including Holiman. From June until
October 1997, Toro's management and Exmark's management and their respective
legal advisors negotiated the terms of the Merger Agreement. At various times
during this period, officials of Toro, Exmark and Holiman and their respective
legal advisors met to perform due diligence activities in anticipation of the
proposed Merger.
Toro's Board of Directors discussed Exmark and Holiman as possible
acquisition candidates at Toro's March 13, 1997 directors' meeting and reviewed
certain information concerning Exmark and Holiman at that time. On July 16,
1997, Toro's Board of Directors held a meeting to consider the terms of Toro's
offer and, after reviewing information about Exmark and Holiman with Toro's
management and financial and legal advisors, unanimously authorized and approved
Toro's officers to proceed with the acquisition of Exmark and Holiman. Exmark's
Board of Directors held a meeting on October 1, 1997 to discuss the terms of the
proposed Merger and to review a draft of the Merger Agreement. At this meeting,
Exmark's senior management and Exmark's legal advisor made detailed
presentations concerning material aspects of the proposed Merger, the draft of
the Merger Agreement and related transactions. Afterwards, Exmark's Board of
Directors discussed (1) the draft of the Merger Agreement, (2) the Merger, (3)
the related transactions and agreements and (4) the interests of certain persons
in the Merger, and then Exmark's Board of Directors unanimously authorized and
approved the Merger Agreement and the Merger. On October 22, 1997, Toro's Board
of Directors, pursuant to a written action, unanimously authorized and approved
the Merger Agreement and the Merger. On October 23, 1997, Exmark and Holiman
executed the Holiman Agreement and Toro, Exmark and Merger Subsidiary executed
the definitive Merger Agreement.
44
<PAGE>
EXMARK'S REASONS FOR THE MERGER; RECOMMENDATION OF EXMARK'S BOARD OF DIRECTORS
By the unanimous vote of Exmark's entire Board of Directors at a special
meeting held on October 1, 1997, the Exmark Board of Directors determined that
the proposed Merger and the terms and conditions of the Merger Agreement were in
the best interests of Exmark and its stockholders. The Merger, the Merger
Agreement, the New Articles of Incorporation, the Signing Bonuses and the
stock-for-stock exchange with Holiman pursuant to the Holiman Agreement were
approved unanimously by the entire Board of Directors of Exmark, who also
unanimously resolved to recommend that the stockholders of Exmark vote FOR
approval of the Merger Agreement, the Merger, the New Articles of Incorporation,
the Signing Bonuses. See "--Background of the Merger." In reaching its
conclusion to enter into the Merger Agreement and to recommend that the
stockholders of Exmark vote for the approval of Merger and the Merger Agreement,
the Board of Directors of Exmark considered a number of factors, including,
without limitation and without assigning relative weights thereto, the
following:
FINANCIAL RESOURCES
Exmark's ability to successfully meet its debt obligations and its present
level of operations is directly connected to the success of Exmark's new
products and its ability to maintain adequate levels of working capital.
However, the absence of a public market for the Exmark stock makes raising
capital very difficult and limits Exmark's marketing abilities and growth
potential. Moreover, since there is no established public market for the stock,
stockholders may have considerable difficulty in selling their shares, and there
is no assurance that the shares can be sold at a fair value. After the Merger,
Exmark will have access to Toro's capital and capital markets and Exmark
stockholders will enjoy much greater liquidity.
MARKET POSITION
The commercial lawn and turf maintenance equipment market is very
competitive. It is served by a large number of manufacturers, including large
companies such as Toro and companies the size of Exmark and smaller.
The larger companies have three major advantages when competing with smaller
companies: (1) an ability to spend more on advertising and promotion resulting
in greater brand name recognition; (2) an ability to spend more on research and
development for new product innovation; and (3) greater financial strength which
allows them to overcome mistakes and setbacks.
Competitors such as Toro and Deere & Company ("John Deere") have achieved
widespread brand recognition as a result of many years of advertising and
promotional campaigns directed to consumer markets. Exmark has not been able to
allocate nearly as much capital for advertising and promotion. After the Merger,
Exmark will benefit from utilization of Toro's internal marketing resources and
advertising discounts, thereby allowing expansion of Exmark's advertising and
promotion programs.
ENGINEERING AND PRODUCT DEVELOPMENT
Exmark's engineering has been responsible for quality assurance, production
engineering, product maintenance and upgrades and at least one new product
introduction each year. This has been done with limited testing facilities and
equipment, thereby slowing the process while outside testing is completed.
Exmark's continued growth is dependent upon the continued design and development
of new products. Additional resources are required to accelerate new product
development and the number of new products introduced to remain competitive in a
rapidly growing and increasingly competitive environment. After the merger,
Exmark will benefit from utilization of Toro's engineering group and facilities
to assist in testing and increase the number of new product introductions
through joint product development.
45
<PAGE>
MANUFACTURING AND FACILITIES
Exmark has expanded its manufacturing facilities to meet production
requirements during recent years due to rapid growth. There is no additional
space left for facilities expansion at Exmark's current location. After the
merger Exmark would benefit from the potential utilization of Toro's resources
to accommodate future increased product demand.
WORKING RELATIONSHIP
After the Merger, Exmark will be a wholly owned subsidiary of Toro. However,
Exmark's current officers will remain as the officers of Exmark after the Merger
and Exmark will be operated as a "stand alone" company with respect to its
products, distributors and dealers. In addition, the parties have agreed to form
a committee to act as an inter-company team and as a dispute resolution panel
for a period following the Merger. The Synergies Counsel will consist of three
representatives of Exmark and three representatives of Toro. In addition, Exmark
expects to benefit from increased purchasing power, volume discounts, reduced
insurance rates and higher levels of insurance coverage. Exmark will also
benefit from having the expertise of Toro's legal, tax and accounting
departments.
FAIRNESS OF THE TRANSACTION
Exmark's Board of Directors have been actively involved in the negotiation
of the Merger Agreement and have unanimously approved the Merger. Not only does
the Merger provide Exmark stockholders with a much greater degree of liquidity,
Exmark has received an opinion from McCarthy & Co. that the Merger Consideration
is fair, from a financial point of view, to the stockholders of Exmark as of the
date of this Proxy Statement/Prospectus. See "THE MERGER--Opinion of McCarthy as
Exmark's Financial Advisor."
FOR THE FOREGOING REASONS, THE BOARD OF DIRECTORS OF EXMARK RECOMMENDS THAT
THE STOCKHOLDERS OF EXMARK VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND THE
MERGER.
TORO'S REASONS FOR THE MERGER
Toro has made several strategic acquisitions over the last few years. A
primary objective of these acquisitions has been to expand the scope of Toro's
product offerings by acquiring companies with significant market positions and
good growth opportunities. Toro believes that Exmark's current product
offerings, its significant expertise in manufacturing and marketing turf care
equipment, its product development skills and its customer focus will allow Toro
to offer a more complete product line and will complement Toro's growth
strategy. Toro also believes that Exmark has an outstanding management team.
OPINION OF MCCARTHY AS EXMARK'S FINANCIAL ADVISOR
The Board of Directors of Exmark retained McCarthy to act as its financial
advisor and to render an opinion to the Board of Directors of Exmark as to the
fairness of the Merger Consideration, from a financial point of view, to the
stockholders of Exmark. McCarthy is an investment banking firm based in Omaha,
Nebraska. McCarthy was founded in 1986, and provides a variety of corporate
finance services, including those relating to debt and equity placements,
mergers and acquisitions, capital planning and business valuation. McCarthy has
been involved in numerous mergers and acquisitions involving both privately- and
publicly-owned companies. McCarthy has provided financial advisory services to
Exmark in the past on various matters, including financial advisory services in
connection with a potential acquiring company. McCarthy was selected based upon
its prior experience with Exmark and the experience and qualifications described
above. McCarthy did not recommend the amount of consideration to be received in
connection with the Merger.
46
<PAGE>
On May 29, 1997, McCarthy rendered its written opinion to the Board of
Directors of Exmark that, based upon the terms contained in the Letter of
Intent, the consideration proposed to be paid was fair, from a financial point
of view, to the stockholders of Exmark as of the date thereof. McCarthy
subsequently issued its written opinion dated October 23, 1997 to the Board of
Directors of Exmark that, based upon the Merger Agreement, the Merger
Consideration was fair, from a financial point of view, to the stockholders of
Exmark as of such date (the "McCarthy Opinion"). McCarthy updated this opinion
as of the date of this Proxy Statement/Prospectus.
THE FULL TEXT OF THE MCCARTHY OPINION IS ATTACHED AS EXHIBIT C TO THIS PROXY
STATEMENT/PROSPECTUS. EXMARK STOCKHOLDERS ARE URGED TO, AND SHOULD, READ THE
MCCARTHY OPINION CAREFULLY IN ITS ENTIRETY IN CONJUNCTION WITH THIS PROXY
STATEMENT/PROSPECTUS FOR ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF THE
REVIEW BY MCCARTHY.
The McCarthy Opinion addresses only the fairness of the Merger
Consideration, from a financial point of view, to the stockholders of Exmark and
does not constitute a recommendation to any stockholder of Exmark as to how such
stockholder should vote with respect to the approval of the Merger Agreement.
The summary of the McCarthy Opinion set forth in this Proxy Statement/Prospectus
is qualified in its entirety by reference to the full text of such opinion.
Although McCarthy evaluated the financial terms of the Merger and
participated in discussions concerning the consideration to be paid, McCarthy
did not recommend the specific consideration to be paid in the Merger. The
consideration to be received by Exmark's stockholders as a result of the Merger
was determined by negotiations between Exmark and Toro after consultation by
Exmark with its financial advisor. In connection with rendering its opinion,
McCarthy, among other things: (1) reviewed the Merger Agreement; (2) reviewed
Exmark's annual audited financial statements for the fiscal years ended August
31, 1993 through 1996, and its internal financial statements for the fiscal year
ended August 31, 1997; (3) reviewed publicly available financial data and other
information regarding Toro; (4) reviewed certain operating and financial
information, including financial projections, provided to McCarthy by the
management of Exmark relating to its businesses and prospects; (5) met with
certain members of the senior management of Exmark to discuss Exmark's
operations, historical financial statements and future prospects; (6) reviewed
the historical prices and trading volume of the common stock of Toro; and (7)
conducted such other studies, analyses, inquiries and investigations as McCarthy
deemed appropriate.
McCarthy relied upon and assumed without independent verification (1) the
accuracy and completeness of all of the financial and other information reviewed
by it for purposes of its opinion and (2) the reasonableness of the assumptions
made by the management of Exmark with respect to its projected financial
results. In addition, McCarthy did not make or seek to obtain appraisals of
Exmark's or Toro's assets and liabilities in rendering its opinion. The McCarthy
Opinion is also necessarily based upon the market, economic and other conditions
as in effect on, and the information made available to it, as of the date
thereof.
The McCarthy Opinion did not imply any conclusion as to the likely trading
range for the Toro Common Stock following the consummation of the Merger, which
may vary depending upon, among other factors, changes in interest rates,
dividend rates, market conditions, general economic conditions and other factors
that generally influence the price of securities. In rendering its opinion,
McCarthy did not anticipate whether any Contingent Payments or any of the
Holdback Amount will ultimately be paid to the Exmark stockholders. The forecast
projections furnished to McCarthy for Exmark were prepared by the management of
Exmark. These forecasts, projections and estimates were based on numerous
variables and assumptions which are inherently uncertain and which may not be
within the control of management, including, without limitation, factors related
to the integration of Exmark with Toro and general economic, regulatory and
competitive conditions. Accordingly, actual results could vary materially from
those set forth in such forecasts, projections and estimates.
47
<PAGE>
The following is a brief summary of certain of the financial analyses used
by McCarthy in connection with providing its opinion to the board of directors
of Exmark.
DISCOUNTED CASH FLOW ANALYSIS
Using a discounted cash flow ("DCF") analysis, McCarthy calculated the
present value of the estimated unleveraged cash flows of Exmark (on a
stand-alone basis, without giving effect to any operating or other efficiencies
arising from the Merger) based on forecasts developed by Exmark management.
McCarthy determined certain equity market value reference ranges for Exmark
based upon various discount rates and various terminal value multiples.
WEIGHTED AVERAGE OF HISTORICAL EARNINGS
McCarthy also performed an analysis based upon the weighted average of
Exmark's historical earnings, and determined certain equity market value
reference ranges for Exmark based upon various multipliers.
BOOK VALUE MULTIPLE ANALYSIS
McCarthy also performed an analysis of the historical and projected book
value of Exmark and determined certain equity market value reference ranges for
Exmark based upon various multipliers.
OTHER FACTORS AND ANALYSES
In rendering its opinion, McCarthy also reviewed the historical financial
results of Toro, the historical trading prices and volumes for the Toro common
stock, and the performance of the Toro common stock.
In arriving at its opinion, McCarthy performed a variety of financial
analyses, portions of which are summarized above. The summary set forth above
does not purport to be a complete description of the analyses performed by
McCarthy or of McCarthy's presentation to the Exmark board of directors. In
addition, McCarthy's analyses must be considered as a whole. Selecting portions
of such analyses and the factors considered by McCarthy, without considering all
such analyses and factors, could create an incomplete view of the process
underlying its analyses. The preparation of a fairness opinion is a complex
process and is not necessarily susceptible to partial analysis or summary
description.
In performing its analyses, McCarthy made numerous assumptions with respect
to industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Toro or
Exmark. Any estimates contained in such analyses are not necessarily indicative
of actual past or future results or values, which may be significantly more or
less than such estimates. Actual values will depend upon several factors,
including events affecting the general economic, market and interest rate
conditions and other factors which generally influence the price of securities.
The analyses were prepared solely for purposes of providing McCarthy's opinion
to the stockholders of Exmark and do not purport to be appraisals or necessarily
reflect the prices at which businesses or securities actually may be sold.
Analyses based upon forecasts of future results are not necessarily indicative
of actual future results, which may be significantly more or less favorable than
suggested by such analyses. McCarthy's opinion and presentation on June 3, 1997
to the board of directors of Exmark was one of many factors taken into
consideration by the board of directors of Exmark in making its determination to
approve the Merger Agreement. The foregoing summary does not purport to be a
complete description of the analyses performed by McCarthy.
Pursuant to a Letter Agreement dated as of May 13, 1997, Exmark agreed to
pay McCarthy a total fee of $100,000, $50,000 payable upon the rendering of its
fairness opinion relating to the Merger and the remaining $50,000 payable upon
closing of the Merger. Exmark also agreed to reimburse McCarthy for its
48
<PAGE>
reasonable out of pocket expenses and to indemnify McCarthy and certain related
persons against certain liabilities in connection with the engagement of
McCarthy.
DISSENTERS' RIGHTS
GENERAL
Under the Nebraska Business Corporation Act ("NBCA"), holders of Exmark
capital stock on the date of the Demand (as defined below) who hold such shares
continually through the Effective Time and follow the procedures set forth in
Sections 21-20,137 to 21-20,150 of the NBCA (the "Dissenters' Rights Statute")
will be entitled to receive payment in cash of the "fair value" of such Exmark
capital stock. The value determined for such dissenters' rights could be more
than, the same as, or less than the value of the consideration to be received
under the Merger Agreement by Exmark stockholders who do not dissent from the
Merger.
The Dissenters' Rights Statute is set forth in its entirety as Exhibit B to
this Proxy Statement/ Prospectus. The following discussion is not a complete
statement of the law relating to dissenters' rights and is qualified in its
entirety by reference to Exhibit B. This discussion and Exhibit B should be
reviewed carefully by any holder who wishes to exercise statutory dissenters'
rights or wishes to preserve the right to do so, since failure to comply with
the procedures set forth herein or therein may result in a loss of such
dissenters' rights.
PROCEDURE
The Dissenters' Rights Statute permits a stockholder to dissent from the
consummation of a plan of merger to which the corporation is a party, provided
that stockholder approval is required and that the particular stockholder is
entitled to vote. Stockholders who properly exercise their right to dissent are
entitled to obtain payment of the fair value of their shares of Exmark capital
stock.
Under the Dissenters' Rights Statute, where a proposed merger for which
dissenters' rights exist is submitted to a vote at a stockholders' meeting, the
meeting notice must state that stockholders are or may be entitled to assert
dissenters' rights, and a copy of the Dissenters' Rights Statute must accompany
the notice. This Proxy Statement/Prospectus constitutes such notice to the
holders of Exmark capital stock, and the Dissenters' Rights Statute is attached
to this Proxy Statement/Prospectus as Exhibit B.
Any holder of Exmark capital stock wishing to assert his or her dissenters'
rights (1) must deliver to Exmark, before the vote is taken on the proposal to
approve the Merger, a written notice of his or her intent to demand payment of
his or her shares if the proposed action is effectuated (the "Demand") and (2)
must not vote in favor of the Merger. Stockholders who do not satisfy these
requirements will not be entitled to exercise their dissenters' right.
A holder of Exmark capital stock is entitled to assert dissenters' rights
only for the Exmark capital stock registered in that holder's name. A beneficial
stockholder may assert dissenters' rights as to shares held on his or her behalf
only if (1) he or she submits to Exmark the record stockholder's written consent
to dissent not later than the time the beneficial stockholder asserts
dissenters' rights, and (2) he or she does so with respect to all shares of
which he or she is the beneficial stockholder or over which he or she has power
to vote.
Stockholders who elect to exercise dissenters' rights must mail or deliver
their written demands to: Exmark Manufacturing Company Incorporated, 2101
Ashland Avenue, P.O. Box 808, Beatrice, Nebraska 68310, Attention: Secretary.
The written demand for dissenters' rights should specify that the holder is
thereby demanding dissenters' rights for his or her shares.
Within 10 days after the Effective Time, Exmark, as the surviving
corporation in the Merger, must send a notice to each holder of Exmark capital
stock who properly exercised their dissenters' rights. The
49
<PAGE>
notice must (1) state where the payment demand must be sent and where and when
certificates must be deposited, (2) supply a form for demanding payment, (3) set
a date by which Exmark must receive the payment demand, which may not be fewer
than 30 nor more than 60 days after the date the notice is delivered, and (4)
include a copy of the Dissenters' Rights Statute.
A stockholder who was sent such a dissenters' notice must, among other
actions, demand payment and deposit his or her certificates in accordance with
the terms of the notice. A stockholder who does not demand payment or does not
deposit his or her share certificates where required, each by the date set in
the dissenters' notice, will not be entitled to payment for his or her shares
under the Dissenters' Rights Statute.
Upon receipt of a proper and timely demand for payment, Exmark will pay each
dissenter who complied with the Dissenters' Rights Statute the amount estimated
by Exmark to be the fair value of his or her shares, plus accrued interest. The
payment will be accompanied by certain financial statements, information
concerning Exmark's estimate of the fair value of the shares, an explanation of
how the interest was calculated, a statement regarding the right to protest the
calculated fair value and a copy of the Dissenters' Rights Statute.
A dissenter may notify Exmark in writing of his or her own estimate of the
fair value of his or her shares and the amount of interest due and demand
payment of his or her estimate, less any amount already paid for such shares, if
(1) the dissenter believes that the amount paid is less than the fair value of
his or her shares or that the interest due is incorrectly calculated, or (2)
Exmark fails to make payment within 60 days after the date set for demanding
payment. A dissenter waives his or her right to protest the payment unless he or
she notifies Exmark of his or her demand in writing within 30 days after Exmark
made or offered payment for his or her shares. If a demand for payment remains
unsettled, Exmark shall commence a proceeding within 60 days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If Exmark does not commence the proceeding within the
sixty-day period, it shall pay each dissenter whose demand remains unsettled the
amount demanded.
If any holder of Exmark capital stock who demands dissenters' rights fails
to perfect, or effectively withdraws or loses his or her right to dissent, then
the shares of Exmark capital stock of such holder will be converted into and
become the right to receive the Merger Consideration in accordance with the
Merger Agreement.
Cash received pursuant to the exercise of dissenters' rights may be subject
to federal or state income tax. See "--Certain Federal Income Tax Consequences."
The foregoing summary of the applicable provisions of Sections 21-20,137 to
21-20,150 of the NBCA is not intended to be a complete statement of such
provisions and is qualified in its entirety by reference to such Sections, the
full text of which is attached as Exhibit B to this Proxy Statement/Prospectus.
STOCK EXCHANGE LISTING
Toro has agreed that the Toro Common Stock to be issued pursuant to the
Merger will be approved for listing on the NYSE, subject to official notice of
issuance. An application has been made for listing such Toro Common Stock on the
NYSE promptly following the Effective Time.
50
<PAGE>
REGULATORY APPROVALS
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR
Act") and the rules promulgated thereunder by the Federal Trade Commission (the
"FTC"), certain acquisition transactions may not be consummated unless notice
has been given and certain information has been furnished to the Antitrust
Division of the United States Department of Justice (the "Antitrust Division")
and the FTC and certain waiting period requirements have been satisfied. The
Merger was subject to these requirements. The applicable waiting period expired
on August 13, 1997.
The FTC and the Antitrust Division frequently scrutinize the legality of
transactions such as the Merger under the antitrust laws. At any time before or
after the Effective Time, the FTC or the Antitrust Division could take such
action under the antitrust laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the Merger or seeking the divestiture of
Exmark by Toro, in whole or in part, or the divestiture of substantial assets of
Toro, Exmark or their respective subsidiaries. State Attorneys General and
private parties may also bring legal actions under the federal or state
antitrust laws under certain circumstances. Based upon an examination of
information available to Toro and Exmark relating to the businesses in which
Toro, Exmark and their respective subsidiaries are engaged, Toro and Exmark
believe that the consummation of the Merger will not violate the antitrust laws.
Nevertheless, there can be no assurance that a challenge to the proposed Merger
on antitrust grounds will not be made or, if such a challenge is made, that Toro
and Exmark will prevail.
Neither Toro nor Exmark is aware of any other material governmental
approvals or actions that may be required for consummation of the Merger except
as described above. Should any such approval or action be required, it is
presently contemplated that such approval or action would be sought. There can
be no assurance, however, that any such approval or action, if needed, could be
obtained and would not be conditioned in a manner that would cause the parties
to abandon the Merger.
RESALES OF TORO COMMON STOCK ISSUED IN THE MERGER
Toro Common Stock to be issued to stockholders of Exmark in connection with
the Merger has been registered under the Securities Act. Toro Common Stock
received by stockholders of Exmark upon consummation of the Merger will be
freely transferable under the Securities Act except for shares issued to any
person who may be deemed to be an "Affiliate" (as defined below) of Exmark or
Toro within the meaning of Rule 145 under the Securities Act. "Affiliate" is
generally defined as a person who controls, is controlled by, or is under common
control with Exmark or Toro at the time of the Special Meeting (generally,
directors, certain executive officers and major stockholders). Affiliates of
Exmark or Toro may not sell their shares of Toro Common Stock acquired in
connection with the Merger, except pursuant to an effective registration
statement under the Securities Act covering such shares or in compliance with
Rule 145 or another applicable exemption from the registration requirements of
the Securities Act. In general, under Rule 145, for one year following the
Effective Time, an Affiliate (together with certain related persons) would be
entitled to sell shares of Toro Common Stock acquired in connection with the
Merger only through "unsolicited broker transactions" or in transactions
directly with a "market maker," as such terms are defined in Rule 144 under the
Securities Act. Additionally, the number of shares to be sold by an Affiliate
(together with certain related persons and certain persons acting in concert)
during such one-year period within any three-month period for purposes of Rule
145 may not exceed the greater of 1% of the outstanding shares of Toro Common
Stock or the average weekly trading volume of such stock during the four
calendar weeks preceding such sale. Rule 145 would remain available to
Affiliates only if Toro remained current with its informational filings with the
SEC under the Exchange Act. One year after the Effective Time, an Affiliate
would be able to sell such Toro Common Stock without such manner of sale or
volume limitations, provided that Toro was current with its Exchange Act
informational filings and such Affiliate was not then an affiliate of Toro. Two
years after the Effective Time, an Affiliate would be able to sell such shares
of Toro Common Stock without any restrictions so long as such Affiliate had not
been an affiliate of Toro for at least three months prior thereto. Certain
Affiliates have entered
51
<PAGE>
into separate Affiliate Agreements concerning the resales of Toro Common Stock
issue in the Merger. See "--Affiliate Agreements."
AFFILIATE AGREEMENTS
In connection with the execution of the Merger Agreement, certain persons
deemed by Exmark as potential "Affiliates" of Exmark for purposes of the federal
securities laws entered into Affiliate Agreements with Toro pursuant to which
such Affiliates agreed (1) not to make any sale, transfer or other disposition
of Toro Common Stock in violation of the Securities Act or Rule 145 thereunder
and (2) not to sell, transfer or otherwise dispose of Toro Common Stock issued
to such Affiliate upon payment of the Contingent Payment Rights unless such
sale, transfer or other disposition is made in conformity with the requirements
of Rule 145 under the Securities Act.
THE MERGER AGREEMENT
THE FOLLOWING IS A SUMMARY OF THE MATERIAL PROVISIONS OF THE MERGER
AGREEMENT. THIS DESCRIPTION DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT INCLUDED AS EXHIBIT A TO THIS
PROXY STATEMENT/PROSPECTUS AND INCORPORATED HEREIN BY REFERENCE. ALL
STOCKHOLDERS ARE URGED TO READ THE MERGER AGREEMENT IN ITS ENTIRETY. SEE ALSO
"THE MERGER."
GENERAL
The Merger Agreement provides that, upon the satisfaction or waiver of
certain conditions, Merger Subsidiary will be merged with and into Exmark,
Exmark will continue as the Surviving Corporation, and the separate existence of
Merger Subsidiary will cease. Following the Merger, the Surviving Corporation
will be a wholly owned subsidiary of Toro.
Pursuant to the Merger Agreement, at the Effective Time and except for
Dissenting Shares and Canceled Shares, (1) each issued and outstanding share of
Exmark Common Stock will be converted into and become a right to receive (a)
four times the Initial Per Share Payment Consideration and (b) one
Common/Preferred Contingent Payment Right, (2) each issued and outstanding share
of Exmark Preferred Stock shall be converted into and become a right to receive
(a) the Initial Per Share Payment Consideration and (b) four Common/Preferred
Contingent Payment Rights, (3) each issued and outstanding share of Exmark Class
B Stock shall be converted into and become a right to receive (a) the Class B
Initial Per Share Payment Consideration and (b) one Class B Contingent Payment
Right, and (4) each issued and outstanding share of Exmark Class C Stock shall
be converted into and become a right to receive the Initial Per Share Payment
Consideration. See "THE MERGER--Effects of the Merger."
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of
Toro, Merger Subsidiary and Exmark. Such representations and warranties are
subject, in certain cases, to specified exceptions.
Exmark has made certain representations and warranties to Toro relating to,
among other things, the following matters (which representations and warranties
are subject, in certain cases, to specified exceptions): (1) the due
organization, authority, power and standing of Exmark, and the accuracy of the
articles of incorporation and bylaws of Exmark; (2) the authorization,
execution, delivery and performance by, and enforceability of, the Merger
Agreement, the Articles of Merger and the Exmark Ancillary Agreements; (3) due
authorization by Exmark's board of directors of the Merger Agreement, the
Merger, the Articles of Merger, the Exmark Ancillary Agreements, the Signing
Bonuses and other matters; (4) the absence of any breach or violation of other
agreements, laws or orders; (5) except as set forth in the Merger Agreement,
absence of any governmental or regulatory authorization, consent or approval
required to consummate the Merger; (6) except as set forth in the Merger
Agreement, the absence of subsidiaries; (7) capital stock; (8) financial
statements; (9) the absence of undisclosed liabilities; (10) the absence of
certain material
52
<PAGE>
adverse changes; (11) the absence of certain developments; (12) title to
properties; (13) accounts receivable; (14) inventory; (15) tax matters; (16)
Exmark's performance of material obligations in connection with disclosed
contracts and commitments; (17) intellectual property rights; (18) the absence
of material pending or threatened litigation; (19) warranties and products; (20)
employees; (21) employee benefit plans; (22) insurance; (23) the absence of
certain affiliate transactions; (24) customers and suppliers; (25)
distributions; (26) officers and directors and the existence of bank accounts;
(27) compliance with applicable laws and the possession of all licenses, permits
and certificates necessary to operate the business of Exmark; (28) environmental
matters; (29) brokerage fees; (30) opinion of financial advisor; (31)
stockholder agreements; (32) registration statement; and (33) disclosures.
Toro and Merger Subsidiary, jointly and severally, have made certain
representations and warranties to Exmark related to, among other things, the
following matters (which representations and warranties are subject, in certain
cases, to specified exceptions): (1) the due organization, authority, power and
standing of Toro; (2) the authorization, execution, delivery and performance by,
and enforceability of, the Merger Agreement and the Toro Ancillary Agreements;
(3) the absence of any breach or violation of other agreements, laws or orders;
(4) the capital stock of the Merger Subsidiary; (5) except as set forth in the
Merger Agreement, absence of any governmental or regulatory authorization,
consent or approval required to consummate the Merger; (6) brokerage fees; (7)
SEC documents; (8) capital stock of Toro; (9) absence of certain current plans
or intentions relating to Exmark; and (10) the due authorization and validity of
the stock issued in the Merger.
COVENANTS
Pursuant to the Merger Agreement, Exmark has agreed that, prior to the
Effective Time, except as expressly permitted by the Merger Agreement or as
otherwise consented to by Toro in writing, Exmark, among other things, (1) will
conduct its business in the ordinary course of its business; (2) will not issue
or sell any additional shares of its capital stock, or sell, pledge, dispose of
or encumber any of its assets, except in the ordinary course of business; (3)
will not grant any bonuses, salary increases, severance or termination pay to
any officers, directors or consultants or certain employees; (4) will not adopt
or amend any bonus, profit sharing, compensation, stock option, pension,
retirement, deferred compensation, employment or other employee benefit plan,
trust, fund or group arrangement for the benefit or welfare of any employees or
of any director; (5) will use its best efforts to preserve intact its business
organization and goodwill, keep available the services of its officers and
employees as a group and maintain satisfactory relationships with suppliers,
distributors, customers and others with which it has business relationships; and
(6) will not perform any act referenced by (or omit to perform any act which
omission is referenced by) the terms of Section 3.11 of the Merger Agreement.
In addition, pursuant to the Merger Agreement, prior to the Effective Time,
and except as expressly permitted by the Merger Agreement, Exmark will, among
other things, (1) provide to Toro full access at all reasonable times and upon
reasonable notice access to Exmark's books and records; (2) cause to be duly
called and held a meeting the Exmark stockholders; (3) furnish or cause to be
furnished to Toro all information concerning Exmark required to be included in
the Registration Statement and any other applicable documents, including the
Proxy Statement/Prospectus; (4) prepare and deliver to Toro all quarterly and
monthly financial statements for any periods ending at least 15 days prior to
the Effective Time; (5) take all commercially reasonable actions necessary or
desirable to cause the conditions set forth in the Merger Agreement to be
satisfied and to consummate the transactions contemplated by the Merger
Agreement and obtain all consents and waivers contemplated by the Merger
Agreement; (6) refrain from soliciting, initiating and encouraging submission of
any proposal or offer from any person or entity relating to any liquidation,
dissolution, recapitalization, merger, consolidation or acquisition or purchase
of all or a material portion of the assets of, or any equity interest in, Exmark
or other similar transaction or business combination involving Exmark or
participate in any negotiations regarding the foregoing; and (7) amend
53
<PAGE>
and restate its articles of incorporation in order to authorize the issuance of
Exmark Class B Stock and Exmark Class C Stock.
Pursuant to the Merger Agreement, Toro and Merger Subsidiary have agreed
that Toro will, subject to certain exceptions, (1) promptly as practicable after
the execution of the Merger Agreement, make or cause to be made all filings and
submissions under the HSR Act and any other applicable laws or regulations; (2)
take all commercially reasonable actions necessary to consummate the
transactions contemplated by the Merger Agreement; (3) file the Registration
Statement and any applicable documents, which will include the Proxy
Statement/Prospectus with the SEC; (4) file all documents required to be filed
to list the Toro Common Stock to be issued pursuant to the Merger Agreement on
the NYSE; (5) take all corporate action necessary to ensure that any shares of
Toro Common Stock issued by Toro to the Exmark stockholders pursuant to the
Initial Payment and the Contingent Payment Rights will, upon such issuance and
delivery, be duly authorized, validly issued, fully paid and nonassessable and
free of any preemptive rights; and (6) file all documents required to obtain,
prior to the Effective Time, all necessary approvals under state securities
laws, if any.
LIMITATIONS ON NEGOTIATIONS BY EXMARK
Except as set forth in the Merger Agreement, Exmark will not, directly or
indirectly, through any officer, director, agent, affiliate, employee or
otherwise, solicit, initiate or encourage submission of any proposal or offer
from any person or entity relating to any liquidation, dissolution,
recapitalization, merger, consolidation or acquisition of the capital stock or
business of Exmark, or all or a material portion of the assets of Exmark, or
other similar transaction or business combination involving Exmark, and shall
not participate in any negotiations or discussions regarding, or furnish to any
other person any information with respect to, or otherwise cooperate in any way
with, or assist or participate in, facilitate or encourage, any effort or
attempt by any other person or entity to do or seek any of the foregoing. Exmark
will promptly notify Toro of any such inquiry and will keep Toro informed, on a
current basis, of the status and terms of any such proposals, offers,
discussions and negotiations.
Notwithstanding the foregoing, nothing contained in the Merger Agreement
shall prevent Exmark or its board of directors from engaging in discussions or
negotiations with, or providing any information to, a third party in response to
an unsolicited bona fide acquisition proposal from such person, or from
recommending an unsolicited bona fide acquisition proposal to the stockholders
of Exmark, if and to the extent that the Board of Directors of Exmark: (1)
concludes in good faith (after consultation with its financial and legal
advisors) that such acquisition proposal is reasonably capable of being
completed, taking into account all legal, financial, regulatory and other
aspects of the proposal, including the identity of the person making the
proposal, and would, if consummated, result in a transaction more favorable to
Exmark's stockholders from a financial and strategic point of view than the
Merger (such more favorable acquisition proposal being referred to herein as
"Superior Proposal"); and (2) is advised by its legal counsel that such action
is necessary in order for Exmark's Board of Directors to satisfy its fiduciary
duties under Nebraska law; provided, however, that Exmark's legal counsel
provide reasonably satisfactory written evidence of such advice to Toro prior to
Exmark's Board of Directors taking any such action. Prior to providing
information or data to any third party or entering into discussions or
negotiations with any third party, Exmark shall receive from such third party an
executed confidentiality agreement. Exmark shall notify Toro immediately of any
inquiries, proposals or offers, including the name of such third party and the
terms and conditions of any proposals or offers.
CONDITIONS
The Merger will occur only if the Merger Agreement is approved and adopted
by the requisite vote of the stockholders of Exmark. Consummation of the Merger
is also subject to the satisfaction of certain other conditions specified in the
Merger Agreement, unless such conditions are waived (to the extent such waiver
is permitted by law).
54
<PAGE>
Each party's respective obligations to effect the Merger are subject to
various conditions, including the following: (1) the applicable waiting periods
under the HSR Act shall have expired or been terminated and all other material
governmental filings, authorizations and approval that are required for the
consummation transactions contemplated by the Merger Agreement or the Articles
of Merger will have been duly made and obtained; (2) there shall not be
threatened, instituted or pending any action or proceeding, before any court or
governmental authority or agency, challenging or otherwise seeking to restrain
consummation of the transactions contemplated in the Merger Agreement, seeking
to invalidate or render unenforceable any material provision of the Merger
Agreement, the Articles of Merger or any of the Exmark Ancillary Agreements or
Toro Ancillary Agreements, or otherwise relating to and materially adversely
affecting the transactions contemplated thereby; (3) there shall not be any
action taken, nor any statute, rule, regulation, judgment, order or injunction
enacted, entered, enforced, promulgated, issued or deemed applicable to the
transactions contemplated by the Merger Agreement that would reasonably be
expected to result in any of the consequences referred to in item (2) above; and
(4) the Registration Statement shall have become effective and shall not be
subject to any stop order, and no action suit, proceeding or investigation by
the SEC to suspend the effectiveness of the Registration Statement shall have
been initiated and be continuing, or have been threatened or be unresolved, and
Toro shall have received all necessary state securities law authorizations.
The obligations of Toro and Merger Subsidiary to consummate the Merger are
subject to the satisfaction at or before the Effective Time of the following
conditions: (1) the representations and warranties of Exmark set forth in the
Merger Agreement shall be true and correct in all material respects at and as of
the Effective Time of the Merger as though made on and as of such date; (2)
Exmark shall have performed in all material respects all the covenants and
agreements required to be performed by it under the Merger Agreement prior to
the Effective Time; (3) Exmark shall have obtained all necessary consents and
approvals; (4) the Merger Agreement, the Articles of Merger, the Merger, the
Signing Bonuses and the New Articles of Incorporation shall have been duly and
validly approved by Exmark's Board of Directors, and the Merger Agreement, the
Merger, the Signing Bonuses and the New Articles of Incorporation shall have
been duly and validly approved by the Stockholders of Exmark; (5) Toro shall not
have discovered any fact or circumstances existing as of the Effective Time,
which previously had not been disclosed to Toro regarding the business, assets,
properties, condition, results of operations or prospects of Exmark, which is,
individually or in the aggregate with other such facts and circumstances,
materially adverse to Exmark or to the value of the shares of Exmark's capital
stock; (6) there shall have been no damage, destruction or loss of or to any
property or properties owned or used by Exmark, whether or not covered by
insurance, which, in the aggregate, has, or would be reasonably likely to have,
a material adverse effect on the business or result of Exmark; (7) Toro shall
have received from Exmark's legal counsel a written opinion, dated the Effective
Time, addressed to Toro and satisfactory to Toro's legal counsel; (8) not more
than 8% of the outstanding shares of Exmark Common Stock and Exmark Preferred
Stock shall be qualified to be Dissenting Shares as of the Effective Time; (9)
Toro shall have received from Grant Thornton LLP, Exmark's accountant, a
"comfort" letter, dated as of the effective date of the Registration Statement
and updated through the Effective Time; (10) Exmark shall have delivered to Toro
all of the following: (a) certificates executed by certain officers of Exmark
concerning certain conditions precedent, (b) copies of third party and
governmental consents and approvals and certain authorizations, (c) the minute
books, stock transfer records, corporate seal and other materials related to the
corporate administration of Exmark, (d) resignations from certain of Exmark's
directors, (e) a copy of the certified Articles of Incorporation of Exmark and a
Certificate of Good Standing of Exmark from the Nebraska Secretary of State, (f)
a copy of each of (i) the text of resolutions adopted by Exmark's Board of
Directors authorizing and approving the Merger and authorizing the execution,
delivery and performance of the Merger Agreement, the Articles of Merger and the
New Articles of Incorporation, the payments of the Signing Bonuses and the
consummation of transactions contemplated by the Merger Agreement, and (ii) the
current bylaws of Exmark certified by its corporate secretary, (g) incumbency
certificates executed on behalf of Exmark by its corporate secretary certifying
the signatures and offices of certain officers,
55
<PAGE>
(h) an executed copy of each of the Exmark Ancillary Agreements and (i) such
other certificates, documents and instruments as Toro reasonably requests
related to the transactions contemplated by the Merger Agreement; (11) H. John
Smith, Ray Rickard, Roger Smith, Garry Busboom and Mike Hirschman shall have
entered into Employment Agreements acceptable to Toro; and (12) all compensation
plans and similar agreements between Exmark and each of H. John Smith, Ray
Rickard, Holiman and Roger Smith shall have been terminated, except that Exmark
may continue to pay, consistent with past practice, (a) bonuses to H. John Smith
and Ray Rickard pursuant to Exmark's incentive bonus program for executives for
services performed prior to October 31, 1997, and (b) commissions to Holiman's
sales personnel; (13) Exmark shall have terminated its 1990 Stock Option Plan
and its 1992 Restricted Stock Plan and all Outstanding Purchase Rights shall
have been fully exercised or canceled; and (14) Exmark shall have acquired
Holiman on terms acceptable to Toro pursuant to a purchase agreement and, at the
Effective Time, Holiman's net worth shall equal or exceed $200,000.
The obligation of Exmark to consummate the Merger is subject to the
satisfaction at or before the Effective Date of the following conditions: (1)
the representations and warranties of Toro set forth in the Merger Agreement
shall be true and correct in all material respects at and as of the Effective
Time as though made on and as of such date; (2) Toro and Merger Subsidiary shall
have performed in all material respects all the covenants and agreements
required to be performed by them under the Merger Agreement and the Articles of
Merger prior to the Effective Time, and Merger Subsidiary shall have executed
the Articles of Merger; (3) Toro and Merger Subsidiary shall have delivered to
Exmark (a) a certificate executed by the appropriate officer(s) of Toro dated as
of the Effective Date, stating that to the knowledge of such officer(s) certain
conditions precedent set forth in the Merger Agreement have been satisfied, and
(b) an executed copy of each of the Toro Ancillary Agreements; (4) the Signing
Bonuses to H. John Smith and Ray Rickard, as appropriate, shall have been paid;
(5) Exmark shall have received an opinion dated as of the Effective Time in form
and substance satisfactory to Exmark of Croker, Huck, Kasher, DeWitt, Anderson &
Gonderinger, P.C., to the effect that (a) the Merger will be treated for federal
income tax purposes as a reorganization within the meaning of Section 368(a) of
the Code, (b) Toro, Merger Subsidiary and Exmark will each be a party to that
reorganization within the meaning of Section 368(b) of the Code, (c) no income,
gain or loss will be recognized for federal income tax purposes by either Exmark
or Toro as a result of the consummation of the Merger, and (d) no income, gain
or loss will be recognized for federal income tax purposes by the stockholders
of Exmark upon the exchange in the Merger of Shares solely for the Merger
Consideration (other than the cash portion thereof and any cash received in lieu
of fractional shares); (6) Exmark shall have received an updated opinion of
McCarthy & Co., addressed to the board of directors of Exmark and dated not more
than two business days prior to the date the Prospectus-Proxy Statement is first
mailed to Exmark's stockholders, to the effect that, as of the date of such
opinion, the Merger is fair to Exmark's stockholders from a financial point of
view; (7) Exmark shall have received the opinion of J. Lawrence McIntyre, Toro's
General Counsel; and (8) the shares of Toro Common Stock to be issued as Merger
Consideration shall have been approved for listing on the NYSE.
SURVIVAL
The Merger Agreement provides that all of Toro's and Merger Subsidiary's
representations and warranties and all of Exmark's representations and
warranties contained therein will survive the Closing of the Merger until the
date on which the last payment of the Holdback Amount is made (the "Last Payment
Date") and will have no further force or effect thereafter.
OFFSET RIGHT
Pursuant to the Merger Agreement, Toro will have the right to offset (the
"Offset Right"), from time to time, any loss, liability, deficiency, damage,
penalty, expense or cost (including reasonable legal expenses), whether or not
actually incurred or paid, until the Last Payment Date (the "Offset Period") and
after taking into effect the tax effects of such items and any use of the Offset
Right thereunder
56
<PAGE>
(collectively, "the Losses"), against both the Holdback Amount and the
Contingent Payment Rights, which Toro or the Surviving Corporation or any of
their respective affiliates, officers, directors, employees or agents (the
"Protected Parties") may suffer or become subject to, as a result of: (1) any
misrepresentation (a "Misrepresentation") in any of the representations and
warranties of Exmark contained in the Merger Agreement or in any of the
exhibits, schedules, certificates and other documents delivered or to be
delivered by or on behalf of Exmark pursuant to the Merger Agreement or
otherwise referenced or incorporated in the Merger Agreement (collectively, the
"Related Documents"); (2) any breach (a "Breach") of, or failure to perform, any
agreement or covenant of Exmark contained in the Merger Agreement or any of the
Related Documents; (3) any and all Losses suffered by any of the Protected
Parties and any and all Claims (as defined below) or threatened Claims against
the Protected Parties arising out of actions or inactions of Exmark (regardless
of whether there may also be a Misrepresentation arising out of such actions or
inactions) prior to the Effective Time with respect to (a) any Release (as
defined in the Merger Agreement) of any Hazardous Materials (as defined in the
Merger Agreement) on, under or from the Real Property (as defined in the Merger
Agreement); (b) any environmental contamination of the Real Property, including
without limitation the presence of any Hazardous Materials that have come to be
located on or under the Real Property from another location; (c) any injury to
the environment, or to human health or safety associated with the environment,
by reason of the condition of, or activities past or present on or under, the
Real Property; or (d) any violation, or alleged violation, of any Environmental
Law (as defined in the Merger Agreement) with respect to the Real Property or
Exmark's operations at the Real Property, specifically including any and all
costs and expenses required to cause Exmark to comply with any such
Environmental Law (all such Losses, Claims and threatened Claims are
collectively referred to as "Environmental Losses"); and (4) any amounts paid to
Exmark's dissenting stockholders in excess of the aggregate amount of the value
of the Merger Consideration that such stockholders otherwise would have received
in the Merger.
Notwithstanding the foregoing, the amount of any Losses shall be offset by
any insurance proceeds received by Exmark with respect to insurance policies
paid for by Exmark.
In the event Toro exercises its Offset Right, such offset will be applied
first against any payment to be made from the Holdback Amount, and any remainder
of such offset shall be applied against any payment due or to become due with
respect to the 1998 Contingent Payment, and any remainder of such offset shall
be applied against any payment or payments due or to become due with respect to
the 1999 Contingent Payment.
In the event any of the Protected Parties becomes involved in any legal,
governmental or administrative proceeding which may result in Losses subject to
Toro's Offset Right thereunder, or if any such proceeding is threatened or
asserted (any such third party action or proceeding being referred to therein as
a "Claim"), Toro is required to promptly notify the Stockholders'
Representatives in writing of the nature of any such Claim and Toro's estimate
of the Losses arising therefrom.
The Stockholders' Representatives shall be entitled to contest and defend
such Claim under the procedures and conditions set forth in the Merger
Agreement. The Stockholders' Representatives must provide Toro with notice of
the intention to contest and defend within 20 days after Toro provides notice of
such Claim. Toro is entitled at any time, at its own cost and expense, to
participate in such contest and defense and to be represented by its own
attorneys. Neither Toro nor the Stockholders' Representatives may concede,
settle or compromise any Claim without the consent of the other, which consent
may not be unreasonably withheld. The Stockholders' Representatives may have the
cost of defense, including reasonable legal expenses, paid or reimbursed by the
Surviving Corporation.
The Merger Agreement provides, subject to certain exceptions for specified
matters, that the right of Toro to exercise its Offset Right thereunder will be
subject to the following limitations: (1) Toro will not be entitled to exercise
its Offset Right with respect to any Losses, until the aggregate amount of all
Losses thereunder exceeds the greater of $50,000 or an amount equal to 50% of
the difference of the Actual Net
57
<PAGE>
Worth and $8,243,000; (2) an individual Loss will not give rise to an Offset
Right unless such Loss equals or exceeds $10,000 (however, this limitation does
not apply to any Loss that relates to a claim or action that arises from the
same or substantially the same facts as one or more other claims or actions and
the aggregate amount of Losses so arising is at least $10,000); (3) Toro will
not be entitled to exercise its Offset Right with respect to any Losses unless
Toro delivers to the Stockholders' Representatives an Offset Notice or notice of
a Claim prior to the end of the Offset Period; (4) Toro will not be entitled to
exercise its Offset Right with respect to any Losses to the extent that such
Losses result from or arise out of the gross negligence or willful misconduct of
Toro, any director, officer or employee of Toro or any Toro subsidiary; (5) Toro
will be entitled to exercise its Offset Right only for Losses in an aggregate
amount not exceeding the Holdback Amount and the total amount of the Contingent
Payment Rights and (6) the Offset Right will be Toro's sole and exclusive remedy
with respect to any Losses that any Protected Party may suffer, sustain or
become subject to pursuant to the terms of the Merger Agreement, and Toro has
agreed that it will not, and waives all rights to, institute or maintain any
suit, proceeding or action against the Holders or utilize or exercise any other
legal or equitable remedy for the purpose of recovering damages or other relief
with respect to any Losses (including, without limitation, an action seeking to
recover any portion of the purchase price previously paid to Exmark's
stockholders) except for suits, proceedings or actions necessary to enforce or
implement the Offset Right; provided that, (a) nothing contained in the Merger
Agreement shall prevent a party from bringing an action based upon allegations
of fraud or other intentional misconduct with respect to another party hereto in
connection with the Merger Agreement, and (b) nothing contained in the Merger
Agreement shall limit in any manner any other legal rights or remedies which any
Protected Party which is a party to an agreement identified under Article XII of
the Merger Agreement has against another party to such agreement in accordance
with the terms and conditions provided therein.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time: (1) by the mutual consent of Toro, Merger Subsidiary and Exmark; (2) by
Toro or Exmark, if there has been a material misrepresentation, a material
breach of warranty or a material breach of covenant on the part of the other in
the representations, warranties and covenants set forth in the Merger Agreement;
(3) by Toro or Exmark, if there shall be a final nonappealable order of a
federal or state court in effect preventing consummation of the Merger, or there
shall be any action taken, or any statute, rule, regulation or order enacted,
promulgated or issued or deemed applicable to the Merger by any governmental
authority or agency, foreign or domestic, which would make the consummation of
the Merger illegal and such action, statute, rule, regulation or order shall
have become final and unappealable; (4) by Toro or Exmark, if there shall be any
action taken, or any statute, rule, regulation or order enacted, promulgated or
issued or deemed applicable to the Merger by any governmental authority or
agency, which would (a) prohibit Exmark's or Toro's ownership or operation of
all or a portion of Exmark's business, or (b) compel Toro or Exmark to dispose
of or hold separate all or a portion of the business or assets of Exmark or Toro
as a result of the Merger; (5) by Toro or Exmark, if the transactions
contemplated herein have not been consummated on or before January 31, 1998;
provided that, neither will be entitled to terminate the Merger Agreement if
such party's willful breach of the Merger Agreement has prevented the
consummation of the transactions contemplated by the Merger Agreement; (6) by
Toro or Exmark, if certain conditions precedent to such party's obligations to
consummate the Merger become impossible to satisfy; (7) by Toro or Exmark, if
the board of directors of Exmark withdraws, modifies or changes its
recommendation of the Merger Agreement or the Merger in a manner adverse to Toro
or Merger Subsidiary or shall have resolved to do any of the foregoing or the
board of directors of Exmark shall have recommended to the stockholders of
Exmark any superior proposal or resolved to do so; (8) by Toro or Exmark, if the
Stockholders' Meeting shall have been held and the stockholders of Exmark shall
have failed to approve the Merger Agreement, the Merger, the New Articles of
Incorporation and the Signing Bonuses at such meeting (including any adjournment
or postponement thereof); (9) by Toro, if (a) Exmark receives an
58
<PAGE>
unsolicited proposal that constitutes a superior proposal and the board of
directors of Exmark, within 30 calendar days after such proposal is received by
Exmark (which thirty-day period may be extended by Exmark for such additional
period not exceeding 30 days as Exmark reasonably determines, based on
consultations with independent counsel, to be required in order to satisfy its
fiduciary obligations under law), either fails to terminate discussions with the
maker of such proposal and its agents, or determines to accept, or takes no
position with respect to, such proposal, (b) a tender offer or exchange offer
for 20% or more of the outstanding shares of Exmark's capital stock is
commenced, and the board of directors of Exmark, within 10 business days after
such tender offer or exchange offer is so commenced, either fails to recommend
against acceptance of such tender offer or exchange offer by its stockholders or
takes no position with respect to the acceptance of such tender offer or
exchange offer by its stockholders, or (c) any person (other than Toro or its
affiliates) shall have acquired beneficial ownership or the right to acquire
beneficial ownership of 20% or more of the then outstanding shares of Exmark's
Capital Stock; (10) by Toro, if the number of Dissenting Shares (counting each
such share of Exmark Preferred Stock as four shares of Exmark Common Stock)
exceeds 8% of the total number of shares of Exmark Common Stock and Exmark
Preferred Stock that are issued and outstanding as of the Record Date of the
Stockholders' Meeting (counting each such share of Exmark Preferred Stock as
four shares of Exmark Common Stock); (11) if after the date the Merger Agreement
is signed there shall have been a material adverse change in the business,
assets, properties, condition (financial or otherwise), results of operations or
prospects of Exmark, or if an event (other than a general industry or economic
downturn) shall have occurred which, so far as reasonably can be foreseen, would
result in any such change; (12) by Toro, if the Initial Toro Share Price is less
than $30 per share; or (13) by Exmark, if the Initial Toro Share Price exceeds
$44 per share.
In the event of termination of the Merger Agreement by Toro, Merger
Subsidiary or Exmark, all provisions of the Merger Agreement will terminate
except such provisions set forth in the Merger Agreement relating to termination
fees, press releases and announcements, expenses, governing law and
confidentiality, all of which shall survive indefinitely.
TERMINATION FEES
Toro and Exmark have agreed that Exmark shall pay Toro a fee of $1,500,000
(a) if the Merger Agreement is terminated pursuant to Item (7) above; (b) if the
Merger Agreement is terminated pursuant to Item (9) above, and the transaction
contemplated by such superior proposal ultimately is consummated (or any similar
transaction is consummated with a party other than Toro or Merger Subsidiary),
or (c) if the Merger Agreement is terminated pursuant to Item (8) above and a
Superior Proposal exists on the date of the Stockholders' Meeting.
FEES AND EXPENSES
Except as otherwise expressly provided in the Merger Agreement, Exmark, the
Stockholders' Representatives, Toro and Merger Subsidiary will each pay all of
their own expenses (including attorneys', financial advisors' and accountants'
fees) in connection with the negotiation of the Merger Agreement, the
performance of their respective obligations under the Merger Agreement and the
Articles of Merger and the consummation of the transactions contemplated hereby
and thereby. Toro shall pay for any environmental audit that it may cause to be
performed and real estate title insurance purchased in connection with the
Merger. Exmark shall pay any loan prepayment and other related fees incurred by
it or Toro in connection with the Merger. Exmark and Toro shall each pay
one-half of the HSR Act filing fee applicable to the Merger.
59
<PAGE>
CERTAIN INFORMATION CONCERNING TORO
GENERAL
Toro designs, manufactures and markets consumer and professional turf
maintenance equipment, snow removal products and irrigation systems. Toro
produced its first lawn mower for golf course fairways in 1922 and its first
lawn mower for home use in 1939 and has continued to enhance its product lines
ever since.
Toro emphasizes quality and innovation in its products, manufacturing and
marketing. Toro strives to provide well built, dependable products supported by
an extensive service network. Innovation is emphasized through the introduction
of new and enhanced products. Toro's substantial funding of research and
development, as well as its acquisition strategy and its licensing and related
agreements, all contribute to its new product development efforts. Through these
efforts Toro also attempts to be responsive to trends which may affect its
target markets, now and in the future. Toro believes that a significant portion
of its revenues in recent years have been attributable to its new and enhanced
products. Examples of recently introduced products include the
Recycler-Registered Trademark- lawn mower which reduces the need for disposal of
grass clippings, a high pressure water jet turf aerator for maintenance of golf
course putting greens and an enhanced electronic controller for residential
irrigation systems which features programmable timing and zone control
functions.
Toro was incorporated in Minnesota in 1935 as a successor to a business
founded in 1914. It was reincorporated in Delaware in 1983. Toro's executive
offices are located at 8111 Lyndale Avenue South, Bloomington, Minnesota
55420-1196, telephone number (612) 888-8801. Toro finances a significant portion
of its receivables through Toro Credit Company ("Toro Credit"), its wholly-owned
finance subsidiary. For further information concerning Toro, see the Toro
documents included herein as Exhibit D.
RECENT DEVELOPMENTS
No material changes to Toro's business have occurred since October 31, 1996,
the end of Toro's latest fiscal year, that have not been described in a
Quarterly Report on Form 10-Q filed by Toro under the Exchange Act.
60
<PAGE>
SELECTED SUMMARY CONSOLIDATED FINANCIAL DATA OF TORO
Set forth below is selected consolidated historical financial information of
Toro derived from the unaudited consolidated financial statements of Toro for
the nine months ended August 1, 1997 and August 2, 1996, the audited
consolidated financial statements of Toro for the fiscal year ended October 31,
1996, the three months ended October 31, 1995 and the years ended July 31, 1995,
1994, 1993, and 1992. In November 1995, Toro changed its fiscal year ended July
31 to a fiscal year ended October 31. The information should be read in
conjunction with the consolidated financial statements of Toro and related notes
thereto, included in Exhibit D to this Proxy Statement/Prospectus or included
elsewhere in this Proxy Statement/Prospectus. In the opinion of Toro's
management, the operating results for the nine months ended August 1, 1997 and
August 2, 1996 reflect all adjustments (consisting of normal recurring accruals)
necessary to present fairly the information contained therein. Results for the
nine months ended August 1, 1997 are not necessarily indicative of the results
for the full year. See "CERTAIN INFORMATION CONCERNING TORO" and the documents
included in Exhibit D to this Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
THREE
NINE MONTHS ENDED YEAR MONTHS YEARS ENDED
---------------------- ENDED ENDED ------------------------------------------
8/1/97(1) 8/2/96 10/31/96 10/31/95 7/31/95 7/31/94 7/31/93 7/31/92
----------- --------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................... $ 810,434 $ 732,712 $ 930,909 $ 192,278 $ 932,853 $ 794,341 $ 684,324 $ 643,748
Cost of sales............... 517,695 466,689 589,186 120,575 598,275 506,816 445,495 419,138
----------- --------- --------- --------- --------- --------- --------- ---------
Gross profit.............. 292,739 266,023 341,723 71,703 334,578 287,525 238,829 224,610
Selling, general and
administrative expense.... 231,255 210,273 278,284 65,048 269,757 244,943 203,377 223,166
Restructuring expense....... -- -- -- -- -- -- -- 24,900
----------- --------- --------- --------- --------- --------- --------- ---------
Earnings (loss) from
operations................ 61,484 55,750 63,439 6,655 64,821 42,582 35,452 (23,456)
Interest expense............ 15,408 10,858 13,590 2,532 11,902 13,562 17,150 18,726
Other (income) expense...... (5,957) (7,642) (10,331) (2,483) (8,193) (8,030) (3,053) (7,279)
----------- --------- --------- --------- --------- --------- --------- ---------
Earnings (loss) before
income taxes and
extraordinary loss...... 52,033 52,534 60,180 6,606 61,112 37,050 21,355 (34,903)
Provision for income
taxes..................... 20,553 20,751 23,771 2,609 24,445 14,820 8,315 (11,150)
----------- --------- --------- --------- --------- --------- --------- ---------
Net earnings (loss) before
extraordinary loss...... 31,480 31,783 36,409 3,997 36,667 22,230 13,040 (23,753)
Extraordinary loss, net of
income tax benefit of
$1,087.................... (1,663) -- -- -- -- -- -- --
----------- --------- --------- --------- --------- --------- --------- ---------
Net earnings (loss)....... $ 29,817 $ 31,783 $ 36,409 $ 3,997 $ 36,667 $ 22,230 $ 13,040 $ (23,753)
----------- --------- --------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- --------- --------- ---------
Net earnings (loss) per
common and common
equivalent share before
extraordinary loss...... $ 2.53 $ 2.52 $ 2.90 $ 0.32 $ 2.81 $ 1.71 $ 1.05 $ (1.98)
Extraordinary loss, net of
income tax benefit...... (0.13) -- -- -- -- -- -- --
----------- --------- --------- --------- --------- --------- --------- ---------
Net earnings (loss) per
common and common
equivalent share........ $ 2.40 $ 2.52 $ 2.90 $ 0.32 $ 2.81 $ 1.71 $ 1.05 $ (1.98)
----------- --------- --------- --------- --------- --------- --------- ---------
----------- --------- --------- --------- --------- --------- --------- ---------
BALANCE SHEET DATA:
Working capital............. $ 221,094 $ 197,896 $ 197,144 $ 165,086 $ 168,951 $ 175,783 $ 193,870 $ 210,430
Total assets................ 704,970 531,930 496,877 472,653 468,315 443,639 419,203 421,310
Short-term debt (including
current portion of
long-term debt)........... 95,365 83,973 41,375 56,909 38,625 20,300 15,000 --
Long-term debt (less current
portion).................. 177,650 53,046 53,015 53,365 64,935 81,025 122,970 164,100
Common shareholders'
equity.................... 233,667 209,562 213,567 190,892 185,471 168,652 144,601 132,614
OTHER DATA:
Dividends per common share.. $ 0.36 $ 0.36 $ 0.48 $ 0.12 $ 0.48 $ 0.48 $ 0.48 $ 0.48
</TABLE>
- ------------------------
Notes:
(1) Toro's consolidated financial statements include the results of operations
of the James Hardie Irrigation Group from the date of acquisition, December
2, 1996.
61
<PAGE>
CERTAIN INFORMATION CONCERNING EXMARK
Exmark is engaged in the manufacturing/assembly of outdoor power equipment
products, principally mid-size walk behind and riding commercial lawn mowers.
Its competitors include Toro, Deere & Co.-TM-, Snapper-TM- (a business segment
of Metromedia Communications), Ransomes and Jacobsen (a division of Textron).
Exmark's product line consists of mid-size commercial walk behind and riding
mowers (E.G. 32", 36", 44", 48" and 60" cutting widths), and various accessories
such as grass catchers and riding sulkies. Exmark has placed emphasis on new
product generation because of the belief that in order to retain current
dealers, attract new dealers and increase market share, new product offerings
are critical. Examples of the most recent new product introductions are the Turf
Tracer Hydro introduced in 1991, the Exmark Viking Hydro in 1992, Exmark
Explorer Two in 1992, the Exmark Metro in 1993, the Exmark Lazer Z introduced in
the Spring of 1995, the Turf Tracer HP introduced in the Fall of 1996 and the
Metro HP introduced in the Fall of 1997.
Exmark sells its products throughout the United States and Canada. Sales
volume is generated primarily through Exmark's manufacturers' representative,
Holiman. Less than 10% of the overall sales volume comes from direct sales or
"in-house" accounts. Holiman, Exmark's manufacturers' representative, is
responsible for seeking, establishing, developing, and servicing a network of
wholesale distributors within their assigned territory. Holiman represents
Exmark products exclusively. The distributor base upon which Exmark depends for
its overall sales volume is comprised of 20 U.S. distributors and four Canadian
distributors which in turn market Exmark products to approximately 1,007
dealers.
Exmark's customers are mainly commercial lawn and turf maintenance
companies. The commercial lawn and turf maintenance equipment market is very
competitive. It is served by a large number of manufacturers, including large
companies such as Toro and companies the size of Exmark and smaller.
The majority of various component parts required to construct Exmark
products are acquired from outside vendors. These vendors include Briggs &
Stratton Co., Kawasaki Motor Co., Kohler Co., Sunstrand-Hydro Gear, and Peerless
Division of Tecumseh Products Co. There are no contractual arrangements
obligating Exmark to purchase component parts from any specific supplier.
Patents have been granted or are pending for designs on several of the most
recent product introductions. Exmark has a federal trademark registration for
Exmark Explorer, Exmark Turf Ranger, Trivantage, Smart Step and Turf Tracer. In
addition, Exmark has applied for and received federal trademark registration of
the trademarks Exmark, Exmark Ranger, Exmark Parts Plus, and Advanta Lease.
The outdoor power equipment industry is one which is highly subject to
product liability suits due to the nature of injuries which could potentially
arise. While Exmark has not experienced any uninsured or underinsured losses in
this area, there can be no assurance that such actions will not occur in the
future. In the event Exmark became subject to sizeable products liability
claims, the ability of Exmark to continue operations could be threatened. Exmark
has sought to protect itself by the use of insurance. To the extent insurance in
this area should become unavailable or should dramatically rise in cost, or in
the event of claim(s) in excess of policy limits, the operations of Exmark could
be adversely affected. In some jurisdictions, injured claimants are permitted to
seek punitive damages. Punitive damage awards are generally not covered by
insurance. There have been a number of reported instances of enormous punitive
damage awards. Punitive damage awards could potentially threaten Exmark's
ability to continue operations.
62
<PAGE>
SELECTED FINANCIAL DATA OF EXMARK
Set forth below is selected historical financial information of Exmark
derived from the audited financial statements of Exmark for the fiscal years
ended August 31, 1997, 1996, 1995, 1994 and 1993. The information should be read
in conjunction with the Management's Discussion and Analysis of Exmark, the
financial statements of Exmark and related notes thereto included elsewhere
herein. See "FINANCIAL STATEMENTS OF EXMARK."
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------------------------
8/31/97 8/31/96 8/31/95 8/31/94 8/31/93
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales.................................................... $ 53,420 $ 38,372 $ 25,265 $ 19,375 $ 14,680
Cost of goods sold....................................... 35,687 25,217 16,535 12,372 9,585
--------- --------- --------- --------- ---------
Gross profit......................................... 17,733 13,155 8,730 7,003 5,095
Operating expenses....................................... 12,614 9,819 6,518 5,317 4,022
--------- --------- --------- --------- ---------
Earnings from operations............................. 5,119 3,336 2,212 1,686 1,073
Interest expense......................................... 1,155 1,057 776 553 440
Other income, net........................................ (324) (232) (177) (113) (82)
--------- --------- --------- --------- ---------
Earnings before income taxes......................... 4,288 2,511 1,613 1,246 715
Provision for income taxes............................... 1,492 846 550 488 252
--------- --------- --------- --------- ---------
Net earnings........................................... $ 2,796 $ 1,665 $ 1,063 $ 758 $ 463
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Net earnings per common and common equivalent
share.............................................. $ 62.01 $ 36.95 $ 24.47 $ 17.36 $ 10.61
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
BALANCE SHEET DATA:
Working capital.......................................... $ 4,380 $ 3,795 $ 2,440 $ 2,842 $ 2,489
Total assets............................................. 15,667 9,966 8,466 6,919 6,156
Short-term debt (including current portion of long-term
debt).................................................. 1,712 371 963 356 276
Long-term debt (less current portion).................... 415 934 1,308 1,690 2,052
Stockholders' equity..................................... 9,167 5,742 4,117 3,071 2,332
OTHER DATA:
Dividends per common share............................... $ 1.50 $ 1.00 $ 0.75 $ 0.50 $ --
</TABLE>
63
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF EXMARK
The following is Exmark's management's discussion and analysis of the
significant factors affecting Exmark's results of operations and financial
condition. This should be read in conjunction with Exmark's audited financial
statements and the accompanying footnotes and other selected financial data
presented elsewhere herein.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
POSITION FOR THE FISCAL YEAR ENDED AUGUST 31, 1997 AND 1996.
On October 23, 1997, Exmark entered into an agreement to be purchased by The
Toro Company, subject to approval by Exmark's stockholders. The Toro Company is
headquartered in Bloomington, Minnesota and manufactured and markets consumer
and commercial turf maintenance equipment, snow removal products and irrigation
systems.
RESULTS OF OPERATIONS
Net sales increased $15.0 million or 39.2% from fiscal 1996 to 1997, and
$13.1 million or 51.9% from fiscal 1995 to 1996. Net earnings were $2.8 million
in fiscal 1997 and $1.7 million in fiscal 1996, an increase of 67.9% from 1996
to 1997 and 56.5% from 1995 to 1996. The majority of the increase in sales over
the two year period is attributable to sales growth in Exmark's zero-turn riding
mower, the Lazer Z, which was introduced in April 1995, and a new mid-sized
mower introduced in October 1994. In addition, the introduction of a new
walk-behind mower in July 1996 contributed to the sales increase in fiscal 1997
over 1996. Overall sales growth in Exmark's products has exceeded that of others
in the industry.
Gross profit was 33.2%, 34.3% and 34.6% in fiscal 1997, 1996 and 1995,
respectively. The decline in gross profit is primarily due to a change in
product mix as well as higher production costs as a result of using of outside
vendors to meet peak production demands for certain production processes.
Material costs were relatively consistent from 1995 to 1997.
Operating expenses, as a percent of sales, were 23.6%, 25.6% and 25.8% in
fiscal 1997, 1996 and 1995, respectively. Operating expenses increased by $2.8
million from fiscal 1996 to 1997, but declined as a percent of sales as the
result of efficiencies from higher production levels. Exmark completed an
expansion of its existing facilities in fiscal 1997 to meet the higher
anticipated production demand and, as a result, associated operating expenses
are expected to increase. Exmark continues to make improvements and evaluate and
use alternative resources in order to reduce operating expenses, improve quality
and reduce the cost of existing products.
Interest expense increased by 9.3% from fiscal 1996 to 1997 and 36.2% from
fiscal 1995 to 1996, primarily as a result of interest incurred for dealer and
distributor financing programs, which increases with sales. As a percent of
sales, interest related to financing programs was 2.0%, 2.2% and 2.4% in fiscal
1997, 1996, and 1995, respectively.
Income tax expense, as a percent of net earning before income taxes, was
approximately 34.0% in fiscal 1995 through 1997. Exmark earned tax credits which
offset its state income tax liability for fiscal 1995 through 1997.
FINANCIAL POSITION AT AUGUST 31, 1997
Total assets increased by $5.7 million from $10.0 million to $15.7 million.
This increase is the result of growth in both accounts receivable as a result of
the higher sales level in fiscal 1997 and increases in inventory to meet the
anticipated higher demand into fiscal 1998. In addition, property and equipment
increased by $2.3 million as a result of the expansion of its facilities and
replacement of certain equipment during fiscal 1997. Total current liabilities
increased from $3.3 million to $6.1 million, as a result of an increase in
accounts payable and accrued compensation and similar liabilities associated
with the higher
64
<PAGE>
production level in fiscal 1997 as compared to fiscal 1996. In addition, at
August 31, 1997, Exmark had short-term borrowings of $1.4 million outstanding
under its line of credit agreement.
Long-term debt, including the current portion, declined by $0.6 million to
$0.7 million from fiscal 1996 to 1997, as Exmark made scheduled debt repayments
under existing debt agreements.
LIQUIDITY AND CAPITAL RESOURCES
Exmark's principal sources of cash in fiscal 1997 were cash generated from
operations and proceeds from short-term borrowings. The primary uses of cash
were increases in working capital associated with higher sales and production
levels, and investment in property and equipment to support future growth
through a plant expansion and investment in a new paint system. These capital
projects were substantially complete at August 31, 1997.
Exmark's seasonal working capital needs are provided by cash generated from
operations and, to the extent necessary, short-term borrowings. At August 31,
1997, Exmark had $5.6 million available under an existing line of credit
agreement with a bank, expiring in November 1997. Upon completion of the
purchase of Exmark by Toro, Exmark's working capital needs will be funded
through Toro.
INFLATION
Exmark is subject to the effects of changing prices. Exmark has historically
been able to pass along these inflationary increases through increases in the
prices of its products.
DESCRIPTION OF TORO CAPITAL STOCK
The following description of the capital stock of Toro does not purport to
be complete and is subject, in all respects, to applicable Delaware law and to
the provisions of the Toro's certificate of incorporation ("Toro's
Certificate").
GENERAL
Toro's authorized capital stock consists of 35,000,000 shares of Toro Common
Stock; 1,000,000 shares of Voting Preferred Stock, par value $1.00 per share;
and 1,000,000 shares of Non-Voting Preferred Stock, par value $1.00 per share,
of which 150,000 shares are designated as Series A $11.28 Cumulative Non-Voting
Preferred Stock (the "Series A Preferred Stock"). Toro's Board of Directors has
adopted a certificate of designation with respect to a series of 150,000 shares
of Voting Preferred Stock, the Series B Junior Participating Voting Preferred
Stock, $1.00 par value (the "Series B Preferred Stock"), in connection with
Toro's Rights Agreement dated June 14, 1988 (the "Rights Agreement"). See
"--Rights Plan."
The following summary does not purport to be complete and is subject in all
respects to the applicable provisions of the Delaware General Corporation Law
and Toro's Certificate of Incorporation, as amended.
COMMON STOCK
At August 1, 1997, there were 11,990,873 shares of Toro Common Stock
outstanding. All outstanding shares of Toro Common Stock are, and the shares
offered hereby, when issued, will be fully paid and nonassessable. All holders
of Toro Common Stock have voting rights and are entitled to one vote for each
share held of record on all matters submitted to a vote of the stockholders.
Holders of Toro Common Stock do not have the right to cumulate votes in the
election of directors and do not have a right of redemption or any preferential
right of subscription for any securities of Toro, except as described below
under "Rights Plan."
Subject to preferences that may be applicable to any shares of preferred
stock outstanding at the time, holders of Toro Common Stock are entitled to
dividends when and as declared by Toro's Board of
65
<PAGE>
Directors from funds legally available therefor and are entitled, in the event
of liquidation, to share ratably in all assets remaining after payment of
liabilities.
PREFERRED STOCK
As of the date of this Proxy Statement/Prospectus, there were no shares of
Series A Preferred Stock or Series B Preferred Stock outstanding. Previously
outstanding shares of Series A Preferred Stock have been redeemed and may not be
reissued as Series A Preferred Stock; however, Toro's Board of Directors is
authorized to retire such series in which case the shares previously designated
as such series shall assume the status of authorized but unissued shares of
Preferred Stock. The Series B Preferred Stock is issuable in accordance with the
terms of Toro's Rights Agreement. See "--Rights Plan."
Toro's Board of Directors has the authority, in most instances without
further stockholder action, to issue from time to time all or any part of the
authorized Preferred Stock. Additional Preferred Stock is issuable in one or
more series, and Toro's Board of Directors is authorized to determine the
designation of and number of shares in each series and to fix the dividend,
redemption, liquidation, retirement, conversion and voting rights, if any, of
such series, and any other rights and preferences thereof. Any shares of
Preferred Stock which may be issued may have disproportionately high voting
rights or class voting rights may be convertible into shares of Toro Common
Stock and may rank prior in right to shares of Toro Common Stock as to payment
of dividends and upon liquidation. Although the issuance of additional Preferred
Stock may have an adverse effect on the rights (including voting rights) of
holders of Toro Common Stock, the consent of the holders of Toro Common Stock
would not be required for any such issuance of Preferred Stock. In addition, the
issuance of additional Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of Toro. Toro has no current plans
to issue any Preferred Stock, except as provided for in the Rights Agreement.
See "--Rights Plan."
RIGHTS PLAN
On June 14, 1988, Toro's Board of Directors declared a dividend of one
preferred share purchase right (a "Right") for each outstanding share of Toro
Common Stock to holders of record on June 24, 1988. Each Right entitles the
registered holder to purchase from Toro, at a price of $85, one one-hundredth of
a share of Series B Preferred Stock subject to adjustment as provided in the
Rights Agreement. Pursuant to the Rights Agreement, one Right attaches to and
trades together with each share of Toro Common Stock issued by Toro, including
any shares of Toro Common Stock issued in connection with the Merger.
Until the earlier to occur of (1) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired beneficial ownership of 20% or more of the outstanding
Toro Common Stock or (2) 10 business days (or such later date as may be
determined by action of Toro's Board of Directors prior to such time as any
Person becomes an Acquiring Person) following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 20% or more of such outstanding Toro Common Stock (the earlier of such
dates being called the "Distribution Date"), the Rights will be attached to the
Toro Common Stock and will be evidenced by the Toro Common Stock certificate.
Until the Distribution Date, the Rights will be transferred with and only
with the Toro Common Stock. As soon as practicable following the Distribution
Date, separate certificates evidencing the Rights ("Right Certificates") will be
mailed to holders of record of the Toro Common Stock as of the close of business
on the Distribution Date. The Rights are not exercisable until the Distribution
Date. The Rights will expire on June 14, 1998 (the "Final Expiration Date"),
unless the Final Expiration Date is extended or unless the Rights are earlier
redeemed by Toro.
In the event that Toro is acquired in a merger or other business combination
transaction or 50% or more of its consolidated assets or earning power are sold,
each holder of a Right will thereafter have the
66
<PAGE>
right to receive, upon the exercise at the then current exercise price of the
Right, shares of Toro Common Stock of the acquiring company which at the time of
such transaction have a market value of two times the exercise price of the
Right. In the event that (1) any person becomes an Acquiring Person (unless such
person first acquires 20% or more of the outstanding Toro Common Stock by a
purchase pursuant to a tender offer for all of the Toro Common Stock for cash,
which purchase increases such person's beneficial ownership to 80% or more of
the outstanding Toro Common Stock) or (2) during such time as there is an
Acquiring Person, there shall be any reclassification of securities or
recapitalization or reorganization of Toro which has the effect of increasing by
more than 1% the proportionate share of the outstanding shares of any class of
equity securities of Toro or any of its subsidiaries beneficially owned by the
Acquiring Person, each holder of a Right, other than Rights beneficially owned
by the Acquiring Person (which will thereafter be void), will thereafter have
the right to receive upon exercise Toro Common Stock having a market value of
two times the exercise price of the Right.
At any time after the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 20% or more of the outstanding
Toro Common Stock and prior to the acquisition by such person or group of 50% or
more of the outstanding Toro Common Stock, Toro's Board of Directors may
exchange the Rights (other than Rights owned by such person or group which have
become void), in whole or in part, at an exchange ratio of one share of Toro
Common Stock, or one one-hundredth of a share of Series B Preferred Stock (or of
a share of a class or series of Toro's Preferred Stock having equivalent rights,
preferences and privileges), per Right.
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 20% or more of the outstanding
Toro Common Stock, Toro's Board of Directors of Toro may redeem the Rights in
whole, but not in part, at a price of $.01 per Right (the "Redemption Price").
In addition, if a bidder who does not beneficially own more than 1% of the Toro
Common Stock (and who has not within the past year owned in excess of 1% of the
Toro Common Stock and, at a time he held such greater than 1% stake, disclosed,
or caused the disclosure of, an intention which relates to or would result in
the acquisition or influence of control of Toro) proposes to acquire all of the
Toro Common Stock (and all other shares of capital stock of Toro entitled to
vote with the Toro Common Stock in the election of directors or on mergers,
consolidations, sales of all or substantially all of Toro's assets,
liquidations, dissolutions or windings up) for cash at a price which a
nationally recognized investment banker selected by such bidder states in
writing is fair, and such bidder has obtained written financing commitments (or
otherwise has financing) and complies with certain procedural requirements, then
Toro, upon the request of the bidder, will hold a special stockholders' meeting
to vote on a resolution requesting Toro's Board of Directors to accept the
bidder's proposal. If a majority of the outstanding shares entitled to vote on
the proposal vote in favor of such resolution, then for a period of 60 days
after such meeting the Rights will be automatically redeemed at the Redemption
Price immediately prior to the consummation of any tender offer for all of such
shares at a price per share in cash equal to or greater than the price offered
by such bidder. No redemption will be permitted or required after the
acquisition by any person or group of affiliated or associated persons of
beneficial ownership of 20% or more of the outstanding Toro Common Stock.
Immediately upon redemption, the right to exercise the Rights will terminate and
the only right of the holders of Rights will be to receive the Redemption Price.
Until a Right is exercised, the holder thereof, as such, will have no rights as
a stockholder of Toro, including without limitation, the right to vote or to
receive dividends.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire Toro unless
the offer is conditional on a substantial number of Rights being acquired. The
Rights, however, should not affect any prospective offeror willing to make an
offer at an equitable price and which is otherwise in the best interests of Toro
and its stockholders, as determined by Toro's Board of Directors. The Rights
should not interfere with any merger or other business combination approved by
Toro's Board of Directors since Toro's Board of Directors may, at its option,
redeem the Rights at any time until there is an Acquiring Person.
67
<PAGE>
The foregoing summary of certain terms of the Rights is qualified in its
entirety by reference to the Rights Agreement, a copy of which is included in
Exhibit D to this Proxy Statement/Prospectus.
DESCRIPTION OF EXMARK CAPITAL STOCK
The following description of capital stock of Exmark does not purport to be
complete and is subject, in all respects, to applicable Nebraska law and to the
provisions of Exmark's Articles of Incorporation ("Exmark Articles").
GENERAL
The authorized capital stock of Exmark consists of (1) 24,000 shares of
Exmark Common Stock, par value $10.00 per share, and (2) 21,000 shares of Exmark
voting participating preferred stock, par value $40.00 per share ("Preferred
Stock"). As of the date of this proxy statement/prospectus, 15,431 shares of
Exmark Common Stock were issued and outstanding, and 7,416 shares of Exmark
Preferred Stock were issued and outstanding. Presently, no shares are held in
treasury.
COMMON STOCK
Exmark Common Stock has the right to vote for the election of directors and
for all other purposes, and each holder of Exmark Common Stock is entitled to
one vote for each share held. Holders of Exmark Common Stock have the right to
cumulate votes in the election of directors and do not have a right of
redemption or any preferential right of subscription for any securities of
Exmark.
Holders of Exmark Common Stock are entitled to dividends when and as
declared by Exmark's Board of Directors from funds legally available therefore
in an amount per share equal to one-fourth of the dividends per share of
Preferred Stock concurrently declared. In the event of liquidation, the Exmark
Common Stock is subject to a liquidation preference of $40.00 per share of
Exmark Preferred Stock. After each outstanding share of Exmark Preferred Stock
has been allocated $40.00 of liquidation proceeds, each share of Exmark Common
Stock is then entitled to receive an allocation of liquidation proceeds of
$10.00 per share. Thereafter, each share of Exmark Common Stock will participate
in liquidation proceeds on a one-to-four ratio with each share of Exmark
Preferred Stock.
PREFERRED STOCK
Exmark has one class of Preferred Stock authorized with 7,416 shares issued
and outstanding as of the date hereof. The Exmark Preferred Stock has the right
to vote for the election of directors and for all other purposes, and each
holder of Exmark Preferred Stock is entitled to one vote for each share held.
Holders of Exmark Preferred Stock have the right to cumulate votes in the
election of directors and do not have a right of redemption or any preferential
right of subscription for any securities of Exmark.
Holders of Exmark Preferred Stock are entitled to dividends when and as
declared by Exmark's Board of Directors from funds legally available therefor in
an amount per share equal to four times the amount of dividends declared
concurrently with respect to each share of Exmark Common Stock. The Exmark
Preferred Stock has a liquidation preference in the amount of $40.00 per share
in the event Exmark is the subject of a voluntary or involuntary liquidation.
After holders of Exmark Preferred Stock have been allocated $40.00 per share of
liquidation proceeds, holders of Exmark Common Stock are then entitled to
allocation of liquidation proceeds of $10.00 per share of Exmark Common Stock.
Thereafter, any remaining liquidation proceeds are allocable to Exmark Preferred
Stock and Exmark Common Stock on a four-to-one ratio. That is, each share of
Exmark Preferred Stock will be entitled to receive four times the amount of
liquidation proceeds as the amount of liquidation proceeds allocable to each
share of Exmark Common Stock.
68
<PAGE>
EXMARK PREFERRED STOCK IF THE NEW ARTICLES OF INCORPORATION ARE APPROVED
If the New Articles of Incorporation are approved by the requisite vote of
Exmark's Stockholders, Exmark will have three classes of preferred stock: Exmark
Preferred Stock, Exmark Class B Stock and Exmark Class C Stock.
The New Articles of Incorporation clarify the distribution preference of the
Exmark Preferred Stock. Under Exmark's existing articles of incorporation, the
Exmark Preferred Stock is entitled to the liquidation preference described
above. In order to confirm that this preference applies to the Merger
Consideration to be received by holders of Exmark Preferred Stock in connection
with the Merger, the New Articles of Incorporation were drafted to explicitly
state that such holders would receive the same liquidation preference (I.E., a
distribution preference) in the event of the acquisition of all or substantially
all of the shares of Exmark by merger, purchase or otherwise.
The New Articles of Incorporation also create two new classes of preferred
stock. The Exmark Class B Stock and Exmark Class C Stock have the right to vote
for the election of directors and for all other purposes, and each holder of
Class B Stock and Exmark Class C Stock is entitled to one vote for each share
held. Holders of Class B Stock and Exmark Class C Stock have the right to
cumulate votes in the election of directors and do not have a right of
redemption or any preferential right of subscription for any securities of
Exmark.
Holders of Exmark Class B Stock and Exmark Class C Stock are entitled to
dividends when and as declared by Exmark's Board of Directors from funds legally
available therefor and shall participate therein on a pro rata basis with each
share of Exmark Common Stock. In the event of the liquidation of Exmark, each
share of Exmark Class B Stock shall be entitled to a liquidation preference
equal to the par value thereof ($.01), subject to the prior liquidation
preference of Exmark Preferred Stock in the amount of the par value thereof. In
the event of the liquidation of Exmark, each share of Exmark Class C Stock shall
be entitled to a liquidation preference equal to the par value thereof ($.01),
subject to the prior liquidation preference of the original Preferred Stock and
the Class B Preferred Stock in the amount of the par values thereof.
69
<PAGE>
COMPARISON OF STOCKHOLDER RIGHTS
The rights of Toro stockholders are governed by the Delaware General
Corporation Law (the "DGCL"), Toro's Certificate and Toro's Bylaws (the "Toro
Bylaws"). The rights of Exmark stockholders are governed by the Nebraska
Business Corporation Act (the "NBCA"), the Articles of Incorporation of Exmark,
as amended ("Exmark Articles"), and the bylaws of Exmark ("Exmark Bylaws"). The
following is a summary of certain material differences between the rights of
stockholders of Toro and the rights of stockholders of Exmark, as contained in
provisions of the DGCL and the NBCA, the Toro Certificate and Toro Bylaws, and
the Exmark Articles and Exmark Bylaws. It does not purport to be a complete
statement of the rights of Toro's stockholders as compared with the rights of
Exmark stockholders, and the identification of certain specific differences is
not meant to indicate that other equally or more significant differences do not
exist.
STOCKHOLDERS' DISSENTERS' RIGHTS
Under both the DGCL and the NBCA, stockholders may exercise a right to
dissent from certain corporate actions and obtain payment of the fair value of
their shares. This remedy is an exclusive remedy, except where the corporate
action involves fraud or illegality.
Under the DGCL, dissenters' rights are limited. Appraisal rights are
available only in connection with certain statutory mergers or consolidations,
amendments to the certificate of incorporation (if so provided in the
certificate of incorporation), any merger or consolidation in which the
corporation is a constituent corporation, or sales of all or substantially all
of the assets of a corporation. The Toro Certificate does not grant such rights.
Under the NBCA, the categories of transactions subject to dissenters' rights
are broader than those in the DGCL. A stockholder of a Nebraska corporation may
exercise dissenter's rights in connection with an amendment to the articles of
incorporation which materially and adversely affects the rights or preferences
of shares held by the dissenting stockholder, a sale or exchange of all or
substantially all of the corporation's property not in the usual course of
business if the stockholder is entitled to vote on the sale or exchange, a plan
of merger for which stockholder approval is required, a plan of exchange
involving the acquisition of the corporation's shares if the stockholder is
entitled to vote on the plan, and any corporate action taken pursuant to a
stockholder vote to the extent the articles, bylaws or board resolutions provide
for such rights. See "THE MERGER--Dissenters' Rights." Neither the Exmark
Articles nor the Exmark Bylaws grant such rights.
BOARD OF DIRECTORS
The DGCL provides that the board of directors of a Delaware corporation
shall consist of one or more directors as fixed by the certificate of
incorporation or bylaws. The Toro Articles and the Toro Bylaws presently require
a board comprised of not less than eight nor more than eleven directors, with
the exact number to be fixed by the board. Toro's board of directors is divided
into three classes, as nearly equal in number as possible. Directors in each
class serve for three years, and elections are staggered such that one class is
elected each year.
The NBCA provides that the board of directors of a Nebraska corporation
shall consist of one or more directors as fixed by the articles of incorporation
or bylaws. The Exmark Bylaws provide that the board shall consist of seven
directors. Exmark's board of directors is divided into two classes, consisting
of three and four directors, respectively. Directors in each class serve for two
years, and elections are staggered such that one class is elected each year.
70
<PAGE>
REMOVAL OF DIRECTORS
The DGCL provides that a director or the entire board of directors may be
removed, with or without cause, by the holders of at least a majority of the
shares then entitled to vote at an election of directors, unless the certificate
of incorporation provides in the case of a corporation whose board is
classified, that directors may be removed only for cause, or unless the
Corporation has cumulative voting, in which event if less than the entire board
is to be removed, no director may be removed without cause if the votes cast
against the director's removal would be sufficient to elect that director if
voted cumulatively either at an election of the entire board of directors or for
classes of the board. The Toro Certificate provides that, subject to the rights
of the holders of any series of preferred stock then outstanding, any director
may be removed from office at any time, but only for cause and only by the
affirmative vote of the holders of at least 80% of the voting power of the then
outstanding shares of the voting stock of Toro, voting together as a single
class. Toro does not have cumulative voting.
The NBCA provides that stockholders may remove one or more directors with or
without cause, unless the articles of incorporation provide that directors may
be removed only for cause; provided, however, that if cumulative voting is
authorized, a director may not be removed if the number of votes sufficient to
elect that director under cumulative voting is voted against the director's
removal. Neither the Exmark Bylaws nor the Exmark Articles contain provisions
with respect to removal of directors. The Exmark Bylaws provide for cumulative
voting.
AMENDMENTS TO BYLAWS
Under the DGCL, the Toro Bylaws may be altered, amended, supplemented or
repealed, or new bylaws adopted, by the stockholders entitled to vote or by any
other manner as may be authorized by the Toro Certificate. The Toro Certificate
provides that the Board of Directors is expressly authorized and empowered to
adopt, amend or repeal the Toro Bylaws by a majority vote; provided, however,
that the affirmative vote of the holders of at least 80% of the voting power of
the then outstanding shares of voting stock, voting together as a single class,
is required to alter, amend or repeal certain Bylaws, including those involving
the board of directors, actions by stockholders and certain business
combinations.
The NBCA and the Exmark Articles provide that either the stockholder or the
directors may adopt, amend or repeal bylaws. However, under the NBCA, directors
may not amend or repeal any bylaw if the bylaw expressly prohibits such action.
Similarly, while stockholders may, if authorized by the articles of
incorporation, adopt bylaws providing for a supermajority quorum or voting, the
board of directors may not. The Exmark Articles do not authorize adoption of
supermajority quorum or voting requirement. The Exmark Bylaws provide that the
bylaws may be altered, amended or repealed and new bylaws may be adopted,
amended or repealed by the stockholders at any regular or special meeting or,
except to the extent prohibited by law, by the board of directors at any regular
or special meeting or, in certain circumstances, by informal action.
AMENDMENTS TO CERTIFICATE OR ARTICLES
Under the DGCL, a corporation's certificate of incorporation may be amended
by resolution of the board of directors and the affirmative vote of the holders
of a majority of the outstanding shares entitled to vote. In addition, if an
amendment would increase or decrease the number of authorized shares in a
particular class, increase or decrease the par value of the shares of such class
or alter or change the powers, preferences or other special rights of such class
so as to affect the class adversely, then a majority of shares of that class
must approve the amendment. The DGCL permits a corporation to require a greater
proportion of voting power to approve amendments to specified provisions. The
Toro certificate provides that certain provisions of the certificate of
incorporation, including those involving the board of directors, actions by
stockholders and certain business combinations, cannot be altered, amended or
repealed unless such modification complies with the supermajority voting
provisions.
71
<PAGE>
The NBCA provides that a corporation's articles of incorporation may be
amended by resolution of the board of directors and the affirmative vote of at
least two-thirds of the shares entitled to vote, unless the articles of
incorporation require a greater vote. Under the NBCA, holders of the outstanding
shares of a class are entitled to vote as a separate voting group if, among
other things, the amendment would alter the number of authorized shares of the
class, effect an exchange or reclassification of all or part of the shares into
another class, or otherwise change the rights, preferences or limitations of the
shares in the class. The Exmark Articles do not alter these provisions.
INDEMNIFICATION
The DGCL contains provisions setting forth conditions under which a
corporation may indemnify its directors, officers, employees or agents. The DGCL
provides for indemnification if the person acted in good faith and in a manner
the person reasonably believed to be in or not opposed to the best interests of
the corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe the conduct was unlawful. Such indemnification is
merely permissive, except that a corporation must indemnify a person who is
successful on the merits or otherwise in the defense of certain specified
actions, suits or proceedings for expenses and attorneys' fees actually and
reasonably incurred in connection therewith. The DGCL allows a corporation,
through its certificate of incorporation, bylaws, or other intracorporate
agreements, to make indemnification mandatory.
The Toro Certificate provides that Toro shall indemnify its directors and
officers to the fullest extent permitted by law. The Toro Certificate
specifically requires indemnification of all expense, liability and loss
reasonably incurred by such director or officer by reason of the fact that such
person was or is a director or officer of Toro or was or is serving at the
request of Toro any other legal entity in any capacity while a director or
officer of Toro. The Toro Certificate permits the board of directors to
indemnify employees and agents.
Under Nebraska law, a corporation is required to indemnify a director or
officer of a corporation against expenses actually and reasonably incurred in
connection with the successful defense of certain proceedings, provided that
such person is wholly successful in the defense. The NBCA permits a corporation
to indemnify employees and agents.
The Exmark Articles provide for the indemnification of any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil or criminal, by reason of
the fact that such person was or is a director, officer, employee or agent of
the corporation or was or is serving at the request of Exmark any other legal
entity in any capacity. Such indemnification applies to all expenses, including
attorneys' fees, judgments, fines and amounts paid in settlement, actually and
reasonably incurred in connection with such proceeding, provided the person
acted in good faith and in a manner the person reasonably believed to be in or
not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that his
conduct was unlawful.
LIABILITY OF DIRECTORS
Under the DGCL, a corporation's certificate of incorporation may contain a
provision limiting or eliminating a director's personal liability to the
corporation or its stockholders for monetary damages for a director's breach of
fiduciary duty, subject to certain limitations. The Toro Certificate provides
that a director shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability for any breach of the director's duty of loyalty to the
corporation or its stockholders, for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, for any
transaction from which the director derived an improper personal benefit, or as
provided in the DGCL for liability for an unlawful payment of dividend, stock
purchase or redemption.
72
<PAGE>
The NBCA similarly permits the articles of incorporation to eliminate or
limit the liability of a director to the corporation or its stockholders from
monetary damages for any action taken as a director except liability for the
amount of a financial benefit the director received to which the director was
not entitled; an intentional infliction of harm on the corporation or the
stockholders; an intentional authorization of unlawful distribution; or an
intentional violation of criminal law. The present Exmark articles of
incorporation do not provide for the limitation or elimination of directors'
liability in any manner. However, prior to the Merger, the Exmark stockholders
will be asked to approve the New Articles of Incorporation, which will provide
for the elimination and limitation of the directors' liability to the fullest
extent allowed by the NBCA.
STOCKHOLDER MEETINGS
The DGCL requires a corporation to hold an annual meeting of stockholders
for the election of directors. In accordance with the DGCL and the Toro
Certificate, special meetings of the stockholders of Toro may be called only by
the board of directors pursuant to a resolution approved by a majority of the
entire board. Under the DGCL and the Toro Bylaws, whenever stockholders are
required or permitted to take action at a meeting, a written notice regarding
the meeting, which in the case of a special meeting, must indicate the purpose
or purposes for which the meeting is called, must be sent to all stockholders of
record entitled to vote at the meeting not less than 10 nor more than 60 days
before the meeting. Under the DGCL, notice of a meeting to consider an agreement
of merger must be sent at least 20 days prior to the date of the meeting.
The NBCA provides for annual meetings of stockholders. Special meetings are
held if called by the board of directors or others authorized by the articles of
incorporation or bylaws or upon the demand for such a meeting by holders of at
least 10% of the votes entitled to be cast on any issue proposed to be
considered at the proposed special meeting. The Exmark Bylaws provide that the
president or the board of directors may call a special meeting of stockholders
and that, at the request of holders of not less than 10% of all the outstanding
shares of the Exmark entitled to vote at the meeting, the President must call a
special meeting. The Exmark Bylaws require written notice stating the place,
time and date of the meeting and, in the case of a special meeting, the purpose
or purposes for which the meeting is called, to be sent to all stockholders of
record entitled to vote thereon not less than 10 nor more than 50 days before
the meeting.
PREEMPTIVE RIGHTS
Under Delaware law, stockholders of a corporation have no preemptive rights
unless such rights are expressly granted in the certificate of incorporation.
The Toro Certificate expressly provides that stockholders do not have preemptive
rights to subscribe for any shares of Toro capital stock. Under Nebraska law,
preemptive rights are presumed unless denied in the articles of incorporation.
The Exmark Bylaws deny preemptive rights to stockholders.
MERGERS, CONSOLIDATIONS AND OTHER BUSINESS COMBINATIONS
In order to merge or consolidate under the DGCL, a corporation's board of
directors must adopt a resolution approving an agreement of merger and, if
stockholder approval is required, recommend it to the stockholders, who must
adopt it by a majority vote. The DGCL allows a corporation, through its
certificate of incorporation, to adopt super majority voting requirements.
The DGCL bars a corporation which has securities traded on an exchange,
designated on the Nasdaq National Market or held of record by more than 2,000
stockholders from engaging in certain business combinations, including a merger,
sale of substantial assets, loan or substantial issuance of stock, with an
interested stockholder, or an interested stockholder's affiliates and
associates, for a three-year period beginning on the date the interested
stockholder acquires 15% or more of the outstanding voting stock of the
corporation. The restrictions on business combinations do not apply if (1) the
board of directors gives
73
<PAGE>
prior approval to the transaction in which the 15% ownership level is exceeded,
(2) the interested stockholder acquires at one time at least 85% of the
corporation's stock (excluding those shares owned by persons who are directors
and also officers as well as employee stock plans in which employees do not have
a confidential right to vote), or (3) the business combination is approved by
the board of directors and authorized at a meeting of stockholders by the
holders of at least two-thirds of the outstanding voting stock, excluding shares
owned by the interested stockholder.
The Toro Certificate contains provisions that provide for supermajority
voting requirements in connection with certain "Business Combinations" (as
defined) involving "Affiliates" (as defined) or an "Interested Shareholder" (as
defined), unless specifically exempted pursuant to the Toro Certificate. The
affirmative vote of at least 80% of the voting power of the then outstanding
shares of voting stock, voting as a single class, is required to approve such
transactions. The super majority voting requirement is mandatory and applies
even if no vote would have otherwise been required.
The NBCA provides that a resolution containing a plan of merger or exchange
must be approved by the affirmative vote of a majority of the directors present
at a meeting and, if stockholder approval is required, submitted to the
stockholders and approved by the affirmative vote of the holders of two-thirds
of the voting power of all shares entitled to vote.
Neither the Exmark Articles nor the Exmark Bylaws contain a supermajority
voting requirement for business combinations. The Nebraska Shareholders'
Protection Act contains provisions governing the rights of stockholders in the
case of certain share acquisitions and business combinations involving public
corporations incorporated in (or having certain other significant ties to)
Nebraska. Exmark is not a public corporation as defined in that act and,
accordingly, is not governed by that act's provisions.
OTHER ANTI-TAKEOVER PROVISIONS
Certain provisions of Toro's Certificate of Incorporation may have the
effect of preventing, discouraging or delaying any change in the control of
Toro. The following provisions may have anti-takeover effects: (1) Toro's Board
of Directors is classified into three classes, each of which serves for three
years, with one class being elected each year; (2) directors may be removed only
for cause and only with the approval of holders of at least 80% of the then
outstanding shares of the capital stock entitled to vote generally in the
election of directors ("Voting Stock"); (3) any vacancy on Toro's Board may be
filled only by the remaining directors then in office; (4) stockholder action
must be taken at a meeting of stockholders and stockholders may not act by
written consent; (5) special meetings of stockholders of Toro may be called only
by Toro's Board of Directors pursuant to a resolution adopted by a majority of
Toro's entire Board; (6) a fair price" provision requires the approval by the
holders of 80% of the then outstanding Voting Stock as a condition for mergers
and certain other business combinations of Toro with any holder of more than 10%
of such voting power (an "Interested Stockholder") unless either (a) the
transaction is approved by a majority of the members of Toro's Board of
Directors who are unaffiliated with the Interested Stockholder and were members
of Toro's Board of Directors prior to the time the Interested Stockholder became
an Interested Stockholder or (b) certain minimum price and procedural
requirements are met; and (7) the stockholder vote required to alter, amend or
repeal the foregoing provisions is 80% of the then outstanding Voting Stock.
These provisions, individually and collectively, will make difficult and may
discourage a merger, tender offer or proxy fight, even if such transaction or
occurrence may be favorable to the interests of the stockholders, and may delay
or frustrate the assumption of control by a holder of a large block of Toro
Common Stock and the removal of incumbent management. Furthermore, these
provisions may deter or could be utilized to frustrate a future takeover attempt
which is not approved by the incumbent Board of Directors of Toro, but which the
holders of a majority of the shares may deem to be in their best interests or in
which Toro's stockholders may receive a substantial premium for their stock over
prevailing market prices of such stock. By discouraging takeover attempts, these
provisions might have the incidental effect
74
<PAGE>
of inhibiting certain changes in management (some or all of the members of which
might be replaced in the course of a change of control) and also the temporary
fluctuations in the market price of the stock which often result from actual or
rumored takeover attempts.
LEGAL MATTERS
The validity of the Toro Common Stock to be issued in connection with the
Merger will be passed upon for Toro by J. Lawrence McIntyre, General Counsel of
Toro. An opinion concerning the tax consequence of the Merger and an opinion
concerning Exmark will be given by Croker, Huck, Kasher, DeWitt, Anderson &
Gonderinger, P.C.
EXPERTS
The consolidated financial statements of Toro appearing in Toro's Annual
Report on Form 10-K for the year ended October 31, 1996, filed with the SEC on
January 29, 1997, have been audited by KPMG Peat Marwick LLP, independent
auditors, as set forth in their report thereon included therein. Such
consolidated financial statements are included in Exhibit D herein in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
The combined financial statements of James Hardie Irrigation, Inc., James
Hardie Irrigation Pty Limited and James Hardie Irrigation Europe S.p.A. as of
December 1, 1996 and for the year then ended, have been audited by KPMG Peat
Marwick LLP, independent auditors, as set forth in their report thereon. Such
combined financial statements are included in Exhibit D herein in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of Exmark included herein have been audited by
Grant Thornton LLP, independent certified public accountants, as set forth in
their report appearing elsewhere herein. Such financial statements are included
herein in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
OTHER MATTERS
The management of Exmark is not aware of any other business that may come
before the Special Meeting. However, if additional matters properly come before
the Special Meeting, proxies will be voted at the discretion of the proxy
holders.
75
<PAGE>
FINANCIAL STATEMENTS OF
EXMARK MANUFACTURING COMPANY INCORPORATED
INDEX
<TABLE>
<CAPTION>
PAGE
-------------
<S> <C>
Audited Financial Statements as of August 31, 1997 and 1996 and for the years ended August 31,
1997, 1996 and 1995:
Report of Independent Certified Public Accountants............................................... F-2
Balance Sheets................................................................................... F-3
Statements of Earnings........................................................................... F-4
Statement of Stockholders' Equity................................................................ F-5
Statements of Cash Flows......................................................................... F-6
Notes to Financial Statements.................................................................... F-8 to F-14
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Exmark Manufacturing Company Incorporated
We have audited the accompanying balance sheets of Exmark Manufacturing
Company Incorporated as of August 31, 1997 and 1996, and the related statements
of earnings, stockholders' equity, and cash flows for each of the three years in
the period ended August 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Exmark Manufacturing Company
Incorporated as of August 31, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period ended August 31,
1997, in conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
Lincoln, Nebraska
October 6, 1997
F-2
<PAGE>
EXMARK MANUFACTURING COMPANY INCORPORATED
BALANCE SHEETS
AUGUST 31,
<TABLE>
<CAPTION>
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................................... $ 30,416 $ 32,064
Accounts receivable................................................................ 3,062,925 1,736,175
Inventories........................................................................ 6,732,680 4,917,895
Prepaid expenses and deposits...................................................... 212,192 205,132
Refundable income taxes............................................................ 284,183 3,229
Deferred income taxes.............................................................. 142,000 190,500
------------- ------------
Total current assets............................................................. 10,464,396 7,084,995
Property and equipment-at cost
Land............................................................................... 62,737 62,737
Buildings and improvements......................................................... 3,625,987 2,404,356
Office equipment................................................................... 1,002,811 784,702
Plant equipment.................................................................... 2,241,725 1,795,126
Vehicles........................................................................... 84,344 84,331
Construction in progress........................................................... 1,235,517 227,163
------------- ------------
8,253,121 5,358,415
Less accumulated depreciation...................................................... 3,063,379 2,497,117
------------- ------------
5,189,742 2,861,298
Other assets....................................................................... 12,655 19,339
------------- ------------
Total assets..................................................................... $ 15,666,793 $ 9,965,632
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings.............................................................. $ 1,413,260 $ --
Current maturities of long-term obligations........................................ 298,779 370,802
Accounts payable................................................................... 1,225,720 595,203
Accrued compensation............................................................... 1,083,832 805,377
Accrued warranty................................................................... 490,000 365,000
Accrued interest................................................................... 126,614 113,389
Other accrued liabilities.......................................................... 1,446,193 1,040,337
------------- ------------
Total current liabilities........................................................ 6,084,398 3,290,108
Long-term obligations, less current maturities....................................... 415,274 928,905
Subordinated debentures.............................................................. -- 5,000
Commitments and contingencies........................................................ -- --
Stockholders' Equity
Voting and participating preferred stock--authorized 21,000 shares of $40 par
value; issued and outstanding 7,416 shares....................................... 296,640 296,640
Common stock--authorized, 24,000 shares of $10 par value; issued and outstanding
15,431 shares at August 31, 1997 and 10,587 shares at August 31, 1996............ 154,310 105,870
Additional paid-in capital......................................................... 941,140 202,025
Retained earnings.................................................................. 7,872,676 5,137,084
Less stock subscriptions receivable................................................ (97,645) --
------------- ------------
Total stockholders' equity....................................................... 9,167,121 5,741,619
------------- ------------
Total liabilities and stockholders' equity....................................... $ 15,666,793 $ 9,965,632
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
EXMARK MANUFACTURING COMPANY INCORPORATED
STATEMENTS OF EARNINGS
YEAR ENDED AUGUST 31,
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Sales............................................................... $ 53,420,489 $ 38,371,719 $ 25,265,298
Cost of goods sold.................................................. 35,687,200 25,216,988 16,534,938
------------- ------------- -------------
Gross profit...................................................... 17,733,289 13,154,731 8,730,360
Operating expenses.................................................. 12,613,756 9,819,437 6,517,920
------------- ------------- -------------
Operating profit.................................................. 5,119,533 3,335,294 2,212,440
Other (income) expense
Interest expense.................................................. 1,155,018 1,057,013 775,831
Interest income................................................... (21,797) (16,510) (20,736)
Other, net........................................................ (302,156) (215,958) (156,326)
------------- ------------- -------------
831,065 824,545 598,769
------------- ------------- -------------
Earnings before income taxes.................................... 4,288,468 2,510,749 1,613,671
Income tax expense.................................................. 1,492,500 845,800 550,000
------------- ------------- -------------
Net earnings.................................................... $ 2,795,968 $ 1,664,949 $ 1,063,671
------------- ------------- -------------
------------- ------------- -------------
Net earnings per share of common stock and common stock
equivalent........................................................ $ 62.01 $ 36.95 $ 24.47
------------- ------------- -------------
------------- ------------- -------------
Net earnings per share of common stock and common stock
equivalent--assuming full dilution................................ $ 62.01 $ 36.95 $ 24.38
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
EXMARK MANUFACTURING COMPANY INCORPORATED
STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED AUGUST 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL STOCK SUB-
---------------------- -------------------- PAID-IN RETAINED SCRIPTIONS
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS RECEIVABLE
----------- --------- --------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 1, 1994........ 7,416 $ 296,640 10,420 $ 104,200 $ 191,170 $ 2,478,778 $ --
Conversion of convertible
subordinated debentures into
common stock...................... -- -- 167 1,670 10,855 -- --
Common dividends ($0.75 share)...... -- -- -- -- -- (7,815) --
Preferred dividends ($3.00 share)... -- -- -- -- -- (22,248) --
Net earnings........................ -- -- -- -- -- 1,063,671 --
----- --------- --------- --------- ----------- ----------- -----------
Balance at August 31, 1995.......... 7,416 296,640 10,587 105,870 202,025 3,512,386 --
Common dividends ($1.00 share)...... -- -- -- -- -- (10,587) --
Preferred dividends ($4.00 share)... -- -- -- -- -- (29,664) --
Net earnings........................ -- -- -- -- -- 1,664,949 --
----- --------- --------- --------- ----------- ----------- -----------
Balance at August 31, 1996.......... 7,416 296,640 10,587 105,870 202,025 5,137,084 --
Common dividends ($1.50 share)...... -- -- -- -- -- (15,880) --
Preferred dividends ($6.00 share)... -- -- -- -- -- (44,496) --
Issuance of common shares under
stock option plan................. -- -- 3,140 31,400 115,301 -- (97,645)
Issuance of common shares under
stock bonus plan.................. -- -- 1,704 17,040 105,814 -- --
Tax benefits relating to stock
option and bonus transactions..... -- -- -- -- 518,000 -- --
Net earnings........................ -- -- -- -- -- 2,795,968 --
----- --------- --------- --------- ----------- ----------- -----------
Balance at August 31, 1997.......... 7,416 $ 296,640 15,431 $ 154,310 $ 941,140 $ 7,872,676 $ (97,645)
----- --------- --------- --------- ----------- ----------- -----------
----- --------- --------- --------- ----------- ----------- -----------
<CAPTION>
TOTAL
-----------
<S> <C>
Balance at September 1, 1994........ $ 3,070,788
Conversion of convertible
subordinated debentures into
common stock...................... 12,525
Common dividends ($0.75 share)...... (7,815)
Preferred dividends ($3.00 share)... (22,248)
Net earnings........................ 1,063,671
-----------
Balance at August 31, 1995.......... 4,116,921
Common dividends ($1.00 share)...... (10,587)
Preferred dividends ($4.00 share)... (29,664)
Net earnings........................ 1,664,949
-----------
Balance at August 31, 1996.......... 5,741,619
Common dividends ($1.50 share)...... (15,880)
Preferred dividends ($6.00 share)... (44,496)
Issuance of common shares under
stock option plan................. 49,056
Issuance of common shares under
stock bonus plan.................. 122,854
Tax benefits relating to stock
option and bonus transactions..... 518,000
Net earnings........................ 2,795,968
-----------
Balance at August 31, 1997.......... $ 9,167,121
-----------
-----------
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
EXMARK MANUFACTURING COMPANY INCORPORATED
STATEMENTS OF CASH FLOWS
YEAR ENDED AUGUST 31,
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings....................................................... $ 2,795,968 $ 1,664,949 $ 1,063,671
Adjustments to reconcile net earnings to net cash provided by
operating activities
Depreciation and amortization.................................... 621,987 568,257 364,716
Loss on disposal of property and equipment....................... -- 14,900 --
Change in deferred income taxes.................................. 48,500 (138,200) (12,700)
Tax benefit relating to stock option transactions................ 518,000 -- --
Changes in operating assets and liabilities
Increase in accounts receivable................................ (1,326,750) (586,364) (336,366)
Increase in inventories........................................ (1,814,785) (885,304) (972,219)
Decrease (increase) in prepaid expenses and deposits........... (7,060) 7,997 (25,713)
Decrease (increase) in refundable income taxes................. (280,954) 30,095 (33,324)
Increase (decrease) in accounts payable........................ 630,517 (94,013) 261,134
Increase in accrued liabilities................................ 822,536 934,879 239,552
Decrease in income taxes payable............................... -- -- (224,306)
------------- ------------- -------------
Net cash provided by operating activities.................... 2,007,959 1,517,196 324,445
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturity of marketable securities.................... -- -- 493,740
Proceeds from maturity of certificate of deposit................... -- -- 99,000
Purchase of property and equipment................................. (2,943,747) (479,709) (1,430,805)
------------- ------------- -------------
Net cash used in investing activities........................ (2,943,747) (479,709) (838,065)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term obligations........................ (585,654) (365,455) (358,939)
Payments on subordinated debentures................................ (5,000) -- (1,000)
Payments on convertible subordinated debentures.................... -- -- (3,600)
Proceeds from exercise of stock options............................ 49,056 -- --
Proceeds from issuance of stock.................................... 122,854 -- --
Net proceeds (payments) on short-term borrowings................... 1,413,260 (600,806) 600,806
Payment of dividends............................................... (60,376) (40,251) (30,063)
------------- ------------- -------------
Net cash provided by (used in) financing activities.......... 934,140 (1,006,512) 207,204
------------- ------------- -------------
Net increase (decrease) in cash.................................... (1,648) 30,975 (306,416)
Cash, beginning of year............................................ 32,064 1,089 307,505
------------- ------------- -------------
Cash, end of year.................................................. $ 30,416 $ 32,064 $ 1,089
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
EXMARK MANUFACTURING COMPANY INCORPORATED
STATEMENTS OF CASH FLOWS--CONTINUED
YEAR ENDED AUGUST 31,
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Cash paid during the year for:
Interest........................................................... $ 1,141,793 $ 1,061,991 $ 705,692
Income taxes....................................................... 1,206,954 953,905 820,330
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
During 1997, notes receivable of $97,645 were received by the Company upon
the exercise of stock options under the restricted stock bonus plan.
During 1995, $12,000 of the convertible subordinated debentures and $525 of
accrued interest were converted into 167 shares of common stock.
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
EXMARK MANUFACTURING COMPANY INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE A--SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows.
1. BUSINESS ACTIVITY
The Company's sales are derived principally from the manufacturing of
various types of walk-behind and riding lawnmowers used for commercial and
industrial purposes.
2. CONCENTRATIONS OF CREDIT RISK
The Company sells its products to distributors in the lawn and turf care
industry and extends credit based on an evaluation of the customer's financial
condition, generally without requiring collateral. Exposure to losses on
receivables is principally dependent on each customer's financial condition. The
Company monitors its exposure for credit losses.
3. INVENTORIES
Inventories are stated as lower of cost or market. Cost is determined by the
first-in, first-out (FIFO) method.
4. PROPERTY AND EQUIPMENT
Depreciation of property and equipment is provided for in amounts sufficient
to relate the cost of depreciable assets to operations over their estimated
service lives on straight-line and accelerated methods. Buildings are generally
depreciated over 15 to 40 years, equipment including purchased computer software
and tooling over 3 to 10 years, and vehicles over 3 to 5 years.
Maintenance, repairs and renewals which neither materially add to the value
of the property nor appreciably prolong its life are charged to expense as
incurred. Gains or losses on dispositions of property and equipment are included
in earnings.
5. WARRANTY
The Company provides for estimated future warranty costs based upon the
historical relationship of warranty costs to sales.
6. INCOME TAXES
Deferred income taxes result from the differences between the tax bases of
assets and liabilities and their financial reporting amount.
7. NET EARNINGS PER SHARE OF COMMON STOCK AND COMMON STOCK EQUIVALENT
Net earnings per share of common stock and common stock equivalent is
computed by dividing net earnings by the weighted average number of common
shares and common equivalent shares outstanding during the respective periods.
Common stock equivalents include the potentially dilutive effect of
participating preferred stock and stock options. Fully diluted net earnings per
share also includes the potential dilutive effect of the subordinated debentures
as if they had been converted to common stock at the beginning of the period.
F-8
<PAGE>
EXMARK MANUFACTURING COMPANY INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE A--SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
8. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
9. RECLASSIFICATIONS
Certain reclassifications have been made to prior period amounts to conform
with the current year presentation.
NOTE B--INVENTORIES
Inventories consist of the following at August 31:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Raw Materials..................................................... $ 4,811,592 $ 3,830,675
Finished Goods.................................................... 1,921,088 1,087,220
------------ ------------
$ 6,732,680 $ 4,917,895
------------ ------------
------------ ------------
</TABLE>
NOTE C--LONG-TERM OBLIGATIONS
<TABLE>
<CAPTION>
1997 1996
---------- ------------
<S> <C> <C>
5% note payable to the City of Beatrice, due in monthly principal
and interest installments of $7,067 through December, 2000. The
note is collateralized by a second collateral position on accounts
receivable, inventories, and property and equipment............... $ 259,880 $ 329,782
Nebraska Industrial Development Revenue Bonds, due in semi-annual
installments of $90,817, plus interest at 87% of the national
prime rate (7.395% at August 31, 1997) to April 25, 1999. The
prime rate is adjusted on the 25th day of January, April, July and
October. The bonds are collateralized by a deed of trust and
assignment of rents............................................... 363,266 544,899
Nebraska Investment Finance Authority Industrial Development Revenue
Bond, due in monthly installments (currently $1,452) of principal
and interest, to October 1, 2000. Interest is adjusted each
October 1, provided that in no event will the Bond rate exceed
12.75% or be less than 8.25%. The current interest rate at August
31, 1997 is 8.25%. The bond is collateralized by a deed of trust
and assignment of rents........................................... 47,490 60,432
</TABLE>
F-9
<PAGE>
EXMARK MANUFACTURING COMPANY INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE C--LONG-TERM OBLIGATIONS (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
---------- ------------
<S> <C> <C>
Nebraska Development Finance Authority Bond, due in monthly
installments (currently $1,568) of principal and interest, to June
1, 1999. Interest is adjusted each June 1 to equal 70% of the
preferred rate announced by First National Bank, Beatrice,
Nebraska, but in no event will the interest rate charged exceed
11.9% or be less than 7.7%. The current interest rate at August
31, 1997 is 7.7%. The bond is collateralized by a deed of trust
and assignment of rents........................................... 30,803 46,602
Nebraska Development Finance Fund Revenue Bond, due in monthly
installments (currently $1,743) of principal and interest, to June
1, 1998. Interest is adjusted each May 1 to equal 70% of the
preferred rate announced by First National Bank, Beatrice,
Nebraska, but in no event will the interest charged exceed 11.9%
or be less than 7.7%. The current interest rate at August 31, 1997
is 7.7%. The bond is collateralized by a deed of trust and
assignment of rents............................................... 12,614 31,764
Note payable to a bank, due in monthly principal installments of
$5,952 plus interest through October 2000. Interest was due at a
variable rate based on the National Reference Rate. The note was
collateralized by accounts receivable, inventories, and property
and equipment. The note was retired in September 1996............. -- 286,228
---------- ------------
714,053 1,299,707
Less current maturities............................................. 298,779 370,802
---------- ------------
$ 415,274 $ 928,905
---------- ------------
---------- ------------
</TABLE>
Annual maturities of long-term obligations for the years following August
31, 1997 are as follows:
<TABLE>
<CAPTION>
AUGUST 31 TOTAL
- ---------------------------------------------------------------------------------- ----------
<S> <C>
1998.............................................................................. $ 298,779
1999.............................................................................. 287,846
2000.............................................................................. 97,733
2001.............................................................................. 29,695
</TABLE>
The estimated fair value of long-term debt is the same as its carrying value
based on the borrowing rates currently available to the company for loans of
similar terms and maturities.
F-10
<PAGE>
EXMARK MANUFACTURING COMPANY INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE D--EMPLOYEE BENEFIT PLANS
The Company has a profit sharing plan with a 401(k) cash or deferred
arrangement covering substantially all employees. Employees can contribute up to
15% of their annual compensation. Effective November 1, 1996, the plan was
changed to provide for Company matching contributions on a monthly basis not to
exceed 6% of an employee's compensation. The Board of Directors approved a 50%
match, up to 3% of employee compensation for the year ended August 31, 1997. The
plan also permits additional discretionary contributions. To be eligible,
participants must be 19 years of age, have completed one year of service and
work a minimum of 1,000 hours. Matching and discretionary contributions charged
to expense by the Company totaled $244,692, $210,228 and $135,331 in 1997, 1996
and 1995, respectively.
NOTE E--VOTING AND PARTICIPATING PREFERRED STOCK
Each share of preferred stock is entitled to one vote. Preferred stock shall
participate in dividends on a prorata basis with the common stock, such that
each share of preferred stock will be entitled to $4 of dividends for each $1 of
dividends declared with respect to each share of common stock. Each share of
preferred stock has a liquidation value of $40 per share and then after each
share of common has received $10, any excess is apportioned in a 4 to 1 ratio,
such that each share of preferred stock will be entitled to a liquidating
distribution of $4 for each $1 liquidating distribution distributable to each
share of common stock.
NOTE F--RELATED PARTY TRANSACTIONS
During 1997, 1996 and 1995, the Company engaged in various transactions with
certain stockholders or stockholder related enterprises. Amounts affecting the
balance sheets are not significant. Sales to related parties were $5,844,066,
$4,138,728 and $2,652,691 in 1997, 1996 and 1995, respectively.
NOTE G--SUBORDINATED DEBENTURES
The subordinated debentures were due June 2, 1998 and were retired in June
1997.
NOTE H--SHORT-TERM BORROWINGS
The Company has a short-term revolving line of credit with a bank which
renews each November 30. The loan agreement provides for an operating loan of up
to $7,000,000. This arrangement provides for borrowing amounts for short-term
use at the National Reference Rate (as defined) which was 8.50% at August 31,
1997. Available credit at August 31, 1997 was $5,586,740.
Interest is payable quarterly and the principal is due on demand. A cash
management agreement exists, but there are no commitment fee arrangements
relating to this line. The loan agreement is collateralized by accounts
receivable, inventories, and property and equipment.
F-11
<PAGE>
EXMARK MANUFACTURING COMPANY INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE I--INCOME TAXES
The provision (benefit) for income taxes consists of the following for the
years ended August 31:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Current taxes:
Federal............................................ $ 1,444,000 $ 984,000 $ 562,700
State.............................................. 193,000 220,000 123,000
------------ ------------ -----------
1,637,000 1,204,000 685,700
------------ ------------ -----------
Deferred taxes:
Federal............................................ 48,500 (138,200) (12,700)
State--benefit of utilizing compensation and
investment tax credit carry forwards............. (193,000) (220,000) (123,000)
------------ ------------ -----------
(144,500) (358,200) (135,700)
------------ ------------ -----------
Provision for income taxes........................... $ 1,492,500 $ 845,800 $ 550,000
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
Deferred tax assets consist of the following at August 31:
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
Employees' compensation for future absences.......................... $ 65,400 $ 60,800
Reserve for dental claims............................................ 3,600 2,100
Deferred bonus accruals.............................................. -- 40,700
Reserve for warranty claims.......................................... 73,000 86,900
State compensation and investment tax credit carryforwards........... 419,000 204,000
---------- -----------
561,000 394,500
Valuation allowance for deferred tax assets.......................... (419,000) (204,000)
---------- -----------
$ 142,000 $ 190,500
---------- -----------
---------- -----------
</TABLE>
The valuation allowance increased (decreased) $215,000, ($113,000) and
$317,000 at August 31, 1997, 1996 and 1995, respectively.
In 1989, the Company entered into an agreement with the State of Nebraska
entitled "Employment and Investment Growth Act Project Agreement." Under the
terms of the Agreement the Company is required to meet certain investment and
employment guidelines within Nebraska in order to qualify for certain financial
incentives. The State determined that the Company had met all required
guidelines as of August 31, 1995. Incentives that the Company qualified for
include a refund of all sales and use tax paid on certain capital expenditures
and leases and compensation and investment credits associated with increased
employment levels and capital expenditures. At August 31, 1997, outstanding
sales and use tax refunds receivable amounted to approximately $122,500. An
estimated $406,000, $172,000 and $431,000 of compensation and investment credits
were earned for the years ended August 31, 1997, 1996 and 1995, respectively.
Approximately $193,000, $220,000 and $123,000 of the credits were used to offset
Nebraska income taxes for the years ended August 31, 1997, 1996 and 1995,
respectively. Tax credits earned and available to offset future state income
taxes amounted to approximately $419,000 at August 31, 1997. The credits may be
used to reduce the Nebraska income tax liabilities and to obtain a refund of
Nebraska sales
F-12
<PAGE>
EXMARK MANUFACTURING COMPANY INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE I--INCOME TAXES (CONTINUED)
and use tax on consumables which is not otherwise refundable through August 31,
2010. Consumables sales tax refunds totaled $37,851 and $16,557 in the years
ended August 31, 1997 and 1996, respectively. The refunds on additional capital
expenditures are available until August 31, 2002 assuming the Company continues
to meet certain required minimum levels of employment and investment.
NOTE J--COMMITMENTS AND CONTINGENCIES
The Company has an agreement with Dealers Credit Incorporated ("DCI")
whereby DCI is to provide credit arrangements to the Company's dealers and
distributors to enable them to finance the sale of products manufactured and/or
sold by the Company. The Company has assumed limited responsibility in any loss
incurred when an item is sold under special promotions with decreasing
responsibilities based upon number of payments made. The Company does not
believe, based upon information available at this time, that the contingent
liabilities of the agreement will have a material adverse effect on its
financial position.
The Company is engaged in various legal actions arising in the ordinary
course of business. After taking into consideration legal counsel's evaluation
of such actions, management is of the opinion that the ultimate outcomes will
not have a material adverse effect on the Company's financial position.
NOTE K--STOCK OPTION PLAN
On November 19, 1990, the board of directors of the Company approved a
non-qualified stock option plan, pursuant to which 4,000 shares had been
reserved for granting to key personnel. Options for 3,600 shares were granted on
that date. The option price may not be less than the fair market value (as
defined) of the common stock at the date of the grant or less than $46.72 per
share. The options granted are exercisable on the first anniversary of the date
of grant and may be purchased in installments of 25% on each anniversary date
thereafter. The options were to expire five years after the date of grant. The
options were extended an additional four years and were now to expire in
November 1999 or three months after termination of employment. During 1997, the
3,140 outstanding options which remained were exercised. No options are
outstanding at August 31, 1997.
NOTE L--RESTRICTED STOCK BONUS PLAN
Effective January 1, 1996, the Company adopted a restricted stock bonus plan
for the fiscal year ending August 31, 1996 and subsequent years. Under the plan,
certain employees can elect to have a portion (not to exceed 50%) of their
profit-based bonus paid to them in the form of restricted common stock. The
common stock is valued at fair value which is set forth in the plan. All shares
issued pursuant to the plan will be subject to restrictions on transfer and will
be subject to forfeiture for a period of five years following issuance of the
stock in the event employment is terminated for any reason other than
involuntary termination without cause, by reason of the employee's death, total
disability, retirement upon or after attaining age 60 or a change of control of
the Company (as defined). At August 31, 1996, $119,788 of bonuses were
designated for stock to be issued at $71.60 per share (70% of net book value at
August 31, 1995). During the year end August 31, 1997, the Board of Directors
waived all restrictions on all stock issued under the restricted stock bonus
plan. At August 31, 1997, no bonuses were designated for stock under the plan.
F-13
<PAGE>
EXMARK MANUFACTURING COMPANY INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE M--STOCK SUBSCRIPTIONS RECEIVABLE
Stock subscriptions consist of 7% promissory notes due December 1, 1997.
NOTE N--ENGINEERING, RESEARCH AND DEVELOPMENT EXPENSES
Engineering, research and development expenses were $594,000 in 1997,
$571,000 in 1996 and $329,000 in 1995. The majority of expenses in 1997, 1996
and 1995 were related to new products and product enhancements. All research and
development costs are charged to expense as incurred.
NOTE O--SIGNIFICANT CUSTOMERS
The Company had sales to three customers which totaled 39%, 40% and 39% of
total sales during the years ended August 31, 1997, 1996 and 1995, respectively.
Sales to a related party represented 10.9%, 10.8% and 10.5% of sales during the
years ended August 31, 1997, 1996 and 1995, respectively. (See also Note F.)
NOTE P--PROPOSED MERGER
In June 1997, the Company's board of directors approved a merger agreement
with The Toro Company under which the Company will become a wholly-owned
subsidiary of The Toro Company. Under the terms of the agreement, stockholders
of the Company will receive Toro stock and cash in exchange for shares of
Company stock. The merger is expected to be accounted for using the purchase
method of accounting. The merger must be approved by the Company's stockholders
and is expected to be completed during 1997. Prior to the closing, the Company
must first acquire all of the outstanding stock of Holiman Co., Inc., the
primary manufacturer's representative for the Company. Holiman is owned by a
stockholder of the Company.
F-14
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 145 of the DGCL provides, in summary, that the directors and
officers of the registrant may, under certain circumstances, be indemnified by
the registrant against all expenses incurred by or imposed upon them as a result
of actions, suits or proceedings brought against them as such directors and
officers, or as directors or officers of any other organization at the request
of the registrant, if they act in good faith and in a manner they reasonably
believe to be in or not opposed to the best interests of the registrant, and
with respect to any criminal action or proceeding, have no reasonable cause to
believe their conduct was unlawful, except that no indemnification shall be made
against expenses in respect of any claim, issue or matters to which they shall
have been adjudged to be liable to the registrant unless and only to the extent
that the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, they are fairly and reasonably entitled to indemnity
for such expenses which such court shall deem proper. Section 145 of the DGCL
also provides that directors and officers of the registrant are entitled to such
indemnification by the registrant to the extent that such persons are successful
on the merits or otherwise in defending any such action, suit or proceeding.
Article XI of Toro's Certificate of Incorporation provides that the
liability of a director or officer to Toro or its stockholders for monetary
damages for a breach of fiduciary duty as a director shall be indemnified to the
fullest extent permitted under the DGCL, as amended from time to time.
Toro maintains a standard policy of officers' and directors' liability
insurance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
<C> <S>
2.1 Agreement and Plan of Merger, dated as of October 23, 1997 by and among Exmark, Merger
Subsidiary and Toro, as amended (included as Exhibit A to the Proxy Statement/Prospectus that
forms a part of this Registration Statement on Form S-4 (certain exhibits and schedules
omitted--the Registrant agrees to furnish a copy of any exhibit or schedule to the Commission
upon request)).
3.1 and 4.1 Certificate of Incorporation of the Registrant as amended and corrected through May 18, 1987
(incorporated by reference to Exhibit 4.2 to the Registrant's Registration Statement on Form
S-3, Registration No. 33-16125).
3.2 and 4.2 Certificate of Amendment to Certificate of Incorporation of the Registrant dated December 8,
1987 (incorporated by reference to Exhibit 3 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended January 29, 1988, Commission File No. 1-8649).
3.3 and 4.3 Bylaws of the Registrant (incorporated by reference to Exhibit 3.3 to the Registrant's Annual
Report on Form 10-K for the year ended July 31, 1991, Commission File No. 1-8649).
4.4 Specimen form of Common Stock certificate (incorporated by reference to Exhibit 4(c) to the
Registrant's Registration Statement on Form S-8, Registration No. 2-94417).
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
4.5 Rights Agreement dated as of June 14, 1988, between the Registrant and Norwest Bank Minnesota,
National Association relating to rights to purchase Series B Junior Participating Voting
Preferred Stock, as amended (incorporated by reference to Exhibit 1 to Registrant's
Registration Statement on Form 8-A dated June 17, 1988, Commission File No. 1-8649, as
amended).
4.6 Amendment to Rights Agreement dated as of August 14, 1990, between the Registrant and Norwest
Bank Minnesota National Association (incorporated by reference to Exhibit 1 to the
Registrant's Report on Form 8-A dated August 14, 1990, Commission File No. 1-8649).
4.7 Indenture dated as of July 15, 1987, between the Registrant and Manufacturers Hanover Trust
Company, Trustee, relating to the Registrant's 11% Sinking Fund Debentures Due August 1, 2017
(incorporated by reference to Exhibit 4 to the Registrant's Registration Statement on Form
S-3, Registration No. 33-15385).
4.8 Debt Securities (included on Exhibit 4.7).
5.1 Opinion of J. Lawrence McIntyre, General Counsel of Toro, regarding validity of securities.
8.1 Opinion of Croker, Huck, Kasher, DeWitt, Anderson & Gonderinger, P.C. regarding tax treatment.
10.1 Form of Stockholder Agreements, dated as of October 23, 1997 by and among Exmark, Merger
Subsidiary, Toro and certain stockholders of Exmark.
10.2 Form of Affiliate Agreements, dated as of October 23, 1997 by and among Toro and certain
stockholders of Exmark.
10.3 Form of Employment Agreement and Covenant Not to Compete, dated as of October 23, 1997 by and
among Toro, Exmark and certain employees of Exmark.
10.4 Form of Employee Agreements, dated as of October 23, 1997 by and among Toro, Exmark and certain
employees of Exmark.
10.5 Stock for Stock Exchange Agreement, dated October 23, 1997, by and among Exmark Manufacturing
Company Incorporated, The Holiman Co., Inc. and Roger Smith
23.1 Consent of KPMG Peat Marwick LLP with respect to consolidated financial statements of Toro and
the combined financial statements of James Hardie Irrigation, Inc., James Hardie Irrigation
Pty Limited and James Hardie Irrigation Europe S.p.A.
23.2 Consent of Grant Thornton LLP with respect to financial statements of Exmark.
23.3 Consent of J. Lawrence McIntyre, General Counsel of Toro (included on Exhibit 5).
23.4 Consent of McCarthy & Co. with respect to the fairness of the Merger.
24.1 Power of Attorney.
25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of First Trust National
Association as Trustee (incorporated by reference to the Registrant's Registration Statement
on Form S-3, Registration No. 33-15385).
99.1 Form of Proxy Card for the Special Meeting.
99.2 Cash Election Form.
</TABLE>
(b) Financial Statement Schedules.
Not Applicable.
(c) Opinions or Appraisals.
Not Applicable.
II-2
<PAGE>
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective Registration Statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The undersigned Registrant hereby undertakes that prior to any public
reoffering of the securities registered hereunder through the use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(d) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (c) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective
II-3
<PAGE>
amendment shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(e) To respond to requests for information that is incorporated by reference
into the Prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
(f) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the Registration Statement when it became
effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Minneapolis, State of
Minnesota, on November 7, 1997.
<TABLE>
<S> <C> <C>
THE TORO COMPANY
By /s/ KENDRICK B. MELROSE
-----------------------------------------
Kendrick B. Melrose
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on November 7, 1997.
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------ --------------------------
<C> <S>
Chairman, Chief Executive
/s/ KENDRICK B. MELROSE Officer and Director
- ------------------------------ (principal executive
Kendrick B. Melrose officer)
Vice President and Chief
/s/ STEPHEN P. WOLFE Financial Officer
- ------------------------------ (principal financial
Stephen P. Wolfe officer)
Vice President and
/s/ RANDY B. JAMES Controller
- ------------------------------ (principal accounting
Randy B. James officer)
*
- ------------------------------ Director
Ronald O. Baukol
*
- ------------------------------ Director
Robert C. Buhrmaster
*
- ------------------------------ Director
Janet K. Cooper
*
- ------------------------------ Director
Alex A. Meyer
*
- ------------------------------ Director
Robert H. Nassau
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE
- ------------------------------ --------------------------
<C> <S>
*
- ------------------------------ Director
Dale R. Olseth
*
- ------------------------------ Director
Edwin H. Wingate
/s/ KENDRICK B. MELROSE
- ------------------------------
Kendrick B. Melrose
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- --------------- ------------------------------------------------------------------------------------
<C> <S> <C>
2.1 Agreement and Plan of Merger, dated as of October 23, 1997 by and among Exmark,
Merger Subsidiary and Toro, as amended (included as Exhibit A to the Proxy
Statement/Prospectus that forms a part of this Registration Statement on Form S-4
(certain exhibits and schedules omitted--the Registrant agrees to furnish a copy
of any exhibit or schedule to the Commission upon request)).
3.1 and 4.1 Certificate of Incorporation of the Registrant as amended and corrected through May
18, 1987 (incorporated by reference to Exhibit 4.2 to the Registrant's
Registration Statement on Form S-3, Registration No. 33-16125).
3.2 and 4.2 Certificate of Amendment to Certificate of Incorporation of the Registrant dated
December 8, 1987 (incorporated by reference to Exhibit 3 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended January 29, 1988, Commission
File No. 1-8649).
3.3 and 4.3 Bylaws of the Registrant (incorporated by reference to Exhibit 3.3 to the
Registrant's Annual Report on Form 10-K for the year ended July 31, 1991,
Commission File No. 1-8649).
4.4 Specimen form of Common Stock certificate (incorporated by reference to Exhibit 4(c)
to the Registrant's Registration Statement on Form S-8, Registration No. 2-94417).
4.5 Rights Agreement dated as of June 14, 1988, between the Registrant and Norwest Bank
Minnesota, National Association relating to rights to purchase Series B Junior
Participating Voting Preferred Stock, as amended (incorporated by reference to
Exhibit 1 to Registrant's Registration Statement on Form 8-A dated June 17, 1988,
Commission File No. 1-8649, as amended).
4.6 Amendment to Rights Agreement dated as of August 14, 1990, between the Registrant
and Norwest Bank Minnesota National Association (incorporated by reference to
Exhibit 1 to the Registrant's Report on Form 8-A dated August 14, 1990, Commission
File No. 1-8649).
4.7 Indenture dated as of July 15, 1987, between the Registrant and Manufacturers
Hanover Trust Company, Trustee, relating to the Registrant's 11% Sinking Fund
Debentures Due August 1, 2017 (incorporated by reference to Exhibit 4 to the
Registrant's Registration Statement on Form S-3, Registration No. 33-15385).
4.8 Debt Securities (included on Exhibit 4.7).
5.1 Opinion of J. Lawrence McIntyre, General Counsel of Toro, regarding validity of
securities.
8.1 Opinion of Croker, Huck, Kasher, DeWitt, Anderson & Gonderinger, P.C. regarding tax
treatment.
10.1 Form of Stockholder Agreements, dated as of October 23, 1997 by and among Exmark,
Merger Subsidiary, Toro and certain stockholders of Exmark.
10.2 Form of Affiliate Agreements, dated as of October 23, 1997 by and among Toro and
certain stockholders of Exmark.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- --------------- ------------------------------------------------------------------------------------
<C> <S> <C>
10.3 Form of Employment Agreement and Covenant Not to Compete, dated as of October 23,
1997 by and among Toro, Exmark and certain employees of Exmark.
10.4 Form of Employee Agreements, dated as of October 23, 1997 by and among Toro, Exmark
and certain employees of Exmark.
10.5 Stock for Stock Exchange Agreement, dated October 23, 1997, by and among Exmark
Manufacturing Company Incorporated, The Holiman Co., Inc. and Roger Smith
23.1 Consent of KPMG Peat Marwick LLP with respect to consolidated financial statements
of Toro and the combined financial statements of James Hardie Irrigation, Inc.,
James Hardie Irrigation Pty Limited and James Hardie Irrigation Europe S.p.A.
23.2 Consent of Grant Thornton LLP with respect to financial statements of Exmark.
23.3 Consent of J. Lawrence McIntyre, General Counsel of Toro (included on Exhibit 5).
23.4 Consent of McCarthy & Co. with respect to the fairness of the Merger.
24.1 Power of Attorney.
25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of First
Trust National Association as Trustee (incorporated by reference to the
Registrant's Registration Statement on Form S-3, Registration No. 33-15385).
99.1 Form of Proxy Card for the Special Meeting.
99.2 Cash Election Form.
</TABLE>
<PAGE>
Exhibit A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
by and among
THE TORO COMPANY,
EMCI ACQUISITION CORP.
AND
EXMARK MANUFACTURING COMPANY INCORPORATED
October 23, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I
THE MERGER ............................................................ 1
1.01 The Merger .................................................. 1
1.02 Effect of Merger ............................................ 2
1.03 Effective Time .............................................. 2
1.04 Directors and Officers ...................................... 2
1.05 Articles of Incorporation; Bylaws ........................... 2
1.06 Taking of Necessary Action; Further Action .................. 2
1.07 The Closing ................................................. 3
ARTICLE II
MERGER CONSIDERATION/EFFECT ON CAPITAL STOCK .......................... 3
2.01 Effect on Exmark Capital Stock .............................. 3
2.02 Determination of Merger Consideration ....................... 4
2.03 Determination of Initial Payment Fund, Class B Initial Payment
Fund and Contingent Payment Funds; Deposit Procedures ....... 9
2.04 Exchange/Payment Procedures ................................. 11
2.05 Dissenting Shares ........................................... 14
2.06 No Fractional Shares ........................................ 14
2.07 Other Exchange Matters ...................................... 15
-i-
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EXMARK .............................. 18
3.01 Incorporation and Corporate Power ........................... 18
3.02 Execution, Delivery and Performance; Valid and
Binding Agreement ........................................... 18
3.03 Approval of Agreement; Stockholders' Meeting ................ 19
3.04 No Breach ................................................... 19
3.05 Governmental Authorities; Consents .......................... 19
3.06 Subsidiaries; Predecessors .................................. 20
3.07 Capital Stock ............................................... 20
3.08 Financial Statements ........................................ 21
3.09 Absence of Undisclosed Liabilities .......................... 21
3.10 No Material Adverse Changes ................................. 22
3.11 Absence of Certain Developments ............................. 22
3.12 Title to Properties ......................................... 24
3.13 Accounts Receivable ......................................... 26
3.14 Inventory ................................................... 26
3.15 Tax Matters ................................................. 27
3.16 Contracts and Commitments ................................... 29
3.17 Intellectual Property Rights ................................ 30
3.18 Litigation .................................................. 32
3.19 Warranties; Products ........................................ 32
3.20 Employees ................................................... 33
-ii-
<PAGE>
3.21 Employee Benefit Plans ...................................... 33
3.22 Insurance ................................................... 37
3.23 Affiliate Transactions ...................................... 37
3.24 Customers and Suppliers ..................................... 38
3.25 Distributors ................................................ 38
3.26 Officers and Directors; Bank Accounts ....................... 38
3.27 Compliance with Laws; Permits ............................... 39
3.28 Environmental Matters ....................................... 39
3.29 Brokerage ................................................... 42
3.30 Opinion of Financial Advisor ................................ 42
3.31 Stockholder Agreements ...................................... 42
3.32 Registration Statement ...................................... 42
3.33 Disclosure .................................................. 43
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF TORO
AND MERGER SUBSIDIARY ................................................. 43
4.01 Incorporation and Corporate Power ........................... 43
4.02 Execution, Delivery and Performance; Valid and
Binding Agreement ........................................... 43
4.03 No Breach ................................................... 44
4.04 Merger Subsidiary ........................................... 44
4.05 Governmental Authorities; Consents .......................... 44
-iii-
<PAGE>
4.06 Brokerage ................................................... 44
4.07 SEC Documents ............................................... 45
4.08 Capital Stock ............................................... 45
4.09 Current Plans or Intentions ................................. 46
4.10 Due Authorization of Stock Issued in Merger ................. 46
ARTICLE V
COVENANTS OF EXMARK ................................................... 47
5.01 Conduct of the Business ..................................... 47
5.02 Access to Books and Records ................................. 49
5.03 Stockholders' Meeting ....................................... 50
5.04 Regulatory Filings .......................................... 50
5.05 Registration Statement ...................................... 50
5.06 Financial Statements ........................................ 50
5.07 Conditions .................................................. 51
5.08 No Negotiations ............................................. 51
5.09 Exercise or Cancellation of Outstanding Purchase Rights ..... 52
5.10 Exmark Class B and Class C Stock ............................ 52
5.11 Notification; Amendment to Disclosure Schedule .............. 52
5.12 Employee Agreements ......................................... 53
ARTICLE VI
COVENANTS OF TORO AND MERGER SUBSIDIARY ............................... 53
-iv-
<PAGE>
6.01 Regulatory Filings .......................................... 53
6.02 Conditions .................................................. 53
6.03 Registration Statement ...................................... 54
6.04 Stock Exchange Listings ..................................... 54
6.05 Due Authorization of Stock Issued in Merger ................. 54
6.06 Blue Sky Approvals .......................................... 54
ARTICLE VII
CONDUCT OF EXMARK AFTER THE ACQUISITION ............................... 55
7.01 Stand-alone Status .......................................... 55
7.02 Synergies Council ........................................... 57
7.03 REBIT Thresholds; Toro Control .............................. 58
ARTICLE VIII
CONDITIONS TO CLOSING ................................................. 58
8.01 Conditions to Toro's and Merger Subsidiary's Obligations .... 58
8.02 Conditions to Exmark's Obligations .......................... 62
ARTICLE IX
TERMINATION ........................................................... 64
9.01 Termination ................................................. 64
9.02 Effect of Termination ....................................... 66
9.03 Termination Fee ............................................. 66
-v-
<PAGE>
ARTICLE X
THE STOCKHOLDERS' REPRESENTATIVE ...................................... 67
10.01 Appointment ................................................. 67
10.02 Election and Replacement .................................... 67
10.03 Authority ................................................... 67
10.04 No Liability of Toro ........................................ 68
ARTICLE XI
SURVIVAL AND OFFSET ................................................... 68
11.01 Survival of Representations and Warranties .................. 68
11.02 Right of Offset ............................................. 68
ARTICLE XII
ANCILLARY AGREEMENTS .................................................. 73
12.01 Stockholder Agreements ...................................... 73
12.02 Affiliate Agreements ........................................ 73
12.03 Employment Agreements ....................................... 73
12.04 Escrow Agreement ............................................ 73
12.05 Paying Agent Agreement ...................................... 74
12.06 Stock for Stock Exchange Agreement. ......................... 74
ARTICLE XIII
MISCELLANEOUS ......................................................... 74
-vi-
<PAGE>
13.01 Press Releases and Announcements ............................ 74
13.02 Expenses .................................................... 74
13.03 Amendment and Waiver ........................................ 74
13.04 Notices ..................................................... 75
13.05 Arbitration ................................................. 76
13.06 Assignment .................................................. 76
13.07 Severability ................................................ 77
13.08 Complete Agreement .......................................... 77
13.09 Counterparts ................................................ 77
13.10 Governing Law ............................................... 77
13.11 Exmark Stockholders as Third Party Beneficiaries ............ 77
-vii-
<PAGE>
EXHIBIT INDEX
Exhibit 2.01(a) Terms of Contingent Payment Rights
Exhibit 5.10 Amended and Restated Articles of
Incorporation
Exhibit 7.02 Synergies Council Charter and Bylaws
Exhibit 8.01(j) Opinion of Exmark
Exhibit 8.02(k) Opinion of Toro
Exhibit 12.01 Stockholder Agreements
Exhibit 12.02 Affiliate Agreements
Exhibit 12.03(a) - (e) Employment Agreements
Exhibit 12.04 Escrow Agreement
Exhibit 12.05 Paying Agent Agreement
Exhibit 12.06 Stock for Stock Exchange Agreement
-viii-
<PAGE>
INDEX
Defined Term Page
------------ ----
1998 Contingent Payment . . . . . . . . . . . . . . . . . . . . . . . 6
1998 Contingent Payment Amount . . . . . . . . . . . . . . . . . . . . 5
1998 Contingent Payment Fund . . . . . . . . . . . . . . . . . . . . . 11
1998 Contingent Payment Fund Amount . . . . . . . . . . . . . . . . . 10
1998 Funding Date . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1998 Toro Share Price . . . . . . . . . . . . . . . . . . . . . . . . 7
1999 Contingent Payment . . . . . . . . . . . . . . . . . . . . . . . 6
1999 Contingent Payment Amount . . . . . . . . . . . . . . . . . . . . 5
1999 Contingent Payment Fund . . . . . . . . . . . . . . . . . . . . . 11
1999 Contingent Payment Fund Amount . . . . . . . . . . . . . . . . . 11
1999 Funding Date . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1999 Toro Share Price . . . . . . . . . . . . . . . . . . . . . . . . 7
Actual Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Actual Net Worth Adjustment . . . . . . . . . . . . . . . . . . . . . 9
Adjusted Revenue . . . . . . . . . . . . . . . . . . . . . . . Ex 2.01(a)-4
Affiliate Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 73
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Annual Financial Statements . . . . . . . . . . . . . . . . . . . . . 21
Articles of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Average Working Capital . . . . . . . . . . . . . . . . . . . Ex 2.01(a)-5
-ix-
<PAGE>
Balance Sheet Date . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Base Year Revenue . . . . . . . . . . . . . . . . . . . . . . Ex 2.01(a)-1
Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
CAGR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ex 2.01(a)-1
Canceled Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Cash Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
CERCLA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Class B 1998 Contingent Consideration . . . . . . . . . . . . . . . . 5
Class B 1999 Contingent Consideration . . . . . . . . . . . . . . . . 5
Class B Contingent Payment Right . . . . . . . . . . . . . . . . . . . 4
Class B Initial Payment Fund . . . . . . . . . . . . . . . . . . . . . 10
Class B Initial Per Share Payment Consideration . . . . . . . . . . . 4
Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Common/Preferred 1998 Contingent Consideration . . . . . . . . . . . . 5
Common/Preferred 1999 Contingent Consideration . . . . . . . . . . . . 5
Common/Preferred Contingent Payment Right . . . . . . . . . . . . . . 3
Confidentiality Agreement . . . . . . . . . . . . . . . . . . . . . . 76
Constituent Corporations . . . . . . . . . . . . . . . . . . . . . . . 1
Contingent Class B Options . . . . . . . . . . . . . . . . . . . . . . 52
-x-
<PAGE>
Contingent Class B Rights . . . . . . . . . . . . . . . . . . . . . . 52
Contingent Payment Period . . . . . . . . . . . . . . . . . . . . . . 55
Contingent Payment Rights . . . . . . . . . . . . . . . . . . . . . . 4
Contingent Payment Statement . . . . . . . . . . . . . . . . . Ex 2.01(a)-5
Contingent Payments . . . . . . . . . . . . . . . . . . . . . . . . . 6
Contingent Payments Dissenters' Fraction . . . . . . . . . . . . . . . 10
Cross-Branding REBIT Factor . . . . . . . . . . . . . . . . . Ex 2.01(a)-5
Cross-Branding Revenue Factor . . . . . . . . . . . . . . . . Ex 2.01(a)-4
Disclosure Schedule . . . . . . . . . . . . . . . . . . . . . . . . . 18
Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 14
EBIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ex 2.01(a)-2
Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Employment Agreements . . . . . . . . . . . . . . . . . . . . . . . . 73
Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Environmental Permits . . . . . . . . . . . . . . . . . . . . . . . . 40
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Escrow Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Estimated Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . 8
Estimated Net Worth Adjustment . . . . . . . . . . . . . . . . . . . . 8
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Exchange Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
-xi-
<PAGE>
Exmark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Exmark Ancillary Agreements . . . . . . . . . . . . . . . . . . . . . 18
Exmark Class B Stock . . . . . . . . . . . . . . . . . . . . . . . . . 4
Exmark Class C Stock . . . . . . . . . . . . . . . . . . . . . . . . . 4
Exmark Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . 3
Exmark Cross-Branded Products . . . . . . . . . . . . . . . . Ex 2.01(a)-2
Exmark Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . 3
Exmark's Accountant . . . . . . . . . . . . . . . . . . . . . . . . . 49
GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . 39
Holdback Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Holder's Merger Consideration . . . . . . . . . . . . . . . . . . . . 6
Holiman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Initial Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Initial Payment Fund . . . . . . . . . . . . . . . . . . . . . . . . . 10
Initial Payment Fund Amount . . . . . . . . . . . . . . . . . . . . . 9
Initial Per Share Payment Consideration . . . . . . . . . . . . . . . 3
Initial Toro Share Price . . . . . . . . . . . . . . . . . . . . . . . 7
Insiders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Instrument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
-xii-
<PAGE>
Inventory Statement . . . . . . . . . . . . . . . . . . . . . . . . . 8
Last Payment Date . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Latest Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . 21
Latest Financial Statements . . . . . . . . . . . . . . . . . . . . . 21
Leased Property . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Licensed-In Intellectual Property Rights . . . . . . . . . . . . . . . 31
Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Majority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Management Fee . . . . . . . . . . . . . . . . . . . . . . . . Ex 2.01(a)-2
Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . 60
Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . 4
Merger Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Merger Subsidiary Stock . . . . . . . . . . . . . . . . . . . . . . . 4
Misrepresentation . . . . . . . . . . . . . . . . . . . . . . . . . . 69
National Priorities List . . . . . . . . . . . . . . . . . . . . . . . 41
Nebraska Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Net Worth Statement . . . . . . . . . . . . . . . . . . . . . . . . . 9
New Articles of Incorporation . . . . . . . . . . . . . . . . . . . . 52
Offset Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Offset Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Offset Right . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
-xiii-
<PAGE>
Outstanding Class B Shares . . . . . . . . . . . . . . . . . . . . . . 5
Outstanding Purchase Rights . . . . . . . . . . . . . . . . . . . . . 20
Owned Intellectual Property Rights . . . . . . . . . . . . . . . . . . 30
Owned Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Paying Agent Agreement . . . . . . . . . . . . . . . . . . . . . . . . 74
PCB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Prospectus-Proxy Statement . . . . . . . . . . . . . . . . . . . . . . 54
Protected Parties . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . 24, 42
REBIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ex 2.01(a)-1
Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . 54
Related Documents . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Signing Bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
-xiv-
<PAGE>
Stockholder Agreements . . . . . . . . . . . . . . . . . . . . . . . . 73
Stockholders' Meeting . . . . . . . . . . . . . . . . . . . . . . . . 50
Stockholders' Representatives . . . . . . . . . . . . . . . . . . . . 67
Stockholders' Representatives Expense Fund . . . . . . . . . . . . . . 7
Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . 1
Surviving Corporation Stock . . . . . . . . . . . . . . . . . . . . . 4
Synergies Council . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Tax Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Toro . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Toro Ancillary Agreements . . . . . . . . . . . . . . . . . . . . . . 43
Toro Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Toro Control Date . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Toro SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Toro Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Toro Supplied Products . . . . . . . . . . . . . . . . . . . . Ex 2.01(a)-2
Toro's Representatives . . . . . . . . . . . . . . . . . . . . . . . . 57
Valuation Formula . . . . . . . . . . . . . . . . . . . . . . Ex 2.01(a)-1
Working Capital Adjustment . . . . . . . . . . . . . . . . . . Ex 2.01(a)-5
-xv-
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "AGREEMENT"), dated as of
October 23, 1997, is made and entered into by and among The Toro Company, a
Delaware corporation ("TORO"), EMCI Acquisition Corp., a Nebraska corporation
and wholly owned subsidiary of Toro ("MERGER SUBSIDIARY"), and Exmark
Manufacturing Company Incorporated, a Nebraska corporation ("EXMARK"). Merger
Subsidiary and Exmark are hereinafter sometimes collectively referred to as the
"CONSTITUENT CORPORATIONS."
WHEREAS, the respective Boards of Directors of Toro, Merger Subsidiary and
Exmark have determined that it is advisable and in the best interests of the
respective corporations and their stockholders that Merger Subsidiary be merged
with and into Exmark in accordance with the Nebraska Business Corporation Act
(the "NEBRASKA ACT") and the terms of this Agreement, pursuant to which Exmark
will be the surviving corporation as a wholly owned subsidiary of Toro (the
"MERGER");
WHEREAS, for federal income tax purposes, it is intended that the Merger qualify
as a reorganization under the provisions of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "CODE"); and
WHEREAS, Toro, Merger Subsidiary and Exmark desire to make certain
representations, warranties, covenants, indemnities and agreements in connection
with, and establish various conditions precedent to, the Merger.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants, indemnities and agreements set forth in this Agreement,
and other good and valuable consideration, the adequacy and receipt of which is
hereby acknowledged, the parties hereby agree as follows:
ARTICLE I
THE MERGER
1.01 THE MERGER. At the Effective Time (as defined in SECTION 1.03
hereof), and subject to the terms and conditions of this Agreement and the
Articles of Merger (as defined in SECTION 1.03 hereof), Merger Subsidiary shall
be merged with and into Exmark,
<PAGE>
the separate existence of Merger Subsidiary shall cease, and Exmark shall
continue as the surviving corporation under the corporate name of Exmark
Manufacturing Company Incorporated. In its capacity as the corporation
surviving the Merger, Exmark is hereinafter sometimes referred to as the
"SURVIVING CORPORATION."
1.02 EFFECT OF MERGER. The effect of the Merger shall be as set forth in
Section 21-20,133 of the Nebraska Act, and the Surviving Corporation shall
succeed to and possess all the properties, rights, privileges, immunities,
powers, franchises and purposes, and be subject to all the duties, liabilities,
debts, obligations, restrictions and disabilities, of the Constituent
Corporations, all without further act or deed.
1.03 EFFECTIVE TIME. The consummation of the Merger shall be effected as
promptly as practicable, but in no event more than three business days, after
the satisfaction or waiver of the conditions set forth in ARTICLE VIII of this
Agreement, and the parties hereto will cause articles of merger with respect to
the Merger (the "ARTICLES OF MERGER") to be executed, delivered and filed with
the Secretary of State of the State of Nebraska in accordance with the Nebraska
Act and will make all other filings or recordings required by Nebraska law in
connection with the Merger and the transactions contemplated by this Agreement.
The Merger shall become effective at the time and date of the filing of the
Articles of Merger with the Secretary of State of the State of Nebraska, subject
to SECTION 1.07 with respect to Toro's financial reporting for the Merger. The
time at which the Merger shall become effective is referred to herein as the
"EFFECTIVE TIME." The day during which the Effective Time shall occur is
referred to herein as the "EFFECTIVE DATE."
1.04 DIRECTORS AND OFFICERS. From and after the Effective Time, the
directors of the Surviving Corporation shall be the persons who were the
directors of Merger Subsidiary immediately prior to the Effective Time. After
the Effective Time, the Stockholders' Representatives (as defined in
SECTION 10.01 hereof) shall have the right to designate one Stockholders'
Representative to serve as a representative on the board of directors of the
Surviving Corporation until expiration of the Contingent Payment Period (as
defined in SECTION 7.01 hereof). From and after the Effective Time, the
officers of the Surviving Corporation shall be the persons who were the officers
of the Surviving Corporation immediately prior to the Effective Time. Such
directors and officers of the Surviving Corporation shall hold office for the
term specified in, and subject to the provisions contained in, the articles of
incorporation and bylaws of the Surviving Corporation and applicable law. If,
at or after the Effective Time, a vacancy shall exist on the board of directors
or in any of the offices of the Surviving Corporation, such vacancy shall be
filled in the manner provided in the articles of incorporation and bylaws of the
Surviving Corporation.
-2-
<PAGE>
1.05 ARTICLES OF INCORPORATION; BYLAWS. At and after the Effective Time
and until further amended in accordance with applicable law, the articles of
incorporation and bylaws of Merger Subsidiary as in effect immediately prior to
the Effective Time shall be the articles of incorporation and bylaws of the
Surviving Corporation.
1.06 TAKING OF NECESSARY ACTION; FURTHER ACTION. Toro, Merger Subsidiary
and Exmark, respectively, shall each use its reasonable best efforts to take all
such action as may be necessary or appropriate to effectuate the Merger under
the Nebraska Act at the time specified in SECTION 1.03. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all properties, rights, privileges, immunities,
powers and franchises of either of the Constituent Corporations, the officers of
the Surviving Corporation are fully authorized in the name of each Constituent
Corporation or otherwise to take, and shall take, all such lawful and necessary
action.
1.07 THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "CLOSING") will take place at the offices of Dorsey & Whitney
LLP, 220 South Sixth Street, Minneapolis, Minnesota, 55402 on a date to be
specified by the parties, which shall be no later than the third business day
after satisfaction or waiver of the conditions set forth in ARTICLE VIII hereof.
Solely for Toro's financial reporting purposes, the parties hereto covenant and
agree that the Closing will be deemed to be effective as of November 1, 1997.
At the Closing, the parties shall deliver to each other the documents required
to be delivered pursuant to ARTICLE VIII hereof.
ARTICLE II
MERGER CONSIDERATION/EFFECT ON CAPITAL STOCK
2.01 EFFECT ON EXMARK CAPITAL STOCK.
(a) CONVERSION OF EXMARK CAPITAL STOCK. At the Effective Time, by virtue
of the Merger and without any action on the part of Toro, Merger Subsidiary,
Exmark, the Surviving Corporation or the holder of any of the following shares
of Exmark capital stock:
-3-
<PAGE>
(i) each share of Common Stock, par value $10.00 per share, of Exmark
("EXMARK COMMON STOCK"), issued and outstanding immediately prior to the
Effective Time, other than Dissenting Shares (as defined in SECTION 2.05 hereof)
and Canceled Shares (as defined in SECTION 2.01(a)(VI) hereof), shall be
converted into and become a right to receive (a) cash and shares of Common
Stock, par value $1.00 per share, of Toro (together with the preferred stock
purchase rights associated with each such share of common stock, "TORO COMMON
STOCK") representing the initial payment consideration, determined in accordance
with SECTION 2.02 (the "INITIAL PER SHARE PAYMENT CONSIDERATION"), and (B) one
common/preferred contingent payment right, as described in SECTION 2.02 (a
"COMMON/PREFERRED CONTINGENT PAYMENT RIGHT");
(ii) each share of Preferred Stock, par value $40.00 per share, of Exmark
("EXMARK PREFERRED STOCK"), issued and outstanding immediately prior to the
Effective Time, other than Dissenting Shares and Canceled Shares, shall be
converted into and become the right to receive (A) four times the Initial Per
Share Payment Consideration, determined in accordance with SECTION 2.02, and
(B) four Common/Preferred Contingent Payment Rights, as described in
SECTION 2.02;
(iii) each share of Class B Preferred Stock, par value $.01 per share, of
Exmark ("EXMARK CLASS B STOCK"), issued and outstanding immediately prior to the
Effective Time, other than Dissenting Shares and Canceled Shares, shall be
converted into and become a right to receive (A) one-tenth of a share of Toro
Common Stock (the "CLASS B INITIAL PER SHARE PAYMENT CONSIDERATION") and (B) one
Class B contingent payment right, as described in SECTION 2.02 (a "CLASS B
CONTINGENT PAYMENT RIGHT");
(iv) each share of Class C Preferred Stock, par value $.01 per share, of
Exmark ("EXMARK CLASS C STOCK"), issued and outstanding immediately prior to the
Effective Time, other than Dissenting Shares and Canceled Shares, shall be
converted into and become a right to receive the Initial Per Share Payment
Consideration, determined in accordance with SECTION 2.02;
(v) each share of Common Stock, par value $0.01 per share, of Merger
Subsidiary ("MERGER SUBSIDIARY STOCK"), issued and outstanding immediately prior
to the Effective Time shall be converted into and become a right to receive one
share of Common Stock, par value $0.01 per share, of the Surviving Corporation
("SURVIVING CORPORATION STOCK"); and
(vi) each share of Exmark's capital stock issued and outstanding
immediately prior to the Effective Time and owned by Toro, Merger Subsidiary or
Exmark ("CANCELED SHARES")
-4-
<PAGE>
shall be canceled and extinguished without any conversion thereof and no payment
shall be made with respect thereto.
The Common/Preferred Contingent Payment Rights and the Class B Contingent
Payment Rights are collectively referred to herein as the "CONTINGENT PAYMENT
RIGHTS." The aggregate amount of the cash and shares of Toro Common Stock to be
paid by Toro with respect to the Contingent Payment Rights, the Class B Initial
Per Share Payment Consideration and the Initial Per Share Payment Consideration
is referred to herein as the "MERGER CONSIDERATION." The shares of Exmark
Common Stock, Exmark Preferred Stock, Exmark Class B Stock and Exmark Class C
Stock that are issued and outstanding immediately prior to the Effective Time,
other than Dissenting Shares and Canceled Shares, are collectively referred to
herein as the "SHARES," and the holders thereof are referred to herein as the
"HOLDERS."
2.02 DETERMINATION OF MERGER CONSIDERATION.
(a) INITIAL PAYMENT. For purposes of apportioning the Initial Payment (as
defined in this Section 2.02(a)) among the Holders of Exmark Common Stock,
Exmark Preferred Stock and Exmark Class C Stock, each share of Exmark Preferred
Stock shall receive four times the amount of each such payment as does each
share of Exmark Common Stock. The "Initial Per Share Payment Consideration"
shall be cash and Toro Common Stock in an amount equal to a quotient, the
numerator of which is $28,100,000 and the denominator of which is the sum of (i)
the number of shares of Exmark Common Stock, (ii) the number of shares of Exmark
Class C Stock and (iii) four times the number of shares of Exmark Preferred
Stock, which in all cases are issued and outstanding immediately prior to the
Effective Time, other than Canceled Shares. For purposes of calculating the
number of shares of Toro Common Stock included in the Initial Payment
Consideration, the value per share of Toro Common Stock shall be the Initial
Toro Share Price (as defined in SECTION 2.02(c) hereof). In the aggregate, the
total Initial Per Share Payment Consideration paid to the Holders of Shares is
referred to herein as the "INITIAL PAYMENT."
(b) CONTINGENT PAYMENTS. A "Common/Preferred Contingent Payment Right,"
as referred to herein, shall mean the right to receive cash and Toro Common
Stock in an amount equal to a quotient, the numerator of which is one-half of
the 1998 Contingent Payment Amount (as defined in this SECTION 2.02(b) hereof)
and the denominator of which is the sum of (i) the number of shares of Exmark
Common Stock and (ii) four times the number of shares of Exmark Preferred Stock,
which in all cases are
-5-
<PAGE>
issued and outstanding immediately prior to the Effective Time, other than
Canceled Shares (the "COMMON/PREFERRED 1998 CONTINGENT CONSIDERATION"), plus an
amount equal to a quotient, the numerator of which is one-half of the 1999
Contingent Payment Amount and the denominator of which is the sum (i) of the
number of shares of Exmark Common Stock and (ii) four times the number of shares
of Exmark Preferred Stock, which in all cases are issued and outstanding
immediately prior to the Effective Time, other than Canceled Shares (the
"COMMON/PREFERRED 1999 CONTINGENT CONSIDERATION"). A "Class B Contingent
Payment Right," as referred to herein, shall mean the right to receive cash and
Toro Common Stock in an amount equal to a quotient, the numerator of which is
one-half of the 1998 Contingent Payment Amount and the denominator of which is
the number of shares of Exmark Class B Stock issued and outstanding immediately
prior to the Effective Time, other than Canceled Shares (such Class B shares are
referred to as the "OUTSTANDING CLASS B SHARES" and such consideration is
referred to as the "CLASS B 1998 CONTINGENT CONSIDERATION"), plus an amount
equal to a quotient, the numerator of which is one-half of the 1999 Contingent
Payment Amount and the denominator of which is the number of Outstanding Class B
Shares (the "CLASS B 1999 CONTINGENT CONSIDERATION"). The "1998 CONTINGENT
PAYMENT AMOUNT" shall mean a dollar amount determined in accordance with the
calculations set forth in EXHIBIT 2.01(a). The "1999 CONTINGENT PAYMENT AMOUNT"
shall mean a dollar amount determined in accordance with the calculations set
forth in EXHIBIT 2.01(a). For purposes of calculating the number of shares of
Toro Common Stock included in the Common/Preferred 1998 Contingent Consideration
and the Class B 1998 Contingent Consideration, the value per share of Toro
Common Stock shall be the 1998 Toro Share Price (as defined in SECTION 2.02(c)
hereof). For purposes of calculating the number of shares of Toro Common Stock
included in the Common/Preferred 1999 Contingent Consideration and the Class B
1999 Contingent Consideration, the value per share of Toro Common Stock shall be
the 1999 Toro Share Price (as defined in SECTION 2.02(c) hereof). In the
aggregate, the total Common/Preferred 1998 Contingent Consideration plus the
total Class B 1998 Contingent Consideration to be paid to the Holders of Shares
is referred to as the "1998 CONTINGENT PAYMENT." In the aggregate, the total
Common/Preferred 1999 Contingent Consideration plus the total Class B 1999
Consideration to be paid to the Holders of Shares is referred to as the "1999
CONTINGENT PAYMENT." The 1998 Contingent Payment and the 1999 Contingent
Payment are collectively referred to as the "CONTINGENT PAYMENTS." Exmark Class
C Stock will not receive any of the Contingent Payments.
(c) FORM OF MERGER CONSIDERATION AND HOLDBACK AMOUNT. The cash portion of
the Initial Payment, the 1998 Contingent Payment and the 1999 Contingent Payment
will be 12% of the aggregate amount of each such payment as calculated pursuant
to this SECTION 2.02, subject only to SECTION 2.06. Each Holder, however, will
be allowed to elect to receive more or less cash consideration in exchange for
such Holder's Shares up to, but not to exceed, such Holder's portion of the
Merger Consideration. Prior to the Stockholders' Meeting (as defined in
SECTION 5.03), each record holder of Exmark's capital stock will receive a form
to be used to indicate if such record holder desires to receive more or less
than 12% of such holder's proportionate part of the Merger Consideration in cash
(each Holder's proportionate part of the Merger Consideration is referred to
herein as the "HOLDER'S MERGER CONSIDERATION"). Any Holder who wants to receive
more or less than 12% of such Holder's Merger Consideration in the form of cash
must properly complete the form, sign it and return it to the Escrow Agent (as
defined in SECTION 2.03(a) hereof) prior to the date of the Stockholders'
Meeting. Any Holder that does not return such form,
-6-
<PAGE>
properly completed and signed, to the Escrow Agent prior to the Stockholders'
Meeting, will be deemed to have elected to receive 12% of such Holder's Merger
Consideration in the form of cash. The percentage of the Holder's Merger
Consideration each Holder elects, or is deemed to have elected, to receive in
cash shall be referred to herein as the "CASH ELECTION." In the event that the
weighted average of all of the Cash Elections does not equal 12%, the portion of
the Holder's Merger Consideration that each Holder will be entitled to receive
in cash will be proportionately adjusted (either increased or decreased), so
that the aggregate cash consideration to be paid, other than for fractional
shares, will be 12% of the Merger Consideration. In the event that the
aggregate effect of all of the Cash Elections would result in the cash portion
of the Initial Payment or the Contingent Payments, as applicable, being greater
than 12% of any such payment, each Cash Election with respect to such payment
shall be multiplied by a quotient, the numerator of which is 12% and the
denominator of which is the aggregate effect of all of the Cash Elections
(expressed as a percentage of the aggregate consideration to be paid to the
Holders with respect to the Initial Payment or the Contingent Payments, as
applicable) prior to being adjusted. In the event that the aggregate effect of
all of the Cash Elections would result in the cash portion of the Initial
Payment or the Contingent Payments, as applicable, being less than 12% of any
such payment, each Cash Election with respect to such payment (including Cash
Elections of 0%) shall be increased by adding an equal percentage amount to each
Cash Election (but not beyond 100%) until the weighted average of the Cash
Elections, as so adjusted, equals 12% (E.G., each Cash Election would be
increased by adding 1% (or some other percentage amount) to each Cash Election
so that initial Cash Elections of 0% and 30% would become 1% and 31%, but an
initial Cash Election of 100% would remain 100%). The remaining portion of each
Holder's Merger Consideration will be in the form of shares of Toro Common Stock
as described below. Based on the Cash Elections of record Holders of Exmark
Class B Stock and Exmark Class C Stock, the cash that record Holders of Exmark
Common Stock and Exmark Preferred Stock receive in connection with the Initial
Payment, expressed as a percentage of such payment, may be different than the
cash that such Holders receive in connection with the Contingent Payments,
expressed as a percentage of each such payment.
The Toro Common Stock portion of the Initial Payment and each of the Contingent
Payments will be 88% of the aggregate amount of such payment as calculated
pursuant to SECTION 2.03, subject only to SECTION 2.06. The "INITIAL TORO SHARE
PRICE" shall mean the average closing sale price per share of the Toro Common
Stock as reported on the consolidated tape of the New York Stock Exchange during
the 30 trading days ending on October 31, 1997; provided that the Effective Date
is on or prior to November 30, 1997. In the event that the Effective Date is
after November 30, 1997, the "Initial Toro Share Price shall mean the average
closing sales price per share of Toro Common Stock reported on the consolidated
tape of the New York Stock Exchange during the 30 trading days ending on the
third trading day immediately preceding the Effective Date. The "1998 TORO
SHARE PRICE" shall mean the average closing sales price per share of Toro Common
Stock reported on the consolidated tape of the New York Stock Exchange during
the 30 trading days ending on the third trading day immediately preceding
December 31, 1998. The "1999 TORO
-7-
<PAGE>
SHARE PRICE" shall mean the average closing sales price per share of Toro Common
Stock reported on the consolidated tape of the New York Stock Exchange during
the 30 trading days ending on the third trading day immediately preceding
December 31, 1999. Each of the Initial Toro Share Price, the 1998 Toro Share
Price and the 1999 Toro Share Price shall be appropriately and proportionately
adjusted in the event that, at any time during such applicable thirty trading
day period, shares of Toro Common Stock shall be changed into a different number
of shares or a different class of shares by reason of any reclassification,
recapitalization, split-up, combination, exchange of shares or readjustment or
stock dividend.
Notwithstanding the foregoing, 15% of that part of the Initial Payment Fund (as
defined in SECTION 2.03(a)) that would otherwise be payable to the Holders of
Exmark Common Stock and Exmark Preferred Stock (the "HOLDBACK AMOUNT") shall be
subject to Toro's Offset Right (as defined in SECTION 11.02 hereof) and, as such
shall be held in escrow by the Escrow Agent in accordance with this
SECTION 2.02(c) and EXHIBIT 12.04 and subject to SECTION 11.02. In addition,
$100,000 of the Initial Payment Fund will be held in escrow by the Escrow Agent
to Fund the expenses of the Stockholders' Representatives as provided in
SECTION 10.03 (the "STOCKHOLDERS' REPRESENTATIVES EXPENSE FUND"). The
Stockholders' Representatives Expense Fund shall not be subject to Toro's Offset
Rights. In the event there is an Estimated Net Worth Adjustment (as defined in
SECTION 2.02(d) hereof), cash in an amount equal to 12% of the Estimated Net
Worth Adjustment and that number of shares of Toro Common Stock equal to a
quotient, the numerator of which is 88% of the Estimated Net Worth Adjustment
and the denominator of which is the Initial Toro Share Price, shall also be (i)
held in escrow, (ii) included as part of the Holdback Amount and (iii) subject
to Toro's Offset Right. Subject to the provisions of SECTION 11.02, as it
relates to any claims by Toro under its Offset Right, two-thirds of the cash and
two-thirds of the shares of Toro Common Stock included in the Holdback Amount
that otherwise would have been payable to the Holders of Exmark Common Stock and
Exmark Preferred Stock shall be delivered by the Paying Agent (as defined in
SECTION 2.04) to such Holders concurrently with the payment of the 1999
Contingent Payment and the remainder will be delivered by the Paying Agent to
such Holders on or before December 31, 2000 in each case in an amount based on
the amount of cash and Toro Common Stock that such Holder would have received if
such cash and Toro Common Stock had not originally been held in escrow pursuant
to this SECTION 2.02(c). None of the Initial Payment Fund that is payable in
exchange for the Exmark Class C Preferred Stock shall be held in escrow and
included in the Holdback Amount pursuant to this SECTION 2.02(c). Toro's Offset
Right shall be applied first against that portion of the Holdback Amount to be
paid concurrently with the 1999 Contingent Payment, then against that portion of
the Holdback Amount to be paid on or before December 31, 2000, then against the
1998 Contingent Payment, and any remainder shall be applied against the 1999
Contingent Payment.
(d) NET WORTH ADJUSTMENT TO INITIAL PAYMENT. Within five business days
prior to the Effective Time, the parties shall mutually agree upon an estimate
of the book value,
-8-
<PAGE>
determined in accordance with GAAP (as defined below in this SECTION 2.02(d)),
of (i) Exmark's total assets as of the Effective Time, minus (ii) Exmark's total
liabilities as of the Effective Time (the "ESTIMATED NET WORTH"). The amount,
determined on a dollar-for-dollar basis, by which the Estimated Net Worth is
less than $8,243,000 shall be the "ESTIMATED NET WORTH ADJUSTMENT." If the
Estimated Net Worth is greater than $8,243,000, then the Estimated Net Worth
Adjustment shall be zero. "GAAP," as referred to herein, shall mean generally
accepted accounting principles. The parties intend that the application of GAAP
be on a basis consistent with the method used by Exmark in preparing the audited
financial statements of Exmark for the three-year period from September 1, 1994
to August 31, 1997, which financial statements are presented in accordance with
GAAP.
At the Effective Time and at Toro's option, Toro and Exmark shall jointly
perform a physical inventory of all inventory of Exmark. As soon thereafter as
is practical, Exmark shall prepare a statement (the "INVENTORY STATEMENT"),
which shall list the number and value of each inventory item (by product
category or as is otherwise customary) of Exmark as of the Effective Time. The
value of each such item shall be determined in accordance with GAAP and shall be
used in the Net Worth Statement (as defined below in this SECTION 2.02(d)).
Within 90 days after the Effective Time, the parties shall prepare and deliver
to the Synergies Council (as defined in SECTION 7.02 hereof) a statement (the
"NET WORTH STATEMENT") that sets forth the book value, determined in accordance
with GAAP, of (i) Exmark's total assets as of the Effective Time, minus
(ii) Exmark's total liabilities as of the Effective Time. Representatives of
Toro and of Exmark on the Synergies Council shall review the Net Worth Statement
and shall agree upon adjustments, if any, to be made thereto within 30 days of
the date of delivery of the Net Worth Statement. In the event there is a
dispute regarding any such adjustment, such dispute shall be resolved in
accordance with the dispute resolution procedures for the Synergies Council set
forth in SECTION 7.02. The net worth of Exmark as set forth in the Net Worth
Statement after any such adjustment (the "ACTUAL NET WORTH") shall be used to
determine the Actual Net Worth Adjustment (as defined below in this
SECTION 2.02(d)). The "ACTUAL NET WORTH ADJUSTMENT," as referred to herein,
shall mean the amount, determined on a dollar-for-dollar basis, by which the
Actual Net Worth is less than $8,243,000. If the Actual Net Worth is equal to
or greater than $8,243,000, then the Actual Net Worth Adjustment shall be zero.
Upon the determination of the Actual Net Worth Adjustment, Toro shall promptly
notify the Escrow Agent and the Paying Agent of the amount of the Actual Net
Worth Adjustment and that the Actual Net Worth has been approved by a majority
of the Synergies Council. Not later than 10 business days following receipt of
such notice from Toro, the Escrow Agent shall deduct the amount of the Actual
Net Worth Adjustment from the Holdback Amount and transfer to the Paying Agent
cash in an amount equal to 12% of the Actual Net Worth Adjustment and a number
of shares of Toro Common Stock equal
-9-
<PAGE>
to a quotient, the numerator of which is 88% of the Actual Net Worth Adjustment
and the denominator of which is the Initial Toro Share Price, plus all interest
earned with respect to such cash and any and all dividends paid with respect to
such shares of Toro Common Stock since the date on which Toro deposited such
cash and Toro Common Stock with the Escrow Agent. The Paying Agent promptly
shall pay such cash and shares to Toro. The shares of Toro Common Stock
returned to Toro shall be canceled and cease to be outstanding. The Estimated
Net Worth, the Net Worth Statement and the Actual Net Worth shall in each case
be determined without giving effect to the Merger, the acquisition of Holiman
(as defined in SECTION 5.01(b) hereof) by Exmark or the Signing Bonuses (as
defined in SECTION 12.03 hereof).
2.03 DETERMINATION OF INITIAL PAYMENT FUND, CLASS B INITIAL PAYMENT FUND
AND CONTINGENT PAYMENT FUNDS; DEPOSIT PROCEDURES.
(a) At or prior to the Effective Time, Toro shall deposit, or shall cause
to be deposited, the Initial Payment Fund (as defined in this SECTION 2.03(a))
with Norwest Bank Minnesota, National Association, or such other bank or trust
company designated by Toro and acceptable to Exmark's management (the "ESCROW
AGENT"), for the benefit of the Holders and as part of the Merger Consideration
in exchange for the Shares. The "INITIAL PAYMENT FUND AMOUNT" shall be a dollar
amount equal to the product of the Initial Per Share Payment Consideration and
the sum of (i) the number of shares of Exmark Common Stock, (ii) the number of
shares of Exmark Class C Stock and (iii) four times the number of shares of
Exmark Preferred Stock, which in all cases are issued and outstanding
immediately prior to the Effective Time, other than Dissenting Shares and
Canceled Shares. The amount of cash that Toro shall deposit with the Escrow
Agent as part of the Initial Payment Fund shall be an amount equal to 12% of the
Initial Payment Fund Amount. The number of shares of Toro Common Stock that
Toro shall deposit with the Escrow Agent as part of the Initial Payment Fund,
shall be equal to a quotient, the numerator of which shall be equal to 88% of
the Initial Payment Fund Amount and the denominator of which shall be equal to
the Initial Toro Share Price. The total cash and Toro Common Stock deposited
with the Escrow Agent pursuant to this SECTION 2.03(a) is referred to herein as
the "INITIAL PAYMENT FUND."
(b) At or prior to the Effective Time, Toro shall deposit, or shall cause to
be deposited, such number of shares of Toro Common Stock as is equal to the
product of (i) the Class B Initial Per Share Payment Consideration and (ii) the
number of shares of Exmark Class B Stock, which are issued and outstanding
immediately prior to the Effective Time, other than Dissenting Shares and
Canceled Shares (the "CLASS B INITIAL PAYMENT FUND"), with the Escrow Agent for
the benefit of the Holders of Exmark Class B Stock and as part of the Merger
Consideration in exchange for such Shares.
-10-
<PAGE>
(c) On or before the later to occur of (i) December 31, 1998, or (ii) 10
days after the 1998 Contingent Payment Amount has become final in accordance
with the procedures set forth in EXHIBIT 2.01(a) hereto (the "1998 FUNDING
DATE"), Toro shall deposit, or shall cause to be deposited, the 1998 Contingent
Payment Fund (as defined in this SECTION 2.03(c)) with the Escrow Agent for the
benefit of the Holders and as part of the Merger Consideration in exchange for
the Shares. The "1998 CONTINGENT PAYMENT FUND AMOUNT" shall be a dollar amount
equal to the 1998 Contingent Payment Amount multiplied by a quotient, the
numerator of which is the sum of the number of shares of Exmark Common Stock,
Exmark Class B Stock and (iii) four times the number of shares of Exmark
Preferred Stock, which in all cases are issued and outstanding immediately prior
to the Effective Time, other than Dissenting Shares and Canceled Shares, and the
denominator of which is the sum of (i) the number of shares of Exmark Common
Stock, Exmark Class B Stock and four times the number of shares of Exmark
Preferred Stock, which in all cases are issued and outstanding immediately prior
to the Effective Time, other than Canceled Shares (the "CONTINGENT PAYMENTS
DISSENTERS' FRACTION"). The amount of cash that Toro shall deposit with the
Escrow Agent as part of the 1998 Contingent Payment Fund shall be an amount
equal to 12% of the 1998 Contingent Payment Fund Amount. The number of shares
of Toro Common Stock that Toro shall deposit with the Escrow Agent as part of
the 1998 Contingent Payment Fund, shall be equal to a quotient, the numerator of
which shall be equal to 88% of the 1998 Contingent Payment Fund Amount and the
denominator of which shall be equal to the 1998 Toro Share Price. The total
cash and Toro Common Stock deposited with the Escrow Agent pursuant to this
SECTION 2.03(c) is referred to herein as the "1998 CONTINGENT PAYMENT FUND."
(d) On or before the later to occur of (i) December 31, 1999 or (ii) 10
days after the 1999 Contingent Payment Amount shall become final in accordance
with the procedures set forth in EXHIBIT 2.01(a) hereto (the "1999 FUNDING
DATE"), Toro shall deposit, or shall cause to be deposited, the 1999 Contingent
Payment Fund (as defined in this SECTION 2.03(d)) with the Escrow Agent for the
benefit of the Holders and as part of the Merger Consideration in exchange for
the Shares. The "1999 CONTINGENT PAYMENT FUND AMOUNT" shall be a dollar amount
equal to the 1999 Contingent Payment Amount multiplied by the Contingent
Payments Dissenters' Fraction. The amount of cash that Toro shall deposit with
the Escrow Agent as part of the 1999 Contingent Payment Fund shall be an amount
equal to 12% of the 1999 Contingent Payment Fund Amount. The number of shares
of Toro Common Stock that Toro shall deposit with the Escrow Agent as part of
the 1999 Contingent Payment Fund, shall be equal to a quotient, the numerator of
which shall be equal to 88% of the 1999 Contingent Payment Fund Amount and the
denominator of which shall be equal to the 1999 Toro Share Price. The total
cash and Toro Common Stock deposited with the Escrow Agent pursuant to this
SECTION 2.03(d) is referred to herein as the "1999 CONTINGENT PAYMENT FUND."
-11-
<PAGE>
2.04 EXCHANGE/PAYMENT PROCEDURES.
(a) The Escrow Agent shall hold the Initial Payment Fund, the 1998
Contingent Payment Fund and the 1999 Contingent Payment Fund, including any
interest earned thereon and any dividends or distributions paid in respect
thereof (collectively, the "EXCHANGE FUND"), for the benefit of the Holders of
Shares, subject to the escrow of the Holdback Amount pursuant to SECTION
2.02(c), and shall hold the Class B Initial Payment Fund, including any interest
earned thereon and any dividends paid in respect thereof, for the benefit of the
Holders of Exmark Class B Stock. The Escrow Agent shall also act as the "PAYING
AGENT"and shall distribute the Exchange Fund and the Class B Initial Payment
Fund in exchange for Shares pursuant to the terms of this Agreement. Except as
contemplated by SECTION 2.02(c), this SECTION 2.04, SECTION 2.07(d) and
SECTION 11.02, the Exchange Fund and the Class B Initial Payment Fund shall not
be used for any other purpose. Toro shall make available to the Escrow Agent
from time to time as needed, cash sufficient to pay cash in lieu of fractional
shares as described in this SECTION 2.04 and in SECTION 2.06.
(b) As soon as reasonably practicable after the Effective Time, the Paying
Agent shall mail to each record holder of a certificate or certificates that
immediately prior to the Effective Time represented Shares (the "CERTIFICATES"),
(i) a letter of transmittal (which shall be in customary form) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for such Holder's Merger Consideration. The letter of transmittal
shall specify that delivery of Certificates shall be effected, and risk of loss
and title to the Certificates shall pass, only upon delivery of the Certificates
to the Paying Agent. Upon surrender of a Certificate that immediately prior to
the Effective Time represented outstanding shares of Exmark Common Stock, Exmark
Preferred Stock or Exmark Class C Stock, for cancellation to the Paying Agent,
together with such letter of transmittal, duly executed, and such other
documents as may be required pursuant to such instructions, the Paying Agent
shall distribute in exchange therefor, subject in the case of Certificates
evidencing Exmark Common Stock and Exmark Preferred Stock to escrow of the
Holdback Amount, (i) a certificate or certificates representing the number of
whole shares of Toro Common Stock issuable to such Holder pursuant to SECTION
2.01 and SECTION 2.02 and based on such Holder's Cash Election, (ii) cash
representing the amount payable to such Holder pursuant to SECTION 2.01 and
SECTION 2.02 and based on such Holder's Cash Election, (iii) cash in lieu of
any fractional share thereof in accordance with SECTION 2.06, (iv) any
interest earned or dividends paid with respect to such Holder's Merger
Consideration and (v) except for holders of Exmark Class C Stock, the right to
receive such Holders' portion (based on the number of shares evidenced by such
Certificate) of the Contingent Payments, which right shall be uncertificated,
and the Certificate so surrendered shall forthwith be canceled. Upon
surrender of a Certificate that immediately prior to the Effective Time
represented outstanding shares of Exmark Class B Stock, for cancellation to
the Paying Agent, together with such letter of transmittal, duly executed, and
such other documents as may be required pursuant to such instructions, the
Paying Agent shall distribute in exchange therefor (i) a certificate or
certificates representing the number of whole shares
-12-
<PAGE>
of Toro Common Stock issuable to such Holder pursuant to SECTION 2.01, (ii)
cash in lieu of any fractional share thereof in accordance with SECTION 2.06,
(iii) any interest earned or dividends paid with respect to such Holder's
Merger Consideration and (iv) the right to receive such Holders portion
(based on the number of shares evidenced by such Certificate) of the
Contingent Payments, which right shall be uncertificated, and the Certificate
so surrendered shall forthwith be canceled. Until surrendered as
contemplated by this SECTION 2.04, each Certificate shall be deemed at any
time after the Effective Time to represent solely the right to receive that
portion of the Merger Consideration to be issued in exchange for such
Certificate in connection with the Merger.
(c) If there is a transfer of Share ownership that is not registered in
the transfer records of Exmark, that portion of the Merger Consideration to be
issued in exchange for any such transferred Shares in connection with the Merger
may be issued to a person other than the person in whose name such Shares are
registered, if, upon presentation to the Paying Agent, the Certificate
representing such Shares shall be properly endorsed or otherwise be in proper
form for transfer and the person requesting such payment shall pay any transfer
or other Taxes (as defined in SECTION 3.15(k) hereof) required by reason of the
issuance of such portion of the Merger Consideration to a person other than the
registered holder of such Certificate or establish to the reasonable
satisfaction of Toro that such tax has been paid or is not applicable.
(d) Subject to Toro's Offset Right and the procedures described in this
SECTION 2.04 and in SECTION 11.02, as promptly as practicable following the
deposit by Toro of each of the 1998 Contingent Payment Fund and the 1999
Contingent Payment Fund, after taking such action as is necessary to assure that
all applicable federal or state payroll, income withholding and any other Taxes
are withheld, the Paying Agent shall distribute to the Holders from the
applicable fund (i) a certificate or certificates representing the number of
whole shares of Toro Common Stock issuable to each such Holder pursuant to
SECTION 2.01 and SECTION 2.02, based on such Holder's Cash Election, (ii) cash
representing the amount payable to each such Holder pursuant to SECTION 2.01 and
SECTION 2.02, based on such Holder's Cash Election, and (iii) cash in lieu of
any fractional share thereof in accordance with SECTION 2.06.
(e) In the event Toro exercises its Offset Right against all or a portion
of the Holdback Amount, the Paying Agent promptly shall distribute to Toro from
the Holdback Amount cash and Toro Common Stock equal in value to such offset
amount and the value of each share of Toro Common Stock so distributed shall be
deemed to be the Initial Toro Share Price. In the event Toro exercises its
Offset Right against all or a portion of the 1998 Contingent Payment and Toro
has delivered the 1998 Contingent Payment Fund to the Escrow Agent and such Fund
has not been distributed to the Holders by the Paying Agent, then the Paying
Agent promptly shall distribute to Toro from the 1998 Contingent Payment Fund
cash and Toro Common Stock equal in value to such offset amount and the value of
-13-
<PAGE>
each share of Toro Common Stock so distributed shall be deemed to be the 1998
Toro Share Price. In the event Toro exercises its Offset Right against all or
a portion of the 1998 Contingent Payment and Toro has not delivered the 1998
Contingent Payment Fund to the Escrow Agent, then the 1998 Contingent Payment
Amount automatically shall be reduced by such amount. In the event Toro
exercises its Offset Right against all or a portion of the 1999 Contingent
Payment and Toro has delivered the 1999 Contingent Payment Fund to the Escrow
Agent and such Fund has not been distributed to the Holders by the Paying Agent,
then the Paying Agent promptly shall distribute to Toro from the 1999 Contingent
Payment Fund cash and Toro Common Stock equal in value to such offset amount and
the value of each share of Toro Common Stock so distributed shall be deemed to
be the 1999 Toro Share Price. In the event Toro exercises its Offset Right
against all or a portion of the 1999 Contingent Payment and Toro has not
delivered the 1999 Contingent Payment Fund to the Escrow Agent, then the 1999
Contingent Payment Amount automatically shall be reduced by such amount. The
Toro Common Stock portion of the offset amounts distributed by the Paying Agent
to Toro pursuant to this SECTION 2.04(e) will be 88% of the aggregate amount of
each such distribution, determined based on the value attributed thereto
pursuant to this SECTION 2.04(e), subject only to SECTION 2.06. Cash and Toro
Common Stock delivered to Toro to fund Offset Rights shall constitute a
post-closing reduction of the Merger Consideration rather than a payment of a
liability by Holders of Shares.
2.05 DISSENTING SHARES.
(a) Notwithstanding anything in this Agreement to the contrary, if
Sections 21-20,137 to 21-20,150 of the Nebraska Act are applicable to the
Merger, shares of Exmark's capital stock that are issued and outstanding as of
the Record Date for the Stockholders' Meeting and which are held by stockholders
who have not voted such shares in favor of the Merger, who shall have delivered,
prior to any vote on the Merger, a written demand for the fair value of such
shares in the manner provided in Section 21-20,143 of the Nebraska Act and who,
as of the Effective Time, shall not have effectively withdrawn or lost such
right to appraisal rights ("DISSENTING SHARES"), shall not be converted into or
represent a right to receive any of the Merger Consideration that would
otherwise be paid therefor pursuant to SECTION 2.01 hereof, but the holders
thereof shall be entitled only to such rights as are granted by Sections
21-20,145 to 21-20,150 of the Nebraska Act. Each holder of Dissenting Shares
who becomes entitled to payment for such shares pursuant to Sections 21-20,145
to 21-20,150 of the Nebraska Act shall receive payment therefor from the
Surviving Corporation in accordance with the Nebraska Act; provided, however,
that if, prior to the Effective Time, any such holder of Dissenting Shares shall
have effectively withdrawn such holder's demand for appraisal of such shares or
lost such holder's right to appraisal of such shares under Sections 21-20,141
and 21-20,143 of the Nebraska Act, such holder or holders (as the case may be)
shall forfeit the right to appraisal of such shares and each such share shall
thereupon be deemed to have been canceled, extinguished and converted, as of the
Effective Time, into and represent the right to receive payment of that portion
of the
-14-
<PAGE>
Merger Consideration to be paid therefor pursuant to SECTION 2.01 and
SECTION 2.02 and such shares shall not be deemed to be "Dissenting Shares."
(b) Exmark shall give Toro (i) prompt notice of any written demand for
fair value, any withdrawal of a demand for fair value and any other instrument
served pursuant to Sections 21-20,137 to 21-20,150 of the Nebraska Act received
by Exmark, and (ii) the opportunity to direct all negotiations and proceedings
with respect to demands for fair value under such sections of the Nebraska Act.
Exmark shall not, except with the prior written consent of Toro, voluntarily
make any payment with respect to any demand for fair value or offer to settle or
settle any such demand.
2.06 NO FRACTIONAL SHARES.
(a) No certificates or scrip representing fractional shares of Toro Common
Stock shall be issued upon the surrender for exchange of Certificates, and such
fractional share interests will not entitle the owner thereof to vote or to any
rights of a stockholder of Toro. Notwithstanding any other provision of this
Agreement, no certificates or scrip representing fractional shares of Toro
Common Stock shall be deposited by Toro pursuant to the deposit procedures
described in SECTION 2.03, but rather Toro shall deposit, in lieu thereof, cash
in an amount equal to such fractional part of a share of Toro Common Stock
multiplied by the Initial Toro Share Price, the 1998 Toro Share Price or the
1999 Toro Share Price, as applicable.
(b) Notwithstanding any other provision of this Agreement, each Holder of
Shares exchanged pursuant to the Merger who would otherwise have been entitled
to receive a fraction of a share of Toro Common Stock (after taking into account
all Certificates delivered by such Holder) with respect to the Initial Payment,
the Class B Initial Payment Consideration, the 1998 Contingent Payment, the 1999
Contingent Payment or the release of any portion of the Holdback Amount shall
receive, in lieu thereof, cash (without interest) in an amount equal to such
fractional part of a share of Toro Common Stock multiplied by the Initial Toro
Share Price, the Initial Toro Share Price, the 1998 Toro Share Price, the 1999
Toro Share Price or the 1999 Toro Share Price, respectively.
(c) No certificates or scrip representing fractional shares of Toro Common
Stock shall be issued to Toro in connection with the exercise of its Offset
Right or the Actual Net Worth Adjustment, but rather the Paying Agent shall
deliver to Toro, in lieu thereof, cash in an amount equal to any such fractional
part of a share of Toro Common Stock multiplied by the value attributed thereto
pursuant to SECTION 2.04(e) or the Initial Toro Share Price, respectively.
-15-
<PAGE>
2.07 OTHER EXCHANGE MATTERS.
(a) RIGHTS OF HOLDERS OF EXMARK CAPITAL STOCK. On and after the Effective
Time and until surrendered for exchange, each Certificate representing Shares
shall be deemed for all purposes, except as provided in SECTION 2.06, to
evidence ownership of and to represent the right to receive such Holder's Merger
Consideration to be paid therefor pursuant to SECTION 2.01 and SECTION 2.02.
The record Holder of such Certificate shall, after the Effective Time, be
entitled to vote the shares of Toro Common Stock included in the Initial Payment
into which such Shares shall have been converted (including any Shares of Toro
Common Stock then outstanding and included in the Holdback Amount) on any
matters on which the holders of record of Toro Common Stock, as of any date
subsequent to the Effective Time, shall be entitled to vote. After the
Effective Date, there shall be no further registration of transfers on the
records of the Surviving Corporation of outstanding certificates formerly
representing Shares of Exmark Common Stock, Exmark Preferred Stock, Exmark Class
B Stock or Exmark Class C Stock and, if a certificate formerly representing such
Shares is presented to the Paying Agent, it shall be canceled and exchanged for
such Holder's Merger Consideration as provided in SECTION 2.04. In any matters
relating to such Certificates, Toro may rely conclusively upon the record of
stockholders maintained by Exmark containing the names and addresses of the
Holders of record of Shares at the Effective Time.
(b) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. Toro will pay no
dividends and make no other distributions with respect to Toro Common Stock with
a record date after the Effective Time to any Holder of any unsurrendered
Certificate evidencing Shares of Exmark Common Stock, Exmark Preferred Stock,
Exmark Class B Stock or Exmark Class C Stock with respect to the shares of Toro
Common Stock included in such Holder's Merger Consideration with respect thereto
and Toro will make no cash payment with respect to the cash portion included in
such Holder's Merger Consideration or in lieu of fractional shares to any such
Holder pursuant to SECTION 2.06 until the Holder of such Certificate surrenders
such Certificate. Following surrender of any such Certificate, the Paying
Agent, on behalf of Toro, shall subject to the other provisions of this
Agreement (i) pay to the record holder of the certificate representing whole
shares of Toro Common Stock issued in exchange for such Certificate, without
interest, (A) at the time of such surrender, the amount of cash payable in lieu
of a fractional share of Toro Common Stock to which such holder is entitled
pursuant to SECTION 2.06 and the amount of dividends or other distributions with
a record date after the Effective Time theretofore paid with respect to such
whole shares of Toro Common Stock and (B) at the appropriate payment date, the
amount of dividends or other distributions with a record date after the
Effective Time but prior to such surrender and a payment date subsequent to such
surrender payable with respect to such whole shares of Toro Common Stock and
(ii) pay to the Holder, without interest from the Effective Time to the date of
the surrender of such Certificates, the cash portion of such Merger
Consideration then payable to such Holder.
-16-
<PAGE>
(c) NO FURTHER OWNERSHIP RIGHTS IN EXMARK CAPITAL STOCK. The Merger
Consideration delivered to the Escrow Agent in exchange for the Shares in
accordance with the terms hereof (including any cash paid pursuant to
SECTION 2.06 or SECTION 2.07(b)) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such Shares.
(d) TERMINATION OF FUNDS. The Paying Agent shall deliver any portion of
the Exchange Fund and the Class B Initial Payment Fund that remains
undistributed to the Holders of the Certificates for two years after the
Effective Time to Toro, upon demand. Holders of Certificates who have not
theretofore complied with this ARTICLE II shall thereafter look only to Toro for
payment of their claims for their respective portions of the Merger
Consideration as to which they may be entitled under SECTION 2.01 and
SECTION 2.02, including any dividends or distributions with respect to Toro
Common Stock.
(e) NO LIABILITY. None of Toro, Merger Subsidiary, Exmark, the Escrow
Agent or the Paying Agent shall be liable to any person in respect of any shares
of Toro Common Stock (or dividends or distributions with respect thereto) or
cash in the Exchange Fund or the Class B Initial Payment Fund delivered to a
public official pursuant to any applicable abandoned property, escheat or
similar law.
(f) INVESTMENT OF MERGER CONSIDERATION. The Escrow Agent shall invest any
cash included in the Exchange Fund or the Class B Initial Payment Fund in
interest bearing accounts guaranteed, directly or indirectly, by the federal
government. Any interest and other income resulting from such investments shall
become part of the Exchange Fund or the Class B Initial Payment Fund, as
applicable, and shall be taxable to the Holders.
(g) LOST CERTIFICATES. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed, and, if required by the
Surviving Corporation, upon the delivery to the Paying Agent of a bond in such
sum as the Surviving Corporation may direct as indemnity against any claim that
may be made against it with respect to such Certificate, the Paying Agent will
issue in exchange for such lost, stolen or destroyed Certificate the Merger
Consideration and any cash in lieu of fractional shares, and unpaid dividends
and distributions on shares of Toro Common Stock deliverable in respect thereof,
pursuant to this Agreement.
(h) STOCK TRANSFER BOOKS. At the Effective Time, the stock transfer books
of Exmark shall be closed and there shall be no further registration of
transfers of shares of Exmark's capital stock thereafter on the records of
Exmark. From and after the Effective
-17-
<PAGE>
Time, the holders of certificates representing shares of Exmark's capital stock
immediately prior to the Effective Time shall cease to have any rights with
respect to such shares of Exmark's capital stock except as otherwise provided in
this Agreement or by law.
(i) ADJUSTMENTS.
(i) If, between the date hereof and the later to occur of (A) the date on
which the 1999 Contingent Payment, if any, is fully paid and (B) the date on
which the last payment of the Holdback Amount is made (the "LAST PAYMENT DATE"),
shares of Toro Common Stock shall be changed into a security of a different
issuer or a different class of shares by reason of any reclassification,
recapitalization, split-up, combination, exchange of shares or readjustment then
the term Toro Common Stock, for purposes of this Agreement shall thereafter be
deemed to refer to such different shares.
(ii) If, between the date hereof and the Last Payment Date, the Toro Common
Stock ceases to be listed on a national securities exchange or approved for
quotation on an inter-dealer quotation system of a registered national
securities association in connection with an acquisition of Toro or otherwise,
then the full amount of all future Merger Consideration to be paid in exchange
for the Shares shall be paid in cash after such date.
(j) INTEREST ON CONTINGENT PAYMENTS. The Contingent Payments, if any,
shall be deemed, for income tax purposes, to include interest at the short-term
Adjusted Federal Rate (in effect as of the Effective Time) computed from the
Effective Time to the date of each such payment.
(k) CONTINGENT PAYMENTS ARE NONTRANSFERABLE. The Contingent Payment
Rights are personal to each initial holder thereof and are and shall remain
nontransferable for all purposes other than by operation of law or by will or
the laws of descent and distribution. Any attempted transfer of a Contingent
Payment Right by any holder thereof (other than as set forth in the preceding
sentence) shall be null and void.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EXMARK
Exmark hereby represents and warrants to Toro as follows, except as set forth in
the Disclosure Schedule delivered by Exmark to Toro on the date hereof,
including any
-18-
<PAGE>
amendments thereto made by Exmark pursuant to SECTION 5.11 (the "DISCLOSURE
SCHEDULE") (The Disclosure Schedule sets forth certain exhibits referenced
herein and exceptions to the representations and warranties contained in this
Agreement under captions referencing each and every Section to which such
exhibits or exceptions apply. Further, the disclosure in the Disclosure
Schedule of any item that may not be material shall not be deemed to infer that
any lesser standard of materiality shall apply in interpreting this Agreement.):
3.01 INCORPORATION AND CORPORATE POWER. Exmark is a corporation duly
incorporated, validly existing and in good standing under the laws of the state
of Nebraska and, subject to approval of this Agreement, the Merger, the New
Articles of Incorporation (as defined in SECTION 5.10 hereof) and the Signing
Bonuses by Exmark's stockholders, Exmark has the requisite corporate power and
authority to execute and deliver this Agreement, the Articles of Merger and the
agreements identified in ARTICLE XII to which Exmark is a party (the "EXMARK
ANCILLARY AGREEMENTS") and to perform its obligations hereunder and thereunder.
Exmark has the corporate power and authority and all authorizations, licenses,
permits and certifications necessary to own and operate its properties and to
carry on its business as now conducted and presently proposed to be conducted.
The copies of the articles of incorporation and bylaws of Exmark are set forth
in the Disclosure Schedule and reflect all amendments made thereto (except the
amendment to the articles of incorporation contemplated in SECTION 5.10 hereof)
and are correct and complete as of the date hereof. Exmark is qualified to do
business as a foreign corporation in every jurisdiction in which the nature of
its business or its ownership of property requires it to be so qualified.
3.02 EXECUTION, DELIVERY AND PERFORMANCE; VALID AND BINDING AGREEMENT. The
execution, delivery and performance of this Agreement, the Articles of Merger
and Exmark Ancillary Agreements and the consummation of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
requisite corporate action, and no other corporate proceedings on its part are
necessary to authorize the execution, delivery and performance of this
Agreement, the Articles of Merger and the Exmark Ancillary Agreements, other
than the approval of this Agreement by Exmark's stockholders. This Agreement
and the Exmark Ancillary Agreements have been duly executed and delivered by
Exmark and constitute the valid and binding obligations of Exmark, enforceable
in accordance with their terms, and the Articles of Merger, when executed and
delivered by Exmark, will constitute the valid and binding obligation of Exmark,
enforceable in accordance with its terms.
3.03 APPROVAL OF AGREEMENT; STOCKHOLDERS' MEETING. Exmark hereby
represents that its board of directors has, by resolutions duly adopted at
meetings held on June 3, 1997 and October 1, 1997, authorized and approved this
Agreement, the Merger,
-19-
<PAGE>
the Articles of Merger, the Exmark Ancillary Agreements (and the transactions
contemplated hereby and thereby), the Signing Bonuses, the New Articles of
Incorporation, the issuance of the Contingent Class B Rights (as defined in
SECTION 5.10 hereof), the issuance of the Exmark Class B Stock and the
acquisition of Holiman (including the issuance of the Exmark Class C Stock in
exchange for all of the outstanding shares of Holiman capital stock) and
resolved to recommend approval of this Agreement by Exmark's stockholders. None
of the resolutions described in this SECTION 3.03 has been rescinded, amended or
otherwise modified in any respect since the date of adoption thereof and all
such resolutions remain in full force and effect.
3.04 NO BREACH. The execution, delivery and performance of this Agreement,
the Articles of Merger and Exmark Ancillary Agreements by Exmark and the
consummation by Exmark of the transactions contemplated hereby and thereby do
not conflict with or result in any breach of any of the provisions of,
constitute a default under, result in a violation of, result in the creation of
a right of termination or acceleration or any lien, security interest, charge or
encumbrance upon any assets of Exmark, or require any authorization, consent,
approval, exemption or other action by or notice to any court, other
governmental body or other "PERSON" (such term shall mean an individual,
corporation, partnership, association, joint-stock company, trust,
unincorporated organization, or government or political subdivision thereof)
under the provisions of the articles of incorporation or bylaws of Exmark or any
contract, indenture, mortgage, lease, loan agreement or other agreement,
relationship, commitment, arrangement or instrument, written or oral, by which
Exmark is bound or affected, or any law, statute, rule or regulation or order,
judgment or decree to which Exmark is subject.
3.05 GOVERNMENTAL AUTHORITIES; CONSENTS. Except for the applicable
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations promulgated thereunder (the "HSR ACT"),
and except for the filing of the Articles of Merger with the Secretary of State
of the State of Nebraska, Exmark is not required to submit any notice, report or
other filing with any governmental authority in connection with the execution or
delivery by it of this Agreement, the Articles of Merger or Exmark Ancillary
Agreements or the consummation of the transactions contemplated hereby or
thereby. No consent, approval or authorization of any governmental or
regulatory authority or any other party or person (except the approval of this
Agreement, the Merger, the New Articles of Incorporation and the Signing Bonuses
by the stockholders of Exmark) is required to be obtained by Exmark in
connection with its execution, delivery and performance of this Agreement, the
Articles of Merger or Exmark Ancillary Agreements or the transactions
contemplated hereby or thereby.
-20-
<PAGE>
3.06 SUBSIDIARIES; PREDECESSORS. Except for all of the outstanding capital
stock of Holiman, Exmark does not own any stock, partnership interest, joint
venture interest or any other security or ownership interest issued by any other
corporation, organization, joint venture, partnership, limited liability company
or entity.
3.07 CAPITAL STOCK.
(a) On the date hereof, the authorized capital stock of Exmark consists of
24,000 shares of Exmark Common Stock of which, as of the date hereof, 15,431
shares are issued and outstanding; and 21,000 shares of Exmark Preferred Stock
of which, as of the date hereof, 7,416 shares are issued and outstanding. On
the date hereof, Exmark's capital stock is held of record by the persons and in
the amounts set forth in the Disclosure Schedule. Prior to the Effective Time,
Exmark's articles of incorporation shall have been amended to authorize 10,000
shares of Exmark Class B Stock and 10,000 shares of Exmark Class C Stock in the
manner described in SECTION 5.10 and, as of the Effective Time, 10,000 shares of
Exmark Class B Stock and 3,689 shares of Exmark Class C Stock will be issued and
outstanding. On the Effective Date, Exmark's capital stock will be held of
record by the persons and in the amounts set forth in a disclosure schedule to
be provided to Toro on the Effective Date. All such outstanding shares of
Exmark's capital stock (i) have been duly authorized and are validly issued,
fully paid and nonassessable, (ii) are not subject to preemptive rights created
by statute, Exmark's articles of incorporation or bylaws, or any other agreement
to which either Exmark or, to the knowledge of Exmark, Exmark's stockholders are
bound and (iii) were not issued in violation of any applicable securities laws
that would subject the Surviving Corporation to fines, penalties, or rescission
or civil damages that are material in amount. As used in this Agreement,
"knowledge" of Exmark and similar words to that effect shall mean the actual
knowledge of Exmark's officers after due inquiry.
(b) There are no rights, subscriptions, warrants, options, conversion
rights or agreements of any kind outstanding to purchase or otherwise acquire
from Exmark any shares of Exmark's capital stock or other securities of Exmark
of any kind (and there are no agreements or other obligations of Exmark to grant
any of the foregoing) and there are no agreements or other obligations
(contingent or otherwise) that may require Exmark to repurchase or otherwise
acquire any shares of Exmark's capital stock. The holders of all options,
warrants or other rights to purchase Exmark's securities, which were outstanding
prior to the Effective Time ("OUTSTANDING PURCHASE RIGHTS") have been or will be
given, or shall have properly waived, any required notice prior to the Merger.
(c) The Disclosure Schedule sets forth those persons who are, in Exmark's
reasonable judgment, "affiliates" of Exmark within the meaning of Rule 145
promulgated
-21-
<PAGE>
by the Securities Exchange Commission (the "SEC") under the Securities Act of
1933, as amended (the "SECURITIES ACT").
3.08 FINANCIAL STATEMENTS. The Disclosure Schedule sets forth copies of
(i) the unaudited balance sheets, as of August 31, 1997, of Exmark (the "LATEST
BALANCE SHEET") and the unaudited statements of earnings, stockholders' equity
and cash flows of Exmark for the year ended August 31, 1997 (such statements and
the Latest Balance Sheet being herein referred to as the "LATEST FINANCIAL
STATEMENTS"), and (ii) the audited balance sheets, as of August 31, 1996, August
31, 1995 and August 31, 1994, of Exmark and the audited statements of earnings,
stockholders' equity and cash flows of Exmark for each of the years ended August
31, 1996, August 31, 1995 and August 31, 1994 (collectively, the "ANNUAL
FINANCIAL STATEMENTS"). Prior to the Effective Time, Exmark shall have
delivered audited financial statements for the year ended August 31, 1997,
including a balance sheet as of August 31, 1997 and statements of earnings,
stockholders' equity and cash flows of Exmark, which upon delivery shall be
deemed to be for all purposes the Latest Balance Sheet and the Latest Financial
Statements, as applicable. Any material adverse changes in the financial
condition of Exmark as reflected in the audited Latest Financial Statements
compared to the previously delivered unaudited Latest Financial Statements shall
constitute a material breach of the representations set forth in this SECTION
3.08. The Latest Financial Statements and the Annual Financial Statements are
based upon the information contained in the books and records of Exmark and
fairly present the financial condition of Exmark as of the dates thereof and
respective results of operations for the periods referred to therein. The
Annual Financial Statements (including the notes thereto) have been prepared in
accordance with GAAP, consistently applied through the periods indicated (except
as indicated in the notes thereto), and the Latest Financial Statements have
been prepared in accordance with GAAP (as such term applies to unaudited
financial statements and thus such statements may not contain all notes and may
not contain prior period comparative data which are required to be prepared in
accordance with generally accepted accounting principles in general and subject
to normal year-end audit adjustments), are consistent with the Annual Financial
Statements.
3.09 ABSENCE OF UNDISCLOSED LIABILITIES. Except as reflected in the Latest
Balance Sheet, Exmark has no liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise, whether due or to become due, whether known or
unknown, and regardless of when asserted) arising out of transactions or events
heretofore entered into, or any action or inaction, or any state of facts
existing, with respect to or based upon transactions or events heretofore
occurring, except liabilities in the ordinary course of business (none of which
is an uninsured liability in excess of $50,000 for breach of contract, breach of
warranty, tort, infringement, claim or lawsuit).
-22-
<PAGE>
3.10 NO MATERIAL ADVERSE CHANGES. Since the date of the Latest Balance
Sheet (the "BALANCE SHEET DATE"), there has been no material adverse change in
the assets, financial condition, operating results, distributor, customer,
employee or supplier relations, business condition or prospects of Exmark (other
than as a direct result of general economic conditions or an industry downturn).
3.11 ABSENCE OF CERTAIN DEVELOPMENTS. Since May 1, 1997, Exmark has not
(except as described in the Disclosure Schedule):
(a) borrowed any amount or incurred or become subject to any liability in
excess of $100,000, except (i) current liabilities incurred in the ordinary
course of business and (ii) liabilities under contracts entered into in the
ordinary course of business;
(b) mortgaged, pledged or subjected to any lien, charge or any other
encumbrance, any of its assets with a fair market value in excess of $100,000,
except (i) liens for current property Taxes not yet delinquent, (ii) liens
imposed by law and incurred in the ordinary course of business for obligations
not yet delinquent with respect to claims by carriers, warehousemen, laborers,
materialmen and the like, (iii) liens in respect of pledges or deposits under
workers' compensation laws, or (iv) liens voluntarily created in the ordinary
course of business, all of which liens aggregate less than $100,000;
(c) discharged or satisfied any lien or encumbrance or paid any liability,
in each case with a value in excess of $100,000, other than current liabilities
(including the current portion of long-term liabilities) paid in the ordinary
course of business;
(d) sold, assigned or transferred (including, without limitation,
transfers to any employees, affiliates or stockholders) any tangible assets with
a fair market value in excess of $100,000, or canceled any debts or claims, in
each case, except in the ordinary course of business;
(e) sold, assigned or transferred (including, without limitation,
transfers to any employees, affiliates or stockholders) any patents, trademarks,
trade names, copyrights, trade secrets or other intangible assets;
(f) disclosed, to any person other than Toro or Merger Subsidiary and
authorized representatives of Toro or Merger Subsidiary, any proprietary
confidential information, other than pursuant to a confidentiality agreement
prohibiting the use or
-23-
<PAGE>
further disclosure of such information, which agreement is identified in the
Disclosure Schedule and is in full force and effect on the date hereof;
(g) waived any rights of material value or suffered any extraordinary
losses or adverse changes in collection loss experience, whether or not in the
ordinary course of business or consistent with past practice;
(h) declared or paid any dividends or other distributions with respect to
any shares of Exmark's capital stock or redeemed or purchased, directly or
indirectly, any shares of Exmark's capital stock or any options, warrants or
other rights to purchase the same, except for the payment of a one-time cash
dividend to be paid between the date hereof and the Effective Time, which
dividend shall not exceed $100,000;
(i) issued, sold or transferred any of its equity securities, securities
convertible into or exchangeable for its equity securities or options, warrants
or other rights to acquire its equity securities, or any bonds or debt
securities, other than the issuance of Exmark Common Stock pursuant to the
exercise of previously outstanding options and other than the issuance of the
Contingent Class B Rights, the Exmark Class B Stock and the Exmark Class C Stock
as expressly contemplated herein;
(j) taken any other action or entered into any other transaction other
than in the ordinary course of business and in accordance with past custom and
practice, or entered into any transaction with any Insider (as defined in
SECTION 3.23 hereof) other than employment arrangements otherwise disclosed in
this Agreement and the Disclosure Schedule, or the transactions expressly
contemplated by this Agreement;
(k) suffered any material theft, damage, destruction or loss of or to any
property or properties owned or used by it, whether or not covered by insurance;
(l) made or granted any bonus, or any wage, salary or compensation
increase to any director, officer, employee or consultant whose annual
compensation from Exmark in the preceding fiscal year exceeded $45,000, or made
or granted any increase in any employee benefit plan or arrangement, or amended
or terminated any existing employee benefit plan or arrangement, or adopted any
new employee benefit plan or arrangement or made any commitment or incurred any
liability to any labor organization;
(m) made any single capital expenditure or commitment therefor in excess
of $100,000;
-24-
<PAGE>
(n) made any loans or advances to, or guarantees for the benefit of, any
persons in excess of $10,000;
(o) made any charitable contributions or pledges in excess of $10,000;
(p) made any change in accounting principles or practices from those
utilized in the preparation of the Latest Financial Statements;
(q) experienced any amendment, modification or termination of any
existing, or entered into any new, contract, agreement, plan, lease, license,
permit or franchise which is, either individually or in the aggregate, material
to the business, operations, financial position or prospects of Exmark other
than in the ordinary course of business;
(r) experienced any labor dispute material to the business, operations,
financial position or prospects of Exmark;
(s) experienced any change in any assumption underlying or method of
calculating, any bad debt, inventory, contingency or other reserve;
(t) written off as uncollectible any note or account receivable, or
canceled any debts, other than in the ordinary course of business and consistent
with past practice;
(u) failed to replace or replenish inventory or supplies as such inventory
or supplies may have been depleted from time to time, collect accounts
receivable, pay accounts payable and has not shortened or lengthened the
customary payment cycles for any of its payables or receivables or otherwise
managed its working capital accounts other than in the ordinary course of
business and in a manner consistent with past practice;
(v) experienced any writedown or writeup of (or failed to writedown or
writeup in accordance with GAAP) the value of any inventories, receivables or
other assets, or revalued any assets of Exmark;
-25-
<PAGE>
(w) failed to maintain all material assets in accordance with good
business practice and in good operating condition and repair, ordinary wear and
tear excepted;
(x) experienced any lapse or termination of any material permit that was
issued or relates to Exmark or its business, including any failure to renew any
such permit; or
(y) discontinued or altered, in any material respect, its advertising or
promotional activities or its pricing and purchasing policies.
3.12 TITLE TO PROPERTIES.
(a) The real property listed as owned ("OWNED PROPERTY") or leased
("LEASED PROPERTY") in the Disclosure Schedule constitutes all of the real
property owned, used or occupied by Exmark (the "REAL PROPERTY"). Such
Disclosure Schedule includes the record title holder, location, uses thereof and
Exmark indebtedness thereon, if any, for all Real Property. Exmark has good and
marketable fee simple title to all Owned Property, except for recorded
easements, covenants and other restrictions; utility easements; building
restrictions; zoning restrictions; and other easements, covenants and
restrictions existing generally with respect to properties of a similar
character, all of which are shown on such Disclosure Schedule and there are no
outstanding options to purchase the Owned Real Property. The Real Property has
access, sufficient for the conduct of the business of Exmark as now conducted or
as presently proposed to be conducted, to public roads and to all utilities,
including electricity, sanitary and storm sewer, potable water, natural gas and
other utilities, used in the operation of the business of Exmark at that
location. All structures, fixtures and other improvements on all Owned Property
of Exmark are within the lot lines and do not encroach on the properties of any
other Person, and the use and operation of all Owned Property are not in
violation of any applicable building, zoning, safety, environmental, subdivision
and other laws, ordinances, regulations, codes, permits, licenses and
certificates and all restrictions and conditions affecting title. Except as
described in the Disclosure Schedule, no portion of any Owned Property is
located in a flood plain, flood hazard area or designated wetlands area. Since
January 1, 1992, Exmark has not received any written or oral notice of
assessments for public improvements against any Owned Property or any written or
oral notice or order by any governmental body, any insurance company that has
issued a policy with respect to any of such properties or any board of fire
underwriters or other body exercising similar functions (other than as disclosed
in the insurance reports disclosed hereunder) that (i) relates to material
violations of building, safety or fire ordinances or regulations, (ii) claims
any material defect or deficiency with respect to any of such properties or
(iii) requests that performance of any material repairs, alterations or other
work to or in any of such properties or in the streets bounding the same.
Complete and correct copies of all material written reports on such
-26-
<PAGE>
matters from any insurance company that has issued a policy with respect to any
of such properties since January 1, 1992, have been delivered to Toro. To
Exmark's knowledge, there is no pending condemnation, expropriation, eminent
domain or similar proceeding affecting all or any portion of the Owned Property.
(b) The leases for the Leased Property (the "LEASES") are in full force
and effect, and Exmark holds a valid and existing leasehold interest under each
of the Leases for the term set forth in the Disclosure Schedule. Exmark has
delivered to Toro complete and accurate copies of each of the Leases, and none
of the Leases has been modified in any respect, except to the extent that such
modifications are disclosed by the copies delivered to Toro. Exmark is not in
default, and to the knowledge of Exmark no circumstances exist which, if
unremedied, would, either with or without notice or the passage of time or both,
result in such default under any of the Leases; nor to the knowledge of Exmark
is any other party to any of the Leases in default.
(c) Exmark owns good and marketable title to each of the tangible
properties and tangible assets reflected on the Latest Balance Sheet or acquired
since the date thereof, free and clear of all liens and encumbrances, except for
(i) liens for current Taxes not yet delinquent, (ii) liens set forth in the
Disclosure Schedule, (iii) the properties subject to the Leases, (iv) assets
disposed of since the date of the Latest Balance Sheet in the ordinary course of
business, (v) liens imposed by law and incurred in the ordinary course of
business for obligations not yet due to carriers, warehousemen, laborers and
materialmen and (vi) liens in respect of pledges or deposits under workers'
compensation laws, all of which liens aggregate less than $25,000.
(d) All of the buildings, machinery, equipment, tools, jigs, fixtures,
vehicles and other tangible assets necessary for the conduct of the business of
Exmark are in good condition and repair, ordinary wear and tear excepted, and
are usable in the ordinary course of business. There are no defects in such
assets or other conditions relating thereto which adversely affect the operation
or value of such assets. Exmark owns or leases under valid leases, all
buildings, machinery, equipment and other tangible assets necessary for the
conduct of its business as presently conducted, except for defects of title that
do not materially affect the use of such assets by Exmark and except for such
assets that can be purchased or leased for nominal expenditures.
3.13 ACCOUNTS RECEIVABLE. The accounts receivable reflected on the Latest
Balance Sheet and those arising thereafter are valid receivables, are not
subject to valid counterclaims or set-offs, and are collectible in accordance
with their terms, except to the extent of the bad debt reserve reflected on the
Latest Balance Sheet. The Disclosure Schedule contains a complete and accurate
accounts receivables aging report as of August 31, 1997.
-27-
<PAGE>
3.14 INVENTORY. The inventory of raw materials, work in process and
finished goods of Exmark consists of items of a cost, quality and quantity
usable and, with respect to finished goods only, salable at the normal profit
levels of Exmark in the ordinary course of the business of Exmark. The
inventory of finished goods of Exmark is not slow-moving as determined in
accordance with past practices, obsolete or damaged and is merchantable and fit
for its particular use. Exmark has on hand or has ordered and expects timely
delivery of such quantities of raw materials, and has on hand such quantities of
work in process and finished goods, in each case as are reasonably required to
timely fill current orders on hand which require delivery within 60 days and to
maintain the manufacture and shipment of products at its normal level of
operations. As of the date of the Latest Balance Sheet, the values at which
such inventory is carried on the Latest Balance Sheet are in accordance with
GAAP. The Disclosure Schedule contains a materially complete and accurate
summary of Exmark's inventory of raw materials, work in progress, finished goods
and reserve for obsolete and other inventory allowance or accrual calculation
schedules as of August 31, 1997.
3.15 TAX MATTERS.
(a) Each of Exmark and any affiliated, combined or unitary group of which
Exmark is or was a member, any predecessor of Exmark and any Plans (as defined
in SECTION 3.21 hereof), as the case may be (each, a "TAX AFFILIATE" and,
collectively, the "TAX AFFILIATES"), has: (i) timely filed (or has had timely
filed on its behalf) all returns, declarations, reports, estimates, information
returns, and statements ("RETURNS") required to be filed or sent by it in
respect of any Taxes or required to be filed or sent by it by any taxing
authority having jurisdiction and all such Returns are true and correct in all
material respects, except for timing and categorization issues that would not
have a material adverse effect on the financial condition of Exmark; (ii) timely
and properly paid (or has had paid on its behalf) all Taxes due and payable with
respect to the periods covered by such Returns; (iii) established on its Latest
Balance Sheet, in accordance with GAAP, reserves that are adequate for the
payment of any Taxes not yet due and payable for all Tax periods or portions
thereof ending on or prior to the Balance Sheet Date; and (iv) complied with all
applicable laws, rules, and regulations relating to the withholding of Taxes and
the payment thereof (including, without limitation, withholding of Taxes under
Sections 1441 and 1442 of the Code, or similar provisions under any foreign
laws), and timely and properly withheld from individual employee wages or other
payments to employees and paid over to the proper governmental authorities all
amounts required to be so withheld and paid over under all applicable laws.
True and correct copies of any and all Returns filed by any Tax Affiliate have
been provided to Toro.
-28-
<PAGE>
(b) There are no liens for Taxes upon any assets of Exmark or of any Tax
Affiliate, except liens for Taxes not yet due. Exmark is not a party to any tax
sharing agreement or similar arrangement for the payment or reimbursement of
Taxes.
(c) No deficiency for any Taxes has been asserted, assessed or, to
Exmark's knowledge, proposed against Exmark or the Tax Affiliates that has not
been resolved and paid in full. No waiver, extension or comparable consent
given by Exmark or the Tax Affiliates regarding the application of the statute
of limitations with respect to any Taxes or Returns is outstanding, nor is any
request for any such waiver or consent pending. There has been no Tax audit or
other administrative proceeding or court proceeding with regard to any Taxes or
Returns, nor is any such Tax audit or other proceeding pending, nor has there
been any notice to Exmark by any Taxing authority regarding any such Tax, audit
or other proceeding, nor, to the best knowledge of Exmark, is any such Tax audit
or other proceeding threatened with regard to any Taxes or Returns. Exmark does
not expect the assessment of any additional Taxes of Exmark or the Tax
Affiliates and is not aware of any unresolved questions, claims or disputes
concerning the liability for Taxes of Exmark or the Tax Affiliates which would
exceed the estimated reserves established on its books and records.
(d) Neither Exmark nor any Tax Affiliate is a party to any agreement,
contract or arrangement that would result, separately or in the aggregate, in
the payment of any "excess parachute payments" within the meaning of
Section 280G of the Code and, assuming the Signing Bonuses are duly and validly
approved by Exmark's stockholders, the consummation of the transactions
contemplated by this Agreement will not be a factor causing payments to be made
by Exmark or any Tax Affiliate that are not deductible (in whole or in part)
under Section 280G of the Code.
(e) Neither Exmark nor any Tax Affiliate has requested any extension of
time within which to file any Return, which Return has not since been filed.
(f) No property of Exmark or any Tax Affiliate is property that Exmark or
any Tax Affiliates is or will be required to treat as being owned by another
person under the provisions of Section 168(f)(8) of the Code (as in effect prior
to amendment by the Tax Reform Act of 1986) or is "tax-exempt use property"
within the meaning of Section 168 of the Code.
(g) Neither Exmark nor any Tax Affiliate is required to include in income
any adjustment under Section 481(a) of the Code by reason of a voluntary change
in accounting method initiated by Exmark or any Tax Affiliate as a result of the
Tax Reform
-29-
<PAGE>
Act of 1986 and neither Exmark nor any Tax Affiliate has knowledge that the
Internal Revenue Service has proposed any such adjustment or change in
accounting method.
(h) All transactions that could give rise to an understatement of federal
income tax (within the meaning of Section 6661 of the Code as it applied prior
to repeal) or an underpayment of tax (within the meaning of Section 6662 of the
Code) were reported in a manner for which there is substantial authority or were
adequately disclosed (or, with respect to Returns filed before the Effective
Time, will be reported in such a manner or adequately disclosed) on the Returns
required in accordance with Sections 6661(b)(2)(B) and 6662(d)(2)(B) of the
Code.
(i) Neither Exmark nor any Tax Affiliate has engaged in any transaction
that would result in a deemed election under Section 338(e) of the Code, and
neither Exmark nor any Tax Affiliate will engage in any such transaction within
any applicable "consistency period" (as such term is defined in Section 338 of
the Code).
(j) Neither Exmark nor any Tax Affiliate has filed any consent under
Section 341(f) of the Code.
(k) For purposes of this Agreement, the term "TAXES" means all taxes,
charges, fees, levies, or other assessments, including, without limitation, all
net income, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, withholding, payroll, employment, social security,
unemployment, excise, estimated, severance, stamp, occupation, property, or
other taxes, customs duties, fees, assessments, or charges of any kind
whatsoever, including, without limitation, all interest and penalties thereon,
and additions to tax or additional amounts imposed by any taxing authority,
domestic or foreign, upon Exmark or any Tax Affiliate.
3.16 CONTRACTS AND COMMITMENTS.
(a) The Disclosure Schedule lists the following agreements, whether
written or, to Exmark's knowledge, oral, to which Exmark is a party (or by which
Exmark or its assets are bound): (i) collective bargaining agreement or
contract with any labor union; (ii) bonus, pension, profit sharing, retirement
or other form of deferred compensation plan; (iii) hospitalization insurance or
other welfare benefit plan or practice, whether formal or informal; (iv) stock
purchase or stock option plan; (v) contract for the employment of any officer,
individual employee or other person on a full-time or consulting basis or
relating to severance pay for any such person, other than Exmark's normal
employment practices generally affecting all employees or classes of employees
-30-
<PAGE>
(such as hourly or salaried classes of employees); (vi) agreement with employees
and with consultants, vendors, customers or other third parties requiring
confidential treatment of Exmark confidential information and/or transfer to
Exmark of intellectual property rights created by employees and with
consultants, vendors, customers or other third parties; (vii) contract,
agreement or understanding relating to the voting of Exmark's capital stock or
the election of directors of Exmark; (viii) agreement or indenture relating to
the borrowing of money, to letters of credit or to mortgaging, pledging or
otherwise placing a lien on any of the assets of Exmark; (ix) guaranty of any
obligation for borrowed money or otherwise; (x) lease or agreement under which
it is lessee of, or holds or operates any property, real or personal, owned by
any other party; (xi) lease or agreement under which it is lessor of, or permits
any third party to hold or operate, any property, real or personal, for which
the annual rental exceeds $25,000; (xii) contract or group of related contracts
with the same party (other than any contract or group of related contracts for
the purchase or sale of products or services) continuing over a period of more
than six months from the date or dates thereof, not terminable by it on 30 days'
or less notice without penalty and involving more than $50,000; (xiii) contract
which prohibits Exmark from freely engaging in business anywhere in the world;
(xiv) contract for the distribution of the products of Exmark (including any
distributor, sales and original equipment manufacturer contract); (xv) franchise
agreement; (xvi) license agreement or agreement providing for the payment of
royalties or other compensation by Exmark in connection with intellectual
property rights licensed from third parties; (xvii) license agreement or
agreement providing for the receipt of royalties or other compensation by Exmark
in connection with intellectual property rights owned, controlled or otherwise
licensable by Exmark; (xviii) contract or commitment for capital expenditures in
excess of $100,000, (xix) agreement for the sale of any capital asset in excess
of $25,000; (xx) contract with any affiliate which in any way relates to Exmark
(other than for employment on customary terms); or (xxi) agreement with vendors,
customers or other third parties requiring confidential treatment of
confidential information of such vendors, customers or other third parties;
(xxii) other agreement which is either material to the business of Exmark or was
not entered into in the ordinary course of business (other than agreements
required to be listed in the Disclosure Schedule).
(b) The Disclosure Schedule lists the following agreements, whether oral
or written, to which Exmark is a party or by which the Exmark or its assets are
bound: (i) contract or group of related contracts with the same party for the
purchase of products or services by Exmark under which the undelivered balance
of such products or services is in excess of $10,000; (ii) contract or group of
related contracts with the same party for the sale of products or services by
Exmark under which the undelivered balance of such products or services
(including, without limitation, any free upgrades or ongoing services) has a
sales price in excess of $10,000; and (iii) sales agreement or other customer
commitment (other than the standard form of purchase order) which entitles any
purchaser to a rebate or right of set-off, to return any product of Exmark after
acceptance thereof or to delay the acceptance thereof, to receive future
services, upgrades or enhancements, or which varies in any material respect from
Exmark's standard form agreements for sales.
-31-
<PAGE>
(c) Exmark has performed all material obligations required to be performed
through the date hereof by it in connection with the contracts or commitments
required to be disclosed in the Disclosure Schedule and has not been notified of
any claim of material default under any contract or commitment required to be
disclosed in the Disclosure Schedule; Exmark has no present expectation or
intention of not fully performing any material obligation pursuant to any
contract or commitment required to be disclosed in the Disclosure Schedule; and
Exmark has no knowledge of any material breach or anticipated material breach by
any other party to any contract or commitment required to be disclosed in the
Disclosure Schedule.
(d) Prior to the date of this Agreement, Toro has been supplied with a
correct and complete copy of each written contract or commitment referred to in
the Disclosure Schedule, together with all known amendments, waivers or other
changes thereto.
3.17 INTELLECTUAL PROPERTY RIGHTS.
(a) The Disclosure Schedule describes: (i) all patents and all
registrations for trademarks, service marks, trade names, corporate names,
copyrights and mask works that have been issued to Exmark; and (ii) each pending
patent application or application for registration for trademarks, service
marks, trade names, corporate names, copyrights and mask works that Exmark has
made with respect to intellectual property owned by, or otherwise controlled by,
Exmark and used in, developed for use in or necessary to the conduct of the
business of Exmark as now conducted or as planned to be conducted as described
herein (the "OWNED INTELLECTUAL PROPERTY RIGHTS"). Except as set forth in the
Disclosure Schedule, Exmark owns and possesses all right, title and interest, or
holds such other interest as is identified in the Disclosure Schedule, in and to
the rights set forth under such caption free and clear of all liens, security
interests or other encumbrances and has the full right to exploit such Owned
Intellectual Property Rights without payment of compensation to any other party.
(b) The Disclosure Schedule describes all agreements granting to Exmark
rights in patents, patent applications, trademarks, service marks, trade names,
corporate names, copyrights, mask works, trade secrets or other intellectual
property rights used in or necessary to the conduct of the business of Exmark as
now conducted or as planned to be conducted as described herein (the
"LICENSED-IN INTELLECTUAL PROPERTY RIGHTS"). All such agreements are in force
and Exmark is not in breach of any such agreement.
-32-
<PAGE>
(c) The Disclosure Schedule describes all products marketed or that have
been marketed by Exmark within the past two years, identifies the method(s) of
intellectual property protection utilized by Exmark with respect to such
products and sets forth the amount of gross sales for such products for the
years ended August 31, 1996 and 1997.
(d) The Disclosure Schedule describes all agreements granting to third
parties any rights in Owned Intellectual Property Rights and any agreements to
grant intellectual property rights that Exmark may acquire in the future.
(e) Except as disclosed in the Disclosure Schedule, all of the Owned
Intellectual Property Rights will be assumed by, and will become intellectual
property rights of, the Surviving Corporation in the Merger, without the
requirement that any consent to assignment be obtained or any payment (other
than government filing or registration fees) be made. Except as disclosed in
the Disclosure Schedule, all licenses of the Licensed-In Intellectual Property
Rights will be assumed by, and will become valid agreements of, the Surviving
Corporation in the Merger, without the requirement that any consent to
assignment be obtained or any payment be made (other than future royalties as
provided in such agreements).
(f) Except as disclosed in the Disclosure Schedule, Exmark, to its
knowledge, has taken all commercially reasonable steps to acquire, protect and
maintain the Owned Intellectual Property Rights. Without limiting the
generality of the foregoing, (i) all maintenance, annuity, renewal and other
such fees and filings due on Owned Intellectual Property Rights have been paid
or made; and (ii) Exmark has no knowledge of any defects in the Owned
Intellectual Property Rights that would lead to any of them becoming invalid or
unenforceable.
(g) Except as disclosed in the Disclosure Schedule, Exmark has not
received any notice of, nor are there any facts known to Exmark which indicate a
likelihood of, any infringement or misappropriation by, or conflict from, any
third party with respect to the Owned Intellectual Property Rights or any
Licensed-In Intellectual Property Rights that are exclusively licensed to
Exmark; and no claim by any third party contesting the validity of any Owned
Intellectual Property Rights has been made, is currently outstanding or, to the
best knowledge of Exmark, is threatened.
(h) Except as disclosed in the Disclosure Schedule, Exmark has not
received any notice of any infringement, misappropriation or violation by Exmark
of any intellectual property rights of any third parties and Exmark, to its
knowledge, has not infringed, misappropriated or otherwise violated any such
intellectual property rights; and to the knowledge of Exmark, no infringement,
misappropriation or violation of any
-33-
<PAGE>
intellectual property rights of any third parties has occurred or will occur
with respect to products currently being sold by Exmark or with respect to the
products currently under development (in their present state of development) or
with respect to the conduct of the business of Exmark as now conducted.
(i) Except as disclosed in the Disclosure Schedule, Exmark has not entered
into any agreement restricting Exmark from selling, leasing or otherwise
distributing any of its current products or products under development to any
class of customers, in any geographic area, during any time period or in any
segment of the market.
(j) To Exmark's knowledge, Exmark has the right to make available to the
Surviving Corporation all trade secrets and other confidential information
entrusted to Exmark by third parties.
(k) There are no known quality defects in the designs contained in the
Owned Intellectual Property Rights and, except as disclosed in the Disclosure
Schedule, such designs comply with all applicable laws.
(l) Notwithstanding anything to the contrary set forth above, Exmark makes
no warranty or representation regarding the effectiveness of any patents or
patents pending included in the Intellectual Property Rights in preventing the
use or infringement thereof by third parties.
3.18 LITIGATION. There are no actions, suits, proceedings, orders or
investigations pending or, to the best knowledge of Exmark, threatened against
Exmark, at law or in equity, or before or by any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, nor is there any known basis therefor.
3.19 WARRANTIES; PRODUCTS.
(a) The Disclosure Schedule describes Exmark's system for monitoring the
intake and processing of all warranty claims relating to any products sold by
Exmark prior to the date hereof. The description of the product warranties and
other material terms of sale of Exmark set forth in the Disclosure Schedule are
correct and complete. The reserves for warranty claims on the Latest Balance
Sheet are consistent with Exmark's prior practices and an amount equal to 150%
of the amount of such reserves is fully adequate to
-34-
<PAGE>
cover all warranty claims made or to be made against any products of Exmark sold
prior to the date thereof.
(b) Exmark's current products and replacement parts have performed, and
shall perform after the Effective Time, substantially in accordance with
Exmark's technical specifications applicable to such products and parts, subject
to repair and replacement claims consistent with Exmark's past experience. The
foregoing representation and warranty:
(i) is contingent upon proper use of the products and parts in the
applications for which they were intended as indicated in Exmark's accompanying
user manual or similar documentation for the products and parts; and
(ii) does not apply to any product or part which (A) has been altered,
except by Exmark or at Exmark's direction, (B) has not been installed, operated,
repaired or maintained in accordance with any installation, handling,
maintenance or operating instructions supplied by Exmark, or (C) has been
damaged by acts of nature, vandalism, burglary, neglect, misuse or accident.
3.20 EMPLOYEES. (a) To the knowledge of Exmark after due inquiry, no
executive employee of Exmark and no group of the employees of Exmark has any
plans to terminate his, her or their employment; (b) Exmark has complied with
all laws relating to the employment of labor, including provisions thereof
relating to wages, hours, equal opportunity, collective bargaining and the
payment of social security and other Taxes; (c) Exmark has no labor relations
problem pending and Exmark's labor relations are satisfactory; (d) there are no
workers' compensation claims pending against Exmark nor is Exmark aware of any
facts that would give rise to such a claim; (e) no employee of Exmark is subject
to any secrecy or noncompetition agreement or any other agreement or restriction
of any kind that would impede in any way the ability of such employee to carry
out fully all activities of such employee in furtherance of the business of
Exmark; and (f) no employee or former employee of Exmark, or any predecessor has
any claim with respect to any Owned Intellectual Property Rights. The
Disclosure Schedule lists, as of the date set forth in the Disclosure Schedule,
each employee of Exmark. The Disclosure Schedule also states the position,
title, remuneration (including any scheduled salary or remuneration increases),
date of employment and accrued vacation pay of each such employee as of such
date.
-35-
<PAGE>
3.21 EMPLOYEE BENEFIT PLANS.
(a) For the purpose of this Agreement, "ERISA" means the Employee
Retirement Income Security Act of 1974, as amended, and the term "PLAN" means
every employee benefit plan (whether or not covered by ERISA) which is
maintained or contributed to by Exmark for the benefit of present or former
employees, including those intended to provide: (i) medical, surgical, health
care, hospitalization, dental, vision, workers' compensation, life insurance,
death, disability, legal services, severance, sickness or accident benefits,
(ii) pension, profit sharing, stock bonus, retirement, supplemental retirement
or deferred compensation benefits (whether or not tax qualified), (iii) bonus,
incentive compensation, stock option, stock appreciation right, phantom stock or
stock purchase benefits, or (iv) salary continuation, unemployment, supplemental
unemployment, termination pay, vacation or holiday benefits.
(b) The term "PLAN" shall also include every such plan: (i) which Exmark
has committed to implement, establish, adopt or contribute to in the future,
(ii) for which Exmark is or may be financially liable as a result of the direct
sponsor's affiliation to Exmark or its owners (whether or not such affiliation
exists at the date of this Agreement and notwithstanding that the plan is not
maintained by Exmark for the benefit of its employees or former employees),
(iii) which is in the process of terminating (but such term does not include any
plan that has been terminated and completely wound up prior to the date of this
Agreement such that Exmark has no present or potential liability with respect
to such arrangement), or (iv) for or with respect to which Exmark is liable
under any common law successor doctrine, express successor liability provisions
of law, provisions of a collective bargaining agreement, labor or employment law
or agreement with a predecessor employer.
(c) The Disclosure Schedule sets forth all Plans by name and brief
description identifying: (i) the type of Plan, (ii) the funding arrangements
for the Plan, (iii) the sponsorship of the Plan, and (iv) the participating
employers in the Plan.
(d) Each Plan identified in the Disclosure Schedule is further identified
on such Disclosure Schedule by reference to such one or more of the following
characteristics as may apply to such Plan: (i) defined contribution plan as
defined in Section 3(34) of ERISA or Section 414(i) of the Code, (ii) defined
benefit plan as defined in Section 3(35) of ERISA or Section 414(j) of the Code,
(iii) plan which is or is intended to be tax qualified under Section 401(a) or
403(a) of the Code, (iv) plan which is or is intended to be an employee stock
ownership plan as defined in Section 4975(e)(7) of the Code (and whether or not
such plan has entered into an exempt loan), (v) nonqualified deferred
compensation arrangement, (vi) employee welfare benefit plan as defined in
Section 3(1) of ERISA, (vii) multiemployer plan as defined in Section 3(37) of
ERISA or Section 414(f) of the Code, (viii) plan maintained by more than one
employer as defined in Section 413(c) of the Code
-36-
<PAGE>
(a "multiple employer plan"), (ix) plan providing benefits after separation from
service or termination of employment, (x) plan maintained or contributed to by
Exmark which owns any Exmark or other employer securities as an investment,
(xi) plan which provides benefits (or provides increased benefits or vesting) as
a result of a change in control of Exmark , (xii) plan which is maintained
pursuant to collective bargaining, and (xiii) a plan funded, in whole or in
part, through a voluntary employees' beneficiary association exempt from tax
under Section 501(c)(9) of the Code.
(e) The Disclosure Schedule sets forth the identity of each corporation,
trade or business (separately for each category below that applies): (i) which
is (or was during the preceding five years) under common control with Exmark
within the meaning of Section 414(b) or (c) of the Code, (ii) which is (or was
during the preceding five years) in an affiliated service group with Exmark
within the meaning of Section 414(m) of the Code, (iii) which is (or was during
the preceding five years) the legal employer of persons providing services to
Exmark as leased employees within the meaning of Section 414(n) of the Code, and
(iv) with respect to which Exmark is a successor employer for purposes of group
health or other welfare plan continuation rights (including Section 601 et. seq.
of ERISA) or the Family and Medical Leave Act.
(f) To the extent that they exist, Exmark has furnished Toro with true and
complete copies of: (i) the most recent determination letter, if any, received
by Exmark from the Internal Revenue Service regarding each Plan, (ii) the most
recent determination or opinion letter ruling from the Internal Revenue Service
that each trust established in connection with Plans which are intended to be
tax exempt under Section 501(a) or (c) of the Code are so tax exempt, (iii) all
pending applications for rulings, determinations, opinions, no action letters
and the like filed with any governmental agency (including but not limited to
the Department of Labor, Internal Revenue Service, Pension Benefit Guaranty
Corporation and the SEC), (iv) the financial statements for each Plan for the
three most recent fiscal or Plan years (in audited form if required by ERISA)
and, where applicable, Annual Report/Return (Form 5500) with disclosure
schedules, if any, and attachments for each Plan, (v) the most recently prepared
actuarial valuation report for each Plan (including but not limited to reports
prepared for funding, deduction and financial accounting purposes), (vi) Plan
documents, trust agreements, insurance contracts, service agreements and all
related contracts and documents (including any employee summaries and material
employee communications) with respect to each Plan, and (vii) collective
bargaining agreements (including side agreements and letter agreements) relating
to the establishment, maintenance, funding and operation of any Plan.
(g) The Disclosure Schedule identifies each employee of Exmark who is:
(i) absent from active employment due to short or long term disability,
(ii) absent from active employment on a leave pursuant to the Family and Medical
Leave Act or a comparable state law, (iii) absent from active employment on any
other leave or approved
-37-
<PAGE>
absence (together with the reason for such leave or absence), (iv) absent from
active employment due to military service (under conditions that give the
employee rights to re-employment), or (v) not an "at will" employee, except as
"at will" status may be modified by employee handbooks or employment practices
applicable generally to all employees or categories of employees (such as hourly
and salaried categories).
(h) With respect to continuation rights arising under federal or state law
as applied to plans that are group health plans (as defined in Section 601 et.
seq. of ERISA), the Disclosure Schedule identifies: (i) each employee, former
employee or qualifying beneficiary who has elected continuation, and (ii) each
employee, former employee or qualifying beneficiary who has not elected
continuation coverage but is still within the period in which such election may
be made.
(i) Except as set forth in the Disclosure Schedule: (i) all Plans
intended to be tax qualified under Section 401(a) or Section 403(a) of the Code
are so qualified; (ii) all trusts established in connection with Plans which are
intended to be generally tax exempt under Section 501(a) or (c) of the Code are
generally tax exempt; (iii) to the extent required either as a matter of law or
to obtain the intended tax treatment and tax benefits, all Plans comply in all
material respects with the requirements of ERISA and the Code; (iv) all Plans
have been administered in all material respects in accordance with the documents
and instruments governing the Plans; (v) all reports and filings with
governmental agencies (including but not limited to the Department of Labor,
Internal Revenue Service, Pension Benefit Guaranty Corporation and the SEC)
required in connection with each Plan have been timely made; (vi) all
disclosures and notices required by law or Plan provisions to be given to
participants and beneficiaries in connection with each Plan have been properly
and timely made; (vii) to Exmark's knowledge, no Plan, separately or in the
aggregate, requires or would result in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code, and the consummation
of the transactions contemplated by this Agreement will not be a factor in
causing payments to be made by Toro or Exmark that are not deductible (in whole
or in part) because of the application of Section 280G of the Code; (viii) and
Exmark has made a good faith effort to comply with the reporting and taxation
requirements for FICA Taxes with respect to any deferred compensation
arrangements under Section 3121(v) of the Code.
(j) Except as set forth in the Disclosure Schedule: (i) all
contributions, premium payments and other payments required to be made in
connection with the Plans as of the date of this Agreement have been made; (ii)
all contributions, premium payments and other payments due from Exmark in
connection with the Plans but not made as of the date of this Agreement have
been accounted for in accordance with GAAP on the Latest Balance Sheet; (iii) no
contribution, premium payment or other payment has been made in support of any
Plan that is in excess of the allowable deduction for federal income tax
purposes for the year with respect to which the contribution was made (whether
under
-38-
<PAGE>
Section 162, Section 280G, Section 404, Section 419, Section 419A of the Code or
otherwise); and (iv) with respect to each Plan that is subject to Section 301
et. seq. of ERISA or Section 412 of the Code, Exmark is not liable for any
accumulated funding deficiency as that terms is defined in Section 412 of the
Code and the projected benefit obligations determined as of the date of this
Agreement do not exceed the assets of the Plan.
(k) Except as set forth in the Disclosure Schedule: (i) no action, suit,
charge, complaint, proceeding, hearing, investigation or claim is pending with
regard to any Plan other than routine uncontested claims for benefits; (ii)
except as based upon plans maintained by Toro or its affiliates, the
consummation of the transactions contemplated by this Agreement will not cause
any Plan to increase benefits payable to any participant or beneficiary;
(iii) except as based upon plans maintained by Toro or its affiliates, the
consummation of the transactions contemplated by this Agreement will not:
(A) entitle any current or former employee of Exmark to severance pay,
unemployment compensation or any other payment, benefit or award, or
(B) accelerate or modify the time of payment or vesting, or increase the amount
of any benefit, award or compensation due any such employee; (iv) to Exmark's
knowledge, no Plan is currently under examination or audit by the Department of
Labor, the Internal Revenue Service or the Pension Benefit Guaranty Corporation;
(v) Exmark has no actual or potential liability arising under Title IV of ERISA
as a result of any Plan that has terminated or is in the process of terminating;
(vi) Exmark has no actual or potential liability under section 4201 et. seq. of
ERISA for either a complete withdrawal or a partial withdrawal from a
multiemployer Plan; and (vii) with respect to the Plans, Exmark has no liability
(either directly or as a result of indemnification) for (and the transaction
contemplated by this Agreement will not cause any liability for): (A) any
excise Taxes under section 4971 through section 4980B, section 4999, section
5000 or any other section of the Code, (B) any penalty under section 502(i),
section 502(l), Part 6 of Title I or any other provision of ERISA, or (C) any
excise Taxes, penalties, damages or equitable relief as a result of any
prohibited transaction, breach of fiduciary duty or other violation under ERISA
or any other applicable law.
(l) Except as set forth in the Disclosure Schedule: (i) all accruals
required under FAS 106 have been properly accrued on the financial statements of
Exmark; (ii) no condition, agreement or Plan provision limits the right of
Exmark to amend, cut back or terminate any Plan (except to the extent such
limitation arises under ERISA); (iii) Exmark has no liability for life
insurance, death or medical benefits after separation from employment other
than: (A) death benefits under the Plans set forth in the Disclosure Schedule
or (B) health care continuation benefits described in section 4980B of the Code.
3.22 INSURANCE. The Disclosure Schedule lists and briefly describes each
insurance policy maintained by Exmark with respect to the properties, assets and
operations of Exmark and sets forth the date of expiration of each such
insurance policy.
-39-
<PAGE>
All of such insurance policies are in full force and effect. Exmark is not in
default with respect to its obligations under any of such insurance policies.
3.23 AFFILIATE TRANSACTIONS. Other than pursuant to this Agreement, no
officer, director or employee of Exmark or any member of the immediate family of
any such officer, director or employee, or any entity in which any of such
persons owns any beneficial interest (other than any publicly held corporation
whose stock is traded on a national securities exchange or in the
over-the-counter market and less than one percent of the stock of which is
beneficially owned by any of such persons) (collectively "INSIDERS"), has any
agreement with Exmark (other than normal employment arrangements) or any
interest in any property, real, personal or mixed, tangible or intangible, used
in or pertaining to the business of Exmark (other than ownership of capital
stock of Exmark). None of the Insiders has any direct or indirect interest
(other than beneficial ownership of less than one percent of the stock of a
publicly held corporation whose stock is traded on a national securities
exchange or in the over-the-counter market) in any competitor, supplier or
customer of Exmark or in any person, firm or entity from whom or to whom Exmark
leases any property. For purposes of this SECTION 3.23, the members of the
immediate family of an officer, director or employee shall consist of the
spouse, parents, children, siblings, mothers- and fathers-in-law, sons- and
daughters-in-law, and brothers- and sisters-in-law of such officer, director or
employee. All agreements and transactions between Exmark and any Insider
identified in the Disclosure Schedule were made for bona fide business purposes
on terms comparable to what could be obtained from an unaffiliated third party.
3.24 CUSTOMERS AND SUPPLIERS. The Disclosure Schedule lists the 10 largest
distributors and the 10 largest suppliers of Exmark for the year ended August
31, 1997, and sets forth opposite the name of each such distributor or supplier
the approximate amount of gross sales or purchases by Exmark attributable to
such distributor or supplier for such period. No distributor or supplier listed
in the Disclosure Schedule has informed Exmark that it will stop or materially
decrease the rate of business done with Exmark.
3.25 DISTRIBUTORS. The Disclosure Schedule lists (a) all former
distributors of Exmark that have been terminated since January 1, 1992 and the
circumstances surrounding such termination; (b) all litigation and disputes
between Exmark and any of its past or present distributors, including any claims
initiated by any distributor against Exmark, whether such litigation dispute
resulted in a settlement, financial payment or not; (c) to Exmark's knowledge,
all buying consortium arrangements by which any distributor of Exmark purchases
goods (including wholegoods, parts, supplies or other goods) or services from
Exmark; and (d) all distributors of Exmark that, to Exmark's knowledge, sell or
distribute goods or services other than those of Exmark. There are no
enforceable agreements with any distributor except as set forth in the
Disclosure Schedule. Each distributor of Exmark may be terminated without
penalty or other liability other than the
-40-
<PAGE>
repurchase of inventory and potential liability for floor plan exposure upon at
least 30 days' prior written notice, except as otherwise provided by distributor
protection laws in some states.
3.26 OFFICERS AND DIRECTORS; BANK ACCOUNTS. The Disclosure Schedule lists
all officers and directors of Exmark and all of the bank accounts of Exmark
(designating each authorized signer).
3.27 COMPLIANCE WITH LAWS; PERMITS.
(a) Exmark, its predecessors and their respective officers, directors,
agents and employees have complied in all material respects with all applicable
laws, regulations and other requirements, including, but not limited to,
federal, state, local and foreign laws, ordinances, rules, regulations and other
requirements pertaining to product labeling, consumer products safety, equal
employment opportunity, employee retirement, affirmative action and other hiring
practices, occupational safety and health, workers' compensation, unemployment
and building and zoning codes to which Exmark (including any product of Exmark)
may be subject, and, since January 1, 1992, Exmark has received no notice of any
allegation or claim of any noncompliance and no claims have been filed against
Exmark alleging a violation of any such laws, regulations or other requirements.
Exmark has no knowledge of any action, pending or threatened, to change the
zoning or building ordinances or any other laws, rules, regulations or
ordinances affecting the Real Property. Exmark is not relying on any exemption
from or deferral of any such applicable law, regulation or other requirement
that would not be available to the Surviving Corporation after the Effective
Time.
(b) Exmark has, in full force and effect, all material licenses, permits
and certificates, from federal, state, local and foreign authorities (including,
without limitation, federal and state agencies regulating occupational health
and safety) necessary to conduct its business and own and operate its properties
(other than Environmental Permits, as such term is defined in SECTION 3.28(c)
hereof) (collectively, the "PERMITS"). Exmark has conducted its business in
substantial compliance with all material terms and conditions of the Permits.
(c) Exmark has not made or agreed to make gifts of money, other property
or similar benefits (other than incidental gifts of articles or general
promotion and entertainment expenditures of nominal value) to any actual or
potential customer, supplier, governmental employee or any other person in a
position to assist or hinder Exmark in connection with any actual or proposed
transaction.
-41-
<PAGE>
3.28 ENVIRONMENTAL MATTERS.
(a) As used in this SECTION 3.28, the following terms shall have the
following meanings:
(i) "HAZARDOUS MATERIALS" means any dangerous, toxic or hazardous
pollutant, contaminant, chemical, waste, material or substance as defined in or
governed by any federal, state or local law, statute, code, ordinance,
regulation, rule or other requirement relating to such substance or otherwise
relating to the environment or human health or safety, including without
limitation any waste, material, substance, pollutant or contaminant that might
cause any injury to human health or safety or to the environment or might
subject Exmark to any imposition of costs or liability under any Environmental
Law (as defined in SECTION 3.28(a)(ii) hereof).
(ii) "ENVIRONMENTAL LAWS" means all applicable federal, state and local
laws, rules, regulations, codes, ordinances, orders, decrees, directives,
permits, licenses and judgments relating to pollution, contamination or
protection of the environment (including, without limitation, all applicable
federal, state and local laws, rules, regulations, codes, ordinances, orders,
decrees, directives, permits, licenses and judgments relating to Hazardous
Materials) in effect as of the date of this Agreement.
(iii) "RELEASE" shall mean the spilling, leaking, disposing, discharging,
emitting, depositing, ejecting, leaching, escaping or any other release or
threatened release, however defined, whether intentional or unintentional, of
any Hazardous Material.
(b) Exmark and the Real Property are in compliance with all applicable
Environmental Laws.
(c) Exmark has obtained, and maintained in full force and effect, all
environmental permits, licenses, certificates of compliance, approvals and other
authorizations necessary to conduct its business and operate the Real Property
(collectively, the "ENVIRONMENTAL PERMITS"). A correct and complete copy of
each such Environmental Permit shall be provided by Exmark to Toro at least 14
days prior to the Effective Time. Exmark has conducted its business in
compliance with all terms and conditions of the Environmental Permits. Exmark
has filed all reports and notifications required to be filed under and pursuant
to all applicable Environmental Laws.
-42-
<PAGE>
(d) (i) No Hazardous Materials have been generated, treated, contained,
handled, located, used, manufactured, processed, buried, incinerated, deposited,
stored, or released on, under or about any part of the Real Property during the
period Exmark was in possession thereof that would cause the Surviving
Corporation or Toro to incur response or remediation costs in order to comply
with applicable Environmental Laws or that would subject the Surviving
Corporation or Toro to fines or penalties, (ii) the Real Property and any
improvements thereon, contain no asbestos, urea, formaldehyde, radon at levels
above natural background, polychlorinated biphenyls ("PCB"s) or pesticides that
would cause the Surviving Corporation or Toro to incur response or remediation
costs in order to comply with applicable Environmental Laws or that would
subject the Surviving Corporation or Toro to fines or penalties, and (iii) no
aboveground or underground storage tanks are located on, under or about the Real
Property.
(e) Exmark has not received any notice alleging in any manner that it is,
or might be potentially responsible for any Release of Hazardous Materials, or
any costs arising under or for violation of Environmental Laws.
(f) No expenditure, including penalties, fines or cleanup costs arising
under applicable Environmental Laws, will be required in order for Toro, Merger
Subsidiary or the Surviving Corporation to comply with any Environmental Laws in
effect at the time of the Effective Time in connection with the operation or
continued operation of the business of Exmark or the Real Property in a manner
consistent with the current operation thereof by Exmark, other than expenditures
comparable to Exmark's historical level of expenditures for compliance with
Environmental Laws.
(g) Exmark and the Real Property are not and have not been listed on the
United States Environmental Protection Agency National Priorities List of
Hazardous Waste Sites (the "NATIONAL PRIORITIES LIST"), or any other list,
schedule, law, inventory or record of hazardous or solid waste sites maintained
by any federal, state or local agency.
(h) Exmark has disclosed and delivered to Toro all environmental reports
and investigations which Exmark has obtained or ordered with respect to the
business of Exmark and the Real Property.
(i) To the knowledge of Exmark, no part of the business of Exmark, or the
Real Property has been used as a landfill, dump or other disposal, storage,
transfer, handling or treatment area for Hazardous Materials, or as a gasoline
service station or a facility for selling, dispensing, storing, transferring,
disposing or handling petroleum and/or petroleum products.
-43-
<PAGE>
(j) No lien has been attached or filed against Exmark or the Real Property
in favor of any governmental or private entity for (i) any liability or
imposition of costs under or violation of any applicable Environmental Law; or
(ii) any Release of Hazardous Materials.
(k) Exmark, on behalf of itself and its successors and assigns, hereby
waives, releases and agrees not to bring any claim, demand, cause of action or
proceeding, including without limitation any cost recovery action, against Toro,
Merger Subsidiary or the Surviving Corporation under any Environmental Law for
any condition existing prior to the Effective Time, except for proportionate
contribution with respect to any continuation or worsening of any such condition
after the Effective Time.
(l) The storage, transportation, handling, use or disposal, if any, by
Exmark of Hazardous Materials on or under the Real Property and/or disposal
elsewhere, if any, of Hazardous Materials generated on or from the Real Property
is currently, and at all times has been, in compliance in all material respects
with all applicable Environmental Laws. Exmark has not transported or arranged
for the transportation or any Hazardous Materials or other material or
substances to any location which is: (i) listed on the National Priorities
List, or (ii) listed for possible inclusion on the National Priorities List, in
the Comprehensive Environmental Response, Compensation and Liabilities Act of
1980 ("CERCLA") or on any similar state list.
(m) For purposes of the representations and warranties provided in this
SECTION 3.28 only, the term "REAL PROPERTY" shall include all real property,
owned, used or occupied by Exmark currently or previously owned, used or
occupied by Exmark and its predecessors.
3.29 BROKERAGE. No third party shall be entitled to receive any brokerage
commissions, finder's fees, fees for financial advisory services or similar
compensation in connection with the transactions contemplated by this Agreement
based on any arrangement or agreement made by or on behalf of Exmark, other than
fees for financial advisory services that have been paid or accrued at or prior
to the Effective Date.
3.30 OPINION OF FINANCIAL ADVISOR. Exmark has received the opinion of
McCarthy & Co., dated June 2, 1997 and verbally updated as of October 1, 1997,
to the effect that, as of such date, the Merger Consideration to be received in
the Merger by Exmark's stockholders is fair to such stockholders from a
financial point of view, and a signed copy of such opinion has been delivered to
Toro.
-44-
<PAGE>
3.31 STOCKHOLDER AGREEMENTS. On or prior to the date hereof, Exmark has
delivered to Toro executed copies of the Stockholder Agreements as described in
SECTION 12.01 hereof.
3.32 REGISTRATION STATEMENT. None of the information regarding Exmark
supplied or to be supplied by Exmark to Toro for inclusion in the Registration
Statement (as defined in SECTION 6.03 hereof) and any other documents regarding
Exmark supplied or to be supplied by Exmark to be filed with the SEC or any
regulatory authority in connection with the transactions contemplated herein
will, at the respective times the Registration Statement, Prospectus-Proxy
Statement (as defined in SECTION 6.03 hereof) and other documents are filed with
the SEC or any regulatory authority and, in the case of the Registration
Statement, when it becomes effective and, with respect to the Prospectus-Proxy
Statement, when mailed, and, in the case of the Prospectus-Proxy Statement or
any amendment thereof or supplement thereto, at the time of the Stockholders'
Meeting and at the Effective Time, contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements contained therein, in light of the circumstances under
which they were made, not misleading. All documents which Exmark is responsible
for filing with the SEC and any other regulatory authority in connection with
the Merger will comply as to form in all material respects with the provisions
of applicable law, including the applicable provisions of the Securities Act and
the Exchange Act of 1934, as amended (the "EXCHANGE ACT").
3.33 DISCLOSURE. Neither this Agreement nor any of the exhibits hereto nor
any of the documents delivered by or on behalf of Exmark pursuant to
ARTICLE VIII hereof, the Disclosure Schedule or any of the financial statements
referred to in SECTION 3.08 hereof contains any untrue statement of a material
fact regarding Exmark or any of the other matters dealt with in this ARTICLE III
relating to Exmark or the transactions contemplated by this Agreement. This
Agreement, the exhibits hereto, the documents delivered to Toro by or on behalf
of Exmark pursuant to ARTICLE VIII hereof, the Disclosure Schedule and the
financial statements referred to in SECTION 3.08 hereof do not omit any material
fact necessary to make the statements contained herein or therein, in light of
the circumstances in which they were made, not misleading, and there is no fact
which has not been disclosed to Toro of which Exmark or any officer or director
of Exmark is aware which materially affects adversely or could reasonably be
anticipated to materially affect adversely the business, including the operating
results, assets, customer relations, employee relations and business prospects,
of Exmark.
-45-
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF TORO
AND MERGER SUBSIDIARY
Toro and Merger Subsidiary, jointly and severally, hereby represent and warrant
to Exmark that:
4.01 INCORPORATION AND CORPORATE POWER. Each of Toro and Merger Subsidiary
is a corporation duly incorporated, validly existing and in good standing under
the laws of the State of Delaware and the State of Nebraska, respectively, with
the requisite corporate power and authority to execute and deliver this
Agreement and the agreements identified in ARTICLE XII to which it is a party
(the "TORO ANCILLARY AGREEMENTS") and perform its obligations hereunder and
thereunder. The Merger Subsidiary has the requisite corporate power and
authority to execute and deliver the Articles of Merger and perform its
obligations thereunder.
4.02 EXECUTION, DELIVERY AND PERFORMANCE; VALID AND BINDING AGREEMENT. The
execution, delivery and performance of this Agreement and the Toro Ancillary
Agreements by Toro and Merger Subsidiary, and the Articles of Merger by Merger
Subsidiary, and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized by all requisite corporate action,
and no other corporate proceedings on their part are necessary to authorize the
execution, delivery or performance of this Agreement, the Articles of Merger or
the Toro Ancillary Agreements. This Agreement and the Toro Ancillary Agreements
have been duly executed and delivered by Toro and Merger Subsidiary and
constitute the valid and binding obligation of Toro and Merger Subsidiary,
enforceable in accordance with their terms, and the Articles of Merger, when
executed and delivered by Merger Subsidiary, will constitute the valid and
binding obligation of Merger Subsidiary, enforceable in accordance with its
terms.
4.03 NO BREACH. The execution, delivery and performance of this Agreement
and the Toro Ancillary Agreements by Toro and Merger Subsidiary, and the
Articles of Merger by Merger Subsidiary, and the consummation by Toro and Merger
Subsidiary of the transactions contemplated hereby and thereby do not conflict
with or result in any breach of any of the provisions of, constitute a default
under, result in a violation of, result in the creation of a right of
termination or acceleration or any lien, security interest, charge or
encumbrance upon any assets of Toro or Merger Subsidiary, or require any
authorization, consent, approval, exemption or other action by or notice to any
-46-
<PAGE>
court or other governmental body, under the provisions of the articles of
incorporation or bylaws of either Toro or Merger Subsidiary or any contract,
indenture, mortgage, lease, loan agreement or other agreement, relationship,
commitment, arrangement or instrument, written or oral, by which either Toro or
Merger Subsidiary is bound or affected, or any law, statute, rule or regulation
or order, judgment or decree to which either Toro or Merger Subsidiary is
subject.
4.04 MERGER SUBSIDIARY. All of the outstanding capital stock of Merger
Subsidiary is owned by Toro free and clear of any lien, claim or encumbrance or
any agreement with respect thereto. Since the date of its incorporation, Merger
Subsidiary has not engaged in any activity of any nature except in connection
with or as contemplated by this Agreement, the Articles of Merger or the Toro
Ancillary Agreements.
4.05 GOVERNMENTAL AUTHORITIES; CONSENTS. Except for the applicable
requirements of the HSR Act, the filing of the Articles of Merger with the
Secretary of State of the State of Nebraska, and any consents, waivers,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable state and federal securities laws, the rules of
the New York Stock Exchange (on which the shares of Toro Common Stock are
listed) and the laws of any foreign country, (a) neither Toro nor Merger
Subsidiary is required to submit any notice, report or other filing with any
governmental authority in connection with the execution or delivery by it of
this Agreement, the Articles of Merger or the Employment Agreements (as defined
in SECTION 12.03 hereof) or the consummation of the transactions contemplated
hereby or thereby, and (b) no consent, approval or authorization of any
governmental or regulatory authority or any other party or person is required to
be obtained by either Toro or Merger Subsidiary in connection with its
execution, delivery and performance of this Agreement, the Articles of Merger or
the Toro Ancillary Agreements or the transactions contemplated hereby or
thereby.
4.06 BROKERAGE. Except for fees and compensation to the Geneva Companies,
which are the sole responsibility of Toro, no third party shall be entitled to
receive any brokerage commissions, finder's fees, fees for financial advisory
services or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of Toro or Merger Subsidiary.
4.07 SEC DOCUMENTS. Toro has filed all required reports, schedules, forms,
statements, and other documents with the SEC since August 31, 1993 (together
with later filed documents that revise or supersede earlier filed documents, the
"TORO SEC DOCUMENTS"). As of their respective dates, the Toro SEC Documents
complied as to form in all material respects with the requirements of the
Securities Act, or the Exchange Act, as
-47-
<PAGE>
the case may be, and the rules and regulations of the SEC promulgated thereunder
applicable to such Toro SEC Documents. None of the Toro SEC Documents contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that Toro makes no representation or warranty
herein with respect to any information provided by Exmark or Holiman and
included in the Registration Statement or the Prospectus-Proxy Statement (as
such terms are defined in SECTION 6.03 hereof). The financial statements of
Toro included in the Toro SEC Documents complied as of their respective dates of
filing with the SEC as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles (except, in the case of unaudited statements, as permitted
by Form 10-Q of the Exchange Act) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto), and fairly
present the consolidated financial position of Toro and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). Except as set
forth in the Toro SEC Documents, and except for liabilities and obligations
incurred in the ordinary course of business consistent with past practice,
neither Toro nor any of its subsidiaries has any liabilities or obligations of
any nature (whether accrued, absolute, contingent or otherwise) required by
generally accepted accounting principles to be set forth in a consolidated
balance sheet of Toro and its consolidated subsidiaries or in the notes thereto
which, individually or in the aggregate, would have, a material adverse effect
on the business or results of operations of Toro.
4.08 CAPITAL STOCK.
(a) The outstanding capital stock of Toro consists only of Toro Common
Stock (including the preferred stock purchase right associated with each share
of Toro Common Stock) and the Toro SEC Documents set forth Toro's capitalization
in all material respects. All outstanding shares of Toro Common Stock have been
duly authorized and validly issued and are fully paid and nonassessable. None
of such shares were issued in violation of any applicable securities laws that
would subject Toro to fines, penalties or rescission or civil damages that are
material in amount. Toro Common Stock is registered pursuant to Section 12(b)
of the Exchange Act and is listed on the New York Stock Exchange, and all Toro
Common Stock issued as part of the Merger Consideration will, upon issuance, be
so registered and listed.
(b) Toro owns, beneficially and of record, all of the issued and
outstanding shares of Merger Subsidiary Stock, which shares are validly issued,
fully paid, and non-assessable, and free and clear of all liens.
-48-
<PAGE>
(c) Except as set forth in this SECTION 4.08 and except for
changes since the date hereof resulting from the exercise of employee and
director options outstanding on such date, (i) no shares of Toro Common Stock
or other voting securities of Toro are outstanding, (ii) no securities of
Toro convertible into or exchangeable for shares of capital stock or voting
securities of Toro are outstanding, and (iii) no options or other rights to
acquire from Toro, and no obligation of Toro to issue, any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of Toro are outstanding (the items in clauses (i),
(ii) and (iii) being referred to collectively as the "TORO SECURITIES." No
obligations of Toro to repurchase, redeem or otherwise acquire any Toro
Securities are outstanding.
4.09 CURRENT PLANS OR INTENTIONS. Toro does not have any current plan or
intention to take any of the following actions within the twelve-month period
immediately following the Effective Date:
(a) Liquidate Exmark;
(b) Merge Exmark with or into another corporation, except if Exmark is the
surviving corporation; or
(c) Cause Exmark to sell or otherwise dispose of any of its assets to any
entity other than an Exmark subsidiary, with the following exceptions (i) sales
or dispositions in the ordinary course of business or (ii) sales or dispositions
which would not violate the "substantially all" test as defined in Rev. Proc.
77-37, 1977-2 C.B. 568 Section 3.01.
Except as expressly contemplated herein, it is the present intention of Toro to
continue the line of business presently conducted by Exmark.
4.10 DUE AUTHORIZATION OF STOCK ISSUED IN MERGER. All shares of Toro
Common Stock issued by Toro to Exmark's stockholders as part of the Merger
Consideration will, upon such issuance and delivery in accordance with the terms
of this Agreement, be duly authorized, validly issued, fully paid and
nonassessable and free of any preemptive rights of Toro's stockholders.
-49-
<PAGE>
ARTICLE V
COVENANTS OF EXMARK
5.01 CONDUCT OF THE BUSINESS. Exmark shall observe each term set forth in
this SECTION 5.01 and agrees that, from the date hereof until the Effective
Time, unless otherwise consented to by Toro in writing:
(a) The business of Exmark shall be conducted only in, and Exmark shall
not take any action except in, the ordinary course of Exmark's business, on an
arm's-length basis and in accordance in all material respects with all
applicable laws, rules and regulations and Exmark's past custom and practice;
(b) Exmark shall not, directly or indirectly, do or permit to occur any of
the following: (i) issue or sell any additional shares of capital stock (except
Exmark Class B Stock and Exmark, Class C Stock as contemplated herein and Exmark
Common Stock pursuant to the exercise of previously granted stock options,
warrants or purchase rights and issuances in the ordinary course of business and
consistent with past practice), or any options, warrants, conversion privileges
or rights of any kind to acquire any shares of, any of its capital stock (except
purchase rights to purchase Exmark Class B Stock as contemplated herein),
(ii) sell, pledge, dispose of or encumber any of its assets, except in the
ordinary course of business; (iii) amend or propose to amend its articles of
incorporation or bylaws (except to provide for the creation of Exmark Class B
Stock and Exmark Class C Stock as contemplated herein); (iv) split, combine or
reclassify any outstanding shares of capital stock, or declare, set aside or pay
any dividend or other distribution payable in cash, stock, property or otherwise
with respect to shares of capital stock (other than the one-time dividend
expressly contemplated in SECTION 3.11 hereof); (v) redeem, purchase or acquire
or offer to acquire any shares of capital stock or other securities (except
Outstanding Purchase Rights); (vi) acquire (by merger, exchange, consolidation,
acquisition of stock or assets or otherwise) any corporation, partnership, joint
venture or other business organization or division or material assets thereof
other than The Holiman Co., Inc., a Pennsylvania Corporation ("HOLIMAN"), as
contemplated herein; (vii) incur any indebtedness for borrowed money or issue
any debt securities except the borrowing of working capital in the ordinary
course of business and consistent with past practice and the borrowing of money
for facility expansion, the upgrading of computer and paint systems, telephone
system, production equipment and tooling, in accordance with the capital
spending plan previously provided to Toro; (viii) accelerate or defer the
payment of undisputed accounts payable or other accrued expenses owed to trade
creditors or other third parties having business relationships with Exmark other
than in the ordinary course of business and consistent with past practice;
(ix) accelerate or defer, beyond the normal collection cycle, or defer
collection of manufacturers' rebates, promotional allowances and other accounts
receivable; (x) enter into or propose to enter into, or modify or propose to
modify, any Lease or exercise or waive any option, or consent
-50-
<PAGE>
to any modification, act or omission by any landlord requiring tenant's consent
under any Lease; (xi) enter into or propose to enter into or modify or propose
to modify any agreement, arrangement or understanding with respect to any of the
matters set forth in this SECTION 5.01(b); (xii) purchase inventories or
supplies for its business other than in the ordinary course of business, except
for accelerated purchases to accommodate production schedules for "Exmark
Cross-Branded Products" as defined in Exhibit 2.01(a); (xiii) engage in any
"field loading" inventory plan (E.G., Exmark will not provide sales or other
incentives to its distributors to encourage them to order Exmark's products in
order to artificially inflate or accelerate Exmark's sales of such products,
except those incentives consistent with past practice); (xiv) sell, lease,
license or otherwise dispose of any assets or properties, other than in the
ordinary course of business; (xv) accelerate or defer the construction of
improvements at any of the locations of its business (except for the expansion
of Exmark's facility in Beatrice, Nebraska, consistent with plans previously
disclosed to Toro); or (xvi) accelerate or defer the purchase of fixtures,
equipment, leasehold improvements, vehicles, other items of machinery and
equipment and other capital expenditures (except for the upgrading of computer
and paint systems, telephone system, production equipment and tooling, in
accordance with the capital spending plan previously provided to Toro);
(c) Except as contemplated herein, Exmark shall not, directly or
indirectly, (i) enter into or modify any employment, severance or similar
agreements or arrangements with, or grant any bonuses, salary increases,
severance or termination pay to, any officers or directors or consultants; or
(ii) in the case of employees, officers or consultants who earn in excess of
$45,000 per year, take any action with respect to the grant of any bonuses,
salary increases, severance or termination pay or with respect to any increase
of benefits payable in effect on the date hereof;
(d) Except as contemplated herein, Exmark shall not adopt or amend any
bonus, profit sharing, compensation, stock option, pension, retirement, deferred
compensation, employment or other employee benefit plan, trust, fund or group
arrangement for the benefit or welfare of any employees or any bonus, profit
sharing, compensation, stock option, pension, retirement, deferred compensation,
employment or other employee benefit plan, agreement, trust, fund or
arrangements for the benefit or welfare of any director;
(e) Exmark shall not cancel or terminate its current insurance policies or
cause any of the coverage thereunder to lapse, unless simultaneously with such
termination, cancellation or lapse, replacement policies providing coverage
equal to or greater than the coverage under the canceled, terminated or lapsed
policies for substantially similar premiums are in full force and effect;
-51-
<PAGE>
(f) Exmark shall (i) use its best efforts to preserve intact its business
organization and goodwill, keep available the services of its officers and
employees as a group and maintain satisfactory relationships with suppliers,
distributors, customers and others with which it has business relationships;
(ii) confer on a regular and frequent basis with representatives of Toro to
report operational matters and the general status of ongoing operations;
(iii) not intentionally take any action which would render, or which reasonably
may be expected to render, any representation or warranty made by it in this
Agreement untrue at the Effective Time; (iv) notify Toro of any emergency or
other change in the normal course of its business or in the operation of its
properties and of any governmental or third party complaints, investigations or
hearings (or communications indicating that the same may be contemplated) if
such emergency, change, complaint, investigation or hearing would be material,
individually or in the aggregate, to the business, operations or financial
condition of Exmark or to Exmark's, Toro's or Merger Subsidiary's ability to
consummate the transactions contemplated by this Agreement; and (v) promptly
notify Toro in writing if Exmark shall discover that any representation or
warranty made by it in this Agreement was when made, or has subsequently become,
untrue in any respect;
(g) Except as set forth in the Disclosure Schedule, Exmark shall (i) file
any Tax returns, elections or information statements with respect to any
liabilities for Taxes of Exmark or other matters relating to Taxes of Exmark
which pursuant to applicable law must be filed (after taking into account any
properly applicable extensions of the due date of such returns, elections or
information statements) prior to the Closing Date; provided, however, that
Exmark shall not file any such Tax returns, or other returns, elections, claims
for refund or information statements with respect to any liabilities for Taxes
(other than federal, state or local sales, use, withholding or employment tax
returns or statements) for any Tax period, or consent to any adjustment or
otherwise compromise or settle any matters with respect to Taxes, without prior
consultation with and consent of Toro (which consent shall not be unreasonably
withheld); (ii) promptly upon filing provide copies of any such Tax returns,
elections or information statements to Toro; (iii) make or rescind any such Tax
elections or other discretionary positions with respect to Taxes taken by or
affecting Exmark only upon prior consultation with and consent of Toro (which
consent shall not be unreasonably withheld); (iv) not amend any Return; (v) not
change the rate or policy for any accrual or reserve for Taxes or otherwise
accrue therefor in a manner inconsistent with its practices for previous periods
as reflected in the Latest Financial Statements; and (vi) not change any of its
methods of reporting income or deductions for federal income Tax purposes from
those employed in the preparation of the federal income Tax returns for the
taxable year ended August 31, 1996, except for changes required by changes in
law; and
(h) Exmark shall not perform any act referenced by (or omit to perform any
act which omission is referenced by) the terms of SECTION 3.11, except as stated
in the Disclosure Schedule under the caption referencing such Section.
-52-
<PAGE>
5.02 ACCESS TO BOOKS AND RECORDS. Between the date hereof and the
Effective Time, Exmark shall afford to Toro and its authorized representatives
full access at all reasonable times and upon reasonable notice to the offices,
properties, books, records, officers, employees and other items of Exmark, and
the work papers of Grant Thornton LLP, Exmark's independent accountants (the
"EXMARK'S ACCOUNTANT"), relating to work done by Exmark's Accountant and
otherwise provide such assistance as is reasonably requested by Toro in order
that Toro may have a full opportunity to make such investigation and evaluation
as it shall reasonably desire to make of the business and affairs of Exmark. In
addition, Exmark, and its officers and directors shall cooperate fully
(including providing introductions, where necessary) with Toro and to enable
Toro to contact such third parties, including customers, prospective customers,
specifying agencies, vendors or suppliers of Exmark as Toro deems reasonably
necessary to complete its due diligence.
5.03 STOCKHOLDERS' MEETING. Exmark shall cause to be duly called and held,
not later than 40 days following the effective date of the Registration
Statement, a meeting of its stockholders (the "STOCKHOLDERS' MEETING") and will
direct that this Agreement, the Merger, the New Articles of Incorporation and
the Signing Bonuses be submitted to a vote at such meeting. Exmark will
(a) cause proper notice of such meeting to be given to its stockholders in
compliance with the Nebraska Act, other applicable laws and regulations and
Exmark's articles of incorporation and bylaws; (b) recommend by the affirmative
vote of all members of its board of directors that Exmark's stockholders vote in
favor of approval of this Agreement, the New Articles of Incorporation and the
Signing Bonuses; and (c) use its best efforts to solicit from its stockholders
proxies in favor thereof (subsections (b) and (c) hereof shall be subject,
however, to the fiduciary duties of the Exmark board of directors as described
in SECTION 5.08).
5.04 REGULATORY FILINGS. Exmark shall make, or cause to be made all
filings and submissions under the HSR Act and any other laws or regulations
applicable to Exmark for the consummation of the transactions contemplated
herein. Exmark will coordinate and cooperate with Toro in exchanging such
information, will not make any such filing without providing to Toro a final
copy thereof for its review and consent at least two full business days in
advance of the proposed filing date and will provide such reasonable assistance
as Toro may request in connection with all of the foregoing.
5.05 REGISTRATION STATEMENT. Exmark will furnish, or cause to be
furnished, to Toro all the information concerning Exmark and its subsidiaries
required for inclusion in the Registration Statement and the Prospectus-Proxy
Statement or any statement or application made by Toro to any governmental body
in connection with the transactions
-53-
<PAGE>
contemplated by this Agreement. Any financial statement for any fiscal year
provided under this paragraph must include the audit opinion and the consent of
Exmark's Accountant, to use such opinion in such Registration Statement.
5.06 FINANCIAL STATEMENTS. Exmark shall have prepared and delivered to
Toro all quarterly and monthly financial statements for any periods ending at
least 15 days prior to the Effective Time.
5.07 CONDITIONS. Exmark shall take all commercially reasonable actions
necessary or desirable to cause the conditions set forth in SECTION 8.01 to be
satisfied and to consummate the transactions contemplated herein as soon as
reasonably possible after the satisfaction thereof. Without limiting the
generality of the foregoing, Exmark shall obtain, prior to the Effective Time,
all consents or waivers to the transactions contemplated herein that may be
required under any of the agreements or commitments of Exmark that are material
to Exmark's business.
5.08 NO NEGOTIATIONS. Except as consented to in writing by Toro, from the
date hereof until the Effective Time, Exmark shall not, directly or indirectly,
through any officer, director, agent, affiliate, employee or otherwise, solicit,
initiate or encourage submission of any proposal or offer from any person, group
or entity relating to any acquisition of the capital stock or business of
Exmark, or all or a material portion of the assets of Exmark, or other similar
transaction or business combination involving the business of Exmark, and shall
not participate in any negotiations or discussions regarding or furnish to any
other person any information with respect to, or otherwise cooperate in any way
with, or assist or participate in, facilitate or encourage any effort or attempt
by any other person or entity to do or seek such acquisition or other
transaction. Exmark agrees that it shall take the necessary steps to promptly
inform any such third party of the obligations undertaken in this Agreement and
this SECTION 5.08. Exmark agrees that it immediately shall inform Toro in
writing of any such inquiry and shall keep Toro informed, on a current basis, of
the status and terms of any such proposals or offers and the status of any such
discussions or negotiations.
Notwithstanding the foregoing, nothing contained in this Agreement shall prevent
Exmark or its board of directors from engaging in discussions or negotiations
with, or providing any information to, a third party in response to an
unsolicited bona fide acquisition proposal from such person, or from
recommending an unsolicited bona fide acquisition proposal to the stockholders
of Exmark, if and to the extent that the board of directors of Exmark:
(a) concludes in good faith (after consultation with its financial and legal
advisors) that such acquisition proposal is reasonably capable of being
completed, taking into account all legal, financial, regulatory and other
aspects of the proposal, including the identity of the person making the
proposal, and would, if consummated, result in a
-54-
<PAGE>
transaction more favorable to Exmark's stockholders from a financial and
strategic point of view than the Merger (such more favorable acquisition
proposal being referred to herein as "Superior Proposal"); and (b) is advised by
its legal counsel that such action is necessary in order for Exmark's board of
directors to satisfy its fiduciary duties under Nebraska law; provided, however,
that Exmark's legal counsel provide reasonably satisfactory written evidence of
such advice to Toro prior to Exmark's board of directors taking any such action.
Prior to providing information or data to any third party or entering into
discussions or negotiations with any third party, Exmark shall receive from such
third party an executed confidentiality agreement. Exmark shall notify Toro
immediately of any inquiries, proposals or offers, including the name of such
third party and the terms and conditions of any proposals or offers.
5.09 EXERCISE OR CANCELLATION OF OUTSTANDING PURCHASE RIGHTS. At the time
of the distribution of the Prospectus-Proxy Statement, Exmark will distribute
the Prospectus-Proxy Statement to each holder of an Outstanding Purchase Right.
The Prospectus-Proxy Statement will indicate that (a) each holder of an
Outstanding Purchase Right has the right to exercise such Outstanding Purchase
Right to the extent of the full number of shares subject thereto until the
Effective Time, and (b) it is a condition to Toro's obligation to consummate the
Merger that all Outstanding Purchase Rights be canceled prior to the Effective
Time.
5.10 EXMARK CLASS B AND CLASS C STOCK. Prior to the Effective Date, Exmark
shall amend and restate its articles of incorporation to read as provided in
EXHIBIT 5.10 to this Agreement in order to authorize the issuance of Exmark
Class B Stock and Exmark Class C Stock (such amended and restated articles of
incorporation are referred to herein as the "NEW ARTICLES OF INCORPORATION") and
shall issue options or warrants to purchase Exmark Class B Stock or "when
issued" certificates therefor, the issuance of such Class B Stock to be
contingent upon approval of the New Articles of Incorporation by Exmark's
stockholders (the "CONTINGENT CLASS B RIGHTS"). Promptly after stockholder
approval of the New Articles of Incorporation, Exmark's board of directors shall
cause there to be filed articles of amendment reflecting the New Articles of
Incorporation with the Secretary of State of the State of Nebraska and take such
other action as is necessary to give effect to the New Articles of
Incorporation. On or prior to the Effective Time, all such Contingent Class B
Rights shall have been exchanged for shares of Exmark Class B Stock by such
persons or shall have been canceled. The Exmark Class C Stock shall have been
issued solely as consideration for the acquisition of Holiman as contemplated
herein.
5.11 NOTIFICATION; AMENDMENT TO DISCLOSURE SCHEDULE.
(a) Exmark shall give prompt notice to Toro of (i) the occurrence or
failure to occur of any event or the discovery of any information, which
occurrence, failure or discovery
-55-
<PAGE>
would be likely to cause any representation or warranty by Exmark contained in
this Agreement to be untrue, inaccurate or incomplete after the date hereof in
any material respect or, in the case of any representation or warranty given as
of a specific date, would be likely to cause any such representation or warranty
on its part contained in this Agreement to be untrue, inaccurate or incomplete
in any material respect as of such specific date, and (ii) any material failure
of Exmark to comply with or satisfy any covenant or agreement to be complied
with or satisfied by it hereunder.
(b) From time to time after the date hereof and prior to the Effective
Time, Exmark shall promptly supplement or amend any of its representations and
warranties which apply to the period after the date hereof by delivering an
updated Disclosure Schedule to Toro pursuant to this SECTION 5.11(b) with
respect to any matter hereafter arising which would render any such
representation or warranty after the date of this Agreement materially untrue,
inaccurate or incomplete as a result of such matter. Such supplement or
amendment to Exmark's representations and warranties contained in an updated
Disclosure Schedule delivered pursuant to this SECTION 5.11(b) shall be deemed
to have modified the representations and warranties of Exmark, and no such
supplement or amendment, or the information contained in such updated Disclosure
Schedule, shall constitute a breach of a representation or warranty of Exmark;
provided that no such supplement or amendment may cure any breach of a covenant
or agreement of Exmark under ARTICLE 5. Within 15 days after receipt of such
supplement or amendment, Toro may terminate this Agreement pursuant to
SECTION 9.01(k) hereof if the information in such supplement or amendment
together with the information in any and all of the supplements or amendments
previously provided by Exmark indicate that Exmark has suffered or is reasonably
likely to suffer a material adverse change (as described in SECTION 9.01(k).
5.12 EMPLOYEE AGREEMENTS. Prior to the Effective Date, Exmark shall use
its best efforts (including the payment of nominal consideration to such
persons) to obtain executed agreements from its employees (other than the
persons described in SECTION 12.03 hereof), contract workers, consultants and
other agents of Exmark sufficient to vest in Exmark ownership or the right to
use the Owned Intellectual Property Rights. Such agreements shall be in a form
satisfactory to Toro.
-56-
<PAGE>
ARTICLE VI
COVENANTS OF TORO AND MERGER SUBSIDIARY
Toro and Merger Subsidiary covenant and agree with Exmark as follows:
6.01 REGULATORY FILINGS. Toro or Merger Subsidiary shall, as promptly as
practicable after the execution of the Agreement, make or cause to be made all
filings and submissions under the HSR Act and any other laws or regulations
applicable to Toro and Merger Subsidiary for the consummation of the
transactions contemplated herein. Toro and Merger Subsidiary will coordinate
and cooperate with Exmark in exchanging such information, will not make any such
filing without providing to Exmark a final copy thereof for its review and
consent at least two full business days in advance of the proposed filing and
will provide such reasonable assistance as Exmark may request in connection with
all of the foregoing.
6.02 CONDITIONS. Toro or Merger Subsidiary shall take all commercially
reasonable actions necessary or desirable to cause the conditions set forth in
SECTION 8.02 to be satisfied and to consummate the transactions contemplated
herein as soon as reasonably possible after the satisfaction thereof (but in any
event within three business days after such date).
6.03 REGISTRATION STATEMENT. As promptly as practicable after the
execution of this Agreement, Toro will file with the SEC a registration
statement on Form S-4 under the Securities Act relating to the Merger
Consideration, including the Contingent Payment Rights, if necessary, and the
shares of Toro Common Stock which may be delivered to Exmark's stockholders
pursuant to such rights (the "REGISTRATION STATEMENT"), and any other applicable
documents, which will include a prospectus and proxy statement (as amended or
supplemented by any amendment or supplement filed by Toro, the "PROSPECTUS-PROXY
STATEMENT"), and will use its best efforts to cause the Registration Statement
to become effective. At the time the Registration Statement becomes effective,
the Registration Statement shall comply in all material respects with the
provisions of the Securities Act, and shall not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not false or misleading, and at the
time of mailing thereof to Exmark's stockholders, at the time of the
Stockholders' Meeting referred to in SECTION 5.03 hereof and at the Effective
Time, the Prospectus-Proxy Statement shall not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; PROVIDED, HOWEVER, that none of the provisions of this
Section shall apply to statements in or omissions from the Registration
Statement or the Prospectus-Proxy Statement made in reliance upon and in
-57-
<PAGE>
conformity with information furnished by Exmark for use in the Registration
Statement or the Prospectus-Proxy Statement. Toro shall bear the costs of SEC
filing fees with respect to the Registration Statement, the costs of printing
the Prospectus-Proxy Statement and the costs of qualifying the shares of Toro
Common Stock under state securities laws as necessary.
6.04 STOCK EXCHANGE LISTINGS. Prior to issuance, Toro will file all
documents required to be filed to list the Toro Common Stock to be issued as
part of the Initial Payment and the Contingent Payments on the New York Stock
Exchange and use its best efforts to effect said listings.
6.05 DUE AUTHORIZATION OF STOCK ISSUED IN MERGER. Any shares of Toro
Common Stock issued by Toro to Exmark's stockholders pursuant to the Initial
Payment and the Contingent Payments will, upon such issuance and delivery in
accordance with the terms of this Agreement, be duly authorized, validly issued,
fully paid and nonassessable and free of any preemptive rights of Toro's
stockholders.
6.06 BLUE SKY APPROVALS. Toro will file all documents required to obtain,
prior to the Effective Time, all necessary approvals under state securities
laws, if any, required to carry out the transactions contemplated by this
Agreement, will pay all expenses incident thereto and will use its best efforts
to obtain such approvals.
ARTICLE VII
CONDUCT OF EXMARK AFTER THE ACQUISITION
7.01 STAND-ALONE STATUS. During the period from the Effective Time until
the earlier of the Toro Control Date (as defined in SECTION 7.03 hereof) or
October 31, 1999 (the "CONTINGENT PAYMENT PERIOD") Toro, Merger Subsidiary and
Exmark agree as follows, except with the prior consent of the Synergies Council
(all references in this SECTION 7.01 to Exmark shall be deemed to refer to the
Surviving Corporation after the Effective Time):
(a) Exmark shall continue its operations in Beatrice, Nebraska.
(b) Except as provided herein, Exmark shall operate as a stand-alone
entity and the day-to-day management of Exmark will be overseen by the Surviving
Corporation's officers,
-58-
<PAGE>
subject to the direction of its board of directors as described in SECTION 1.04.
Exmark's management and employees shall participate in Toro corporate functions,
activities and meetings, and shall prepare reports, maintain records and
cooperate with Toro management to the same general extent as management and
employees of Toro's other operating units. Further, nothing herein shall be
deemed to abrogate the duty of loyalty of such persons to Toro.
(c) Exmark's administrative, engineering, finance and sales and marketing
staffs and functions shall remain separate from Toro; however, Exmark's
management shall cause strategic planning and product management to be
coordinated jointly.
(d) Exmark shall not sell its products in countries in the European
Community or in any other countries except where it sold its wholegoods during
the fiscal year ending August 31, 1997; provided, however, Exmark may sell
replacement parts and accessories in any country in which it sold its products
prior to the Effective Time in order to service existing accounts.
(e) Except as contemplated herein, Exmark and Toro shall continue to have
distinct and separate product lines with separate channels to the market.
(f) Cross-branding of differentiated versions of both companies' products
during the Contingent Payment Period is an objective desired by both Toro and
Exmark, and cross-branding shall occur as promptly as reasonably practical after
the Effective Time.
(g) Exmark and Toro shall work together in good faith (particularly with
respect to sharing engineering resources) in order to bring to market as
promptly as reasonably practicable differentiated Toro-branded products that are
manufactured by Exmark and based on Exmark's "Lazer," "Metro," "Lazer HP" and
such other products of Toro as Toro may determine, with the advice of Exmark's
management and with due regard for Exmark's technical resource constraints. It
is the current intent of the parties that such differentiation will include
distinctive Toro features such as Toro cutter decks and Toro "T-handles."
(h) Exmark shall continue to maintain its current executive compensation
structure, including its incentive bonus program for executives and employees,
and may make bonus payments, consistent with past practice, to such persons
under such program; provided, however, that all such payments have been and
continue to be accrued monthly during each fiscal year and that Exmark provide
the amount and the name of the recipient of such bonus to Toro 15 days prior to
payment thereof. No bonuses shall be accrued for or paid
-59-
<PAGE>
to H. John Smith, Roger Smith or Ray Rickard for services performed after
October 31, 1997, except as provided in their Employment Agreements, and from
and after November 1, 1997, their compensation shall be as set forth in each of
their respective Employment Agreements.
(i) All employee compensation, benefit and welfare Plans of Exmark (other
than Exmark's 1990 Stock Option Plan and its 1992 Restricted Stock Plan) shall
continue as stand-alone Plans, separate from those of Toro, except as such
compensation arrangements may be modified pursuant to the Employment Agreements
and SECTION 7.02 hereof and except for minor adjustments by Exmark that do not,
in the aggregate, increase the rate of compensation and benefits in excess of
the rate of inflation.
(j) Exmark shall not engage in any "field loading" inventory plan
(E.G., Exmark will not provide sales or other incentives to its distributors to
encourage them to order Exmark products in order to artificially inflate or
accelerate Exmark's sales of such products, except those in keeping with past
practice).
(k) Effective November 1, 1997, in lieu of the sales commission paid
historically by Exmark to Holiman, Exmark shall pay the compensation and
reimbursable expenses of all sales personnel (excluding Roger Smith) employed by
Toro, Exmark or Holiman or any of their subsidiaries, who were employed as such
by Holiman immediately prior to November 1, 1997, and Exmark shall pay
Roger Smith's compensation payable pursuant to his Employment Agreement, which
is attached hereto as EXHIBIT 12.03(d).
(l) Exmark shall maintain its marketing expenditures at a level at least
equal to 1.20% of its gross sales in fiscal year 1998 and 1.16% of its gross
sales in fiscal year 1999, and shall maintain its engineering expenditures at a
level at least equal to the lesser of (i) $1,603,140 and $1,923,768 in fiscal
years 1998 and 1999, respectively, and (ii) 2.4% of its gross sales for each
such year. For the purpose hereof, "marketing expenditures" will include
payroll, employee benefits, office expenses, travel, meals and training for
marketing staff; expenses for dealer and distributor meetings sponsored by
Exmark; production and development costs for media advertising and literature;
cost of media space and printing of literature; promotional (cost of product or
promotional material giveaways) advertising; cost of annual marketing planning
sessions; customer contact programs; Internet maintenance; point of purchase
materials development and production costs (net of related income); and trade
show expense.
(m) In the event that Exmark's production capacity shall at any time from
the Effective Time until August 31, 1998 be inadequate to meet the demands of
its own dealers, other customers and Toro, Exmark will allocate to Toro
available production capacity based
-60-
<PAGE>
upon the ratio that Toro's then current firm commitments and planning estimates
for wholegoods bears to the total of such commitments and estimates of Exmark's
dealers and other customers (including Toro) during the same period. In the
event that Exmark's production capacity shall at any time from September 1, 1998
until the earlier to occur of the Toro Control Date or October 31, 1999 be
inadequate to meet the demands of its own dealers, other customers and Toro,
Exmark will allocate to Toro available production capacity based upon a
comprehensive plan to be developed by the Synergies Council. In the event no
such plan is timely developed, the allocation method described above for the
period from the Effective Time until August 31, 1998 shall continue to be used.
(n) Exmark shall prepare and file, subject to Toro's review and consent
(which shall not unreasonably be withheld), all Returns required to be filed by
it with respect to its tax year ended August 31, 1997.
Notwithstanding SECTION 7.03 below and recognizing that the day-to-day
management of the business of Exmark during the Contingent Payment Period will
be overseen by Exmark's existing management, Toro may take, or cause to be
taken, any act or action, either directly or through the board of directors of
Exmark, to cause Exmark to comply with the covenants and agreements of Exmark
set forth in this SECTION 7.01, including directing one or more members of
Exmark's management to cause Exmark to comply with such covenants and agreements
and, if such member or members of management do not follow such direction, then
Toro may have one or more of its employees take control of such function or
replace such member or members of Exmark's management. Disputes arising under
this paragraph will be referred to the Synergies Council for resolution. Except
in the case of actual or potential harm, which is imminent and material in
nature, to the business or reputation of Toro or any of its subsidiaries, no
permanent changes will be made by Toro pursuant to this paragraph while such a
dispute is pending resolution.
7.02 SYNERGIES COUNCIL. Each of Toro, Merger Subsidiary, Exmark and
Surviving Corporation Covenant and agree that a committee shall be established
and maintained during the Contingent Payment Period (The "SYNERGIES COUNCIL"),
which shall consist of the three Stockholders' Representatives (as defined in
SECTION 10.01 hereof), who will represent the interests of the former holders of
Shares and three executives of Toro ("TORO'S REPRESENTATIVES"), who will
represent the interests of Toro. The purpose of the Synergies Council will be
to act as an inter-company management team and dispute resolution panel during
the Contingent Payment Period. The Synergies Council will approve proposed
actions that Toro and Exmark may want to take, but which may be inconsistent
with the covenants contained in SECTION 7.01 or which materially affect Exmark
as a "stand-alone" entity during the Contingent Payment Period (E.G., material
capital expenditures, relocation of a production line, distribution of products,
allocation of revenue and costs (including those of hybrid products),
compensation and employee benefits). The affirmative vote of a majority of the
members of the Synergies Council, will be necessary
-61-
<PAGE>
to act. In the event the Synergies Council becomes deadlocked, either the
Stockholders' Representatives or the Toro Representatives may request the matter
to be reviewed by Toro's Office of the President, which shall function in an
advisory capacity only, and if the matter is not resolved upon such review, it
may, upon the request of either group of representatives, be referred to
mediation and the cost thereof will be shared equally by both Exmark and Toro.
The Synergies Council also shall be governed by the Synergies Council Charter
and the Synergies Council Bylaws attached hereto as EXHIBIT 7.02.
7.03 REBIT THRESHOLDS; TORO CONTROL. If Exmark fails to earn REBIT (as
defined in EXHIBIT 2.01(a)(i) to this agreement) equal to or greater than the
projected REBIT shown below for two successive fiscal quarters, Toro shall have
the option to give notice to the Stockholders' Representatives of Toro's intent
to take full control of Exmark's operations and, immediately thereafter, to take
full control of Exmark's operations:
<TABLE>
<CAPTION>
Quarter Ending Quarter Ending Quarter Ending Quarter Ending
January 31 April 30 July 31 October 31
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Fiscal 1998 $1,200,000 $1,740,000 $700,000 $500,000
Fiscal 1999 $1,500,000 $2,160,000 $875,000 $620,000
</TABLE>
Solely for the purposes of this SECTION 7.03, REBIT for each immediately
preceding fiscal quarter earned in excess of the applicable threshold amount may
be added to the next succeeding fiscal quarter's REBIT. Notwithstanding
anything herein to the contrary, in the event Toro takes control of Exmark's
operations (the date on which such event occurs is referred to as the "TORO
CONTROL DATE"), REBIT and CAGR accruing after such date will not be taken into
account in computing the amount of any Contingent Payments to be made after such
date.
ARTICLE VIII
CONDITIONS TO CLOSING
8.01 CONDITIONS TO TORO'S AND MERGER SUBSIDIARY'S OBLIGATIONS. The
obligation of Toro and Merger Subsidiary to consummate the transactions
contemplated by this Agreement is subject to the satisfaction of the following
conditions at or before the Effective Time:
-62-
<PAGE>
(a) The representations and warranties set forth in ARTICLE III hereof
shall be true and correct in all material respects at and as of the Effective
Time as though then made and as though the Effective Time had been substituted
for the date hereof throughout such representations and warranties (without
taking into account any disclosures by Exmark of discoveries, events or
occurrences arising on or after the date hereof, except for amendments or
supplements to the Disclosure Schedule as provided in SECTION 5.11(b));
(b) Exmark shall have performed in all material respects all of the
covenants and agreements required to be performed and complied with by it under
this Agreement prior to the Effective Time;
(c) Exmark shall have obtained, or caused to be obtained, each consent
(including, without limitation, any consent to assignment of any Owned
Intellectual Property Right) and approval necessary in order that the
transactions contemplated herein not constitute a breach or violation of, or
result in a right of termination or acceleration of, or creation of any
encumbrance on any of Exmark's assets pursuant to the provisions of, any
agreement, arrangement or undertaking of or affecting Exmark or any license,
franchise or permit of or affecting Exmark;
(d) This Agreement, the Articles of Merger, the Merger, the Signing
Bonuses and the New Articles of Incorporation shall have been duly and validly
authorized by Exmark's board of directors and this Agreement, the Merger, the
Signing Bonuses and the New Articles of Incorporation shall have been duly and
validly approved by Exmark's stockholders, and Exmark shall have delivered to
Toro evidence, in form satisfactory to Toro's legal counsel, of such
authorization and approval, and Exmark shall have duly executed the Articles of
Merger;
(e) The applicable waiting periods under the HSR Act shall have expired or
been terminated and all other material governmental filings, authorizations and
approvals that are required for the consummation of the transactions
contemplated herein or by the Articles of Merger will have been duly made and
obtained;
(f) There shall not be threatened, instituted or pending any action or
proceeding, before any court or governmental authority or agency, domestic or
foreign, (i) challenging or seeking to make illegal, or to delay or otherwise
directly or indirectly restrain or prohibit, the consummation of the
transactions contemplated herein or seeking to obtain material damages in
connection with such transactions, (ii) seeking to prohibit direct or indirect
ownership or operation by Toro or Merger Subsidiary of all or a material portion
-63-
<PAGE>
of the business or assets of Exmark, or to cause Toro or Merger Subsidiary or
any of their subsidiaries or Exmark to dispose of or to hold separately all or a
material portion of the business or assets of Toro or Merger Subsidiary and
their subsidiaries or of Exmark, as a result of the transactions contemplated
hereby, (iii) seeking to require direct or indirect transfer or sale by Toro or
Merger Subsidiary of any of the shares of Exmark Stock, (iv) seeking to
invalidate or render unenforceable any material provision of this Agreement or
the Articles of Merger or any of the Exmark Ancillary Agreements, or
(v) otherwise relating to and materially adversely affecting the transactions
contemplated hereby;
(g) There shall not be any action taken, nor any statute, rule,
regulation, judgment, order or injunction enacted, entered, enforced,
promulgated, issued or deemed applicable to the transactions contemplated herein
by any federal, state or foreign court, government or governmental authority or
agency, which would reasonably be expected to result, directly or indirectly, in
any of the consequences referred to in SECTION 8.01(f) hereof;
(h) Toro shall not have discovered any fact or circumstance existing as of
the Effective Time which previously had not been disclosed to Toro regarding the
business, assets, properties, condition (financial or otherwise), results of
operations or prospects of Exmark which is, individually or in the aggregate
with other such facts and circumstances, materially adverse to Exmark or to the
value of the shares of Exmark's capital stock;
(i) There shall have been no damage, destruction or loss of or to any
property or properties owned or used by Exmark, whether or not covered by
insurance, which, in the aggregate, has, or would be reasonably likely to have,
individually or in the aggregate, a material adverse effect on the business or
results of operations of Exmark (a "MATERIAL ADVERSE EFFECT");
(j) Toro shall have received from Exmark's legal counsel a written
opinion, dated the date of the Effective Time, addressed to Toro and
satisfactory to Toro's legal counsel, in form and substance substantially as set
forth in EXHIBIT 8.01(j);
(k) The number of Dissenting Shares (counting each such share of Exmark
Preferred Stock as four shares of Exmark Common Stock) shall not exceed 8% of
the total number of shares of Exmark Common Stock and Exmark Preferred Stock
that are issued and outstanding as of the Record Date of the Stockholders'
Meeting (counting each such share of Exmark Preferred Stock as four shares of
Exmark Common Stock).
(l) The Registration Statement (as amended or supplemented) shall have
become effective under the Securities Act and shall not be subject to any stop
order, and no action,
-64-
<PAGE>
suit, proceeding or investigation by the SEC to suspend the effectiveness of the
Registration Statement shall have been initiated and be continuing, or have been
threatened or be unresolved. Toro shall have received all state securities law
authorizations necessary to carry out the transactions contemplated by this
Agreement;
(m) Toro shall have received from Exmark's Accountant, acting in its
capacity as independent public accountants to Exmark, a "comfort" letter, dated
as of the effective date of the Registration Statement and updated through the
Effective Time, in form and substance satisfactory to Toro and reasonably
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the
Registration Statement and transactions such as those contemplated herein;
(n) Prior to the Effective Time, Exmark shall have delivered to Toro all
of the following:
(i) certificates of each of the chief executive officer and the chief
financial officer of Exmark dated as of the date of the Effective Time, stating
that to the knowledge of such officers that the conditions precedent set forth
in subsections (a) and (b) above have been satisfied;
(ii) copies of the third party and governmental consents and approvals and
of the authorizations referred to in subsections (c), (d) and (e) above;
(iii) the minute books, stock transfer records, corporate seal and other
materials related to the corporate administration of Exmark;
(iv) resignations (effective as of the Effective Time) from such of
Exmark's directors as Toro shall have requested prior to the Effective Time,
other than the individual designated by the Stockholders' Representatives to
serve as a director of the Surviving Corporation pursuant to SECTION 1.04;
(v) a copy of the articles of incorporation of Exmark, as then in effect
and as amended as described in SECTION 5.10 hereof and certified by the
Secretary of State of the State of Nebraska, and a Certificate of Good Standing
from the Secretary of State of the State of Nebraska evidencing the good
standing of Exmark in such state;
(vi) a copy of each of (A) the text of the resolutions adopted by Exmark's
board of directors authorizing and approving the Merger and authorizing the
execution, delivery
-65-
<PAGE>
and performance of this Agreement, the Articles of Merger and the New Articles
of Incorporation and the payment of the Signing Bonuses and the consummation of
all of the transactions contemplated herein and (B) the bylaws of Exmark as then
in effect; along with certificates executed on behalf of Exmark by its corporate
secretary certifying to Toro that such copies are correct and complete copies of
such resolutions and bylaws, respectively, and that such resolutions and bylaws
were duly adopted and have not been amended or rescinded;
(vii) incumbency certificates executed on behalf of Exmark by its corporate
secretary certifying the signature and office of each officer executing this
Agreement, the Articles of Merger and the Exmark Ancillary Agreements executed
by Exmark;
(viii) an executed copy of each of the Exmark Ancillary Agreements; and
(ix) such other certificates, documents and instruments as Toro reasonably
requests related to the transactions contemplated herein.
(o) H. John Smith, Ray Rickard, Roger Smith, Garry Busboom and
Mike Hirschman shall have entered into Employment Agreements or similar
agreements acceptable to Toro with Exmark and Toro;
(p) Except as expressly contemplated herein, all compensation plans and
similar agreements between Exmark and each of H. John Smith, Ray Rickard,
Holiman and Roger Smith shall have been terminated, except that Exmark may
continue to pay, consistent with past practice, (i) bonuses to H. John Smith and
Ray Rickard pursuant to Exmark's incentive bonus program for executives for
services performed prior to October 31, 1997 and (ii) commissions to Holiman's
sales personnel;
(q) Exmark shall have terminated its 1990 Stock Option Plan and its 1992
Restricted Stock Plan and all Outstanding Purchase Rights shall have been fully
exercised or canceled; and
(r) Exmark shall have acquired Holiman on terms acceptable to Toro
pursuant to a purchase agreement substantially in the form of the Stock Exchange
Agreement attached hereto as EXHIBIT 12.06 and, at the Effective Time, Holiman's
net worth (i.e., total assets minus total liabilities) shall equal or exceed
$200,000.
-66-
<PAGE>
8.02 CONDITIONS TO EXMARK'S OBLIGATIONS. The obligations of Exmark to
consummate the transactions contemplated by this Agreement are subject to the
satisfaction of the following conditions at or before the Effective Time:
(a) The representations and warranties set forth in ARTICLE IV hereof will
be true and correct in all material respects at and as of the Effective Time as
though then made and as though the Effective Time had been substituted for the
date hereof throughout such representations and warranties;
(b) Toro and Merger Subsidiary shall have performed in all material
respects all the covenants and agreements required to be performed by them under
this Agreement and the Articles of Merger prior to the Effective Time, and
Merger Subsidiary shall have executed the Articles of Merger;
(c) The applicable waiting periods under the HSR Act shall have expired or
been terminated and all other material governmental filings, authorizations and
approvals that are required for the consummation of the transactions
contemplated herein will have been duly made and obtained;
(d) There shall not be threatened, instituted or pending any action or
proceeding, before any court or governmental authority or agency, domestic or
foreign, (i) challenging or seeking to make illegal, or to delay or otherwise
directly or indirectly restrain or prohibit, the consummation of the
transactions contemplated herein or seeking to obtain material damages in
connection with such transactions, (ii) seeking to invalidate or render
unenforceable any material provision of this Agreement, the Articles of Merger
or any of the Exmark Ancillary Agreements, or (iii) otherwise relating to and
materially adversely affecting the transactions contemplated hereby or thereby;
(e) There shall not be any action taken, nor any statute, rule,
regulation, judgment, order or injunction, enacted, entered, enforced,
promulgated, issued or deemed applicable to the transactions contemplated herein
by any federal, state or foreign court, government or governmental authority or
agency, which would reasonably be expected to result, directly or indirectly, in
any of the consequences referred to in SECTION 8.02(d) hereof;
(f) The Registration Statement (as amended or supplemented) shall have
become effective under the Securities Act and shall not be subject to any order,
and no action, suit, proceeding or investigation by the SEC to suspend the
effectiveness of the Registration Statement shall have been initiated and be
continuing, or have been threatened and be
-67-
<PAGE>
unresolved. Toro shall have received all state securities law authorizations
necessary to carry out the transactions contemplated by this Agreement;
(g) At or prior to the Effective Time, Toro shall have delivered to Exmark
(i) a certificate of appropriate officer(s) of Toro dated as of the Effective
Date, stating that to the knowledge of such officer(s) the conditions precedent
set forth in subsections (a) and (b) above have been satisfied, and (ii) an
executed copy of each of the Toro Ancillary Agreements;
(h) The Signing Bonuses to H. John Smith and Ray Rickard, as appropriate,
shall have been paid;
(i) Exmark shall have received an opinion dated as of the Effective Time
in form and substance satisfactory to Exmark of Croker, Huck, Kasher, DeWitt,
Anderson & Gonderinger, P.C., to the effect that (i) the Merger will be treated
for federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code, (ii) Toro, Merger Subsidiary and Exmark will each be
a party to that reorganization within the meaning of Section 368(b) of the Code,
(iii) no income, gain or loss will be recognized for federal income tax purposes
by either Exmark or Toro as a result of the consummation of the Merger, and
(iv) no income, gain or loss will be recognized for federal income tax purposes
by the stockholders of Exmark upon the exchange in the Merger of Shares solely
for the Merger Consideration (other than the cash portion thereof and any cash
received in lieu of fractional shares). In connection with such opinion,
counsel shall be entitled to rely upon certain representations and covenants of
Exmark, Toro, Merger Subsidiary and such other persons as such counsel deems
appropriate;
(j) Exmark shall have received an updated written opinion of McCarthy &
Co., addressed to the board of directors of Exmark and dated not more than two
business days prior to the date the Prospectus-Proxy Statement is first mailed
to Exmark's stockholders, to the effect that, as of the date of such opinion,
the Merger is fair to Exmark's stockholders from a financial point of view;
(k) Exmark shall have received the opinion of J. Lawrence McIntyre, Toro's
General Counsel, in form and substance substantially as set forth in
EXHIBIT 8.02(k); and
(l) The shares of Toro Common Stock to be issued as Merger Consideration
shall have been approved for listing on the New York Stock Exchange.
-68-
<PAGE>
ARTICLE IX
TERMINATION
9.01 TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time:
(a) by the mutual consent of Toro, Merger Subsidiary and Exmark;
(b) by Toro or Exmark, if there has been a material misrepresentation, a
material breach of warranty or a material breach of covenant on the part of the
other in the representations, warranties and covenants set forth in this
Agreement;
(c) by Toro or Exmark, if there shall be a final nonappealable order of a
federal or state court in effect preventing consummation of the Merger, or there
shall be any action taken, or any statute, rule, regulation or order enacted,
promulgated or issued or deemed applicable to the Merger by any governmental
authority or agency, foreign or domestic, which would make the consummation of
the Merger illegal and such action, statute, rule, regulation or order shall
have become final and unappealable;
(d) by Toro or Exmark, if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger by any governmental authority or agency, which would (i) prohibit
Exmark's or Toro's ownership or operation of all or a portion of Exmark's
business, or (ii) compel Toro or Exmark to dispose of or hold separate all or a
portion of the business or assets of Exmark or Toro as a result of the Merger;
(e) by Toro or Exmark, if the transactions contemplated herein have not
been consummated on or before January 31, 1998 provided that, neither will be
entitled to terminate this Agreement pursuant to this SECTION 9.01(e) if such
party's willful breach of this Agreement has prevented the consummation of the
transactions contemplated herein;
(f) by Toro or Exmark, if any of the conditions to such party's
obligations to consummate the Merger described in ARTICLE VIII become impossible
to satisfy;
-69-
<PAGE>
(g) by Toro or Exmark, if the board of directors of Exmark withdraws,
modifies or changes its recommendation of this Agreement or the Merger in a
manner adverse to Toro or Merger Subsidiary or shall have resolved to do any of
the foregoing or the board of directors of Exmark shall have recommended to the
stockholders of Exmark any Superior Proposal or resolved to do so;
(h) by Toro or Exmark, if the Stockholders' Meeting shall have been held
and the stockholders of Exmark shall have failed to approve this Agreement, the
Merger, the New Articles of Incorporation and the Signing Bonuses at such
meeting (including any adjournment or postponement thereof);
(i) by Toro, if (i) Exmark receives an unsolicited proposal that
constitutes a Superior Proposal and the board of directors of Exmark, within 30
calendar days after such proposal is received by Exmark (which thirty-day period
may be extended by Exmark for such additional period not exceeding 30 days as
Exmark reasonably determines, based on consultations with independent counsel,
to be required in order to satisfy its fiduciary obligations under law), either
fails to terminate discussions with the maker of such proposal and its agents,
or determines to accept, or takes no position with respect to, such proposal,
(ii) a tender offer or exchange offer for 20% or more of the outstanding shares
of Exmark's capital stock is commenced, and the board of directors of Exmark,
within 10 business days after such tender offer or exchange offer is so
commenced, either fails to recommend against acceptance of such tender offer or
exchange offer by its stockholders or takes no position with respect to the
acceptance of such tender offer or exchange offer by its stockholders, or
(iii) any person (other than Toro or its affiliates) shall have acquired
beneficial ownership or the right to acquire beneficial ownership of, or any
"group" (as such term is defined under Section 13(d) of the Exchange Act) shall
have been formed which beneficially owns, or has the right to acquire beneficial
ownership of, 20% or more of the then outstanding shares of Exmark's Capital
Stock (excluding for this purpose holdings of shares by persons or groups as
currently reflected in the stock records of Exmark as of the date of this
Agreement);
(j) by Toro, if the number of Dissenting Shares (counting each such share
of Exmark Preferred Stock as four shares of Exmark Common Stock) exceeds 8% of
the total number of shares of Exmark Common Stock and Exmark Preferred Stock
that are issued and outstanding as of the Record Date of the Stockholders'
Meeting (counting each such share of Exmark Preferred Stock as four shares of
Exmark Common Stock);
(k) if after the date hereof there shall have been a material adverse
change in the business, assets, properties, condition (financial or otherwise),
results of operations or prospects of Exmark, or if an event (other than a
general industry or economic downturn)
-70-
<PAGE>
shall have occurred which, so far as reasonably can be foreseen, would result in
any such change;
(l) by Toro, if the Initial Toro Share Price is less than $30 per share;
or
(m) by Exmark, if the Initial Toro Share Price exceeds $44 per share.
9.02 EFFECT OF TERMINATION. In the event of termination of this Agreement
by Toro or Exmark, as provided in SECTION 9.01, all provisions of this Agreement
shall terminate and there shall be no liability on the part of any of Toro,
Merger Subsidiary or Exmark, or their respective stockholders, officers or
directors, except (a) SECTIONS 13.01 (press releases and announcements), 13.02
(expenses), 13.09 (governing law) and 13.10 (confidentiality) hereof shall
survive indefinitely, (b) the parties shall remain liable for willful breaches
of this Agreement prior to the time of such termination and (c) as provided in
SECTION 9.03.
9.03 TERMINATION FEE. Exmark shall pay Toro a fee of $1,500,000 (a) if
this Agreement is terminated pursuant to SECTION 9.01(g), (b) if this Agreement
is terminated pursuant to SECTION 9.01(i) and the transaction contemplated by
such Superior Proposal ultimately is consummated (or any similar transaction is
consummated with a party other than Toro or Merger Subsidiary), or (c) if this
Agreement is terminated pursuant to SECTION 9.01(h) and a Superior Proposal
exists on the date of the Stockholders' Meeting. In the event Exmark shall fail
to immediately pay any fee to Toro when due, Exmark shall also pay the costs and
expenses actually incurred or accrued by Toro or Merger Subsidiary (including,
without limitation, fees and expenses of legal counsel) in connection with the
collection under and enforcement of this SECTION 9.03, together with interest on
such unpaid fee, commencing on the date that such fee becomes due, at a rate
equal to the rate of interest publicly announced by First Bank National
Association, from time to time, in the City of Minneapolis, Minnesota, as such
bank's "base rate" plus 2%.
In the event this Agreement is terminated pursuant to SECTION 9.01(h) and a
Superior Proposal exists on the date of the Stockholders' Meeting, such fee
shall constitute liquidated damages for a breach of SECTION 5.08. However,
nothing in this SECTION 9.03 precludes a party from seeking such other remedies
at law or equity as it deems appropriate.
-71-
<PAGE>
ARTICLE X
THE STOCKHOLDERS' REPRESENTATIVE
10.01 APPOINTMENT. As used in this Agreement, the "STOCKHOLDERS'
REPRESENTATIVES" shall mean H. John Smith, Ray Rickard and Roger Smith, or any
person appointed as a successor Stockholders' Representative pursuant to
SECTION 10.02 hereof. The number of Stockholders' Representatives shall not be
more than three persons.
10.02 ELECTION AND REPLACEMENT. During the period ending upon the date when
all obligations under this Agreement have been discharged (including all
obligations pursuant to SECTION 11.02 hereof), Exmark's Holders, who immediately
prior to the Effective Time, held a majority of the aggregate voting power of
the Shares (a "MAJORITY"), may, from time to time upon written notice to the
Stockholders' Representatives and Toro, remove any of the Stockholders'
Representatives or appoint one or more new Stockholders' Representatives to fill
any vacancy created by the death, incapacitation, resignation or removal of one
or more Stockholders' Representatives. Furthermore, if a Stockholders'
Representative dies, becomes incapacitated, resigns or is removed by a Majority,
the Majority shall appoint a successor Stockholders' Representative to fill the
vacancy so created. If the Majority fails to appoint such successor within 10
business days after a request by Toro to appoint such successor, the remaining
Stockholders' Representatives shall appoint such successor. If the
Stockholders' Representatives do not appoint such successor within 10 business
days after Toro's initial request to the Majority to appoint such successor,
then Toro shall appoint such successor, and shall advise Holders who held Shares
of such appointment by written notice. A copy of any appointment by the
Majority of the Stockholders' Representatives of any successor Stockholders'
Representative shall be provided to Toro promptly after it shall have been
effected.
10.03 AUTHORITY. On behalf of the Holders, the Stockholders'
Representatives shall be authorized to take action by majority vote of the
number of the then appointed Stockholders' Representatives (without taking into
account any vacancies) and to make and deliver any certificate, notice, consent
or instrument required or permitted to be made or delivered under this Agreement
or under the documents referred to in this Agreement, including, without
limitation, any such actions with respect to the Initial Payment Consideration
and the Contingent Payment Rights (an "INSTRUMENT"), which the Stockholders'
Representatives determine in their discretion to be necessary, appropriate or
desirable, and, in connection therewith, to hire or retain, at the sole expense
of the Holders (up to a maximum aggregate amount of $100,000 to be paid out of
the Stockholders' Representatives Expense Fund), such counsel, investment
bankers, accountants, representatives and other professional advisors as they
determine in their sole and absolute discretion to be necessary, advisable or
appropriate in order to carry out and perform their rights and obligations
hereunder. Any party receiving an Instrument from
-72-
<PAGE>
the Stockholders' Representatives shall have the right to rely in good faith
upon such Instrument, and to act in accordance with the Instrument without
independent investigation.
10.04 NO LIABILITY OF TORO. Toro and the Surviving Corporation shall have
no liability to any stockholder of Exmark or otherwise arising out of the acts
or omissions of the Synergies Council, the Stockholders' Representatives or any
disputes among Exmark's stockholders or among the Stockholders' Representatives.
Toro and the Surviving Corporation shall have no direct liability to Exmark's
stockholders under this Agreement or the other agreements referred to herein and
may rely entirely on their dealings with, and notices to and from, the
Stockholders' Representatives to satisfy any obligations Toro and the Surviving
Corporation might have under this Agreement, any agreement referred to herein or
otherwise to Exmark's stockholders. Without limiting the foregoing, delivery to
the Escrow Agent of the Merger Consideration shall extinguish any obligations of
Toro to Exmark's stockholders with respect to such Initial Payment Consideration
and such Contingent Payment Rights, and Toro shall have no liability for
subsequent misdelivery to any stockholder of Exmark by the Paying Agent or any
act or omission of the Stockholders' Representatives with respect to such cash
or certificates. Notwithstanding the foregoing, all rights to indemnification
for acts or omissions occurring prior to the Effective Time now existing in
favor of the current or former directors or officers of Exmark as provided in
the New Articles of Incorporation, the bylaws or Nebraska law shall survive the
Closing and shall continue in full force and effect in accordance with their
terms.
ARTICLE XI
SURVIVAL AND OFFSET
11.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Notwithstanding any
investigation made by or on behalf of any of the parties hereto or the results
of any such investigation and notwithstanding the participation of such party in
the Closing, the representations and warranties of Toro and Merger Subsidiary,
and the representations and warranties of Exmark, contained in, or attached to,
this Agreement shall survive the Closing until the Last Payment Date (the
"OFFSET PERIOD") and shall have no further force or effect thereafter.
-73-
<PAGE>
11.02 RIGHT OF OFFSET.
(a) Subject to SECTION 11.02(f) hereof, Toro shall have a right to offset
(the "OFFSET RIGHT"), from time to time, against the Holdback Amount and the
Contingent Payments any loss, liability, deficiency, damage, penalty, expense or
cost (including reasonable legal expenses), whether or not actually incurred or
paid during the Offset Period (collectively, the "LOSSES"), which Toro, the
Surviving Corporation or any of their respective affiliates, officers,
directors, employees or agents (the "PROTECTED PARTIES") suffers, sustains or
becomes subject to, as a result of:
(i) Any misrepresentation (a "MISREPRESENTATION") in any of the
representations and warranties of Exmark contained in this Agreement or in any
of the exhibits, schedules, agreements, certificates and other documents
delivered or to be delivered by or on behalf of Exmark pursuant to this
Agreement or otherwise attached to, or referenced or incorporated in, this
Agreement (collectively, the "RELATED DOCUMENTS");
(ii) Any breach (a "BREACH") of, violation of, or failure to perform, any
agreement or covenant of Exmark contained in this Agreement or any of the
Related Documents prior to the Effective Time;
(iii) Any and all Losses suffered by any of the Protected Parties and any
and all Claims (as defined in SECTION 11.02(c) hereof) or threatened Claims
against the Protected Parties arising out of actions or inactions of Exmark
(regardless of whether there may also be a Misrepresentation arising out of such
actions or inactions) prior to the Effective Time with respect to (a) any
Release of any Hazardous Materials on, under or from the Real Property; (b) any
environmental contamination of the Real Property, including without limitation
the presence of any Hazardous Materials that have come to be located on or under
the Real Property from another location; (c) any injury to the environment, or
to human health or safety associated with the environment, by reason of the
condition of, or activities past or present on or under, the Real Property; or
(d) any violation, or alleged violation, of any Environmental Law with respect
to the Real Property or Exmark's operations at the Real Property (for purposes
of this SECTION 11.02(a)(iii), the term Real Property shall include all property
previously owned, used or occupied by Exmark or its predecessors), specifically
including any and all costs and expenses required to cause Exmark to comply with
any such Environmental Law (all such Losses, Claims and threatened Claims
described in this SECTION 11.02(a)(iii) are collectively referred to as
"ENVIRONMENTAL LOSSES");
(iv) Any amounts paid in respect of the Dissenting Shares in excess of the
aggregate amount of the value of the Merger Consideration that the holders of
such Dissenting Shares would have received in the Merger.
-74-
<PAGE>
Notwithstanding the foregoing, the amount of any Losses shall be offset by any
insurance proceeds received by Exmark with respect to insurance policies paid
for by Exmark.
(b) Toro may exercise its Offset Right, from time to time, in accordance
with the procedures set forth in paragraphs (c) and (d) of this SECTION 11.02,
against any payment or payments to be made out of the Holdback Amount or due or
to become due under the Contingent Payment Rights. Each time, if any, that Toro
exercises its Offset Right, Toro shall promptly deliver to the Stockholders'
Representatives a schedule signed by an officer of Toro reflecting the revised
payments, after giving effect to such exercise of its Offset Right, to be made
to the Holders out of the Holdback Amount and/or with respect to the Contingent
Payments. In the event Toro exercises its Offset Right with respect to Losses
as a result of, in connection with or related to, any of the matters described
in SECTION 11.02(a) above, such offset shall be applied against any payment or
payments to be made out of the Holdback Amount, and any remainder of such offset
shall be applied against any payment or payments due or to become due with
respect to the 1998 Contingent Payment, and any remainder of such offset shall
be applied against any payment or payments due or to become due with respect to
the 1999 Contingent Payment. Further, if the Actual Net Worth of Exmark exceeds
$8,243,000, then Toro's Offset Rights resulting from any Misrepresentation (as
described in SECTION 11.02(a)(i)) or any Environmental Loss (as described in
SECTION 11.02(a)(iii)) will be subject to a one-time aggregate deductible equal
to the greater of $50,000 or an amount equal to 50% of the difference of the
Actual Net Worth and $8,243,000. An individual Loss shall not give rise to an
Offset Right unless such Loss equals or exceeds $10,000. Notwithstanding
anything to the contrary in the preceding sentence, the limitation set forth in
such sentence shall not apply to any Loss that relates to a claim or action that
arises from the same or substantially the same facts as one or more other claims
or actions and the aggregate amount of Losses so arising is at least $10,000.
(c) In the event any of the Protected Parties becomes involved in any
legal, governmental or administrative proceeding which may result in Losses, or
if any such proceeding is threatened or asserted (any such third party action or
proceeding being referred to herein as a "CLAIM"), Toro shall promptly notify
the Stockholders' Representatives in writing of the nature of any such Claim and
Toro's estimate of the Losses arising therefrom.
(i) The Stockholders' Representatives shall be entitled to contest and
defend such Claim; provided, that the Stockholders' Representatives have a
reasonable basis for concluding such defense may be successful and diligently
contest and defend such Claim; provided, further, that, Toro in its sole and
absolute discretion, may notify the Stockholders' Representatives at any time
that any such contest or defense must be immediately terminated, in which case
Toro's Offset Right with respect to such Claim shall thereupon terminate.
Notice of the intention so to contest and defend shall be given by the
-75-
<PAGE>
Stockholders' Representatives to Toro within 20 days after Toro provides notice
of such Claim (but, in all events, at least five business days prior to the date
that an answer to such Claim is due to be filed). Such contest and defense
shall be conducted by reputable attorneys employed by the Stockholders'
Representatives. Toro shall be entitled at any time, at its own cost and
expense (which expense shall not constitute a Loss unless the Stockholders'
Representatives are not adequately representing or, because of a conflict of
interest between, may not adequately represent, any interests of the Protected
Parties, and only to the extent that such expenses are reasonable), to
participate in such contest and defense and to be represented by attorneys of
its own choosing. If Toro elects to participate in such defense, Toro shall
cooperate with the Stockholders' Representatives in the conduct of such defense.
Neither Toro nor the Stockholders' Representatives may concede, settle or
compromise any Claim without the consent of the other, which consent shall not
be unreasonably withheld; provided, that the Stockholders' Representatives may,
without the consent of Toro, settle any Claim which is solely for money damages
if the Stockholders' Representatives acknowledge that such Claim gives rise to a
Loss that is subject to Toro's Offset Right hereunder and if the entire amount
of the settlement amount may be recovered by Toro by means of Toro's Offset
Rights hereunder. The Stockholders' Representatives shall have the right to
have the cost of defense, including reasonable legal expenses, paid or
reimbursed by the Surviving Corporation (such expenses to be included in
calculating all Losses).
(ii) Notwithstanding the foregoing, if: (A) a Claim seeks equitable relief
against any of the Protected Parties, (B) the subject matter of a Claim relates
to the ongoing business of any of the Protected Parties, which Claim, if decided
against such Protected Party, could materially adversely affect the ongoing
business or reputation of such Protected Party, or (C) the estimated Losses of
the Protected Parties related to the Claim exceed the amount Toro may recover
using its Offset Right hereunder, then, in each such case, Toro alone shall be
entitled to contest, defend and settle such Claim in the first instance and, if
Toro does not contest, defend or settle such Claim, Stockholders'
Representatives shall have the right to contest and defend (but not settle) such
Claim.
(d) In the event Toro (on behalf of itself or any Protected Party) should
have a claim giving rise to an Offset Right that does not involve a Claim, Toro
shall deliver a notice (the "OFFSET NOTICE") of such claim with reasonable
promptness to the Stockholders' Representatives, the Escrow Agent and the Paying
Agent. The Offset Notice shall include an estimate of Toro's Losses relating to
such claim. If the Stockholders' Representatives notify Toro that the
Stockholders' Representatives do not dispute the claim described in the Offset
Notice, or if the Stockholders' Representatives fail to notify Toro within 20
days after delivery of the Offset Notice of any such dispute with respect to
such claim, the Losses in the amount specified in the Offset Notice will be
conclusively deemed Losses and Toro may exercise its Offset Right with respect
to such amount in accordance with the Offset Notice. If the Stockholders'
Representatives have timely disputed such claim, Toro's
-76-
<PAGE>
Representatives and the Stockholders' Representatives will proceed in good faith
to negotiate a resolution of such dispute, and if not resolved through the
negotiations of such representatives within 60 days after the date of the Offset
Notice of such claim, the parties agree to resolve such dispute through binding
arbitration in accordance with SECTION 13.05. In addition, Toro shall make a
good faith effort to deliver a report of all claims that may give rise to an
Offset Right (whether or not such claims are subject to the deductible described
in SECTION 11.02(b)) on a quarterly basis to the Stockholders' Representatives,
the Escrow Agent and the Paying Agent. Failure on the part of Toro to provide
any such report shall not prejudice in any way Toro's rights under this
Agreement. Notwithstanding the foregoing, in the event that a claim is not
timely reported and the Stockholder's Representatives are able to prove to the
Synergies Council that, had the Stockholder's Representatives been notified of a
claim within 90 days after such claim should have been reported, the
Stockholder's Representatives would have contested and defended such claim and,
as a result, the amount of such claim would have been less than the amount
reported, then the amount of such claim for purposes of this SECTION 11.02 shall
be such lesser amount.
(e) In the event of a Claim under SECTION 11.02(c) or a dispute relating
to an Offset Notice under SECTION 11.02(d), the Escrow Agent will retain
property then held by it in escrow under this Agreement in an amount sufficient
to satisfy the estimated value of such Claim or disputed Offset Notice until the
resolution of such Claim or dispute.
(f) Notwithstanding anything contained in this Agreement to the contrary,
the right of Toro to exercise its Offset Right hereunder shall be subject to the
following limitations:
(i) Toro shall not be entitled to exercise its Offset Right with respect
to any Losses unless Toro delivers to the Stockholders' Representatives an
Offset Notice under SECTION 11.02(d) or notice of a Claim under SECTION 11.02(c)
relating to such Losses prior to the end of the Offset Period.
(ii) Toro shall not be entitled to exercise its Offset Right with respect
to any Losses to the extent that such Losses result from or arise out of the
gross negligence or willful misconduct of Toro, any director, officer or
employee of Toro or any Toro subsidiary other than Exmark prior to the Effective
Time.
(iii) The Offset Right shall be Toro's sole and exclusive remedy with
respect to any Losses that any Protected Party may suffer, sustain or become
subject to pursuant to the terms of this Agreement, and Toro agrees that it
shall not, and hereby waives all rights to, institute or maintain any suit,
proceeding or action against the Holders or utilize or exercise any other legal
or equitable remedy for the purpose of recovering damages or
-77-
<PAGE>
other relief with respect to any Losses (including, without limitation, an
action seeking to recover any portion of the purchase price previously paid to
Exmark's stockholders) except for suits, proceedings or actions necessary to
enforce or implement the Offset Right; provided that, (A) nothing herein shall
prevent a party from bringing an action based upon allegations of fraud or other
intentional misconduct with respect to another party hereto in connection with
this Agreement, and (B) nothing herein shall limit in any manner any other legal
rights or remedies which any Protected Party which is a party to an agreement
identified under ARTICLE XII has against another party to such agreement in
accordance with the terms and conditions provided therein.
ARTICLE XII
ANCILLARY AGREEMENTS
12.01 STOCKHOLDER AGREEMENTS. Simultaneous with the execution and delivery
of this Agreement, Toro, Merger Subsidiary, Exmark and each stockholder of
Exmark identified on SCHEDULE 12.01 will enter into a stockholder agreement
identical in form to EXHIBIT 12.01 which provides that such stockholder will
vote in favor of this Agreement, the Merger, the Signing Bonuses and the New
Articles of Incorporation (the "STOCKHOLDER AGREEMENTS").
12.02 AFFILIATE AGREEMENTS. Simultaneous with the execution and delivery of
this Agreement, Toro and each stockholder of Exmark identified on SCHEDULE 12.02
will enter into an affiliate agreement identical in form to EXHIBIT 12.02 (the
"AFFILIATE AGREEMENTS").
12.03 EMPLOYMENT AGREEMENTS. Simultaneous with the execution and delivery
of this Agreement, Exmark and Toro (as provided below) and each of
H. John Smith, Ray Rickard, Roger Smith, Garry Busboom and Mike Hirschman will
enter into an employment agreement in the form attached hereto as
EXHIBIT 12.03(a), EXHIBIT 12.03(b), EXHIBIT 12.03(c), EXHIBIT 12.03(d) and
EXHIBIT 12.03(e), respectively (collectively, the "EMPLOYMENT AGREEMENTS").
H. John Smith and Ray Rickard will, at the Effective Time, collectively receive
cash payments totalling $2,075,000 as signing bonuses and other consideration
(the "SIGNING BONUSES") in connection with the execution of their respective
Employment Agreements with Toro. In return for aggregate cash payments to be
paid by Exmark prior to the Closing not to exceed $160,000 and nominal
consideration from Toro, Garry Busboom and Mike Hirschman also will execute
their respective Employment Agreements with Exmark and Toro. In return for
nominal cash payments to be paid by Toro prior to Closing, any other person Toro
may reasonably request also will execute an employment agreement similar in form
to the agreement attached hereto as EXHIBIT 12.03(d), but such other person's
execution of such an employment agreement shall not be a condition to Closing as
described in ARTICLE VIII. During the Contingent Payment Period, H. John Smith,
Roger Smith and Ray Rickard will not be eligible to receive a
-78-
<PAGE>
mance bonus (except as expressly contemplated by SECTION 8.02(p) hereof), nor
will they be eligible to participate in any stock option plan of Toro during
such period.
12.04 ESCROW AGREEMENT. Simultaneous with the execution and delivery of
this Agreement, Toro, Exmark and Escrow Agent will enter into an escrow
agreement in the form of EXHIBIT 12.04 (the "ESCROW AGREEMENT").
12.05 PAYING AGENT AGREEMENT. Simultaneous with the execution and delivery
of this Agreement, Toro, the Stockholders' Representatives and Paying Agent will
enter into a paying agent agreement in the form of EXHIBIT 12.05 (the "PAYING
AGENT AGREEMENT").
12.06 STOCK FOR STOCK EXCHANGE AGREEMENT. Simultaneous with the execution
and delivery of this Agreement, Exmark and Holiman will enter into a Stock for
Stock Exchange Agreement in the form of EXHIBIT 12.06.
ARTICLE XIII
MISCELLANEOUS
13.01 PRESS RELEASES AND ANNOUNCEMENTS. Prior to the Effective Time, no
party hereto shall issue any press release (or make any other public
announcement) related to this Agreement or the transactions contemplated hereby
or make any announcement to the employees, customers or suppliers of Exmark
without prior written approval of the other party hereto, except that Toro may
issue any such release (or other announcement) as it determines, in its sole
discretion, as may be necessary to comply with the requirements of this
Agreement or applicable law or by obligations pursuant to any listing agreement
with any national securities exchange. If Toro determines any such press
release or public announcement is so required, Toro shall use reasonable efforts
to consult in good faith with Exmark (but shall not be required to obtain
Exmark's consent) prior to issuing such press release or making such
announcement.
13.02 EXPENSES. Except as otherwise expressly provided for herein, Exmark,
the Stockholders' Representatives, Toro and Merger Subsidiary will each pay all
of their own expenses (including attorneys', financial advisors' and
accountants' fees) in connection with the negotiation of this Agreement, the
performance of their respective obligations under this Agreement and the
Articles of Merger and the consummation of the transactions contemplated hereby
and thereby (whether consummated or not). Toro shall pay for any
-79-
<PAGE>
environmental audit that it may cause to be performed and real estate title
insurance purchased in connection with the Merger. Exmark shall pay any loan
prepayment and other related fees incurred by it or Toro in connection with the
Merger. Exmark and Toro shall each pay one-half of the HSR Act filing fee
applicable to the Merger. Each party will indemnify and hold harmless the other
against the claims of any brokers or finders in respect of the Merger.
13.03 AMENDMENT AND WAIVER. This Agreement may not be amended or waived
except in a writing executed by the party against which such amendment or waiver
is sought to be enforced; provided, however, that after the approval of this
Agreement by Exmark's stockholders, no amendment may be made which reduces the
Merger Consideration or which effects any changes which would materially
adversely affect Exmark's stockholders without the further approval of Exmark's
stockholders provided, however, the Stockholders' Representatives, acting
through the Synergies Council, may approve waivers of and amendments to the
covenants of Toro and Exmark described in ARTICLE VII, which changes may affect
the Contingent Payments following the Effective Time. No course of dealing
between or among any persons having any interest in this Agreement will be
deemed effective to modify or amend any part of this Agreement or any rights or
obligations of any person under or by reason of this Agreement.
13.04 NOTICES. All notices, demands and other communications to be given or
delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when personally delivered or three
days after being mailed, if mailed by first class mail, return receipt
requested, or when receipt is acknowledged, if sent by facsimile, telecopy or
other electronic transmission device. Notices, demands and communications to
Toro, Merger Subsidiary, Exmark and the Stockholders' Representatives will,
unless another address is specified in writing, be sent to the address indicated
below:
NOTICES TO TORO OR MERGER SUBSIDIARY: WITH A COPY TO:
- ------------------------------------ --------------
The Toro Company Dorsey & Whitney LLP
8111 Lyndale Avenue South 220 South Sixth Street
Bloomington, Minnesota 55420-1196 Minneapolis, MN 55402
Attn: J. Lawrence McIntyre, Attn: J. Andrew Herring
Vice President, Secretary and Facsimile: (612) 340-8738
General Counsel
Facsimile: (612) 887-8920
-80-
<PAGE>
NOTICES TO EXMARK: WITH A COPY TO:
- ----------------- --------------
Exmark Manufacturing Company Incorporated Croker, Huck, Kasher, DeWitt,
2101 Ashland Avenue Anderson & Gonderinger, P.C.
Beatrice, Nebraska 68310 Suite 1250
Attn: H. John Smith, Commercial Federal Tower
President and Chief Executive Officer 2120 South 72nd Street
Facsimile: (402) 223-5489 Omaha, Nebraska 68124
Attn: Richard A. DeWitt
Facsimile: (402) 390-9221
NOTICES TO STOCKHOLDERS' REPRESENTATIVES: WITH A COPY TO:
- ---------------------------------------- --------------
H. John Smith, Roger Smith and Ray Rickard Croker, Huck, Kasher, DeWitt,
c/o Exmark Manufacturing Company Incorporated Anderson & Gonderinger, P.C.
2101 Ashland Avenue Suite 1250
Beatrice, Nebraska 68310 Commercial Federal Tower
Omaha, Nebraska 68124
Attn: H. John Smith, 2120 South 72nd Street
President and Chief Executive Officer Attn: Richard A. DeWitt
Facsimile: (402) 223-5489 Facsimile: (402) 390-9221
13.05 ARBITRATION. Subject to the procedures described in SECTION 7.02
relating to certain matters concerning the Synergies Council, in the event of
any claim or dispute between the parties, the parties agree to resolve such
dispute through binding arbitration by a single arbitrator pursuant to the
Commercial Arbitration Rules of the
-81-
<PAGE>
American Arbitration Association. The arbitration shall be conducted in
Minneapolis, Minnesota. Any award rendered shall be final and conclusive upon
the parties and a judgment thereon may be entered in any court of competent
jurisdiction. All costs and expenses, including reasonable attorneys' fees and
experts' fees, of all parties incurred in any dispute which is determined by
arbitration pursuant to this SECTION 13.05 shall be borne by the party
determined to be liable in respect of such dispute; provided, however, that if
complete liability is not assessed against only one party, the parties shall
share the total costs in proportion to their respective amounts of liability so
determined. Except where clearly prevented by the area in dispute, the parties
agree to continue performing their respective obligations under this Agreement
while the dispute is being resolved. All negotiation and arbitration
proceedings under this SECTION 13.05 shall be treated as confidential
information in accordance with the provisions of the confidentiality agreement
between Toro and Exmark, dated August 8, 1996 (the "CONFIDENTIALITY AGREEMENT").
Any arbitrator shall be bound by an agreement containing confidentiality
provisions at least as restrictive as those contained in the Confidentiality
Agreement. Nothing herein shall preclude a party hereto from seeking equitable
relief to prevent any immediate, irreparable harm to its interest, including
multiple breaches of this Agreement or the Related Documents. Otherwise, these
procedures are exclusive and shall be fully exhausted prior to the initiation of
any litigation. Either party may seek specific enforcement of any arbitrator's
decision under this SECTION 13.05. The other party's only defense to such a
request for specific enforcement shall be fraud by or on the arbitrator. No
party to this Agreement shall be liable to any other party under this Agreement
for any punitive, extraordinary or exemplary damages.
13.06 ASSIGNMENT. This Agreement and all of the provisions hereof will be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, except that neither this Agreement nor any of
the rights, interests or obligations hereunder may be assigned by any party
hereto without the prior written consent of the other parties hereto.
13.07 SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
13.08 COMPLETE AGREEMENT. This Agreement, the Articles of Merger and the
Related Agreements and other exhibits hereto, the Disclosure Schedule and the
other documents referred to herein contain the complete agreement between the
parties and supersede any prior understandings, agreements or representations by
or between the parties, written or oral, which may have related to the subject
matter hereof in any way;
-82-
<PAGE>
provided, that the Confidentiality Agreement shall remain in force and effect
without modification thereof.
13.09 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together will constitute one and the same
instrument. Any such counterpart may be delivered by facsimile. Any party
delivering a counterpart by facsimile shall deliver an original copy within 48
hours, provided that the failure to so deliver an original shall not effect the
enforceability of this agreement against such party.
13.10 GOVERNING LAW. The internal law, without regard for conflicts of laws
principles, of the State of Minnesota will govern all questions concerning the
construction, validity and interpretation of this Agreement and the performance
of the obligations imposed by this Agreement.
13.11 EXMARK STOCKHOLDERS AS THIRD PARTY BENEFICIARIES. No third party is
entitled to rely on any of the representations, warranties, covenants or
agreements of Toro, Merger Subsidiary or Exmark contained in this Agreement.
Toro, Merger Subsidiary and Exmark assume no liability to any third party
because of any reliance on such representations, warranties, covenants and
agreements. Notwithstanding the foregoing, the parties hereto agree that,
following the Effective Time, the representations and warranties of Toro
described in Article IV hereof shall inure to the benefit of the Holders, as if
the Holders replaced Exmark as a party hereto; provided, however, that any and
all actions by or on behalf of the Holders shall be effected through the
Stockholders' Representatives and nothing set forth in this SECTION 13.11 shall
affect the application of SECTION 13.05 as it relates to any claims or disputes
under this Agreement.
-83-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
THE TORO COMPANY
By /s/ J. Lawrence McIntyre
-------------------------------------
Its Vice President and Secretary
EMCI ACQUISITION CORP.
By /s/ Dennis P. Himan
-------------------------------------
Its President
EXMARK MANUFACTURING COMPANY
INCORPORATED
By /s/ H. John Smith
-------------------------------------
Its President
-84-
<PAGE>
Exhibit 2.01
TERMS OF CONTINGENT PAYMENT RIGHTS
All capitalized terms not otherwise defined in this Exhibit 2.01(a)
shall have the respective meanings ascribed thereto in the Agreement to which
this Exhibit 2.01(a) is attached. Further, the parties to the Agreement
acknowledge and agree that the determination of EBIT and other financial
measurements described in this Exhibit 2.01(a) are defined herein solely for the
purpose of determining the amount of the Contingent Payments. The actual
accounting approach taken for purposes of preparing Toro's and Exmark's
financial statements for financial and tax reporting purposes may differ from
that described herein inasmuch as the actual accounting approach contemplates
the transfer of inventory at standard costs and the allocation of other costs
and revenues of Exmark and Toro on an analytical basis only.
1. DETERMINING THE AMOUNT OF EACH CONTINGENT PAYMENT: For purposes
of this Exhibit 2.01(a), references to any of Exmark's actual financial results
shall be determined on a consolidated basis. The value of each Contingent
Payment will be determined using the valuation formula ("VALUATION FORMULA")
shown below:
Contingent Payment = [(3.5) * REBIT * (1 + CAGR)] - [$30,000,000 +
the amount of any prior Contingent Payment]-
[Working Capital Adjustment]
The 1998 Contingent Payment Amount will be determined using the Valuation
Formula and will be based on Exmark's recast earnings before interest and Taxes
("REBIT") for the twelve-month period ending October 31, 1998, and its compound
annual growth rate ("CAGR") in Adjusted Revenue (as defined in SECTION 4 hereof)
for the twelve-month period ending October 31, 1998, compared to $40,808,850
("BASE YEAR REVENUE"), which is the amount of Exmark's actual gross sales during
the twelve-month period ending October 31, 1996. For examples of how the CAGR
shall be calculated, please see Appendix A.
The 1999 Contingent Payment Amount will be determined using the Valuation
Formula and will be based on Exmark's REBIT for the twelve-month period ending
October 31, 1999 and its CAGR in Adjusted Revenue for the twelve-month period
ending October 31, 1999, compared to the Base Year Revenue.
Notwithstanding the foregoing, if the total value of the Contingent
Payments would otherwise exceed $28,000,000 or if the total number of shares of
Toro Common Stock to be issued in connection with the Contingent Payments would
otherwise exceed 821,334 shares (I.E., 88% of $28,000,000 divided by $30 per
share), then the value of the 1998 Contingent Payment and/or of the 1999
Contingent Payment shall be automatically reduced by the
1
<PAGE>
minimum amount necessary so that such total value will not exceed $28,000,000 or
will not require the issuance of more than 821,334 shares of Toro Common Stock,
respectively. In no event will the cash consideration included in each of the
Contingent Payments be increased beyond 12% of each such Contingent Payment.
2. CALCULATING EBIT: Solely for purposes of calculating REBIT for any
period, the net earnings before interest and Taxes ("EBIT") of Exmark for such
period will be calculated based on the actual EBIT of Exmark for such period,
determined in conformity with GAAP, but subject to the following clarifications
and adjustments, if required:
(a) For purposes of determining EBIT, only interest paid by Exmark with
respect to bank debt, intercompany debt and long-term debt (including the
current portion thereof) will be added back to net earnings.
(b) No costs or expenses incurred during such period that are related to
or that result from the Merger will be included as either a cost or expense to
Exmark in determining EBIT (I.E., no amortization of goodwill, covenants not to
compete, the Signing Bonuses or other intangibles arising out of the Merger will
be included in calculating EBIT).
(c) If and to the extent that Toro transfers to Exmark Toro manufactured
products (including parts) that are branded for Exmark for sale by Exmark
through its distribution system ("TORO SUPPLIED PRODUCTS"), for purposes of
calculating EBIT, the transfer price for such Toro Supplied Products will be
Toro's distributor net price minus Exmark's per unit sales, marketing,
distribution and warranty costs related to the sale thereof (which will be
different for wholegoods and parts) and minus an amount equal to 1.5% of Toro's
distributor net price. Toro's distributor net price shall mean the price of
such products published from time to time by Toro as then being in effect. At
the time such Toro Supplied Products are sold, the difference between the
applicable distributor net price at which such product is sold by Exmark to its
distributors and the applicable transfer price will be included in determining
EBIT. The amount of the gross sales determined in accordance with GAAP from the
sale by Exmark of Toro Supplied Products, however, will not be included in
Exmark's gross sales for purposes of determining CAGR.
(d) Exmark's gross sales from Exmark manufactured products (including
parts) that are branded for Toro, transferred to Toro and sold by Toro ("EXMARK
CROSS-BRANDED PRODUCTS") will only include an amount equal to the standard cost
of such Exmark Cross-Branded Products plus, for products sold in the United
States and Canada, a management fee ("MANAGEMENT FEE") equal to 3% of such
amount. Standard cost shall mean the cost of such products determined in
accordance with the procedure used to determine Exmark's inventory value and in
accordance with GAAP.
2
<PAGE>
(e) Exmark will receive, and its EBIT will include, a sales commission
equal to 1% of the gross sales of Exmark Cross-Branded Products that are sold by
Toro outside of the United States and Canada.
(f) If Toro exercises its Offset Right with respect to any Losses
described in SECTION 11.02(a) and such Losses have been included in determining
net earnings for such period, EBIT will be increased by such amount.
(g) No allocation of any of Toro's corporate or administrative burden or
overhead that may be allocated to Exmark will be included in calculating EBIT.
(h) Incidental costs related to the participation by Exmark's management
in Toro's corporate functions, activities and meetings will not be an adjustment
to EBIT.
(i) EBIT will be reduced by the amount of all compensation and benefits
paid by Toro or the Toro Sales Company to former employees of Exmark or Holiman
after the Effective Time, except for the Signing Bonuses.
(j) Exmark and Toro agree that no actual cash payments may be made with
respect to the inter-company transfers and adjustments described herein, but
rather such transfers and adjustments are expected to be made only in the form
of accounting adjustments to an inter-company account or accounts.
3. CALCULATING REBIT: REBIT for any period will mean the EBIT of Exmark
for such period (determined in the manner described above) subject to the
following adjustments:
(a) Plus the amount of the Cross-Branding REBIT Factor (as defined in
SECTION 5 hereof) for such period;
(b) Minus 100% of all cost savings realized during such period by Exmark,
determined based on Exmark's 2001 Plan, a true and complete copy of which has
been provided to Toro in the Disclosure Schedule, (i) resulting from Exmark
being a subsidiary of Toro and (ii) relating to insurance and risk management
expenses (including product liability, general liability and workers
compensation expenses), and legal, human resources, administration and floor
plan expenses (including reduced interest costs);
(c) Minus 50% of all operating cost savings realized during such period by
Exmark, determined based on Exmark's 2001 Plan (I.E., those savings affecting
Exmark's on-going operations, such as printing and transportation costs),
directly or indirectly resulting from Exmark being a subsidiary of Toro, other
than cost savings resulting from (i) reduced purchasing costs related to Exmark
becoming a part of Toro's purchasing group, (ii) changes in the senior
management compensation structure following the Merger and (iii) the cost
savings included in SECTION 3(b) hereof;
3
<PAGE>
(d) Minus 50% of all cost savings realized during such period by Exmark,
determined based on Exmark's 2001 Plan, resulting from changes in the
stand-alone status of Exmark contemplated by this Agreement; provided that,
prior to making each such change, the Synergies Council approves such change
(the parties acknowledge that only matters involving more than $10,000 will be
presented to the Synergies Council);
(e) Plus 100% of any additional costs incurred during such period by
Exmark, determined based on Exmark's 2001 Plan, resulting from changes in the
stand-alone status of Exmark contemplated by the this Agreement (E.G., an
additional cost incurred by Exmark at Toro's request for Toro's benefit);
provided that, prior to making each such change, the Synergies Council approves
such change (the parties acknowledge that only matters involving more than
$10,000 will be presented to the Synergies Council);
(f) Minus all Management Fees paid by Toro to Exmark during such period
with respect to Exmark Cross-Branded Products; and
(g) In the event Exmark does not maintain the minimum marketing and
engineering expenditure levels specified in SECTION 7.01(l) of the Agreement,
minus the difference between such minimum amount(s) and Exmark's actual
respective expenditure levels (I.E., such cost savings will not increase the
amount of either Contingent Payment).
4. CALCULATING CAGR; ADJUSTED REVENUE: For purposes of determining CAGR,
the "ADJUSTED REVENUE" of Exmark for any period will be calculated based on the
actual gross sales of Exmark for such period determined in accordance with GAAP,
but subject to the following adjustments:
(a) No gross sales of any Exmark Cross-Branded Products (including parts)
supplied to Toro during such period will be included in the gross sales of
Exmark;
(b) An amount equal to the Cross-Branding Revenue Factor (as defined in
SECTION 5 hereof) for such period will be added to the gross sales of Exmark for
such period; and
(c) No gross sales from the sale by Exmark of any Toro Supplied Products
will be included in the gross sales of Exmark.
5. CROSS-BRANDING:
(a) The "CROSS-BRANDING REVENUE FACTOR" for determining the 1998
Contingent Payment is an amount equal to (a) the aggregate sum of the number of
Toro-branded Exmark products sold by Toro in the United States or Canada
(whether manufactured by Toro or by Exmark) during the period from the Effective
Time to October 31, 1998, multiplied by (b) the applicable "Cross-Branding
Revenue Per Unit" for each such product as determined based upon Exmark's
published distributor net price for such period in the
4
<PAGE>
manner shown in APPENDIX B. The Cross-Branding Revenue Factor for determining
the 1999 Contingent Payment is an amount equal to (a) the aggregate sum of the
number of different Toro-branded Exmark products sold by Toro in the United
States or Canada (whether manufactured by Toro or by Exmark) during the
twelve-month period ending October 31, 1999, multiplied by (b) the applicable
"Cross-Branding Revenue Per Unit" for each such product as determined based upon
Exmark's published distributor net price for such period in the manner shown in
APPENDIX C. For purposes of computing the Cross-Branding Revenue Factor and the
Cross-Branding REBIT Factor, product manufactured by Exmark for Toro will be
regarded as "sold" upon shipment by Exmark to Toro.
(b) The "CROSS-BRANDING REBIT FACTOR" for determining the 1998 Contingent
Payment is an amount equal to 12.5% of the Cross-Branding Revenue Factor used to
determine the 1998 Contingent Payment as described in SECTION 5(a). The
Cross-Branding REBIT Factor for determining the 1999 Contingent Payment is an
amount equal to 10% of the Cross-Branding Revenue Factor used to determine the
1999 Contingent Payment as described in SECTION 5(a).
6. WORKING CAPITAL ADJUSTMENT: The "WORKING CAPITAL ADJUSTMENT" will be
the greater of (a) 10% of the excess, if any, of (i) the Average Working Capital
(as defined below in this SECTION 6) of Exmark during such period over (ii) 22%
of the actual cost of goods sold of Exmark during such period determined in
conformity with GAAP and (b) zero. "AVERAGE WORKING CAPITAL" of Exmark for any
period will be the average of the month-end differences between the current
assets, excluding cash, of Exmark and the current liabilities, excluding
intercompany debt and the current portion of long-term debt, of Exmark during
such period, in each case, determined in accordance with GAAP.
7. CALCULATION: Within 60 days after the end of each fiscal year during
the Contingent Payment Period, the parties shall prepare and deliver to the
Synergies Council a statement (a "CONTINGENT PAYMENT STATEMENT"), which shall
identify the gross sales, EBIT, REBIT, CAGR and Working Capital Adjustment of
Exmark for such fiscal year (including the manner of determination) in
reasonable detail and the amount of the Contingent Payment to be made with
respect to such fiscal year. All amounts used in a Contingent Payment Statement
to determine a Contingent Payment will be based on the final audited financial
statements of Toro, subject to adjustment by the Synergies Council to reflect
differences between Toro's accounting practices and those used by Exmark in its
audited financial statements for the two year period ended August 31, 1996. In
addition, upon the reasonable request of the Stockholders' Representatives, Toro
will provide quarterly or other periodic reports to the Stockholders'
Representatives, which will include estimates of the various factors included in
the Valuation Formula.
The Contingent Payment Statement shall be subject to review and
verification by the Stockholders' Representatives. Toro shall permit the
Stockholders' Representatives and their representatives to have reasonable
access to the data and information on which the
5
<PAGE>
Contingent Payment Statement was prepared and to Toro's employees and/or
representatives who assisted in its preparation.
The Stockholders' Representatives shall be deemed to have accepted the
Contingent Payment Statement and the Contingent Payment indicated therein, on
behalf of the Holders, unless within 20 days after the date of delivery of the
Contingent Payment Statement, the Stockholders' Representatives give written
notice to Toro of objection to any item thereon, which notice shall specify in
reasonable detail the basis for such objection. If the Stockholders'
Representatives give such notice of objection, Toro's Representatives and the
Stockholders' Representatives shall attempt in good faith to resolve the dispute
as promptly as possible.
If Toro's Representatives and the Stockholders' Representatives have not
been able to agree upon a resolution of the dispute within 30 days after the
date the Stockholders' Representatives gave such notice of objection, either
group of representatives shall request that the matter be reviewed by Toro's
Office of the President and if the matter is not resolved upon such review, such
dispute shall be resolved by nonbinding mediation in the jurisdiction of the
principal office of Toro within 90 days after such date. In the event such
dispute is not resolved by such mediation, such dispute shall be fully and
finally resolved by binding arbitration in the manner described in
SECTION 13.05. All negotiations pursuant to this section shall be treated as
compromise and settlement negotiations for purposes of Rule 408 of the Federal
Rules of Evidence and comparable state rules of evidence. All negotiation,
mediation and arbitration proceedings under this section shall be treated as
confidential information in accordance with the provisions of the
Confidentiality Agreement. Any mediator or arbitrator shall be bound by an
agreement containing confidentiality provisions at least as restrictive as those
contained in the Confidentiality Agreement.
6
<PAGE>
APPENDIX A
COMPOUND ANNUAL GROWTH RATE FORMULA
CAGR = [(FV/PV) 1/n - 1] * 100
Where:
FV (future value) = 1998 Sales or 1999 Sales, as applicable
PV (present value) = 1996 Sales (Base Year)
n = either 2 or 3 periods from the Base Year, as applicable
EXAMPLE OF COMPOUND ANNUAL GROWTH RATE CALCULATION
EXAMPLE 1 EXAMPLE 2
1996 Sales (Base Year) $ 40,000 $ 40,000
1997 Sales $ 45,000 $ 55,000
Annual Growth Rate 12.5% 37.5%
1998 Sales $ 60,000 $ 60,000
Annual Growth Rate 33.3% 9.1%
AVERAGE ANNUAL GROWTH RATE 22.9% 23.3%
COMPOUND ANNUAL GROWTH RATE 22.5% 22.5%
PLEASE NOTE:
In comparing Examples 1 and 2, note that Average Annual Growth Rate fluctuates
as 1997 sales fluctuate.
In calculating Compound Annual Growth Rate, the parties will consider only the
first and last relevant years' data. In the above examples, although 1997 sales
fluctuate, the Compound Annual Growth Rate does not. Another way to understand
Compound Annual Growth Rate is to determine "By what consistent percentage would
sales have to grow each year in order to attain the same dollar amount of
Sales?" In this example the answer is 22.5% ($40,000 * 1.225 = $49,000 * 1.225
= $60,025).
7
<PAGE>
APPENDIX B
<TABLE>
<CAPTION>
1998 Cannibalization Calculations
---------------------------------
Cannibalization factor 0.25 Earnings factor 0.125
Published Dist. Cross-Branding Cross-Branding
Net Price Parts % Total DN Revenue Per Unit REBIT Per Unit
--------- ------- -------- ---------------- --------------
<S> <C> <C> <C> <C> <C> <C>
WAM Gear 13/36 Koh 1320 3.5% 1386 346.50 43.31
13/36 Kaw 1320 3.5% 1386 346.50 43.31
15/48 Koh 1500 3.5% 1575 393.75 49.22
15/48 Kaw 1500 3.5% 1575 393.75 49.22
WAM Hydro 13/36 Koh 1820 3.5% 1947.4 486.85 60.86
13/36 Kaw 1820 3.5% 1947.4 486.85 60.86
15/48 Koh 2020 3.5% 2161.4 540.35 67.54
15/48 Kaw 2020 3.5% 2161.4 540.35 67.54
16/52 Van 2200 3.5% 2354 588.50 73.56
ZRT - Lazer 20/52 3900 3.5% 4212 1,053.00 131.63
25/60 4200 3.5% 4536 1,134.00 141.75
ZRT - HP 16/42 1000 3.5% 1080 270.00 33.75
18/48 2000 3.5% 2160 540.00 67.50
</TABLE>
8
<PAGE>
APPENDIX C
1999 Cannibalization Calculations
---------------------------------
<TABLE>
<CAPTION>
Cannibalization factor 0.25 Earnings factor 0.1
Published Cross-Branding Cross-Branding
Dist. Net Parts % Total DN Revenue Per Unit REBIT Per Unit
--------- ------- -------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
- WAM Gear 13/36 Koh 1320 5% 1386 346.50 34.65
13/36 Kaw 1320 5% 1386 346.50 34.65
15/48 Koh 1500 5% 1575 393.75 39.38
15/48 Kaw 1500 5% 1575 393.75 39.38
WAM Hydro 13/36 Koh 1820 3.5% 1947.4 486.85 48.69
13/36 Kaw 1820 3.5% 1947.4 486.85 48.69
15/48 Koh 2020 3.5% 2161.4 540.35 54.04
15/48 Kaw 2020 3.5% 2161.4 540.35 54.04
16/52 Vang 2200 3.5% 2354 588.50 58.85
ZRT - Lazer 20/52 3900 5% 4212 1,053.00 105.30
25/60 4200 5% 4536 1,134.00 113.40
ZRT - HP 16/42 1000 5% 1080 270.00 27.00
18/48 2000 5% 2160 540.00 54.00
</TABLE>
9
<PAGE>
EXHIBIT B
DISSENTERS' RIGHTS STATUTE
SECTION 21-20,137. Dissenters' rights; terms, defined.
For purposes of sections 21-20,137 to 21-20,150:
(1) Beneficial shareholder shall mean the person who is a
beneficial owner of shares held in a voting trust or by a nominee as
the record shareholder;
(2) Corporation shall mean the issuer of the shares held by a
dissenter before the corporate action or the surviving or acquiring
corporation by merger or share exchange of that issuer;
(3) Dissenter shall mean a shareholder who is entitled to
dissent from corporate action under section 21-20,138 and who
exercises that right when and in the manner required by sections
21-20,140 to 21-20,148;
(4) Fair value, with respect to a dissenter's shares, shall mean
the value of the shares immediately before the effectuation of the
corporate action to which the dissenter objects, excluding any
appreciation or depreciation in anticipation of the corporate action
unless exclusion would be inequitable;
(5) Interest shall mean interest from the effective date of the
corporate action until the date of payment at the rate specified in
section 45-104, as such rate may from time to time be adjusted by the
Legislature;
(6) Record shareholder shall mean the person in whose name
shares are registered in the records of a corporation or the
beneficial shareholder to the extent of the rights granted by a
nominee certificate on file with a corporation; and
(7) Shareholder shall mean the record shareholder or the
beneficial shareholder.
Source: Laws 1995, LB 109, Section 137.
SECTION 21-20,138. Right to dissent.
(1) A shareholder shall be entitled to dissent from, and obtain
payment of the fair value of his or her shares in the event of, any of
the following corporate actions:
(a) Consummation of a plan of merger to which the
corporation is a party:
(i) If shareholder approval is required for the
merger by section 21-20,130 or the articles of incorporation
and the shareholder is entitled to vote on the merger; or
B-1
<PAGE>
(ii) If the corporation is a subsidiary that is
merged with its parent under section 21-20,131;
(b) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be
acquired, if the shareholder is entitled to vote on the plan;
(c) Consummation of a sale or exchange of all, or
substantially all, of the property of the corporation other than
in the usual and regular course of business if the shareholder is
entitled to vote on the sale or exchange, including a sale in
dissolution, but not including a sale pursuant to court order or
a sale for cash pursuant to a plan by which all or substantially
all of the net proceeds of the sale will be distributed to the
shareholders within one year after the date of sale;
(d) An amendment of the articles of incorporation that
materially and adversely affects rights in respect of a
dissenter's shares because it:
(i) Alters or abolishes a preferential right of the
shares;
(ii) Creates, alters, or abolishes a right in
respect of redemption, including a provision respecting a
sinking fund for the redemption or repurchase of the shares;
(iii) Alters or abolishes a preemptive right of the
holder of the shares to acquire shares or other securities;
(iv) Excludes or limits the right of the shares to
vote on any matter, or to cumulate votes, other than a
limitation by dilution through issuance of shares or other
securities with similar voting rights; or
(v) Reduces the number of shares owned by the
shareholder to a fraction of a share if the fractional share
so created is to be acquired for cash under section 21-2038;
or
(e) Any corporate action taken pursuant to a shareholder
vote to the extent the articles of incorporation, the bylaws, or
a resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to dissent and obtain payment
for their shares.
(2) A shareholder entitled to dissent and obtain payment for his
or her shares under sections 21-20,137 to 21-20,150 may not challenge
the corporate action creating his or her entitlement unless the action
is unlawful or fraudulent with respect to the shareholder or the
corporation.
(3) The right to dissent and obtain payment under sections
21-20,137 to 21-20,150 shall not apply to the shareholders of a bank,
trust company, stock-owned savings and loan association, industrial
loan and investment company, or the holding company of any such bank,
trust company, stock-owned savings and loan association, or industrial
loan and investment company.
Source: Laws 1995, LB 109, Section 138.
B-2
<PAGE>
SECTION 21-20,139. Dissent by nominees and beneficial owners.
(1) A record shareholder may assert dissenters' rights as to
fewer than all the shares registered in his or her name only if he or
she dissents with respect to all shares beneficially owned by any one
person and notifies the corporation in writing of the name and address
of each person on whose behalf he or she asserts dissenters' rights.
The rights of a partial dissenter under this subsection shall be
determined as if the shares as to which he or she dissents and his or
her other shares were registered in the names of different
shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to
shares held on his or her behalf only if:
(a) He or she submits to the corporation the record
shareholder's written consent to the dissent not later than the
time the beneficial shareholder asserts dissenters' rights; and
(b) He or she does so with respect to all shares of which
he or she is the beneficial shareholder or over which he or she
has power to direct the vote.
Source: Laws 1995, LB 109, Section 139.
SECTION 21-20,140. Notice of dissenters' rights.
(1) If proposed corporate action creating dissenters' rights
under section 21-20,138 is submitted to a vote at a shareholders'
meeting, the meeting notice shall state that shareholders are or may
be entitled to assert dissenters' rights under sections 21-20,137 to
21-20,150 and be accompanied by a copy of such sections.
(2) If corporate action creating dissenters' rights under
section 21-20,138 is taken without a vote of shareholders, the
corporation shall notify in writing all shareholders entitled to
assert dissenters' rights that the action was taken and send those
shareholders the dissenters' notice described in section 21-20,142.
Source: Laws 1995, LB 109, Section 140.
SECTION 21-20,141. Dissenters' rights; notice of intent to demand payment.
(1) If proposed corporate action creating dissenters' rights
under section 21-20,138 is submitted to a vote at a shareholders'
meeting, a shareholder who wishes to assert dissenters' rights (a)
shall deliver to the corporation before the vote is taken written
notice of his or her intent to demand payment for his or her shares if
the proposed action is effectuated and (b) shall not vote his or her
shares in favor of the proposed action.
B-3
<PAGE>
(2) A shareholder who does not satisfy the requirements of
subsection (1) of this section shall not be entitled to payment for
his or her shares under sections 21-20,137 to 21-20,150.
Source: Laws 1995, LB 109, Section 141.
SECTION 21-20,142. Dissenters' notice.
(1) If proposed corporate action creating dissenters' rights
under section 21-20,138 is authorized at a shareholders' meeting, the
corporation shall deliver a written dissenters' notice to all
shareholders who satisfied the requirements of section 21-20,141.
(2) The dissenters' notice shall be sent no later than ten days
after the corporate action was taken and shall:
(a) State where the payment demand shall be sent and where
and when certificates for certificated shares shall be deposited;
(b) Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment
demand is received;
(c) Supply a form for demanding payment that includes the
date of the first announcement to news media or to shareholders
of the terms of the proposed corporate action and requires that
the person asserting dissenters' rights certify whether or not he
or she acquired beneficial ownership of the shares before that
date;
(d) Set a date by which the corporation shall receive the
payment demand which date may not be fewer than thirty nor more
than sixty days after the date the notice required by subsection
(1) of this section is delivered; and
(e) Be accompanied by a copy of sections 21-20,137 to
21-20,150.
Source: Laws 1995, LB 109, Section 142.
SECTION 21-20,143. Dissenters' rights; duty to demand payment.
(1) A shareholder who was sent a dissenters' notice described in
section 21-20,142 shall demand payment, certify whether he or she
acquired beneficial ownership of the shares before the date required
to be set forth in the dissenters' notice pursuant to subdivision
(2)(c) of section 21-20,142, and deposit his or her certificates in
accordance with the terms of the notice.
(2) The shareholder who demands payment and deposits his or her
shares under subsection (1) of this section shall retain all other
rights of a shareholder until such rights are canceled or modified by
the taking of the proposed corporate action.
B-4
<PAGE>
(3) A shareholder who does not demand payment or does not
deposit his or her share certificates where required, each by the date
set in the dissenters' notice, shall not be entitled to payment for
his or her shares under sections 21-20,137 to 21-20,150.
Source: Laws 1995, LB 109, Section 143.
SECTION 21-20,144. Dissenters' rights; share restrictions.
(1) The corporation may restrict the transfer of uncertificated
shares from the date the demand for their payment is received until
the proposed corporate action is taken or the restrictions are
released under section 21-20,146.
(2) The person for whom dissenters' rights are asserted as to
uncertificated shares shall retain all other rights of a shareholder
until such rights are canceled or modified by the taking of the
proposed corporate action.
Source: Laws 1995, LB 109, Section 144.
SECTION 21-20,145. Dissenters' rights; payment.
(1) Except as provided in section 21-20,147, as soon as the
proposed corporate action is taken, or upon receipt of a payment
demand, the corporation shall pay each dissenter who complied with
section 21-20,143 the amount the corporation estimates to be the fair
value of his or her shares, plus accrued interest.
(2) The payment shall be accompanied by:
(a) The corporation's balance sheet as of the end of a
fiscal year ending not more than sixteen months before the date
of payment, an income statement for that year, a statement of
changes in shareholders' equity for that year, and the latest
available interim financial statements, if any;
(b) A statement of the corporation's estimate of the fair
value of the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment
under section 21-20,148; and
(e) A copy of sections 21-20,137 to 21-20,150.
Source: Laws 1995, LB 109, Section 145.
SECTION 21-20,146. Dissenters' rights; failure to take action.
B-5
<PAGE>
(1) If the corporation does not take the proposed action within
sixty days after the date set for demanding payment and depositing
share certificates, the corporation shall return the deposited
certificates and release the transfer restrictions imposed on
uncertificated shares.
(2) If, after returning deposited certificates and releasing
transfer restrictions, the corporation takes the proposed action, it
shall send a new dissenters' notice under section 21-20,142 and repeat
the payment demand procedure.
Source: Laws 1995, LB 109, Section 146.
SECTION 21-20,147. Dissenters' rights; after-acquired shares.
(1) A corporation may elect to withhold payment required by
section 21-20,145 from a dissenter unless he or she was the beneficial
shareholder before the date set forth in the dissenters' notice as the
date of the first announcement to news media or to shareholders of the
terms of the proposed corporate action.
(2) To the extent the corporation elects to withhold payment
under subsection (1) of this section after taking the proposed
corporate action, it shall estimate the fair value of the shares, plus
accrued interest, and shall pay this amount to each dissenter who
agrees to accept it in full satisfaction of his or her demand. The
corporation shall send with its offer a statement of its estimate of
the fair value of the shares, an explanation of how the interest was
calculated, and a statement of the dissenter's right to demand payment
under section 21-20,148.
Source: Laws 1995, LB 109, Section 147.
SECTION 21-20,148. Dissenters' rights; procedure if shareholder dissatisfied
with payment or offer.
(1) A dissenter may notify the corporation in writing of his or
her own estimate of the fair value of his or her shares and amount of
interest due, and demand payment of his or her estimate, less any
payment under section 21-20,145, or reject the corporation's offer
under section 21-20,147 and demand payment of the fair value of his or
her shares and interest due if:
(a) The dissenter believes that the amount paid under
section 21-20,145 or offered under section 21-20,147 is less than
the fair value of his or her shares or that the interest due is
incorrectly calculated;
(b) The corporation fails to make payment under section
21-20,145 within sixty days after the date set for demanding
payment; or
(c) The corporation, having failed to take the proposed
action, does not return the deposited certificates or release the
transfer restrictions imposed on uncertificated shares within
sixty days after the date set for demanding payment.
B-6
<PAGE>
(2) A dissenter waives his or her right to demand payment under
this section unless he or she notifies the corporation of his or her
demand in writing under subsection (1) of this section within thirty
days after the corporation made or offered payment for his or her
shares.
Source: Laws 1995, LB 109, Section 148.
SECTION 21-20,149. Dissenters' rights; court action.
(1) If a demand for payment under section 21-20,148 remains
unsettled, the corporation shall commence a proceeding within sixty
days after receiving the payment demand and petition the court to
determine the fair value of the shares and accrued interest. If the
corporation does not commence the proceeding within the sixty-day
period, it shall pay each dissenter whose demand remains unsettled the
amount demanded.
(2) The corporation shall commence the proceeding in the
district court of the county where a corporation's principal office,
or, if none in this state, its registered office, is located. If the
corporation is a foreign corporation without a registered office in
this state, it shall commence the proceeding in the district court of
the county in this state where the registered office of the domestic
corporation merged with or whose shares were acquired by the foreign
corporation was located.
(3) The corporation shall make all dissenters, whether or not
residents of this state, whose demands remain unsettled, parties to
the proceeding as in an action against their shares and all parties
shall be served with a copy of the petition. Nonresidents may be
served by registered or certified mail or by publication as provided
by law.
(4) The jurisdiction of the court in which the proceeding is
commenced under subsection (2) of this section shall be plenary and
exclusive. The court may appoint one or more persons as appraisers to
receive evidence and recommend decision on the question of fair value.
Appraisers shall have the powers described in the order appointing
them or in any amendment to such order. The dissenters shall be
entitled to the same discovery rights as parties in other civil
proceedings.
(5) Each dissenter made a party to the proceeding shall be
entitled to judgment (a) for the amount, if any, by which the court
finds the fair value of his or her shares, plus interest, exceeds the
amount paid by the corporation or (b) for the fair value, plus accrued
interest, of his or her after-acquired shares for which the
corporation elected to withhold payment under section 21-20,147.
Source: Laws 1995, LB 109, Section 149.
SECTION 21-20,150. Dissenters' rights; court costs and attorney's fees.
(1) The court in an appraisal proceeding commenced under section
21-20,149 shall determine all costs of the proceeding, including the
reasonable compensation and
B-7
<PAGE>
expenses of appraisers appointed by the court. The court shall assess
the costs against the corporation, except that the court may assess
costs against all or some of the dissenters, in amounts the court
finds equitable, to the extent the court finds the dissenters acted
arbitrarily, vexatiously, or not in good faith in demanding payment
under section 21-20,148.
(2) The court may also assess the attorney's fees and expenses
and the fees and expenses of experts for the respective parties in
amounts the court finds equitable:
(a) Against the corporation and in favor of any or all
dissenters if the court finds the corporation did not
substantially comply with the requirements of sections 21-20,140
to 21-20,148; or
(b) Against either the corporation or a dissenter, in favor
of any other party, if the court finds that the party against
whom the fees and expenses are assessed acted arbitrarily,
vexatiously, or not in good faith with respect to the rights
provided by sections 21-20,137 to 21-20,150.
(3) If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated and
that the fees for those services should not be assessed against the
corporation, the court may award to counsel reasonable fees to be paid
out of the amounts awarded to the dissenters who were benefitted.
Source: Laws 1995, LB 109, Section 150.
B-8
<PAGE>
EXHIBIT C
[MCCARTHY & CO. LETTERHEAD]
October 23, 1997
Board of Directors
Exmark Manufacturing Co., Inc.
Industrial Park Box 748
Beatrice, NE 68310
Members of the Board:
We understand that Exmark Manufacturing Co., Inc.
("Exmark" or the "Company") and The Toro Company through EMCI Acquisition
Corp. ("Toro") intend to execute and complete an Agreement and Plan of Merger
dated as of October 23, 1997 (the "Agreement"), furnished to us on October
21, 1997 and draft dated as of October 13, 1997 which provides, among other
things, for the acquisition of Exmark by Toro. Pursuant to the Agreement,
the outstanding shares of common and preferred stock of Exmark (the "Exmark
Stock") will be acquired by Toro. The Agreement provides for total initial
consideration of $28,100,000 comprised of a combination of cash and Toro
common stock (the "Initial Payment"). The Initial Payment of $28,100,000
includes acquisition of the Holiman Company. The terms and conditions of the
Merger are more fully set out in the Agreement.
You have asked for our opinion as to whether the Merger
Consideration pursuant to the Agreement is fair from a financial point of
view to the Exmark Shareholders. The opinion expressed below does not
anticipate whether any Contingent Consideration or any of the Holdback
Amount, as those terms are defined in the Agreement, are ultimately paid to
the holders of Exmark Stock (the "Exmark Shareholders").
For purposes of the opinion set forth herein, we have:
(i) analyzed certain available financial statements and other
information of Toro and Exmark, respectively;
(ii) analyzed certain internal financial statements and other
financial and operating data concerning Exmark prepared by
the management of Exmark;
(iii) analyzed certain financial projections prepared by the
management of Exmark;
(iv) discussed the past and current operations and financial
conditions and the prospects of Exmark with senior executives
of Exmark;
(v) reviewed the reported prices and trading activity for the
Toro Common Stock;
(vi) compared the financial performance of Exmark and Toro;
(vii) reviewed the Agreement; and
(viii) performed such other analyses as we have deemed appropriate.
C-1
<PAGE>
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of Exmark.
We have not made any independent valuation or appraisal of the assets
or liabilities of Exmark, nor have we been furnished with any such appraisals.
Our opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof.
It is understood that this letter is for the information of the Board
of Directors of Exmark and does not constitute a recommendation to the Exmark
Stockholders as to the voting of their shares on the proposed merger or any
other transaction.
Based on the foregoing, we are of the opinion on the date hereof
that the Merger Consideration, even if any Contingent Payment Consideration
or any of the Holdback Amount is not received, is fair from a financial point
of view to the Exmark Stockholders.
Very truly yours,
McCarthy & Co.
By: /s/ Mark D. Hasebroock
-----------------------------
Mark D. Hasebroock
Managing Director
C-2
<PAGE>
EXHIBIT D
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended August 1, 1997 Commission File Number 1-8649
--------------- --------
THE TORO COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 41-0580470
(State of Incorporation) (I.R.S. Employer Identification Number)
8111 LYNDALE AVENUE SOUTH
BLOOMINGTON, MINNESOTA 55420
TELEPHONE NUMBER: (612) 888-8801
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
------ -------
The number of shares of Common Stock outstanding as of August 29, 1997 was
12,115,415.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
THE TORO COMPANY
INDEX TO FORM 10-Q
Page Number
-----------
PART I. FINANCIAL INFORMATION:
Condensed Consolidated Statements of Earnings and
Retained Earnings -
Three and Nine Months Ended
August 1, 1997 and August 2, 1996. . . . . . . . . . . . . . .3
Condensed Consolidated Balance Sheets -
August 1, 1997, August 2, 1996 and October 31, 1996. . . . . .4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended August 1, 1997 and August 2, 1996. . . . . .5
Notes to Condensed Consolidated Financial Statements. . . . . .6-9
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . .10-14
PART II. OTHER INFORMATION:
Item 6 Exhibits and Reports on Form 8-K. . . . . . . . . . . . 15
Exhibit 11 Computation of Earnings Per Common Share. . . . . . 16
2
<PAGE>
PART I. FINANCIAL INFORMATION
THE TORO COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------ ------------------------
August 1, August 2, August 1, August 2,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . . . $ 249,274 $ 232,565 $ 810,434 $ 732,712
Cost of sales. . . . . . . . . . . . . . . . . . . . . 156,879 146,681 517,695 466,689
--------- --------- --------- ---------
Gross profit . . . . . . . . . . . . . . . . . . . . 92,395 85,884 292,739 266,023
Selling, general and administrative
expense. . . . . . . . . . . . . . . . . . . . . . . 73,626 72,909 231,255 210,273
--------- --------- --------- ---------
Earnings from operations . . . . . . . . . . . . . . 18,769 12,975 61,484 55,750
Interest expense . . . . . . . . . . . . . . . . . . . 5,476 3,755 15,408 10,858
Other income, net. . . . . . . . . . . . . . . . . . . (3,151) (1,489) (5,957) (7,642)
--------- --------- --------- ---------
Earnings before income taxes . . . . . . . . . . . . 16,444 10,709 52,033 52,534
Provision for income taxes . . . . . . . . . . . . . . 6,495 4,244 20,553 20,751
--------- --------- --------- ---------
Net earnings before extraordinary loss . . . . . . . 9,949 6,465 31,480 31,783
Extraordinary loss, net of income tax benefit of
$1,087 . . . . . . . . . . . . . . . . . . . . . . . (1,663) - (1,663) -
--------- --------- --------- ---------
Net earnings . . . . . . . . . . . . . . . . . . . . $ 8,286 $ 6,465 $ 29,817 $ 31,783
--------- --------- --------- ---------
--------- --------- --------- ---------
Retained earnings at beginning of period . . . . . . . 192,276 165,274 173,630 142,891
Other . . . . . . . . . . . . . . . . . . . . . . . . - 164 - 164
Dividends on common stock of $0.12, $0.12,
$0.36 and $0.36 per share, respectively. . . . . . . (1,452) (1,458) (4,337) (4,393)
--------- --------- --------- ---------
Retained earnings at end of period . . . . . . . . . . $ 199,110 $ 170,445 $ 199,110 $ 170,445
--------- --------- --------- ---------
--------- --------- --------- ---------
Net earnings per share of common stock and
common stock equivalent before extraordinary
loss . . . . . . . . . . . . . . . . . . . . . . . . .80 .52 2.53 2.52
Extraordinary loss, net of income tax benefit. . . . . (.13) - (.13) -
--------- --------- --------- ---------
Net earnings per share of common stock and
common stock equivalent. . . . . . . . . . . . . . . $ .67 $ .52 $ 2.40 $ 2.52
--------- --------- --------- ---------
--------- --------- --------- ---------
Net earnings per share of common stock and
common stock equivalent -
assuming full dilution before extraordinary
loss . . . . . . . . . . . . . . . . . . . . . . . . .80 .52 2.52 2.52
Extraordinary loss, net of income tax benefit. . . . . (.13) - (.13) -
--------- --------- --------- ---------
Net earnings per share of common stock and
common stock equivalent -
assuming full dilution . . . . . . . . . . . . . . . $ .67 $ .52 $ 2.39 $ 2.52
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
THE TORO COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
August 1, August 2, October 31,
1997 1996 1996
---------- ----------- ------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . $ 4 $ 1,151 $ 66
Receivables, net . . . . . . . . . . . . . . . . . . . . . . . . 308,234 265,772 239,637
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . 161,825 143,339 130,288
Other current assets . . . . . . . . . . . . . . . . . . . . . . 39,285 34,370 35,010
-------- -------- --------
Total current assets. . . . . . . . . . . . . . . . . . . . 509,348 444,632 405,001
-------- -------- --------
Property, plant and equipment. . . . . . . . . . . . . . . . . . 322,708 220,443 229,080
Less accumulated depreciation and amortization. . . . . . . 206,105 151,626 155,270
-------- -------- --------
116,603 68,817 73,810
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 79,019 18,481 18,066
-------- -------- --------
Total assets. . . . . . . . . . . . . . . . . . . . . . . . $704,970 $531,930 $496,877
-------- -------- --------
-------- -------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt. . . . . . . . . . . . . . . . $ 365 $ 373 $ 350
Short-term borrowing . . . . . . . . . . . . . . . . . . . . . . 95,000 83,600 41,025
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . 46,531 26,160 43,524
Other accrued liabilities. . . . . . . . . . . . . . . . . . . . 146,358 136,603 122,958
-------- -------- --------
Total current liabilities . . . . . . . . . . . . . . . . . 288,254 246,736 207,857
-------- -------- --------
Long-term debt, less current portion . . . . . . . . . . . . . . 177,650 53,046 53,015
Other long-term liabilities. . . . . . . . . . . . . . . . . . . 5,399 22,586 22,438
Common stockholders' equity:
Common stock par value $1.00,
authorized 35,000,000 shares; issued and
outstanding 12,112,310 shares at August 1,
1997 (net of 797,694 treasury shares),
11,990,873 shares at August 2, 1996
(net of 919,131 treasury shares), and
12,032,143 shares at October 31, 1996 (net
of 877,861 treasury shares) . . . . . . . . . . . . . . . . 12,112 11,991 12,032
Additional paid-in capital. . . . . . . . . . . . . . . . . . 28,241 27,817 28,462
Retained earnings . . . . . . . . . . . . . . . . . . . . . . 199,110 170,445 173,630
Foreign currency translation adjustment . . . . . . . . . . . (5,796) (691) (557)
-------- -------- --------
Total common stockholders' equity . . . . . . . . . . . . . . 233,667 209,562 213,567
-------- -------- --------
Total liabilities and common stockholders' equity . . . . . $704,970 $531,930 $496,877
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
THE TORO COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------
August 1, August 2,
1997 1996
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings. . .. . . . . . . . . . . . . . . . . . . . . . . . $ 29,817 $ 31,783
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Extraordinary loss on early extinguishment of debt . . . . . . 1,663 -
Provision for depreciation and amortization. . . . . . . . . . 16,675 13,228
Gain on disposal of property, plant and equipment. . . . . . . (70) (176)
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . 1,528 -
Tax benefits related to employee stock option
transactions . . . . . . . . . . . . . . . . . . . . . . . . 1,224 1,490
Changes in operating assets and liabilities:
Receivables, net. . . . . . . . . . . . . . . . . . . . . . (43,488) (66,956)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . (747) 2,523
Other current assets. . . . . . . . . . . . . . . . . . . . (3,606) (491)
Accounts payable and accrued expenses . . . . . . . . . . . 7,601 (1,502)
--------- ---------
Net cash provided by (used in) operating
activities . . . . . . . . . . . . . . . . . . . . . . . 10,597 (20,101)
--------- ---------
Cash flows from investing activities:
Purchases of property, plant and equipment . . . . . . . . . . (24,729) (11,655)
Proceeds from asset disposals. . . . . . . . . . . . . . . . . 1,160 439
Change in other assets/liabilities . . . . . . . . . . . . . . (7,877) (2,740)
Acquisition of James Hardie Irrigation, net of
cash acquired . . . . . . . . . . . . . . . . . . . . . . . (117,622) -
--------- ---------
Net cash used in investing activities . . . . . . . . . . (149,068) (13,956)
--------- ---------
Cash flows from financing activities:
Increase in short-term borrowing . . . . . . . . . . . . . . . 53,975 42,025
Proceeds from issuance of long-term debt . . . . . . . . . . . 175,000 -
Repayments of long-term debt . . . . . . . . . . . . . . . . . (50,350) (15,280)
Payment of debt issue costs and prepayment penalty . . . . . . (5,625) -
Payments for termination of interest rate swaps. . . . . . . . (23,650) -
Proceeds from forward-starting interest rate swap. . . . . . . - 15,363
Proceeds from sale of common stock . . . . . . . . . . . . . . 6,587 3,673
Purchases of common stock. . . . . . . . . . . . . . . . . . . (7,952) (13,071)
Dividends on common stock. . . . . . . . . . . . . . . . . . . (4,337) (4,393)
--------- ---------
Net cash provided by financing activities . . . . . . . . 143,648 28,317
--------- ---------
Foreign currency translation adjustment. . . . . . . . . . . . . (5,239) (811)
--------- ---------
Net decrease in cash and cash equivalents. . . . . . . . . . . . (62) (6,551)
Cash and cash equivalents at beginning of period . . . . . . . . 66 7,702
--------- ---------
Cash and cash equivalents at end of period . . . . . . . . . . . $ 4 $ 1,151
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
THE TORO COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
AUGUST 1, 1997
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and do not
include all the information and notes required by generally accepted
accounting principles for complete financial statements. Unless the
context indicates otherwise, the terms "company" and "Toro" refer to The
Toro Company and its subsidiaries. In the opinion of management, the
unaudited condensed consolidated financial statements include all
adjustments, consisting primarily of recurring accruals, considered
necessary for a fair presentation of the financial position and the results
of operations. Since the company's business is seasonal, operating results
for the nine months ended August 1, 1997 are not necessarily indicative of
the results that may be expected for the year ended October 31, 1997.
For further information, refer to the consolidated financial statements and
notes included in the company's Annual Report on Form 10-K for the year
ended October 31, 1996. The policies described in that report are used for
preparing quarterly reports.
INVENTORIES
The majority of inventories are valued at the lower of net realizable value
or cost with cost determined by the last-in, first-out (LIFO) method. Had
the first-in, first-out (FIFO) method of cost determination been used,
inventories would have been $25,642,000 and $24,841,000 higher than
reported at August 1, 1997, and August 2, 1996, respectively. Under the
FIFO method, work-in-process inventories were $72,008,000 and $68,952,000
and finished goods inventories were $115,459,000 and $99,228,000 at
August 1, 1997, and August 2, 1996, respectively.
LONG-TERM DEBT
In June 1997, the company issued $175.0 million of debt securities
consisting of $75.0 million of 7.125 % coupon 10-year Notes and $100.0
million of 7.80 % 30-year Debentures. The proceeds from the debt
securities issued were used in part to repay short-term indebtedness, which
was primarily related to the acquisition of the James Hardie Irrigation
Group, and to redeem on August 1, 1997, the company's $50.0 million
principal amount of 11 % Sinking Fund Debentures. The company paid a
prepayment penalty of approximately $2.8 million for the early retirement
of the Debentures. This penalty is reported in the condensed consolidated
statement of earnings as an extraordinary loss, net of the related income
tax benefit.
In connection with the issuance of the $175.0 million in long-term debt
securities, the company paid $23.7 million to terminate three
forward-starting interest rate swap agreements with notational amounts
totaling $125.0 million. These swap agreements had been entered into to
reduce exposure to interest rate risk prior to the issuance of the new
long-term debt securities. At the inception of one of the swap agreements,
the company had received payments which were recorded as deferred income to
be recognized as an adjustment to interest expense over the term of the new
debt securities. At the date the swaps were terminated, this deferred
income totaled $18.7 million. The excess of the termination fees over the
deferred income recorded has been deferred and is being recognized as an
adjustment to interest expense over the term of the new debt securities
issued.
6
<PAGE>
DERIVATIVE FINANCIAL INSTRUMENTS
A portion of the company's sales and purchases are denominated in foreign
currencies. The company enters into forward exchange and range forward
option contracts to reduce exposure to foreign currency exchange risk.
These contracts are designated to hedge firm anticipated foreign currency
transactions. Gains and losses on foreign currency contracts are deferred
and recognized upon settlement of the underlying hedged transaction.
As discussed under the "Long-term Debt" caption in these notes to the
condensed consolidated financial statements, the company entered into
interest rate exchange or swap agreements to hedge interest rate exposure
on the anticipated issuance of new long-term debt securities. The net loss
on these swap agreements has been deferred and is being amortized as an
adjustment to interest expense over the term of the debt securities. In
June 1997, the company terminated all of its outstanding interest rate
exchange agreements upon the issuance of the new long-term debt
securities.
BUSINESS ACQUISITIONS
Effective December 1, 1996, The Toro Company acquired the James Hardie
Irrigation Group ("Hardie") from James Hardie Industries Limited under an
agreement dated September 18, 1996. The initial purchase price pursuant to
the agreement was estimated to be $131,500,000. The purchase price was
subsequently adjusted to $119,125,000 based on estimated, unaudited
aggregate shareholders' equity of Hardie on December 1, 1996, subject to
further adjustment based on final audit results.
Based on the financial statements of Hardie as of the acquisition date,
shareholders' equity at the acquisition date was approximately $10,545,000
less than the estimated equity used as the closing date purchase price, and
this $10,545,000 is to be returned from James Hardie Industries Limited to
Toro. In addition, under the procedures established in the purchase
agreement, Toro has delivered a letter of objections to James Hardie
Industries Limited related to the valuation of assets, accounting methods
applied, estimates used and other items. The resolution of these
objections may result in an additional reduction of the purchase price.
The acquisition is accounted for using the purchase accounting method and,
accordingly, the adjusted purchase price of $108,580,000 has initially been
allocated based on the estimated fair values of assets acquired and
liabilities assumed on the date of acquisition. The excess of the purchase
price over the estimated fair value of net tangible assets acquired has
been recorded as goodwill and is being amortized on a straight-line basis
over 20 years. Any additional reductions in the purchase price as a result
of resolution of the objections discussed in the preceding paragraph will
result in a reduction of goodwill and/or other net assets. The related
effect of these adjustments on the Consolidated Statement of Earnings of
The Toro Company is not expected to be material.
The following unaudited pro forma information presents a summary of
consolidated results of operations of the company and Hardie as if the
acquisition had occurred at the beginning of fiscal 1996, with pro forma
adjustments to give effect to amortization of goodwill, interest expense on
acquisition debt and certain other adjustments, together with the related
income tax effects.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
Aug 1, Aug 2, Aug 1, Aug 2,
(Dollars in thousands, except per share data) 1997 1996 1997 1996
---------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 249,274 $ 267,774 $ 824,600 $ 842,793
Net earnings before extraordinary loss 9,949 5,634 29,783 28,283
Extraordinary loss, net of income tax benefit (1,663) - (1,663) -
----------- ---------- ----------- ----------
Net earnings $ 8,286 $ 5,634 $ 28,120 $ 28,283
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
Primary earnings per share before extraordinary loss $ 0.80 $ 0.45 $ 2.39 $ 2.24
Extraordinary loss, net of income tax benefit (0.13) - (0.13) -
----------- ---------- ----------- ----------
Primary earnings per share $ 0.67 $ 0.45 $ 2.26 $ 2.24
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
</TABLE>
7
<PAGE>
BUSINESS ACQUISITIONS (CONTINUED)
On June 4, 1997, the company announced that it had signed a letter of
intent to acquire Exmark Manufacturing Company, Inc., a leading
manufacturer of equipment for the professional landscape contractor
industry. Exmark is headquartered in Beatrice, Nebraska, and produces
mid-sized walk-behind mowers and zero-turning-radius riding mowers for
professional contractors. Exmark employs approximately 190 people in a
164,000 square foot facility and had sales of $38.4 million for the fiscal
year ended August 31, 1996. Consummation of the acquisition is subject to
preparation and execution of a definitive agreement, approval by Exmark's
shareholders and regulatory approvals. Management believes that the
consideration to be paid by the company will not have a material impact on
the financial condition of the company.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share," which establishes new standards for computing and presenting
earnings per share information. The company will be required to adopt the
new standard beginning in the first quarter of fiscal 1998; earlier
application is not permitted. Prior period information is required to be
restated to conform with the requirements of the new standard. Pro forma
earnings per share for the three and nine month periods ended August 1,
1997 and August 2, 1996 as computed under SFAS No. 128 are as follows:
<TABLE>
<CAPTION>
Pro forma EPS Pro forma EPS
Three months ended Nine months ended
-----------------------------------------------------
August 1, August 2, August 1, August 2,
1997 1996 1997 1996
-----------------------------------------------------
<S> <C> <C> <C> <C>
Basic earnings per share, before extraordinary loss $ 0.83 $ 0.53 $ 2.61 $ 2.61
Extraordinary loss, net of income tax benefit (0.14) - (0.14) -
------ ------ ------ ------
Basic earnings per share $ 0.69 $ 0.53 $ 2.47 $ 2.61
------ ------ ------ ------
------ ------ ------ ------
Diluted earnings per share, before extraordinary loss $ 0.80 $ 0.52 $ 2.53 $ 2.52
Extraordinary loss, net of income tax benefit (0.13) - (0.13) -
------ ------ ------ ------
Diluted earnings per share $ 0.67 $ 0.52 $ 2.40 $ 2.52
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
8
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
Also in February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129, "Disclosure of Information about Capital Structure,"
(SFAS 129) which consolidates existing requirements regarding capital
structure. SFAS 129 will be required to be adopted in the first quarter of
fiscal 1998, and is not expected to have a material impact on the company's
current capital structure disclosures.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, " Reporting Comprehensive Income," (SFAS 130) and Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information," (SFAS 131).
SFAS 130 establishes standards for reporting and displaying the components
of comprehensive income and the accumulated balance of other comprehensive
income within total stockholders' equity. The company is required to adopt
SFAS 130 beginning in the second quarter of fiscal 1998, with
reclassification of prior period information for comparative purposes
required. The adoption of SFAS 130 will require additional disclosures,
but is not expected to have a material impact on the company's consolidated
financial statements.
SFAS 131 requires disclosure of selected information about operating
segments including segment income, revenues and asset data, as well as
descriptive information about how operating segments are determined and the
products and services provided by the segments. Generally, financial
information will be required to be reported on the same basis that it is
used internally for evaluating segment performance and deciding how to
allocate resources to segments. The company will be required to adopt SFAS
131 beginning with its 1999 fiscal year end annual report. The adoption of
SFAS 131 will require additional disclosures but is not expected to have a
material impact on the company's consolidated financial statements.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. In addition, forward-looking statements may be made
orally in the future by or on behalf of the company.
Forward-looking statements involve risks and uncertainties, including, but
not limited to, changes in business conditions and the economy in general in
both foreign and domestic markets; weather conditions affecting demand;
seasonal factors affecting the company's industry; lack of growth in the
company's markets; litigation; financial market changes including interest
rates and foreign exchange rates; trend factors including housing starts, new
golf course starts and market demographics; government actions including
budget levels, regulation, and legislation, primarily legislation relating to
the environment, commerce and infrastructure, and health and safety; labor
relations; availability of materials; actions of competitors; ability to
integrate acquisitions; and the company's ability to profitably develop,
manufacture and sell both new and existing products. Actual results could
differ materially from those projected in the forward-looking statements as a
result of these risk factors, and should not be relied upon as a prediction
of actual future results. Further, Toro undertakes no obligation to update
any forward-looking statement to reflect events or circumstances after the
date on which such statement is made, or to reflect the occurrence of
unanticipated events.
RESULTS OF OPERATIONS
Third quarter net earnings before the effect of an extraordinary loss rose
53.9% to $9.9 million from the net earnings of $6.5 million for the same
period in the previous year. Earnings per share before the effect of an
extraordinary loss for the third quarter improved 53.8% to $0.80 from $0.52
in the previous period. An extraordinary loss on the prepayment of $50.0
million of 11% Debentures was recognized in the third quarter of fiscal 1997,
reducing net earnings for the third quarter to $8.3 million or $0.67 per
share. The prepayment was part of an overall debt restructuring (See
"Liquidity and Capital Resources"). Net sales increased from $232.6 million
in the third quarter of 1996 to $249.3 million in the third quarter of 1997,
as a result of factors discussed in the following paragraphs.
For the nine months ended August 1, 1997 net sales increased from the same
period in 1996 by $77.7 million or 10.6%. Net earnings before the extraordinary
loss for the nine months ended August 1, 1997 were $31.5 million as compared to
$31.8 million for the same period last year.
In both fiscal 1996 and 1997 the spring mowing season was late and wet in many
key markets. In fiscal 1997 these unpredictable weather patterns heightened a
conservative buying attitude among dealers and distributors. The company
continues to focus on more efficient asset management, the integration of the
Hardie acquisition, and other new strategic alliances and acquisitions to
promote further diversification and growth.
The following table sets forth net sales by product line.
Three Months Ended
-------------------------------------
(Dollars in thousands) August 1, August 2,
1997 1996 $ CHANGE % CHANGE
--------- ---------- -------- --------
Consumer products. . . . . . . . . . $ 81,888 $102,290 $(20,402) (19.9)%
Commercial products. . . . . . . . . 89,832 84,828 5,004 5.9
Irrigation products. . . . . . . . . 77,554 45,447 32,107 70.6
-------- -------- --------
Total *. . . . . . . . . . . . . $249,274 $232,565 $ 16,709 7.2%
-------- -------- --------
-------- -------- --------
* Includes international sales of: . $ 48,972 $ 43,238 $ 5,734 13.3%
10
<PAGE>
Nine Months Ended
-------------------------------------
(Dollars in thousands) August 1, August 2,
1997 1996 $ Change % Change
--------- ---------- -------- --------
Consumer products. . . . . . . . . . $303,443 $342,722 $(39,279) (11.5)%
Commercial products. . . . . . . . . 289,819 271,684 18,135 6.7
Irrigation products. . . . . . . . . 217,172 118,306 98,866 83.6
-------- -------- --------
Total *. . . . . . . . . . . . $810,434 $732,712 $ 77,722 10.6%
-------- -------- --------
-------- -------- --------
* Includes international sales of: $184,952 $146,996 $ 37,956 25.8%
CONSUMER PRODUCT SALES
Worldwide net sales of consumer products for the three and nine months ended
August 1, 1997 declined by $20.4 million and $39.3 million, respectively,
compared to the same periods in the previous year. Early season snowthrower
sales in the third quarter of fiscal 1996 were unusually high as dealers
replenished abnormally low inventory levels. This, combined with lower than
expected sales of mowing products due to poor weather conditions and
conservative buying patterns among dealers caused a decline in consumer product
sales for the three and nine month periods as compared to the previous year.
International consumer product net sales for the three months ended August 1,
1997 increased from $11.5 million to $12.6 million and from $45.8 million to
$49.4 million for the nine months ended August 1, 1997 as new products were
introduced in both Europe and Canada.
COMMERCIAL PRODUCT SALES
Worldwide commercial product net sales for the three months ended August 1,
1997 were $89.8 million compared to $84.8 million in the same period in the
prior year. Net sales for the nine months ended August 1, 1997 increased by
6.7% to $289.8 million compared to $271.7 million in the same period in the
prior year. Despite strong competition, sales of equipment to golf courses
did well, reflecting the continued growth of the golf market. Several new
product introductions in the second quarter also reinforced sales.
International commercial product net sales decreased to $17.6 million for the
three months ended August 1, 1997 from $23.9 million in the prior year due to
continued inclement weather in Europe. Net sales were flat at $79.8 million
for the nine months ended August 1, 1997. Sales weakened due to generally
weak economic conditions in Europe.
IRRIGATION PRODUCT SALES
Worldwide irrigation product net sales rose 70.6% from $45.4 million in the
same three month period last year to $77.6 million in the current year. Net
sales for the nine months ended August 1, 1997 were $217.2 million compared
to $118.3 million in the same period in the prior year. This increase is
almost entirely attributable to the acquisition of Hardie.
International irrigation product net sales, excluding Hardie sales, increased
by 8.4% for the third quarter and 4.1% for the first nine months of fiscal
1997, as compared to the corresponding period in the prior year.
11
<PAGE>
GROSS PROFIT
Gross profit was $92.4 million and $292.7 million for the three and nine months
ended August 1, 1997, respectively, an increase of $6.5 million and $26.7
million from the three and nine months ended August 2, 1996, respectively. As a
percent of sales, gross profit for the three month period ended August 1, 1997
was 37.1% compared with 36.9% for the same period in 1996 and 36.1% for the nine
months ended August 1, 1997 versus 36.3% for the same period in 1996. The lower
gross margin for the nine month period was primarily due to the effect of lower
margins contributed by Hardie product sales. For the three month period, the
impact of lower Hardie gross margins was offset by production efficiencies.
Selling, General and Administrative Expense
(Dollars in millions)
<TABLE>
<CAPTION>
3 Months 3 Months 9 Months 9 Months
Ended Ended Ended Ended
- ------------------------------------------------------------------------------------------------------------------------------
Aug 1, % of Net Aug 2, % of Net Aug 1, % of Net Aug 2, % of Net
S G & A 1997 Sales 1996 Sales 1997 Sales 1996 Sales
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Administrative $ 23.8 9.5% $ 25.6 11.0% $ 74.4 9.2% $69.7 9.5%
Sales and Marketing 22.4 9.0 22.8 9.8 78.7 9.7 67.5 9.2
Warranty 9.0 3.6 7.3 3.1 23.6 2.9 24.7 3.4
Distributor/Dealer
Financing 2.8 1.1 2.7 1.2 8.2 1.0 7.9 1.1
Research and
Development 8.8 3.5 8.3 3.6 25.7 3.2 22.9 3.1
Warehousing 4.7 1.9 3.9 1.7 13.7 1.7 11.6 1.6
Service/Quality
Assurance 2.1 0.9 2.3 0.9 7.0 0.8 6.0 0.8
--- --- --- --- --- --- --- ---
Total $ 73.6 29.5% $ 72.9 31.3% $231.3 28.5% $ 210.3 28.7%
</TABLE>
Selling, general and administrative expense (SG&A) for the three months ended
August 1, 1997 increased $0.7 million from the prior year, and as a percent of
sales decreased to 29.5% from 31.3% for the same period in fiscal 1996. Hardie
added $8.3 million in SG&A expense during the third quarter of fiscal 1997.
SG&A expense for the nine months ended August 1, 1997 increased $21.0 million
from the prior year, including Hardie's SG&A expense of $24.3 million, and as a
percent of sales decreased to 28.5% from 28.7% for the same period in fiscal
1996. Administrative expenses, net of Hardie, decreased $4.8 million for the
quarter and $3.0 million for the nine months ended August 1, 1997 due mainly to
cost containment efforts. Sales and marketing expenses, net of Hardie,
decreased by $3.4 million for the quarter due to both reduced sales and
reductions in spending for marketing programs and increased $1.7 million for the
nine months ended August 1, 1997 due primarily to increased promotional costs of
new products for the landscape contractor group. Warranty expense, net of
Hardie, increased $1.4 million for the quarter due to an adjustment to the
warranty accrual rate based upon higher than anticipated claims and decreased
$2.3 million for the nine months ended August 1, 1997 due primarily to reduced
consumer product sales. Research and development, net of Hardie, was flat for
both the three month and the nine month periods ended August 1, 1997.
Service/quality assurance, net of Hardie, declined due to lower sales volume in
this three month period in fiscal 1997 versus the same period in fiscal 1996.
Warehousing expenses, net of Hardie, were flat for the three month period and
down slightly for the nine month period. Distributor/dealer financing was flat
as compared to the same period in fiscal 1996.
12
<PAGE>
FINANCIAL POSITION AS OF AUGUST 1, 1997
August 1, 1997 COMPARED TO OCTOBER 31, 1996
Total assets at August 1, 1997 were $705.0 million, up $208.1 million from
October 31, 1996. Hardie accounted for approximately $149.1 million of this
increase. Net accounts receivable, net of Hardie, increased by $22.4 million
from October 31, 1996. Historically, the highest sales volumes and receivables
occur starting in March and ending in May. The accounts receivable balance
declines over the following months as payments under the company's extended
payment plans become due. Inventory, net of Hardie, increased by $6.1 million
primarily as a result of the normal buildup of consumer snow products
manufactured in the third quarter of the year. Net property, plant and
equipment increased from $73.8 million to $116.6 million due to the addition of
Hardie net property, plant and equipment of $29.5 million, the expansion of the
corporate headquarters and various tooling projects. Other assets, net of the
effect of the Hardie acquisition, increased due to the acquisition of marketing
rights to a central irrigation system for the large turf irrigation market, and
capitalized costs related to the issuance of public debt securities(See
"Liquidity and Capital Resources").
Total current liabilities of $288.3 million at August 1, 1997 increased $80.4
million compared with current liabilities at October 31, 1996. The majority of
this increase was the result of additional short-term borrowings of $54.0
million reflecting the company's strategy of utilizing short-term borrowing to
fund the company's seasonal working capital needs. Long-term debt increased
from October 31, 1996 to August 1, 1997 as a result of the issuance of $175.0
million of debt securities which were used to redeem $50.0 million of 11%
Debentures and as long-term funding for the purchase of Hardie. Other accrued
liabilities increased primarily as a result of expenses related to the
acquisition of Hardie. Other long-term liabilities decreased by approximately
$17.0 million due primarily to the termination of a forward-starting interest
rate contract initiated as a hedge against interest rate fluctuations prior to
the issuance of $175.0 million in public debt securities during the third
quarter of fiscal 1997.
AUGUST 1, 1997 COMPARED TO AUGUST 2, 1996
Total assets at August 1, 1997 were $705.0 million, up $173.0 million from
August 2, 1996. Of this increase, Hardie accounted for $149.1 million. Cash,
net of Hardie, decreased from the prior period as the result of improved asset
management policies. Accounts receivable, net, increased by $42.5 million, with
$46.2 million in net receivables attributable to Hardie. Inventory balances,
net of Hardie inventories of approximately $25.5 million, declined by $7.0
million due to asset management strategies which match production more closely
with retail demand and result in lower overall inventory levels. Both accounts
receivable and inventory were also impacted by reduced sales in this current
quarter as compared to the prior quarter, net of Hardie. Net property, plant
and equipment, increased by approximately $47.8 million, with $29.5 million of
this increase related to Hardie and the remaining increase related to the
corporate headquarters expansion and tooling projects. Other assets increased
by $60.5 million with Hardie accounting for $45.9 million. The remainder of the
increase was the result of the purchase of patents, the purchase of property for
possible future corporate expansion, and those additions in the current fiscal
year identified above.
Total current liabilities of $288.3 million at August 1, 1997 increased $41.5
million compared with current liabilities at August 2, 1996. Short-term
borrowing increased by $11.4 million over the prior year due primarily to the
financing of working capital needs of Hardie and payables and accruals of
Hardie. Other accrued liabilities increased by $9.8 million, primarily as a
result of expenses related to the Hardie acquisition and Hardie accrued
liabilities acquired. Long-term debt and other long-term liabilities increased
over the prior period as identified above.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The primary use of cash during the first nine months of fiscal 1997 was
$117.6 million used for the acquisition of Hardie. The purchase price was
initially funded with temporary bank debt. The company issued $175.0 million
of long-term debt securities in June 1997 and used a portion of the net
proceeds received from the sale of the securities to repay short-term
indebtedness to banks. The balance of the net proceeds was used to redeem
the company's $50.0 million principal amount of outstanding 11% Sinking Fund
Debentures. In connection with the issuance of the $175.0 million in
long-term debt securities, the company paid $23.7 million to terminate three
forward-starting interest rate swap agreements with notational amounts
totaling $125.0 million. These swap agreements had been entered into to
reduce interest rate risk prior to the issuance of the new long-term debt
securities. At the inception of one of the swap agreements, the company had
received payments which were recorded as deferred income to be recognized as
an adjustment to interest expense over the term of the new debt securities.
At the date the swaps were terminated, this deferred income totaled $18.7
million. The excess of the termination fees over the deferred income
recorded has been deferred and is being recognized as an adjustment to
interest expense over the term of the new debt securities issued.
Cash used in operating activities for the first nine months of fiscal 1997
was primarily for the seasonal increase in accounts receivable. The
company's working capital needs are funded with $190.0 million of unsecured
bank credit lines. The company also has banker's acceptance financing
agreements under which an additional $40.0 million is available. The
company's business is seasonal, with peak borrowing under these working
capital lines generally occurring between February and May each year.
Management believes that the combination of funds available through its
existing financing arrangements, coupled with forecasted cash flows, will
provide the capital resources for its anticipated needs.
INFLATION
The company is subject to the effects of changing prices. The company has,
however, generally been able to pass along inflationary increases in its
costs by increasing the prices of its products.
14
<PAGE>
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibit 11 Computation of Earnings per Common Share
(b) Exhibit 27 Financial Data Schedule
Summarized financial data; electronic filing only.
(c) Reports on Form 8-K
On February 18, 1997, the company filed Amendment No. 1 to its Current
Report on Form 8-K dated December 16, 1996 on Form 8-K/A providing
financial information for the business acquired and pro forma
financial information related to the acquisition of the James Hardie
Irrigation Group.
On June 6, 1997, the company filed Amendment No. 2 to its Current
Report on Form 8-K dated December 16, 1996 on Form 8-K/A providing
financial information for the business acquired and pro forma
financial information related to the acquisition of the James Hardie
Irrigation Group which supersedes the information provided in
Amendment No. 1 referenced in the previous paragraph.
On June 27, 1997, the company filed its Current Report on Form 8-K
dated June 24, 1997 reporting the closing of its public offering of
$175.0 million of Notes and Debentures.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE TORO COMPANY
(Registrant)
By /s/ Stephen P. Wolfe
---------------------------
Stephen P. Wolfe
Vice President, Finance
Chief Financial Officer
(principal financial officer)
Date: September 10, 1997
15
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the Quarterly Period Ended May 2, 1997 Commission File Number 1-8649
----------- ------
THE TORO COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 41-0580470
(State of Incorporation) (I.R.S. Employer Identification Number)
8111 LYNDALE AVENUE SOUTH
BLOOMINGTON, MINNESOTA 55420
TELEPHONE NUMBER: (612) 888-8801
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The number of shares of Common Stock outstanding as of May 30, 1997 was
12,076,474.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE TORO COMPANY
INDEX TO FORM 10-Q
Page Number
-----------
PART I. FINANCIAL INFORMATION:
Condensed Consolidated Statements of Earnings and
Retained Earnings -
Three and Six Months Ended
May 2, 1997 and May 3, 1996 . . . . . . . . . . . . . . . . .3
Condensed Consolidated Balance Sheets -
May 2, 1997, May 3, 1996 and October 31, 1996 . . . . . . . .4
Condensed Consolidated Statements of Cash Flows -
Six Months Ended May 2, 1997 and May 3, 1996. . . . . . . . .5
Notes to Condensed Consolidated Financial Statements . . . . .6-7
Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . 8-12
PART II. OTHER INFORMATION:
Item 4 Results of Votes of Security Holders . . . . . . . . . 13
Item 6 Exhibits and Reports on Form 8-K . . . . . . . . . . . 13
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Exhibit 11 Computation of Earnings Per Common Share . . . . . 15
2
<PAGE>
PART I. FINANCIAL INFORMATION
THE TORO COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------- -------------------------
May 2, May 3, May 2, May 3,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . $ 352,203 $ 288,646 $ 561,160 $ 500,147
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . 227,086 184,836 360,816 320,008
---------- ---------- ---------- ----------
Gross profit. . . . . . . . . . . . . . . . . . . . . . 125,117 103,810 200,344 180,139
Selling, general and administrative
expense . . . . . . . . . . . . . . . . . . . . . . . . 89,160 73,540 157,629 137,364
---------- ---------- ---------- ----------
Earnings from operations. . . . . . . . . . . . . . . . 35,957 30,270 42,715 42,775
Interest expense . . . . . . . . . . . . . . . . . . . . . . 6,085 4,134 9,932 7,103
Other income, net. . . . . . . . . . . . . . . . . . . . . . (1,600) (1,640) (2,806) (6,153)
---------- ---------- ---------- ----------
Earnings before income taxes. . . . . . . . . . . . . . 31,472 27,776 35,589 41,825
Provision for income taxes . . . . . . . . . . . . . . . . . 12,432 10,956 14,058 16,507
---------- ---------- ---------- ----------
Net earnings. . . . . . . . . . . . . . . . . . . . . . $ 19,040 $ 16,820 $ 21,531 $ 25,318
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Retained earnings at beginning of period . . . . . . . . . . 174,671 149,924 173,630 142,891
Dividends on common stock of $0.12, $0.12,
$0.24 and $0.24 per share, respectively . . . . . . . . (1,435) (1,470) (2,885) (2,935)
---------- ---------- ---------- ----------
Retained earnings at end of period . . . . . . . . . . . . . $ 192,276 $ 165,274 $ 192,276 $ 165,274
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net earnings per share of common stock and
common stock equivalent . . . . . . . . . . . . . . . . $ 1.53 $ 1.33 $ 1.73 $ 2.00
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net earnings per share of common stock and
common stock equivalent -
assuming full dilution. . . . . . . . . . . . . . . . . $ 1.52 $ 1.33 $ 1.72 $ 2.00
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
THE TORO COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
May 2, May 3, October 31,
1997 1996 1996
---------- ---------- -----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . . . $ 5,593 $ 4,238 $ 66
Receivables, net . . . . . . . . . . . . . . . . . . . . . . 412,725 343,344 239,637
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . 159,014 158,841 130,288
Other current assets . . . . . . . . . . . . . . . . . . . . 34,429 32,270 35,010
---------- ---------- -----------
Total current assets. . . . . . . . . . . . . . . . . . 611,761 538,693 405,001
---------- ---------- -----------
Property, plant and equipment. . . . . . . . . . . . . . . . 319,010 216,806 229,080
Less accumulated depreciation and amortization. . . . . 203,859 148,100 155,270
---------- ---------- -----------
115,151 68,706 73,810
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 73,102 17,676 18,066
---------- ---------- -----------
Total assets. . . . . . . . . . . . . . . . . . . . . . $ 800,014 $ 625,075 $ 496,877
---------- ---------- -----------
---------- ---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt. . . . . . . . . . . . . . $ 350 $ 10,353 $ 350
Short-term borrowing . . . . . . . . . . . . . . . . . . . . 278,000 148,585 41,025
Accounts payable . . . . . . . . . . . . . . . . . . . . . . 57,064 39,565 43,524
Other accrued liabilities. . . . . . . . . . . . . . . . . . 160,252 142,853 122,958
---------- ---------- -----------
Total current liabilities . . . . . . . . . . . . . . . 495,666 341,356 207,857
---------- ---------- -----------
Long-term debt, less current portion . . . . . . . . . . . . 53,015 53,339 53,015
Other long-term liabilities. . . . . . . . . . . . . . . . . 23,591 20,201 22,438
Common stockholders' equity:
Common stock par value $1.00,
authorized 35,000,000 shares; issued and
outstanding 11,979,539 shares at May 2,
1997 (net of 930,465 treasury shares),
12,099,223 shares at May 3, 1996
(net of 743,102 treasury shares), and
12,032,143 shares at October 31, 1996 (net
of 877,861 treasury shares) . . . . . . . . . . . . . . 11,980 12,099 12,032
Additional paid-in capital . . . . . . . . . . . . . . . . . 26,309 33,359 28,462
Retained earnings. . . . . . . . . . . . . . . . . . . . . . 192,276 165,274 173,630
Foreign currency translation adjustment. . . . . . . . . . . (2,823) (553) (557)
---------- ---------- -----------
Total common stockholders' equity. . . . . . . . . . . . . . 227,742 210,179 213,567
---------- ---------- -----------
Total liabilities and common stockholders' equity . . . $ 800,014 $ 625,075 $ 496,877
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
THE TORO COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
May 2, May 3,
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings. . .. . . . . . . . . . . . . . . . . . . . . . $ 21,531 $ 25,318
Adjustments to reconcile net earnings to net cash
used in operating activities:
Provision for depreciation and amortization . . . . . . . 10,521 8,831
Gain on disposal of property, plant and equipment . . . . (65) (115)
Deferred income taxes . . . . . . . . . . . . . . . . . . 1,529 -
Tax benefits related to employee stock
option transactions. . . . . . . . . . . . . . . . . . 1,766 1,490
Changes in operating assets and liabilities:
Receivables, net . . . . . . . . . . . . . . . . . . . (147,979) (144,528)
Inventories. . . . . . . . . . . . . . . . . . . . . . 2,063 (12,979)
Other current assets . . . . . . . . . . . . . . . . . 1,250 1,609
Accounts payable and accrued expenses. . . . . . . . . 26,634 14,597
Accrued income taxes . . . . . . . . . . . . . . . . . 4,308 3,557
---------- ----------
Net cash used in operating activities . . . . . . . (78,442) (102,220)
---------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment. . . . . . . . (17,551) (7,236)
Proceeds from asset disposals . . . . . . . . . . . . . . 227 184
Increase in other assets. . . . . . . . . . . . . . . . . (9,685) (1,652)
Acquisition of James Hardie Irrigation,
net of cash acquired . . . . . . . . . . . . . . . . . (117,622) -
---------- ----------
Net cash used in investing activities . . . . . . . (144,631) (8,704)
---------- ----------
Cash flows from financing activities:
Increase in short-term borrowing. . . . . . . . . . . . . 236,975 107,010
Repayments of long-term debt. . . . . . . . . . . . . . . (243) (5,007)
Change in other long-term liabilities . . . . . . . . . . 990 12,978
Proceeds from sale of common stock. . . . . . . . . . . . 3,981 3,238
Purchases of common stock . . . . . . . . . . . . . . . . (7,952) (7,150)
Dividends on common stock . . . . . . . . . . . . . . . . (2,885) (2,935)
---------- ----------
Net cash provided by financing activities . . . . . 230,866 108,134
---------- ----------
Foreign currency translation adjustment. . . . . . . . . . . (2,266) (674)
---------- ----------
Net increase (decrease) in cash and cash equivalents . . . . 5,527 (3,464)
Cash and cash equivalents at beginning of period . . . . . . 66 7,702
---------- ----------
Cash and cash equivalents at end of period . . . . . . . . . $ 5,593 $ 4,238
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
THE TORO COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MAY 2, 1997
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q
and do not include all the information and notes required by generally
accepted accounting principles for complete financial statements.
Unless the context indicates otherwise, the terms "company" and "Toro"
refer to The Toro Company and its subsidiaries. In the opinion of
management, the unaudited condensed consolidated financial statements
include all adjustments, consisting primarily of recurring accruals,
considered necessary for a fair presentation of the financial position
and the results of operations. Since the company's business is
seasonal operating results for the six months ended May 2, 1997 are
not necessarily indicative of the results that may be expected for the
year ended October 31, 1997.
For further information, refer to the consolidated financial
statements and notes included in the company's Annual Report on Form
10-K for the year ended October 31, 1996. The policies described in
that report are used for preparing quarterly reports.
INVENTORIES
The majority of inventories are valued at the lower of cost or net
realizable value with cost determined by the last-in, first-out (LIFO)
method. Had the first-in, first-out (FIFO) method of cost
determination been used, inventories would have been $25,642,000 and
$24,841,000 higher than reported at May 2, 1997, and May 3, 1996,
respectively. Under the FIFO method, work-in-process inventories were
$79,736,000 and $78,977,000 and finished goods inventories were
$104,920,000 and $104,705,000 at May 2, 1997, and May 3, 1996,
respectively.
BUSINESS ACQUISITIONS
Effective December 1, 1996, The Toro Company acquired the James Hardie
Irrigation Group ("Hardie") from James Hardie Industries Limited under an
agreement dated September 18, 1996. The initial purchase price pursuant to
the agreement was estimated to be $131,500,000. The purchase price was
subsequently adjusted to $119,125,000 based on estimated, unaudited
aggregate shareholders' equity of Hardie on December 1, 1996, subject to
further adjustment based on final audit results.
Based on the financial statements of Hardie as of the acquisition date,
shareholders' equity at the acquisition date was approximately $10,545,000
less than the estimated equity used as the closing date purchase price, and
this $10,545,000 is to be returned from James Hardie Industries Limited to
Toro. In addition, under the procedures established in the purchase
agreement, Toro has delivered a letter of objections to James Hardie
Industries Limited related to the valuation of assets, accounting methods
applied, estimates used and other items. The resolution of these
objections may result in an additional reduction of the purchase price.
6
<PAGE>
BUSINESS ACQUISITIONS (CONTINUED)
The acquisition is accounted for using the purchase accounting method and,
accordingly, the adjusted purchase price of $108,580,000 has initially been
allocated based on the estimated fair values of assets acquired and
liabilities assumed on the date of acquisition. The excess of the purchase
price over the estimated fair value of net tangible assets acquired has
been recorded as goodwill and is being amortized on a straight-line basis
over 20 years. Any additional reductions in the purchase price as a result
of resolution of the objections discussed in the preceding paragraph will
result in a reduction of goodwill and/or other net assets. The related
effect of these adjustments on the Consolidated Statement of Earnings of
The Toro Company is not expected to be material.
The following unaudited pro forma information presents a summary of
consolidated results of operations of the company and Hardie as if the
acquisition had occurred at the beginning of fiscal 1996, with pro forma
adjustments to give effect to amortization of goodwill, interest expense on
acquisition debt and certain other adjustments, together with the related
income tax effects.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
May 2, May 3, May 2, May 3,
(Dollars in thousands, except per share data) 1997 1996 1997 1996
-------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 352,203 $ 332,509 $ 575,326 $ 576,231
Net earnings 19,040 16,914 19,834 22,649
Earnings per share 1.53 1.34 1.59 1.79
</TABLE>
SUBSEQUENT EVENT
On June 4, 1997, the company announced that it had signed a non-binding letter
of intent to acquire Exmark Manufacturing Company, Inc., a leading manufacturer
of equipment for the professional landscape contractor industry. Exmark is
headquartered in Beatrice, Nebraska, and produces mid-sized walk-behind mowers
and zero-turning-radius riding mowers for professional contractors. Exmark
employs approximately 190 people in a 164,000 square foot facility and had sales
of $38.4 million for the fiscal year ended August 31, 1996. Consummation of the
acquisition is subject to preparation and execution of a definitive agreement,
approval by Exmark's shareholders and regulatory approvals. Management believes
that the consideration to be paid by the company will not be material to the
company.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. In addition, forward-looking statements may be made
orally in the future by or on behalf of the company.
Forward-looking statements involve risks and uncertainties, including, but not
limited to, changes in business conditions and the economy in general in both
foreign and domestic markets; weather conditions affecting demand; seasonal
factors affecting the company's industry; lack of growth in the company's
markets; litigation; financial market changes including interest rates and
foreign exchange rates; trend factors including housing starts, new golf course
starts and market demographics; government actions including budget levels,
regulation, and legislation, primarily legislation relating to the environment,
commerce and infrastructure, and health and safety; labor relations;
availability of materials; actions of competitors; ability to integrate
acquisitions; and the company's ability to profitably develop, manufacture and
sell both new and existing products. Actual results could differ materially
from those projected in the forward-looking statements as a result of these risk
factors, and should not be relied upon as a prediction of actual future results.
Further, Toro undertakes no obligation to update any forward-looking statement
to reflect events or circumstances after the date on which such statement is
made, or to reflect the occurrence of unanticipated events.
RESULTS OF OPERATIONS
Second quarter net earnings rose 13.1% to $19.0 million from the net earnings of
$16.8 million for the same period in the previous year. Earnings per share for
the second quarter improved 15.0% to $1.53 from $1.33 in the previous period.
Revenues increased from $288.6 million in the second quarter of 1996 to $352.2
million in the second quarter of 1997, as a result of factors discussed in the
following paragraphs. The increase in sales was due in part to the acquisition
of Hardie.
For the six months ended May 2, 1997 net sales increased from the same period in
1996 by $61.0 million or 12.2%. Net earnings for the six months ended May 2,
1997 were $21.5 million as compared to $25.3 million for the same period last
year.
In both fiscal 1996 and 1997 the spring mowing season was cold and late in many
key markets. In fiscal 1997 these unpredictable weather patterns heightened a
conservative buying attitude among dealers and distributors. The company
continues to focus on more efficient asset management, and integration of the
Hardie acquisition.
The following table sets forth net sales by product line.
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------
(Dollars in thousands) May 2, May 3,
1997 1996 $ Change % Change
---------- ---------- --------- --------
<S> <C> <C> <C> <C>
Consumer products. . . . . . . . . . . . . . $ 137,913 $ 137,791 $ 122 .1%
Commercial products. . . . . . . . . . . . . 122,030 108,523 13,507 12.4
Irrigation products. . . . . . . . . . . . . 92,260 42,332 49,928 117.9
---------- ---------- ---------
Total *. . . . . . . . . . . . . . . . . $ 352,203 $ 288,646 $ 63,557 22.0%
---------- ---------- ---------
---------- ---------- ---------
* Includes international sales of: . . . . . $ 81,954 $ 64,339 $ 17,615 27.4%
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended
------------------------------------------------------
(Dollars in thousands) May 2, May 3,
1997 1996 $ Change % Change
---------- ---------- --------- --------
<S> <C> <C> <C> <C>
Consumer products. . . . . . . . . . . . . . $ 221,555 $ 240,432 $(18,877) (7.9)%
Commercial products. . . . . . . . . . . . . 199,987 186,856 13,131 7.0
Irrigation products. . . . . . . . . . . . . 139,618 72,859 66,759 91.6
---------- ---------- ---------
Total *. . . . . . . . . . . . . . . . . $ 561,160 $ 500,147 $ 61,013 12.2%
---------- ---------- ---------
---------- ---------- ---------
* Includes international sales of: . . . . . $ 135,980 $ 103,758 $ 32,222 31.1%
</TABLE>
CONSUMER PRODUCT SALES
Worldwide net sales of consumer products for the three months ended May 2, 1997
of $137.9 million were flat as compared to the prior year and down $18.9 million
for the six months ended May 2, 1997. Again, as in fiscal 1996, this quarter
had a slow start to the lawn and garden retail season because of unseasonably
cool weather. Although retail demand was stronger this period than a year ago,
dealers and distributors remained conservative and kept their inventories at a
minimum. A snow storm also caused a ten day plant shutdown that resulted in
lower production and sales of riding equipment during the first six months.
These decreases in sales were offset slightly by sales of newly introduced
electric and battery-operated walk-behind mowers.
International consumer net sales for the three months ended May 2, 1997
increased from $20.7 million to $21.5 million and from $34.3 million to $36.8
million for the six months ended May 2, 1997 as a result of continued strong
demand in Canada and the introduction of products in France's largest mass
merchant. The new electric walk-behind mower has been well received in the
international market.
COMMERCIAL PRODUCT SALES
Worldwide commercial product net sales for the three months ended May 2, 1997
were $122.0 million compared to $108.5 million in the same period in the prior
year. Net sales for the six months ended May 2, 1997 were $200.0 million
compared to $186.9 million in the same period in the prior year. Sales of
equipment to golf courses did well, reflecting the continued growth of the golf
market, and several new product introductions in the second quarter also
reinforced sales.
International commercial net sales increased to $39.5 million for the three
months ended May 2, 1997 from $36.5 million in the prior year. Net sales
increased to $62.2 million for the six months ended May 2, 1997 from $55.9
million in the prior year. Equipment sales to the golf market were up as new
courses were added in the Philippines, Korea and Egypt. Golf equipment sales
also did well in Europe despite generally weak economic conditions.
IRRIGATION PRODUCT SALES
Worldwide irrigation product net sales rose 117.9% from $42.3 million in the
same three month period last year to $92.3 million in the current year. Net
sales for the six months ended May 2, 1997 were $139.6 compared to $72.9 in the
same period in the prior year. This increase is almost entirely attributable to
the acquisition of Hardie.
International irrigation net sales, excluding Hardie sales, increased by 17.7%
for the second quarter and 1.5% for the first six months of fiscal 1997, as
compared to the corresponding period in the prior year.
9
<PAGE>
GROSS PROFIT
Gross profit was $125.1 million and $200.3 million for the three and six months
ended May 2, 1997, respectively, an increase of $21.3 million and $20.2 million
from the three and six months ended May 3, 1996, respectively. As a percent of
sales, gross profit for the three month period ended May 2, 1997 was 35.5%
compared with 36.0% for the three month period ended May 3, 1996 and 35.7% for
the six months ended May 2, 1997 versus 36.0% for the six month period ended
May 3, 1996. The lower gross margin was primarily due to lower gross margins
contributed by Hardie product sales. Manufacturing variances were relatively
flat as compared to last year.
<TABLE>
<CAPTION>
Selling, General and Administrative Expense
(Dollars in millions)
- ----------------------------------------------------------------------------------------------------
3 Months 3 Months
Ended Ended
- ----------------------------------------------------------------------------------------------------
May 2, % of Net May 3, % of Net
S G & A 1997 Sales 1996 Sales
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Administrative $ 26.7 7.6% $ 21.7 7.5%
Sales and Marketing 33.0 9.3 24.3 8.4
Warranty 9.8 2.8 11.0 3.8
Distributor/Dealer Financing 2.8 0.8 2.8 1.0
Research and Development 9.1 2.6 7.5 2.6
Warehousing 5.4 1.5 4.4 1.5
Service/Quality Assurance 2.4 0.7 1.8 0.7
------- ---- ------- ----
Total $ 89.2 25.3% $ 73.5 25.5%
</TABLE>
Selling, general and administrative expense (SG&A) for the three months ended
May 2, 1997 increased $15.7 million from the prior year, and as a percent of
sales decreased slightly to 25.3% from 25.5% for the same period in fiscal
1996. Hardie added $10.0 million in SG&A expense during the second quarter of
fiscal 1997. SG&A expense for the six months ended May 2, 1997 increased
$20.3 million from the prior year, including Hardie's SG&A expense of $16.1
million, and as a percent of sales increased to 28.1% from 27.5% for the same
period in fiscal 1996. Administrative expenses, net of Hardie, increased
$2.0 million for the quarter and $2.2 million for the six months ended May 2,
1997 due mainly to increased costs for information systems and overall
increases in administrative expenses. Sales and marketing expenses, net of
Hardie, increased by $4.9 million for the quarter and $5.1 million for the
six months ended May 2, 1997 due to increased promotional costs of new
products for the landscape contractor group. The percent of sales change in
sales and marketing expense was the result of timing of marketing program
expenses. Warranty expense, net of Hardie, decreased $1.9 million for the
quarter and $3.7 million for the six months ended May 2, 1997 due primarily
to a reserve established in the prior period for required rework on a
lawnmower product. Warranty expense as a percent of sales also decreased
from the prior year as a result of a change in the mix of products sold and a
warranty related refund received from a vendor. Distributor/dealer financing,
research and development, and warehousing expenses, net of Hardie, were flat
as compared to the same period in fiscal 1996.
10
<PAGE>
FINANCIAL POSITION AS OF MAY 2, 1997
MAY 2, 1997 COMPARED TO MAY 3, 1996
Total assets at May 2, 1997 were $800.0 million, up $174.9 million from May 3,
1996. Of this increase, Hardie accounted for $168.3 million. Cash, net of
Hardie of $4.4 million, decreased from the prior period as the result of
improved asset management policies. Accounts receivable, net, increased by $69.4
million, with $60.7 million in net receivables attributable to Hardie. The
remaining increase in receivables is the result of higher sales in both the
commercial and international divisions. Inventory balances, net of Hardie
inventories of approximately $24.9 million, declined by $24.8 million due to
asset management strategies which match production more closely with retail
demand and result in lower overall inventory levels. Net property, plant and
equipment, increased by approximately $46.4 million, with $30.4 million of this
increase related to Hardie and the remaining increase related to the corporate
headquarters expansion and new tooling projects. Other assets increased by
$55.4 million with Hardie accounting for $47.2 million. The remainder of the
increase was the result of the purchase of patents, additional acquisition costs
for Hardie and the purchase of property for possible future corporate expansion.
Total current liabilities of $495.7 million at May 2, 1997 increased $154.3
million compared with current liabilities at May 3, 1996. The majority of this
increase was short-term borrowing, which increased by $129.4 million over the
prior year due primarily to the financing of both the purchase price and working
capital needs of Hardie. The increase in short-term borrowing was offset by a
decrease in trade payables, net of Hardie, primarily as a result of the timing
of vendor payments. Other accrued liabilities increased by $17.4 million,
primarily as a result of expenses related to the Hardie acquisition, and Hardie
accrued liabilities acquired. The current portion of long-term debt was also
reduced due to the repayment of Toro Credit Company ("TCC") debt. TCC is now
being financed by the parent company on a consolidated basis. Other long-term
liabilities also increased over the prior period, primarily as a result of
accrued interest related to the interest rate swap agreement entered into during
second quarter of fiscal 1996.
MAY 2, 1997 COMPARED TO OCTOBER 31, 1996
Total assets at May 2, 1997 were $800.0 million, up $303.1 million from October
31, 1996. As indicated previously, Hardie accounted for approximately $168.3
million of this increase. Accounts receivable, net of Hardie, increased from
October 31, 1996 primarily due to increased sales volumes. Inventory, net of
Hardie, increased by $3.8 million primarily as a result of the normal buildup of
consumer lawn and garden products manufactured in the first six months of the
year. Net property, plant and equipment increased from $73.8 million to $115.2
million due to the addition of Hardie net property, plant and equipment of $30.4
million, the expansion of the corporate headquarters and routine capital
expenditures. Other assets increased as a result of the excess of the purchase
price of Hardie over the fair value of the net assets acquired of approximately
$26.9 million plus additional capitalized acquisition costs of approximately
$16.7 million and the acquisition of Hardie's other assets.
Total current liabilities of $495.7 million at May 2, 1997 increased $287.8
million compared with current liabilities at October 31, 1996. The majority of
this increase was the result of additional short-term borrowings of $237.0
million a portion of which was used to finance the purchase price and working
capital needs of Hardie. The remaining increase in short-term borrowing
reflects the company's strategy of utilizing short-term borrowing to fund the
company's seasonal working capital needs. Other accrued liabilities increased
as a result of expenses related to the acquisition of Hardie and accruals for
various seasonal sales and marketing programs which are at their peak during the
spring selling season. There were no significant changes in long-term debt and
other long-term liabilities from October 31, 1996 to May 31, 1997.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The primary use of cash during the first six months of fiscal 1997 was $117.6
million used for the acquisition of Hardie. The purchase price has been
initially funded with temporary bank debt. The company has filed a shelf
registration which will facilitate the issuance of long-term debt to replace
this temporary bank debt, and intends to refinance this temporary debt with
long-term financing during the current fiscal year. The company believes that
financing is also available through other sources.
Cash used in operating activities for the first six months of fiscal 1997 was
primarily for the seasonal increase in accounts receivable. The company's
working capital needs are funded with $190.0 million of unsecured bank credit
lines. An agreement for an additional $150.0 million unsecured bank credit line
expiring in December 1997 was executed in conjunction with the acquisition of
Hardie. The company also has banker's acceptance financing agreements under
which an additional $40.0 million is available. The company's business is
seasonal, with peak borrowing under the working capital lines described above
generally occurring between February and May each year.
Management believes that the combination of funds available through its existing
financing arrangements, coupled with forecasted cash flows, will provide the
capital resources for its anticipated needs.
INFLATION
The company is subject to the effects of changing prices. The company has,
however, generally been able to pass along inflationary increases in its costs
by increasing the prices of its products.
12
<PAGE>
PART II. OTHER INFORMATION
Item 4 Results of Votes of Security Holders
The Annual Meeting of Stockholders was held on March 13, 1997.
The results of the stockholder votes were as follows:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
1. Election of Directors
Janet K. Cooper 10,086,165 179,512
Kendrick B. Melrose 10,080,644 185,033
Edwin H. Wingate 10,077,796 187,881
2. Approval of Amendment of Continuous
Performance Award Plan 9,381,511 768,642 115,524
3. Approval of Amendment of Annual Management
Incentive Plan 9,391,586 744,455 129,636
4. Approval of Selection of Independent Auditors 10,060,566 115,283 89,828
</TABLE>
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibit 11 Computation of Earnings per Common Share
(b) Exhibit 27 Financial Data Schedule
Summarized financial data; electronic filing only.
(c) Reports on Form 8-K
On February 18, 1997, the company filed Amendment No. 1 to its Current
Report on Form 8-K dated December 16, 1996 on Form 8-K/A providing
financial information for the business acquired and pro forma financial
information related to the acquisition of the James Hardie Irrigation
Group.
On June 6, 1997, the company filed Amendment No. 2 to its Current Report
on Form 8-K dated December 16, 1996 on Form 8-K/A providing financial
information for the business acquired and pro forma financial
information related to the acquisition of the James Hardie Irrigation
Group which supersedes the information provided in Amendment No. 1
referenced in the previous paragraph.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE TORO COMPANY
(Registrant)
By /s/ Stephen P. Wolfe
---------------------------
Stephen P. Wolfe
Vice President, Finance
Chief Financial Officer
(principal financial officer)
Date: June 16, 1997
14
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the Quarterly Period Ended January 31, 1997 Commission File Number 1-8649
---------------- --------
THE TORO COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 41-0580470
(State of Incorporation) (I.R.S. Employer Identification Number)
8111 LYNDALE AVENUE SOUTH
BLOOMINGTON, MINNESOTA 55420
TELEPHONE NUMBER: (612) 888-8801
(Address, including zip code, and telephone number, including area
code, of registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
The number of shares of Common Stock outstanding as of February 28, 1997 was
12,174,979.
<PAGE>
THE TORO COMPANY
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
PART I. FINANCIAL INFORMATION:
Condensed Consolidated Statements of Earnings and
Retained Earnings (Unaudited) -
Three Months Ended January 31, 1997 and February 2, 1996. . . . . . . . . .3
Condensed Consolidated Balance Sheets (Unaudited) -
January 31, 1997, February 2, 1996 and October 31, 1996 . . . . . . . . . .4
Consolidated Statements of Cash Flows (Unaudited) -
Three Months Ended January 31, 1997 and February 2, 1996. . . . . . . . . .5
Notes to Condensed Consolidated Financial Statements (Unaudited). . . . . . 6-7
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . 8-12
PART II. OTHER INFORMATION:
Item 6 Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . .13
Exhibit 11 Computation of Earnings per Common Share. . . . . . . . . . . . .14
</TABLE>
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
THE TORO COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
January 31, February 2,
1997 1996
<S> <C> <C>
----------- -----------
Net sales. . . . . . . . . . . . . . . . . . . . . . . . $ 208,957 $ 211,501
Cost of sales. . . . . . . . . . . . . . . . . . . . . . 133,730 135,172
----------- -----------
Gross profit . . . . . . . . . . . . . . . . . . . . . 75,227 76,329
Selling, general and administrative expense. . . . . . . 68,469 63,824
----------- -----------
Earnings from operations . . . . . . . . . . . . . . . 6,758 12,505
Interest expense . . . . . . . . . . . . . . . . . . . . 3,847 2,969
Other income, net. . . . . . . . . . . . . . . . . . . . (1,206) (4,513)
----------- -----------
Earnings before income taxes . . . . . . . . . . . . . 4,117 14,049
Provision for income taxes . . . . . . . . . . . . . . . 1,626 5,551
----------- -----------
Net earnings . . . . . . . . . . . . . . . . . . . . . $ 2,491 $ 8,498
----------- -----------
----------- -----------
Retained earnings at beginning of period . . . . . . . . 173,630 142,891
Dividends on common stock of $0.12 per share . . . . . . (1,450) (1,465)
----------- -----------
Retained earnings at end of period . . . . . . . . . . . $ 174,671 $ 149,924
----------- -----------
----------- -----------
Net earnings per share of common stock and
common stock equivalent. . . . . . . . . . . . . . . . $ 0.20 $ 0.67
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-3-
<PAGE>
THE TORO COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
January 31, February 2, October 31,
1997 1996 1996
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . $ 76 $ 4,322 $ 66
Receivables (net). . . . . . . . . . . . . . . . . . . 263,662 262,473 239,637
Inventories. . . . . . . . . . . . . . . . . . . . . . 175,215 163,575 130,288
Other current assets . . . . . . . . . . . . . . . . . 44,593 32,106 35,010
----------- ----------- -----------
Total current assets. . . . . . . . . . . . . . . . 483,546 462,476 405,001
----------- ----------- -----------
Property, plant and equipment. . . . . . . . . . . . . 308,902 213,256 229,080
Less accumulated depreciation and amortization. . . 200,646 145,319 155,270
----------- ----------- -----------
. . . . . . . . . . . . . . . . . . . . . . . . . . . 108,256 67,937 73,810
Other assets . . . . . . . . . . . . . . . . . . . . . 68,547 17,244 18,066
----------- ----------- -----------
Total assets. . . . . . . . . . . . . . . . . . . . $ 660,349 $ 547,657 $ 496,877
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt. . . . . . . . . . . $ 350 $ 10,331 $ 350
Short-term borrowing . . . . . . . . . . . . . . . . . 194,296 114,909 41,025
Accounts payable . . . . . . . . . . . . . . . . . . . 38,474 45,977 43,524
Other accrued liabilities. . . . . . . . . . . . . . . 133,808 116,547 122,958
----------- ----------- -----------
Total current liabilities . . . . . . . . . . . . . 366,928 287,764 207,857
----------- ----------- -----------
Long-term debt, less current portion . . . . . . . . . 53,330 53,365 53,015
Other long-term liabilities. . . . . . . . . . . . . . 23,176 7,178 22,438
Common stockholders' equity:
Common stock par value $1.00,
authorized 35,000,000 shares; issued and
outstanding 12,154,257 shares at January
31, 1997 (net of 755,747 treasury shares),
12,279,360 shares at February 2,
1996 (net of 562,965 treasury shares),
and 12,032,143 shares at October 31, 1996
(net of 877,861 treasury shares). . . . . . . . . . 12,154 12,279 12,032
Additional paid-in capital. . . . . . . . . . . . . . 32,688 37,766 28,462
Retained earnings . . . . . . . . . . . . . . . . . . 174,671 149,924 173,630
Foreign currency translation adjustment . . . . . . . (2,598) (619) (557)
----------- ----------- -----------
Total common stockholders' equity . . . . . . . . . . 216,915 199,350 213,567
----------- ----------- -----------
Total liabilities and common stockholders' equity . $ 660,349 $ 547,657 $ 496,877
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-4-
<PAGE>
THE TORO COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
January 31, February 2,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,491 $ 8,498
Adjustments to reconcile net earnings to net cash
used in operating activities:
Provision for depreciation and amortization . . . . . . . . . . . 5,359 4,693
Gain on disposal of property, plant and equipment . . . . . . . . (6) (18)
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . 1,529 -
Tax benefits related to employee stock option transactions. . . . 1,501 -
Changes in operating assets and liabilities:
Receivables (net). . . . . . . . . . . . . . . . . . . . . . . 1,084 (63,657)
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . (14,138) (17,713)
Other current assets . . . . . . . . . . . . . . . . . . . . . (8,914) 1,773
Accounts payable and accrued expenses. . . . . . . . . . . . . (15,192) (3,585)
Accrued income taxes . . . . . . . . . . . . . . . . . . . . . 1,100 1,844
----------- -----------
Net cash used in operating activities . . . . . . . . . . . (25,186) (68,165)
----------- -----------
Cash flows from investing activities:
Purchases of property, plant and equipment. . . . . . . . . . . . (6,655) (2,492)
Proceeds from asset disposals . . . . . . . . . . . . . . . . . . 28 18
Increase in other assets. . . . . . . . . . . . . . . . . . . . . (3,829) (987)
Acquisition of James Hardie Irrigation, net of cash acquired. . . (117,622) -
----------- -----------
Net cash used in investing activities . . . . . . . . . . . (128,078) (3,461)
----------- -----------
Cash flows from financing activities:
Increase in short-term borrowing. . . . . . . . . . . . . . . . . 153,271 73,334
Repayments of long-term debt. . . . . . . . . . . . . . . . . . . 72 (5,003)
Change in other long-term liabilities . . . . . . . . . . . . . . 575 (45)
Proceeds from sale of common stock. . . . . . . . . . . . . . . . 2,847 2,814
Purchases of common stock . . . . . . . . . . . . . . . . . . . . - (649)
Dividends on common stock . . . . . . . . . . . . . . . . . . . . (1,450) (1,465)
----------- -----------
Net cash provided by financing activities . . . . . . . . . 155,315 68,986
----------- -----------
Foreign currency translation adjustment. . . . . . . . . . . . . . . (2,041) (740)
----------- -----------
Net increase (decrease) in cash and cash equivalents . . . . . . . . 10 (3,380)
Cash and cash equivalents at beginning of period . . . . . . . . . . 66 7,702
----------- -----------
Cash and cash equivalents at end of period . . . . . . . . . . . . . $ 76 $ 4,322
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-5-
<PAGE>
THE TORO COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JANUARY 31, 1997
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not include all
the information and notes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, the unaudited
condensed consolidated financial statements include all adjustments, consisting
primarily of recurring accruals, considered necessary for a fair presentation of
the financial position and the results of operations. Since the company's
business is seasonal operating results for the three months ended January 31,
1997 are not necessarily indicative of the results that may be expected for the
year ending October 31, 1997.
For further information, refer to the consolidated financial statements and
notes included in the company's Annual Report on Form 10-K for the year ended
October 31, 1996. The policies described in that report are used for preparing
quarterly reports.
INVENTORIES
The majority of inventories are valued at the lower of cost or net realizable
value with cost determined by the last-in, first-out (LIFO) method. Had the
first-in, first-out (FIFO) method of cost determination been used, inventories
would have been $25,642,000 and $24,841,000 higher than reported at January 31,
1997, and February 2, 1996, respectively. Under the FIFO method,
work-in-process inventories were $86,593,000 and $85,691,000 and finished goods
inventories were $114,264,000 and $102,725,000 at January 31, 1997, and February
2, 1996, respectively.
BUSINESS ACQUISITIONS
On December 2, 1996, the company completed the acquisition of James Hardie
Irrigation Group (Hardie) from James Hardie Limited of Australia. The purchase
price of approximately $119 million is subject to adjustment based on the audit
of the closing date balance sheet. The acquisition has been initially financed
with temporary bank debt, which the company intends to refinance during the
current fiscal year through the issuance of long-term debt. The company has
filed a shelf registration which will facilitate the issuance of long-term debt
to replace the temporary bank debt. The acquisition is being accounted for
under the purchase method of accounting. The purchase price has been initially
allocated to the assets and liabilities acquired based on their estimated fair
values. The final purchase price allocation may be adjusted based upon
appraisals and other information relating to the fair values of assets and
liabilities acquired and the final purchase price. The excess of the purchase
price over the estimated fair value of net assets acquired plus additional
capitalized acquisition costs was approximately $43.6 million and is being
amortized on a straight-line basis over 20 years.
-6-
<PAGE>
BUSINESS ACQUISITIONS (CONTINUED)
The following unaudited pro forma information presents a summary of consolidated
results of operations of the company and Hardie as if the acquisition had
occurred at the beginning of fiscal 1996, with pro forma adjustments to give
effect to amortization of goodwill, interest expense on acquisition debt and
certain other adjustments, together with the related income tax effects.
Three Months Ended
January 31, February 2,
(Dollars in thousands, except per share data) 1997 1996
--------------------------------
Net sales $ 223,123 $ 243,116
Net earnings 234 6,167
Earnings per share 0.02 0.49
-7-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. In addition, forward-looking statements may be made
orally in the future by or on behalf of the company.
Forward-looking statements involve risks and uncertainties, including, but not
limited to, changes in business conditions and the economy in general in both
foreign and domestic markets; weather conditions affecting demand; seasonal
factors affecting the company's industry; lack of growth in the company's
markets; litigation; financial market changes including interest rates and
foreign exchange rates; trend factors including housing starts, new golf course
starts and market demographics; government actions including budget levels,
regulation, and legislation, primarily legislation relating to the environment,
commerce and infrastructure, and health and safety; labor relations;
availability of materials; actions of competitors; ability to integrate
acquisitions; and the company's ability to profitably develop, manufacture and
sell both new and existing products. Actual results could differ materially
from those projected in the forward-looking statements as a result of these risk
factors, and should not be relied upon as a prediction of actual future results.
Further, Toro undertakes no obligation to update any forward-looking statement
to reflect events or circumstances after the date on which such statement is
made, or to reflect the occurrence of unanticipated events.
RESULTS OF OPERATIONS
First quarter net earnings of $2.5 million or 20 cents per share were down
significantly from the net earnings of $8.5 million or 67 cents per share for
the same period in the previous year. Revenues declined slightly from $211.5
million in the first quarter of 1996 to $209.0 million in the first quarter of
1997, as a result of factors discussed in the following paragraphs. The decline
in net earnings was due to a number of unusual factors which affected the first
quarter of 1997, including the acquisition of James Hardie Irrigation Group
(Hardie) which added $19.2 million in sales revenue, but had a negative impact
on first quarter earnings. A shift in shipping patterns bringing inventory
closer to retail and softening in several core markets also contributed to the
decline in first quarter earnings. In addition, several of the company's new
businesses have continued to show positive sales results, but have not yet
reached profitable levels.
The following table sets forth net sales by product line.
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------
January 31, February 2,
1997 1996 $ Change % Change
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Consumer products. . . . . . . . . . . . $ 83,642 $ 102,641 $ (18,999) (18.5)%
Commercial products. . . . . . . . . . . 77,957 78,333 (376) (0.5)
Irrigation products. . . . . . . . . . . 47,358 30,527 16,831 55.1
----------- ----------- -----------
Total *. . . . . . . . . . . . . . . . $ 208,957 $ 211,501 $ (2,544) (1.2)
----------- ----------- -----------
* Includes international sales of. . . . $ 54,026 $ 39,419 $ 14,607 37.1%
</TABLE>
-8-
<PAGE>
CONSUMER PRODUCT SALES
Worldwide net sales of consumer products for the three months ended January 31,
1997 of $83.6 million decreased by $19.0 million from the prior year, primarily
as a result of decreased sales of consumer lawn and garden equipment.
Traditionally, lawn and garden equipment has been shipped to distributors and
dealers from November through January; however, the company's strategy of
producing and shipping consumer products to more closely match retail demand has
resulted in a shift of sales of these products from this period to the second
quarter of the current fiscal year. In addition, inclement weather caused a ten
day plant shutdown that resulted in lower production and sales of riding
equipment. These declines were offset slightly by increased sales of electric
products, especially in the western United States, and increased sales of snow
removal equipment, topping off a successful introduction of the
LawnBoy-Registered Trademark- snow product series. International consumer sales
increased from $13.5 million to $15.3 million as a result of strong demand in
Canada and continued growth in new markets overseas.
COMMERCIAL PRODUCT SALES
Worldwide commercial product net sales were flat compared to the same period in
the prior year. The company's efforts to more closely match commercial product
production and sales to retail demand have shifted sales from the first quarter
into the second quarter of the current year. Commercial sales were also
impacted by ongoing competitive pressures; however, several new product
introductions in the second quarter are expected to reinforce sales.
International commercial sales increased to $22.6 million from $19.4 million in
the prior year, primarily as a result of lower than normal sales in the first
quarter of 1996 due to product availability. International golf sales are
continuing to strengthen as new markets in emerging countries are developed.
IRRIGATION PRODUCT SALES
The decline in consumer and commercial product net sales for the quarter was
largely offset by an increase in irrigation product net sales which rose 55.1%
from the same period in the previous year. This increase is attributable to the
acquisition of the James Hardie Irrigation Group (Hardie) which contributed
approximately $20.0 million in irrigation sales. Without Hardie, irrigation
sales declined by $2.3 million due primarily to field inventory adjustments and
wet weather in southern California and other key markets. Excluding Hardie's
international sales of $10.7 million, international irrigation sales decreased
from $6.5 million to $5.4 million due to inclement weather and overall weakening
in the European economy.
GROSS PROFIT
Gross profit was $75.2 million, a decrease of $1.1 million from the prior year.
As a percent of sales, gross profit for the period ended January 31, 1997 was
36.0% compared with 36.1% for the period ended February 2, 1996. The gross
margin contributed by Hardie product sales was slightly lower than the overall
gross margin, but this was largely offset by higher gross margin contributions
from other new businesses. Manufacturing variances were relatively flat as
compared to last year.
-9-
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling General and Administrative Expense
(Dollars in millions)
-----------------------------------------------------------------------
Jan 31, % of Net Feb 2, % of Net
SG&A 1997 Sales 1996 Sales
-----------------------------------------------------------------------
Administrative $ 24.0 11.5% $ 22.2 10.5%
Sales and Marketing 23.4 11.2 20.4 9.6
Warranty 4.9 2.3 6.4 3.0
Distributor/Dealer Financing 2.6 1.2 2.4 1.1
Research and Development 7.7 3.7 7.1 3.4
Warehousing 3.5 1.7 3.4 1.6
Service/Quality Assurance 2.4 1.2 1.9 0.9
--- --- --- ---
Total $ 68.5 32.8% $ 63.8 30.1%
---- ----
Selling, general and administrative expense (SG&A) increased $4.7 million from
the prior year, and as a percent of sales increased to 32.8% from 30.1% for the
same period in fiscal 1996. Hardie added $6.0 million in SG&A expense, which
was partially offset by lower SG&A expense in other areas. Administrative,
sales and marketing, research and development and warehousing expenses, net of
Hardie, were flat compared to the same period in fiscal 1996. Warranty expense
as a percent of sales, net of Hardie expenses, decreased from the prior year as
a result of a change in the mix of products sold and a warranty related refund
received from a vendor. Distributor/Dealer financing increased slightly over
the same period in fiscal 1996 due to Toro Credit Company's (TCC) addition of
financing for commercial accessories. Service/quality assurance expenses
increased as a result of additional expenses related to new businesses.
OTHER INCOME, NET
Other income, net, decreased during the quarter due primarily to income received
in the prior period as a result of a favorable settlement of a patent
infringement lawsuit.
FINANCIAL POSITION AS OF JANUARY 31, 1997
JANUARY 31, 1997 COMPARED TO FEBRUARY 2, 1996
Total assets at January 31, 1997 were $660.3 million, up $112.7 million from
February 2, 1996. This increase is comprised of an increase in total assets of
approximately $140.0 million related to the acquisition of Hardie, offset by a
decline in total assets of the remaining business. Cash decreased from the
prior period as the result of improved asset management policies. Accounts
receivable increased by $1.2 million, with $28.9 million in receivables
attributable to the Hardie acquisition and a decline in the remaining business
receivables of $27.7 million. This decline in non-Hardie receivables is the
result of lower levels of shipments driven by the shift of sales closer to
retail demand. Inventory balances, net of Hardie inventories of approximately
$31.5 million, declined by $19.9 million due to asset management strategies
which match production more closely with the retail demand and result in lower
overall inventory levels. Other current assets increased from the prior year
due primarily to an increase in prepaid income taxes. Net property, plant and
equipment, increased by approximately $40.3 million, with $30.7 million of this
increase related to Hardie and the remaining increase related to the corporate
headquarters expansion and new tooling projects. Other assets increased by
$51.3 million as a result of capitalization of the excess of the purchase price
of Hardie over the fair value of Hardie net assets acquired plus additional
capitalized acquisition costs of approximately $43.6 million, in addition to the
acquired other assets of Hardie.
-10-
<PAGE>
FINANCIAL POSITION AS OF JANUARY 31, 1997, (CONTINUED)
Total current liabilities of $366.9 million at January 31, 1997 increased $79.2
million compared with current liabilities at February 2, 1996. The majority of
this increase was short-term borrowing, which increased by $79.4 million over
the prior year due primarily to the financing of both the purchase price and
working capital needs of Hardie. In addition, the variance in short-term
borrowing reflects the company's cash management strategy of utilizing
short-term borrowing to fund the company's seasonal working capital needs. The
increase in short-term borrowing was offset by a decrease in trade payables
primarily as a result of reduced inventory levels, net of Hardie. Other accrued
liabilities increased by $17.3 million, primarily as a result of expenses
related to the Hardie acquisition, and Hardie accrued liabilities acquired. The
current portion of long-term debt was also reduced from the first quarter of
fiscal 1996 due to the repayment of Toro Credit Company's (TCC) debt. All TCC
debt financing is now being provided by the parent company. Other long-term
liabilities also increased over the prior period, primarily as a result of an
interest rate swap agreement entered into during second quarter of fiscal 1996.
JANUARY 31, 1997 COMPARED TO OCTOBER 31, 1996
Total assets at January 31, 1997 were $660.3 million, up $163.5 million from
October 31, 1996. As indicated previously, the Hardie acquisition accounted for
approximately $140.0 million of this increase. Accounts receivable, net of
Hardie, declined slightly from October 31, 1996. Inventory increased by $44.9
million, with $31.5 million of this increase attributable to the Hardie
acquisition. The remaining increase in inventory is a result of the normal
buildup of consumer lawn and garden products manufactured in the first quarter.
Other current assets increased by $9.6 million, primarily as the result of an
increase in prepaid income taxes. Net property, plant and equipment increased
from $73.8 million to $108.3 million due to the addition of Hardie net property,
plant and equipment of $30.7 million, the expansion of the corporate
headquarters and routine capital expenditures. Other assets increased as a
result of the excess of the purchase price of Hardie over the fair value of the
net assets acquired of approximately $26.9 million plus additional capitalized
acqusition costs of approximately $16.7 million and the acquisition of Hardie's
other assets.
Total current liabilities of $366.9 million at January 31, 1997 increased $159.1
million compared with current liabilities at October 31, 1996. The majority of
this increase was the result of additional short-term borrowings of $117.6
million which was used to finance the purchase price of Hardie. The remaining
increase in short-term borrowing reflects the company's strategy of utilizing
short-term borrowing to fund the company's seasonal working capital needs.
Other accrued liabilities increased as a result of expenses related to the
acquisition of Hardie. There were no significant changes in long-term debt and
other long-term liabilities from October 31, 1996 to January 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The primary use of cash during the current fiscal quarter was $117.6 million
used for the acquisition of Hardie. The purchase price has been initially
funded with temporary bank debt. The company has filed a shelf registration
which will facilitate the issuance of long-term debt to replace this temporary
bank debt, and intends to refinance this temporary debt with long-term financing
during the current fiscal year. The company believes that financing is also
available through other sources.
Cash used in operating activities for the three month period ended January 31,
1997, was primarily for the payment of accounts payable and accrued liabilities
and the seasonal build-up of inventories in anticipation of the spring selling
season. The company's working capital needs are funded with $190.0 million of
unsecured bank credit lines. An agreement for an additional $150.0 million
unsecured bank credit line expiring in December 1997 was executed in conjunction
with the acquisition of Hardie. The company also has banker's acceptance
financing agreements under which an additional $40.0 million is available. The
company's business is seasonal, with peak borrowing under the working capital
lines described above generally occurring between February and May each year.
-11-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES, (CONTINUED)
Management believes that the combination of funds available through its existing
financing arrangements, coupled with forecasted cash flows, will provide the
capital resources for its anticipated needs.
INFLATION
The company is subject to the effects of changing prices. The company has,
however, generally been able to pass along inflationary increases in its costs
by increasing the prices of its products.
-12-
<PAGE>
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibit 11 Computation of Earnings per Common Share
(b) Exhibit 27 Financial Data Schedule
Summarized financial data; electronic filing only.
(c) Reports on Form 8-K
The company filed its Current Report on Form 8K dated December 16,
1996, reporting the completion of the acquisition of James Hardie
Irrigation Group from James Hardie Industries Limited of Australia on
December 2, 1996 through the acquisition of all of the outstanding
common stock of James Hardie Irrigation, Inc., a Nevada corporation,
James Hardie Irrigation Pty. Limited, a corporation organized under
the laws of South Australia, Australia, and James Hardie Irrigation
Europe S.p.A., a corporation organized under the laws of Italy.
The company filed Amendment 1 to its Current Report on Form 8K dated
December 16, 1996 on Form 8K/A dated February 18, 1997, providing
financial information of the business acquired and pro forma financial
information related to the acquisition of James Hardie Irrigation
Group.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE TORO COMPANY
(Registrant)
By /s/ Gerald T. Knight
-------------------------------------
Gerald T. Knight
Vice President, Finance
Chief Financial Officer
(principal financial officer)
Date: March 17, 1997
-13-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR FISCAL YEAR ENDED OCTOBER 31, 1996.
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________________ TO ____________________
COMMISSION FILE NUMBER 1-8649
--------
THE TORO COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 41-0580470
(State of incorporation) (I.R.S. Employer Identification Number)
8111 LYNDALE AVENUE SOUTH
BLOOMINGTON, MINNESOTA 55420-1196
TELEPHONE NUMBER: (612) 888-8801
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------------
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ------------------- -----------------------------------------
Common Stock, par value
$1.00 per share New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.
Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant, based upon the closing price of the Common Stock on December 27,
1996 as reported by the New York Stock Exchange, was approximately $423,922,000.
The number of shares of Common Stock outstanding as of December 27, 1996 was
12,116,732.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the fiscal year
ended October 31, 1996, are incorporated by reference into Parts I, II and IV.
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held March 13, 1997 are incorporated by reference into Part
III.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Part I
- --------------------------------------------------------------------------------
ITEM 1. BUSINESS
INTRODUCTION
The company designs, manufactures and markets consumer and professional turf
maintenance equipment, snow removal products and irrigation systems. The
company produced its first lawn mower for golf course fairways in 1922 and its
first lawn mower for home use in 1939 and has continued to enhance its product
lines ever since.
The company emphasizes quality and innovation in its products, manufacturing and
marketing. The company strives to provide well built, dependable products
supported by an extensive service network. Innovation is emphasized through the
introduction of new and enhanced products. The company's substantial funding of
research and development, as well as its acquisition strategy and its licensing
and related agreements, all contribute to its new product development efforts.
Through these efforts the company also attempts to be responsive to trends which
may affect its target markets, now and in the future. The company believes that
a significant portion of its revenues in recent years have been attributable to
its new and enhanced products. Examples of recently introduced products include
the Recycler-Registered Trademark- lawn mower which reduces the need for
disposal of grass clippings, a high pressure water jet turf aerator for
maintenance of golf course putting greens and an enhanced electronic controller
for residential irrigation systems which features programmable timing and zone
control functions.
The company was incorporated in Minnesota in 1935 as a successor to a business
founded in 1914. It was reincorporated in Delaware in 1983. The company's
executive offices are located at 8111 Lyndale Avenue South, Bloomington,
Minnesota 55420-1196, telephone number (612) 888-8801. Unless the context
indicates otherwise, the terms "company" and "Toro" refer to The Toro Company
and its subsidiaries. The company finances a significant portion of its
receivables through Toro Credit Company ("Toro Credit"), its wholly-owned
finance subsidiary.
OUTDOOR MAINTENANCE EQUIPMENT
The company classifies its operations into one industry segment, outdoor
maintenance equipment. The company continues to be a leader in transforming
advanced technologies into products and services that provide solutions for
landscape and turf care maintenance and beautification demands. Following is a
summary of Toro's product lines:
CONSUMER PRODUCTS
WALK-BEHIND MOWERS. The company has manufactured walk-behind mowers for
residential use since 1939. Its walk-behind lawn mowers are gasoline and
electric powered. The company manufactures numerous models of walk-behind
mowers under its brand names Toro-Registered Trademark- and Lawn-
Boy-Registered Trademark-, including both four-cycle and two-cycle engine
models, and new battery and electric models. Models differ as to cutting
width, type of starter mechanism, type of bagging, controls and power
sources, and are either self-propelled or push mowers. Certain of the
company's lawn mowers are backed by the company's "Guaranteed To Start"
program and some Lawn-Boy-Registered Trademark- models are equipped
with a two-cycle, oil injected engine manufactured by the company.
RIDING MOWERS AND LAWN AND GARDEN TRACTORS. The company manufactures
riding lawn mowers and lawn and garden tractors under its brand name
Toro-Registered Trademark-Wheel Horse-Registered Trademark- which range
from an eight horsepower, 25 inch deck, rear engine model to a 20
horsepower, front engine model. The front engine model is available with a
variety of decks and accessories (Recycler technology is available in
select models). Some recently introduced models are equipped with
hydrostatic transmissions and/or low emission engines.
2
<PAGE>
HOME SOLUTIONS PRODUCTS. The company designs and markets electrical and
gas products under the Toro-Registered Trademark- brand name for mass
merchandisers and "do-it-yourself" home improvement markets. These
products, which include homeowner-installed low voltage lighting, flexible
line trimmers and electric blowers, are intended to require little or no
after sales service. Among recently introduced products are a complete
line of handheld products which include a cordless trimmer, hedge
trimmers, gas edgers, gas trimmers, and a gas blower.
SNOW REMOVAL PRODUCTS. The company manufactures and markets lightweight
and larger self-propelled walk-behind snowthrowers and electric Power
Shovel snowthrowers under the Toro-Registered Trademark- and Lawn-
Boy-Registered Trademark- brand names. Single-stage snowthrowers,
developed by the company and first introduced in 1965, are walk-behind
units with a lightweight gasoline engine or electric motor and the Power
Curve-Registered Trademark- snowthrower technology for general residential
use. Two-stage snowthrowers are designed for relatively large areas with
engines ranging from 5 to 12 horsepower. Units with 8 horsepower and above
are equipped with the Power Shift-Registered Trademark- snowthrower
technology.
PROFESSIONAL TURF PRODUCTS
COMMERCIAL PRODUCTS. Professional turf maintenance equipment marketed
under the Toro-Registered Trademark- brand name is the company's oldest
product line, which began in 1922 with the sale of tractor-pulled reel
mowers to golf courses. Today the company's expanded product line includes
products designed for the large turf areas of schools, parks, cemeteries,
sports fields, plant sites, apartment buildings and townhouse complexes, as
well as golf courses. Management believes that golf courses will continue
to be a significant market for turf maintenance equipment as new golf
course construction continues throughout the world. Increasing emphasis is
being placed on the sports field and landscape contractor markets.
Products for the golf course include turf sprayer equipment, riding and
walk-behind reel mowers for the putting green, and riding and pull-behind
large reel products for the fairway, rough and trim cutting, turf aeration,
and sandtrap/bunker maintenance.
Other products which service all commercial markets include riding rotary
units with out-front cutting decks ranging from 52 inches to 16 feet widths
of cut, turf sweepers, and multipurpose vehicles and attachments designed
for flexibility.
IRRIGATION PRODUCTS. Turf irrigation products marketed under the
Toro-Registered Trademark- brand name include sprinkler heads and electric
and hydraulic control devices designed to be used in turf irrigation
systems for residential, commercial and golf course use. These products
are installed in new systems and can also be used to replace or retrofit
existing systems. Most of the product line is designed for underground
irrigation systems. Sprinkler heads are buried underground and pop up when
in operation. Control valves activate the sprinkler heads and controllers
typically activate electric or hydraulic lines to control the valves and
sprinkler heads. Recently introduced products include more efficient
sprinkler heads and automatic electronic controllers for residential,
commercial and golf course irrigation systems. The acquisition of the
James Hardie Irrigation Group enhances Toro's product line for residential
and commercial irrigation systems and also provides products for the
agricultural micro-irrigation segment, including drip tape, hose, emitters
and other micro-irrigation products. See "Recent Developments" included
within Part I. The company's irrigation products are used in 75 of the
golf courses rated among the top 100 courses in the United States by GOLF
DIGEST.
See the tables entitled "Sales By Product Line" under the captions "Results of
Operations" in the sections entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 16 and 25 of the
company's Annual Report to Stockholders for the fiscal year ended October 31,
1996 for information regarding revenues in the consumer, commercial and
irrigation product lines, which information is incorporated herein by reference.
3
<PAGE>
INTERNATIONAL OPERATIONS
The company currently distributes its products worldwide with sales and/or
distribution offices in Canada,Belgium, United Kingdom, Australia, Singapore,
Japan, Italy and Greece.
New product development is primarily pursued in the United States using a global
product platform strategy. Products marketed outside of North America are sold
in compliance with local safety standards. All products shipped to Europe
conform to the European Community Certification standards.
In addition to developing new market-specific products, the International
division is adding customers in new regions. Emerging markets in Eastern Europe
(such as the Czech Republic, Slovakia and Hungary) have been added to the
distribution base in the last year.
RECENT DEVELOPMENTS
On December 3, 1996, the company announced the completion of the acquisition of
James Hardie Irrigation Group (JHI) from James Hardie Limited of Australia. JHI
is a worldwide leader in the production of irrigation systems to the commercial
landscape market. JHI manufactures products for all major segments of the
irrigation market, except for the golf market, and sells to distributors and
retailers worldwide. JHI offers a broad range of irrigation products and has
leading positions in valves and controllers worldwide. In Australia, JHI has a
leading position in hose, hose-end and micro-irrigation products. Unless
otherwise indicated, the historical financial and statistical data included
herein does not reflect the completion of such acquisition.
The company also completed in fiscal 1996 the acquisition of Liquid Ag Systems
of Florida, a leader in fertigation systems, whereby an eco-product feeds turf
through existing irrigation systems resulting in less harmful runoff into ponds
and streams. Also acquired was National Service Network of Abilene, TX., which
provides technology and integrated services support to the company's customers.
The company teamed with Walt Disney World Sports to provide the turf expertise
to maintain the grounds for the new Wide World of Sports complex in Florida,
scheduled to open in the spring of 1997. A partnership with GeoFlow provided
the company with an important irrigation product for rootzone irrigation on
media strips, recreation areas and residential properties that can reduce water
consumption by up to 50%. The company also partnered with Ryobi Outdoor
Products, and Maruyama Manufacturing, Inc., in alliances that provide enhanced
visibility and expanded product lines in emerging markets such as the landscape
contractor business. This line includes cultivators, battery trimmers, hedge
trimmers and blower vacuums.
In 1996, the company continued to develop world class manufacturing processes
leading to more efficient plant operations through robotics, cellular
manufacturing, and just in time sourcing of products. Both the company's
Shakopee component manufacturing plant and the Bloomington headquarters'
commercial operations received ISO 9000 designations. Prior to 1996, both the
Riverside and Tomah manufacturing facilities achieved such designations.
The company continues to provide 2-cycle and 4-cycle gasoline walk-behind power
mowers that produce lower emissions. The company introduced electric mowers for
both the Toro-Registered Trademark- and Lawn-Boy-Registered Trademark- brands in
1996, including the Toro Carefree-TM- line which integrates Toro-Registered
Trademark- mulching technology in an electric mower. In addition, Lawn-
Boy-Registered Trademark- introduced a new line of snowthrowers and the E-
engine, a new low-emission 2-cycle engine for lawn mowers. Lawn-Boy-Registered
Trademark- also offers emission-free battery powered mowers. Consistent with
its long-term goal of expanding the professional turf maintenance market, the
company introduced an extensive line of new handheld, walk-behind and riding
products for the landscape contractor and has increased sales to this market.
The company improved truck fleet efficiency during the year using the QualComm
satellite tracking system to monitor and guide shipping and weather patterns.
The company also developed Consumer Gateway, an integrated hardware and software
computer system for outdoor power equipment dealers.
4
<PAGE>
MANUFACTURING
The company's consumer spring and summer products are generally manufactured in
the winter and spring months and its consumer fall and winter products are
generally manufactured in the summer and fall months. The company's irrigation
and commercial products are manufactured throughout the year.
In some areas of its business the company is primarily an assembler while in
others it is a fully integrated manufacturer. Most of the components for the
company's products are commercially available from a number of sources and the
company is generally not dependent on any one supplier. The largest component
costs are generally engines, transmissions and electric motors. The company
purchases most of its engines and motors for consumer and commercial products
from several suppliers. In addition, the company manufactures three types of
two-cycle engines for its consumer products.
Management continues to seek greater efficiencies and improve work processes
throughout the company. Toro's total quality process is focused upon improving
product quality, customer response time and reducing overall product cost.
TRADEMARKS AND PATENTS
Products manufactured by the company are nationally advertised and sold at the
retail level under the trademarks Toro-Registered Trademark-, Wheel
Horse-Registered Trademark- and Lawn-Boy-Registered Trademark-, all of which are
registered in the United States and in the principal foreign countries in which
the company markets its products. The company holds patents in the United
States and foreign countries and applies for patents as applicable. Although
management believes patents have value to the company, patent protection does
not deter competitors from attempting to develop similar products. Although
patent protection is considered to be very beneficial, the company is not
dependent on any one or more of its patents.
In connection with the recent acquisition of James Hardie Irrigation Group, the
following brand names were acquired: Lawn Genie-Registered Trademark-,
Irritrol-Registered Trademark-, Richdel-Registered Trademark-, Hardie Pope,
Hardie, Blue Stripe, Hardie Tape and Aqua-Traxx. The company has agreed to
discontinue use of the term "Hardie" or any similar name within one year of the
acquisition. However, inventory manufactured prior to that one year may
continue to carry the term "Hardie" or similar name.
SEASONALITY
Sales of the company's consumer products, which accounted for approximately 50%
of total sales in fiscal 1996, are seasonal with greater sales of consumer
products, excluding snow removal equipment, occurring between February and April
and snow removal equipment between August and January. Opposite seasons in some
global markets somewhat moderate this seasonality in consumer product sales.
Seasonality in irrigation and commercial product sales also exists, but is
tempered because the selling season in west coast and southern states continues
for a longer portion of the year than in northern states. Overall, worldwide
sales levels are highest in the second quarter. Historically, accounts
receivable balances increase between January and March as a result of extended
payment terms made available to the company's customers. Accounts receivable
balances decrease between April and June when payments are made. The seasonal
requirements of the business are financed from operations and with short-term
bank lines of credit and off-balance sheet financing.
5
<PAGE>
DISTRIBUTION AND MARKETING
The company markets the majority of its products principally through
approximately 40 domestic and 96 foreign distributors and a number of mass
merchandisers worldwide. Toro-Registered Trademark- and Lawn-Boy-Registered
Trademark- consumer products such as walk-behind power mowers, riding mowers and
snowthrowers are sold to distributors for resale to retail dealers throughout
the United States. Home solutions products and most Lawn-Boy-Registered
Trademark- products are sold directly to mass merchandisers and "do-it-yourself"
home improvement retailers. Commercial and irrigation products are sold to
distributors for resale to irrigation contractors and golf courses. Irrigation
products are also sold through distributors to irrigation dealers and direct to
irrigation dealers, mass merchandisers and "do-it-yourself" home improvement
retailers for resale to contractors, golf courses and end-users.
Internationally, consumer products are sold to distributors for resale to retail
dealers and mass merchandisers outside the United States, principally in Canada
and Western Europe. Some irrigation and consumer products are sold directly to
retail dealers in Canada, Australia and Western Europe.
The company's current marketing strategy is to maintain distinct and separate
brands and brand identification for Toro-Registered Trademark-, Toro-Registered
Trademark-Wheel Horse-Registered Trademark- and Lawn-Boy-Registered Trademark-
products. The company is currently evaluating its marketing strategies with
respect to the brand names acquired in connection with the acquisition of the
James Hardie Irrigation Group.
The company's distribution systems for the sale of its products are intended to
assure quality of sales and market presence as well as effective after-market
service. The company considers its distribution network to be a significant
competitive asset in marketing Toro-Registered Trademark-, Toro-Registered
Trademark-Wheel Horse-Registered Trademark- and Lawn-Boy-Registered Trademark-
products.
The company advertises its products during appropriate seasons throughout the
year on television, radio and in print. Most of the company's advertising
emphasizes its brand names. Advertising is directly paid by the company as well
as through cooperative programs with distributors, dealers and mass merchants.
BACKLOG OF ORDERS
The order backlog at October 31, 1996 and 1995 was as follows:
1996 1995
------------- --------------
Consumer $ 51,373,000 $ 46,087,000
Commercial 55,138,000 49,624,000
Irrigation 4,333,000 4,417,000
The increase in consumer product backlog reflects the sell-out of gas snow
products in fiscal 1996. This resulted in increased orders of gas snow products
at the end of fiscal 1996 in anticipation of another hard winter season. The
increase for commercial products reflects continued sales growth in most product
lines. The existing backlog is expected to be filled in the succeeding fiscal
year.
6
<PAGE>
COMPETITION
The principal competitive factors in the company's markets are product
innovation, quality, service and pricing. Management believes the company
offers high quality products with the latest technology and design innovations.
Also, by selling Toro-Registered Trademark-, Toro-Registered Trademark-Wheel
Horse-Registered Trademark- and Lawn-Boy-Registered Trademark- brand products
through a network of distributors, dealers and mass merchants who provide
service, the company offers competitive service during and after the relevant
warranty period.
The company competes in all product lines with numerous manufacturers, many of
which have substantially greater financial resources than the company.
Management believes that its commitment to product innovation, its distribution
systems and its focus on target markets, position it well to compete in these
various markets.
CONSUMER
The company's principal competitors for mowing and snow equipment are
American Yard Products, Inc. (a subsidiary of Electrolux AB), Deere &
Company, Honda Motor Co., Ltd., MTD Products, Inc., Murray Ohio
Manufacturing Co., Inc. (a subsidiary of Tompkins Corp.), Sears, Roebuck
and Co., Snapper Power Equipment (a division of ACT), Ariens Company,
Bolens Corporation (a division of Garden Way, Incorporated), Noma Outdoor
Products, Simplicity Manufacturing Company and Yamaha Motor Corporation,
USA. The principal competitors in home solutions products are The Black
and Decker Corporation, K & S Industries, Inc., Malibu Lighting (a
registered trademark of Intermatic, Inc.) and Poulan/Weed Eater (a division
of Electrolux AB).
COMMERCIAL
The company's commercial products compete with products from numerous
manufacturers, but the principal competitors across most of the company's
commercial product lines are Deere & Company, American Honda Motor Co.,
Inc., Echo Inc., Stihl Inc., Scag Power Equipment, Shindaiwa Inc., Snapper
Inc., Gravely International, Exmark Manufacturing Co., Inc., Lesco Inc.,
Walker Manufacturing Co., Cub Cadet Power Equipment, American Yard
Products, Husqvarna Forest and Garden Co., The Ariens Co., MTD Products
Inc., Textron Jacobsen and Ransomes Sims & Jefferies PLC, (based in the
United Kingdom).
IRRIGATION
The company's principal competitors in irrigation products are Hunter
Industries and Rain Bird Sprinkler Manufacturing Corporation.
INTERNATIONAL
The international market is generally fragmented so that the degree of
competition varies among the different countries in which the company
markets its consumer, commercial and irrigation products. Most competitors
in the irrigation and commercial product lines are based in the United
States. Consumer product lines can face more competition where foreign
competitors manufacture and market competing products in their countries at
a lower cost. In addition, fluctuations in the value of the U.S. dollar
may affect the price of the company's products in such markets, thereby
affecting their competitiveness.
RESEARCH AND DEVELOPMENT
The company conducts research and development activities in an effort to improve
existing products and develop new products. Amounts expended on such
activities, including engineering costs, aggregated approximately $31.3 million,
or 3.4% of net sales for the year ended October 31, 1996, $6.9 million, or 3.6%
of net sales for the 3 months ended October 31, 1995, $26.5 million, or 2.8% of
net sales for the year ended July 31, 1995, and $24.6 million, or 3.1% of net
sales for the year ended July 31, 1994. Management believes that the company's
research and development efforts are important to the quality, mix and growth of
its businesses and plans to continue its strong commitment to such activities.
7
<PAGE>
GOVERNMENTAL REGULATION
The company's products are subject to various federal statutes designed to
protect consumers and are subject to the administrative jurisdiction of the
federal Consumer Product Safety Commission. The company is also subject to
certain federal and state environmental, occupational safety and other
regulations, none of which has had a material adverse affect on its operations
or business. Management believes the company is in substantial compliance with
all such regulations. The Environmental Protection Agency (EPA) released Phase
I regulations for all gas engines under 25 horsepower in June of 1995. Toro's
four-cycle engine suppliers are required to comply with the EPA regulations on
or before September 1997. The company expects its own two-cycle walk-behind
power mower engines to be able to comply with Phase I regulations beginning in
September of 1997. This will allow the company to continue producing its two-
cycle walk-behind power mower engines at its Oxford, Mississippi plant through
the year 2002.
EMPLOYEES
During fiscal 1996 the company employed an average of 3,509 employees. The
total number of employees at October 31, 1996 was 3,280, reflecting the
company's normal seasonal fluctuation in employment. Approximately 20 % of
these employees are covered by four collective bargaining agreements, one
expiring in May 1997, two expiring in September 1997, and one expiring in
November 1999.
As a result of the acquisition of the James Hardie Irrigation Group, the company
added approximately 1,070 employees. JHI's Australian employees have three
local agreements with the National Union of Workers and the Australian Workers
Union which cover approximately 15% of all JHI employees. These agreements will
expire in June 1997. None of the JHI U.S. employees are represented by unions.
Management considers its overall relations with its employees to be good.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
With the exception of the newly added JHI production facilities in Australia,
all of the company's production facilities are located within the United States.
Except for the sales of the company's foreign subsidiaries, which are not
significant when compared to total company sales, substantially all financial
transactions have been made in U.S. dollars. Consequently, the company did not
realize any significant impact to earnings due to fluctuations in foreign
currencies during the fiscal year ended October 31, 1996.
A portion of the company's cash flow is derived from sales and purchases
denominated in foreign currencies. To reduce the uncertainty of foreign
currency exchange rate movements on these sales and purchase commitments, the
company enters into forward exchange and range forward option contracts. These
contracts are designed to hedge firm and anticipated foreign currency
transactions. With the acquisition of the James Hardie Irrigation Group, the
company expects an increase in transactions denominated in Australian dollars.
Export sales were $154,716,000 for the year ended October 31, 1996, $18,557,000
for the 3 months ended October 31, 1995, and $126,560,000 and $109,344,000 for
the years ended July 31 1995 and 1994, respectively. The identifiable assets
attributable to foreign operations were not significant as of October 31, 1996.
See Note 8 to the Consolidated Financial Statements of the company contained in
the company's Annual Report to Stockholders for the fiscal year ended October
31, 1996 for additional information relating to international and export sales,
which information is incorporated herein by reference.
8
<PAGE>
ITEM 2. PROPERTIES
The company utilizes manufacturing and office facilities which total
approximately 4,437,000 square feet of space. The manufacturing facilities,
excluding JHI, operated at about 62% of total plant capacity in fiscal 1996.
Actual plant utilization varies during the year depending upon the production
cycle. Management believes that the current facilities are sufficient for
current production needs. The following schedule outlines the company's
facilities by location, plant size, ownership and function:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Location Square Feet Ownership Products Manufactured / Use
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Plymouth, WI 420,000 Owned Parts distribution center, office
Windom, MN 305,000 Owned Consumer components and products
Lakeville, MN 304,000 Leased Finished Goods distribution center, office
Bloomington, MN 300,000 Owned Corporate headquarters
Tomah, WI 274,000 Owned Consumer and Commercial products
Sardis, MS 245,000 Owned Consumer products
Baraboo, WI 228,000 Leased Finished Goods distribution center, office
South Bend, IN 226,000 Owned Facility closed in 1993 and is being held for resale
Riverside, CA 217,000 Owned Irrigation products
Evansville, IN 178,000 Leased Consumer and Commercial products
Olathe, KS 176,000 Leased Commercial products
Mound, MN 162,000 Leased Consumer products
Shakopee, MN 146,000 Owned Components for consumer and commercial products
El Paso, TX 143,000 Owned JHI irrigation products and warehouse
Springvale, Australia 109,000 Leased JHI irrigation products and warehouse
Beverley, Australia 109,000 Owned JHI Corporate office and distribution center
Murray Bridge, Australia 101,000 Owned JHI irrigation products and warehouse
El Cajon, California 92,000 Owned JHI irrigation products and warehouse
Oxford, MS 67,000 Owned Components for consumer products
Oevel, Belgium 63,000 Owned Finished goods distribution center, office
- -----------------------------------------------------------------------------------------------------------------------------
Total Square Feet 3,865,000
</TABLE>
Other leased office and warehouse space located in various cities in the United
States, Australia, Canada, France, Singapore, Japan and the United Kingdom
totaled approximately 572,000 square feet.
ITEM 3. LEGAL PROCEEDINGS
The company is a party to litigation in the ordinary course of its business.
Ongoing litigation primarily involves claims for damages arising out of the use
of the company's products, some of which include claims for punitive as well as
compensatory damages. The company is also subject to administrative proceedings
in respect to certain claims involving the discharge of hazardous substances
into the environment. Certain of these claims assert damages and liability for
remedial investigations and clean up costs. Management is of the opinion that
the amounts which may be awarded or assessed in connection with these matters
will not have a material effect on the company's financial position. Further,
the company maintains insurance against product liability losses. Such
insurance presently covers claims in excess of $1,000,000 per claim or
$2,000,000 in the aggregate during any fiscal year. The company regularly
reviews these dollar limits.
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
None.
9
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The list below identifies those persons deemed to be executive officers of the
company, discloses their age and position with the company as of January 20,
1997, and positions held by them during the last five years. Officers are
elected or appointed annually. A complete list of all officers of the company
is found on the inside back cover of the Registrant's Annual Report for the year
ended October 31, 1996.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Name, Age and Position with the Company Business Experience During the Last Five Years
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Randy B. James Appointed Vice President and Controller in December 1988.
53, Vice President and Controller
- -----------------------------------------------------------------------------------------------------------------------------------
Gerald T. Knight Elected Vice President-Finance and Chief Financial Officer in April 1992.
49, Vice President-Finance and From December 1990 to April 1992, was Executive Director - Finance and
Chief Financial Officer Corporate Controller of NeXT Computer, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
Charles B. Lounsbury Elected Group Vice President September 17, 1996. From November 1993 to
53, Group Vice President September 16, 1996 was appointed Vice President, Distribution Parts and
Office of the President Debris Management. From May 1991 to November 1993 was President and Chief
Operating Officer of Leaseway Transportation Corporation. While Mr. Lounsbury
served as President and a director of Leaseway, it filed for protection under
Chapter 11 and during that period it was discharged.
- -----------------------------------------------------------------------------------------------------------------------------------
J. David McIntosh Elected Group Vice President September 17, 1996. From February 1992 to
53, Group Vice President September 16, 1996 was appointed Vice President, Consumer Division.
Office of the President Appointed Vice President and General Manager, Home Improvement Division in
May 1986.
- -----------------------------------------------------------------------------------------------------------------------------------
J. Lawrence McIntyre Elected Vice President in July 1993. Elected Secretary and General Counsel
54, Vice President, Secretary and General Counsel in August 1993. Prior to July 1993, was a shareholder with Doherty, Rumble &
Butler Professional Association.
- -----------------------------------------------------------------------------------------------------------------------------------
Kendrick B. Melrose Elected Chairman of the Board in December 1987. Elected Chief Executive
56, Chairman and Chief Executive Officer Officer in December 1983.
Office of the President
- -----------------------------------------------------------------------------------------------------------------------------------
Karen M. Meyer Has served as Vice President, Human Resources/Administrative Services since
46, Vice President, December 1988.
Human Resources/Administrative Services
- -----------------------------------------------------------------------------------------------------------------------------------
Richard R. Pollick Appointed Vice President, International Division in March 1990.
57, Vice President and General Manager
International Division
- -----------------------------------------------------------------------------------------------------------------------------------
Stephen P. Wolfe Appointed Vice President in August 1994. Elected President, Toro Credit
48, Vice President, The Toro Company and President, Company in July 1990.
Toro Credit Company
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
There are no family relationships between any director, executive officer or
person nominated to become a director or executive officer. There are no
arrangements or understandings between any executive officer and any other
person pursuant to which he or she was selected as an officer.
10
<PAGE>
Part II
- --------------------------------------------------------------------------------
All information incorporated by reference in this Part II is from the
Registrant's Annual Report to Stockholders for the fiscal year ended October 31,
1996 ("Annual Report").
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Toro Common Stock (including related Preferred Share Purchase Rights) is listed
for trading on the New York Stock Exchange. As of October 31, 1996 there were
6,841 holders of record of the company's common stock.
See "Quarterly Financial Data" on page 44 of the Annual Report for dividends
paid on and range of high and low quotations for the company's common stock on
the New York Stock Exchange for the period from August 1, 1995 to October 31,
1996, which information is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
See "Selected Financial Data" on page 24 of the Annual Report for financial data
for the year ended October 31, 1996, for the 3 month period ended October 31,
1995 and for the years ended July 31, 1995, 1994, 1993 and 1992 which
information for these periods is incorporated herein by reference.
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
See the sections entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" of the Annual Report on pages 16 through 21
and pages 25 through 29 which sections are incorporated herein by reference.
FORWARD-LOOKING INFORMATION
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: This Annual Report on Form 10-K contains various forward-looking
statements, included under the captions entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operations" of the Annual Report
which sections are incorporated herein by reference, within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Statements that are not historical are forward-looking.
When used in this document, the words "expect", "anticipate", "estimate", and
similar expressions are intended to identify forward-looking statements. In
addition, forward-looking statements are contained in Part I of this report and
may be made orally in the future by or on behalf of the company.
Forward-looking statements involve risks and uncertainties, including, but not
limited to, changes in business conditions and the economy in general in both
foreign and domestic markets; weather conditions affecting demand; seasonal
factors affecting the company's industry; lack of growth in the company's
markets; litigation; financial market changes including interest rates and
foreign exchange rates; trend factors including housing starts, new golf course
starts and market demographics; government actions including budget levels,
regulation, and legislation, primarily legislation relating to the environment,
commerce and infrastructure, and health and safety; labor relations;
availability of materials; actions of competitors; ability to integrate
acquisitions; and the company's ability to profitably develop, manufacture and
sell both new and existing products. Actual results could differ materially
from those projected in the forward-looking statements as a result of these risk
factors, and should not be relied upon as a prediction of actual future results.
The company undertakes no obligation to update any forward-looking statement to
reflect events or circumstances after the date on which such statement is made,
or to reflect the occurrence of unanticipated events.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements described in Item 14(a)1 of this report are
incorporated herein by reference.
See "Quarterly Financial Data" appearing on page 44 of the Annual Report which
is incorporated herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
12
<PAGE>
Part III
- -------------------------------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See "Executive Officers of the Registrant" in Part I of this report for
information regarding the executive officers of the company, which information
is herein incorporated by reference.
Information regarding the directors of The Toro Company and additional
information regarding certain executive officers is incorporated by reference to
the information to be contained in the Proxy Statement to be filed with respect
to the next meeting of stockholders which involves the election of directors or,
if such Proxy Statement is not filed within 120 days after the end of the fiscal
year covered by this Form 10-K, such information will be filed as part of an
amendment to this Form 10-K not later than the end of the 120-day period.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation is incorporated herein by
reference to the information to be contained in the Proxy Statement to be filed
with respect to the next meeting of stockholders which involves the election of
directors or, if such Proxy Statement is not filed within such 120 days after
the end of the fiscal year covered by this Form 10-K, such information will be
filed as part of an amendment to this Form 10-K not later than the end of the
120-day period.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding the security ownership of certain beneficial owners and
management of The Toro Company is incorporated herein by reference to the
information to be contained in the Proxy Statement to be filed with respect to
the next meeting of stockholders which involves the election of directors or, if
such Proxy Statement is not filed within such 120 days after the end of the
fiscal year covered by this Form 10-K, such information will be filed as part of
an amendment to this Form 10-K not later than the end of the 120-day period.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
13
<PAGE>
Part IV
- --------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Incorporated by reference into Part II, Item 8 of this report: Pages in Fiscal
1996
Annual Report
To Stockholders
---------------
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . 30
Consolidated Statements of Earnings for the year ended
October 31, 1996, the 3 months ended October 31, 1995 and
the years ended July 31, 1995 and 1994. . . . . . . . . . . . . . . 30
Consolidated Balance Sheets
as of October 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . 31
Consolidated Statements of Cash Flows for the year ended
October 31, 1996, the 3 months ended October 31, 1995 and
the years ended July 31, 1995 and 1994. . . . . . . . . . . . . . . 32
Notes to Consolidated Financial Statements . . . . . . . . . . . . . .33-44
(a) 2. INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Included in Part IV of this report:
Independent Auditors' Report. . . . . . . . . . . . . . . . . . . . 18
Schedule II - Valuation and Qualifying Accounts . . . . . . . . . . 19
All other schedules are omitted as the required information is inapplicable or
the information is presented in the consolidated financial statements or related
notes to the consolidated financial statements.
(a) 3. EXHIBITS
- -----------------
2 and 10(iii)(j) Stock Purchase Agreement among The Toro Company,
James Hardie (USA) Inc., James Hardie Industries
Limited and RCI Pty. Ltd. (incorporated by reference
to the Exhibit to Registrant's Current Report on Form
8-K dated September 18, 1996).
3(i)(a) and 4(a) Certificate of Incorporation of the Registrant as
amended and corrected through May 18, 1987
(incorporated by reference to Exhibit 4.2 to the
Registrant's Registration Statement on Form S-3,
Registration No. 33-16125).
3(i)(b) and 4(b) Certificate of Amendment to Certificate of
Incorporation of the Registrant dated December 8,
1987 (incorporated by reference to Exhibit 3 to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended January 29, 1988, Commission File No.
1-8649).
3(ii) and 4(c) Bylaws of the Registrant (incorporated by reference
to Exhibit 3.3 to the Registrant's Annual Report on
Form 10-K for the year ended July 31, 1991,
Commission File No. 1-8649)
14
<PAGE>
4(d) Specimen form of Common Stock certificate
(incorporated by reference to Exhibit 4(c) to the
Registrant's Registration Statement on Form S-8,
Registration No. 2-94417).
4(e) Rights Agreement dated as of June 14, 1988, between
the Registrant and Norwest Bank Minnesota, National
Association relating to rights to purchase Series B
Junior Participating Voting Preferred Stock, as
amended (incorporated by reference to Exhibit 1 to
Registrant's Registration Statement on Form 8-A dated
June 17, 1988, Commission File No. 1-8649, as
amended).
4(f) Indenture dated as of July 15, 1987, between the
Registrant and Manufacturers Hanover Trust Company,
Trustee, relating to the Registrant's 11% Sinking
Fund Debentures Due August 1, 2017 (incorporated by
reference to Exhibit 4 to the Registrant's
Registration Statement on Form S-3, Registration No.
33-15385).
10(iii)(a) * Form of Employment Agreement in effect for certain
officers of Registrant (incorporated by reference to
Exhibit 10(b) to Registrant's Annual Report on Form
10-K for the year ended July 31, 1995).
10(iii)(b) * 1992 Directors Stock Plan, as amended.
10(iii)(c) * Annual Management Incentive Plan for certain key
employees and officers of Registrant (incorporated by
reference to Exhibit A to Registrant's Proxy
Statement dated February 5, 1996).
10(iii)(d) * 1985 Incentive Stock Option Plan, as amended
(incorporated by reference Exhibit 10(b) to
Registrant's Annual Report on Form 10-K for the year
ended July 31, 1993).
10(iii)(e) * 1989 Stock Option Plan, as amended.
10(iii)(f) * 1993 Stock Option Plan, as amended.
10(iii)(g) * Continuous Performance Award Plan, as amended.
10(iii)(h) * The Toro Company Supplemental Management Retirement
Plan.
10(iii)(i) * Chief Executive Officer Succession Incentive
Agreement dated as of July 31, 1995.
11 Computation of Earnings per Share of Common Stock and
Common Stock Equivalents (page 19 of this report).
13 Registrant's Fiscal 1996 Annual Report to
Stockholders.
21 Subsidiaries of Registrant (page 20 of this report).
23 Independent Auditors' Consent (page 21 of this
report).
27 Supplemental Data Schedule; electronic filing only.
* Management contract or compensatory plan or arrangements required to be filed
as an exhibit to this form 10-K pursuant to Item 14(c).
15
<PAGE>
(b) REPORTS ON FORM 8-K
Registrant filed its Current Report on Form 8-K dated October 17, 1996,
reporting the September 18, 1996 agreement entered into with James Hardie
Industries Limited of Australia and related companies, pursuant to which
Registrant agreed to purchase the stock of James Hardie Irrigation, Inc. and
certain related companies, all known as the James Hardie Irrigation Group,
subject to certain terms and conditions.
Registrant filed its Current Report on Form 8-K dated December 16, 1996,
reporting the completion of the acquisition of James Hardie Irrigation Group
from James Hardie Industries Limited of Australia on December 2, 1996 through
the acquisition of all of the outstanding stock of James Hardie Irrigation,
Inc., a Nevada corporation, James Hardie Irrigation Pty. Limited, a corporation
organized under the laws of South Australia, Australia, and James Hardie
Irrigation Europe S.p.A., a corporation organized under the laws of Italy.
- --------------------------------------------------------------------------------
The company's Annual Report on Form 10-K for the fiscal year ended October 31,
1996, at the time of its filing with the Securities and Exchange Commission,
shall modify and supersede all prior documents filed pursuant to Sections 13, 14
and 15(d) of the 1934 Act for purposes of any offers or sales of any securities
after the date of such filing pursuant to any Registration Statement or
Prospectus filed pursuant to the Securities Act of 1933 which incorporates by
reference such Annual Report on Form 10-K.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE TORO COMPANY
--------------------------
(Registrant)
Dated: January 20, 1997
/s/ Gerald T. Knight
---------------------
Gerald T. Knight
Vice President - Finance
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
- --------------------------------------------------------------------------------
Signature Title Date
- --------------------------------------------------------------------------------
/s/ Kendrick B. Melrose Chairman, Chief Executive January 20, 1997
- ------------------------- Officer, and Director
Kendrick B. Melrose (principal executive officer)
/s/ Gerald T. Knight Vice President - Finance, January 20, 1997
- ------------------------- Chief Financial Officer
Gerald T. Knight (principal financial officer)
/s/ Randy B. James Vice President, Controller January 20, 1997
- ------------------------- (principal accounting officer)
Randy B. James
/s/ Ronald O. Baukol Director January 20, 1997
- -------------------------
Ronald O. Baukol
/s/ Robert C. Buhrmaster Director January 20, 1997
- -------------------------
Robert C. Buhrmaster
/s/ Janet K. Cooper Director January 20, 1997
- -------------------------
Janet K. Cooper
/s/ Alex A. Meyer Director January 20, 1997
- -------------------------
Alex A. Meyer
/s/ Robert H. Nassau Director January 20, 1997
- -------------------------
Robert H. Nassau
/s/ Dale R. Olseth Director January 20, 1997
- -------------------------
Dale R. Olseth
/s/ Edwin H. Wingate Director January 20, 1997
- -------------------------
Edwin H. Wingate
17
<PAGE>
[Letterhead]
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The Toro Company:
Under date of December 16, 1996, we reported on the consolidated balance sheets
of The Toro Company and subsidiaries as of October 31, 1996 and 1995, and the
related consolidated statements of earnings and cash flows for the year ended
October 31, 1996, the three-month period ended October 31, 1995 and the years
ended July 31, 1995 and 1994, as contained in the 1996 annual report to
stockholders. These consolidated financial statements and our report thereon
are incorporated by reference in the annual report on Form 10-K for the fiscal
year 1996. In connection with our audits of the aforementioned consolidated
financial statements, we also have audited the related consolidated financial
statement schedule listed in the accompanying index. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
December 16, 1996
18
<PAGE>
THE TORO COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE CHARGED TO
DESCRIPTION AT BEGINNING COSTS AND OTHER (a) DEDUCTIONS BALANCE AT
OF YEAR EXPENSES (b) END OF YEAR
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended October 31, 1996
Allowance for doubtful accounts $ 7,542,000 $ 3,358,000 $ 330,000 $ 1,225,000 $ 10,005,000
- -------------------------------------------------------------------------------------------------------------------------------
Three Months Ended October 31, 1995
Allowance for doubtful accounts $ 7,343,000 $ 720,000 $ 0 $ 521,000 $ 7,542,000
- -------------------------------------------------------------------------------------------------------------------------------
Year Ended July 31, 1995
Allowance for doubtful accounts $ 7,702,000 $ 1,543,000 $ 20,000 $ 1,922,000 $ 7,343,000
- -------------------------------------------------------------------------------------------------------------------------------
Year Ended July 31, 1994
Allowance for doubtful accounts $ 5,589,000 $ 3,032,000 $ 765,000 $ 1,684,000 $ 7,702,000
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Additions to allowance for doubtful accounts due to
reclassification and acquisitions.
(b) Uncollectible accounts charged off, net of recoveries.
19
<PAGE>
THE TORO COMPANY
1992 DIRECTORS STOCK PLAN
1. PURPOSE OF THE PLAN. The purpose of The Toro Company 1992 Directors Stock
Plan ("Plan") is to enable The Toro Company (the "Company") to attract and
retain experienced and knowledgeable independent directors to serve on the
Board of Directors of the Company or its subsidiaries, and to further align
their interests with those of the stockholders of the Company by providing
for or increasing their stock ownership interests in the Company. It is
intended that the Plan be interpreted to comply with Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), to the
extent applicable.
2. ELIGIBILITY. All members of the Company's Board of Directors who are not
current employees of the Company or any of its subsidiaries ("Nonemployee
Directors") are eligible to participate in the Plan.
3. PLAN AWARDS.
a. DIRECTORS SHARES. To carry out the purposes of the Plan, the Company
shall issue shares ("Directors Shares") of the Company's Common Stock,
$1.00 par value and related preferred share purchase rights (subject
to adjustment as provided in Section 4 hereof) (the "Common Stock"),
to each person who is then a Nonemployee Director, on the first day of
each fiscal year in an amount equal to $5,000 divided by the fair
market value of one share of Common Stock; provided, however, that the
first award of Directors Shares made under the Plan shall be made on
the date that the Plan is first approved by the Company's stockholders
to Nonemployee Directors then serving. The "fair market value of one
share of Common Stock" shall be the average of the closing prices of
the Common Stock on the New York Stock Exchange as reported in The
Wall Street Journal for each of the trading days in the three calendar
months immediately prior to the date of issue of the Directors Shares.
b. DIRECTORS OPTIONS.
i. ANNUAL GRANT. Subject to the terms and conditions of this Section
3.b., the Company shall grant a nonqualified option ("Directors
Options") to purchase 1,000 shares of the Common Stock, to each
person who is then a Nonemployee Director, on the first day of
each fiscal year at an exercise price per share equal to the fair
market value of one share of Common Stock on the date of grant;
provided, however, that the first award of Directors Options made
under the Plan shall be contingent on approval by the Company's
<PAGE>
stockholders of the grant of Directors Options. The "fair market
value of one share of Common Stock" shall be the closing price of
the Common Stock on the New York Stock Exchange on the first day
of the Company's fiscal year with respect to which the grant is
made, as reported in The Wall Street Journal.
ii. OPTION TERMS.
(a) Directors Options shall be exercisable in whole or in part
commencing six months following the date of grant and shall
remain exercisable for a term of five years after the date
of grant, except that the first Directors Options awarded
contingent upon approval by the Company's stockholders of
the grant of Directors Options shall expire on October 31,
2000.
(b) No Directors Option shall be assigned or transferred, except
by will or the laws of descent and distribution. An option
so transferred may be exercised after the death of the
individual to whom it is granted only by such individual's
legal representatives, heirs or legatees, not later than the
earlier of the date the option expires or one year after the
date of death of such individual, and only with respect to
an option exercisable at the time of death.
(c) During the lifetime of a Nonemployee Director, options held
by such individual may be exercised only by the Nonemployee
Director and only while serving as a member of the Board of
Directors of the Company and only if the Nonemployee
Director has been continuously so serving since the date
such options were granted; provided, however, that in the
event of disability of a Nonemployee Director, options may
be exercised by such individual not later than the earlier
of the date the option expires or one year after the date
such service as a member of the Board of Directors ceases by
reason of disability, but only with respect to an option
exercisable at the time such service ceases.
(d) Payment of the exercise price may be made in cash, in shares
of Common Stock valued at fair market value on the date of
exercise or in a combination of cash and Common Stock.
<PAGE>
c. SHARE PRORATION. If, on any date on which Directors Shares are to be
issued pursuant to Section 3.a. or Directors Options are to be granted
pursuant to Section 3.b., the number of shares of Common Stock is
insufficient for the issuance of the entire number of shares to be
issued or the grant of the entire number of options as calculated in
accordance with Section 3.a. or Section 3.b., then the number of
shares to be issued to each Nonemployee Director entitled to receive
Directors Shares or Directors Options on such date shall be such
Nonemployee Director's proportionate share of such available number of
shares or options (rounded down to the greatest number of whole
shares), provided that if a sufficient number of shares of Common
Stock is available to issue all of the Directors Shares, then the
entire number of Directors Shares shall be issued first and the number
of shares to be subjected to options shall be prorated in accordance
with this section.
d. SUPPLEMENTAL BENEFIT. Directors Shares and Directors Options are a
supplemental benefit and are not a component of the annual retainer
paid to Nonemployee Directors. The value of Directors Shares and
Directors Options shall not be included in the calculation by the
Company of the amount of compensation upon which a Nonemployee
Director's retirement benefit is calculated for purposes of the
Company's Director Retirement Plan or any similar plan.
4. STOCK SUBJECT TO PLAN. Subject to adjustment as provided in this paragraph
and subject to increase by amendment of the Plan, the total number of
shares of Common Stock that is reserved and available for issuance as
Directors Shares or pursuant to Directors Options granted under the Plan
shall be 65,000 shares. If any Directors Option granted hereunder expires
unexercised or terminates, the shares of Common Stock reserved for issuance
pursuant to such option shall, to the extent of any such termination or to
the extent the shares covered by an option are not issued or used, again be
available for option grants under the Plan. Any shares issued by the
Company in connection with the assumption or substitution of outstanding
option grants from any acquired corporation shall not reduce the shares
available for stock awards or option grants under the Plan. Appropriate
adjustments in the number of shares of the Common Stock that may be
available for option grants under the Plan and adjustments in the option
price per share of outstanding options may be made by the Committee in its
discretion to give effect to adjustments made in the number of shares of
Common Stock of the Company through any merger, consolidation,
recapitalization, reclassification, combination, stock dividend, stock
split or other similar change in the corporate structure of the Company
affecting the Common Stock, or a sale by the Company of all or part of its
assets or any distribution to stockholders other than a normal cash
dividend.
<PAGE>
5. CHANGE OF 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 Directors Options shall fully vest, unless otherwise
limited by the Committee at the time of grant, and be exercisable in their
entirety immediately, and notwithstanding any other provisions of the Plan,
shall continue to be exercisable for three years following the later of the
threatened or actual Change of Control, but not later than ten years after
the date of grant. A Change of Control means the earliest to occur of (i) 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, (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.
6. ADMINISTRATION OF THE PLAN. The Plan shall be administered by a committee
composed of those members of the Board of Directors of the Company who are
also employees of the Company (the "Committee"). The Committee shall have
the authority to carry out all provisions of the Plan; provided, however,
that it shall have no discretion to determine which Nonemployee Directors
may receive Directors Shares or Directors Options or to set the value of
such Directors Shares or Directors Options, other than to make the
calculations required by Section 3.a. and Section 3.b.
7. TERM OF PLAN. The Plan became effective on August 20, 1992 and shall
terminate ten (10) years thereafter, unless sooner terminated by action of
the Board of Directors.
8. AMENDMENT.
a. The effective date of any amendment to the Plan shall be the date of
its adoption by the Board of Directors; provided, however, that no
amendment shall be effective unless and until the same is approved by
the stockholders of the Company where the failure to obtain such
approval would adversely affect the compliance of the Plan with any
law or rule, including the Exchange Act and the Internal Revenue Code
of 1986, as amended. In the event the stockholders do not approve such
an amendment, the amendment shall be of no effect and the Plan shall
continue in effect as if such amendment had not been adopted by the
Board of Directors, unless the Board otherwise determines. No
amendment of the Plan shall adversely affect in a material manner any
right of any option
<PAGE>
holder with respect to any option theretofore granted without such
option holder's written consent.
b. The provisions of Section 3.a. and Section 3.b. shall not be amended
more than once every six (6) months other than to comport with changes
in the Code, the Employee Retirement Income Security Act, or the rules
thereunder.
<PAGE>
THE TORO COMPANY
1989 STOCK OPTION PLAN
1. PURPOSE. The purpose of the 1989 Stock Option Plan (the "Plan") is to
advance the interests of The Toro Company (the "Company") and its
stockholders by providing an incentive to certain employees of the Company
and its subsidiaries and to certain other key individuals who perform
services for the Company and its subsidiaries, to contribute significantly
to the strategic and long-term performance objectives and growth of the
Company and its subsidiaries. This purpose is expected to be achieved by
granting options to acquire the Common Stock, $1.00 par value, and related
preferred share purchase rights of the Company (the "Common Stock").
Subject to the provisions of the Plan, options may contain such terms and
conditions as shall be required so as to be either nonqualified stock
options ("nonqualified options") or incentive stock options ("Incentive
Stock Options") as defined in Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"). Subject to such limits as may be imposed by
the Plan, nonqualified options or Incentive Stock Options or both may be
granted to an eligible individual.
2. EFFECTIVE DATE. The effective date of the Plan shall be August 8, 1989.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Compensation Committee (the "Committee") of the Board of Directors of the
Company (the "Board"), provided that members of the Committee shall be
Non-employee Directors as contemplated by Rule 16b-3 promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act") or any successor rule
and shall qualify to administer the Plan as contemplated by Section 162(m)
of the Code and the regulations thereunder ("Section 162(m)"). A majority
of the members of the Committee shall constitute a quorum for any meeting
of the Committee and the acts of a majority of the members present at any
meeting at which a quorum is present or the acts unanimously approved in
writing by all members of the Committee shall be the acts of the Committee.
The decision of the Committee on any matter affecting the Plan and
obligations arising under the Plan or any option granted thereunder shall
be deemed final and binding upon all persons. No member of the Board or of
the Committee shall be liable for any action or determination taken or made
in good faith with respect to the Plan or any option granted thereunder.
Committee members shall be reimbursed for out-of-pocket expenses reasonably
incurred in the administration of the Plan.
Subject to the express provisions of the Plan, the Committee shall have
plenary authority, in its discretion, to interpret the Plan; to prescribe,
amend and rescind rules and regulations relating to the Plan; to determine
the exercise price of each option to purchase Common Stock, the individuals
to whom and the time or times at which options shall be granted, the number
of shares to be subject to each option, when an option may be exercisable
and the other terms and provisions (and
<PAGE>
amendments thereto) of the respective option agreements (which need not be
identical); to determine whether a particular option is to be an Incentive
Stock Option and the terms and provisions thereof that shall be required in
the judgment of the Committee to provide therefor or to conform to any
change in any law or regulation applicable thereto, or to any other law or
regulation that may hereafter become effective to provide similar or
related tax benefits to option holders; and to make all other
determinations deemed necessary or advisable for the administration of the
Plan.
4. COMMON STOCK SUBJECT TO THE PLAN. Subject to adjustment as provided in this
paragraph and subject to increase by amendment of the Plan, the total
number of shares of Common Stock that is reserved and available for
issuance pursuant to options granted under the Plan shall be 1,700,000
shares. If any option granted hereunder terminates, expires unexercised, is
exchanged for other options without the issuance of shares of Common Stock
or is exercised by the delivery or constructive delivery of shares of
Common Stock already owned by the option holder, the shares of Common Stock
reserved for issuance pursuant to such option shall, to the extent of any
such termination or to the extent shares covered by an option are not
issued or used, again be available for option grants under the Plan. Any
shares issued by the Company in connection with the assumption or
substitution of outstanding grants from any acquired corporation shall not
reduce the shares available for option grants under the Plan. Shares of
Common Stock that may be issued hereunder may be authorized but unissued
shares, reacquired or treasury shares, or outstanding shares acquired in
the market or from private sources, or a combination thereof. Appropriate
adjustments in the number of shares of the Common Stock that may be
available for option grants under the Plan and adjustments in the option
price per share of outstanding options may be made by the Committee in its
discretion to give effect to adjustments made in the number of shares of
Common Stock of the Company through any merger, consolidation,
recapitalization, reclassification, combination, stock dividend, stock
split or other similar change in the corporate structure of the Company
affecting the Common Stock, or a sale by the Company of all or part of its
assets or any distribution to stockholders other than a normal cash
dividend.
5. ELIGIBILITY. Options may be granted to any employee of the Company or any
subsidiary thereof who is regularly employed in an executive, managerial,
professional or technical position, and to any other individual who
performs services for the Company or any subsidiary and who contributes
significantly to the strategic and long-term performance objectives of the
Company and its subsidiaries. Options may be granted to directors of the
Company who are also employees of the Company. More than one option may be
granted to the same individual. No option may be granted to an individual
who owns, directly or indirectly, Common Stock or other capital stock of
the Company possessing more than 5% of the total combined voting power or
value of any class of capital stock of the Company or a subsidiary
immediately after such option is granted. Except
<PAGE>
for the foregoing limitations, there is no minimum or maximum number of
shares of Common Stock with respect to which options may be granted to any
individual under the Plan. Individuals to whom options are granted are at
times referred to as "option holders".
6. DURATION OF THE PLAN. The Plan shall remain in effect until all shares
reserved for issuance pursuant to the Plan shall have been purchased
pursuant to options granted under the Plan, provided that options under the
Plan must be granted within ten years from the effective date of the Plan.
7. GENERAL TERMS OF OPTIONS. Options shall be evidenced by stock option
agreements in such form and not inconsistent with the Plan as the Committee
shall approve from time to time, which agreements shall contain in
substance the following terms and conditions:
A. DATE OF GRANT. An option agreement shall specify the date of grant,
which shall be the date on which the Committee grants an option or any
later date which the Committee specifically designates.
B. NUMBER OF SHARES OF COMMON STOCK. An option agreement shall specify
the number of shares of Common Stock to which it pertains.
Notwithstanding any other provision of the Plan, the maximum number of
shares that may be covered by any option grant during any calendar
year shall be 100,000 shares.
C. EXERCISE PRICE. The exercise price of all stock options will be
granted at fair market value, except for performance based stock
options, such as those granted in connection with the Continuous
Performance Award Plan, where the exercise price is an average and on
the date of grant could be higher or lower than fair market value.
Fair market value is generally determined to be the closing price for
the Common Stock on the New York Stock Exchange as reported by The
Wall Street Journal or other readily available quotation of composite
transactions.
D. TERM OF OPTIONS. The term of each option shall be fixed by the
Committee.
E. EXERCISABILITY AND TRANSFERABILITY.
(i) The Committee shall have the authority to determine whether an
option agreement shall specify periods after the date of grant
of an option during which the option or any portion thereof may
not yet be exercisable, including provisions applicable to
persons subject to Section 16 of the Exchange Act.
<PAGE>
(ii) During the lifetime of an option holder, options held by such
individual may be exercised only by the option holder and only
while an employee of the Company or a parent or subsidiary of
the Company or otherwise performing services for the Company or
a parent or subsidiary and only if the option holder has been
continuously so employed or engaged since the date such options
were granted; provided, however, that (a) in the event of
disability of an option holder, options may be exercised by
such individual not later than the earlier of the date the
option expires or one year after the date such employment or
performance of services ceases by reason of disability, but
only with respect to an option exercisable at the time such
employment or performance of services ceases and (b) an option
other than an Incentive Stock Option may be exercised (I) after
such individual ceases to be an employee by reason of
retirement, either at or after age 60 but not later than the
earlier of the date the option expires or four years after the
date of retirement, or, if approved by the Committee, after
retirement at an age less than age 60 but not later than the
earlier of the date the option expires or three years after the
date of retirement; and (II) in the event a salary replacement
option is granted by the Committee and the option holder is
involuntarily terminated during the option term or becomes
disabled or dies, the Committee shall have the right to grant
to the option holder or his personal representative, as the
case may be, the right to request either (1) that the option be
cancelled and the option holder or his estate be paid an amount
equal to the compensation the option holder has given up from
the date of grant to the date of such termination, disability
or death together with interest at the prime rate less the then
market gain on that portion of the shares covered by the option
which is then vested; or (2) that the stock option accelerates
such that the option be deemed to have vested at an appropriate
rate per month (as determined by the Committee) from the date
of grant to the last date of the month in which the date of
termination, disability or death occurs, such accelerated
option to be then exercisable for a period of three years
following such date but only with respect to an option
exercisable at the time such individual ceases to be an
employee.
(iii) Notwithstanding any provision of this paragraph 7.E, if within
one year after the termination of employment with or
performance of services for the Company, an option holder is
employed or retained by a company that competes with the
business of the Company or such individual violates any
confidentiality agreement with the Company, the Company may
cancel and rescind all options held by such individual and
demand return of the economic value of any
<PAGE>
option which was realized or obtained (measured at the date of
exercise) by such individual at any time during the period
beginning on the date which is twelve months prior to the date
of termination.
(iv) Absence on leave or any other interruption in the performance
of services by an option holder with the Company shall, if
approved by the Committee, not be deemed a cessation or
interruption of employment or services for the purposes of the
Plan.
(v) No option shall be assignable or transferable by the individual
to whom it is granted except that it may be transferable by
will or the laws of descent and distribution. An option so
transferred may be exercised after the death of the individual
to whom it is granted only by such individual's legal
representatives, heirs or legatees, not later than the earlier
of the date the option expires or one year after the date of
death of such individual, and only with respect to an option
exercisable at the time of death.
(vi) In no event shall any option be exercisable at any time after
its expiration date unless extended by the Committee. When an
option is no longer exercisable, it shall be deemed to have
lapsed or terminated.
F. METHODS OF EXERCISE. Subject to the terms and conditions of the Plan
and the terms and conditions of the option agreement, an option may be
exercised in whole at any time or in part from time to time, by
delivery to the Company at its principal office of a written notice of
exercise specifying the number of shares with respect to which the
option is being exercised, accompanied by payment in full of the
exercise price for shares to be purchased at that time. Payment may be
made (i) in cash, (ii) in shares of Common Stock valued at the fair
market value of the Common Stock on the date of exercise or (iii) in a
combination of cash and Common Stock. The Committee may also, in its
sole discretion, permit option holders to deliver a notice of exercise
of options and to simultaneously sell the shares of Common Stock
thereby acquired pursuant to a brokerage or similar arrangement
approved in advance by proper officers of the Company, using the
proceeds from such sale as payment of the exercise price, or may
authorize such other methods as it deems appropriate and as comply
with requirements of the Code and the Exchange Act.
No shares of Common Stock shall be issued until full payment therefor
has been made.
G. ACCELERATED OWNERSHIP FEATURE. An option may, in the discretion of the
Committee, include the right to acquire an accelerated ownership
<PAGE>
nonqualified stock option ("AO Option"). An option which provides for
the grant of an AO Option shall entitle the option holder, upon
exercise of that option and payment of the appropriate exercise price
in shares of Common Stock that have been owned by such option holder
for not less than six months prior to the date of exercise, to receive
an AO Option. An AO Option is an option to purchase, at fair market
value at the date of grant of the AO Option, a number of shares of
Common Stock equal to the sum of the number of whole shares delivered
by the option holder in payment of the exercise price of the original
option and the number of whole shares, if any, withheld by the Company
as payment for withholding taxes. An AO Option shall expire on the
same date that the original option would have expired had it not been
exercised. All AO Options shall be nonqualified options.
H. CHANGE OF 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 options shall fully vest, unless
otherwise limited by the Committee at the time of the option grant,
and be exercisable in their entirety immediately, and notwithstanding
any other provisions of the Plan, shall continue to be exercisable for
three years following the later of the threatened or actual Change of
Control, but not later than ten years after the date of grant. A
Change of Control means the earliest to occur of (i) 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, (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.
I. REORGANIZATION. The Committee may, in its sole discretion, make
provisions in any option agreement for the protection of outstanding
options in the event of a merger, consolidation, reorganization or
liquidation of the Company or the acquisition of stock or assets of
the Company by another entity.
J. RIGHTS AS A STOCKHOLDER. An option holder shall have no rights as a
stockholder with respect to any Common Stock covered by an option
until exercise of such option and issuance of shares of Common Stock.
Except as otherwise expressly provided in the Plan, no adjustments
shall be made
<PAGE>
for dividends or other rights for which the record date is prior to
issuance of the Common Stock.
K. GENERAL RESTRICTION. Each option shall be subject to the requirement
that, if at any time the Board shall determine in its discretion that
the listing, registration or qualification of the Common Stock subject
to such option on any securities exchange or under any state or
federal law, or the consent or approval of any government regulatory
body, is necessary or desirable as a condition of, or in connection
with, the granting of such option or the issue or purchase of Common
Stock thereunder, such option may not be exercised in whole or in part
unless such listing, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions not
acceptable to the Board.
L. FOREIGN NATIONALS. Without amending the Plan, awards may be granted to
individuals who are foreign nationals or are employed or otherwise
performing services for the Company or any subsidiary outside the
United States or both, on such terms and conditions different from
those specified in the Plan as may, in the judgment of the Committee,
be necessary or desirable to further the purpose of the Plan.
8. INCENTIVE AND NONQUALIFIED OPTIONS. It is intended that certain options
granted under the Plan shall be Incentive Stock Options and shall meet the
applicable requirements of and contain or be deemed to contain all
provisions required under Section 422 of the Code or corresponding
provisions of subsequent revenue laws and regulations in effect at the time
such options are granted; that other options shall not meet such
requirements and shall be nonqualified stock options; and that any
ambiguities in construction shall be interpreted in order to effectuate
such intent. The Committee may grant one or more options of either type, or
of both types, to any one or more individuals either at different times or
concurrently. Such options shall be subject to the terms and conditions set
forth elsewhere in the Plan and to the following:
A. INCENTIVE STOCK OPTIONS. The term of any Incentive Stock Option shall
meet the requirements of Section 422 of the Code. Any Incentive Stock
Option shall be treated as "outstanding" until it is exercised in full
or expires by reason of lapse of time. To the extent that the
aggregate fair market value of Common Stock (determined at the time of
grant of the Incentive Stock Option in accordance with paragraph 7.C
of the Plan) with respect to which Incentive Stock Options are
exercisable for the first time by an option holder during any calendar
year (under all such plans of the Company and its parent and
subsidiary corporations) exceeds $100,000 or such other limit as may
be imposed by the Code, such options to the extent they exceed such
limit shall be treated as options which are not Incentive
<PAGE>
Stock Options. In applying the foregoing limitation, options shall be
taken into account in the order in which they were granted.
B. NONQUALIFIED OPTIONS. There is no limitation on the maximum amount of
nonqualified options which may be exercised in any year.
9. WITHHOLDING TAXES. The Company shall have the right to deduct from any
settlement made under the Plan, including the exercise of an option or the
sale of shares of Common Stock, any federal, state or local taxes of any
kind required by law to be withheld with respect to such payments 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.
10. AMENDMENT OF THE PLAN. The Plan may be amended, suspended or discontinued
in whole or in part at any time and from time to time by the Board,
including an amendment to increase the number of shares of Common Stock
with respect to which options may be granted, provided however that no
amendment shall be effective unless and until the same is approved by
stockholders of the Company where the failure to obtain such approval would
adversely affect the availability of any exemption under Rule 16b-3 under
the Exchange Act or successor rule and with other applicable law, including
the Code. No amendment of the Plan shall adversely affect in a material
manner any right of any option holder with respect to any option
theretofore granted without such option holder's written consent.
11. MISCELLANEOUS.
A. USE OF PROCEEDS. The proceeds derived from the sale of shares of
Common Stock pursuant to options granted under the Plan shall
constitute general funds of the Company.
B. PARENT AND SUBSIDIARY. As used herein, the terms "parent" and
"subsidiary" shall mean "parent corporation" and "subsidiary
corporation", respectively, as defined in Section 424 of the Code.
<PAGE>
THE TORO COMPANY
1993 STOCK OPTION PLAN
1. PURPOSE. The purpose of the 1993 Stock Option Plan (the "Plan") is to
advance the interests of The Toro Company (the "Company") and its
stockholders by providing an incentive to certain employees of the Company
and its subsidiaries and to certain other key individuals who perform
services for the Company and its subsidiaries, to contribute significantly
to the strategic and long-term performance objectives and growth of the
Company and its subsidiaries. This purpose is expected to be achieved by
granting options to acquire the Common Stock, $1.00 par value, and related
preferred share purchase rights of the Company (the "Common Stock").
Subject to the provisions of the Plan, options may contain such terms and
conditions as shall be required so as to be either nonqualified stock
options ("nonqualified options") or incentive stock options ("Incentive
Stock Options") as defined in Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"). Subject to such limits as may be imposed by
the Plan, nonqualified options or Incentive Stock Options or both may be
granted to an eligible individual.
2. EFFECTIVE DATE. The effective date of the Plan shall be August 17, 1993.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Compensation Committee (the "Committee") of the Board of Directors of the
Company (the "Board"), provided that members of the Committee shall be
Non-employee Directors as contemplated by Rule 16b-3 promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act") or any successor rule
and shall qualify to administer the Plan as contemplated by Section 162(m)
of the Code and the regulations thereunder ("Section 162(m)"). A majority
of the members of the Committee shall constitute a quorum for any meeting
of the Committee and the acts of a majority of the members present at any
meeting at which a quorum is present or the acts unanimously approved in
writing by all members of the Committee shall be the acts of the Committee.
The decision of the Committee on any matter affecting the Plan and
obligations arising under the Plan or any option granted thereunder shall
be deemed final and binding upon all persons. No member of the Board or of
the Committee shall be liable for any action or determination taken or made
in good faith with respect to the Plan or any option granted thereunder.
Committee members shall be reimbursed for out-of-pocket expenses reasonably
incurred in the administration of the Plan.
Subject to the express provisions of the Plan, the Committee shall have
plenary authority, in its discretion, to interpret the Plan; to prescribe,
amend and rescind rules and regulations relating to the Plan; to determine
the exercise price of each option to purchase Common Stock, the individuals
to whom and the time or times at which options shall be granted, the number
of shares to be subject to each
<PAGE>
option, when an option may be exercisable and the other terms and
provisions (and amendments thereto) of the respective option agreements
(which need not be identical); to determine whether a particular option is
to be an Incentive Stock Option and the terms and provisions thereof that
shall be required in the judgment of the Committee to provide therefor or
to conform to any change in any law or regulation applicable thereto, or to
any other law or regulation that may hereafter become effective to provide
similar or related tax benefits to option holders; and to make all other
determinations deemed necessary or advisable for the administration of the
Plan.
4. COMMON STOCK SUBJECT TO THE PLAN. Subject to adjustment as provided in this
paragraph and subject to increase by amendment of the Plan, the total
number of shares of Common Stock that is reserved and available for
issuance pursuant to options granted under the Plan shall be 1,600,000
shares. If any option granted hereunder terminates, expires unexercised, is
exchanged for other options without the issuance of shares of Common Stock
or is exercised by the delivery or constructive delivery of shares of
Common Stock already owned by the option holder, the shares of Common Stock
reserved for issuance pursuant to such option shall, to the extent of any
such termination or to the extent shares covered by an option are not
issued or used, again be available for option grants under the Plan. Any
shares issued by the Company in connection with the assumption or
substitution of outstanding grants from any acquired corporation shall not
reduce the shares available for option grants under the Plan. Shares of
Common Stock that may be issued hereunder may be authorized but unissued
shares, reacquired or treasury shares, or outstanding shares acquired in
the market or from private sources, or a combination thereof. Appropriate
adjustments in the number of shares of the Common Stock that may be
available for option grants under the Plan and adjustments in the option
price per share of outstanding options may be made by the Committee in its
discretion to give effect to adjustments made in the number of shares of
Common Stock of the Company through any merger, consolidation,
recapitalization, reclassification, combination, stock dividend, stock
split or other similar change in the corporate structure of the Company
affecting the Common Stock, or a sale by the Company of all or part of its
assets or any distribution to stockholders other than a normal cash
dividend.
5. ELIGIBILITY. Options may be granted to any employee of the Company or any
subsidiary thereof who is regularly employed in an executive, managerial,
professional or technical position, and to any other individual who
performs services for the Company or any subsidiary and who contributes
significantly to the strategic and long-term performance objectives of the
Company and its subsidiaries. Options may be granted to directors of the
Company who are also employees of the Company. More than one option may be
granted to the same individual. No option may be granted to an individual
who owns, directly or indirectly, Common Stock or other capital stock of
the Company possessing more than 5% of the total combined voting power or
value of any class of capital stock
<PAGE>
of the Company or a subsidiary immediately after such option is granted.
Except for the foregoing limitations, there is no minimum or maximum number
of shares of Common Stock with respect to which options may be granted to
any individual under the Plan. Individuals to whom options are granted are
at times referred to as "option holders".
6. DURATION OF THE PLAN. The Plan shall remain in effect until all shares
reserved for issuance pursuant to the Plan shall have been purchased
pursuant to options granted under the Plan, provided that options under the
Plan must be granted within ten years from the effective date of the Plan.
7. GENERAL TERMS OF OPTIONS. Options shall be evidenced by stock option
agreements in such form and not inconsistent with the Plan as the Committee
shall approve from time to time, which agreements shall contain in
substance the following terms and conditions:
A. DATE OF GRANT. An option agreement shall specify the date of grant,
which shall be the date on which the Committee grants an option or any
later date which the Committee specifically designates.
B. NUMBER OF SHARES OF COMMON STOCK. An option agreement shall specify
the number of shares of Common Stock to which it pertains.
Notwithstanding any other provision of the Plan, the maximum number of
shares that may be covered by any option grant during any calendar
year shall be 100,000 shares.
C. EXERCISE PRICE. The exercise price of all stock options will be
granted at fair market value, except for performance based stock
options, such as those granted in connection with the Continuous
Performance Award Plan, where the exercise price is an average and on
the date of grant could be higher or lower than fair market value.
Fair market value is generally determined to be the closing price for
the Common Stock on the New York Stock Exchange as reported by The
Wall Street Journal or other readily available quotation of composite
transactions.
D. TERM OF OPTIONS. The term of each option shall be fixed by the
Committee.
E. EXERCISABILITY AND TRANSFERABILITY.
(i) The Committee shall have the authority to determine whether an
option agreement shall specify periods after the date of grant
of an option during which the option or any portion thereof
may not yet be exercisable, including provisions applicable to
persons subject to Section 16 of the Exchange Act.
<PAGE>
(ii) During the lifetime of an option holder, options held by such
individual may be exercised only by the option holder and only
while an employee of the Company or a parent or subsidiary of
the Company or otherwise performing services for the Company
or a parent or subsidiary and only if the option holder has
been continuously so employed or engaged since the date such
options were granted; provided, however, that (a) in the event
of disability of an option holder, options may be exercised by
such individual not later than the earlier of the date the
option expires or one year after the date such employment or
performance of services ceases by reason of disability, but
only with respect to an option exercisable at the time such
employment or performance of services ceases and (b) an option
other than an Incentive Stock Option may be exercised (I)
after such individual ceases to be an employee by reason of
retirement, either at or after age 60 but not later than the
earlier of the date the option expires or four years after the
date of retirement, or, if approved by the Committee, after
retirement at an age less than age 60 but not later than the
earlier of the date the option expires or three years after
the date of retirement; and (II) in the event a salary
replacement option is granted by the Committee and the option
holder is involuntarily terminated during the option term or
becomes disabled or dies, the Committee shall have the right
to grant to the option holder or his personal representative,
as the case may be, the right to request either (1) that the
option be cancelled and the option holder or his estate be
paid an amount equal to the compensation the option holder has
given up from the date of grant to the date of such
termination, disability or death together with interest at the
prime rate less the then market gain on that portion of the
shares covered by the option which is then vested; or (2) that
the stock option accelerates such that the option be deemed to
have vested at an appropriate rate per month (as determined by
the Committee) from the date of grant to the last date of the
month in which the date of termination, disability or death
occurs, such accelerated option to be then exercisable for a
period of three years following such date but only with
respect to an option exercisable at the time such individual
ceases to be an employee.
(iii) Notwithstanding any provision of this paragraph 7.E, if within
one year after the termination of employment with or
performance of services for the Company, an option holder is
employed or retained by a company that competes with the
business of the Company or such individual violates any
confidentiality agreement with the Company, the Company may
cancel and rescind all options held by
<PAGE>
such individual and demand return of the economic value of any
option which was realized or obtained (measured at the date of
exercise) by such individual at any time during the period
beginning on the date which is twelve months prior to the date
of termination.
(iv) Absence on leave or any other interruption in the performance
of services by an option holder with the Company shall, if
approved by the Committee, not be deemed a cessation or
interruption of employment or services for the purposes of the
Plan.
(v) No option shall be assignable or transferable by the
individual to whom it is granted except that it may be
transferable by will or the laws of descent and distribution.
An option so transferred may be exercised after the death of
the individual to whom it is granted only by such individual's
legal representatives, heirs or legatees, not later than the
earlier of the date the option expires or one year after the
date of death of such individual, and only with respect to an
option exercisable at the time of death.
(vi) In no event shall any option be exercisable at any time after
its expiration date unless extended by the Committee. When an
option is no longer exercisable, it shall be deemed to have
lapsed or terminated.
F. METHODS OF EXERCISE. Subject to the terms and conditions of the Plan
and the terms and conditions of the option agreement, an option may be
exercised in whole at any time or in part from time to time, by
delivery to the Company at its principal office of a written notice of
exercise specifying the number of shares with respect to which the
option is being exercised, accompanied by payment in full of the
exercise price for shares to be purchased at that time. Payment may be
made (i) in cash, (ii) in shares of Common Stock valued at the fair
market value of the Common Stock on the date of exercise or (iii) in a
combination of cash and Common Stock. The Committee may also, in its
sole discretion, permit option holders to deliver a notice of exercise
of options and to simultaneously sell the shares of Common Stock
thereby acquired pursuant to a brokerage or similar arrangement
approved in advance by proper officers of the Company, using the
proceeds from such sale as payment of the exercise price, or may
authorize such other methods as it deems appropriate and as comply
with requirements of the Code and the Exchange Act.
No shares of Common Stock shall be issued until full payment therefor
has been made.
<PAGE>
G. ACCELERATED OWNERSHIP FEATURE. An option may, in the discretion of the
Committee, include the right to acquire an accelerated ownership
nonqualified stock option ("AO Option"). An option which provides for
the grant of an AO Option shall entitle the option holder, upon
exercise of that option and payment of the appropriate exercise price
in shares of Common Stock that have been owned by such option holder
for not less than six months prior to the date of exercise, to receive
an AO Option. An AO Option is an option to purchase, at fair market
value at the date of grant of the AO Option, a number of shares of
Common Stock equal to the sum of the number of whole shares delivered
by the option holder in payment of the exercise price of the original
option and the number of whole shares, if any, withheld by the Company
as payment for withholding taxes. An AO Option shall expire on the
same date that the original option would have expired had it not been
exercised. All AO Options shall be nonqualified options.
H. CHANGE OF 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 options shall fully vest, unless
otherwise limited by the Committee at the time of the option grant,
and be exercisable in their entirety immediately, and notwithstanding
any other provisions of the Plan, shall continue to be exercisable for
three years following the later of the threatened or actual Change of
Control, but not later than ten years after the date of grant. A
Change of Control means the earliest to occur of (i) 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, (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.
I. REORGANIZATION. The Committee may, in its sole discretion, make
provisions in any option agreement for the protection of outstanding
options in the event of a merger, consolidation, reorganization or
liquidation of the Company or the acquisition of stock or assets of
the Company by another entity.
J. RIGHTS AS A STOCKHOLDER. An option holder shall have no rights as a
stockholder with respect to any Common Stock covered by an option
until exercise of such option and issuance of shares of Common Stock.
Except
<PAGE>
as otherwise expressly provided in the Plan, no adjustments shall be
made for dividends or other rights for which the record date is prior
to issuance of the Common Stock.
K. GENERAL RESTRICTION. Each option shall be subject to the requirement
that, if at any time the Board shall determine in its discretion that
the listing, registration or qualification of the Common Stock subject
to such option on any securities exchange or under any state or
federal law, or the consent or approval of any government regulatory
body, is necessary or desirable as a condition of, or in connection
with, the granting of such option or the issue or purchase of Common
Stock thereunder, such option may not be exercised in whole or in part
unless such listing, registration, qualification, consent or approval
shall have been effected or obtained free of any conditions not
acceptable to the Board.
L. FOREIGN NATIONALS. Without amending the Plan, awards may be granted to
individuals who are foreign nationals or are employed or otherwise
performing services for the Company or any subsidiary outside the
United States or both, on such terms and conditions different from
those specified in the Plan as may, in the judgment of the Committee,
be necessary or desirable to further the purpose of the Plan.
8. INCENTIVE AND NONQUALIFIED OPTIONS. It is intended that certain options
granted under the Plan shall be Incentive Stock Options and shall meet the
applicable requirements of and contain or be deemed to contain all
provisions required under Section 422 of the Code or corresponding
provisions of subsequent revenue laws and regulations in effect at the time
such options are granted; that other options shall not meet such
requirements and shall be nonqualified stock options; and that any
ambiguities in construction shall be interpreted in order to effectuate
such intent. The Committee may grant one or more options of either type, or
of both types, to any one or more individuals either at different times or
concurrently. Such options shall be subject to the terms and conditions set
forth elsewhere in the Plan and to the following:
A. INCENTIVE STOCK OPTIONS. The term of any Incentive Stock Option shall
meet the requirements of Section 422 of the Code. Any Incentive Stock
Option shall be treated as "outstanding" until it is exercised in full
or expires by reason of lapse of time. To the extent that the
aggregate fair market value of Common Stock (determined at the time of
grant of the Incentive Stock Option in accordance with paragraph 7.C
of the Plan) with respect to which Incentive Stock Options are
exercisable for the first time by an option holder during any calendar
year (under all such plans of the Company and its parent and
subsidiary corporations) exceeds $100,000 or such other limit as may
be imposed by the Code, such options to the extent they exceed such
limit shall be treated as options which are not Incentive
<PAGE>
Stock Options. In applying the foregoing limitation, options shall be
taken into account in the order in which they were granted.
B. NONQUALIFIED OPTIONS. There is no limitation on the maximum amount of
nonqualified options which may be exercised in any year.
9. WITHHOLDING TAXES. The Company shall have the right to deduct from any
settlement made under the Plan, including the exercise of an option or the
sale of shares of Common Stock, any federal, state or local taxes of any
kind required by law to be withheld with respect to such payments 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.
10. AMENDMENT OF THE PLAN. The Plan may be amended, suspended or discontinued
in whole or in part at any time and from time to time by the Board,
including an amendment to increase the number of shares of Common Stock
with respect to which options may be granted, provided however that no
amendment shall be effective unless and until the same is approved by
stockholders of the Company where the failure to obtain such approval would
adversely affect the availability of any exemption under Rule 16b-3 under
the Exchange Act or successor rule and with other applicable law, including
the Code. No amendment of the Plan shall adversely affect in a material
manner any right of any option holder with respect to any option
theretofore granted without such option holder's written consent.
11. MISCELLANEOUS.
A. USE OF PROCEEDS. The proceeds derived from the sale of shares of
Common Stock pursuant to options granted under the Plan shall
constitute general funds of the Company.
B. PARENT AND SUBSIDIARY. As used herein, the terms "parent" and
"subsidiary" shall mean "parent corporation" and "subsidiary
corporation", respectively, as defined in Section 424 of the Code.
<PAGE>
THE TORO COMPANY
CONTINUOUS PERFORMANCE AWARD PLAN
1. PURPOSE OF THE PLAN. The purpose of the Continuous Performance Award Plan
(the "Plan") is to provide an incentive to members of management of The
Toro Company (the "Company") who are primarily responsible for the
management, growth and sound development of the business of the Company to
achieve the Company's long-term financial objectives, by making awards
based on achievement of performance goals ("Performance Awards").
2. EFFECTIVE DATE. The Plan shall become effective as of August 1, 1991,
subject to the approval of the stockholders of the Company at its Annual
Meeting of Stockholders on December 10, 1991, and shall continue in effect
unless and until terminated by the Board of Directors of the Company.
3. ADMINISTRATION. The Plan shall be administered by the Compensation
Committee of the Board of Directors of the Company, or its successor
committee (the "Committee"), it being intended that members of the
Committee shall qualify to administer the Plan as contemplated by Rule
16b-3 promulgated under the Securities Exchange Act of 1934 (the "Exchange
Act") or any successor rule, and as contemplated by Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code") and the rules and
regulations thereunder, and provided further that, if the stock options
granted pursuant to paragraph 6 hereof are authorized to be granted under
the Company's stock option plans, the members of the Committee shall also
have authority to act under those plans. The Committee shall have power to
select employees to whom Performance Awards are made, to determine the
terms of the Performance Awards consistent with the Plan, to prescribe
rules and regulations relating to the Plan and to construe and otherwise
implement the Plan.
4. ELIGIBILITY. Performance Awards may be made to any employee who has
primary responsibility for and directly influences achievement of long-term
financial results of the Company. Officers of the Company who are also
members of the Board of Directors shall be eligible to receive Performance
Awards. Members of the Committee shall not be eligible to receive
Performance Awards. Individuals to whom Performance Awards are made are
referred to as "Participants."
5. TERMS OF AWARDS. Performance Awards shall be evidenced by written
agreements in such form, not inconsistent with this Plan, as the Committee
shall approve from time to time, which agreements shall contain in
substance the following terms and conditions:
a. "AWARD TERM". Unless otherwise provided herein, each Performance
Award shall have a term of three fiscal years and shall be payable
only at the conclusion of such term. Notwithstanding the foregoing,
and for the purpose of bringing a Participant who has not previously
participated in this Plan into the three year award cycle of the Plan,
the Committee shall grant, in addition to a three year Performance
Award, a
<PAGE>
Performance Award having a term of one fiscal year and a Performance
Award having a term of two fiscal years, such that an award shall be
payable, if otherwise earned, at the conclusion of each of the first
two fiscal years after commencement of participation in the Plan. The
Committee may, in its discretion, grant additional, successive three
year Performance Awards to any Participant with respect to subsequent
three year periods. Notwithstanding the foregoing, the Committee may,
in its discretion, make Performance Awards having a duration of less
than the normal Award Term to an individual who is selected to first
become a Participant at a time other than the beginning of a fiscal
year of the Company or to reflect a fiscal transition period resulting
from a change in fiscal year end or similar significant event;
provided that such award shall otherwise be generally on the same
terms and conditions applicable to Performance Awards granted as of
the first day of the applicable fiscal year.
SPECIAL RULE FOR PERSONS REFERRED TO IN SECTION 162(M). If a
Performance Award is granted at a time other than the beginning of a
fiscal year, such award shall not be granted later than 90 days after
the commencement of the period of service to which the Performance
Award relates or after more than 25% of the period of service has
elapsed, in accordance with the provisions of paragraph 5.c.ii
hereof.
b. DATE OF GRANT. Except as otherwise permitted under this Plan,
Performance Awards, whether one year, two year or three year awards,
shall be granted as of the date which marks the first day of any Award
Term.
c. BASIS OF AWARD.
i. The maximum amount that may be paid with respect to any
Performance Award (the "Award Maximum") shall be determined by
multiplying (a) the base compensation actually paid to the
Participant during the period of any one-year Award Term or the
last fiscal year of any multiple-year Award Term, as the case may
be, exclusive of any bonus or other incentive compensation but
including deferred compensation, times (b) a performance factor
(such as .25, .50, 1.0, etc.) determined by the Committee, which
is intended to reflect the Participant's ability to influence the
financial results of the Company and the Participant's relative
seniority within management. The maximum dollar amount of the
Award Maximum of each Performance Award shall be set by the
Committee at the time of grant of such award.
SPECIAL RULE FOR PERSONS REFERRED TO IN SECTION 162(M): The
maximum amount that may be paid with respect to a Performance
Award granted to a person referred tp om Section 162(m) shall be
determined based on an estimate of such base compensation to be
paid during a one-year Award Term or the last fiscal year of a
multiple year Award Term, and the maximum dollar amount of the
Award Maximum shall be set by the Committee at the time of grant
of such award. Performance factors applicable to such persons
shall be as follows:
2
<PAGE>
Chief Executive Officer 1.00
President and Chief Operating Officer .75
Other Officers .25
ii. The Committee shall establish a financial performance goal based
on the Company's relative performance in achieving a return on
beginning stockholders equity (ROBE) and net income growth as
compared with other similarly classified Fortune 500 companies
(the "Performance Goal"), and the amount that shall be paid (the
"Award Payment") with respect to each Performance Award shall be
based on the achievement by the Company of such Performance Goal
during the applicable Award Term; provided that the Performance
Goal shall be established not later than 90 days after the
commencement of the period of service to which the Performance
Goal relates, provided that the outcome is substantially
uncertain at the time the Committee actually establishes the
Performance Goal; and provided further that in no event will a
Performance Goal be considered to be preestablished if it is
established after 25% of the period of service (as scheduled in
good faith at the time the Performance Goal is established) has
elapsed.
d. CALCULATION OF AWARD PAYMENT.
i. STANDARD CALCULATION. The Company's ROBE and net income growth
for each fiscal year shall be converted to a percentile score
(the Percentile Score) by comparing the ROBE and net income
growth to comparable data for all companies in the Industrial and
Farm Equipment Group of Fortune 500 (as reported for the calendar
year ended during such fiscal year). The one year Percentile
Score shall be used to determine the Award Payment with respect
to a one year Award Term and the average of the Percentile Scores
for a two or three year Award Term shall be used in determining
the Award Payment for any multiple year Performance Award. If
the Percentile Score (or average Percentile Score for a two or
three year Award Term) is: (a) at or above the 75th percentile,
each Participant shall be paid the Award Maximum; (b) between the
50th and 75th percentile, each Participant shall be paid an
amount equal to two-thirds of the Award Maximum at the 50th
percentile and ranging up on a straight line basis to 100% of the
Award Maximum at the 75th percentile; (c) between the 25th and
50th percentile, each Participant shall be paid two-thirds of the
Award Maximum at the 50th percentile and ranging down on a
straight line basis to zero at the 25th percentile; and (d) at or
below the 25th percentile, no Performance Award shall be paid.
The Award Payment with respect to a Performance Award covering
two or three fiscal years shall not be earned or paid until the
completion of the final fiscal year of the Award Term. However,
no award payment will be earned or paid to any participant during
the first six months of any Award Term.
3
<PAGE>
ii. Notwithstanding the provisions of subparagraph i of this
subparagraph 5.d., any individual who has participated in the
Plan for less than a full fiscal year during a one-year Award
Term shall receive a payment only for that portion of the fiscal
year during which the individual was a Participant (expressed as
a percentage and based on a 360 day year).
e. MAXIMUM AWARD. Notwithstanding any other provision of this Plan, the
Maximum Award Payment with respect to any Performance Award is
$1,100,000.
f. PAYMENT. Before any payment is made under the Plan, the Committee
must certify in writing that the Performance Goal justifying the
payment has been met. Subject to the provisions of subparagraph 5.g.
hereof, any amount earned with respect to a Performance Award shall be
paid in cash within a reasonable time after the last day of the Award
Term and after the Committee has certified in writing that the
applicable Performance Goal and any other material terms were
satisfied. A Participant shall have no control over the date of
payment; provided, however, that a Participant may elect to defer
receipt of the cash payment for investment in a deferred compensation
account in accordance with the Company's usual procedures, provided
that such deferred compensation account shall be maintained in cash or
cash equivalents and not in the equity securities of the Company. An
election to defer shall be made by the Participant not later than 61
days prior to the last day of an applicable Award Term, and if deemed
to be required by applicable securities laws or regulations, shall be
made during a period that qualifies as a "window period" for purposes
of rules and regulations under the Exchange Act.
g. CHANGE OF CONTROL. Each Performance Award shall provide that in the
event of a threatened or actual change of control of the Company after
one full year of any multiple year Award Term, or during the final six
months of a one-year Award Term, any such Performance Award shall
become immediately payable and the calculation of the amount payable
shall be based on the ROBE and net income growth of the Company for
the fiscal period most recently ended and the most recent Fortune 500
publication then available. 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 of, or announcement of an intention to make, a tender
offer or exchange offer the consummation of which would result in the
beneficial ownership by a 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 combination thereof, that causes 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."
4
<PAGE>
h. TRANSFERABILITY. No Performance Award granted hereunder may be
transferred by a Participant. A Participant may receive payment with
respect to a Performance Award only while an employee of the Company
or a parent or subsidiary of the Company and only if he or she has
been continuously employed since the date the Performance Award was
granted; provided, however, that:
i. In the event of the death, disability or retirement of a
Participant, an Award Payment shall be paid if otherwise earned
in accordance with subparagraph 5.d. hereof, with respect to the
portion of the applicable Award Term completed at the date of
such event (based on a 360 day year and expressed as a
percentage). The amount shall be calculated and paid in
accordance with the applicable provisions of subparagraphs 5.d.
and 5.e., notwithstanding the earlier occurrence of such event.
ii. In the event of involuntary termination of employment of a
Participant, during the Award Term, for reasons other than death,
disability or retirement, an Award Payment shall be paid, if
otherwise earned in accordance with subparagraph 5.d. hereof,
with respect to the portion of the applicable Award Term
completed at the date of such event (based on a 360 day year and
expressed as a percentage). Any payment made under this
subparagraph 5.g. shall be based on the ROBE of the Company for
the fiscal period then most recently ended and the most recent
Fortune 500 publication then available.
6. STOCK OPTIONS. At the time of granting any Performance Award, the
Committee shall grant to each Participant options to purchase shares of the
Common Stock, $1.00 par value, of the Company (the "Common Stock") under
the Company's then effective stock option plan or plans, on such terms and
conditions as may be required or permitted under such stock option plan,
provided, however, that the following terms shall be applicable unless
otherwise not permitted by such stock option plan:
a. Each Participant shall be granted one option with respect to each
Performance Award.
b. The number of shares to be subject to an option granted to a
Participant (the "Option Amount") shall be determined by: multiplying
(a) the estimated base compensation of the Participant during the
first fiscal year of the Award Term, as determined by the Human
Resources department of the Company, exclusive of any bonus or other
incentive compensation but including deferred compensation; times (b)
the performance factor described in subparagraph 5.c.i above; times
(c) 1.0 for a one-year Award Term, 1.05 for a two-year Award Term, and
1.1 for a three-year Award Term; and dividing that result by (d) the
Fair Market Value of one share of the Common Stock of the Company
determined in accordance with subparagraph 6.d. hereof.
5
<PAGE>
c. Notwithstanding paragraph 6.b., the number of shares subject to an
option shall be subject to reduction as follows: If the Company's
Percentile Score (or average Percentile Score for a multiple year
Award Term) as calculated in accordance with subparagraph 5.d. above,
is not at or above the 75th percentile, but is at or above the 25th
percentile, a portion of the option related to the applicable
Performance Award shall be deemed to expire so that the number of
shares subject to the option shall be reduced pro rata on a
straight-line basis (full shares only) to two-thirds of the Option
Amount at a 50th Percentile Score and to zero at a 25th Percentile
Score, on the same basis as provided in subparagraph 5.d. above.
Thus, if the Company does not achieve a performance equal to at least
the 25th percentile as herein provided for the Award Term, the option
shall expire automatically. The calculation required by this
subparagraph shall be made by the Committee promptly after the end of
each fiscal year, and any option or portion of an option deemed to
expire shall expire automatically upon the making of such calculation.
The Committee shall promptly notify the Participants of the results of
the calculation.
d. The exercise price per share under any option shall be the Fair Market
Value of one share of the Common Stock of the Company. The Fair
Market Value of one share of the Common Stock, for the purpose of
determining the Option Amount and the exercise price per share, shall
be the average closing price of the Common Stock on the New York Stock
Exchange for the three month period immediately prior to the grant
date, provided that such result shall otherwise be in accordance with
the then effective stock option plan.
e. An option granted with respect to any Performance Award, or the
portion thereof which remains after application of subparagraph 6.c.
above, shall become exercisable on the date the Committee notifies the
Participants in accordance with subparagraph 6.c., and may be
exercised until 90 days following the Company's public year-end
earnings announcement. If permitted under the then effective stock
option plan or under applicable securities laws, each option shall
provide that in the event of a Change of Control of the Company during
the Award Term, the option shall become immediately exercisable in the
full Option Amount and the calculation pursuant to paragraph 6.c.
shall not be applicable.
f. An option shall, by its terms, expire upon the termination of
employment of a Participant, except that in the event of retirement by
a Participant after the end of an Award Term, such retired Participant
shall be entitled to exercise the option or options involved during
the period provided in subparagraph 6.e. above.
6
<PAGE>
THE TORO COMPANY
SUPPLEMENTAL MANAGEMENT RETIREMENT PLAN
The Toro Company hereby amends and restates its Supplemental Management
Retirement Plan originally effective as of August 1, 1989, and amended and
restated on November 6, 1991. This amendment and restatement is effective as of
January 1, 1996. The Supplemental Management Retirement Plan is maintained by
The Toro Company for the purpose of providing benefits for certain of its
employees who participate in The Toro Company's Pension Plan or Profit Sharing
Plan or in both such plans in excess of the limitations on benefits and
contributions imposed by Section 401(a)(17) or Section 415 of the Internal
Revenue Code on plans to which those sections apply.
ARTICLE I
DEFINITIONS
Section 1.1 When used in this Plan document, the following terms have the
meanings indicated unless a different meaning is plainly required by the
context.
"Affiliate or Associate", for purposes of the definition of Change of
Control, shall have the respective meanings ascribed to such terms in Rule 12b-2
of the General Rules and Regulations under the Securities Exchange Act of 1934,
as amended (hereinafter referred to as the "Exchange Act").
"Beneficiary" means the person or persons selected by the Participant on a
form provided by the Company to receive the benefits provided under this Plan in
the event of the Participant's death.
"Beneficial Owner", for purposes of the definition of Change of Control, a
Person shall be deemed the "Beneficial Owner" of and shall be deemed to
"beneficially own" any securities:
(a) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
(b) which such Person or any of such Person's Affiliates or
Associates has (i) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding, or upon the exercise of conversion rights,
exchange rights, warrants or options, or otherwise; provided, however, that
a Person shall not be deemed the Beneficial Owner of, or to beneficially
own, securities tendered pursuant to a tender or exchange offer made by or
on behalf of such Person or any of such Person's Affiliates or Associates
until such tendered securities are accepted for purchase or exchange; or
(ii) the
<PAGE>
right to vote pursuant to any agreement, arrangement or understanding,
provided, however, that a Person shall not be deemed the Beneficial Owner
of, or to beneficially own, any security if the agreement, arrangement or
understanding to vote such security (A) arises solely from a revocable
proxy or consent given to such Person in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the
applicable rules and regulations of the Exchange Act and (B) is not also
then reportable on Schedule 13D under the Exchange Act (or any comparable
or successor report); or
(c) which are beneficially owned, directly or indirectly, by any
other Person with which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or understanding for the purpose
of acquiring, holding, voting (except to the extent contemplated by the
proviso to subsection (b) herein) or disposing of any securities of the
Company.
"Change of Control" shall mean the earliest to occur of (a) a public
announcement that a Person and/or Affiliates and Associates of such Person 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 of,
or announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the Beneficial Ownership by a Person 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 combination thereof, that causes 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 of
any parent of or successor to the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Compensation Committee of the Board of Directors of
the Company, or any successor committee.
"Company" means The Toro Company.
"Compensation" means compensation as defined in the Profit Sharing Plan
plus any deferred compensation under The Toro Company Supplemental Retirement
Plan.
"Eligibility Service" means eligibility service as defined in the Profit
Sharing Plan.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
2
<PAGE>
"Participant" means any key employee described in Article II of this Plan.
"Pension Plan" means The Toro Company Retirement Plan for Office and
Hourly Employees (the successor of The Toro Company Retirement Plan for Office
Employees) or any successor or replacement plan.
"Person" means, for purposes of the definition of Change of Control, any
individual, corporation, partnership, trust or other entity, and shall include
any successor (by merger or otherwise) of such entity. "Person" does not
include the Company, any Subsidiary of the Company or any employee benefit plan
of the Company or of any Subsidiary, or any entity holding shares of common
stock of the Company for or pursuant to the terms of any such plan.
"Plan" means The Toro Company Supplemental Management Retirement Plan, as
of its original effective date, including any subsequent amendments thereto.
"Plan Year" means the calendar year.
"Profit Sharing Plan" means The Toro Company Investment and Savings Plan
(prior to August 1, 1995, The Toro Company Profit-Sharing Plan for Office
Employees) or any successor or replacement plan.
"Subsidiary" shall mean, for purposes of the definition of Change of
Control, any corporation which is a component member of the controlled group of
corporations of which the Company is the common parent. Controlled group shall
be determined by reference to Section 1563 of the Code but including any
corporation described in Section 1563(b)(2) thereof.
"Surviving Spouse" means the person who is married to a Participant at the
date of his or her death and for at least one year prior thereto.
"Trust" means the trust established or maintained by the Company which is
used in connection with this Plan to assist the Company in meeting its
obligations under the Plan and which is hereby incorporated into the Plan by
this reference.
"Trustee" means the corporation or individual selected by the Company to
serve as Trustee for the Trust.
Section 1.2 The Company agrees to perform its obligations in accordance
with the Plan.
Section 1.3 Any term used in this Plan which is defined in the Plan shall
have the meaning set forth in the Plan for all purposes of this Plan. The
singular form of any word shall include
3
<PAGE>
the plural and the masculine gender shall include the feminine wherever
necessary for the proper interpretation of this Plan.
ARTICLE II
ELIGIBILITY AND PARTICIPATION
Section 2.1 An employee who satisfies Section 2.2 and who is eligible to
receive a benefit under the Company's Employee Stock Ownership Plan, the
Pension Plan or the Profit Sharing Plan, the total amount of which is reduced
by reason of the application of the limitations on contributions and benefits
imposed by Section 401(a)(17) or Section 415 of the Code, as in effect on the
date for either the allocation of contributions or the commencement of
benefits, or as in effect at any time thereafter, shall be a Participant in
the Plan.
Section 2.2 Prior to August 1, 1994, a Participant in the Plan must be an
executive at the level of Vice President or above or receiving annual
Compensation equal to or greater than $200,000. On and after August 1, 1994, a
Participant in the Plan must be an executive at the level of Vice President or
above or receiving annual Compensation equal or greater than $150,000.
ARTICLE III
SUPPLEMENTAL ACCOUNT
Section 3.1 The Company shall establish and maintain an account for each
Participant, or designated Beneficiary of the Participant upon the death of the
Participant, and shall credit such account each Plan Year with an amount equal
to the amount described in Section 3.2.
Section 3.2 The amount credited to each Participant's account pursuant to
Section 3.1 shall be an amount equal to the difference between:
(a) the aggregate amount of contributions and forfeitures which would
have been allocated or reallocated with respect to the Participant under
the Profit Sharing Plan and any other qualified plans that are defined
contribution plans (as defined in Section 414(i) of the Code) maintained by
the Company, based on the Participant's Compensation, and without regard to
the limitations imposed by Section 401(a)(17) or Section 415 of the Code on
the Profit Sharing Plan and such other qualified plans, and
(b) the aggregate amount of contributions and forfeitures actually
allocated or reallocated with respect to the Participant under such
qualified plans and any credits made under a nonqualified deferred
compensation plan maintained by the Company to replace amounts that would
have been credited under such qualified plans had the Participant
4
<PAGE>
not deferred compensation under such a nonqualified deferred compensation
plan.
Section 3.3 For purposes of determining the amount which would have been
allocated with respect to a Participant under a qualified defined contribution
plan that contains a contribution formula, that formula will be used for
purposes of determining the amount to be credited to the Participant under
Section 3.2 above. For purposes of determining the amount which would have been
allocated with respect to a Participant under a qualified defined contribution
plan, other than the Company's Employee Stock Ownership Plan, pursuant to a plan
contribution and allocation feature which does not specify the amount to be
contributed on behalf of the Participant and under which allocations are made in
proportion to compensation, such amount shall be deemed to be proportionate to
the ratio of the actual contribution made to such plan over the compensation
taken into account under such plan, provided, however, if such plan is
integrated with social security, separate calculations should be made with
respect to compensation above and below the integration level. For purposes of
determining the amount which is to be credited with respect to the Company's
Employee Stock Ownership Plan (the "ESOP"), such amount, which shall be based on
the value of the Company's common stock and shall not require an allocation of
stock, shall be determined by multiplying the difference (which shall not be
less than zero) between the Participant's Compensation for the Plan Year and the
compensation limit under Section 401(a)(17) of the Code, indexed for cost of
living increases, by the actual rate of ESOP allocations calculated each year
for Participants.
Section 3.4 Amounts credited to a Participant's account for any Plan Year
pursuant to the terms of the Plan shall be credited as of the end of such Plan
Year to the account maintained under the Plan in the name of such Participant.
Section 3.5 Amounts credited under the terms of the Plan to an account
maintained for a Participant shall be credited with interest at a rate and in
the manner determined by the Company to be consistent with that credited under
the Company's deferred compensation agreements with its executive personnel and
as described in the Trust, and such interest shall be credited to the account of
each Participant as of the end of each calendar year quarter or at any other
time as determined by the Chief Financial Officer of the Company or other
officer authorized to act on behalf of the Company. However, at any time on or
after the date on which the sum of a Participant's age and the Participant's
years of Eligibility Service with the Company equals sixty (60), the Participant
may, by providing written instructions to the Company, request that the Trustee
invest a certain percentage of his or her account in one of the investment
vehicles made available by the Company under the Trust. The Participant may
change his or her investment preference on the first day of a calendar year and
on
5
<PAGE>
the first day of the seventh month of a calendar year and more frequently as so
permitted by the Company. The investment vehicles which shall be made available
to the Participants shall be selected by the Chief Financial Officer or other
officer authorized to act on behalf of the Company. A Participant's investment
preference shall remain in effect until receipt by the Trust from the Company of
a Participant's request changing or revoking the investment preference then in
effect. Any expense incurred in connection with the investment option shall be
charged against the Participant's account. The investment vehicles made
available by the Company under the Trust shall be determined by the Company in
its sole discretion, except that the one such investment vehicle shall provide a
fixed rate of interest through investment in fixed income mutual funds or common
trust funds, U.S. Bonds, certificates of deposit, annuity contracts, or such
other similar investments.
Section 3.6 If a Participant participates in the investment of
amounts in his or her account under the Trust as permitted under the Plan and
the Trust, that portion of the Participant's accounts will be credited with
earnings or losses based entirely upon the earnings or losses attributable to
such investments. The Company shall not be required to credit that portion of
the account subject to such investment election with interest, as described in
Section 3.5, and the Company shall not be required to credit that portion of the
account subject to such investment election with an amount equal to the
difference obtained from subtracting the earnings or losses on such investments
from the interest rate described in Section 3.5. If a Participant does not
participate in the investment of the entire amount in his or her account, the
portion not subject to such Participant involvement shall be credited with
interest at a rate and in the manner determined by the Company to be consistent
with that credited under the Company's deferred compensation agreements as
described in Section 3.5, or with earnings or losses of investments made
pursuant to the terms of the Trust if the amounts credited to the Participant's
account under the Plan are credited to an account or accounts under the Trust
pursuant to Section 9.13.
ARTICLE IV
SUPPLEMENTAL RETIREMENT BENEFIT
Section 4.1 A supplemental retirement benefit shall be payable to a
Participant under this Article IV in the form of a straight life annuity over
the lifetime of the Participant, commencing on the Participant's normal
retirement date as defined under the Pension Plan. The monthly amount of that
benefit, which shall not be less than zero, shall be equal to the difference
between:
(a) the monthly amount which the Participant would have been entitled
to under the Pension Plan and any other qualified plants that are defined
benefit plans (as defined
6
<PAGE>
under Section 414(j) of the Code) maintained by the Company if such amount
were determined without regard to the limitations on benefits imposed by
Section 401(a)(17) or Section 415 of the Code on such plan or plans and
taking into account the amounts credited under Article III as if such
amounts were part of the Company's Employee Stock Ownership Plan and the
Profit Sharing Plan and any credits made under any other nonqualified
deferred compensation plan maintained by the Company to replace amounts
that would have been credited under such qualified plans had the
Participant not deferred compensation under such a nonqualified deferred
compensation plan, and
(b) the monthly amount of the benefit actually payable to the
Participant under the Pension Plan and such other qualified defined benefit
plans.
Section 4.2 The amount described in Section 4.1 will be computed as of the
date of retirement or termination of employment of the Participant with the
Company in the form of a straight life annuity payable over the lifetime of the
Participant commencing on the Participant's normal retirement date, as defined
under the Pension Plan.
Section 4.3 If the Pension Plan is terminated by the Company, the benefit
payable to a Participant under this Article IV, if any, shall be determined as
of the termination date of the Pension Plan and no other benefit shall be
provided under this Article IV.
ARTICLE V
SUPPLEMENTAL SURVIVING SPOUSE BENEFIT
Section 5.1 If a Participant dies prior to commencement of payment of his
or her benefit under the Pension Plan under circumstances in which a benefit
payable to the Surviving Spouse of the Participant pursuant to the Pension Plan
is payable to such Surviving Spouse, then a supplemental benefit is payable to
the Surviving Spouse under this Plan. The monthly amount of such benefit
payable to the Surviving Spouse shall be an amount, not less than zero, equal to
the difference between:
(a) the monthly amount of the benefit payable to the Surviving Spouse
under the Pension Plan and any other qualified defined benefit plans
maintained by the Company to which the Surviving Spouse would have been
entitled under such plan or plans if such benefit were computed without
regard to the limitations on benefits imposed by Section 401(a)(17) or
Section 415 of the Code on such plan or plans and taking into account the
amounts credited under Article III as if such amounts were part of the
Company's Employee Stock Ownership Plan and the Profit Sharing Plan and any
credits made under any other nonqualified deferred compensation plan
maintained
7
<PAGE>
by the Company to replace amounts that would have been credited under such
qualified plans had the Participant not deferred compensation under such a
nonqualified deferred compensation plan, and
(b) the monthly amount of the benefit actually payable to the
Surviving Spouse under the Pension Plan and such other plan or plans.
Section 5.2 Provided that a benefit is payable under this Article V to the
Surviving Spouse of a Participant and subject to Section 9.7, a benefit payable
under this Article V shall be payable over the lifetime of the Surviving Spouse
in monthly installments commencing on the date for commencement of payment of
the benefit payable to the Surviving Spouse under the Pension Plan and
terminating on the date of the last payment of the benefit payable to the
Surviving Spouse under the Pension Plan made before the Surviving Spouse's
death. However, a Participant may elect on an election form described in
Section 6.2 to have the actuarial equivalent of the benefit described herein
distributed in a lump sum. In the event the lump sum option is selected in the
election form, the benefit payable to the Surviving Spouse shall be made as of
the first day of the first month immediately following the month in which the
Participant's death occurred, or as soon thereafter as administratively
feasible. A Participant may also change the form of payment in the manner
described in Section 6.2. The actuarial equivalent of the benefit described in
this Section 5.2 shall be determined by the same actuarial adjustments as those
specified in the Pension Plan.
Section 5.3 If the Pension Plan is terminated by the Company, the benefit
payable to a Surviving Spouse under this Article V, if any, shall be determined
as of the termination date of the Pension Plan and no other benefit shall be
provided under this Article V.
ARTICLE VI
DISTRIBUTIONS
Section 6.1 All amounts credited to a Participant's account in accordance
with Article III, including gains or losses credited in accordance with Article
III, shall be distributed to or with respect to a Participant only upon
termination of the Participant's employment with the Company for any reason
including death. All such amounts shall be distributed in accordance with
Section 6.2.
8
<PAGE>
Section 6.2
(a) Anything herein to the contrary notwithstanding, in the event of a
termination of employment described in Section 6.1, all amounts distributable
under the Plan that have been credited to a Participant's account in
accordance with Article III shall be distributed to the Participant in
accordance with one of the options selected by the Participant and available
under an election form used in connection with this Plan, which form shall be
provided to the Participant by the Company (hereinafter referred to as the
"Election Form"). Each Participant in the Plan can make his or her initial
elections during the calendar year in which this provision becomes effective
and thereafter a Participant can make his or her initial elections at the
time the Participant first becomes eligible to participate in the Plan.
However, a Participant may change the form of payment by electing another
option available in said Election Form, but such change in the form of
payment will not be effective until the calendar year following the calendar
year in which the change was elected. Further, in no event will any such
change in the form of payment be effective if such change is elected after
the Participant's employment with the Company is terminated for any reason.
Such distribution election shall apply to all amounts credited to a
Participant's account in accordance with Article III, except that any payment
required to be made in the year prior to the year any change in the form of
payment becomes effective must be made in accordance with the election in
effect for that year. In addition, the Committee may, in its sole
discretion, reduce the payment period over which payments would have been
made pursuant to the distribution option selected. Absent an effective
distribution election, the Company shall pay the amounts credited to a
Participant's account pursuant to Article III in accordance with the
distribution provision contained in the Participant's prior effective
Election Form or, if no such election has been made, then in accordance with
the selections made under The Toro Company Supplemental Retirement Plan or
The Toro Company Supplemental Retirement Plan II, whichever is applicable
with respect to the Participant, or if such elections have not been made or
are not in effect, then in a lump sum payment. In addition, the Committee
may, in its sole discretion, determine the method of distribution of the
amounts credited under Article III.
(b) Notwithstanding any provision in the Plan to the contrary, if an
amount credited to a Participant's account under Article III is payable to the
Participant, except in the event of the Participant's death or disability, such
benefit shall be distributed in accordance with the provisions of this Section
6.2 beginning as of the first day of the first month of the calendar year
immediately following the calendar year
9
<PAGE>
in which the Participant's distributable event occurs. In the event of a
Participant's death or disability, such benefit shall be distributed in
accordance with the provisions of this Section 6.2 beginning as of the
first day of the first month immediately following the month in which the
Participant's death occurred or the determination of such disability is
made.
Section 6.3 If a Participant should die before distribution of the full
amount of the account described in Article III has been made to him or her, any
remaining amounts shall be distributed to the Participant's Beneficiary and by
a method designated by the Participant in his or her Election Form. If a
Participant has not designated a Beneficiary, or method of distribution, or if
no designated Beneficiary is living on the date of distribution, such amounts
shall be distributed to the Participant's beneficiary as described under the
Profit Sharing Plan in a lump sum distribution as soon as administratively
feasible following the Participant's death.
Section 6.4
(a) Anything herein to the contrary notwithstanding and subject to
Section 9.7, in the event the Participant incurs a termination of
employment with the Company as described in Section 6.5, the benefit
described in Article IV shall be distributed to the Participant in
accordance with one of the options available under the Participant's
Election Form as selected by the Participant in the manner described in
Section 6.2. However, a Participant may change the form of payment by
electing another option available under the Election Form, but such change
in the form of payment will not be effective until the calendar year in
which the change was elected. Further, in no event will any such change
in the form of payment be effective if such change is elected after the
Participant's employment with the Company is terminated for any reason.
Such distribution election shall apply to the benefit described in
Article IV, except that any payment required to be made in the year prior
to the year a change in the form of payment becomes effective must be made
in accordance with the election in effect for that year. In addition, the
Committee may, in its sole discretion, reduce the payment period over which
payments would have been made pursuant to the distribution option selected.
Absent an effective distribution election, the Company shall pay the
benefit described in Article IV in accordance with the distribution
provision contained in the Participant's prior effective Election Form or,
if no such distribution provision exists, in a life annuity on the life of
the Participant.
(b) Notwithstanding any provision in the Plan to the contrary, if a
benefit described in Article IV is payable to
10
<PAGE>
a Participant, except in the event of the Participant's death or
disability, such benefit shall be distributed in accordance with the
provisions of this Section 6.4 beginning as of the first day of the first
month of the calendar year immediately following the calendar year in which
the Participant's distributable event occurs. In the event of a
Participant's disability, such benefit shall be distributed in
accordance with the provisions of this Section 6.4 beginning as of the
first day of the first month immediately following the month in which
the determination of such disability is made. If a Participant dies
before a benefit is payable to the Participant, then no benefit is
payable under Acticle IV, but a benefit may be payable under Article V.
Section 6.5 The benefit described in Article IV shall be distributed,
unless otherwise stated in the Plan, to or with respect to a Participant only
upon termination of the Participant's employment with the Company for any reason
other than death; if a Participant dies before such benefit is payable to the
Participant, no benefit is payable under Article IV (but a benefit may be
payable under Article V).
Section 6.6 A benefit under Article IV of this Plan which is payable in
any form other than a straight life annuity over the lifetime of the
Participant, or which commences at any time other than the Participant's normal
retirement date, as defined in the Pension Plan, shall be the actuarial
equivalent of the benefit described under Sections 4.1 and 4.2 as determined by
the same actuarial adjustments as those specified in the Pension Plan with
respect to the determination of the amount of the benefit payable under the
Pension Plan on the date for commencement of payment under this Plan.
Section 6.7 Anything herein to the contrary notwithstanding, if, at any
time, a court or the Internal Revenue Service determines that an amount in a
Participant's account under the Trust is includable in the gross income of the
Participant and subject to tax, the Committee may, in its sole discretion,
permit a lump sum distribution of an amount equal to the amount determined to be
includable in the Participant's gross income.
ARTICLE VII
ADMINISTRATION OF THE PLAN
Section 7.1 The Plan shall be administered by the Company, which shall
have the authority, duty and power to interpret and construe the provisions of
the Plan as it deems appropriate. The Company shall have the duty and
responsibility of maintaining records, making the requisite calculations and
disbursing the payment hereunder. The Company's interpretations,
determinations, regulations and calculations shall be final and binding on all
persons and parties concerned.
11
<PAGE>
Section 7.2 All provisions set forth in the Profit Sharing Plan with
respect to the administrative powers and duties of the Company, and expenses of
administration shall be applicable with respect to the Plan; unless such
administrative powers and duties apply specifically with respect to the benefits
described in Article IV or Article V, then all provisions set forth in the
Pension Plan shall apply. The Company shall be entitled to rely conclusively
upon all tables, valuations, certificates, opinions and reports furnished by
any actuary, accountant, controller, counsel or other person employed or engaged
by the Company with respect to the Plan.
Section 7.3 The Company shall furnish individual annual statements of
accrued benefits to each Participant, or current Beneficiary or Surviving
Spouse, in such form as determined by the Company or as required by law.
Section 7.4 The employee benefit plan procedures in this section are
intended to comply with Section 503 of ERISA and Section 2560.503-1 of the
Department of Labor Regulations and pertain to claims by the Participants and
Beneficiaries ("claimants") for Plan benefits, consideration of such claims, and
review of claim denials. For purposes of these procedures, a "claim" is a
request for a benefit by a Participant or Beneficiary under the Plan or an
Agreement. A claim is filed when the requirements of these procedures have been
met.
(a) If a claim is wholly or partially denied, notice of the
decision, meeting the requirements of subsection (b) of these procedures,
shall be furnished to the claimant within a reasonable period of time after
the receipt of the claim by the Company. If notice of the denial of a claim
is not furnished in accordance with this subsection (a) within a reasonable
period of time, the claim shall be deemed denied and the claimant shall be
permitted to proceed to the review stage described in subsection (c) of these
procedures. For purposes of this subsection (a), the period of time for
notification to the claimant will not exceed 90 days after receipt of the
claim by the Company, unless special circumstances require an extension of
time for processing the claim. If such an extension of time for processing
is required, written notice of the extension shall be furnished to the
claimant prior to the termination of the initial 90-day period. In no event
shall such extension exceed a period of 90 days from the end of such initial
period. The extension notice shall indicate the special circumstances
requiring an extension of time and the date by which the Company expects to
render the final decision.
(b) The Company shall provide to every claimant who is denied a claim
for benefits written notice setting forth in a manner calculated to be
understood by the claimant:
12
<PAGE>
(i) the specific reason or reasons for the denial;
(ii) specific reference to pertinent provisions of the Plan
or Agreement on which the denial is based;
(iii) a description of any additional material or information
necessary for the claimant to perfect the claim and an explanation
of why such material or information is necessary; and
(iv) appropriate information as to the steps to be taken if
the Participant or Beneficiary wishes to submit his or her claim
for review.
(c) If a claim is denied in whole or in part and if the claimant
is dissatisfied with the disposition of the claimant's claim, the
claimant or his or her duly authorized representative shall have a
reasonable opportunity to appeal the denied claim to the Company or to
a person designated by the Company, and shall have a full and fair
review of the claim and its denial. Under this review procedure, a
claimant or his or her duly authorized representative may:
(i) request a review upon written application to the Company;
(ii) review pertinent documents; and
(iii) submit issues and comments in writing.
A claimant must file such a request for review of a denied claim within
a reasonable period of time, not to exceed 60 days, after receipt by
the claimant of written notification of denial of a claim.
(d) A decision by the Company shall be made promptly and shall not
ordinarily be made later than 60 days after the receipt by the Company
of a request for review, unless special circumstances (such as the need
to hold a hearing) require an extension of time for processing, in which
case a decision shall be rendered as soon as possible, but not later
than 120 days after receipt of a request for review. If an extension of
time for review is required because of special circumstances, written
notice of the extension shall be furnished to the claimant prior to the
commencement of the extension. The decision on review shall be in
writing and shall include specific reasons for the decision, written in
a manner calculated to be understood by the claimant, as well as
specific references to the pertinent provisions of the Plan or Agreement
on which the decision is based. The decision on review shall be
furnished to the claimant within the period of time described in this
subsection (d). If the decision on
13
<PAGE>
review is not furnished within such time, the claim shall be deemed denied
on review.
ARTICLE VIII
AMENDMENT OR TERMINATION
Section 8.1 The Company intends the Plan to be permanent but reserves
the right to amend or terminate the Plan at any time. Any such amendment or
termination shall be made in accordance with the amendment or termination
provision contained in the Profit Sharing Plan.
Section 8.2 No amendment or termination of the Plan shall directly or
indirectly reduce the balance of any account described in Article III as of
the effective date of such amendment or termination. Upon termination of the
Plan, distribution of amounts credited to such account shall be made to the
Participant or his or her Beneficiary in accordance with Article VI. No
additional credits or contributions will be made to any account under the
Plan after termination of the Plan, but gains or losses will continue to be
credited to the Participant's account under the Plan until all benefits are
distributed to the Participants or to their Beneficiaries. No amendment or
termination of the Plan shall directly or indirectly deprive any current or
former Participant or Surviving Spouse of all or any portion of any benefit
under Article IV or Article V of the Plan payment of which has commenced
prior to the effective date of such amendment or termination or which would
be payable if the Participant terminated employment for any reason, including
death, on such effective date.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 The Company has established a Trust which may be used to
pay benefits arising under this Plan and all costs, charges and expenses
relating thereto; except that, to the extent that the funds held in the Trust
are insufficient to pay such benefits, costs, charges and expenses, the
Company shall pay such benefits, costs, charges and expenses.
Section 9.2 The benefits payable hereunder or the right to receive
future benefits under the Plan may not be anticipated, alienated, sold,
transferred, assigned, pledged, encumbered, or subjected to any charge or
legal process; no interest or right to receive a benefit may be taken, either
voluntarily or involuntarily, for the satisfaction of the debts of, or other
obligations or claims against, such person or entity, including claims for
alimony, support, separate maintenance and claims in bankruptcy proceedings.
Section 9.3 The Plan at all times shall be considered entirely unfunded
both for tax purposes and for purposes of Title
14
<PAGE>
I of ERISA. Funds invested hereunder shall continue for all purposes to be
part of the general assets of the Company and available to the general
creditors of the Company in the event of the Company's bankruptcy (when the
Company is involved in a pending proceeding under the Federal Bankruptcy
Code) or insolvency (when the Company is unable to pay its debts as they
mature). In the event of the Company's bankruptcy or insolvency, the
Company's Board of Directors and chief executive officer are required to
notify the Trustee and each Participant in writing of such an occurrence
within one (1) day of the Company's knowledge of such occurrence. No
Participant, Surviving Spouse or any other person shall have any interest in
any particular assets of the Company by reason of the right to receive a
benefit under the Plan and to the extent the Participant, Surviving Spouse or
any other person acquires a right to receive benefits under this Plan, such
right shall be no greater than the right of any general unsecured creditor of
the Company. The Plan constitutes a mere promise by the Company to make
payments to the Participants, Surviving Spouses, or Beneficiaries in the
future.
Section 9.4 Except as otherwise provided herein, the terms and
conditions of the Profit Sharing Plan shall apply to the contributions
described in Article III and the terms and conditions of the Pension Plan
shall apply to the benefits described in Articles IV and V. Any benefit
payable under the Company's Employee Stock Ownership Plan, the Pension Plan
or the Profit Sharing Plan shall be paid in accordance with the terms and
conditions of such plan and nothing in this Plan shall operate or be
construed in any way to modify, amend or affect the terms and provisions of
the Company's Employee Stock Ownership Plan, the Pension Plan or the Profit
Sharing Plan.
Section 9.5 Nothing contained in the Plan shall constitute a guaranty
by the Company or any other person or entity that any funds in the Trust or
the assets of the Company will be sufficient to pay any benefit hereunder.
Section 9.6 No Participant or Surviving Spouse shall have any right to
a benefit under this Plan except in accordance with the terms of the Plan.
Establishment of the Plan shall not be construed to give any Participant the
right to be retained in the service of the Company.
Section 9.7 Notwithstanding anything in this Plan or a Participant's
Election Form to the contrary, if the value or actuarial value of any benefit
payable to or on behalf of the Participant under the Plan is $25,000 or less,
the Company shall pay such value or actuarial value of such benefit to the
Participant, Beneficiary, or Surviving Spouse in a single lump sum in lieu of
any further benefit payments under the Plan.
15
<PAGE>
Section 9.8 If any person entitled to a benefit payment under the Plan
is declared incompetent and a conservator or other person legally charged
with the care of his or her person or his or her estate is appointed, any
benefits under the Plan to which such person is entitled shall be paid to
such conservator or other person legally charged with the care of his or her
person or his or her estate. Except as provided above, when the Company
determines that such person is unable to manage his or her financial affairs,
the Company may provide for such payment or any part thereof to be made to
any other person or institution then contributing toward or providing for the
care and maintenance of such person. Any such payment shall be a payment for
the account of such person and a complete discharge of any liability of the
Company and the Plan therefor.
Section 9.9 The Plan shall not be automatically terminated by a
transfer or sale of assets of the Company or by the merger or consolidation
of the Company into or with any other corporation or other entity, but the
Plan shall be continued after such sale, merger or consolidation only if and
to the extent that the transferee, purchaser or successor entity agrees to
continue the Plan. In the event that the Plan is not continued by the
transferee, purchaser or successor entity, then the Plan shall terminate
subject to the provisions of Article VIII.
Section 9.10 Each Participant shall keep the Company informed of his or
her current address and the current address of his or her spouse or
designated Beneficiary. The Company shall not be obligated to search for any
person. If the location of a Participant is not made known to the Company
within three (3) years after the date on which payment of the Participant's
benefits payable under this Plan may first be made, payment may be made as
through the Participant had died at the end of the three-year period. If,
within one additional year after such three-year period has elapsed, or,
within three (3) years after the actual death of a Participant, the Company
is unable to locate any Surviving Spouse or designated Beneficiary of the
Participant, then the Company shall have no further obligation to pay any
benefit hereunder to such Participant, Surviving Spouse or designated
Beneficiary and such benefits shall be irrevocably forfeited.
Section 9.11 Notwithstanding any of the preceding provisions of the
Plan, neither the Company nor any individual acting as an employee or agent
of the Company shall be liable to any Participant, former Participant,
Surviving Spouse, or any other person for any claim, loss, liability or
expense incurred in connection with the Plan, unless attributable to fraud or
willful misconduct on the part of the Company or any such employee or agent
of the Company.
Section 9.12 In the event a Participant incurs an unforeseeable
emergency, the Participant may make a written request
16
<PAGE>
to the Company for a hardship withdrawal from his or her account established
under Article III. An unforeseeable emergency is a severe financial hardship
to the Participant resulting from a sudden and unexpected illness or
accident of the Participant or of a dependent (as defined in Section 152(a)
of the Code) of the Participant, loss of the Participant's property due to
casualty, or other similar extraordinary and unforeseeable circumstances
arising as a result of events beyond the control of the Participant.
Withdrawals of amounts because of an unforeseeable emergency are only
permitted to the extent reasonably needed to satisfy the emergency need. This
section shall be interpreted in a manner consistent with Sections
1.457-2(h)(4) and 1.457-2(h)(5) of the Treasury Regulations.
Section 9.13 If there is a threat of a Change of Control or if a
Participant elects to direct the investment of amounts credited to his or her
account pursuant to Section 3.5, then, upon the occurrence of such threat of
a Change of Control or at the time the Participant makes such an investment
election or at any other time as determined by the Company, the Company shall
transfer cash or property to the Trust in an amount equal to the present
value of all accumulated or accrued benefits then payable to or on behalf of
such Participant or Participants under this Plan, plus any applicable fees.
The Company may also transfer cash or property to the Trust in an amount
equal to the present value of all accumulated or accrued benefits then
payable to or on behalf of any Participant under this Plan on any date
designated in the sole discretion of the Company. If a transfer of cash or
property occurs, the amounts transferred with respect to the benefits payable
under Articles IV and V shall be, for each Participant or Surviving Spouse,
the actuarial equivalent, as determined by using the actuarial assumptions
described in the Pension Plan, of the benefits payable to or on behalf of
each such individual under said Articles IV and V. Thereafter, the Company
shall, for each Plan Year, transfer cash or property no later than thirty
(30) days after the end of the Plan Year in which the initial transfer
occurs, and thereafter on each anniversary thereof, to the Trust for the
benefit of each affected individual in an amount equal to the additional
benefit accrued under the terms of this Plan during and in relation to the
most recent Plan Year then ended. In the event of a transfer, the accounts of
the Participants, established pursuant to Article III, shall be credited
with interest, or earnings and losses in accordance with the provisions under
Sections 3.5 and 3.6. A Change of Control shall be deemed "threatened' at
such time as the Company becomes aware that any individual(s) or entity(s) or
combinations thereof intend(s) to or has commenced a course of conduct which,
if successful, would or could result in a Change of Control.
Section 9.14 Each Participant shall receive a copy of the Plan and the
Company will make available for inspection by any Participant or designated
Beneficiary a copy of the rules and regulations used by the Company in
administering the Plan.
17
<PAGE>
Section 9.15 All questions pertaining to the construction, validity and
effect of the Plan shall be determined in accordance with the laws of the
United States and to the extent not preempted by such laws, by the laws of
the State of Minnesota.
Dated this 18th day of September, 1996.
THE TORO COMPANY
By: /s/ K. B. Melrose
-------------------------------------
Title: Chairman, CEO and President
18
<PAGE>
THE TORO COMPANY
CHIEF EXECUTIVE OFFICER INCENTIVE AWARD AGREEMENT
AGREEMENT ("Agreement") dated as of July 31, 1995, by and between The Toro
Company, a Delaware corporation (the "Company"), and Kendrick B. Melrose, its
Chief Executive Officer ("Mr. Melrose").
1. PURPOSE. The purpose of this Agreement is to implement The Toro Company
Chief Executive Officer Succession Plan (the "Plan") pursuant to which the
Company will grant to Mr. Melrose a Restricted Stock and Performance Unit award
and enter into a post-retirement and noncompetition agreement with Mr. Melrose,
subject to the terms and conditions of the Plan and to Mr. Melrose's acceptance
of the terms and conditions thereof.
2. GRANT OF AWARD.
a. GRANT OF RESTRICTED STOCK. The Company hereby grants to Mr. Melrose
the number of whole shares of Common Stock having an aggregate fair market value
of $500,000 on July 31, 1995 (the "Restricted Stock"), subject to forfeiture or
reduction of the number of shares in the event performance goals set forth in
Section 2 (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 the Plan and this Agreement, the Company hereby grants to Mr.
Melrose performance units equal to the number of whole shares of Common Stock
having an aggregate fair market value of $500,000 on July 31, 1995 (the
"Performance Units"), which Performance Units shall be subject to forfeiture or
reduction in the event the Performance Goals set forth in the Plan and in
Section 2 hereof are not achieved and to the other terms and conditions of the
Plan and this Agreement. 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 this
Agreement. 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 1.c. and 2.b. hereof.
<PAGE>
c. POST-RETIREMENT CONSULTING AND NONCOMPETITION AGREEMENT. Subject to
the terms and conditions of the Plan and this Agreement, the Company shall 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.
2. 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 2.a.
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 2.a.i.
and to the achievement by Mr. Melrose of the Performance Goals set forth in
Section 2.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 2.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 the value of the
Performance Units or, if a retirement annuity has been acquired by the Company,
the retirement annuity.
(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.
2
<PAGE>
<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 towards fulfill-
ment of the plan, approved
by Board of Directors July 31, 1998 15% 15%
Goal 2:
Potential CEO successor
identified with approval
of Board of Directors
and continued development
of senior management team July 31, 1999 15% 15%
Goal 3:
CEO successor who was
identified and developed
by Mr. Melrose is elected
as CEO by 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
2.b.
(C) The Special CEO Succession Subcommittee of the Compensation
Committee of the Board of Directors (the "Committee") shall be responsible for
certifying in writing to the Company that an 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.
3
<PAGE>
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 2.a.i. 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 and the value
of Performance Units may be utilized only for the purpose of purchasing the
retirement annuity referred to the Section 1.b. hereof.
iii. Termination, Death or Disability. In the event that the Board of
Directors terminates Mr. Melrose's employment other than for cause (as defined
in Section 2.c. hereof) 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 vest in
full, notwithstanding that Mr. Melrose does not enter into a noncompetition
agreement in accordance with Section 2.b., and shall become nonforfeitable in
the fiscal year following the year of the date of such event, and on the first
day that such vesting would not cause the compensation to be deemed compensation
with respect to the prior fiscal year.
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 its payment of the value of
Performance Units for the purchase of a retirement annuity payable to Mr.
Melrose pursuant to Section 1.b. shall be subject to and in consideration of Mr.
Melrose's execution 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 Rainbird,
Jacobson or John Deere, 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. 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 1.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 1.c. or this Section 2.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, and otherwise complied with the then applicable terms
and conditions of the Plan, except as provided in Section 2.a.iii.
c. TERMINATION OF EMPLOYMENT. Except as otherwise provided by Section
2.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. For
purposes of this Agreement, "Cause" shall mean:
4
<PAGE>
(i) the willful and continued failure of Mr. Melrose to perform
substantially his duties with the Company or one of its affiliates (other
than any such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered
to Mr. Melrose by the Board of Directors of the Company which specifically
identifies the manner in which the Board of Directors believes that Mr.
Melrose has not substantially performed his duties, or
(ii) the willful engaging by Mr. Melrose in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of Mr.
Melrose, shall be considered "willful" unless it is done, or omitted to be done,
by Mr. Melrose in bad faith or without reasonable belief that Mr. Melrose's
action or omission was in the best interests of the Company. Any act, or
failure to act, based upon authority given pursuant to a resolution duly adopted
by the Board of Directors or upon the instructions of a senior officer of the
Company or based upon the advice of counsel for the Company shall be
conclusively presumed to be done, or omitted to be done, by Mr. Melrose in good
faith and in the best interests of the Company. The cessation of employment of
Mr. Melrose shall not be deemed to be for Cause unless and until there shall
have been delivered to Mr. Melrose a copy of a resolution duly adopted by the
affirmative vote of not less than three quarters of the entire membership of the
Board at a meeting of the Board of Directors called and held for such purpose
(after reasonable notice is provided to Mr. Melrose and Mr. Melrose is given an
opportunity, together with counsel, to be heard before the Board of Directors),
finding that, in the good faith opinion of the Board of Directors, Mr. Melrose
is guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
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.
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
5
<PAGE>
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. If any shares of Restricted Stock are to be forfeited,
certificates representing such shares shall be delivered to the Company for
reissuance in its name 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 2.a. have been achieved with respect to any portion of the shares of the
Restricted Stock, the Company shall deliver to Mr. Melrose or his legal
representative, beneficiary or heir not later than 60 days thereafter a
certificate or certificates representing the Common Stock without the legend
referred to in Section 2.d.i. hereof. The number of shares of Common Stock to
be released shall be the same number as to which the Performance Goals have been
achieved in accordance with Section 2.a.
e. RIGHTS AS STOCKHOLDER.
i. RIGHT TO VOTE AND DIVIDENDS. Except as provided in Section 1 and
this Section 2, 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.
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 the 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 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
6
<PAGE>
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.
3. 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.
4. 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.
5. COMPLIANCE WITH RULE 16b-3 AND SECTION 162(m). The grants of Restricted
Stock and Performance Units made under this Agreement 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 Securities Exchange Act of
1934 and to avoid the loss of the deduction referred to in paragraph (1) of
Section 162(m) of the Internal Revenue Code of 1986, as amended. Anything in
the Plan or this Agreement to the contrary notwithstanding, to the extent any
provision of the Plan or this Agreement 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.
6. EMPLOYMENT. Nothing in the Plan or this Agreement 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. 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.
7
<PAGE>
8. EXCLUSION FROM PENSION, PROFIT SHARING AND OTHER BENEFIT CALCULATIONS. By
acceptance of the award made by this Agreement, Mr. Melrose agrees that the
award or vesting of Restricted Stock and Performance Units 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 any subsidiary.
Mr. Melrose agrees further 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.
9. AMENDMENT. This Agreement may be amended, modified or terminated from time
to time, to reflect any amendments, modifications or the termination of the
Plan; 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), and 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).
10. GOVERNING LAW. This Agreement shall be construed in accordance with and
governed by the laws of the State of Delaware.
11. SUCCESSORS. Except as otherwise provided in the Plan or this Agreement,
the Plan and this Agreement 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.
IN WITNESS WHEREOF, the Agreement has been executed and delivered by the
Company as of the date first above set forth.
THE TORO COMPANY
By /s/ J. Lawrence McIntyre
--------------------------------
Title Vice President & Secretary
-----------------------------
I hereby agree to the terms and conditions of this Restricted Stock and
Performance Unit Award grant made to me as of July 31, 1995.
KENDRICK B. MELROSE
/s/ Kendrick B. Melrose
-----------------------------------
8
<PAGE>
Exhibit 11
THE TORO COMPANY AND SUBSIDIARIES
Computation of Earnings per Share of Common Stock and Common Stock Equivalents
(Not Covered by Independent Auditors' Report)
<TABLE>
<CAPTION>
------------------------------------------------------------
3 MONTHS
YEAR ENDED ENDED YEARS ENDED
------------------------------------------------------------
10/31/96 10/31/95 7/31/95 7/31/94
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net earnings $36,409,000 $ 3,997,000 $36,667,000 $22,230,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Primary:
Shares of common stock and common stock equivalents:
Weighted average number of common shares outstanding 12,140,689 12,117,815 12,556,039 12,472,828
Dilutive effect of outstanding stock options (1) 414,026 424,225 476,374 509,538
---------- ---------- ---------- ----------
12,554,715 12,542,040 13,032,413 12,982,366
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
- -----------------------------------------------------------------------------------------------------------------------------------
Net earnings per share of common stock and common stock
equivalents $ 2.90 $ 0.32 $ 2.81 $ 1.71
- -----------------------------------------------------------------------------------------------------------------------------------
Fully Diluted:
Shares of common stock and common stock equivalents:
Weighted average number of common shares outstanding 12,140,689 12,117,815 12,556,039 12,472,828
Dilutive effect of outstanding stock options (2) 414,026 424,225 511,133 509,538
---------- ---------- ---------- ----------
12,554,715 12,542,040 13,067,172 12,982,366
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
- -----------------------------------------------------------------------------------------------------------------------------------
Net earnings per share of common stock and common stock
equivalents $ $2.90 $ 0.32 $ 2.81 $ 1.71
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Outstanding stock options and options exercised in the current period
are converted to common stock equivalents by the treasury stock method
using the average market price of the company's stock during each
period.
(2) Outstanding stock options and options exercised in the current period
are converted to common stock equivalents by the treasury stock method
using the greater of the average market price or the year-end market
price of the company's shares during each period.
20
<PAGE>
AT A GLANCE
- --------------------------------------------------------------------------------
- - TORO CONTINUED TO DEMONSTRATE LEVERAGED OPERATING PERFORMANCE POSTING A 16
PERCENT INCREASE IN EARNINGS PER SHARE ON A SLIGHT SALES INCREASE.
- - EXCELLENT SNOWTHROWER SALES COMBINED WITH STRONG GROWTH IN INTERNATIONAL
PROFESSIONAL TURN MAINTENANCE PRODUCTS HIGHLIGHTED TORO'S SALES
PERFORMANCE.
- - PROFESSIONAL TURN MAINTENANCE SALES CONTINUED TO GROW FASTER THAN
RESIDENTIAL SALES AND HELPED OFFSET THE SLUGGISH LAWN AND GARDEN BUSINESS.
- - THE COMPANY CONTINUED TO BUILD FOR THE FUTURE BY INVESTING IN RESEARCH AND
DEVELOPMENT, NEW BUSINESSES AND STRATEGIC INITIATIVES.
- - SEVERAL ACQUISITIONS AND ALLIANCES TOOK PLACE IN FISCAL 1996 THAT PROVIDE
GROWTH MOMENTUM FOR THE FUTURE.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
Years ended October 31 1996 1995 % Change
- --------------------------------------------------------------------------------
Net sales $930,909 $919,427 1.2%
Net earnings 36,409 32,362 12.5
Percent of net sales 3.9% 3.5%
- --------------------------------------------------------------------------------
Net earnings per share of common stock
and common stock equivalent $ 2.90 $ 2.50 16.0
Dividends paid per share of
common stock outstanding 0.48 0.48
- --------------------------------------------------------------------------------
Return on:
Beginning common stockholders' equity 19.1% 18.1%
Average common stockholders' equity 18.0 17.5
Average invested capital 15.2 13.8
- --------------------------------------------------------------------------------
AT YEAR END
Working capital $197,144 $165,086 19.4
Total assets 496,877 472,653 5.1
Total debt 94,390 110,274 (14.4)
Common stockholders' equity 213,567 190,892 11.9
Book value per common share 17.75 15.69 13.1
Number of common stockholders 6,841 7,243 (5.6)
Average number of employees 3,509 3,638 (3.5)
- --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
FISCAL YEAR CHANGE
- --------------------------------------------------------------------------------
This report is the first reflecting Toro's change of fiscal year from July 31 to
October 31. For comparative purposes, financial information for years previously
ended in July has been restated in portions of this report to reflect the new
fiscal year ending in October. Financial information for the year ended October
31, 1996, the three month transition period ended October 31, 1995 and the years
ended July 31, 1995 and 1994 has been derived from the audited financial
statements for the applicable period. Financial information related to the
October 31, 1995 balance sheet has been derived from the October 31, 1995
audited balance sheet. All other financial information for years ending in
October is unaudited.
TORO'S PURPOSE is to help customers beautify and preserve outdoor landscapes
with environmentally responsible products of customer-valued quality and
innovation.
TORO'S MISSION is to be the leading worldwide provider of outdoor landscaping
products, support services and integrated systems. Toro will explore new
opportunities that build revenue growth and sustainability using our core
competencies to gain a leading market position.
ON THE COVER - Toro is the exclusive provider of turf maintenance equipment to
the Valderrama Club de Golf, Spain, site of the 1997 Ryder Cup of golf.
CONTENTS
Letter to Shareholders 2
Review of Operations 6
Eleven-Year Selected
Financial Data 14
Fiscal Year Ended
October 31, 1996
- --------------------------------------------------
Management's Discussion
and Analysis 16
Financial Statements 21
3 months ended October 31, 1995 and Fiscal Years
Ended July 31, 1995 and July 31, 1994.
- --------------------------------------------------
Management's Discussion
and Analysis 25
Financial Statements 30
Notes to Consolidated
Financial Statements 33
Directors, Officers and
Stockholders' Information 45
1
<PAGE>
<TABLE>
<CAPTION>
ELEVEN-YEAR SELECTED FINANCIAL DATA The Toro Company
- ----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
Years ended October 31**** 1996 1995 1994 1993 1992* 1991
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales $930,909 $919,400 $864,300 $706,600 $638,700 $706,200
EARNINGS:
Net earnings (loss) 36,409 32,362 32,426 15,282 (21,726) 16,100
Percent of sales 3.9% 3.5% 3.8% 2.2% (3.4)% 3.8%
Per share of common stock and common
stock equivalent $ 2.90 $ 2.50 $ 2.49 $ 1.22 $ (1.81) $ 0.77
DIVIDENDS:
On common stock outstanding 5,834 5,953 6,022 5,858 5,765 5,710
Per share of common stock outstanding 0.48 0.48 0.48 0.48 0.48 0.48
RETURN ON:
Beginning common stockholders' equity 19.1% 18.1% 22.9% 12.1% (14.2)% 26.4%
Average common stockholders' equity 18.0% 17.5% 20.2% 11.4% (15.5)% 26.2%
SUMMARY OF FINANCIAL POSITION:
Current assets $405,001 $386,259 $373,400 $326,100 $324,200 $322,000
Current liabilities 207,857 221,173 197,200 169,200 132,500 103,800
Working capital 197,144 165,086 176,200 156,900 191,700 218,200
Non-current assets 91,876 86,394 78,200 73,700 85,100 93,400
Total assets 496,877 472,653 451,600 399,800 409,300 415,400
Non-current liabilities, excluding
long-term debt 22,438 7,223 5,300 1,400 2,500 4,100
CAPITALIZATION:
Long-term debt, less current portion 53,015 53,365 70,400 87,300 147,900 154,100
Redeemable preferred stock - - - - - -
Common stockholders' equity 213,567 190,892 178,700 141,900 126,400 153,400
Total capitalization 266,582 244,257 249,100 229,200 274,300 307,500
Book value per common share 17.75 15.69 14.05 11.47 10.50 12.84
STOCK DATA:
Number of shares of common stock
outstanding (in thousands) 12,032 12,168 12,720 12,370 12,041 11,950
Number of common stockholders 6,841 7,243 - - - -
Low price $ 28 3/8 $ 25 5/8 $ 20 7/8 $ 14 1/8 $ 11 3/8 $ 11
High price 36 1/4 32 1/4 30 1/2 26 3/4 17 1/2 20 1/2
Close price 31 3/8 28 7/8 27 3/4 25 3/8 14 1/8 14 3/4
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
Years ended October 31**** 1990** 1989 1988 1987*** 1986
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales $747,300 $639,200 $626,200 $551,600 $422,300
EARNINGS:
Net earnings (loss) 9,130 8,394 19,962 20,500 17,900
Percent of sales 1.3% 1.1% 3.1% 3.3% 3.2%
Per share of common stock and common
stock equivalent $ 0.84 $ 1.90 $ 1.90 $ 1.60 $ 1.39
DIVIDENDS:
On common stock outstanding 6,074 4,774 4,613 3,730 3,135
Per share of common stock outstanding 0.48 0.48 0.45 0.37 0.30
RETURN ON:
Beginning common stockholders' equity 6.2% 8.5% 23.5% 28.4% 28.8%
Average common stockholders' equity 6.1% 6.8% 21.7% 26.1% 26.7%
SUMMARY OF FINANCIAL POSITION:
Current assets $306,800 $271,200 $296,400 $262,600 $216,600
Current liabilities 133,000 125,000 144,200 121,800 114,700
Working capital 173,800 146,200 152,200 140,800 101,900
Non-current assets 103,900 57,100 55,800 52,800 27,300
Total assets 410,700 328,300 352,200 315,400 243,900
Non-current liabilities, excluding
long-term debt 6,100 2,400 1,700 1,100 2,100
CAPITALIZATION:
Long-term debt, less current portion 125,300 95,600 112,200 109,800 54,500
Redeemable preferred stock - 6,000 9,000 10,500 10,500
Common stockholders' equity 146,300 99,300 85,100 72,200 62,100
Total capitalization 271,600 200,900 206,300 192,500 127,100
Book value per common share 12.34 9.98 8.46 7.12 6.04
STOCK DATA:
Number of shares of common stock
outstanding (in thousands) 11,859 9,946 10,059 10,144 10,280
Number of common stockholders - - - - -
Low price $ 12 $ 17 7/8 $ 11 1/8 $ 13 1/2 $ 11 1/2
High price 30 24 3/8 24 7/8 23 3/4 19 1/2
Close price 12 3/4 21 5/8 18 3/8 15 1/8 17 3/8
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes restructuring costs of $24.9 million, or $1.41 per share.
** The company's consolidated financial statements include results of
operations of Lawn-Boy Inc. from November 7, 1989, the date of acquisition.
*** The company's consolidated financial statements include results of
operations of Wheel Horse Products, Inc. from December 19, 1986, the date
of acquisition.
**** The actual date of the year end for years prior to 1995 was the Friday
closest to October 31.
[graph] [graph] [graph] [graph] [graph] [graph]
15
<PAGE>
1996 Annual Report
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Toro Company
In November 1995, the company changed its fiscal year ended July 31 to a
fiscal year ended October 31. The following comparisons are based on the
company's new fiscal year end. The 3 month transition period ended October
31, 1995 bridges the gap between the company's old and new fiscal year ends.
A comparison of this transition period to the same period in 1994 is
presented beginning on page 25. In addition, a comparison of the years ended
July 31, 1995 and 1994 is also presented beginning on page 25.
Financial information relating to the year ended October 31, 1996 has been
derived from the audited financial statements. The results of operations for
fiscal years ended in October 1995 and 1994 have been restated from the
previous July 31 year end to the new fiscal year basis and are unaudited. The
October 31, 1995 balance sheet information has been derived from the October
31, 1995 audited balance sheet. Financial information for the year ended
October 28, 1994 is unaudited and is presented for informational purposes
only.
RESULTS OF OPERATIONS
In 1996, the company increased net earnings by 12.3% over the previous year
in spite of only a modest increase in worldwide net sales. The company
continues to focus on implementing operational strategies which improve
production flexibility and efficiency and aggressive expense control measures
which result in increased margins. Weather patterns have a major impact on
the company's sales; however, the company has entered into a number of
strategic alliances and acquisitions in 1996, and continues to seek other
opportunities to diversify both the product categories and the global markets
where products are sold. This has and will continue to reduce the impact of
localized weather patterns and economic conditions on the company's sales and
earnings. See "Acquisitions and Strategic Alliances" included in this MD&A.
<TABLE>
<CAPTION>
SUMMARY
- ----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED Year Ended Year Ended
OCTOBER 31 October 31 October 28
(Dollars in millions except per share data) 1996 % Change 1995 % Change 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $930.9 1.3% $919.4 6.4% $864.3
Cost of sales 589.2 - 589.2 7.2 549.7
- -----------------------------------------------------------------------------------------------------------------------------
Gross profit 341.7 3.5 330.2 5.0 314.6
Selling, general and administrative expense 278.3 2.3 272.1 6.5 255.6
- -----------------------------------------------------------------------------------------------------------------------------
Earnings from operations 63.4 9.1 58.1 (1.5) 59.0
Interest expense 13.5 13.4 11.9 (7.0) 12.8
Other income, net (10.3) 33.8 (7.7) (1.3) (7.8)
- -----------------------------------------------------------------------------------------------------------------------------
Earning before income taxes 60.2 11.7 53.9 (0.2) 54.0
Provision for income taxes 23.8 10.7 21.5 (0.5) 21.6
- -----------------------------------------------------------------------------------------------------------------------------
Net earnings $ 36.4 12.3% $ 32.4 - $ 32.4
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Net earnings per share of common stock
and common stock equivalent $ 2.90 16.0% $ 2.50 0.4% $2.49
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
NET SALES BY PRODUCT LINE
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
(Dollars in millions)
- -----------------------------------------------------------------------------------------------------------------------------
Consumer $461.0 (1.3)% $467.2 (1.9)% $476.2
Commercial 322.0 3.6 310.8 18.5 262.3
Irrigation 147.9 4.6 141.4 12.4 125.8
- -----------------------------------------------------------------------------------------------------------------------------
Total* $930.9 1.3% $919.4 6.4% $864.3
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
*Includes international sales of $174.2 16.4% $149.6 6.3% $140.7
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
In fiscal 1996, net earnings increased by $4.0 million to $36.4 million from
$32.4 million in the prior fiscal year. Worldwide net sales increased by $11.5
million to $930.9 million in 1996 versus $919.4 million in 1995. The following
is a discussion of the sales by product group:
- - CONSUMER
Worldwide consumer product sales in 1996 fell by 1.3% to $461.0 million from
$467.2 million in 1995. The decrease was primarily the result of a slow start to
the lawn and garden season due to cold, wet weather throughout most of the
United States during the spring season. This decline was offset partially by
increased snowthrower shipments. Snowthrower demand, especially in the
northeast, was high in anticipation of strong retail activity and abnormally low
field inventory levels. For the year, snowthrower sales were up 31.0%, primarily
the result of sales volume increases. International sales included in the
worldwide consumer totals declined by 1% from the prior year. Walk behind mower
sales were lower, but this decline was partially offset by strong riding product
sales.
[GRAPH]
- - COMMERCIAL
Worldwide commercial product sales increased $11.2 million or 3.6% over the
prior year to $322.0 million. International sales were strong, up 30.4% due
primarily to a strong golf market in Europe and Asia. The late spring had an
adverse effect on sales to the domestic golf course market. Many golf courses
were forced to cut their equipment budgets due to loss of income from fewer
rounds played during the inclement spring weather. In addition, the market saw
increased competitive actions among the major equipment manufacturers.
[GRAPH]
- - IRRIGATION
Worldwide irrigation sales totaled $147.9 million representing an increase of
$6.5 million or 4.6% over the prior year. International irrigation sales were
strong, up 15.3% from the prior year, fueled by strong golf market sales. This
was partially offset by lower sales to the residential/commercial markets which
were impacted by the cold, wet spring.
[GRAPH]
- - INTERNATIONAL MARKETS
Total international sales, included in the preceding net sales table, increased
by 16.4% over the previous year to $174.2 million. This was primarily the result
of increased sales volumes in the European and Asian golf markets. International
sales are principally denominated in U.S. dollars; however, a portion of the
company's international sales are denominated in foreign currencies. To reduce
the uncertainty of foreign currency exchange rate movements on these sales
commitments, the company enters into foreign exchange and range forward
contracts. See Note 11 to the Consolidated Financial Statements.
[GRAPH]
COST TRENDS AND PROFIT MARGINS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YEAR ENDED Year Ended Year Ended
OCTOBER 31 October 31 October 28
Margins (Percent of net sales) 1996 1995 1994
- --------------------------------------------------------------------------------
Gross profit 36.7% 35.9% 36.4%
Operating profit 6.8 6.3 6.8
Pretax earnings 6.5 5.9 6.2
Net earnings 3.9 3.5 3.7
- --------------------------------------------------------------------------------
The gross profit of $341.7 million represents an $11.5 million or 3.5%
increase over the gross profit of $330.2 million in 1995. As a percent of net
sales, gross profit rose to 36.7% from 35.9% in the prior year. The
percentage margin improvement resulted primarily from reduced production
costs, notably materials and product mix. This improvement was offset
partially by costs resulting from lowered production levels in selected
plants to match market needs.
17
<PAGE>
Operating profit rose to $63.4 million or 6.8% of net sales, from $58.1
million or 6.3% of net sales in 1995. The improvement in operating profit
resulted from an increase in gross profit margins of $11.5 million, partially
offset by a $6.2 million increase in SG&A expenses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE (SG&A)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
YEAR ENDED Year Ended Year Ended
OCTOBER 31 % OF October 31 % of October 28 % of
SG&A Expense (Dollars in millions) 1996 NET SALES 1995 Net Sales 1994 Net Sales
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Administrative $ 97.5 10.5% $ 92.7 10.1% $ 82.6 9.6%
Sales and marketing 87.5 9.4 89.0 9.7 90.8 10.5
Warranty 28.5 3.0 31.9 3.5 30.0 3.5
Distributor/dealer financing 10.3 1.1 9.9 1.1 9.0 1.0
Research and development 31.3 3.4 27.4 2.9 25.0 2.9
Warehousing 15.2 1.6 14.7 1.6 12.2 1.4
Service/quality assurance 8.0 0.9 6.5 0.7 6.0 0.7
- ----------------------------------------------------------------------------------------------------------------
Total $278.3 29.9% $272.1 29.6% $255.6 29.6%
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
For 1996, SG&A expenses totaled $278.3 million or 29.9% of net sales
compared to $272.1 million or 29.6% of net sales in 1995.
The increase in administrative expense of $4.8 million was comprised
primarily of additional operating expenses associated with new businesses
acquired in 1996. See "Acquisitions and Strategic Alliances included in this
MD&A.
Sales and marketing expense was down $1.5 million due to reduced direct
expenses from the decrease in consumer lawn and garden sales combined with
savings from added expense controls.
Warranty expense was down $3.4 million from the prior year as a result of
lower warranty reserve requirements due to continuing product quality
improvements and experience factors.
Distribution/dealer financing expense increased by $0.4 million and was
flat as a percent of sales. Distributor/dealer financing expense represents the
cost incurred by the company to contract with a third party financing source to
finance dealer inventory purchases. The $10.3 million charge reflected in SG&A
expense represents credit facility origination costs and interest charged for a
pre-established length of time. Interest is charged at market rates based on
prime plus a negotiated markup. These financing arrangements are used by the
company as a marketing tool to enable customers to buy inventory.
Research and development expenditures increased by $3.9 million reflecting
the company's commitment to invest in product innovation and development.
[GRAPH]
Warehousing expense increased nominally by $0.5 million as the result of
warehousing costs for new businesses.
Service/quality assurance increased 23.1% from 1995 as a result of
additional quality assurance and customer service spending for the company's new
ventures.
INTEREST EXPENSE
Interest expense in 1996 increased by $1.6 million to $13.5 million. Although
the average cost of funds declined from the prior year, the benefit was
diminished by higher overall debt levels resulting from higher levels of average
working capital. In addition to working capital needs, the company
purchased $13.3 million of its own common stock during the year which was funded
with short-term borrowings. This cash outflow was offset partially by $12.1
million received as a result of an interest rate swap entered into during 1996.
The company anticipates a significant increase in interest expense in 1997 as a
result of the additional debt associated with the acquisition of James Hardie
Irrigation Group. See "Acquisitions and Strategic Alliances" in this MD&A.
18
<PAGE>
OTHER INCOME, NET
Other income, net totaled $10.3 million in 1996 versus $7.7 million for 1995.
The increase is primarily the result of favorable patent infringement litigation
settlements.
PROVISION FOR TAXES
The effective tax rate for 1996 was 39.5% compared to 39.9% in 1995. In
accordance with Financial Accounting Standards No. 109, the company has
determined that it is not necessary to establish a valuation reserve for the
deferred income tax benefit because it is more likely than not that the net
deferred income tax benefit of $31.5 million will be principally realized
through carry back to taxable income in prior years, future reversals of
existing taxable temporary differences, and to a lesser extent, future
taxable income.
NET EARNINGS
Net earnings for 1996 were $36.4 million, representing a 12.3% increase over
1995 earnings of $32.4 million. The increase is primarily the result of improved
operating margins. On a per share basis, earnings increased 16% to $2.90 from
$2.50 in 1995.
ASSETS
Total assets at October 31, 1996 increased by 5.1% to $496.9 million compared to
$472.7 million for the prior year. The increase was primarily comprised of a
$40.8 million increase in accounts receivable resulting from third and fourth
quarter lawn and garden, and snow sales, new business receivables and dealer
direct financing. This increase was offset partially by a reduction in cash and
cash equivalents and inventories resulting from production management
strategies.
WORKING CAPITAL
Working capital at 1996 year end was $197.1 million which represents an increase
of $32.0 million from the $165.1 million reported for 1995. The current ratio
for 1996 was 1.95 versus 1.75 in 1995. Working capital as a percent of sales was
21.2% in 1996 and 18.0% for 1995.
The increase in working capital resulted from the $18.7 million increase in
current assets, primarily accounts receivable, which was partially offset by
reduced inventories. In addition, current liabilities declined by $13.3 million,
due to a combination of a $15.0 million decline in the current portion of long
term debt, and a $8.2 million decrease in accounts payable. This was offset
partially by a $9.6 million increase in other accrued liabilities, primarily
caused by a change in benefit plan year ends which impacted the timing of
company payments to these plans.
CAPITAL STRUCTURE
Long-term debt includes:
- - $50.0 million of 11% sinking fund debentures, due August 2017 with sinking
fund payments due annually August 1998 through August 2017.
- - $3.4 million variable rate industrial revenue bond, due June 2004 with sinking
fund payments due annually June 1997 through June 2004.
Long-term debt at October 31, 1996 was $53.4 million, down $15.3 million
from $68.7 million at October 31, 1995. The amount of total long-term debt
attributable to Toro Credit Company, the company's consolidated finance
subsidiary, was zero at October 31, 1996 compared to $15.0 million at October
31, 1995. Toro Credit Company is now funded by the parent. The company's capital
structure is managed on a consolidated basis.
19
<PAGE>
Total debt at October 31, 1996 was $94.4 million, down $15.9 million from
$110.3 million at October 31, 1995. The total debt to total capital ratio
decreased from 36.6% in 1995 to 30.7% in 1996 as the result of decreased
long-term debt and an increase in current year earnings.
Total capitalization at October 31, 1996 consisted of $53.4 million of
long-term debt, $41.0 million of short-term borrowing and $213.6 million of
stockholders' equity.
[GRAPH]
LIQUIDITY AND CAPITAL RESOURCES
In 1996, the company continued to improve its liquidity through cash management
strategies which included the continued replacement of long-term debt with short
term borrowings at more favorable interest rates, combined with prudent
management of inventory levels.
Management believes that the combination of funds available through its
existing financing options, coupled with forecasted cash flows as well as the
anticipated issuance of public debt described below will provide the capital
resources for its anticipated needs.
- - CASH FLOW
Cash and cash equivalents declined by $7.6 million from 1995 to 1996. This
decline in cash was primarily driven by repayment of debt and stock repurchases.
At October 31, 1996 the company had $4,908,000 included in trade payables that
represented the reclassification of outstanding checks in excess of related bank
balances.
Cash provided by operating activities increased by $12.5 million as a
result of a reduction in inventories and increased earnings. This was offset by
increased accounts receivable attributed to timing of snowthrower and lawn and
garden sales late in the year, expanded dealer direct financing programs through
Toro Credit Company, and receivables resulting from Toro's new businesses.
Cash used in investing activities declined slightly in 1996 from 1995.
Investing activities consisted primarily of initial purchases of tooling
components used to manufacture new products and a variety of expenditures to
improve and modernize the manufacturing plants and administrative offices.
Cash used in financing activities was primarily for retirement of debt and
purchases of Toro stock. The company purchased the stock for use in employee
benefit plans and for potential acquisitions. The major source of cash from
financing activities was cash received from the forward starting interest rate
exchange agreement. See Note 3 to the Consolidated Financial Statements.
- - CREDIT LINES AND OTHER CAPITAL RESOURCES
The company's seasonal working capital requirements are funded with $194.0
million of unsecured bank credit lines. Average borrowings under these lines
were $95.2 million in 1996 and $44.6 million in 1995. The increase in the
average borrowings was the result of the reduction in long-term debt, the
addition of dealer direct financing through Toro Credit Company, the purchase of
the company's stock and the increase in seasonal working capital. At October 31,
1996, the company had $153.0 million of unutilized availability under these
credit lines. Subsequent to the year end, the company executed an agreement for
an additional $150.0 million unsecured bank credit line expiring in December
1997.
Additionally, the company's resources included two bankers' acceptance
financing agreements totaling $40.0 million. There were no amounts outstanding
under these agreements at October 31, 1996 or 1995.
The company's business is seasonal, with accounts receivable balances
historically increasing between January and March as a result of extended
payment terms made available to the company's customers, and decreasing between
April and June when payments become due. The company's peak borrowing usually
occurs between February and May. The seasonal working capital requirements are
financed primarily with the short-term financing arrangements described above.
- - ACQUISITION FINANCING
In December 1996, the company completed the acquisition of James Hardie
Irrigation Group. The purchase price of approximately $119.0 million has been
initially financed with temporary bank debt. The company intends to file a shelf
registration for public debt to facilitate the issuance of long-term
20
<PAGE>
debt to replace the temporary bank debt. The company also believes that
financing is available through other resources. Management believes that the
capital resources available under existing arrangements are sufficient to meet
the company's needs through fiscal 1997. See "Acquisitions and Strategic
Alliances" included in this MD&A.
INFLATION
The company is subject to the effects of changing prices. The company has,
however, generally been able to pass along inflationary increases in its costs
by increasing the prices of its products.
ACQUISITIONS AND STRATEGIC ALLIANCES
On December 3, 1996, the company announced that it completed the acquisition of
James Hardie Irrigation Group (JHI) from James Hardie Limited of Australia. The
purchase price of approximately $119.0 million is subject to adjustment based on
changes in working capital and closing balance sheet audit adjustments, and has
been initially financed with temporary bank debt. The company intends to file a
shelf registration for public debt which would facilitate the issuance of
long-term debt to replace the temporary bank debt. The company expects the
purchase to have a modest dilutive effect on earnings per share in 1997. JHI is
a worldwide leader in the production of irrigation systems to the commercial
landscape market. See Note 14 to the Consolidated Financial Statements.
In addition, the company completed the acquisitions of Liquid Ag Systems
and National Service Network in 1996, and joined Walt Disney Wide World of
Sports, Ryobi Outdoor Products, and Maruyama Manufacturing, Inc., in alliances
that provide enhanced visibility and expanded product lines into emerging
markets such as the landscape contractor business.
SUMMARY
The company continued to increase earnings by leveraging a slight sales gain.
Strong sales performance in several product categories offset slower performance
in others. The increase in net earnings resulted from improvements in operating
margin offset partially by added expenses for new businesses and product
research and development. In addition, an increase in other income more than
offset an increase in interest expense resulting from higher working capital
levels during the year. The company strengthened its balance sheet through cash
management, inventory strategies and reduced long-term debt.
CONSOLIDATED STATEMENTS OF EARNINGS The Toro Company
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
YEAR ENDED Year Ended Year Ended
OCTOBER 31 October 31 October 28
(Dollars in thousands, except per share data) 1996 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $930,909 $919,427 $864,284
Cost of sales 589,186 589,211 549,728
- -------------------------------------------------------------------------------------------------
Gross profit 341,723 330,216 314,556
Selling, general and administrative expense 278,284 272,128 255,625
- -------------------------------------------------------------------------------------------------
Earnings from operations 63,439 58,088 58,931
Interest expense 13,590 11,954 12,705
Other income, net (10,331) (7,747) (7,819)
- -------------------------------------------------------------------------------------------------
Earnings before income taxes 60,180 53,881 54,045
- -------------------------------------------------------------------------------------------------
Provision for income taxes 23,771 21,519 21,619
- -------------------------------------------------------------------------------------------------
Net earnings $ 36,409 $ 32,362 $ 32,426
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Net earnings per share of common stock and
common stock equivalent $ 2.90 $ 2.50 $ 2.49
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
21
<PAGE>
CONSOLIDATED BALANCE SHEETS The Toro Company
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data) October 31 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 66 $ 7,702
Receivables:
Customers 244,434 201,571
Other 5,208 4,787
- ----------------------------------------------------------------------------------------------------------
Subtotal 249,642 206,358
Less allowance for doubtful accounts 10,005 7,542
- ----------------------------------------------------------------------------------------------------------
Total receivables 239,637 198,816
- ----------------------------------------------------------------------------------------------------------
Inventories 130,288 145,862
Prepaid expenses 5,133 6,417
Deferred income tax benefits 29,877 27,462
- ----------------------------------------------------------------------------------------------------------
Total current assets 405,001 386,259
- ----------------------------------------------------------------------------------------------------------
Property, plant and equipment:
Land and land improvements 6,816 6,569
Buildings and leasehold improvements 46,107 47,601
Equipment 176,157 157,511
- ----------------------------------------------------------------------------------------------------------
Subtotal 229,080 211,681
Less accumulated depreciation and amortization 155,270 141,726
- ----------------------------------------------------------------------------------------------------------
Total property, plant and equipment 73,810 69,955
- ----------------------------------------------------------------------------------------------------------
Deferred income taxes 1,600 2,384
Other assets 16,466 14,055
- ----------------------------------------------------------------------------------------------------------
Total assets $496,877 $472,653
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 350 $ 15,334
Short-term borrowing 41,025 41,575
Accounts payable 43,524 51,757
Accrued warranty 34,722 35,065
Accrued marketing programs 22,600 21,407
Other accrued liabilities 65,636 56,035
- ----------------------------------------------------------------------------------------------------------
Total current liabilities 207,857 221,173
- ----------------------------------------------------------------------------------------------------------
Long-term debt, less current portion 53,015 53,365
Other long-term liabilities 22,438 7,223
Common stockholders' equity:
Common stock, par value $1.00, authorized 35,000,000 shares; issued
and outstanding 12,032,143 shares in 1996 (net of 877,861 treasury shares)
and 12,167,835 shares in 1995 (net of 674,490 treasury shares) 12,032 12,168
Additional paid-in capital 28,462 35,712
Retained earnings 173,630 142,891
Foreign currency translation adjustment (557) 121
- ----------------------------------------------------------------------------------------------------------
Total common stockholders' equity 213,567 190,892
- ----------------------------------------------------------------------------------------------------------
Total liabilities and common stockholders' equity $496,877 $472,653
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS The Toro Company
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
YEAR ENDED Year Ended Year Ended
OCTOBER 31 October 31 October 28
(Dollars in thousands) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 36,409 $ 32,362 $ 32,426
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Provision for depreciation and amortization 18,170 17,115 18,646
(Gain) loss on disposal of property, plant and equipment (260) (147) 1,244
Deferred income taxes 784 (1,089) (2,667)
Tax benefits related to employee stock option transactions 1,490 1,178 953
Changes in operating assets and liabilities:
Net receivables (40,821) 1,094 (39,115)
Inventories 15,574 (13,008) (20,041)
Prepaid expenses and deferred income tax benefits (1,131) (5,660) (3,918)
Accounts payable and accrued expenses 2,218 (11,868) 43,117
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 32,433 19,977 30,645
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (21,389) (26,987) (21,036)
Proceeds from asset disposals 543 850 303
(Increase) decrease in other assets/liabilities (857) 4,017 (2,326)
- ----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (21,703) (22,120) (23,059)
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in short-term borrowing (550) 41,575 -
Proceeds from issuance of long-term debt - - 4,000
Repayments of long-term debt (15,334) (22,755) (36,077)
Proceeds from deferred income 12,742 - 5,250
Proceeds from exercise of stock options 4,627 7,632 8,518
Purchases of common stock (13,339) (26,024) (2,814)
Dividends on common stock (5,834) (5,953) (6,022)
Repayments from ESOP - 2,612 2,611
- ----------------------------------------------------------------------------------------------------------
Net cash used in financing activities (17,688) (2,913) (24,534)
- ----------------------------------------------------------------------------------------------------------
Foreign currency translation adjustment (678) 356 1,151
- ----------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (7,636) (4,700) (15,797)
Cash and cash equivalents at beginning of year 7,702 12,402 28,199
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 66 $ 7,702 $ 12,402
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
SELECTED FINANCIAL DATA The Toro Company
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
3 Months Years Ended
YEAR ENDED Ended -------------------------------------------------------------
(Dollars in thousands, OCTOBER 31 October 31 July 31 July 31 July 31 July 31
except per share data) 1996 1995 1995 1994 1993 1992*
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales $930,909 $192,278 $932,853 $794,341 $684,324 $643,748
EARNINGS:
Net earnings (loss) 36,409 3,997 36,667 22,230 13,040 (23,753)
Percent of sales 3.9% 2.1% 3.9% 2.8% 1.9% (3.7)%
Per share of common stock and
common stock equivalent $ 2.90 $ 0.32 $ 2.81 $ 1.71 $ 1.05 $ (1.98)
DIVIDENDS:
On common stock outstanding 5,834 1,459 6,002 5,993 5,824 5,753
Per share of common
stock outstanding 0.48 0.12 0.48 0.48 0.48 0.48
RETURN ON:
Beginning common
stockholders' equity 19.1% 2.2% 21.7% 15.4% 9.8% (14.8)%
Average common
stockholders' equity 18.0% 2.1% 20.7% 14.2% 9.4% (16.2)%
SUMMARY OF FINANCIAL POSITION:
Current assets $405,001 $386,259 $381,610 $364,495 $344,130 $332,517
Current liabilities 207,857 221,173 212,659 188,712 150,260 122,087
Working capital 197,144 165,086 168,951 175,783 193,870 210,430
Non-current assets 91,876 86,394 86,705 79,144 75,073 88,793
Total assets 496,877 472,653 468,315 443,639 419,203 421,310
Non-current liabilities,
excluding long-term debt 22,438 7,223 5,250 5,250 1,372 2,509
CAPITALIZATION:
Long-term debt,
less current portion 53,015 53,365 64,935 81,025 122,970 164,100
Common stockholders' equity 213,567 190,892 185,471 168,652 144,601 132,614
Total capitalization 266,582 244,257 250,406 249,677 267,571 296,714
Book value per common share 17.75 15.69 15.40 13.43 11.78 11.01
STOCK DATA:
Number of shares
of common stock
outstanding (in thousands) 12,032 12,168 12,040 12,561 12,270 12,042
Number of common
stockholders 6,841 7,243 7,347 7,541 7,968 8,386
Low price $ 28 3/8 $ 28 1/8 $ 21 5/8 $ 19 3/4 $ 11 3/8 $ 12 1/8
High price 36 1/4 32 1/4 30 3/8 30 1/2 21 7/8 17 1/2
Close price 31 3/8 28 7/8 28 5/8 22 5/8 19 3/4 13
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Includes restructuring costs of $24.9 million, or $1.41 per share.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Toro Company
In November 1995, the company changed its fiscal year ended July 31 to a fiscal
year ended October 31. A comparison of the year ended October 31, 1996 to the
year ended October 31, 1995 is presented beginning on page 16. The 3 month
transition period ended October 31, 1995 bridges the gap between the company's
old and new fiscal year ends. A comparison of this transition period to the same
period in 1994 is presented below. In addition, a comparison of the years ended
July 31, 1995 and 1994 is also presented below.
Financial information related to the 3 month transition period ended October
31, 1995, and the years ended July 31, 1995 and 1994 has been derived from the
audited financial statements. Financial information related to the 3 month
period ended October 28, 1994 is unaudited.
RESULTS OF OPERATIONS
The sales for the 3 month transition period ended October 31, 1995 were $192.3
million versus $205.7 million in the same period of the prior year. The decline
was due to extraordinary snow product sales in 1994. Earnings for the period
were $4.0 million versus $8.3 million in the prior year.
<TABLE>
<CAPTION>
SUMMARY
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
3 Months Ended 3 Months Ended Year Ended Year Ended
October 31 October 28 July 31 July 31
(Dollars in millions except per share data) 1995 % Change 1994 1995 % Change 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $192.3 (6.5)% $205.7 $932.9 17.4% $794.3
Cost of sales 120.6 (6.9) 129.6 598.3 18.1 506.8
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit 71.7 (5.8) 76.1 334.6 16.4 287.5
Selling, general and administrative expense 65.0 3.7 62.7 269.8 10.2 244.9
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings from operations 6.7 (50.0) 13.4 64.8 52.1 42.6
Interest expense 2.5 - 2.5 11.9 (12.5) 13.6
Other income, net (2.4) (17.2) (2.9) (8.2) 2.5 (8.0)
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 6.6 (52.2) 13.8 61.1 65.1 37.0
Provision for income taxes 2.6 (52.7) 5.5 24.4 64.9 14.8
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 4.0 (51.8)% 8.3 $ 36.7 65.3% $ 22.2
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings per share of common stock
and common stock equivalent $ 0.32 (50.0)% $ 0.64 $ 2.81 64.3% $ 1.71
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
SALES BY PRODUCT LINE
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
3 Months Ended 3 Months Ended Year Ended Year Ended
Net Sales October 31 October 28 July 31 July 31
(Dollars in millions) 1995 % Change 1994 1995 % Change 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Consumer $105.9 (16.4)% $126.7 $488.1 14.6% $425.8
Commercial 54.1 11.1 48.7 305.3 20.6 253.2
Irrigation 32.3 6.6 30.3 139.5 21.0 115.3
- ----------------------------------------------------------------------------------------------------------------------------------
Total* $192.3 (6.5)% $205.7 $932.9 17.4% $794.3
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
*Includes international sales of $ 20.9 (11.8)% $ 23.7 $152.4 17.1% $130.1
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
3 MONTHS ENDED OCTOBER 31, 1995 COMPARED WITH 3 MONTHS ENDED OCTOBER 28, 1994
- --------------------------------------------------------------------------------
Worldwide net sales for the 3 months ended October 31, 1995, of $192.3 million
decreased by $13.4 million from the prior year primarily as a result of
decreased sales of snow removal equipment. The decline in the quarter was offset
partially by an increase in commercial and irrigation product sales. The
increase in commercial product sales was the result of new product
introductions, golf course openings, increased sales of equipment to landscape
contractors and increased sales in the municipal markets. Irrigation sales
increased because of new product introductions and increased demand for do-it-
yourself products. International sales included in the table on the previous
page declined from the prior year because of a temporary business interruption
in the irrigation product line as a result of distribution changes as well as
decreased sales of snow removal equipment.
YEAR ENDED JULY 31, 1995 COMPARED WITH YEAR ENDED JULY 31, 1994
- --------------------------------------------------------------------------------
Worldwide sales increased $138.6 million in fiscal 1995 to $932.9 million with
increases in all product lines as discussed below:
- - CONSUMER
Worldwide consumer product sales rose 14.6% to $488.1 million in 1995. Consumer
product sales represented 52.3% and 53.6% of consolidated net sales for 1995 and
1994, respectively. International sales included in consumer product sales
increased $5.6 million from the prior year.
Exceptional sales of snow removal equipment as well as increased sales of
riding products and Toro-Registered Trademark-brand walk power mowers
contributed to the increase over the prior year. This increase was offset
partially by a decline in Lawn-Boy-Registered Trademark- walk power mower
sales as a result of reduced shipments in response to a delayed spring season
as well as actions to reduce excess retail inventory.
- - COMMERCIAL
Worldwide commercial product sales increased $52.1 million over the prior year.
International sales included in commercial product sales increased $9.0 million
from the prior year.
Sales were strong in both the golf and municipal markets because of new golf
course openings and increased spending in the municipal market. Sales of
equipment to landscape contractors and sales of recycling equipment products
also contributed to the increase.
- - IRRIGATION
Worldwide irrigation product sales increased 21.0% to $139.5 million in 1995.
International sales included in irrigation product sales increased $6.0 million.
Increased sales of irrigation products in the golf industry as well as an
improved market share for do-it-yourself products contributed to the sales
increase. The company's change to direct distribution through irrigation product
wholesale dealers in the California and Texas markets, made in 1994 to better
respond to customer needs, was favorably received in the marketplace. Improved
international economies and weather conditions also resulted in increased sales.
- - INTERNATIONAL MARKETS
International sales are included in the preceding net sales table. International
sales increased 17.1% to $152.4 million in 1995. Sales in Canada improved over
the prior year because of the strengthened economy. The drought in Australia
curtailed sales slightly, but was offset by increased sales in Europe because of
the weak U.S. dollar.
26
<PAGE>
<TABLE>
<CAPTION>
COST TRENDS AND PROFIT MARGINS
- -----------------------------------------------------------------------------------------------------------------
3 Months Ended 3 Months Ended Year Ended Year Ended
October 31 October 28 July 31 July 31
Margins (Percent of net sales) 1995 1994 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross profit 37.3% 37.0% 35.9% 36.2%
Operating profit 3.5 6.5 6.9 5.4
Pretax earnings 3.4 6.7 6.5 4.7
Net earnings 2.1 4.0 3.9 2.8
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
3 MONTHS ENDED OCTOBER 31, 1995 COMPARED WITH 3 MONTHS ENDED OCTOBER 28, 1994
- --------------------------------------------------------------------------------
Gross profit of $71.7 million decreased $4.4 million from the prior year because
of the decline in sales. As a percent of sales, gross profit for the period
ended October 31, 1995 was 37.3% compared with 37.0% for the period ended
October 28, 1994 primarily due to increased sales of commercial and irrigation
products, offset partially by reduced sales of snow removal equipment.
YEAR ENDED JULY 31, 1995 COMPARED WITH YEAR ENDED JULY 31, 1994
- --------------------------------------------------------------------------------
Gross profit of $334.6 million increased 16.4% over the $287.5 million in 1994.
As a percent of net sales, gross profit decreased slightly to 35.9% for 1995
compared with 36.2% in 1994. The percentage decrease resulted from the mix of
product sales and increased costs of raw material. Gross profit increased $47.1
million to $334.6 million. This was the result of the increased sales volume
which was offset by the items mentioned above.
Operating profit improved from the prior year by $22.2 million because of
improved operating leverage as a result of increased sales.
<TABLE>
<CAPTION>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE (SG&A)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
3 Months Ended % of 3 Months Ended % of Year Ended % of Year Ended % of
SG&A Expense October 31 Net October 28 Net July 31 Net July 31 Net
(Dollars in millions) 1995 Sales 1994 Sales 1995 Sales 1994 Sales
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Administrative $24.0 12.5% $20.8 10.1% $ 89.5 9.6% $ 80.2 10.1%
Sales and marketing 20.6 10.7 23.8 11.6 92.1 9.9 84.4 10.6
Warranty 6.6 3.4 5.7 2.8 31.0 3.3 29.0 3.6
Distributor/dealer financing 2.1 1.1 2.0 1.0 9.7 1.0 8.6 1.1
Research and development 6.9 3.6 6.0 2.9 26.5 2.8 24.6 3.1
Warehousing 3.2 1.7 2.9 1.4 14.5 1.6 11.8 1.5
Service/quality assurance 1.6 0.8 1.5 0.7 6.5 0.7 6.3 0.8
- ----------------------------------------------------------------------------------------------------------------------------------
Total $65.0 33.8% $62.7 30.5% $269.8 28.9% $244.9 30.8%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
3 MONTHS ENDED OCTOBER 31, 1995 COMPARED WITH 3 MONTHS ENDED OCTOBER 28, 1994
- --------------------------------------------------------------------------------
SG&A increased $2.3 million from the prior year and as a percent of sales
increased to 33.8%. Administrative expense increased from the prior year as the
company continued its implementation of a company-wide information system as
well as an overall increase in spending. Warranty increased from the prior year
as a result of a change in the sales mix of products. Research and development
expenditures were above the prior year reflecting the company's continued
commitment to product innovation. These increases were offset partially by a
decrease in sales and marketing expense primarily because of reduced sales.
27
<PAGE>
YEAR ENDED JULY 31, 1995 COMPARED WITH YEAR ENDED JULY 31, 1994
- ----------------------------------------------------------------------------
SG&A was up $24.9 million from 1994 and was 28.9% of net sales in 1995
compared with 30.8% in 1994. The decline as a percent of sales was the result
of improved leverage and expense control. The increase in administrative
expense of $9.3 million occurred principally as a result of a company-wide
initiative to replace existing information systems, increased payouts in
various employee incentive and profit sharing plans, the addition of a joint
venture with a distributor, the addition of dealer direct financing through
Toro Credit Company, and distribution support.
Sales and marketing expense was up $7.7 million from the prior year. As a
percent of net sales, sales and marketing was 9.9%, a decrease from 10.6% in
1994. The dollar increase reflected the company's increased sales volume as
well as an increase in brand advertising.
Warranty expense increased by $2.0 million and as a percent of net sales was
3.3% in 1995 compared with 3.6% in 1994. The $2.0 million increase was
primarily the result of increased sales volume, and new product introductions.
Distributor/dealer financing expense represents the cost incurred by the
company to contract with a third party financing source to finance dealer
inventory purchases. The $9.7 million charge reflected in SG&A represents
credit facility origination costs and interest charges for a pre-established
length of time. Interest is charged at market rates based on prime plus a
negotiated mark-up. These financing arrangements are used by the company as a
marketing tool to enable customers to buy inventory. This expense increased
$1.1 million in 1995 because of the increased sales volume and was offset
partially by the reduction of third party financing expense which was taken
on through the addition of dealer direct financing through Toro Credit
Company.
Research and development expense was up $1.9 million primarily as the result
of continued investment in product innovation.
INTEREST EXPENSE
3 MONTHS ENDED OCTOBER 31, 1995 COMPARED WITH 3 MONTHS ENDED OCTOBER 28, 1994
- --------------------------------------------------------------------------------
Interest expense for the 3 months ended October 31, 1995 was $2.5 million which
was unchanged from the amount reported in 1994.
YEAR ENDED JULY 31, 1995 COMPARED WITH YEAR ENDED JULY 31, 1994
- --------------------------------------------------------------------------------
Interest expense for 1995 decreased to $11.9 million from the $13.6 million
reported in 1994 as the result of the company's continued reduction in long-term
debt and utilization of short-term borrowing at lower interest rates.
OTHER INCOME, NET
3 MONTHS ENDED OCTOBER 31, 1995 COMPARED WITH 3 MONTHS ENDED OCTOBER 28, 1994
- --------------------------------------------------------------------------------
Other income, net at October 31, 1995 was $2.4 million versus $2.9 million in
1994. The decrease in other income, net was due to a decline in financing
revenue for the period.
YEAR ENDED JULY 31, 1995 COMPARED WITH YEAR ENDED JULY 31, 1994.
- --------------------------------------------------------------------------------
Other income, net was $0.2 million greater than the $8.0 million reported in
1994. Excluding the effect of two lawsuit settlements and the sale of the
portable heater business in the prior year, other income increased because of
gains on fixed asset disposals versus losses in the prior year, favorable
foreign currency activity, and income resulting from joint venture activity.
28
<PAGE>
PROVISION FOR TAXES
3 Months Ended October 31, 1995 Compared With 3 Months Ended October 28, 1994
- --------------------------------------------------------------------------------
The effective tax rate for the period ended October 31, 1995 was 39.5% compared
to 40.0% for the 3 month period ended October 28, 1994.
Year Ended July 31, 1995 Compared With Year Ended July 31, 1994
- --------------------------------------------------------------------------------
The effective tax rate remained at 40% of pretax earnings in 1995. In accordance
with Financial Accounting Standards No. 109, the company has determined that it
is not necessary to establish a valuation reserve for the deferred income tax
benefit because it is more likely than not that the net deferred income tax
benefit of $30.9 million will be principally realized through carry back to
taxable income in prior years, and future reversals of existing taxable
temporary differences, and, to a lesser extent, future taxable income.
NET EARNINGS
3 Months Ended October 31, 1995 Compared With 3 Months Ended October 28, 1994
- --------------------------------------------------------------------------------
Net earnings for the 3 months ended October 31, 1995 was $4.0 million versus
$8.3 million a year prior. The decrease in earnings was primarily the result of
extraordinary snow product sales in the prior 3 month period.
Year Ended July 31, 1995 Compared With Year Ended July 31, 1994
- --------------------------------------------------------------------------------
Net earnings for 1995 were $36.7 million or $2.81 per share, as compared with
net earnings of $22.2 million or $1.71 per share in 1994. The increase in
earnings was primarily the result of increased sales, improved operating
leverage, and cost control measures such as lower borrowing costs.
29
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
The Toro Company:
We have audited the accompanying consolidated balance sheets of The Toro
Company and subsidiaries as of October 31, 1996 and 1995, and the related
consolidated statements of earnings and cash flows for the year ended October
31, 1996, the three month period ended October 31, 1995 and the years ended July
31, 1995 and 1994. These consolidated financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Toro
Company and subsidiaries as of October 31, 1996 and 1995, and the results of
their operations and their cash flows for the year ended October 31, 1996, the
three month period ended October 31, 1995 and the years ended July 31, 1995 and
1994 in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
December 16, 1996
CONSOLIDATED STATEMENTS OF EARNINGS The Toro Company
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Year Ended
YEAR ENDED 3 Months Ended ----------------------------
OCTOBER 31 October 31 July 31 July 31
(Dollars in thousands, except per share data) 1996 1995 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 930,909 $192,278 $ 932,853 $794,341
Cost of sales 589,186 120,575 598,275 506,816
- -------------------------------------------------------------------------------------------------------------------------
Gross profit 341,723 71,703 334,578 287,525
Selling, general and administrative expense 278,284 65,048 269,757 244,943
- -------------------------------------------------------------------------------------------------------------------------
Earnings from operations 63,439 6,655 64,821 42,582
Interest expense 13,590 2,532 11,902 13,562
Other income, net (10,331) (2,483) (8,193) (8,030)
- -------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 60,180 6,606 61,112 37,050
- -------------------------------------------------------------------------------------------------------------------------
Provision for income taxes 23,771 2,609 24,445 14,820
- -------------------------------------------------------------------------------------------------------------------------
Net earnings $ 36,409 $ 3,997 $ 36,667 $ 22,230
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Net earnings per share of common stock and
common stock equivalent $ 2.90 $ 0.32 $ 2.81 $ 1.71
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The financial statements should be read in conjunction with the Notes to
Consolidated Financial Statements.
30
<PAGE>
CONSOLIDATED BALANCE SHEETS The Toro Company
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data) October 31 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 66 $ 7,702
Receivables:
Customers 244,434 201,571
Other 5,208 4,787
- ----------------------------------------------------------------------------------------------------------
Subtotal 249,642 206,358
Less allowance for doubtful accounts 10,005 7,542
- ----------------------------------------------------------------------------------------------------------
Total receivables 239,637 198,816
- ----------------------------------------------------------------------------------------------------------
Inventories 130,288 145,862
Prepaid expenses 5,133 6,417
Deferred income tax benefits 29,877 27,462
- ----------------------------------------------------------------------------------------------------------
Total current assets 405,001 386,259
- ----------------------------------------------------------------------------------------------------------
Property, plant and equipment:
Land and land improvements 6,816 6,569
Buildings and leasehold improvements 46,107 47,601
Equipment 176,157 157,511
- ----------------------------------------------------------------------------------------------------------
Subtotal 229,080 211,681
Less accumulated depreciation and amortization 155,270 141,726
- ----------------------------------------------------------------------------------------------------------
Total property, plant and equipment 73,810 69,955
- ----------------------------------------------------------------------------------------------------------
Deferred income taxes 1,600 2,384
Other assets 16,466 14,055
- ----------------------------------------------------------------------------------------------------------
Total assets $496,877 $ 472,653
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 350 $ 15,334
Short-term borrowing 41,025 41,575
Accounts payable 43,524 51,757
Accrued warranty 34,722 35,065
Accrued marketing programs 22,600 21,407
Other accrued liabilities 65,636 56,035
- ----------------------------------------------------------------------------------------------------------
Total current liabilities 207,857 221,173
- ----------------------------------------------------------------------------------------------------------
Long-term debt, less current portion 53,015 53,365
Other long-term liabilities 22,438 7,223
Common stockholders' equity:
Common stock, par value $1.00, authorized 35,000,000 shares; issued
and outstanding 12,032,143 shares in 1996 (net of 877,861 treasury shares)
and 12,167,835 shares in 1995 (net of 674,490 treasury shares) 12,032 12,168
Additional paid-in capital 28,462 35,712
Retained earnings 173,630 142,891
Foreign currency translation adjustment (557) 121
- ----------------------------------------------------------------------------------------------------------
Total common stockholders' equity 213,567 190,892
- ----------------------------------------------------------------------------------------------------------
Total liabilities and common stockholders' equity $496,877 $472,653
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The financial statements should be read in conjunction with the Notes to
Consolidated Financial Statements.
31
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Year Ended
YEAR ENDED 3 Months Ended ----------------------------
OCTOBER 31 October 31 July 31 July 31
(Dollars in thousands) 1996 1995 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 36,409 $ 3,997 $ 36,667 $ 22,230
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Provision for depreciation and amortization 18,170 3,590 17,240 18,839
(Gain) loss on disposal of property, plant and equipment (260) (34) (135) 1,265
Deferred income taxes 784 194 (1,282) (2,668)
Tax benefits related to employee stock option transactions 1,490 - 1,178 953
Changes in operating assets and liabilities:
Net receivables (40,821) 13,640 (28,773) (3,320)
Inventories 15,574 (22,142) (4,956) (40,056)
Prepaid expenses and deferred income tax benefits (1,131) 1,962 (10,024) (2,551)
Accounts payable and accrued expenses 2,218 (9,770) 5,622 33,152
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 32,433 (8,563) 15,537 27,844
- ----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (21,389) (3,302) (28,162) (18,173)
Proceeds from asset disposals 543 43 843 267
(Increase) decrease in other assets/liabilities (857) 1,793 3,935 (4,973)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (21,703) (1,466) (23,384) (22,879)
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in sale of receivables - (2,331) 2,331 -
(Decrease) increase in short-term borrowing (550) 19,040 22,535 -
Proceeds from issuance of long-term debt - - - 4,000
Repayments of long-term debt (15,334) (12,326) (20,300) (40,645)
Proceeds from deferred income 12,742 5,250
Proceeds from exercise of stock options 4,627 3,586 8,251 6,144
Purchases of common stock (13,339) (891) (26,225) (2,284)
Dividends on common stock (5,834) (1,459) (6,002) (5,993)
Repayments from ESOP - - 2,612 2,611
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (17,688) 5,619 (16,798) (30,917)
- -----------------------------------------------------------------------------------------------------------------------------------
Foreign currency translation adjustment (678) 188 338 390
- -----------------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (7,636) (4,222) (24,307) (25,562)
Cash and cash equivalents at beginning of period 7,702 11,924 36,231 61,793
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 66 $ 7,702 $ 11,924 $ 36,231
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 15,335 $ 4,694 $ 9,567 $ 14,092
Income taxes 20,447 109 34,936 19,498
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The financial statements should be read in conjunction with the Notes to
Consolidated Financial Statements.
32
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Toro Company
- --------------------------------------------------------------------------------
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED DATA
FISCAL YEAR CHANGE
Effective November 1995, the company changed its fiscal year ended July 31 to a
fiscal year ended October 31. The 3 month transition period ended October 31,
1995 bridges the gap between the company's old and new fiscal year ends.
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of The
Toro Company and all wholly-owned and majority-owned domestic and foreign
subsidiaries (the company). Investments in 50% or less owned companies are
accounted for by the equity method. The accounts of foreign subsidiaries, which
are not material, have been adjusted to conform to U.S. accounting principles
and practices and have been translated to appropriate U.S. dollar equivalents.
All material intercompany accounts and transactions have been eliminated from
the consolidated financial statements.
CASH AND CASH EQUIVALENTS
The company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents. At October 31, 1996 the Company had
$4,908,000 included in trade payables that represented the reclassification of
outstanding checks in excess of related bank balances.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The provision for doubtful accounts included in selling, general and
administrative expense was $3,358,000 for the year ended October 31, 1996,
$720,000 for the 3 months ended October 31, 1995, $1,543,000 for the year ended
July 31, 1995, and $3,032,000 for the year ended July 31, 1994.
INVENTORIES
The majority of all inventories are valued at the lower of cost or net
realizable value with cost determined by the last-in, first-out (LIFO) method.
Had the first-in, first-out (FIFO) method of cost determination been used,
inventories would have been $25,642,000 and $24,841,000 higher than reported at
October 31, 1996, and 1995, respectively. Under the FIFO method, work-in-process
inventories were $69,182,000 and $86,285,000 and finished goods inventories were
$86,748,000 and $84,418,000 at October 31, 1996 and 1995, respectively.
PROPERTY AND DEPRECIATION
Property, plant and equipment are carried at cost. The company provides for
depreciation of plant and equipment utilizing the straight-line method over the
estimated useful lives of the assets. Buildings, including leasehold
improvements, are generally depreciated over 10 to 45 years, and equipment over
3 to 7 years. Tooling costs are generally amortized using the units of
production method. Expenditures for major renewals and betterments which
substantially increase the useful lives of existing assets are capitalized, and
maintenance and repairs are charged to operating expenses as incurred. Software
is expensed at the time of purchase. The cost and related accumulated
depreciation of all plant and equipment disposed of are removed from the
accounts, and any gain or loss from such disposal is included in current period
earnings.
ACCRUED WARRANTY
The company provides an accrual for estimated future warranty costs based upon
the historical relationship of warranty costs to sales.
33
<PAGE>
DEFERRED INCOME
The company has recorded deferred income related to a forward starting interest
rate exchange agreement. The deferred income will be recognized commencing
August 1, 1997 as an adjustment to interest expense over the term of the
agreement. See Note 3 to the Consolidated Financial Statements.
FOREIGN CURRENCY TRANSLATION
The functional currency of the company's foreign operations is the applicable
local currency. The functional currency is translated into U.S. dollars in
accordance with Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation" which is performed for balance sheet accounts using
current exchange rates in effect at the balance sheet date and for revenue and
expense accounts using a weighted average exchange rate during the period. The
gains or losses resulting from such translations are included in stockholders'
equity. Gains or losses resulting from foreign currency transactions are
included in other income, net.
ACCOUNTING FOR REVENUES
Revenue is recognized at the time products are shipped to distributors, dealers
or mass merchandisers.
COST OF FINANCING DISTRIBUTOR/DEALER INVENTORY
Included in selling, general and administrative expense are costs associated
with various programs in which the company shares costs of financing distributor
and dealer inventories. These costs of $10,252,000 for the year ended October
31, 1996, $2,063,000 for the 3 months ended October 31, 1995, $9,675,000 for the
year ended July 31, 1995, and $8,587,000 for the year ended July 31, 1994, are
charged against operations as incurred.
RESEARCH AND DEVELOPMENT
Expenditures for research and development, including engineering, of $31,343,000
for the year ended October 31, 1996, $6,864,000 for the 3 months ended October
31, 1995, $26,513,000 for the year ended July 31, 1995 and $24,581,000 for the
year ended July 31, 1994 are charged against operations as incurred.
DISTRIBUTION
Included in selling, general and administrative expense are costs associated
with changes to the company's distribution channels. These costs were $6,682,000
for the year ended October 31, 1996, $823,000 for the 3 months ended October 31,
1995, $3,400,000 for the year ended July 31, 1995 and $4,300,000 for the year
ended July 31, 1994. Those costs associated with business changes are accrued on
the basis of historical experience, while costs related to specific changes to
the company's distribution system are recorded when authorized.
INCOME TAXES
In accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," (FAS 109), deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date. The company has reflected the necessary deferred tax asset/liability in
the accompanying balance sheets. Management believes the future tax deductions
will be realized principally through carry back to taxable income in prior
years, future reversals of existing taxable temporary differences, and to a
lesser extent, future
taxable income.
34
<PAGE>
NET EARNINGS PER SHARE OF COMMON STOCK AND COMMON STOCK EQUIVALENTS
Net earnings per share of common stock and common stock equivalents are computed
by dividing net earnings by the weighted average number of common shares and
common stock equivalents outstanding during the respective periods. Common stock
equivalents include potentially dilutive stock options. These shares are
included under the treasury stock method using the average market price of the
company's stock during each period. The effect of full dilution using the
year-end price of the company's stock was immaterial.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENT
In October 1995, the Financial Accounting Standards Board released Statement
of Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation," (FAS 123). The company accounts for its stock options and
employee stock ownership plan in accordance with the provisions of the
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," (APB 25). FAS 123 provides an alternative to APB 25 and is
effective for fiscal years beginning after December 15, 1995. The company
expects to continue to account for its employee stock plans in accordance
with the provisions of APB 25. Accordingly, FAS 123 is not expected to have
any material impact on the company's financial position or results of
operations. Effective with the issuance of the company's fiscal 1997
financial statements, the company will disclose proforma net income and per
share amounts as if FAS 123 were applied.
RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform with the current
year presentation.
2 SHORT-TERM CAPITAL RESOURCES
- --------------------------------------------------------------------------------
At October 31, 1996, the company had available unsecured lines of credit with
five banks in the aggregate of $194,000,000. Most of these agreements require
the company to pay a fee of 0.175% per year on the available lines of credit.
This fee is recorded by the company as interest expense.
The company had $41,025,000 outstanding at October 31, 1996, and $41,575,000
outstanding at October 31, 1995. The weighted average interest rate on short-
term borrowing for 1996 was 6.0% (6.0% for the 3 months ended October 31, 1995,
7.7% for the year ended July 31, 1995 and 6.5% for the year ended July 31,
1994). Interest expense was $7,036,000 in 1996 ($695,000 for the 3 months ended
October 31, 1995, $2,498,000 for the year ended July 31, 1995 and $822,000 for
the year ended July 31, 1994), including facility fees. The weighted average
short-term borrowing was $117,080,000 for the year ended October 31, 1996
($11,496,000 for the 3 months ended October 31, 1995, $32,335,000 for the year
ended July 31, 1995 and $12,755,000 for the year ended July 31, 1994).
In addition, the company's capital resources include two $20,000,000
bankers' acceptance financing agreements in 1996 and 1995. The company had no
amount outstanding under these agreements at October 31, 1996, and 1995.
35
<PAGE>
3 LONG-TERM DEBT
- --------------------------------------------------------------------------------
A summary of long-term debt is as follows:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Dollars in thousands) October 31 1996 1995
- --------------------------------------------------------------------------------
11% Sinking Fund Debentures due annually
August 1998-2017 callable August 1, 1997 $50,000 $50,000
Industrial Revenue Bond due annually
June 1997-2004 with various interest rates 3,365 3,699
9.57% senior note due January 1996 - 5,000
9.53% senior note due August 1996 - 10,000
- --------------------------------------------------------------------------------
53,365 68,699
Less current portion 350 15,334
- --------------------------------------------------------------------------------
Long-term debt, less current portion $53,015 $53,365
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The weighted average interest rate on long-term debt for 1996 was 10.5%
(10.5% for the 3 months ended October 31, 1995, 9.9% for the year ended July 31,
1995 and 9.8% for the year ended July 31, 1994). Interest expense was $6,555,000
in 1996 ($1,837,000 for the 3 months ended October 31, 1995, $8,673,000 for the
year ended July 31, 1995 and $12,236,000 for the year ended July 31, 1994),
including commitment and facility fees. The weighted average long-term debt
outstanding was $62,366,000 in 1996 ($17,557,000 for the 3 months ended October
31, 1995, $87,330,000 for the year ended July 31, 1995 and $125,388,000 for the
year ended July 31, 1994).
The company entered into a forward starting interest rate exchange
agreement with a bank on March 6, 1996 to hedge the anticipated refinancing of
its $50 million, 11% long-term sinking fund debentures callable August 1, 1997,
and to realize the benefit of favorable interest rates. Simultaneously with
entering into this interest rate exchange agreement, the company terminated its
interest rate exchange agreement entered into during February 1994. The effect
of this transaction was to extend the original forward starting interest rate
exchange agreement from 5 years to 30 years. As a result of this transaction,
the deferred income balance was increased from $5.25 million in 1994 to $17.3
million in March of 1996. The net additional cash received in March 1996 was
$12.1 million. In return for the net proceeds, the company will pay the bank
10.55% on a notational amount of $50 million from August 1, 1997 through August
2, 2027 and the company will receive payments based on a floating rate equal to
the London Interbank Offered Rate (LIBOR) on the notational amount over the same
period.
The net interest rate differential to be received or paid and the $17.3
million deferred income will be recognized commencing August 1, 1997 as an
adjustment to interest expense over the term
of the agreement.
On August 12, 1996 the company entered into another forward starting
interest rate exchange agreement with a bank to additionally hedge the
anticipated refinancing of the $50 million currently financed under short-term
credit agreements. The company received or paid no cash as a result of
this transaction.
Under the terms of the long-term debt agreements and the interest rate
exchange agreements, the company is subject to certain covenants. At October 31,
1996, the company was in compliance with all such covenants.
The terms of certain agreements of Toro Credit Company restrict the payment
of dividends and loans or advances to the parent company. Of the Toro Credit
Company's retained earnings of $63,584,000, all were available for distribution
to the parent at October 31, 1996.
Principal payments required on long-term debt in each of the next five
years ending October 31 are as follows: 1997, $350,000; 1998, $2,865,000; 1999,
$2,885,000; 2000, $2,905,000; 2001, $2,925,000; and after 2001, $41,435,000.
36
<PAGE>
4 INCOME TAXES
- -------------------------------------------------------------------------------
A reconciliation of the statutory federal income tax rate to the company's
consolidated effective tax rate is summarized as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED 3 Months Ended Year Ended
----------------------------
OCTOBER 31 October 31 July 31 July 31
1996 1995 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0% 35.0%
Increase (reduction) in income taxes resulting from:
Benefits from foreign sales corporation (0.8) (0.2) (0.8) (1.6)
State and local income taxes, net of federal
income tax benefit 2.5 4.6 2.4 2.4
Effect of foreign source income 0.0 1.5 0.5 1.3
Other, net 2.8 (1.4) 2.9 2.9
- -----------------------------------------------------------------------------------------------------------------------------
Consolidated effective tax rate 39.5% 39.5% 40.0% 40.0%
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Components of the provision for income taxes are as follows:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED 3 Months Ended Year Ended
----------------------------
OCTOBER 31 October 31 July 31 July 31
1996 1995 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current:
Federal $22,479 $ 731 $24,878 $18,487
State 2,754 238 2,942 2,610
- -----------------------------------------------------------------------------------------------------------------------------
Current provision 25,233 969 27,820 21,097
- -----------------------------------------------------------------------------------------------------------------------------
Deferred:
Federal (1,051) 1,414 (2,689) (5,059)
State (411) 226 (686) (1,218)
- -----------------------------------------------------------------------------------------------------------------------------
Deferred provision (1,462) 1,640 (3,375) (6,277)
- -----------------------------------------------------------------------------------------------------------------------------
Total provision for income taxes $23,771 $2,609 $24,445 $14,820
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to the net
deferred tax assets at October 31, 1996 and 1995 are presented below.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Dollars in thousands) 1996 1995
- --------------------------------------------------------------------------------
Allowance for doubtful accounts $ 5,151 $ 4,254
Inventory reserves 536 (459)
Uniform capitalization 2,252 2,302
Depreciation 1,600 2,384
Warranty reserves 12,881 12,754
Marketing programs 2,018 1,973
Distributor reserves 2,603 2,474
Restructuring reserves 1,091 1,386
Accrued retirement 3,410 2,770
Other (65) 8
- --------------------------------------------------------------------------------
Consolidated deferred income tax assets $31,477 $29,846
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
During the years ended October 31, 1996 and July 31, 1995, respectively,
$1,490,000 and $1,178,000 was added to additional paid-in capital in accordance
with Accounting Principal Board opinion 25 reflecting the permanent book to tax
difference in accounting for tax benefits related to employee stock option
transactions.
37
<PAGE>
5 COMMON STOCKHOLDERS EQUITY
- --------------------------------------------------------------------------------
Changes in the components of common stockholders' equity during the fiscal year
ended October 31, 1996, the 3 months ended October 31, 1995, and the fiscal
years ended July 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Foreign
Currency
Common Additional Retained Receivable Translation
(Dollars in thousands) Stock Paid-In Capital Earnings from ESOP Adjustment
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at July 31, 1993 $12,270 $ 44,898 $ 93,451 $(5,223) $(795)
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Common dividends paid ($0.48 per share) - - (5,993) - -
Issuance of 388,588 shares under
stock option plans 388 5,756 - - -
Purchase of 97,758 common shares (97) (2,187) - - -
Payment received from ESOP - - - 2,611 -
Foreign currency translation adjustment - - - - 390
Tax benefits related to employee stock
option transactions - 953 - - -
Net earnings - - 22,230 - -
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1994 $12,561 $ 49,420 $109,688 $ (2,612) $(405)
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Common dividends paid ($0.48 per share) - - (6,002) - -
Issuance of 444,783 shares under
stock option plans 445 7,806
Purchase of 965,757 common shares (966) (25,259) - - -
Payment received from ESOP - - - 2,612 -
Foreign currency translation adjustment - - - - 338
Tax benefits related to employee stock
option transactions - 1,178 - - -
Net earnings - - 36,667 - -
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1995 $12,040 $ 33,145 $140,353 $ 0 $ (67)
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Common dividends paid ($0.12 per share) - - (1,459) - -
Issuance of 156,263 shares under stock
option plans 156 3,431 - - -
Purchase of 28,204 common shares (28) (864) - - -
Foreign currency translation adjustment - - - - 188
Net earnings - - 3,997 - -
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at October 31, 1995 $12,168 $ 35,712 $142,891 $ 0 $ 121
- ----------------------------------------------------------------------------------------------------------------------------------
Common dividends paid ($0.48 per share) - - (5,834) - -
Issuance of 294,324 shares under stock
option plans 294 4.333 - - -
Purchase of 429,692 common shares (430) (13,073) - - -
Foreign currency translation adjustment - - - - (678)
Tax benefits related to employee stock
option transactions - 1,490 - - -
Other - - 164 - -
Net earnings - - 36,409 - -
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT OCTOBER 31, 1996 $12,032 $ 28,462 $173,630 $ 0 $(557)
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Under the terms of a Rights Agreement established June 14, 1988 each share of
the company's common stock entitles its holder to one preferred share purchase
right. Each right entitles the registered holder to purchase from the company
one one-hundredth of a share of Series B Junior Participating Voting Preferred
Stock, $1.00 par value at a price of $85 per one one-hundredth of a Preferred
Share. The rights become exercisable and tradable 10 days after a person or a
group acquires 20% or more, or makes an offer to acquire 20% or more, of the
company's outstanding common stock. At no time do the rights have any voting
power. The rights may be redeemed by the company for $0.01 per right at any time
prior to the time that a person or group has acquired beneficial ownership of
20% or more of the common shares.
38
<PAGE>
6 STOCK OPTION PLANS
- --------------------------------------------------------------------------------
Incentive stock options and nonqualified options may be granted under the terms
of the stockholder approved 1989 Stock Option Plan and the 1993 Stock Option
Plan (the "Plans"). Each incentive stock option and nonqualified stock option is
granted at an exercise price equal to 100% of the fair market value of the
Common Stock on the date of the grant, except for performance based stock
options, such as those granted in connection with the Continuous Performance
Award Plan for which the exercise price is an average of the closing stock
prices for the three months preceding the grant date. Stock options granted
under the Plans may be exercised in whole or in part from time to time, not
later than 10 years from the date of grant or other period, as specified in the
option agreement. Most stock options are subject to cancellation upon
termination of the option holder's employment. However, some nonqualified
options granted under the Plans can be exercised for up to four years after
retirement, at or after age 60, but not beyond the date the option originally
expires. Only nonqualified stock options may be granted under the terms of the
1992 Directors Stock Plan (the "Director Plan"). The Director Plan is a formula
plan. Each option granted under the Director Plan is granted at an exercise
price equal to 100% of the fair market value of the Common Stock on the date of
the grant. Stock options granted under the Director Plan may be exercised only
while serving as a member of the Board of Directors of the company, except in
the event of death or disability. Stock option transactions are summarized as
follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
YEAR ENDED 3 Months Ended Year Ended
----------------------------
OCTOBER 31 October 31 July 31 July 31
1996 1995 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of period 1,253,311 1,166,579 1,259,509 1,421,923
Granted 48,768 256,496 323,474 264,217
Exercised or cancelled (194,221) (169,764) (416,404) (426,631)
- -----------------------------------------------------------------------------------------------------------------------------
Outstanding at end of period 1,107,858 1,253,311 1,166,579 1,259,509
- -----------------------------------------------------------------------------------------------------------------------------
Price range of granted options $29.125-32.50 $ 29.00 $ 23.625-29.50 $ 18.75-25.50
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Shares reserved for granting future stock
options at end of period 1,009,868 1,040,877 621,738 923,240
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Options exercisable at end of period 882,670 843,476 780,169 765,510
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
Price range of exercisable options $ 10.90-32.50 $10.90-29.50 $ 10.70-29.50 $10.70-25.875
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The options outstanding at October 31, 1996 were granted in 1992 (305,000
shares); 1993 (130,195 shares); 1994 (179,068 shares); and 1995 (209,606
shares); the 3 months ended October 31, 1995 (237,721 shares) and the year ended
October 31, 1996 (46,268 shares).
39
<PAGE>
7 EMPLOYEE BENEFIT PROGRAMS
The company has an Employee Stock Ownership Plan (ESOP) which covers
substantially all employees of the company and its subsidiaries. The plan was a
leveraged ESOP which means funds were borrowed to purchase the shares. At July
31, 1995, ESOP indebtedness to the company was paid in full and funding of the
ESOP was completed. Principal payments of ESOP debt were $2,612,000 for the year
ended July 31, 1995 and $2,611,000 for the year ended July 31, 1994. Interest
incurred on ESOP debt and interest received by the company was $258,000 for the
year ended July 31, 1995 and $512,000 for the year ended July 31, 1994.
Dividends on the ESOP shares used for debt service by the ESOP were $107,000 for
the year ended July 31, 1995 and $195,000 for the year ended July 31, 1994.
The expenses recognized related to the ESOP were $2,504,000 for the year ended
July 31, 1995 and $2,417,000 for the year ended July 31, 1994. There were no
principal payments of ESOP debt, interest incurred or received, dividends or
expenses related to the ESOP for the year ended October 31, 1996 or the 3 months
ended October 31, 1995.
On August 1, 1995, the ESOP plan year end was changed to December 31. The
company's contributions to the plan, net of dividends, were $639,000 for the
year ended October 31, 1996, zero for the 3 months ended October 31, 1995,
$2,762,000 for the year ended July 31, 1995 and $2,929,000 for the year ended
July 31, 1994.
Effective August 1, 1995, the company adopted a new employee benefit
program which replaces the ESOP, profit sharing, and matching stock plans. The
current ESOP was replaced with a new Employee Stock Ownership Plan. The employee
profit sharing plans and the matching stock plan were merged into the Toro
Company Investment and Savings Plan which has a plan year end of December 31.
Under this plan, eligible employees receive a pre-established percentage of
their salary. Contributions to this plan for the year ended October 31, 1996
were $2,539,000. In addition, this plan includes a 401(k) which provides for
company matching contributions of up to two percent of salary. Matching
contributions to the Toro 401(k) Employee Savings and Toro Matching Plan for the
year ended October 31, 1996 were $1,679,000.
Contributions to the company's former employee profit sharing plans which
covered substantially all employees of the company and its subsidiaries were
made annually, immediately following the fiscal year end. The contribution made
in the 3 months ended October 31, 1995, which pertained to the year ended July
31, 1995, was $3,833,000. For the years ended July 31, 1995 and 1994 the
contributions paid totaled $4,100,000 and $4,150,000, respectively, and
pertained to the preceding fiscal years. Such amounts are based upon annual
earnings before income taxes and minimum contributions required under the plans.
Under the company's former matching stock plan, shares of common stock were
acquired by employees through payroll deductions and employer matching
contributions pursuant to the plan. Contributions were $660,000 for the year
ended July 31, 1995 and $485,000 for the year ended July 31, 1994.
In addition, the company and its subsidiaries have supplemental and other
retirement plans covering certain employees. Pension expense under these plans
in 1996, 1995 and 1994 was not significant.
40
<PAGE>
8 SEGMENT DATA
- --------------------------------------------------------------------------------
The company classifies its operations into one industry segment, outdoor
maintenance equipment. International sales were $174,249,000 for the year
ended October 31, 1996, $20,935,000 for the 3 months ended October 31, 1995,
$152,409,000 for the year ended July 31, 1995 and $130,053,000 for the year
ended July 31, 1994. Of these amounts, export sales were $154,716,000 for the
year ended October 31, 1996, $18,557,000 for the 3 months ended October 31,
1995, $126,560,000 for the year ended July 31, 1995 and $109,344,000 for the
year ended July 31, 1994. Export sales by geographic area are as follows:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Year Ended 3 Months Ended Year Ended
--------------------
October 31 October 31 July 31 July 31
(Dollars in thousands) 1996 1995 1995 1994
- --------------------------------------------------------------------------------
Europe $ 80,986 $ 6,098 $ 60,239 $ 48,976
Canada 26,322 4,848 31,921 28,039
Pacific Rim 42,976 6,955 28,979 27,535
Other 4,432 656 5,421 4,794
- --------------------------------------------------------------------------------
Total export sales $154,716 $18,557 $126,560 $109,344
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Sales to any particular customer were not significant.
9 LEASE COMMITMENTS
- --------------------------------------------------------------------------------
Minimum lease commitments in future years under noncancelable operating
leases are as follows: 1997, $6,333,000; 1998, $4,147,000; 1999, $2,782,000;
2000, $1,916,000; 2001, $1,457,000; and after 2001, $1,687,000.
Total lease expense was as follows:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YEAR ENDED 3 Months Ended Year Ended
---------------------
OCTOBER 31 October 31 July 31 July 31
(Dollars in thousands) 1996 1995 1995 1994
- --------------------------------------------------------------------------------
Warehouse and office space $3,291 $ 905 $3,360 $2,198
Trucks and autos 2,191 374 1,890 2,039
Equipment 3,933 924 3,721 3,044
- --------------------------------------------------------------------------------
Total $9,415 $2,203 $8,971 $7,281
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
10 COMMITMENTS AND CONTINGENT LIABILITIES
The company was contingently liable to repurchase $10,578,000 at October 31,
1996 and $10,442,000 at October 31, 1995, of inventory relating to
receivables under dealer financing arrangements. Additionally, debts incurred
by certain distributors, aggregating $1,008,000 at October 31, 1996, and
$1,176,000 at October 31, 1995, have been guaranteed by the company.
In the ordinary course of business, the company may become liable with
respect to pending and threatened litigation, taxes, environmental, and other
matters. While the ultimate results of investigations, lawsuits, and claims
involving the company cannot be determined, management does not expect that
these matters will have a material adverse effect on the consolidated
financial position of the company.
41
<PAGE>
11 FINANCIAL INSTRUMENTS
OFF-BALANCE SHEET RISK
Letters of credit are issued by the company during the ordinary course of
business, as required by certain vendor contracts, through major domestic
banks. As of October 31, 1996, and 1995, the company had $19,705,000 and
$14,735,000, respectively, in outstanding letters of credit.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the company to concentrations
of credit risk consist principally of accounts receivable which are
concentrated in a single business segment, outdoor maintenance equipment. The
credit risk associated with this segment is limited because of the large
number of customers in the company's customer base and their geographic
dispersion.
FOREIGN CURRENCY INVESTMENTS
A portion of the company's cash flow is derived from sales and purchases
denominated in foreign currencies. To reduce the uncertainty of foreign
currency exchange rate movements on these sales and purchase commitments, the
company enters into forward exchange and range forward option contracts.
These contracts are designed to hedge firm anticipated foreign currency
transactions.
At October 31, 1996, the company had contracts maturing at various dates
to purchase $1,196,000 in foreign currencies and to sell $29,198,000 in
foreign currencies at the contract rates. In addition, the company had range
forward options of $1,343,000 at October 31, 1996.
Changes in the market value of the foreign currency instruments are
recognized in the financial statements upon settlement of the hedged
transaction.
FAIR VALUE
The following disclosure of the estimated fair value of financial instruments
is made in accordance with the requirements of FAS Statement 107,
"Disclosures about Fair Value of Financial Instruments." Estimated fair value
amounts have been determined using available information and appropriate
valuation methodologies. Because considerable judgement is required in
developing the estimates of fair value, these estimates are not necessarily
indicative of the amounts that could be realized in a current market exchange.
The carrying and estimated fair values of the company's financial
instruments at October 31, 1996, are as follows:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Carrying Estimated Fair
(Dollars in millions) Value Value
- --------------------------------------------------------------------------------
Long-term debt $53,365 $62,887
Deferred income (interest rate exchange agreements) 17,992 22,969
- --------------------------------------------------------------------------------
For cash and cash equivalents, receivables, and accounts payable,
carrying value is a reasonable estimate of fair value.
For long-term debt with fixed interest rates, fair value is estimated by
discounting the projected cash flows using the rate at which similar amounts
could currently be borrowed.
The estimated fair value of the 11% sinking fund debentures represents
the amount the company would pay to redeem the notes based on the terms of
the debenture.
The estimated fair value of the deferred income represents the cost to
terminate the interest rate exchange agreements, had management elected to do
so, which would have resulted in a loss of approximately $4,977,000.
42
<PAGE>
12 CONSOLIDATED FINANCE SUBSIDIARY - TORO CREDIT COMPANY
Toro Credit Company is a consolidated finance subsidiary of the company and
operates primarily in the finance industry with wholesale financing of
distributor and dealer inventories under various financing arrangements and
other programs.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
YEAR ENDED 3 Months Ended Year Ended
--------------------
OCTOBER 31 October 31 July 31 July 31
(Dollars in thousands) 1996 1995 1995 1994
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------
Summary of Earnings
Finance revenues $23,507 $4,641 $21,259 $17,436
Expenses:
Operating 3,371 827 3,428 2,068
Interest 6,248 737 4,902 4,737
Foreign currency exchange
net (gains) losses (10) (18) (37) 96
- ------------------------------------------------------------------------------------
Total expenses 9,609 1,546 8,293 6,901
Earnings before income taxes 13,898 3,095 12,966 10,535
Provision for income taxes 5,230 1,111 4,744 3,669
- ------------------------------------------------------------------------------------
Net earnings $ 8,668 $1,984 $ 8,222 $ 6,866
- ------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED Year Ended
OCTOBER 31 October 31
(Dollars in thousands) 1996 1995
- ----------------------------------------------------------------------------
<S> <C> <C>
Summary Balance Sheets
Assets
Cash and cash equivalents $ 1,053 $ 1,469
Receivables-net 147,582 131,510
Other receivables and assets 1,766 1,858
- ----------------------------------------------------------------------------
Total assets $150,401 $134,837
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current portion of long-term debt $ - $ 15,000
Other liabilities 78,817 56,921
Long-term debt, less current portion - -
Shareholders' equity 71,584 62,916
- ----------------------------------------------------------------------------
Total liabilities and
shareholders' equity $150,401 $134,837
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</TABLE>
Of the finance revenues presented above, $19,306,000 for the year ended
October 31, 1996, $3,642,000 for the 3 months ended October 31, 1995,
$17,114,000 for the year ended July 31, 1995 and $13,272,000 for the year
ended July 31, 1994, represent transactions with the parent company, The Toro
Company, which are eliminated in consolidation. The remaining finance
revenues of $4,201,000 for the year ended October 31, 1996, $999,000 for the
3 months ended October 31, 1995, $4,145,000 for the year ended July 31, 1995
and $4,164,000 for the year ended July 31, 1994 are included in other income,
in The Toro Company's Consolidated Statements of Earnings. The expenses and
balance sheet items (net of eliminations) are included in the Consolidated
Statements of Earnings and Consolidated Balance Sheets under the
corresponding classifications.
43
<PAGE>
13 QUARTERLY FINANCIAL DATA (UNAUDITED)
- --------------------------------------------------------------------------------
Summarized quarterly financial data for 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
3 Months Ended FISCAL YEAR ENDED OCTOBER 31, 1996
(Dollars in thousands except ---------------------------------------------------------------------------
per share data) October 31, 1995 FIRST SECOND THIRD FOURTH
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $192,278 $211,501 $288,646 $232,565 $198,197
Gross profit 71,703 76,329 103,810 85,884 75,700
Net earnings 3,997 8,498 16,820 6,465 4,626
Net earnings per share of common stock
and common stock equivalent 0.32 0.67 1.33 0.52 0.37
Dividends per common share 0.12 0.12 0.12 0.12 0.12
Market price of common stock
High bid 32 1/4 36 1/4 35 1/4 34 5/8 34 1/8
Low bid 28 1/8 28 3/8 30 5/8 30 30 1/4
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Fiscal Year Ended July 31, 1995
---------------------------------------------------------------------------
Quarter First Second Third Fourth
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $205,704 $213,950 $310,613 $202,586
Gross profit 76,065 76,068 107,342 75,103
Net earnings 8,302 6,799 17,539 4,027
Net earnings per share of common stock
and common stock equivalent 0.64 0.51 1.32 0.32
Dividends per common share 0.12 0.12 0.12 0.12
Market price of common stock
High bid 29 7/8 29 3/8 30 3/8 29 7/8
Low bid 21 5/8 26 27 1/2 25 5/8
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
14 Subsequent Event
On December 3, 1996, the company acquired James Hardie Irrigation Group (JHI)
from James Hardie Limited of Australia. The purchase price of approximately
$119.0 million is subject to adjustment, based on changes in working capital
and closing balance sheet audit adjustments, and has been initially financed
with temporary bank debt. The acquisition is being accounted for as a
purchase. JHI is headquartered in Laguna Niguel, California and has
production facilities in Texas, California, Florida, and Australia. It is a
worldwide leader in the production of irrigation systems to the commercial
landscape market. For its latest fiscal year ended March 31, 1996, JHI had
unaudited net sales of approximately $140.4 million and unaudited operating
income of approximately $3.7 million.
The Toro Company
44
<PAGE>
Exhibit 21
THE TORO COMPANY
SUBSIDIARIES OF REGISTRANT
All of the following are subsidiaries of The Toro Company as of
January 20, 1997.
<TABLE>
<CAPTION>
NAME STATE OR OTHER JURISDICTION OF PERCENTAGE OF VOTING SECURITIES
INCORPORATION OWNED BY IMMEDIATE PARENT
<S> <C> <C>
Toro Australia Pty. Limited Australia 100%
Toro Credit Company Minnesota 100%
Toro Europe Belgium 100%
Toro Foreign Sales Corporation Barbados 100%
Lawn-Boy Inc. Delaware 100%
Toro Probiotic Products, Inc. Minnesota 100%
Toro Sales Company Minnesota 100%
Toro Southwest, Inc. California 100%
Toro International Company Minnesota 100%
Hahn Equipment Co. Minnesota 100%
Professional Turf Products of Texas, Inc. Texas 100%
Integration Control Systems & Services, Inc. Texas 100%
Turf Management Systems, Inc. Minnesota 100%
James Hardie Irrigation, Inc. Nevada 100%
James Hardie Irrigation Pty. Limited Australia 100%
James Hardie Irrigation Europe S.p.A. Italy 100%
</TABLE>
21
<PAGE>
[LETTERHEAD]
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
The Toro Company:
We consent to incorporation by reference in the Registration Statements (Nos.
33-26268, 33-31586, 33-38308, 33-44668, 33-51563, 33-55550, 33-59563, 33-62743,
and 333-4521) on Forms S-3 and S-8 of The Toro Company of our reports dated
December 16, 1996, relating to the consolidated balance sheets of The Toro
Company and subsidiaries as of October 31, 1996 and 1995, and the related
consolidated statements of earnings and cash flows and related financial
statement schedule for the year ended October 31, 1996, the three-month period
ended October 31, 1995 and the years ended July 31, 1995 and 1994, which reports
are included in or incorporated by reference in the annual report on Form 10-K
of The Toro Company.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 29, 1997
22
<PAGE>
January 29, 1997
Securities and Exchange Commission
Department of Corporate Finance
450 5th Street N.W.
Washington, DC 20549
RE: THE TORO COMPANY, FILE NO. 1-8649
Dear Sir or Madam,
Transmitted herewith through the EDGAR system is form 10-K for the fiscal year
ended October 31, 1996 for The Toro Company. There have been no material
accounting changes from the prior year.
Please call me at (612) 887-8633 if you require additional information.
Sincerely,
Randi L. Engelhardt
Supervisor, Financial Reporting
CC: Kerry Juntti
Jerry Knight
Larry McIntyre
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported): June 24, 1997
THE TORO COMPANY
(Exact name of registrant as specified in its charter)
Delaware No. 1-8649 41-0580470
(State of other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification Number)
8111 Lyndale Avenue South
Bloomington, Minnesota 55420-1196
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 888-8801
<PAGE>
Item 5. OTHER EVENTS.
On June 24, 1997, The Toro Company, a Delaware corporation (the
"Company"), closed the public offering of $75,000,000 aggregate principal
amount of its 7.125% Notes due June 15, 2007 (the "Notes") and $100,000,000
aggregate principal amount of its 7.80% Debentures due June 15, 2027 (the
"Debentures") under its registration statement on Form S-3 (No. 33-20901),
which became effective on June 10, 1997 (the "Registration Statement"). This
Current Report on Form 8-K is being filed for the purpose of filing as
exhibits the Underwriting Agreement, the Pricing Agreement, the Indenture,
the Officers' Certificate Establishing Terms of Debt Securities, the form of
Note and the form of Debenture listed in Item 7(c) hereof in connection with
the Registration Statement and the public offering of the Notes and the
Debentures.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
1(a) Underwriting Agreement dated June 18, 1997 executed
by the Company (incorporated by reference to
Exhibit 1 to the Company's Registration Statement
on Form S-3 No. 333-20901).
1(b) Pricing Agreement dated June 18, 1997 between the
Company and Goldman, Sachs & Co., BancAmerica
Securities, Inc. and NationsBanc Capital Markets,
Inc. which incorporates the Underwriting Agreement
dated June 18, 1997 by reference.
4(a) Indenture dated as of January 31, 1997 between the
Company and First Trust National Association, as
Trustee.
4(b) Officers' Certificate Establishing Terms of Debt
Securities dated June 9, 1997 relating to the Notes
and the Debentures.
4(c) Form of Note (included as part of Exhibit 4(b)).
4(d) Form of Debenture (included as part of Exhibit 4(b)).
2
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE TORO COMPANY
Date: June 27, 1997 By: /s/ J. LAWRENCE MCINTYRE
----------------------------
J. Lawrence McIntyre
Vice President, Secretary
and General Counsel
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit
- ----------- -------
1(a) Underwriting Agreement dated June 18, 1997 executed by
the Company (incorporated by reference to Exhibit 1 to
the Company's Registration Statement on Form S-3 No.
333-20901).
1(b) Pricing Agreement dated June 18, 1997 between the
Company and Goldman, Sachs & Co., BancAmerica
Securities, Inc. and NationsBanc Capital Markets, Inc.
which incorporates the Underwriting Agreement dated
June 18, 1997 by reference.
4(a) Indenture dated as of January 31, 1997 between the
Company and First Trust National Association, as
Trustee.
4(b) Officers' Certificate Establishing Terms of Debt
Securities dated June 9, 1997 relating to the Notes and
the Debentures.
4(c) Form of Note (included as part of Exhibit 4(b)).
4(d) Form of Debenture (included as part of Exhibit 4(b)).
4
<PAGE>
PRICING AGREEMENT
Goldman, Sachs & Co.
BancAmerica Securities, Inc.
NationsBanc Capital Markets, Inc.
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004
June 18, 1997
Ladies and Gentlemen:
The Toro Company, a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein and in the Underwriting
Agreement, dated June 18, 1997 (the "Underwriting Agreement"), to issue and
sell to the Underwriters named in Schedule I hereto (the "Underwriters") the
Securities specified in Schedule II hereto (the "Designated Securities").
Each of the provisions of the Underwriting Agreement is incorporated herein
by reference in its entirety, and shall be deemed to be a part of this
Agreement to the same extent as if such provisions had been set forth in full
herein; and each of the representations and warranties set forth therein
shall be deemed to have been made at and as of the date of this Pricing
Agreement, except that each representation and warranty which refers to the
Prospectus in Section 2 of the Underwriting Agreement shall be deemed to be a
representation or warranty as of the date of the Underwriting Agreement in
relation to the Prospectus (as therein defined), and also a representation
and warranty as of the date of this Pricing Agreement in relation to the
Prospectus as amended or supplemented relating to the Designated Securities
which are the subject of this Pricing Agreement. Each reference to the
Representatives herein and in the provisions of the Underwriting Agreement so
incorporated by reference shall be deemed to refer to you. Unless otherwise
defined herein, terms defined in the Underwriting Agreement are used herein
as therein defined. The Representatives designated to act on behalf of the
Representatives and on behalf of each of the Underwriters of the Designated
Securities pursuant to Section 12 of the Underwriting Agreement and the
address of the Representatives referred to in such Section 12 are set forth
at the end of Schedule II hereto.
An amendment to the Registration Statement, or a supplement to the
Prospectus, as the case may be, relating to the Designated Securities, in the
form heretofore delivered to you is now proposed to be filed with the
Commission.
Subject to the terms and conditions set forth herein and in the
Underwriting Agreement incorporated herein by reference, the Company agrees
to issue and sell to each of the Underwriters, and each of the Underwriters
agrees, severally and not jointly, to purchase from the Company, at the time
and place and at the purchase price to the Underwriters set forth in
<PAGE>
Schedule II hereto, the principal amount of Designated Securities set forth
opposite the name of such Underwriter in Schedule I hereto.
If the foregoing is in accordance with your understanding, please sign
and return to us six counterparts hereof, and upon acceptance hereof by you,
on behalf of each of the Underwriters, this letter and such acceptance
hereof, including the provisions of the Underwriting Agreement incorporated
herein by reference, shall constitute a binding agreement between each of the
Underwriters and the Company. It is understood that your acceptance of this
letter on behalf of each of the Underwriters is or will be pursuant to the
authority set forth in a form of Agreement among Underwriters, the form of
which shall be submitted to the Company for examination upon request, but
without warranty on the part of the Representatives as to the authority of
the signers thereof.
Very truly yours,
THE TORO COMPANY
By: /s/ STEPHEN P. WOLFE
------------------------------------
Name: Stephen P. Wolfe
Title: Vice President Finance, Treasurer
and Chief Financial Officer
Accepted as of the date hereof in New York, New York:
Goldman, Sachs & Co.
BancAmerica Securities, Inc.
NationsBanc Capital Markets, Inc.
By: /s/ GOLDMAN, SACHS & CO.
------------------------------------------
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
<PAGE>
SCHEDULE I
PRINCIPAL AMOUNT PRINCIPAL
OF DEBENTURES TO AMOUNT OF NOTES
BE PURCHASED TO
UNDERWRITER ------------ BE PURCHASED
----------- ------------
Goldman, Sachs & Co. ............... $ 60,000,000 $ 45,000,000
BancAmerica Securities, Inc. ........ 20,000,000 15,000,000
NationsBanc Capital Markets, Inc. ... 20,000,000 15,000,000
----------- -----------
Total ............................ $100,000,000 $ 75,000,000
------------ ------------
------------ ------------
<PAGE>
SCHEDULE II
TITLE OF DESIGNATED SECURITIES:
7.80% Debentures due June 15, 2027
7.125% Notes due June 15, 2007
AGGREGATE PRINCIPAL AMOUNT:
$100,000,000 Debentures
$ 75,000,000 Notes
PRICE TO PUBLIC:
99.308% of the principal amount of the Debentures, plus accrued interest
from June 15, 1997 to June 24, 1997.
99.497% of the principal amount of the Notes, plus accrued interest from
June 15, 1997 to June 24, 1997.
PURCHASE PRICE BY UNDERWRITERS:
98.433% of the principal amount of the Debentures, plus accrued interest
from June 15, 1997 to June 24, 1997.
98.847% of the principal amount of the Notes, plus accrued interest from
June 15, 1997 to June 24, 1997.
FORM OF DESIGNATED SECURITIES:
Book-entry only form represented by one or more global securities
deposited with The Depository Trust Company ("DTC") or its designated
custodian for trading in the Same Day Funds Settlement System of DTC,
and to be made available for checking by the Representatives at least
twenty-four hours prior to the Time of Delivery at the office of DTC.
SPECIFIED FUNDS FOR PAYMENT OF PURCHASE PRICE:
Federal (same day) funds by wire transfer
TIME OF DELIVERY:
9:00 a.m. (Chicago time), June 24, 1997
INDENTURE:
Indenture dated as of January 31, 1997 between the Company and First
Trust National Association, as Trustee
<PAGE>
MATURITY:
Debentures: June 15, 2027
Notes: June 15, 2007
INTEREST RATE:
Debentures: 7.80%
Notes: 7.125%
INTEREST PAYMENT DATES:
Debentures and Notes: Semi-annually on each June 15 and December 15,
commencing December 15, 1997
REDEMPTION PROVISIONS:
Optional Repayment: No provision for repayment at the option of holders
of Designated Securities.
Optional Redemption: The Debentures and the Notes may be redeemed, in
each case at any time, in whole or in part at the option of the Company,
upon not less than 30 and not more than 60 days' notice mailed to each
holder of Designated Securities to be redeemed at the holder's address
appearing in the official register for such Designated Securities, on
any date prior to maturity at a price equal to the greater of (i) 100%
of the principal amount of the Notes or Debentures (as applicable) plus
accrued interest thereon to the date of redemption or (ii) as determined
by a Quotation Agent (as defined in Exhibit A hereto), the sum of (x)
the present value of the remaining scheduled payments of principal and
interest thereon (not including the portion of any such payments of
interest accrued as of the date of redemption) discounted to the
redemption date on a semi-annual basis (assuming a 360-day year
consisting of twelve 30-day months) at the Adjusted Treasury Rate (as
defined in Exhibit A hereto) plus (y) interest thereon, if any, accrued
as of the date of redemption. See Exhibit A hereto. Unless the Company
defaults in payment of the redemption price, on and after the redemption
date, interest will cease to accrue on the Notes or Debentures (as
applicable) or portions thereof called for redemption.
SINKING FUND PROVISIONS:
No sinking fund provisions
DEFEASANCE PROVISIONS:
The defeasance provisions described under the caption "Description of
Debt Securities -- Defeasance and Covenant Defeasance" in the Prospectus
dated June 18, 1997 shall apply to the Notes and the Debentures.
<PAGE>
CLOSING LOCATION FOR DELIVERY OF DESIGNATED SECURITIES:
Sonnenschein Nath & Rosenthal, 8000 Sears Tower, Chicago, Illinois 60606
NAMES AND ADDRESSES OF REPRESENTATIVES:
Designated Representatives:
Goldman, Sachs & Co.
BancAmerica Securities, Inc.
NationsBanc Capital Markets, Inc.
Address for Notices, etc.:
c/o Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
<PAGE>
EXHIBIT A
"Adjusted Treasury Rate" means, with respect to any redemption date, the
rate per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such redemption date, plus (A) 0.15% in the case of the Notes
or (B) 0.20% in the case of the Debentures.
"Comparable Treasury Issue" means the United States Treasury security
selected by a Quotation Agent as having a maturity comparable to the remaining
term of the Notes or Debentures (as applicable) to be redeemed that would be
utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining term of such Securities.
"Comparable Treasury Price" means, with respect to any redemption date,
(A) the average of the Reference Treasury Dealer Quotations for such
redemption date, after excluding the highest and lowest such Reference
Treasury Dealer Quotations or (B) if the Trustee obtains fewer than three
such Reference Treasury Dealer Quotations, the average of all such Quotations.
"Quotation Agent" means the Reference Treasury Dealer appointed by the
Trustee after consultation with the Company. "Reference Treasury Dealer"
means (a) Goldman, Sachs & Co. and their successors; provided, however, that
if the foregoing shall cease to be a primary U.S. government securities
dealer in New York City (a "Primary Treasury Dealer"), the Company shall
substitute therefor another Primary Treasury Dealer; and (b) any other
Primary Treasury Dealer selected by the Trustee after consultation with the
Company.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined
by the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. (New
York City time) on the third business day preceding such redemption date.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE TORO COMPANY, AS ISSUER
TO
FIRST TRUST NATIONAL ASSOCIATION, AS TRUSTEE
---------------
INDENTURE
DATED AS OF JANUARY 31, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
RECITALS OF THE COMPANY............................................................................. 1
ARTICLE I. DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION................................. 1
SECTION 1.01. Definitions..................................................................... 1
Act............................................................................................. 1
Affiliate....................................................................................... 1
Attributable Debt............................................................................... 1
Authenticating Agent............................................................................ 2
Board of Directors.............................................................................. 2
Board Resolution................................................................................ 2
Business Day.................................................................................... 2
Commission...................................................................................... 2
Company......................................................................................... 2
Company Request or "Company Order".............................................................. 2
Consolidated Net Tangible Assets................................................................ 2
Corporate Trust Office.......................................................................... 3
Covenant Defeasance............................................................................. 3
Debt............................................................................................ 3
Defaulted Interest.............................................................................. 3
Defeasance...................................................................................... 3
Depositary...................................................................................... 3
Event of Default................................................................................ 3
Exchange Act.................................................................................... 3
Expiration Date................................................................................. 3
Global Security................................................................................. 3
Holder.......................................................................................... 3
Incur........................................................................................... 3
Indenture....................................................................................... 3
Interest........................................................................................ 4
Interest Payment Date........................................................................... 4
Investment Company Act.......................................................................... 4
Maturity........................................................................................ 4
Nonrecourse Obligation.......................................................................... 4
Notice of Default............................................................................... 4
Officers' Certificate........................................................................... 4
Opinion of Counsel.............................................................................. 4
Original Issue Discount Security................................................................ 4
Outstanding..................................................................................... 4
Paying Agent.................................................................................... 5
Person.......................................................................................... 5
Place of Payment................................................................................ 5
Predecessor Security............................................................................ 5
Principal Property.............................................................................. 5
Redemption Date................................................................................. 5
Redemption Price................................................................................ 5
Regular Record Date............................................................................. 5
Restricted Subsidiary........................................................................... 6
Sale and Lease-Back Transaction................................................................. 6
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Securities...................................................................................... 6
Securities Act.................................................................................. 6
Security Register............................................................................... 6
Special Record Date............................................................................. 6
Stated Maturity................................................................................. 6
Subsidiary...................................................................................... 6
Trust Indenture Act............................................................................. 6
Trustee......................................................................................... 6
U.S. Government Obligation...................................................................... 6
Vice President.................................................................................. 6
Wholly Owned Subsidiary......................................................................... 6
SECTION 1.02. Compliance Certificates and Opinions............................................ 7
SECTION 1.03. Form of Documents Delivered to Trustee.......................................... 7
SECTION 1.04. Acts of Holders; Record Dates................................................... 7
SECTION 1.05. Notices, Etc., to Trustee and Company........................................... 9
SECTION 1.06. Notice to Holders; Waiver....................................................... 9
SECTION 1.07. Conflict With Trust Indenture Act............................................... 9
SECTION 1.08. Effect of Headings and Table of Contents........................................ 10
SECTION 1.09. Successors and Assigns.......................................................... 10
SECTION 1.10. Separability Clause............................................................. 10
SECTION 1.11. Benefits of Indenture........................................................... 10
SECTION 1.12. Governing Law................................................................... 10
SECTION 1.13. Legal Holidays.................................................................. 10
SECTION 1.14. Appointment of Agent for Service................................................ 10
ARTICLE II. SECURITY FORMS......................................................................... 10
SECTION 2.01. Forms Generally................................................................. 10
SECTION 2.02. Form of Face of Security........................................................ 11
SECTION 2.03. Form of Reverse of Security..................................................... 12
SECTION 2.04. Form of Legend for Global Securities............................................ 15
SECTION 2.05. Form of Trustee's Certificate of Authentication................................. 16
ARTICLE III. THE SECURITIES........................................................................ 16
SECTION 3.01. Amount Unlimited; Issuable in Series............................................ 16
SECTION 3.02. Denominations................................................................... 18
SECTION 3.03. Execution, Authentication, Delivery and Dating.................................. 18
SECTION 3.04. Temporary Securities............................................................ 19
SECTION 3.05. Registration, Registration of Transfer and Exchange............................. 19
SECTION 3.06. Mutilated, Destroyed, Lost and Stolen Securities................................ 20
SECTION 3.07. Payment of Interest; Interest Rights Preserved.................................. 21
SECTION 3.08. Persons Deemed Owners........................................................... 22
SECTION 3.09. Cancellation.................................................................... 22
SECTION 3.10. Computation of Interest......................................................... 22
ARTICLE IV. SATISFACTION AND DISCHARGE............................................................. 22
SECTION 4.01. Satisfaction and Discharge of Indenture......................................... 22
SECTION 4.02. Application of Trust Money...................................................... 23
ARTICLE V. REMEDIES................................................................................. 23
SECTION 5.01. Events of Default............................................................... 23
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 5.02. Acceleration of Maturity; Rescission and Annulment.............................. 24
SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by Trustee................. 25
SECTION 5.04. Trustee May File Proofs of Claim................................................ 26
SECTION 5.05. Trustee May Enforce Claims Without Possession of Securities..................... 26
SECTION 5.06. Application of Money Collected.................................................. 26
SECTION 5.07. Limitation on Suits............................................................. 26
SECTION 5.08. Unconditional Right of Holders to Receive Principal, Premium and Interest....... 27
SECTION 5.09. Restoration of Rights and Remedies.............................................. 27
SECTION 5.10. Rights and Remedies Cumulative.................................................. 27
SECTION 5.11. Delay or Omission Not Waiver.................................................... 27
SECTION 5.12. Control by Holders.............................................................. 27
SECTION 5.13. Waiver of Past Defaults......................................................... 28
SECTION 5.14. Undertaking for Costs........................................................... 28
SECTION 5.15. Waiver of Usury, Stay or Extension Laws......................................... 28
ARTICLE VI. THE TRUSTEE............................................................................ 28
SECTION 6.01. Certain Duties and Responsibilities............................................. 28
SECTION 6.02. Notice of Defaults.............................................................. 28
SECTION 6.03. Certain Rights of Trustee....................................................... 29
SECTION 6.04. Not Responsible for Recitals or Issuance of Securities.......................... 29
SECTION 6.05. May Hold Securities............................................................. 30
SECTION 6.06. Money Held in Trust............................................................. 30
SECTION 6.07. Compensation and Reimbursement.................................................. 30
SECTION 6.08. Conflicting Interests........................................................... 30
SECTION 6.09. Corporate Trustee Required; Eligibility......................................... 30
SECTION 6.10. Resignation and Removal; Appointment of Successor............................... 30
SECTION 6.11. Acceptance of Appointment by Successor.......................................... 31
SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business..................... 32
SECTION 6.13. Preferential Collection of Claims Against Company............................... 33
SECTION 6.14. Appointment of Authenticating Agent............................................. 33
ARTICLE VII. HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY..................................... 34
SECTION 7.01. Company to Furnish Trustee Names and Addresses of Holders....................... 34
SECTION 7.02. Preservation of Information; Communications to Holders.......................... 34
SECTION 7.03. Reports by Trustee.............................................................. 35
SECTION 7.04. Reports by Company.............................................................. 35
ARTICLE VIII. CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE................................. 35
SECTION 8.01. Company May Consolidate, Etc., Only on Certain Terms............................ 35
SECTION 8.02. Successor Substituted........................................................... 36
ARTICLE IX. SUPPLEMENTAL INDENTURES................................................................ 36
SECTION 9.01. Supplemental Indentures Without Consent of Holders.............................. 36
SECTION 9.02. Supplemental Indentures With Consent of Holders................................. 37
SECTION 9.03. Execution of Supplemental Indentures............................................ 38
SECTION 9.04. Effect of Supplemental Indentures............................................... 38
SECTION 9.05. Conformity With Trust Indenture Act............................................. 38
SECTION 9.06. Reference in Securities to Supplemental Indentures.............................. 38
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE X. COVENANTS............................................................................... 38
SECTION 10.01. Payment of Principal, Premium and Interest...................................... 38
SECTION 10.02. Maintenance of Office or Agency................................................. 38
SECTION 10.03. Money for Securities Payments to be Held in Trust............................... 39
SECTION 10.04. Statement by Officers as to Default............................................. 39
SECTION 10.05. Existence....................................................................... 39
SECTION 10.06. Maintenance of Properties....................................................... 40
SECTION 10.07. Payment of Taxes and Other Claims............................................... 40
SECTION 10.08. Limitation on Liens............................................................. 40
SECTION 10.09. Limitation on Sale and Lease-Back Transactions.................................. 41
SECTION 10.10. Limitation on Subsidiary Debt................................................... 41
SECTION 10.11. Waiver of Certain Covenants..................................................... 42
ARTICLE XI. REDEMPTION OR REPAYMENT OF SECURITIES.................................................. 42
SECTION 11.01. Applicability of Article........................................................ 42
SECTION 11.02. Election to Redeem; Notice to Trustee........................................... 42
SECTION 11.03. Selection by Trustee of Securities to be Redeemed............................... 43
SECTION 11.04. Notice of Redemption............................................................ 43
SECTION 11.05. Deposit of Redemption Price..................................................... 44
SECTION 11.06. Securities Payable on Redemption Date........................................... 44
SECTION 11.07. Securities Redeemed in Part..................................................... 44
SECTION 11.08. Right of Repayment.............................................................. 44
SECTION 11.09. Form of Option to Elect Repayment............................................... 45
ARTICLE XII. SINKING FUNDS.......................................................................... 45
SECTION 12.01. Applicability of Article........................................................ 45
SECTION 12.02. Satisfaction of Sinking Fund Payments With Securities........................... 45
SECTION 12.03. Redemption of Securities for Sinking Fund....................................... 45
ARTICLE XIII. DEFEASANCE AND COVENANT DEFEASANCE................................................... 46
SECTION 13.01. Company's Option to Effect Defeasance or Covenant Defeasance.................... 46
SECTION 13.02. Defeasance and Discharge........................................................ 46
SECTION 13.03. Covenant Defeasance............................................................. 46
SECTION 13.04. Conditions to Defeasance or Covenant Defeasance................................. 47
SECTION 13.05. Deposited Money and U.S. Government Obligations to be Held in Trust;
Miscellaneous Provisionsc..................................................... 48
SECTION 13.06. Reinstatement................................................................... 48
</TABLE>
- ------------------------
Note: This Table of Contents shall not, for any purpose, be deemed to be part of
this Indenture.
iv
<PAGE>
INDENTURE, dated as of January 31, 1997, between The Toro Company, a
corporation duly organized and existing under the laws of the State of Delaware
(herein called the "Company"), having its principal office at 8111 Lyndale
South, Bloomington, Minnesota 55420, and First Trust National Association, a
national banking association duly organized and existing under the laws of the
United States of America, as Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the execution and delivery of this Indenture
to provide for the issuance from time to time of its unsecured debentures, notes
or other evidences of indebtedness (herein called the "Securities"), to be
issued in one or more series as in this Indenture provided.
All things necessary to make this Indenture a valid agreement of the
Company, in accordance with its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Securities or of any series thereof,
as follows:
ARTICLE I.
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 1.01. DEFINITIONS. For all purposes of this Indenture, except as
otherwise expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to them
in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust Indenture
Act, either directly or by reference therein, have the meanings assigned to
them therein;
(3) any gender used in this Indenture shall be deemed and construed to
include correlative words of the masculine, feminine or neutral gender;
(4) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting
principles, and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean such accounting principles as are
generally accepted at the date of such computation;
(5) unless the context otherwise requires, any reference to an "Article"
or a "Section" refers to an Article or a Section, as the case may be, of
this Indenture; and
(6) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
"Act", when used with respect to any Holder, has the meaning specified in
Section 1.04.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Attributable Debt" when used in connection with a Sale and Lease-Back
Transaction involving a Principal Property means, at the time of determination,
the present value of the total net amount of rent
<PAGE>
and other payments required to be paid under such lease during the remaining
term thereof (including any renewal term or period for which such lease has been
extended), discounted at the rate of interest set forth or implicit in the terms
of such lease or, if not practicable to determine such rate, the weighted
average interest rate per annum (in the case of Original Issue Discount
Securities, the imputed interest rate) borne by the Securities of each series
outstanding pursuant to the Indenture compounded semi-annually. For purposes of
the foregoing definition, rent shall not include amounts required to be paid by
the lessee, whether or not designated as rent or additional rent, on account of
or contingent upon maintenance and repairs, insurance, taxes, assessments, water
rates and similar charges. In the case of any lease which is terminable by the
lessee upon the payment of a penalty, such net amount shall be the lesser of the
net amount determined assuming termination upon the first date such lease may be
terminated (in which case the net amount shall also include the amount of the
penalty, but no rent shall be considered as required to be paid under such lease
subsequent to the first date upon which it may be so terminated) and the net
amount determined assuming no such termination.
"Authenticating Agent" means any Person authorized by the Trustee pursuant
to Section 6.14 to act on behalf of the Trustee to authenticate Securities of
one or more series.
"Board of Directors" means either the board of directors of the Company or
any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee. In the event the Board of Directors
shall delegate to any director or officer of the Company or any group consisting
of directors of the Company, officers of the Company or directors and officers
of the Company the authority to take any action which under the terms of this
Indenture may be taken by "Board Resolution," then any action so taken by, and
set forth in a resolution adopted by, the director, officer or group within the
scope of such delegation shall be deemed to be a "Board Resolution" for purposes
of this Indenture.
"Business Day", when used with respect to any Place of Payment, means each
Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in that Place of Payment are authorized or obligated by law
or executive order to close.
"Commission" means the Securities and Exchange Commission, from time to time
constituted, created under the Exchange Act, or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Company" means the Person named as the "Company" in the first paragraph of
this instrument until a successor Person shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor Person.
"Company Request" or "Company Order" means a written request or order signed
in the name of the Company by its Chairman of the Board, its Chief Executive
Officer, its President or a Vice President, and by its Treasurer, an Assistant
Treasurer, its Secretary or an Assistant Secretary, and delivered to the
Trustee.
"Consolidated Net Tangible Assets" means, as of any particular time, total
assets (excluding applicable reserves and other properly deductible items) less:
(a) total current liabilities, except for (1) notes and loans payable, (2)
current maturities of long-term debt, and (3) current maturities of obligations
under capital leases; and (b) goodwill, patents and trademarks, to the extent
included in total assets; all as set forth on the most recent consolidated
balance sheet of the Company and its Restricted Subsidiaries and computed in
accordance with generally accepted accounting principles.
2
<PAGE>
"Corporate Trust Office" means the principal office of the Trustee in the
state of Minnesota at which at any particular time its corporate trust business
shall be principally administered, which office is at the date of this Indenture
located at 180 East Fifth Street, St. Paul, Minnesota 55101.
"Corporation" includes corporations, associations, companies, joint stock
companies and business trusts.
"Covenant Defeasance" has the meaning specified in Section 13.03.
"Debt" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person and whether or not
contingent, (i) every obligation of such Person for money borrowed, (ii) every
obligation of such Person evidenced by bonds, debentures, notes or other similar
instruments, including obligations Incurred in connection with the acquisition
of property, assets or businesses, (iii) every reimbursement obligation of such
Person with respect to letters of credit, bankers' acceptances or similar
facilities issued for the account of such Person, (iv) every obligation of such
Person issued or assumed as the deferred purchase price of property or services
(but excluding trade accounts payable or accrued liabilities arising in the
ordinary course of business), (v) the maximum fixed redemption or repurchase
price of redeemable stock of such Person at the time of determination, (vi)
every obligation to pay rent or other payment amounts of such Person with
respect to any Sale and Lease-back Transaction to which such Person is a party
and (vii) every obligation of the type referred to in Clauses (i) through (vi)
of another Person and all dividends of another Person the payment of which, in
either case, such Person has guaranteed or is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise.
"Defaulted Interest" has the meaning specified in Section 3.07.
"Defeasance" has the meaning specified in Section 13.02.
"Depositary" means, with respect to Securities of any series issuable in
whole or in part in the form of one or more Global Securities, a clearing agency
registered under the Exchange Act that is designated to act as Depositary for
such Securities as contemplated by Section 3.01.
"Event of Default" has the meaning specified in Section 5.01.
"Exchange Act" means the Securities Exchange Act of 1934 and any statute
successor thereto, in each case as amended from time to time.
"Expiration Date" has the meaning specified in Section 1.04.
"Global Security" means a Security that evidences all or part of the
Securities of any series and bears the legend set forth in Section 2.04 (or such
legend as may be specified as contemplated by Section 3.01 for such Securities).
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Debt or other obligation
or the recording, as required pursuant to generally accepted accounting
principles or otherwise, of any such Debt or other obligation on the balance
sheet of such Person (and "Incurrence", "Incurred", "Incurrable" and "Incurring"
shall have the meanings correlative to the foregoing); PROVIDED, HOWEVER, that a
change in generally accepting accounting principles that results in an
obligation of such Person that exists at such time becoming Debt shall not be
deemed an Incurrence of such Debt.
"Indenture" means this instrument as originally executed and as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into pursuant to the applicable provisions hereof, including, for
all purposes of this instrument and any such supplemental indenture, the
provisions of the Trust Indenture Act that are deemed to be a part of and govern
this
3
<PAGE>
instrument and any such supplemental indenture, respectively. The term
"Indenture" shall also include the terms of particular series of Securities
established as contemplated by Section 3.01.
"Interest", when used with respect to an Original Issue Discount Security
which by its terms bears interest only after Maturity, means interest payable
after Maturity.
"Interest Payment Date", when used with respect to any Security, means the
Stated Maturity of an installment of interest on such Security.
"Investment Company Act" means the Investment Company Act of 1940 and any
statute successor thereto, in each case as amended from time to time.
"Maturity", when used with respect to any Security, means the date on which
the principal of such Security or an installment of such principal becomes due
and payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, call for redemption or otherwise.
"Nonrecourse Obligation" means indebtedness or other obligations
substantially related to (i) the acquisition of assets not previously owned by
the Company or any Restricted Subsidiary or (ii) the financing of a project
involving the development or expansion of properties of the Company or any
Restricted Subsidiary, as to which the obligee with respect to such indebtedness
or obligation has no recourse to the Company or any Restricted Subsidiary or any
assets of the Company or any Restricted Subsidiary other than the assets which
were acquired with the proceeds of such transaction or the project financed with
the proceeds of such transaction (and the proceeds thereof).
"Notice of Default" means a written notice of the kind specified in Section
5.01(4) or 5.01(5).
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, the Chief Executive Officer, the President or a Vice President, and by
the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary,
of the Company, and delivered to the Trustee. One of the officers signing an
Officers' Certificate given pursuant to Section 10.04 shall be the principal
executive, financial or accounting officer of the Company.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel
for the Company, and who shall be acceptable to the Trustee.
"Original Issue Discount Security" means any Security which provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the Maturity thereof pursuant to Section 5.02.
"Outstanding", when used with respect to Securities, means, as of the date
of determination, all Securities theretofore authenticated and delivered under
this Indenture, EXCEPT:
(1) Securities theretofore cancelled by the Trustee or delivered to the
Trustee for cancellation;
(2) Securities for whose payment or redemption money in the necessary
amount has been theretofore deposited with the Trustee or any Paying Agent
(other than the Company) in trust or set aside and segregated in trust by
the Company (if the Company shall act as its own Paying Agent) for the
Holders of such Securities; PROVIDED that, if such Securities are to be
redeemed, notice of such redemption has been duly given pursuant to this
Indenture or provision therefor satisfactory to the Trustee has been made;
(3) Securities as to which Defeasance has been effected pursuant to
Section 13.02; and
(4) Securities which have been paid pursuant to Section 3.06 or in
exchange for or in lieu of which other Securities have been authenticated
and delivered pursuant to this Indenture, other than any such Securities in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona fide purchaser in
whose hands such Securities are valid obligations of the Company;
4
<PAGE>
PROVIDED, HOWEVER, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given, made or taken any
request, demand, authorization, direction, notice, consent, waiver or other
action hereunder as of any date, (A) the principal amount of an Original Issue
Discount Security which shall be deemed to be Outstanding shall be the amount of
the principal thereof which would be due and payable as of such date upon
acceleration of the Maturity thereof to such date pursuant to Section 5.02, (B)
if, as of such date, the principal amount payable at the Stated Maturity of a
Security is not determinable, the principal amount of such Security which shall
be deemed to be Outstanding shall be the amount as specified or determined as
contemplated by Section 3.01, (C) the principal amount of a Security denominated
in one or more foreign currencies or currency units which shall be deemed to be
Outstanding shall be the U.S. dollar equivalent, determined as of such date in
the manner provided as contemplated by Section 3.01, of the principal amount of
such Security (or, in the case of a Security described in Clause (A) or (B)
above, of the amount determined as provided in such Clause), and (D) Securities
owned by the Company or any other obligor upon the Securities or any Affiliate
of the Company or of such other obligor shall be disregarded and deemed not to
be Outstanding, except that, in determining whether the Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent, waiver or other action, only Securities which the Trustee knows
to be so owned shall be so disregarded. Securities so owned which have been
pledged in good faith may be regarded as Outstanding if the pledgee establishes
to the satisfaction of the Trustee the pledgee's right so to act with respect to
such Securities and that the pledgee is not the Company or any other obligor
upon the Securities or any Affiliate of the Company or of such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
principal of or any premium or interest on any Securities on behalf of the
Company.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Place of Payment", when used with respect to the Securities of any series,
means the place or places where the principal of and any premium and interest on
the Securities of that series are payable as specified as contemplated by
Section 3.01.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 3.06 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
"Principal Property" means the land, land improvements, buildings and
fixtures (to the extent they constitute real property interests), (including any
leasehold interest therein) constituting the principal corporate office, any
manufacturing facility, or any distribution center (whether now owned or
hereafter acquired) which: (a) is owned by the Company or any Subsidiary; (b) is
located within any of the present 50 states of the United States (or the
District of Columbia); (c) has not been determined in good faith by the Board of
Directors of the Company not to be materially important to the total business
conducted by the Company and its Subsidiaries taken as a whole; and (d) has a
market value on the date as of which the determination is being made in excess
of 1.0% of Consolidated Net Tangible Assets of the Company as most recently
determined on or prior to such date.
"Redemption Date", when used with respect to any Security to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Security to be redeemed,
means the price at which it is to be redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on any Interest Payment Date
on the Securities of any series means the date specified for that purpose as
contemplated by Section 3.01.
5
<PAGE>
"Responsible Officer", means when used with respect to the Trustee, any
officer of the Trustee assigned to the Corporate Trust Office including any Vice
President, Assistant Vice President, Secretary, Assistant Secretary, Managing
Director or any other officer of the Trustee customarily performing functions
similar to those performed by any of the above designated officers and also,
with respect to a particular matter, any other officer to whom such matter is
referred because of such officer's knowledge and familiarity with the particular
subject.
"Restricted Subsidiary" means any Subsidiary which owns any Principal
Property which has a market value on the date as of which the determination is
being made in excess of 2.0% of Consolidated Net Tangible Assets of the Company
as most recently determined on or prior to such date.
"Sale and Lease-Back Transaction" means any arrangement with any person
providing for the leasing by the Company or any Restricted Subsidiary of any
Principal Property which property has been or is to be sold or transferred by
the Company or such Restricted Subsidiary to such person.
"Securities" has the meaning stated in the first recital of this Indenture
and more particularly means any Securities authenticated and delivered under
this Indenture.
"Securities Act" means the Securities Act of 1933 and any statute successor
thereto, in each case as amended from time to time.
"Security Register" and "Security Registrar" have the respective meanings
specified in Section 3.05.
"Special Record Date" for the payment of any Defaulted Interest means a date
fixed by the Trustee pursuant to Section 3.07.
"Stated Maturity", when used with respect to any Security or any installment
of principal thereof or interest thereon, means the date specified in such
Security as the fixed date on which the principal of such Security or such
installment of principal or interest is due and payable.
"Subsidiary" means any corporation of which at least a majority of the
outstanding voting stock having the power to elect a majority of the board of
directors of such corporation is at the time owned, directly or indirectly, by
the Company or by one or more other Subsidiaries, or by the Company and one or
more other Subsidiaries. For the purposes of this definition, "voting stock"
means stock which ordinarily has voting power for the election of directors,
whether at all times or only so long as no senior class of stock has such voting
power by reason of any contingency.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at
the date as of which this instrument was executed; PROVIDED, HOWEVER, that in
the event the Trust Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such amendment, the Trust
Indenture Act of 1939 as so amended.
"Trustee" means the Person named as the "Trustee" in the first paragraph of
this instrument until a successor Trustee shall have become such pursuant to the
applicable provisions of this Indenture, and thereafter "Trustee" shall mean or
include each Person who is then a Trustee hereunder, and if at any time there is
more than one such Person, "Trustee" as used with respect to the Securities of
any series shall mean the Trustee with respect to Securities of that series.
"U.S. Government Obligation" has the meaning specified in Section 13.04.
"Vice President", when used with respect to the Company or the Trustee,
means any vice president, whether or not designated by a number or a word or
words added before or after the title "vice president".
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding capital stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person or by such
Person and one or more Wholly Owned Subsidiaries of such Person.
6
<PAGE>
SECTION 1.02. COMPLIANCE CERTIFICATES AND OPINIONS. Upon any application
or request by the Company to the Trustee to take any action under any provision
of this Indenture, the Company shall furnish to the Trustee such certificates
and opinions as may be required under the Trust Indenture Act. Each such
certificate or opinion shall be given in the form of an Officers' Certificate,
if to be given by an officer of the Company, or an Opinion of Counsel, if to be
given by counsel, and shall comply with the requirements of the Trust Indenture
Act and any other requirements set forth in this Indenture.
Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include,
(1) a statement that each individual signing such certificate or opinion
has read such covenant or condition and the definitions herein relating
thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
SECTION 1.03. FORM OF DOCUMENTS DELIVERED TO TRUSTEE. In any case where
several matters are required to be certified by, or covered by an opinion of,
any specified Person, it is not necessary that all such matters be certified by,
or covered by the opinion of, only one such Person, or that they be so certified
or covered by only one document, but one such Person may certify or give an
opinion with respect to some matters and one or more other such Persons as to
other matters, and any such Person may certify or give an opinion as to such
matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or opinion of counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 1.04. ACTS OF HOLDERS; RECORD DATES. Any request, demand,
authorization, direction, notice, consent, waiver or other action provided or
permitted by this Indenture to be given, made or taken by Holders may be
embodied in and evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by agent duly appointed in writing;
and, except as herein otherwise expressly provided, such action shall become
effective when such instrument or instruments are delivered to the Trustee and,
where it is hereby expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "Act" of the Holders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 6.01) conclusive in favor of the Trustee and the
Company, if made in the manner provided in this Section.
7
<PAGE>
The fact and date of the execution by any Person of any such instrument or
writing may be proved by the affidavit of a witness of such execution or by a
certificate of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such instrument
or writing acknowledged to him the execution thereof. Where such execution is by
a signer acting in a capacity other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of his
authority. The fact and date of the execution of any such instrument or writing,
or the authority of the Person executing the same, may also be proved in any
other manner which the Trustee deems sufficient.
The ownership of Securities shall be proved by the Security Register.
Any request, demand, authorization, direction, notice, consent, waiver or
other Act of the Holder of any Security shall bind every future Holder of the
same Security and the Holder of every Security issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such
Security.
The Company may set any day as a record date for the purpose of determining
the Holders of Outstanding Securities of any series entitled to give, make or
take any request, demand, authorization, direction, notice, consent, waiver or
other action provided or permitted by this Indenture to be given, made or taken
by Holders of Securities of such series, PROVIDED that the Company may not set a
record date for, and the provisions of this paragraph shall not apply with
respect to, the giving or making of any notice, declaration, request or
direction referred to in the next paragraph. If any record date is set pursuant
to this paragraph, the Holders of Outstanding Securities of the relevant series
on such record date, and no other Holders, shall be entitled to take the
relevant action, whether or not such Holders remain Holders after such record
date; PROVIDED that no such action shall be effective hereunder unless taken on
or prior to the applicable Expiration Date by Holders of the requisite principal
amount of Outstanding Securities of such series on such record date. Nothing in
this paragraph shall be construed to prevent the Company from setting a new
record date for any action for which a record date has previously been set
pursuant to this paragraph (whereupon the record date previously set shall
automatically and with no action by any Person be cancelled and of no effect),
and nothing in this paragraph shall be construed to render ineffective any
action taken by Holders of the requisite principal amount of Outstanding
Securities of the relevant series on the date such action is taken. Promptly
after any record date is set pursuant to this paragraph, the Company, at its own
expense, shall cause notice of such record date, the proposed action by Holders
and the applicable Expiration Date to be given to the Trustee in writing and to
each Holder of Securities of the relevant series in the manner set forth in
Section 1.06.
The Trustee may set any day as a record date for the purpose of determining
the Holders of Outstanding Securities of any series entitled to join in the
giving or making of (i) any Notice of Default, (ii) any declaration of
acceleration referred to in Section 5.02, (iii) any request to institute
proceedings referred to in Section 5.07(2) or (iv) any direction referred to in
Section 5.12, in each case with respect to Securities of such series. If any
record date is set pursuant to this paragraph, the Holders of Outstanding
Securities of such series on such record date, and no other Holders, shall be
entitled to join in such notice, declaration, request or direction, whether or
not such Holders remain Holders after such record date; PROVIDED that no such
action shall be effective hereunder unless taken on or prior to the applicable
Expiration Date by Holders of the requisite principal amount of Outstanding
Securities of such series on such record date. Nothing in this paragraph shall
be construed to prevent the Trustee from setting a new record date for any
action for which a record date has previously been set pursuant to this
paragraph (whereupon the record date previously set shall automatically and with
no action by any Person be cancelled and of no effect), and nothing in this
paragraph shall be construed to render ineffective any action taken by Holders
of the requisite principal amount of Outstanding Securities of the relevant
series on the date such action is taken. Promptly after any record date is set
pursuant to this paragraph, the Trustee, at the Company's expense, shall cause
notice of such record date, the proposed action by Holders
8
<PAGE>
and the applicable Expiration Date to be given to the Company in writing and to
each Holder of Securities
of the relevant series in the manner set forth in Section 1.06.
With respect to any record date set pursuant to this Section, the party
hereto which sets such record dates may designate any day as the "Expiration
Date" and from time to time may change the Expiration Date to any earlier or
later day; PROVIDED that no Expiration Date shall be later than the 180th day
after the applicable record date; and PROVIDED, FURTHER, that no such change
shall be effective unless notice of the proposed new Expiration Date is given to
the other party hereto in writing, and to each Holder of Securities of the
relevant series in the manner set forth in Section 1.06, on or prior to the
existing Expiration Date. If an Expiration Date is not designated with respect
to any record date set pursuant to this Section, the party hereto which set such
record date shall be deemed to have initially designated the 180th day after
such record date as the Expiration Date with respect thereto, subject to its
right to change the Expiration Date as provided in this paragraph.
Without limiting the foregoing, a Holder entitled hereunder to take any
action hereunder with regard to any particular Security may do so with regard to
all or any part of the principal amount of such Security or by one or more duly
appointed agents each of which may do so pursuant to such appointment with
regard to all or any part of such principal amount.
SECTION 1.05. NOTICES, ETC., TO TRUSTEE AND COMPANY. Any request, demand,
authorization, direction, notice, consent, waiver or Act of Holders or other
document provided or permitted by this Indenture to be made upon, given or
furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient for
every purpose hereunder if made, given, furnished or filed in writing to or
with a Responsible Officer of the Trustee at its Corporate Trust Office,
Attention: Corporate Trust Department, or
(2) the Company by the Trustee or by any Holder shall be sufficient for
every purpose hereunder (unless otherwise herein expressly provided) if in
writing and mailed, first-class postage prepaid, to the Company addressed to
it at the address of its principal office specified in the first paragraph
of this instrument or at any other address previously furnished in writing
to the Trustee by the Company.
SECTION 1.06. NOTICE TO HOLDERS; WAIVER. Where this Indenture provides for
notice to Holders of any event, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each Holder affected by such event, at his address as it
appears in the Security Register, not later than the latest date (if any), and
not earlier than the earliest date (if any), prescribed for the giving of such
notice. In any case where notice to Holders is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders. Where this Indenture provides for notice in any manner, such
notice may be waived in writing by the Person entitled to receive such notice,
either before or after the event, and such waiver shall be the equivalent of
such notice. Waivers of notice by Holders shall be filed with the Trustee, but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason of
any other cause it shall be impracticable to give such notice by mail, then such
notification as shall be made with the approval of the Trustee shall constitute
a sufficient notification for every purpose hereunder.
SECTION 1.07. CONFLICT WITH TRUST INDENTURE ACT. This Indenture is subject
to, and shall be governed by, the provisions of the Trust Indenture Act that are
required to be part of this Indenture. If any provision hereof limits, qualifies
or conflicts with a provision of the Trust Indenture Act which is required under
such Act to be a part of and govern this Indenture, the latter provision shall
control. If any provision of this Indenture modifies or excludes any provision
of the Trust Indenture Act which may be so modified or excluded, the latter
provision shall be deemed to apply to this Indenture as so modified or to be
excluded, as the case may be.
9
<PAGE>
SECTION 1.08. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The Article and
Section headings herein and the Table of Contents are for convenience only and
shall not affect the construction hereof.
SECTION 1.09. SUCCESSORS AND ASSIGNS. All covenants and agreements in this
Indenture by the Company shall bind its successors and assigns, whether so
expressed or not.
SECTION 1.10. SEPARABILITY CLAUSE. In case any provision in this Indenture
or in the Securities shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 1.11. BENEFITS OF INDENTURE. Nothing in this Indenture or in the
Securities, express or implied, shall give to any Person, other than the parties
hereto and their successors hereunder and the Holders, any benefit or any legal
or equitable right, remedy or claim under this Indenture.
SECTION 1.12. GOVERNING LAW. THIS INDENTURE AND THE SECURITIES SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 1.13. LEGAL HOLIDAYS. In any case where any Interest Payment Date,
Redemption Date or Stated Maturity of any Security shall not be a Business Day
at any Place of Payment, then (notwithstanding any other provision of this
Indenture or of the Securities (other than a provision of any Security which
specifically states that such provision shall apply in lieu of this Section))
payment of interest or principal (and premium, if any) need not be made at such
Place of Payment on such date, but may be made on the next succeeding Business
Day at such Place of Payment with the same force and effect as if made on the
Interest Payment Date or Redemption Date, or at the Stated Maturity.
SECTION 1.14. APPOINTMENT OF AGENT FOR SERVICE. By the execution and
delivery of this Indenture, the Company hereby appoints the Trustee as its agent
upon which process may be served in any legal action or proceeding which may be
instituted in any Federal or State court in the Borough of Manhattan, City of
New York, arising out of or relating to the Securities or this Indenture.
Service of process upon such agent at the office of such agent at the Corporate
Trust Office of the Trustee, Attention: Corporate Trust Department, and written
notice of said service to the Company by the Person serving the same addressed
as provided in Section 1.05, shall be deemed in every respect effective service
of process upon the Company in any such legal action or proceeding, and the
Company hereby submits to the jurisdiction of any such court in which any such
legal action or proceeding is so instituted. Such appointment shall be
irrevocable so long as the Holders of Securities shall have any rights pursuant
to the terms thereof or of this Indenture until the appointment of a successor
by the Company with the consent of the Trustee and such successor's acceptance
of such appointment. The Company further agrees to take any and all action,
including the execution and filing of any and all such documents and
instruments, as may be necessary to continue such designation and appointment of
such agent or successor. By the execution and delivery of this Indenture, the
Trustee hereby agrees to act as such agent and undertakes promptly to notify the
Company of receipt by it of service of process in accordance with this Section
1.14.
ARTICLE II.
SECURITY FORMS
SECTION 2.01. FORMS GENERALLY. The Securities of each series shall be in
substantially the form set forth in this Article, or in such other form as shall
be established by or pursuant to a Board Resolution or in one or more indentures
supplemental hereto, in each case with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture, and may have such letters, numbers or other marks of identification
and such legends or endorsements placed thereon as may be required to comply
with the rules of any securities exchange or Depositary therefor or as may,
consistently herewith, be determined by the officers executing such Securities,
as evidenced by their execution thereof. If the form of Securities of any series
is established by action taken pursuant to a Board Resolution, a copy of an
appropriate record of such action shall be certified by the Secretary or an
10
<PAGE>
Assistant Secretary of the Company and delivered to the Trustee at or prior to
the delivery of the Company Order contemplated by Section 3.03 for the
authentication and delivery of such Securities.
The definitive Securities shall be typewritten, printed, lithographed or
engraved on steel engraved borders or may be produced in any other manner, all
as determined by the officers executing such Securities, as evidenced by their
execution of such Securities.
SECTION 2.02. FORM OF FACE OF SECURITY. [INSERT ANY LEGEND REQUIRED BY THE
INTERNAL REVENUE CODE AND THE REGULATIONS THEREUNDER.]
------------------------
No. $
, a corporation duly organized and existing
under the laws of (herein called the "Company", which term includes
any successor Person under the Indenture hereinafter referred to), for value
received, hereby promises to pay to , or
registered assigns, the principal sum of Dollars
on .
[IF THE SECURITY IS TO BEAR INTEREST PRIOR TO MATURITY, INSERT-- , and to
pay interest thereon from or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, semi-annually
on and in each year, commencing , at the
rate of % per annum, until the principal hereof is paid or made available
for payment [IF APPLICABLE, INSERT-- , PROVIDED that any principal and
premium, and any such installment of interest, which is overdue shall bear
interest at the rate of % per annum (to the extent that the payment of such
interest shall be legally enforceable), from the dates such amounts are due
until they are paid or made available for payment, and such interest shall be
payable on demand]. The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in such Indenture,
be paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest, which shall be the or (whether or not a
Business Day), as the case may be, next preceding such Interest Payment Date.
Any such interest not so punctually paid or duly provided for will forthwith
cease to be payable to the Holder on such Regular Record Date and may either be
paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest to be fixed by the Trustee, notice
whereof shall be given to Holders of Securities of this series not less than 10
days prior to such Special Record Date, or be paid at any time in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Securities of this series may be listed, and upon such notice as
may be required by such exchange, all as more fully provided in said Indenture].
[IF THE SECURITY IS NOT TO BEAR INTEREST PRIOR TO MATURITY, INSERT--The
principal of this Security shall not bear interest except in the case of a
default in payment of principal upon acceleration, upon redemption[, repayment]
or at Stated Maturity and in such case the overdue principal and any overdue
premium shall bear interest at the rate of % per annum (to the extent that
the payment of such interest shall be legally enforceable), from the dates such
amounts are due until they are paid or made available for payment. Interest on
any overdue principal or premium shall be payable on demand. [Any such interest
on overdue principal or premium which is not paid on demand shall bear interest
at the rate of % per annum (to the extent that the payment of such interest
on interest shall be legally enforceable), from the date of such demand until
the amount so demanded is paid or made available for payment. Interest on any
overdue interest shall be payable on demand.]]
Payment of the principal of (and premium, if any) and [if applicable, insert
any such] interest on this Security will be made at the office or agency of
the Company maintained for that purpose in , in such coin or currency
of the United States of America as at the time of payment is legal tender for
payment of public and private debts [IF APPLICABLE, INSERT--; PROVIDED, HOWEVER,
that at
11
<PAGE>
the option of the Company payment of interest may be made by check mailed to the
address of the Person entitled thereto as such address shall appear in the
Security Register].
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
<TABLE>
<S> <C> <C>
Dated:
----------------------------------------------
By
------------------------------------------
Attest:
- ------------------------------
</TABLE>
SECTION 2.03. FORM OF REVERSE OF SECURITY. This Security is one of a duly
authorized issue of securities of the Company (herein called the "Securities"),
issued and to be issued in one or more series under an Indenture, dated as of
(herein called the "Indenture", which term shall have the meaning
assigned to it in such instrument), between the Company and
, as Trustee (herein called the "Trustee", which
term includes any successor trustee under the Indenture), and reference is
hereby made to the Indenture for a statement of the respective rights,
limitations of rights, duties and immunities thereunder of the Company, the
Trustee and the Holders of the Securities and of the terms upon which the
Securities are, and are to be, authenticated and delivered. This Security is one
of the series designated on the face hereof [IF APPLICABLE, INSERT--, limited in
aggregate principal amount to $ ].
[IF APPLICABLE, INSERT--The Securities of this Series are subject to
repayment on or after , , at the option of the Holder upon not
less than 30 days' (but not more than 60 days') notice by mail to the Paying
Agent prior to the repayment date including (a) appropriate wire instructions
and (b) either (i) the Security with the form entitled Option to Elect Repayment
(as set forth below) attached to the Security duly completed or (ii) a telegram,
telex, facsimile transmission or letter from a member of a national securities
exchange or the National Association of Securities Dealers, Inc. or a commercial
bank or trust company in the United States setting forth the name of the Holder
of such Security, the principal amount of such Debenture, the portion of the
principal amount of such Security to be repaid, the certificate number or a
description of the tenor and terms of such Security, a statement that the option
to elect repayment is being exercised thereby and a guarantee that such Security
to be repaid with the form entitled Option to Elect Repayment (substantially in
the form set out in the Indenture) attached to such Security duly completed will
be received by the Paying Agent not later than five Business Days after the date
of such telegram, telex, facsimile transmission or letter and such Security and
form duly completed must be received by the Paying Agent by such fifth Business
Day. Exercise of the repayment option by the Holder of such Security shall be
irrevocable. The repayment option may be exercised by the Holder of such
Security for less than the entire principal amount of the Security provided that
the principal amount of the Security remaining outstanding after repayment is an
authorized denomination. No
12
<PAGE>
registration of, transfer or exchange of such Security (or, in the event that
such Security is to be repaid in part, the portion of the Security to be repaid)
will be permitted after exercise of a repayment option.]
[IF APPLICABLE, INSERT--The Securities of this series are subject to
redemption upon not less than 30 days' notice by mail, [IF APPLICABLE,
INSERT--(1) on in any year commencing with the year and
ending with the year through operation of the sinking fund for this series
at a Redemption Price equal to 100% of the principal amount, and (2)] at any
time [IF APPLICABLE, INSERT--on or after , 19 ], as a whole or in
part, at the election of the Company, at the following Redemption Prices
(expressed as percentages of the principal amount): If redeemed [IF APPLICABLE,
INSERT--on or before , %, and if redeemed] during the 12-month
period beginning of the years indicated,
REDEMPTION REDEMPTION
YEAR PRICE YEAR PRICE
- --------- ----------- --------- -----------
and thereafter at a Redemption Price equal to % of the principal amount,
together in the case of any such redemption [IF APPLICABLE, INSERT--(whether
through operation of the sinking fund or otherwise)] with accrued interest to
the Redemption Date, but interest installments whose Stated Maturity is on or
prior to such Redemption Date will be payable to the Holders of such Securities,
or one or more Predecessor Securities, of record at the close of business on the
relevant Record Dates referred to on the face hereof, all as provided in the
Indenture.]
[IF APPLICABLE, INSERT--The Securities of this series are subject to
redemption upon not less than 30 days' notice by mail, (1) on in any
year commencing with the year and ending with the year through operation
of the sinking fund for this series at the Redemption Prices for redemption
through operation of the sinking fund (expressed as percentages of the principal
amount) set forth in the table below, and (2) at any time [IF APPLICABLE,
INSERT--on or after ], as a whole or in part, at the election of the
Company, at the Redemption Prices for redemption otherwise than through
operation of the sinking fund (expressed as percentages of the principal amount)
set forth in the table below: If redeemed during the 12-month period beginning
of the years indicated,
REDEMPTION PRICE
REDEMPTION PRICE FOR REDEMPTION
THROUGH OTHERWISE THAN
OPERATION OF THE THROUGH OPERATION OF
YEAR SINKING FUND THE SINKING FUND
- --------- ---------------- --------------------
and thereafter at a Redemption Price equal to % of the principal amount,
together in the case of any such redemption (whether through operation of the
sinking fund or otherwise) with accrued interest to the Redemption Date, but
interest installments whose Stated Maturity is on or prior to such Redemption
Date will be payable to the Holders of such Securities, or one or more
Predecessor Securities, of record at the
13
<PAGE>
close of business on the relevant Record Dates referred to on the face hereof,
all as provided in the Indenture.]
[IF APPLICABLE, INSERT--Notwithstanding the foregoing, the Company may not,
prior to , redeem any Securities of this series as contemplated by [IF
APPLICABLE, INSERT--Clause (2) of] the preceding paragraph as a part of, or in
anticipation of, any refunding operation by the application, directly or
indirectly, of moneys borrowed having an interest cost to the Company
(calculated in accordance with generally accepted financial practice) of less
than % per annum.]
[IF APPLICABLE, INSERT--The sinking fund for this series provides for the
redemption on in each year beginning with the year and ending with
the year of [IF APPLICABLE, INSERT--not less than $
("mandatory sinking fund") and not more than] $ aggregate
principal amount of Securities of this series. Securities of this series
acquired or redeemed by the Company otherwise than through [IF APPLICABLE,
INSERT--mandatory] sinking fund payments may be credited against subsequent [IF
APPLICABLE, INSERT--mandatory] sinking fund payments otherwise required to be
made in the [IF APPLICABLE, INSERT--inverse] order in which they become due.]
[IF THE SECURITY IS SUBJECT TO REDEMPTION OF ANY KIND, INSERT--In the event
of redemption of this Security in part only, a new Security or Securities of
this series and of like tenor for the unredeemed portion hereof will be issued
in the name of the Holder hereof upon the cancellation hereof.]
[IF APPLICABLE, INSERT--The Indenture contains provisions for Defeasance at
any time of [the entire indebtedness of this Security] [or] [certain restrictive
covenants and Events of Default with respect to this Security] [, in each case]
upon compliance with certain conditions set forth in the Indenture.]
[IF THE SECURITY IS NOT AN ORIGINAL ISSUE DISCOUNT SECURITY, INSERT--If an
Event of Default with respect to Securities of this series shall occur and be
continuing, the principal of the Securities of this series may be declared due
and payable in the manner and with the effect provided in the Indenture.]
[IF THE SECURITY IS AN ORIGINAL ISSUE DISCOUNT SECURITY, INSERT--If an Event
of Default with respect to Securities of this series shall occur and be
continuing, an amount of principal of the Securities of this series may be
declared due and payable in the manner and with the effect provided in the
Indenture. Such amount shall be equal to--INSERT FORMULA FOR DETERMINING THE
AMOUNT. Upon payment (i) of the amount of principal so declared due and payable
and (ii) of interest on any overdue principal, premium and interest (in each
case to the extent that the payment of such interest shall be legally
enforceable), all of the Company's obligations in respect of the payment of the
principal of and premium and interest, if any, on the Securities of this series
shall terminate.]
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in principal amount of the Securities at
the time Outstanding of each series to be affected. The Indenture also contains
provisions permitting the Holders of specified percentages in principal amount
of the Securities of each series at the time Outstanding, on behalf of the
Holders of all Securities of such series, to waive compliance by the Company
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Security shall be conclusive and binding upon such Holder and upon all
future Holders of this Security and of any Security issued upon the registration
of transfer of this Security or in exchange for or in lieu of this Security,
whether or not notation of such consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture, the Holder of
this Security shall not have the right to institute any proceeding with respect
to the Indenture or for the appointment of a
14
<PAGE>
receiver or trustee or for any other remedy thereunder, unless such Holder shall
have previously given the Trustee written notice of a continuing Event of
Default with respect to the Securities of this series, the Holders of not less
than 25% in principal amount of the Securities of this series at the time
Outstanding shall have made written request to the Trustee to institute
proceedings in respect of such Event of Default as Trustee and offered the
Trustee reasonable indemnity, and the Trustee shall not have received from the
Holders of a majority in principal amount of Securities of this series at the
time Outstanding a direction inconsistent with such request, and shall have
failed to institute any such proceeding, for 60 days after receipt of such
notice, request and offer of indemnity. The foregoing shall not apply to any
suit instituted by the Holder of this Security for the enforcement of any
payment of principal hereof or any premium or interest hereon on or after the
respective due dates expressed herein.
No reference herein to the Indenture and no provision of this Security or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and any premium and interest
on this Security at the times, place and rate, and in the coin or currency,
herein prescribed.
As provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable in the Security Register,
upon surrender of this Security for registration of transfer at the office or
agency of the Company in any place where the principal of and any premium and
interest on this Security are payable, duly endorsed by, or accompanied by a
written instrument of transfer in form satisfactory to the Company and the
Security Registrar duly executed by, the Holder hereof or his attorney duly
authorized in writing, and thereupon one or more new Securities of this series
and of like tenor, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
The Securities of this series are issuable only in registered form without
coupons in denominations of $ and any integral multiple thereof. As
provided in the Indenture and subject to certain limitations therein set forth,
Securities of this series are exchangeable for a like aggregate principal amount
of Securities of this series and of like tenor of a different authorized
denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith. Prior to due
presentment of this Security for registration of transfer, the Company, the
Trustee and any agent of the Company or the Trustee may treat the Person in
whose name this Security is registered as the owner hereof for all purposes,
whether or not this Security be overdue, and neither the Company, the Trustee
nor any such agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
SECTION 2.04. FORM OF LEGEND FOR GLOBAL SECURITIES. Unless otherwise
specified as contemplated by Section 3.01 for the Securities evidenced thereby,
every Global Security authenticated and delivered hereunder shall bear a legend
in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR
A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN
PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN
WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN
SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
15
<PAGE>
SECTION 2.05. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION. The
Trustee's certificates of authentication shall be in substantially the following
form:
This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.
----------------------------------------------
As Trustee
By:
------------------------------------------
Authorized Signatory
ARTICLE III.
THE SECURITIES
SECTION 3.01. AMOUNT UNLIMITED; ISSUABLE IN SERIES. The aggregate
principal amount of Securities which may be authenticated and delivered under
this Indenture is unlimited.
The Securities may be issued in one or more series. There shall be
established in or pursuant to a Board Resolution and, subject to Section 3.03,
set forth, or determined in the manner provided, in an Officers' Certificate, or
established in one or more indentures supplemental hereto, prior to the first
issuance of a Security of any series,
(1) the title of the Securities of the series (which shall distinguish
the Securities of the series from Securities of any other series);
(2) any limit upon the aggregate principal amount of the Securities of
the series which may be authenticated and delivered under this Indenture
(except for Securities authenticated and delivered upon registration of
transfer of, or in exchange for, or in lieu of, other Securities of the
series pursuant to Section 3.04, 3.05, 3.06, 9.06 or 11.07 and except for
any Securities which, pursuant to Section 3.03, are deemed never to have
been authenticated and delivered hereunder);
(3) the Person to whom any interest on a Security of the series shall be
payable, if other than the Person in whose name that Security (or one or
more Predecessor Securities) is registered at the close of business on the
Regular Record Date for such interest;
(4) the date or dates on which the principal or installments of
principal of any Securities of the series is payable;
(5) the rate or rates at which any Securities of the series shall bear
interest, if any, the date or dates from which any such interest shall
accrue, the Interest Payment Dates on which any such interest shall be
payable and the Regular Record Date for any such interest payable on any
Interest Payment Date;
(6) the place or places where the principal of and any premium and
interest on any Securities of the series shall be payable;
(7) the period or periods within which, the price or prices at which and
the terms and conditions upon which any Securities of the series may be
redeemed, in whole or in part, at the option of the Company and, if other
than by a Board Resolution, the manner in which any election by the Company
to redeem the Securities shall be evidenced;
(8) the obligation, if any, of the Company to redeem or purchase any
Securities of the series pursuant to any sinking fund or analogous
provisions or at the option of the Holder thereof and the period or periods
within which, the price or prices at which and the terms and conditions upon
which
16
<PAGE>
any Securities of the series shall be redeemed or purchased, in whole or in
part, pursuant to such obligation;
(9) if other than denominations of $1,000 and any integral multiple
thereof, the denominations in which any Securities of the series shall be
issuable;
(10) if the amount of principal of or any premium or interest on any
Securities of the series may be determined with reference to an index or
pursuant to a formula, the manner in which such amounts shall be determined;
(11) if other than the currency of the United States of America, the
currency, currencies or currency units in which the principal of or any
premium or interest on any Securities of the series shall be payable and the
manner of determining the equivalent thereof in the currency of the United
States of America for any purpose, including for purposes of the definition
of "Outstanding" in Section 1.01;
(12) if the principal of or any premium or interest on any Securities of
the series is to be payable, at the election of the Company or the Holder
thereof, in one or more currencies or currency units other than that or
those in which such Securities are stated to be payable, the currency,
currencies or currency units in which the principal of or any premium or
interest on such Securities as to which such election is made shall be
payable, the periods within which and the terms and conditions upon which
such election is to be made and the amount so payable (or the manner in
which such amount shall be determined);
(13) if other than the entire principal amount thereof, the portion of
the principal amount of any Securities of the series which shall be payable
upon declaration of acceleration of the Maturity thereof pursuant to Section
5.02;
(14) if the principal amount payable at the Stated Maturity of any
Securities of the series will not be determinable as of any one or more
dates prior to the Stated Maturity, the amount which shall be deemed to be
the principal amount of such Securities as of any such date for any purpose
thereunder or hereunder, including the principal amount thereof which shall
be due and payable upon any Maturity other than the Stated Maturity or which
shall be deemed to be Outstanding as of any date prior to the Stated
Maturity (or, in any such case, the manner in which such amount deemed to be
the principal amount shall be determined);
(15) if applicable, that the Securities of the series, in whole or any
specified part, shall be defeasible pursuant to Section 13.02 or Section
13.03 or both such Sections and, if other than by a Board Resolution, the
manner in which any election by the Company to defease such Securities shall
be evidenced;
(16) if applicable, that any Securities of the series shall be issuable
in whole or in part in the form of one or more Global Securities and, in
such case, the respective Depositaries for such Global Securities, the form
of any legend or legends which shall be borne by any such Global Security in
addition to or in lieu of that set forth in Section 2.04 and any
circumstances in addition to or in lieu of those set forth in Clause (2) of
the last paragraph of Section 3.05 in which any such Global Security may be
exchanged in whole or in part for Securities registered, and any transfer of
such Global Security in whole or in part may be registered, in the name or
names of Persons other than the Depositary for such Global Security or a
nominee thereof;
(17) any addition to, limitation of or change in the Events of Default
which applies to any Securities of the series and any change in the right of
the Trustee or the requisite Holders of such Securities to declare the
principal amount thereof due and payable pursuant to Section 5.02;
(18) any addition to, limitation of or change in the covenants set forth
in Article X which applies to Securities of the series; and
17
<PAGE>
(19) any other terms of the series (which terms shall not be inconsistent
with the provisions of this Indenture, except as permitted by Section
9.01(5)).
All Securities of any one series shall be substantially identical except as
to denomination and except as may otherwise be provided in or pursuant to the
Board Resolution referred to above and (subject to Section 3.03) set forth, or
determined in the manner provided, in the Officers' Certificate referred to
above or in any such indenture supplemental hereto.
If any of the terms of the series are established by action taken pursuant
to a Board Resolution, a copy of an appropriate record of such action shall be
certified by the Secretary or an Assistant Secretary of the Company and
delivered to the Trustee at or prior to the delivery of the Officers'
Certificate setting forth the terms of the series.
SECTION 3.02. DENOMINATIONS. The Securities of each series shall be
issuable only in registered form without coupons and only in such denominations
as shall be specified as contemplated by Section 3.01. In the absence of any
such specified denomination with respect to the Securities of any series, the
Securities of such series shall be issuable in denominations of $1,000 and any
integral multiple thereof.
SECTION 3.03. EXECUTION, AUTHENTICATION, DELIVERY AND DATING. The
Securities shall be executed on behalf of the Company by its Chairman of the
Board, its Chief Executive Officer, its President or one of its Vice Presidents,
under its corporate seal reproduced thereon attested by its Secretary or one of
its Assistant Secretaries. The signature of any of these officers on the
Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities of any series executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities, and the Trustee in accordance
with the Company Order shall authenticate and deliver such Securities. If the
form or terms of the Securities of the series have been established by or
pursuant to one or more Board Resolutions as permitted by Sections 2.01 and
3.01, in authenticating such Securities, and accepting the additional
responsibilities under this Indenture in relation to such Securities, the
Trustee shall be entitled to receive, and (subject to Section 6.01) shall be
fully protected in relying upon, an Opinion of Counsel stating,
(1) if the form of such Securities has been established by or pursuant
to Board Resolution as permitted by Section 2.01, that such form has been
established in conformity with the provisions of this Indenture;
(2) if the terms of such Securities have been established by or pursuant
to Board Resolution as permitted by Section 3.01, that such terms have been
established in conformity with the provisions of this Indenture; and
(3) that such Securities, when authenticated and delivered by the
Trustee and issued by the Company in the manner and subject to any
conditions specified in such Opinion of Counsel, will constitute valid and
legally binding obligations of the Company enforceable in accordance with
their terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles.
If such form or terms have been so established, the Trustee shall not be
required to authenticate such Securities if the issue of such Securities
pursuant to this Indenture will affect the Trustee's own rights, duties or
immunities under the Securities and this Indenture or otherwise in a manner
which is not reasonably acceptable to the Trustee.
18
<PAGE>
Notwithstanding the provisions of Section 3.01 and of the preceding
paragraph, if all Securities of a series are not to be originally issued at one
time, it shall not be necessary to deliver the Officers' Certificate otherwise
required pursuant to Section 3.01 or the Company Order and Opinion of Counsel
otherwise required pursuant to such preceding paragraph at or prior to the
authentication of each Security of such series if such documents are delivered
at or prior to the authentication upon original issuance of the first Security
of such series to be issued.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such Security
has been duly authenticated and delivered hereunder. Notwithstanding the
foregoing, if any Security shall have been authenticated and delivered hereunder
but never issued and sold by the Company, and the Company shall deliver such
Security to the Trustee for cancellation as provided in Section 3.09, for all
purposes of this Indenture such Security shall be deemed never to have been
authenticated and delivered hereunder and shall never be entitled to the
benefits of this Indenture.
SECTION 3.04. TEMPORARY SECURITIES. Pending the preparation of definitive
Securities of any series, the Company may execute, and upon Company Order the
Trustee shall authenticate and deliver, temporary Securities which are
typewritten, printed, lithographed, typewritten, mimeographed or otherwise
produced, in any authorized denomination, substantially of the tenor of the
definitive Securities in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Securities may determine, as evidenced by their execution of such
Securities.
If temporary Securities of any series are issued, the Company will cause
definitive Securities of that series to be prepared without unreasonable delay.
After the preparation of definitive Securities of such series, the temporary
Securities of such series shall be exchangeable for definitive Securities of
such series upon surrender of the temporary Securities of such series at the
office or agency of the Company in a Place of Payment for that series, without
charge to the Holder. Upon surrender for cancellation of any one or more
temporary Securities of any series, the Company shall execute and the Trustee
shall authenticate and deliver in exchange therefor one or more definitive
Securities of the same series, of any authorized denominations and of like tenor
and aggregate principal amount. Until so exchanged, the temporary Securities of
any series shall in all respects be entitled to the same benefits under this
Indenture as definitive Securities of such series and tenor.
SECTION 3.05. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE. The
Company shall cause to be kept at the Corporate Trust Office of the Trustee a
register (the register maintained in such office and in any other office or
agency of the Company in a Place of Payment being herein sometimes collectively
referred to as the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Securities and of transfers of Securities. The Trustee is hereby appointed
"Security Registrar" for the purpose of registering Securities and transfers of
Securities as herein provided.
Upon surrender for registration of transfer of any Security of a series at
the office or agency of the Company in a Place of Payment for that series, the
Company shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Securities of
the same series, of any authorized denominations and of like tenor and aggregate
principal amount.
At the option of the Holder, Securities of any series may be exchanged for
other Securities of the same series, of any authorized denominations and of like
tenor and aggregate principal amount, upon surrender of the Securities to be
exchanged at such office or agency. Whenever any Securities are so
19
<PAGE>
surrendered for exchange, the Company shall execute, and the Trustee shall
authenticate and deliver, the Securities which the Holder making the exchange is
entitled to receive.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or for
exchange shall (if so required by the Company or the Trustee) be duly endorsed,
or be accompanied by a written instrument of transfer in form satisfactory to
the Company and the Security Registrar duly executed, by the Holder thereof or
his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or exchange
of Securities, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in connection with any
registration of transfer or exchange of Securities, other than exchanges
pursuant to Section 3.04, 9.06 or 11.07 not involving any transfer.
If the Securities of any series (or of any series and specified tenor) are
to be redeemed in part, the Company shall not be required (A) to issue, register
the transfer of or exchange any Securities of that series (or of that series and
specified tenor, as the case may be) during a period beginning at the opening of
business 15 days before the day of the mailing of a notice of redemption of any
such Securities selected for redemption under Section 11.03 and ending at the
close of business on the day of such mailing, or (B) to register the transfer of
or exchange any Security so selected for redemption in whole or in part, except
the unredeemed portion of any Security being redeemed in part.
The provisions of Clauses (1), (2), (3) and (4) below shall apply only to
Global Securities:
(1) Each Global Security authenticated under this Indenture shall be
registered in the name of the Depositary designated for such Global Security
or a nominee thereof and delivered to such Depositary or a nominee thereof
or custodian therefor, and each such Global Security shall constitute a
single Security for all purposes of this Indenture.
(2) Notwithstanding any other provision in this Indenture, no Global
Security may be exchanged in whole or in part for Securities registered, and
no transfer of a Global Security in whole or in part may be registered, in
the name of any Person other than the Depositary for such Global Security or
a nominee thereof unless (A) such Depositary (i) has notified the Company
that it is unwilling or unable to continue as Depositary for such Global
Security or (ii) has ceased to be a clearing agency registered under the
Exchange Act, (B) there shall have occurred and be continuing an Event of
Default with respect to such Global Security or (C) there shall exist such
circumstances, if any, in addition to or in lieu of the foregoing as have
been specified for this purpose as contemplated by Section 301.
(3) Subject to Clause (2) above, any exchange of a Global Security for
other Securities may be made in whole or in part, and all Securities issued
in exchange for a Global Security or any portion thereof shall be registered
in such names as the Depositary for such Global Security shall direct.
(4) Every Security authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Security or any
portion thereof, whether pursuant to this Section, Section 3.04, 3.06, 9.06
or 11.07 or otherwise, shall be authenticated and delivered in the form of,
and shall be, a Global Security, unless such Security is registered in the
name of a Person other than the Depositary for such Global Security or a
nominee thereof.
SECTION 3.06. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES. If any
mutilated Security is surrendered to the Trustee, the Company shall execute and
the Trustee shall authenticate and deliver in exchange therefor a new Security
of the same series and of like tenor and principal amount and bearing a number
not contemporaneously outstanding.
20
<PAGE>
If there shall be delivered to the Company and the Trustee (i) evidence to
their satisfaction of the destruction, loss or theft of any Security and (ii)
such security or indemnity as may be required by them to save each of them and
any agent of either of them harmless, then, in the absence of notice to the
Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and the Trustee shall authenticate and
deliver, in lieu of any such destroyed, lost or stolen Security, a new Security
of the same series and of like tenor and principal amount and bearing a number
not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has become or
is about to become due and payable, the Company in its discretion may, instead
of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) connected therewith.
Every new Security of any series issued pursuant to this Section in lieu of
any destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities of that series duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 3.07. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED. Except as
otherwise provided as contemplated by Section 3.01 with respect to any series of
Securities, interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name that Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest.
Any interest on any Security of any series which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the Holder
on the relevant Regular Record Date by virtue of having been such Holder, and
such Defaulted Interest may be paid by the Company, at its election in each
case, as provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities of such series (or their
respective Predecessor Securities) are registered at the close of business
on a Special Record Date for the payment of such Defaulted Interest, which
shall be fixed in the following manner. The Company shall notify the Trustee
in writing of the amount of Defaulted Interest proposed to be paid on each
Security of such series and the date of the proposed payment, and at the
same time the Company shall deposit with the Trustee an amount of money
equal to the aggregate amount proposed to be paid in respect of such
Defaulted Interest or shall make arrangements satisfactory to the Trustee
for such deposit prior to the date of the proposed payment, such money when
deposited to be held in trust for the benefit of the Persons entitled to
such Defaulted Interest as in this Clause provided. Thereupon the Trustee
shall fix a Special Record Date for the payment of such Defaulted Interest
which shall be not more than 15 days and not less than 10 days prior to the
date of the proposed payment and not less than 10 days after the receipt by
the Trustee of the notice of the proposed payment. The Trustee shall
promptly notify the Company of such Special Record Date and, in the name and
at the expense of the Company, shall cause notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor to be given to
each Holder of Securities of such series in the manner set forth in Section
1.06, not less than 10 days prior to such Special Record Date. Notice of the
proposed payment of such Defaulted Interest and the Special Record Date
therefor having been so mailed, such Defaulted Interest shall be paid to the
Persons in whose names the Securities of such series (or their respective
Predecessor Securities) are
21
<PAGE>
registered at the close of business on such Special Record Date and shall no
longer be payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest on the
Securities of any series in any other lawful manner not inconsistent with
the requirements of any securities exchange on which such Securities may be
listed, and upon such notice as may be required by such exchange, if, after
notice given by the Company to the Trustee of the proposed payment pursuant
to this Clause, such manner of payment shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this Section, each Security delivered
under this Indenture upon registration of transfer of or in exchange for or in
lieu of any other Security shall carry the rights to interest accrued and
unpaid, and to accrue, which were carried by such other Security.
SECTION 3.08. PERSONS DEEMED OWNERS. Prior to due presentment of a
Security for registration of transfer, the Company, the Trustee and any agent of
the Company or the Trustee may treat the Person in whose name such Security is
registered as the owner of such Security for the purpose of receiving payment of
principal of and any premium and (subject to Section 3.07) any interest on such
Security and for all other purposes whatsoever, whether or not such Security be
overdue, and neither the Company, the Trustee nor any agent of the Company or
the Trustee shall be affected by notice to the contrary.
SECTION 3.09. CANCELLATION. All Securities surrendered for payment,
redemption, registration of transfer or exchange or for credit against any
sinking fund payment shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee and shall be promptly cancelled by it. The Company
may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and may deliver to the Trustee (or to any
other Person for delivery to the Trustee) for cancellation any Securities
previously authenticated hereunder which the Company has not issued and sold,
and all Securities so delivered shall be promptly cancelled by the Trustee. No
Securities shall be authenticated in lieu of or in exchange for any Securities
cancelled as provided in this Section, except as expressly permitted by this
Indenture. All cancelled Securities held by the Trustee shall be destroyed, and
the Trustee shall have provide proof of destruction to the Company.
SECTION 3.10. COMPUTATION OF INTEREST. Except as otherwise specified as
contemplated by Section 3.01 for Securities of any series, interest on the
Securities of each series shall be computed on the basis of a 360-day year of
twelve 30-day months.
ARTICLE IV.
SATISFACTION AND DISCHARGE
SECTION 4.01. SATISFACTION AND DISCHARGE OF INDENTURE. This Indenture
shall upon Company Request cease to be of further effect (except as to any
surviving rights of registration of transfer or exchange of Securities herein
expressly provided for), and the Trustee, at the expense of the Company, shall
execute proper instruments acknowledging satisfaction and discharge of this
Indenture, when
(1) either (A) all Securities theretofore authenticated and delivered
(other than (i) Securities which have been destroyed, lost or stolen and
which have been replaced or paid as provided in Section 3.06 and (ii)
Securities for whose payment money has theretofore been deposited in trust
or segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust, as provided in Section 10.03) have
been delivered to the Trustee for cancellation; or (B) all such Securities
not theretofore delivered to the Trustee for cancellation (i) have become
due and payable, or (ii) will become due and payable at their Stated
Maturity within one year, or (iii) are to be called for redemption within
one year under arrangements satisfactory to the Trustee for the giving of
notice of redemption by the Trustee in the name, and at the expense, of the
Company, and the Company, in the case of (i), (ii) or (iii) above, has
deposited or caused to be deposited with the
22
<PAGE>
Trustee as trust funds in trust for the purpose money in an amount
sufficient to pay and discharge the entire indebtedness on such Securities
not theretofore delivered to the Trustee for cancellation, for principal and
any premium and interest to the date of such deposit (in the case of
Securities which have become due and payable) or to the Stated Maturity or
Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent herein
provided for relating to the satisfaction and discharge of this Indenture
have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 6.07, the obligations of
the Trustee to any Authenticating Agent under Section 6.14 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of
this Section, the obligations of the Trustee under Section 4.02 and the last
paragraph of Section 10.03 shall survive.
SECTION 4.02. APPLICATION OF TRUST MONEY. Subject to the provisions of the
last paragraph of Section 10.03, all money deposited with the Trustee pursuant
to Section 4.01 shall be held in trust and applied by it, in accordance with the
provisions of the Securities and this Indenture, to the payment, either directly
or through any Paying Agent (including the Company acting as its own Paying
Agent) as the Trustee may determine, to the Persons entitled thereto, of the
principal and any premium and interest for whose payment such money has been
deposited with the Trustee.
ARTICLE V.
REMEDIES
SECTION 5.01. EVENTS OF DEFAULT. "Event of Default", wherever used herein
with respect to Securities of any series, means any one of the following events
(whatever the reason for such Event of Default and whether it shall be voluntary
or involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) default in the payment of any interest upon any Security of that
series when it becomes due and payable, and continuance of such default for
a period of 30 days; or
(2) default in the payment of the principal of or any premium on any
Security of that series at its Maturity; or
(3) default in the deposit of any sinking fund payment, when and as due
by the terms of a Security of that series; or
(4) default in the performance, or breach, of any covenant or warranty
of the Company in this Indenture (other than a covenant or warranty a
default in whose performance or whose breach is elsewhere in this Section
specifically dealt with or which has expressly been included in this
Indenture solely for the benefit of series of Securities other than that
series), and continuance of such default or breach for a period of 30 days
after there has been given, by registered or certified mail, to the Company
by the Trustee or to the Company and the Trustee by the Holders of at least
10% in principal amount of the Outstanding Securities of that series a
written notice specifying such default or breach and requiring it to be
remedied and stating that such notice is a "Notice of Default" hereunder; or
(5) a default under any bond, debenture, note or other evidence of
indebtedness for money borrowed by the Company (including a default with
respect to Securities of any series other than that series), or under any
mortgage, indenture or instrument (including this Indenture) under which
there
23
<PAGE>
may be issued or by which there may be secured or evidenced any indebtedness
for money borrowed by the Company having an aggregate principal amount
outstanding of at least $10 million, whether such indebtedness now exists or
shall hereafter be created, which default (A) shall constitute a failure to
pay any portion of the principal of such indebtedness when due and payable
after the expiration of any applicable grace period with respect thereto or
(B) shall have resulted in such indebtedness becoming or being declared due
and payable prior to the date on which it would otherwise have become due
and payable, without, in the case of Clause (A), such indebtedness having
been discharged or without, in the case of Clause (B), such indebtedness
having been discharged or such acceleration having been rescinded or
annulled, in each such case, within a period of 10 days after there shall
have been given, by registered or certified mail, to the Company by the
Trustee or to the Company and the Trustee by the Holders of at least 25% in
principal amount of the Outstanding Securities of that series a written
notice specifying such default and requiring the Company to cause such
indebtedness to be discharged or cause such acceleration to be rescinded or
annulled, as the case may be, and stating that such notice is a "Notice of
Default" hereunder; or
(6) the entry by a court having jurisdiction in the premises of (A) a
decree or order for relief in respect of the Company or any of its
Restricted Subsidiaries in an involuntary case or proceeding under any
applicable Federal or State bankruptcy, insolvency, reorganization or other
similar law or (B) a decree or order adjudging the Company or any of its
Restricted Subsidiaries a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company or any of its Restricted
Subsidiaries under any applicable Federal or State law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or any of its Restricted Subsidiaries or of
any substantial part of its property (or that of any such Restricted
Subsidiary), or ordering the winding up or liquidation of its affairs, and
the continuance of any such decree or order for relief or any such other
decree or order unstayed and in effect for a period of 60 consecutive days;
or
(7) the commencement by the Company of a voluntary case or proceeding
under any applicable Federal or State bankruptcy, insolvency, reorganization
or other similar law or of any other case or proceeding to be adjudicated a
bankrupt or insolvent, or the consent by it to the entry of a decree or
order for relief in respect of the Company or any of its Restricted
Subsidiaries in an involuntary case or proceeding under any applicable
Federal or State bankruptcy, insolvency, reorganization or other similar law
or to the commencement of any bankruptcy or insolvency case or proceeding
against it, or the filing by it of a petition or answer or consent seeking
reorganization or relief under any applicable Federal or State law, or the
consent by it to the filing of such petition or to the appointment of or
taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any of its
Restricted Subsidiaries or of any substantial part of its property (or that
of any such Restricted Subsidiary), or the making by it of an assignment for
the benefit of creditors, or the admission by it in writing of its inability
to pay its debts generally as they become due, or the taking of corporate
action by the Company or any of its Restricted Subsidiaries in furtherance
of any such action; or
(8) any other Event of Default provided with respect to Securities of
that series.
SECTION 5.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT. If an
Event of Default (other than an Event of Default specified in Section 5.01(6) or
5.01(7)) with respect to Securities of any series at the time Outstanding occurs
and is continuing, then in every such case the Trustee or the Holders of not
less than 25% in principal amount of the Outstanding Securities of that series
may declare the principal amount of all the Securities of that series (or, if
any Securities of that series are Original Issue Discount Securities, such
portion of the principal amount of such Securities as may be specified by the
terms thereof) to be due and payable immediately, by a notice in writing to the
Company (and to the Trustee if given by Holders), and upon any such declaration
such principal amount (or specified amount) shall become immediately due and
payable. If an Event of Default specified in Section 5.01(6) or 5.01(7) with
24
<PAGE>
respect to Securities of any series at the time Outstanding occurs, the
principal amount of all the Securities of that series (or, if any Securities of
that series are Original Issue Discount Securities, such portion of the
principal amount of such Securities as may be specified by the terms thereof)
shall automatically, and without any declaration or other action on the part of
the Trustee or any Holder, become immediately due and payable.
At any time after such a declaration of acceleration with respect to
Securities of any series has been made and before a judgment or decree for
payment of the money due has been obtained by the Trustee as hereinafter in this
Article provided, the Holders of a majority in principal amount of the
Outstanding Securities of that series, by written notice to the Company and the
Trustee, may rescind and annul such declaration and its consequences if:
(1) the Company has paid or deposited with the Trustee a sum sufficient
to pay (A) all overdue interest on all Securities of that series, (B) the
principal of (and premium, if any, on) any Securities of that series which
have become due otherwise than by such declaration of acceleration and any
interest thereon at the rate or rates prescribed therefor in such
Securities, (C) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate or rates prescribed therefor in
such Securities, and (D) all sums paid or advanced by the Trustee hereunder
and the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due to the Trustee
under Section 6.07; and
(2) all Events of Default with respect to Securities of that series,
other than the non-payment of the principal of Securities of that series
which have become due solely by such declaration of acceleration, have been
cured or waived as provided in Section 5.13.
No such rescission and annulment shall affect any subsequent default or impair
any right consequent thereon.
SECTION 5.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
TRUSTEE. The Company covenants that if:
(1) default is made in the payment of any interest on any Security when
such interest becomes due and payable and such default continues for a
period of 30 days, or
(2) default is made in the payment of the principal of (or premium, if
any, on) any Security at the Maturity thereof,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal and any premium and interest and, to the extent that
payment of such interest shall be legally enforceable, interest on any overdue
principal and premium and on any overdue interest, at the rate or rates
prescribed therefor in such Securities, and, in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel, and any other amounts due to the Trustee
under Section 6.07.
If the Company fails to pay such amounts forthwith upon such demand, the
Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor upon such Securities and collect the
monies adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon such Securities, wherever
situated.
If an Event of Default with respect to Securities of any series occurs and
is continuing, the Trustee may in its discretion proceed to protect and enforce
its rights and the rights of the Holders of Securities of such series by such
appropriate judicial proceedings as the Trustee shall deem most effectual to
protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any power
granted herein, or to enforce any other proper remedy.
25
<PAGE>
SECTION 5.04. TRUSTEE MAY FILE PROOFS OF CLAIM. In case of any judicial
proceeding relative to the Company (or any other obligor upon the Securities),
its property or its creditors, the Trustee shall be entitled and empowered, by
intervention in such proceeding or otherwise, to take any and all actions
authorized under the Trust Indenture Act in order to have claims of the Holders
and the Trustee allowed in any such proceeding. In particular, the Trustee shall
be authorized to (i) file and prove a claim for the whole amount of principal
and any premium and interest owing and unpaid in respect of the Securities and
to file such other papers or documents as may be necessary or advisable in order
to have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due to the Trustee under Section 6.07) and of
the Holders allowed in such judicial proceeding; and (ii) collect and receive
any moneys or other property payable or deliverable on any such claims and to
distribute the same; and any custodian, receiver, assignee, trustee, liquidator,
sequestrator or other similar official in any such judicial proceeding is hereby
authorized by each Holder to make such payments to the Trustee and, in the event
that the Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Trustee any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 6.07.
No provision of this Indenture shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 5.05. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF
SECURITIES. All rights of action and claims under this Indenture or the
Securities may be prosecuted and enforced by the Trustee without the possession
of any of the Securities or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought in
its own name as trustee of an express trust, and any recovery of judgment shall,
after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and for any
other amounts due to the Trustee under Section 6.07, be for the ratable benefit
of the Holders of the Securities in respect of which such judgment has been
recovered.
SECTION 5.06. APPLICATION OF MONEY COLLECTED. Any money collected by the
Trustee pursuant to this Article shall be applied in the following order, at the
date or dates fixed by the Trustee and, in case of the distribution of such
money on account of principal or any premium or interest, upon presentation of
the Securities and the notation thereon of the payment if only partially paid
and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section 6.07; and
SECOND: To the payment of the amounts then due and unpaid for principal of
and any premium and interest on the Securities in respect of which or for the
benefit of which such money has been collected, ratably, without preference or
priority of any kind, according to the amounts due and payable on such
Securities for principal and any premium and interest, respectively.
THIRD: The balance, if any, to the Persons or Persons entitled thereto.
SECTION 5.07. LIMITATION ON SUITS. No Holder of any Security of any series
shall have any right to institute any proceeding, judicial or otherwise, with
respect to this Indenture, or for the appointment of a receiver or trustee, or
for any other remedy hereunder, unless:
(1) such Holder has previously given written notice to the Trustee of a
continuing Event of Default with respect to the Securities of that series;
26
<PAGE>
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities of that series shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default in its
own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority in
principal amount of the Outstanding Securities of that series; it being
understood and intended that no one or more of such Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other of
such Holders, or to obtain or to seek to obtain priority or preference over
any other of such Holders or to enforce any right under this Indenture,
except in the manner herein provided and for the equal and ratable benefit
of all of such Holders.
SECTION 5.08. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL, PREMIUM
AND INTEREST. Notwithstanding any other provision in this Indenture, the Holder
of any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of and any premium and (subject to Section
3.07) interest on such Security on the respective Stated Maturities expressed in
such Security (or, in the case of redemption, on the Redemption Date) and to
institute suit for the enforcement of any such payment, and such rights shall
not be impaired without the consent of such Holder.
SECTION 5.09. RESTORATION OF RIGHTS AND REMEDIES. If the Trustee or any
Holder has instituted any proceeding to enforce any right or remedy under this
Indenture and such proceeding has been discontinued or abandoned for any reason,
or has been determined adversely to the Trustee or to such Holder, then and in
every such case, subject to any determination in such proceeding, the Company,
the Trustee and the Holders shall be restored severally and respectively to
their former positions hereunder and thereafter all rights and remedies of the
Trustee and the Holders shall continue as though no such proceeding had been
instituted.
SECTION 5.10. RIGHTS AND REMEDIES CUMULATIVE. Except as otherwise provided
with respect to the replacement or payment of mutilated, destroyed, lost or
stolen Securities in the last paragraph of Section 3.06, no right or remedy
herein conferred upon or reserved to the Trustee or to the Holders is intended
to be exclusive of any other right or remedy, and every right and remedy shall,
to the extent permitted by law, be cumulative and in addition to every other
right and remedy given hereunder or now or hereafter existing at law or in
equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 5.11. DELAY OR OMISSION NOT WAIVER. No delay or omission of the
Trustee or of any Holder of any Securities to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article or by law to the Trustee or to the
Holders may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee or by the Holders, as the case may be.
SECTION 5.12. CONTROL BY HOLDERS. The Holders of a majority in aggregate
principal amount of the Outstanding Securities of any series shall have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee, with respect to the Securities of such series, provided that:
(1) such direction shall not be in conflict with any rule of law or with
this Indenture, and
27
<PAGE>
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction.
SECTION 5.13. WAIVER OF PAST DEFAULTS. The Holders of not less than a
majority in aggregate principal amount of the Outstanding Securities of any
series may on behalf of the Holders of all the Securities of such series waive
any past default hereunder with respect to such series and its consequences,
except a default:
(1) in the payment of the principal of or any premium or interest on any
Security of such series, or
(2) in respect of a covenant or provision hereof which under Article IX
cannot be modified or amended without the consent of the Holder of each
Outstanding Security of such series affected.
Upon any such waiver, such default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
default or impair any right consequent thereon.
SECTION 5.14. UNDERTAKING FOR COSTS. All parties to this Indenture agree,
and each Holder of any Security by his acceptance thereof shall be deemed to
have agreed, that any court may in its discretion require, in any suit for the
enforcement of any right or remedy under this Indenture, or in any suit against
the Trustee for any action taken, suffered or omitted by it as Trustee, the
filing by any party litigant in such suit of an undertaking to pay the costs of
such suit, and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in such suit,
having due regard to the merits and good faith of the claims or defenses made by
such party litigant; but the provisions of this Section 5.14 shall not apply to
any suit instituted by the Trustee, to any suit instituted by any Holder, or
group of Holders, holding in the aggregate more than 25% in principal amount of
the Outstanding Securities of any series, or to any suit instituted by any
Holder of any Security for the enforcement of the payment of the principal and
any premium and interest on any Security on or after the Stated Maturity or
Maturities expressed in such Security (or, in the case of redemption, on or
after the Redemption Date).
SECTION 5.15. WAIVER OF USURY, STAY OR EXTENSION LAWS. The Company
covenants (to the extent that it may lawfully do so) that it will not at any
time insist upon, or plead, or in any manner whatsoever claim or take the
benefit or advantage of, any usury, stay or extension law wherever enacted, now
or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE VI.
THE TRUSTEE
SECTION 6.01. CERTAIN DUTIES AND RESPONSIBILITIES. The duties and
responsibilities of the Trustee shall be as provided by the Trust Indenture Act.
Notwithstanding the foregoing, no provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the exercise
of any of its rights or powers, if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it. Whether or not therein expressly
so provided, every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section.
SECTION 6.02. NOTICE OF DEFAULTS. If a default occurs hereunder with
respect to Securities of any series, the Trustee shall give the Holders of
Securities of such series notice of such default as and to the
28
<PAGE>
extent provided by the Trust Indenture Act; PROVIDED, HOWEVER, that in the case
of any default of the character specified in Section 5.01(4) with respect to
Securities of such series, no such notice to Holders shall be given until at
least 30 days after the occurrence thereof. For the purpose of this Section, the
term "default" means any event which is, or after notice or lapse of time or
both would become, an Event of Default with respect to Securities of such
series.
SECTION 6.03. CERTAIN RIGHTS OF TRUSTEE. Subject to the provisions of
Section 6.01:
(1) the Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or other paper or document
believed by it to be genuine and to have been signed or presented by the
proper party or parties;
(2) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order, and any
resolution of the Board of Directors shall be sufficiently evidenced by a
Board Resolution;
(3) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad faith
on its part, rely upon an Officers' Certificate;
(4) the Trustee may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction;
(6) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the Company,
personally or by agent or attorney;
(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder; and
(8) except with respect to Sections 1.02, 10.01 and 10.04, the Trustee
shall have no duty to inquire as to the performance of the Issuers'
covenants in Article X. In addition, the Trustee shall not be deemed to have
knowledge of any Default or Event of Default except (i) any Event of Default
occurring pursuant to Sections 1.02, 5.01(1), 5.01(2), 10.01 and 10.04 or
(ii) any Default or Event of Default on which the Trustee shall have
received written notification or obtained actual knowledge.
SECTION 6.04. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES. The
recitals contained herein and in the Securities, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company,
and neither the Trustee nor any Authenticating Agent assumes any responsibility
for their correctness. The Trustee makes no representations as to the validity
or sufficiency of this Indenture or of the Securities. Neither the Trustee nor
any Authenticating Agent shall be accountable for the use or application by the
Company of Securities or the proceeds thereof.
29
<PAGE>
SECTION 6.05. MAY HOLD SECURITIES. The Trustee, any Authenticating Agent,
any Paying Agent, any Security Registrar or any other agent of the Company, in
its individual or any other capacity, may become the owner or pledgee of
Securities and, subject to Sections 6.08 and 6.13, may otherwise deal with the
Company with the same rights it would have if it were not Trustee,
Authenticating Agent, Paying Agent, Security Registrar or such other agent.
SECTION 6.06. MONEY HELD IN TRUST. Money held by the Trustee in trust
hereunder need not be segregated from other funds except to the extent required
by law. The Trustee shall be under no liability for interest on any money
received by it hereunder except as otherwise agreed with the Company.
SECTION 6.07. COMPENSATION AND REIMBURSEMENT. The Company agrees:
(1) to pay to the Trustee from time to time reasonable compensation for
all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee
of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision of
this Indenture (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad
faith; and
(3) to indemnify the Trustee for, and to hold it harmless against, any
loss, liability or expense incurred without negligence or bad faith on its
part, arising out of or in connection with the acceptance or administration
of the trust or trusts hereunder, including the costs and expenses of
defending itself against any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder.
SECTION 6.08. CONFLICTING INTERESTS. If the Trustee has or shall acquire a
conflicting interest within the meaning of the Trust Indenture Act, the Trustee
shall either eliminate such interest or resign, to the extent and in the manner
provided by, and subject to the provisions of, the Trust Indenture Act and this
Indenture. To the extent permitted by such Act, the Trustee shall not be deemed
to have a conflicting interest by virtue of being a trustee under this Indenture
with respect to Securities of more than one series.
SECTION 6.09. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY. There shall at all
times be a Trustee hereunder that is a Corporation organized and doing business
under the laws of the United States of America, any State or the District of
Columbia, authorized under such laws to exercise corporate trust powers, or any
other person permitted by the Trust Indenture Act to act as trustee under an
indenture qualified under the Trust Indenture Act and that has or is a
wholly-owned subsidiary of a banking holding company having a combined capital
and surplus (computed in accordance with the Trust Indenture Act) of at least
$50,000,000, is subject to supervision or examination by Federal, State or
District of Columbia authority and is not otherwise ineligible under the Trust
Indenture Act. If such Corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of said supervising or
examining authority, then for the purposes of this Section 6.09, the combined
capital and surplus of such Corporation shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. If at any time the Trustee shall cease to be eligible in accordance
with the provisions of this Section 6.09, it shall resign immediately in the
manner and with the effect hereinafter specified in this Article.
SECTION 6.10. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR. No
resignation or removal of the Trustee and no appointment of a successor Trustee
pursuant to this Article shall become effective until the acceptance of
appointment by the successor Trustee in accordance with the applicable
requirements of Section 6.11.
30
<PAGE>
The Trustee may resign at any time with respect to the Securities of one or
more series by giving written notice thereof to the Company. If the instrument
of acceptance by a successor Trustee required by Section 6.11 shall not have
been delivered to the Trustee within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee with respect to the
Securities of such series.
The Trustee may be removed at any time with respect to the Securities of any
series by Act of the Holders of a majority in principal amount of the
Outstanding Securities of such series, delivered to the Trustee and to the
Company.
If at any time:
(1) the Trustee shall fail to comply with Section 6.08 after written
request therefor by the Company or by any Holder who has been a bona fide
Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 6.09 and shall
fail to resign after written request therefor by the Company or by any such
Holder, or
(3) the Trustee shall become incapable of acting or shall be adjudged a
bankrupt or insolvent or a receiver of the Trustee or of its property shall
be appointed or any public officer shall take charge or control of the
Trustee or of its property or affairs for the purpose of rehabilitation,
conservation or liquidation,
then, in any such case, (A) the Company by a Board Resolution may remove the
Trustee with respect to all Securities, or (B) subject to Section 5.14, any
Holder who has been a bona fide Holder of a Security for at least six months
may, on behalf of himself and all others similarly situated, petition any court
of competent jurisdiction for the removal of the Trustee with respect to all
Securities and the appointment of a successor Trustee or Trustees.
If the Trustee shall resign, be removed or become incapable of acting, or if
a vacancy shall occur in the office of Trustee for any cause, with respect to
the Securities of one or more series, the Company, by a Board Resolution, shall
promptly appoint a successor Trustee or Trustees with respect to the Securities
of that or those series (it being understood that any such successor Trustee may
be appointed with respect to the Securities of one or more or all of such series
and that at any time there shall be only one Trustee with respect to the
Securities of any particular series) and shall comply with the applicable
requirements of Section 6.11. If, within one year after such resignation,
removal or incapability, or the occurrence of such vacancy, a successor Trustee
with respect to the Securities of any series shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Securities of such
series delivered to the Company and the retiring Trustee, the successor Trustee
so appointed shall, forthwith upon its acceptance of such appointment in
accordance with the applicable requirements of Section 6.11, become the
successor Trustee with respect to the Securities of such series and to that
extent supersede the successor Trustee appointed by the Company. If no successor
Trustee with respect to the Securities of any series shall have been so
appointed by the Company or the Holders and accepted appointment in the manner
required by Section 6.11, any Holder who has been a bona fide Holder of a
Security of such series for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the appointment of a successor Trustee with respect to the Securities of such
series.
The Company shall give notice of each resignation and each removal of the
Trustee with respect to the Securities of any series and each appointment of a
successor Trustee with respect to the Securities of any series to all Holders of
Securities of such series in the manner provided in Section 1.06. Each notice
shall include the name of the successor Trustee with respect to the Securities
of such series and the address of its Corporate Trust Office.
SECTION 6.11. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. In case of the
appointment hereunder of a successor Trustee with respect to all Securities,
every such successor Trustee so appointed shall execute,
31
<PAGE>
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on the request of the
Company or the successor Trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee and shall duly
assign, transfer and deliver to such successor Trustee all property and money
held by such retiring Trustee hereunder.
In case of the appointment hereunder of a successor Trustee with respect to
the Securities of one or more (but not all) series, the Company, the retiring
Trustee and each successor Trustee with respect to the Securities of one or more
series shall execute and deliver an indenture supplemental hereto wherein each
successor Trustee shall accept such appointment and which (1) shall contain such
provisions as shall be necessary or desirable to transfer and confirm to, and to
vest in, each successor Trustee all the rights, powers, trusts and duties of the
retiring Trustee with respect to the Securities of that or those series to which
the appointment of such successor Trustee relates, (2) if the retiring Trustee
is not retiring with respect to all Securities, shall contain such provisions as
shall be deemed necessary or desirable to confirm that all the rights, powers,
trusts and duties of the retiring Trustee with respect to the Securities of that
or those series as to which the retiring Trustee is not retiring shall continue
to be vested in the retiring Trustee, and (3) shall add to or change any of the
provisions of this Indenture as shall be necessary to provide for or facilitate
the administration of the trusts hereunder by more than one Trustee, it being
understood that nothing herein or in such supplemental indenture shall
constitute such Trustees co-trustees of the same trust and that each such
Trustee shall be trustee of a trust or trusts hereunder separate and apart from
any trust or trusts hereunder administered by any other such Trustee; and upon
the execution and delivery of such supplemental indenture the resignation or
removal of the retiring Trustee shall become effective to the extent provided
therein and each such successor Trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and duties
of the retiring Trustee with respect to the Securities of that or those series
to which the appointment of such successor Trustee relates; but, on request of
the Company or any successor Trustee, such retiring Trustee shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder with respect to the Securities of that or those
series to which the appointment of such successor Trustee relates.
Upon request of any such successor Trustee, the Company shall execute any
and all instruments for more fully and certainly vesting in and confirming to
such successor Trustee all such rights, powers and trusts referred to in the
first or second preceding paragraph, as the case may be.
No successor Trustee shall accept its appointment unless at the time of such
acceptance such successor Trustee shall be qualified and eligible under this
Article.
The retiring Trustee shall have no liability for any acts or omissions of
any successor Trustee hereunder.
Upon the appointment of any successor Trustee, hereunder, all fees, charges
and expenses of the retiring Trustee shall become immediately due and payable.
SECTION 6.12. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS. Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee hereunder, provided such
corporation shall be otherwise qualified and eligible under this Article,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto. In case any Securities shall have been authenticated,
but not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt
32
<PAGE>
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities; in
case any of the Securities shall not have been authenticated by the Trustee then
in office, any successor by merger, conversion or consolidation to such Trustee
may authenticate such Securities either in the name of such predecessor
hereunder or in the name of the successor Trustee; and in all such cases such
certificates shall have the full force which it is anywhere in the Securities or
in this Indenture provided that the certificate of the Trustee shall have;
provided, however, that the right to adopt the certificate of authentication of
any predecessor Trustee or to authenticate Securities in the name of any
predecessor Trustee shall apply only to its successor or successors by merger,
conversion or consolidation.
SECTION 6.13. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. If and
when the Trustee shall be or become a creditor of the Company (or any other
obligor upon the Securities), the Trustee shall be subject to the provisions of
the Trust Indenture Act regarding the collection of claims against the Company
(or any such other obligor).
SECTION 6.14. APPOINTMENT OF AUTHENTICATING AGENT. The Trustee may appoint
an Authenticating Agent or Agents with respect to one or more series of
Securities which shall be authorized to act on behalf of the Trustee to
authenticate Securities of such series issued upon original issue and upon
exchange, registration of transfer or partial redemption thereof or pursuant to
Section 3.06, and Securities so authenticated shall be entitled to the benefits
of this Indenture and shall be valid and obligatory for all purposes as if
authenticated by the Trustee hereunder. Wherever reference is made in this
Indenture to the authentication and delivery of Securities by the Trustee or the
Trustee's certificate of authentication, such reference shall be deemed to
include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and shall at all times be a corporation organized and
doing business under the laws of the United States of America, any State thereof
or the District of Columbia, authorized under such laws to act as Authenticating
Agent, having a combined capital and surplus of not less than $50,000,000 and
subject to supervision or examination by Federal or State authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written notice
thereof to the Trustee and to the Company. The Trustee may at any time terminate
the agency of an Authenticating Agent by giving written notice thereof to such
Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall give notice of such
appointment in the manner provided in Section 1.06 to all Holders of Securities
of the series with respect to which such Authenticating Agent will serve. Any
successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like
33
<PAGE>
effect as if originally named as an Authenticating Agent. No successor
Authenticating Agent shall be appointed unless eligible under the provisions of
this Section.
The Trustee agrees to pay to each Authenticating Agent from time to time
reasonable compensation for its services under this Section, and the Trustee
shall be entitled to be reimbursed for such payments, subject to the provisions
of Section 6.07.
If an appointment with respect to one or more series is made pursuant to
this Section, the Securities of such series may have endorsed thereon, in
addition to the Trustee's certificate of authentication, an alternative
certificate of authentication in the following form:
This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.
----------------------------------------------
As Trustee
By:
------------------------------------------
As Authenticating Agent
By:
------------------------------------------
Authorized Officer
ARTICLE VII.
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 7.01. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF
HOLDERS. The Company will furnish or cause to be furnished to the Trustee:
(1) semi-annually, not later than January 15 and July 15 in each year, a
list, in such form as the Trustee may reasonably require, of the names and
addresses of the Holders of Securities of each series as of the preceding
December 31 or June 30, as the case may be, and
(2) at such other times as the Trustee may request in writing, within 30
days after the receipt by the Company of any such request, a list of similar
form and content as of a date not more than 15 days prior to the time such
list is furnished;
EXCLUDING from any such list names and addresses received by the Trustee in its
capacity as Security Registrar.
SECTION 7.02. PRESERVATION OF INFORMATION; COMMUNICATIONS TO HOLDERS. The
Trustee shall preserve, in as current a form as is reasonably practicable, the
names and addresses of Holders contained in the most recent list furnished to
the Trustee as provided in Section 7.01 and the names and addresses of Holders
received by the Trustee in its capacity as Security Registrar. The Trustee may
destroy any list furnished to it as provided in Section 7.01 upon receipt of a
new list so furnished.
The rights of Holders to communicate with other Holders with respect to
their rights under this Indenture or under the Securities, and the corresponding
rights and privileges of the Trustee, shall be as provided by the Trust
Indenture Act.
Every Holder of Securities, by receiving and holding the same, agrees with
the Company and the Trustee that neither the Company nor the Trustee nor any
agent of either of them shall be held accountable by reason of any disclosure of
information as to names and addresses of Holders made pursuant to the Trust
Indenture Act.
34
<PAGE>
SECTION 7.03. REPORTS BY TRUSTEE. The Trustee shall transmit to Holders
such reports concerning the Trustee and its actions under this Indenture as may
be required pursuant to the Trust Indenture Act at the times and in the manner
provided pursuant thereto.
A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with each stock exchange upon which any
Securities are listed, with the Commission and with the Company. The Company
will notify the Trustee when any Securities are listed on any stock exchange.
SECTION 7.04. REPORTS BY COMPANY. The Company shall:
(1) file with the Trustee, within 15 days after it is required to file
the same with the Commission, copies of the annual reports and of the
information, documents and other reports (or copies of such portions of any
of the foregoing as the Commission may from time to time by rules and
regulations prescribe) which such Issuer or the Guarantor may be required to
file with the Commission pursuant to Section 13 or Section 15(d) of the
Exchange Act; or, if the Company is not required to file information,
documents or reports pursuant to either of said Sections, then it shall file
with the Trustee and the Commission, in accordance with rules and
regulations prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents and reports which may be
required pursuant to Section 13 of the Exchange Act in respect of a security
listed and registered on a national securities exchange as may be prescribed
from time to time in such rules and regulations; notwithstanding anything to
the contrary herein, the Trustee shall have no duty to review such documents
for purposes of determining compliance with any provisions of this
Indenture;
(2) file with the Trustee and the Commission, in accordance with rules
and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance by
the Company with the conditions and covenants of this Indenture as may be
required from time to time by such rules and regulations; and
(3) transmit by mail to all Holders, as their names and addresses appear
in the Security Register, within 30 days after the filing thereof with the
Trustee, such summaries of any information, documents and reports required
to be filed by the Company pursuant to paragraphs (1) and (2) of this
Section as may be required by rules and regulations prescribed from time to
time by the Commission.
ARTICLE VIII.
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 8.01. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS. The
Company shall not consolidate with or merge into any other Person or convey,
transfer or lease its properties and assets substantially as an entirety to any
Person, and the Company shall not permit any Person to consolidate with or merge
into the Company or convey, transfer or lease its properties and assets
substantially as an entirety to the Company, unless:
(1) in case the Company shall consolidate with or merge into another
Person or convey, transfer or lease its properties and assets substantially
as an entirety to any Person, the Person formed by such consolidation or
into which the Company is merged or the Person which acquires by conveyance
or transfer, or which leases, the properties and assets of the Company
substantially as an entirety shall be a corporation, partnership or trust,
shall be organized and validly existing under the laws of the United States
of America, any State thereof or the District of Columbia and shall
expressly assume, by an indenture supplemental hereto, executed and
delivered to the Trustee, in form satisfactory to the Trustee, the due and
punctual payment of the principal of and any premium and interest on all the
Securities and the performance or observance of every covenant of this
Indenture on the part of the Company to be performed or observed;
35
<PAGE>
(2) immediately after giving effect to such transaction and treating any
indebtedness which becomes an obligation of the Company or any Subsidiary as
a result of such transaction as having been incurred by the Company or such
Subsidiary at the time of such transaction, no Event of Default, and no
event which, after notice or lapse of time or both, would become an Event of
Default, shall have happened and be continuing;
(3) if, as a result of any such consolidation or merger or such
conveyance, transfer or lease, properties or assets of the Company would
become subject to a mortgage, pledge, lien, security interest or other
encumbrance which would not be permitted by this Indenture, the Company or
such successor Person, as the case may be, shall take such steps as shall be
necessary effectively to secure the Securities equally and ratably with (or
prior to) all indebtedness secured thereby; and
(4) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that such consolidation, merger,
conveyance, transfer or lease and, if a supplemental indenture is required
in connection with such transaction, such supplemental indenture comply with
this Article and that all conditions precedent herein provided for relating
to such transaction have been complied with.
SECTION 8.02. SUCCESSOR SUBSTITUTED. Upon any consolidation of the Company
with, or merger of the Company into, any other Person or any conveyance,
transfer or lease of the properties and assets of the Company substantially as
an entirety in accordance with Section 8.01, the successor Person formed by such
consolidation or into which the Company is merged or to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor Person had been named as the Company herein,
and thereafter, except in the case of a lease, the predecessor Person shall be
relieved of all obligations and covenants under this Indenture and the
Securities.
ARTICLE IX.
SUPPLEMENTAL INDENTURES
SECTION 9.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS. Without
the consent of any Holders, the Company, when authorized by a Board Resolution,
and the Trustee, at any time and from time to time, may enter into one or more
indentures supplemental hereto, in form satisfactory to the Trustee, for any of
the following purposes:
(1) to evidence the succession of another Person to the Company and the
assumption by any such successor of the covenants of the Company herein and
in the Securities; or
(2) to add to the covenants of the Company for the benefit of the
Holders of all or any series of Securities (and if such covenants are to be
for the benefit of less than all series of Securities, stating that such
covenants are expressly being included solely for the benefit of such
series) or to surrender any right or power herein conferred upon the
Company; or
(3) to add any additional Events of Default for the benefit of the
Holders of all or any series of Securities (and if such additional Events of
Default are to be for the benefit of less than all series of Securities,
stating that such additional Events of Default are expressly being included
solely for the benefit of such series); or
(4) to add to or change any of the provisions of this Indenture to such
extent as shall be necessary to permit or facilitate the issuance of
Securities in bearer form, registrable or not registrable as to principal,
and with or without interest coupons, or to permit or facilitate the
issuance of Securities in uncertificated form; or
(5) to add to, change or eliminate any of the provisions of this
Indenture in respect of one or more series of Securities, PROVIDED that any
such addition, change or elimination (A) shall neither
36
<PAGE>
(i) apply to any Security of any series created prior to the execution of
such supplemental indenture and entitled to the benefit of such provision
nor (ii) modify the rights of the Holder of any such Security with respect
to such provision or (B) shall become effective only when there is no such
Security Outstanding; or
(6) to secure the Securities pursuant to the requirements of Section
10.08 or otherwise; or
(7) to establish the form or terms of Securities of any series as
permitted by Sections 2.01 and 3.01; or
(8) to evidence and provide for the acceptance of appointment hereunder
by a successor Trustee with respect to the Securities of one or more series
and to add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, pursuant to the requirements of Section
6.11; or
(9) to cure any ambiguity, to correct or supplement any provision herein
which may be defective or inconsistent with any other provision herein, or
to make any other provisions with respect to matters or questions arising
under this Indenture; PROVIDED that such action pursuant to this Clause (9)
shall not adversely affect the interests of the Holders of Securities of any
series.
SECTION 9.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS. With the
consent of the Holders of not less than a majority in principal amount of the
Outstanding Securities of each series affected by such supplemental indenture,
by Act of said Holders delivered to the Company and the Trustee, the Company,
when authorized by a Board Resolution, and the Trustee may enter into an
indenture or indentures supplemental hereto for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or of modifying in any manner the rights of the Holders of
Securities of such series under this Indenture; PROVIDED, HOWEVER, that no such
supplemental indenture shall, without the consent of the Holder of each
Outstanding Security affected thereby,
(1) Change the Stated Maturity of the principal of, or any installment
of principal of or interest on, any Security, or reduce the principal amount
thereof or the rate of interest thereon or any premium payable upon the
redemption thereof, or reduce the amount of the principal of an Original
Issue Discount Security or any other Security which would be due and payable
upon a declaration of acceleration of the Maturity thereof pursuant to
Section 5.02, or change any Place of Payment where, or the coin or currency
in which, any Security or any premium or interest thereon is payable, or
impair the right to institute suit for the enforcement of any such payment
on or after the Stated Maturity thereof (or, in the case of redemption, on
or after the Redemption Date), or
(2) reduce the percentage in principal amount of the Outstanding
Securities of any series, the consent of whose Holders is required for any
such supplemental indenture, or the consent of whose Holders is required for
any waiver (of compliance with certain provisions of this Indenture or
certain defaults hereunder and their consequences) provided for in this
Indenture, or
(3) modify any of the provisions of this Section, Section 5.13 or
Section 10.11 except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Security affected
thereby; PROVIDED, HOWEVER, that this clause shall not be deemed to require
the consent of any Holder with respect to changes in the references to "the
Trustee" and concomitant changes in this Section and Section 10.11, or the
deletion of this proviso, in accordance with the requirements of Sections
6.11 and 9.01(8).
A supplemental indenture which changes or eliminates any covenant or other
provision of this Indenture which has expressly been included solely for the
benefit of one or more particular series of Securities, or which modifies the
rights of the Holders of Securities of such series with respect to such covenant
or other provision, shall be deemed not to affect the rights under this
Indenture of the Holders of Securities of any other series.
37
<PAGE>
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 9.03. EXECUTION OF SUPPLEMENTAL INDENTURES. In executing, or
accepting the additional trusts created by, any supplemental indenture permitted
by this Article or the modifications thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and (subject to Section
6.01) shall be fully protected in relying upon, an Opinion of Counsel stating
that the execution of such supplemental indenture is authorized or permitted by
this Indenture. The Trustee may, but shall not be obligated to, enter into any
such supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
SECTION 9.04. EFFECT OF SUPPLEMENTAL INDENTURES. Upon the execution of any
supplemental indenture under this Article, this Indenture shall be modified in
accordance therewith, and such supplemental indenture shall form a part of this
Indenture for all purposes; and every Holder of Securities theretofore or
thereafter authenticated and delivered hereunder shall be bound thereby.
SECTION 9.05. CONFORMITY WITH TRUST INDENTURE ACT. Every supplemental
indenture executed pursuant to this Article shall conform to the requirements of
the Trust Indenture Act.
SECTION 9.06. REFERENCE IN SECURITIES TO SUPPLEMENTAL
INDENTURES. Securities of any series authenticated and delivered after the
execution of any supplemental indenture pursuant to this Article may, and shall
if required by the Trustee, bear a notation in form approved by the Trustee as
to any matter provided for in such supplemental indenture. If the Company shall
so determine, new Securities of any series so modified as to conform, in the
opinion of the Trustee and the Company, to any such supplemental indenture may
be prepared and executed by the Company and authenticated and delivered by the
Trustee in exchange for Outstanding Securities of such series.
ARTICLE X.
COVENANTS
SECTION 10.01. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST. The Company
covenants and agrees for the benefit of each series of Securities that it will
duly and punctually pay the principal of and any premium and interest on the
Securities of that series in accordance with the terms of the Securities and
this Indenture.
SECTION 10.02. MAINTENANCE OF OFFICE OR AGENCY. The Company will maintain
in each Place of Payment for any series of Securities an office or agency where
Securities of that series may be presented or surrendered for payment, where
Securities of that series may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of the
Securities of that series and this Indenture may be served. The Company will
give prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the Corporate Trust Office of the Trustee, and the
Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other offices
or agencies where the Securities of one or more series may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; PROVIDED, HOWEVER, that no such designation or rescission shall in
any manner relieve the Company of its obligation to maintain an office or agency
in each Place of Payment for Securities of any series for such purposes. The
Company will give prompt written notice to the Trustee of any such designation
or rescission and of any change in the location of any such other office or
agency.
38
<PAGE>
SECTION 10.03. MONEY FOR SECURITIES PAYMENTS TO BE HELD IN TRUST. If the
Company shall at any time act as its own Paying Agent with respect to any series
of Securities, it will, on or before each due date of the principal of or any
premium or interest on any of the Securities of that series, segregate and hold
in trust for the benefit of the Persons entitled thereto a sum sufficient to pay
the principal and any premium and interest so becoming due until such sums shall
be paid to such Persons or otherwise disposed of as herein provided and will
promptly notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for any series of
Securities, it will, prior to each due date of the principal of or any premium
or interest on any Securities of that series, deposit with a Paying Agent a sum
sufficient to pay such amount, such sum to be held as provided by the Trust
Indenture Act, and (unless such Paying Agent is the Trustee) the Company will
promptly notify the Trustee of its action or failure so to act.
The Company will cause each Paying Agent for any series of Securities other
than the Trustee to execute and deliver to the Trustee an instrument in which
such Paying Agent shall agree with the Trustee, subject to the provisions of
this Section, that such Paying Agent will (1) comply with the provisions of the
Trust Indenture Act applicable to it as a Paying Agent and (2) during the
continuance of any default by the Company (or any other obligor upon the
Securities of that series) in the making of any payment in respect of the
Securities of that series, upon the written request of the Trustee, forthwith
pay to the Trustee all sums held in trust by such Paying Agent for payment in
respect of the Securities of that series.
The Company may at any time, for the purpose of obtaining the satisfaction
and discharge of this Indenture or for any other purpose, pay, or by Company
Order direct any Paying Agent to pay, to the Trustee all sums held in trust by
the Company or such Paying Agent, such sums to be held by the Trustee upon the
same trusts as those upon which such sums were held by the Company or such
Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such
Paying Agent shall be released from all further liability with respect to such
money.
Any money deposited with the Trustee or any Paying Agent, or then held by
the Company, in trust for the payment of the principal of or any premium or
interest on any Security of any series and remaining unclaimed for two years
after such principal, premium or interest has become due and payable shall be
paid to the Company on Company Request, or (if then held by the Company) shall
be discharged from such trust; and the Holder of such Security shall thereafter,
as an unsecured general creditor, look only to the Company for payment thereof,
and all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; PROVIDED, HOWEVER, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in New York City,
notice that such money remains unclaimed and that, after a date specified
therein, which shall not be less than 30 days from the date of such publication,
any unclaimed balance of such money then remaining will be repaid to the
Company.
SECTION 10.04. STATEMENT BY OFFICERS AS TO DEFAULT. The Company will
deliver to the Trustee, within 120 days after the end of each fiscal year of the
Company ending after the date hereof, an Officers' Certificate, stating whether
or not to the best knowledge of the signers thereof the Company is in default in
the performance and observance of any of the terms, provisions and conditions of
this Indenture (without regard to any period of grace or requirement of notice
provided hereunder) and, if the Company shall be in default, specifying all such
defaults and the nature and status thereof of which they may have knowledge.
SECTION 10.05. EXISTENCE. Subject to Article VIII, the Company will do or
cause to be done all things necessary to preserve and keep in full force and
effect its existence, rights (charter and statutory) and franchises; PROVIDED,
HOWEVER, that the Company shall not be required to preserve any such right or
franchise if the Board of Directors shall determine that the preservation
thereof is no longer desirable in
39
<PAGE>
the conduct of the business of the Company and that the loss thereof is not
disadvantageous in any material respect to the Holders.
SECTION 10.06. MAINTENANCE OF PROPERTIES. The Company will cause all
properties used or useful in the conduct of its business or the business of any
Subsidiary to be maintained and kept in good condition, repair and working order
and supplied with all necessary equipment and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Company may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times; PROVIDED, HOWEVER, that nothing in this Section shall prevent the
Company from discontinuing the operation or maintenance of any of such
properties if such discontinuance is, in the judgment of the Company, desirable
in the conduct of its business or the business of any Subsidiary and not
disadvantageous in any material respect to the Holders.
SECTION 10.07. PAYMENT OF TAXES AND OTHER CLAIMS. The Company will pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent, (1) all taxes, assessments and governmental charges levied or
imposed upon the Company or any Subsidiary or upon the income, profits or
property of the Company or any Subsidiary, and (2) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a lien upon the
property of the Company or any Subsidiary; PROVIDED, HOWEVER, that the Company
shall not be required to pay or discharge or cause to be paid or discharged any
such tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings.
SECTION 10.08. LIMITATION ON LIENS. The Company will not issue, incur,
create, assume or guarantee, and will not permit any Restricted Subsidiary to
issue, incur, create, assume or guarantee, any debt for borrowed money secured
by a mortgage, security interest, pledge, lien, charge or other encumbrance
("mortgages") upon any Principal Property of the Company or any Restricted
Subsidiary or upon any shares of stock or indebtedness of any Restricted
Subsidiary (whether such Principal Property, shares or indebtedness are now
existing or owned or hereafter created or acquired) without in any such case
effectively providing concurrently with the issuance, incurrence, creation,
assumption or guarantee of any such secured debt, or the grant of a mortgage
with respect to any such indebtedness, that the Securities (together with, if
the Company shall so determine, any other indebtedness of or guarantee by the
Company or such Restricted Subsidiary ranking equally with the Securities) shall
be secured equally and ratably with (or prior to) such secured debt. The
foregoing restriction, however, will not apply to:
(1) mortgages on property existing at the time of acquisition thereof by
the Company or any Subsidiary;
(2) mortgages on property, shares of stock or indebtedness or other
assets of any corporation existing at the time such corporation becomes a
Restricted Subsidiary;
(3) mortgages on property, shares of stock or indebtedness existing at
the time of acquisition thereof by the Company or a Restricted Subsidiary or
mortgages thereon to secure the payment of all or any part of the purchase
price thereof, or mortgages on property, shares of stock or indebtedness to
secure any indebtedness for borrowed money incurred prior to, at the time of
or within 270 days after, the latest of the acquisition thereof, or, in the
case of property, the completion of construction, the completion of
improvements, or the commencement of substantial commercial operation of
such property for the purpose of financing all or any part of the purchase
price thereof, such construction, or the making of such improvements;
(4) mortgages to secure indebtedness owing to the Company or to a
Restricted Subsidiary;
(5) mortgages existing at the date of this Indenture;
(6) mortgages on property of a corporation existing at the time such
corporation is merged into or consolidated with the Company or a Restricted
Subsidiary or at the time of a sale, lease or other
40
<PAGE>
disposition of the properties of a corporation as an entirety or
substantially as an entirety to the Company or a Restricted Subsidiary;
(7) mortgages in favor of the United States or any State, territory or
possession thereof (or the District of Columbia), or any department, agency,
instrumentality or political subdivision of the United States or any State,
territory or possession thereof (or the District of Columbia), to secure
partial, progress, advance or other payments pursuant to any contract or
statute or to secure any indebtedness incurred for the purpose of financing
all or any part of the purchase price or the cost of constructing or
improving the property subject to such mortgages;
(8) mortgages created in connection with the acquisition of assets or a
project financed with, and created to secure, a Nonrecourse Obligation; and
(9) extensions, renewals, refinancings or replacements of any mortgage
referred to in the foregoing clauses (1), (2), (3), (5), (6), (7) and (8)
provided, however, that any mortgages permitted by any of the foregoing
clauses (1), (2), (3), (5), (6), (7) and (8) shall not extend to or cover
any property of the Company or such Restricted Subsidiary, as the case may
be, other than the property, if any, specified in such clauses and
improvements thereto, and provided further that any refinancing or
replacement of any mortgages permitted by the foregoing clauses (7) and (8)
shall be of the type referred to in such clauses (7) or (8), as the case may
be.
Notwithstanding the restrictions set forth in the preceding paragraph, the
Company or any Restricted Subsidiary will be permitted to issue, incur, create,
assume or guarantee debt secured by a mortgage which would otherwise be subject
to such restrictions, without equally and ratably securing the Securities,
provided that after giving effect thereto, the aggregate amount of all debt so
secured by mortgages (not including mortgages permitted under clauses (1)
through (9) above) does not exceed 10% of the Consolidated Net Tangible Assets
of the Company as most recently determined on or prior to such date.
SECTION 10.09. LIMITATION ON SALE AND LEASE-BACK TRANSACTIONS. The Company
will not, nor will it permit any Restricted Subsidiary to, enter into any Sale
and Lease-Back Transaction with respect to any Principal Property, other than
any such transaction involving a lease for a term of not more than three years
or any such transaction between the Company and a Restricted Subsidiary or
between Restricted Subsidiaries, unless: (1) the Company or such Restricted
Subsidiary would be entitled to incur indebtedness secured by a mortgage on the
Principal Property involved in such transaction at least equal in amount to the
Attributable Debt with respect to such Sale and Lease-Back Transaction, without
equally and ratably securing the Securities, pursuant to Section 10.08; or (2)
the Company shall apply an amount equal to the greater of the net proceeds of
such sale or the Attributable Debt with respect to such Sale and Lease-Back
Transaction within 270 days of such sale to either (or a combination of) the
retirement (other than any mandatory retirement, mandatory prepayment or sinking
fund payment or by payment at maturity) of debt for borrowed money of the
Company or a Restricted Subsidiary that matures more than 12 months after the
creation of such indebtedness or the purchase, construction or development of
other comparable property.
SECTION 10.10. LIMITATION ON SUBSIDIARY DEBT. The Company shall not permit
any Subsidiary of the Company (other than Toro Credit Company, a Minnesota
corporation, or any successor finance Subsidiary of the Company so long as Toro
Credit Company or such successor has no operating assets and is engaged solely
in financing activities) to Incur or suffer to exist any Debt except:
(1) Debt outstanding on the date of this Indenture;
(2) Debt issued to and held by the Company or a Wholly Owned Subsidiary
of the Company (provided that such Debt is at all times held by the Company
or a Person which is a Wholly Owned Subsidiary of the Company);
41
<PAGE>
(3) Debt Incurred by a Person prior to the time (a) such Person became a
Subsidiary of the Company, (b) such Person merges into or consolidates with
a Subsidiary of the Company or (c) another Subsidiary of the Company merges
into or consolidates with such Person (in a transaction in which such Person
becomes a Subsidiary of the Company);
(4) Debt which is exchanged for, or the proceeds of which are used to
refinance or refund, any Debt permitted to be outstanding pursuant to
Clauses (1) through (3) hereof (or any extension or renewal thereof), in an
aggregate principal amount not to exceed the principal amount of the Debt so
exchanged, refinanced or refunded and provided such refinancing or refunding
Debt by its terms, or by the terms of any agreement or instrument pursuant
to which such Debt is issued (x) does not provide for payments of principal
at the stated maturity of such Debt or by way of a sinking fund applicable
to such Debt or by way of any mandatory redemption, defeasance, retirement
or repurchase of such Debt by the Company (including any redemption,
retirement or repurchase which is contingent upon events or circumstances,
but excluding any retirement required by virtue of acceleration of such Debt
upon an event of default thereunder), in each case prior to the stated
maturity of the Debt being refinanced or refunded and (y) does not permit
redemption or other retirement (including pursuant to an offer to purchase
made by the Company) of such Debt at the option of the holder thereof prior
to the stated maturity of the Debt being refinanced or refunded, other than
a redemption or other retirement at the option of the holder of such Debt
(including pursuant to an offer to purchase made by the Company) which is
conditioned upon the change of control of the Company; and
(5) Debt having a principal amount and liquidation value not in excess
of 20% of the Consolidated Net Tangible Assets of the Company in the
aggregate.
SECTION 10.11. WAIVER OF CERTAIN COVENANTS. Except as otherwise specified
as contemplated by Section 3.01 for Securities of such series, the Company may,
with respect to the Securities of any series, omit in any particular instance to
comply with any term, provision or condition set forth in any covenant provided
pursuant to Section 3.01(18), 9.01(2) or 9.01(7) for the benefit of the Holders
of such series or in any of Sections 10.08 to 10.10, inclusive, if before the
time for such compliance the Holders of at least a majority in principal amount
of the Outstanding Securities of such series shall, by Act of such Holders,
either waive such compliance in such instance or generally waive compliance with
such term, provision or condition, but no such waiver shall extend to or affect
such term, provision or condition except to the extent so expressly waived, and,
until such waiver shall become effective, the obligations of the Company and the
duties of the Trustee in respect of any such term, provision or condition shall
remain in full force and effect.
ARTICLE XI.
REDEMPTION OR REPAYMENT OF SECURITIES
SECTION 11.01. APPLICABILITY OF ARTICLE. Securities of any series which
are redeemable or repayable before their Stated Maturity shall be redeemable or
repayable in accordance with their terms and (except as otherwise specified as
contemplated by Section 3.01 for such Securities) in accordance with this
Article.
SECTION 11.02. ELECTION TO REDEEM; NOTICE TO TRUSTEE. The election of the
Company to redeem any Securities shall be evidenced by a Board Resolution or in
another manner specified as contemplated by Section 3.01 for such Securities. In
case of any redemption at the election of the Company of less than all the
Securities of any series (including any such redemption affecting only a single
Security), the Company shall, at least 60 days prior to the Redemption Date
fixed by the Company (unless a shorter notice shall be satisfactory to the
Trustee), notify the Trustee of such Redemption Date, of the principal amount of
Securities of such series to be redeemed and, if applicable, of the tenor of the
Securities to be redeemed. In the case of any redemption of Securities prior to
the expiration of any restriction on such redemption
42
<PAGE>
provided in the terms of such Securities or elsewhere in this Indenture, the
Company shall furnish the Trustee with an Officers' Certificate evidencing
compliance with such restriction.
SECTION 11.03. SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED. If less
than all the Securities of any series are to be redeemed (unless all the
Securities of such series and of a specified tenor are to be redeemed or unless
such redemption affects only a single Security), the particular Securities to be
redeemed shall be selected not more than 60 days prior to the Redemption Date by
the Trustee, from the Outstanding Securities of such series not previously
called for redemption, by such method as the Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of a portion
of the principal amount of any Security of such series, PROVIDED that the
unredeemed portion of the principal amount of any Security shall be in an
authorized denomination (which shall not be less than the minimum authorized
denomination) for such Security. If less than all the Securities of such series
and of a specified tenor are to be redeemed (unless such redemption affects only
a single Security), the particular Securities to be redeemed shall be selected
not more than 60 days prior to the Redemption Date by the Trustee, from the
Outstanding Securities of such series and specified tenor not previously called
for redemption in accordance with the preceding sentence.
The Trustee shall promptly notify the Company in writing of the Securities
selected for redemption as aforesaid and, in case of any Securities selected for
partial redemption as aforesaid, the principal amount thereof to be redeemed.
The provisions of the two preceding paragraphs shall not apply with respect
to any redemption affecting only a single Security, whether such Security is to
be redeemed in whole or in part. In the case of any such redemption in part, the
unredeemed portion of the principal amount of the Security shall be in an
authorized denomination (which shall not be less than the minimum authorized
denomination) for such Security.
For all purposes of this Indenture, unless the context otherwise requires,
all provisions relating to the redemption of Securities shall relate, in the
case of any Securities redeemed or to be redeemed only in part, to the portion
of the principal amount of such Securities which has been or is to be redeemed.
SECTION 11.04. NOTICE OF REDEMPTION. Notice of redemption shall be given
by first-class mail, postage prepaid, mailed not less than 30 nor more than 60
days prior to the Redemption Date, to each Holder of Securities to be redeemed,
at his address appearing in the Security Register.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) if less than all the Outstanding Securities of any series consisting
of more than a single Security are to be redeemed, the identification (and,
in the case of partial redemption of any such Securities, the principal
amounts) of the particular Securities to be redeemed and, if less than all
the Outstanding Securities of any series consisting of a single Security are
to be redeemed, the principal amount of the particular Security to be
redeemed,
(4) that on the Redemption Date the Redemption Price will become due and
payable upon each such Security to be redeemed and, if applicable, that
interest thereon will cease to accrue on and after said date,
(5) the place or places where each such Security is to be surrendered
for payment of the Redemption Price, and
(6) that the redemption is for a sinking fund, if such is the case.
43
<PAGE>
Notice of redemption of Securities to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company and shall be irrevocable.
SECTION 11.05. DEPOSIT OF REDEMPTION PRICE. Prior to any Redemption Date,
the Company shall deposit with the Trustee or with a Paying Agent (or, if the
Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 10.03) an amount of money sufficient to pay the Redemption
Price of, and (except if the Redemption Date shall be an Interest Payment Date)
accrued interest on, all the Securities which are to be redeemed on that date.
SECTION 11.06. SECURITIES PAYABLE ON REDEMPTION DATE. Notice of redemption
having been given as aforesaid, the Securities so to be redeemed shall, on the
Redemption Date, become due and payable at the Redemption Price therein
specified, and from and after such date (unless the Company shall default in the
payment of the Redemption Price and accrued interest) such Securities shall
cease to bear interest. Upon surrender of any such Security for redemption in
accordance with said notice, such Security shall be paid by the Company at the
Redemption Price, together with accrued interest to the Redemption Date;
PROVIDED, HOWEVER, that, unless otherwise specified as contemplated by Section
3.01, installments of interest whose Stated Maturity is on or prior to the
Redemption Date will be payable to the Holders of such Securities, or one or
more Predecessor Securities, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of Section
3.07.
If any Security called for redemption shall not be so paid upon surrender
thereof for redemption, the principal and any premium shall, until paid, bear
interest from the Redemption Date at the rate prescribed therefor in the
Security.
SECTION 11.07. SECURITIES REDEEMED IN PART. Any Security which is to be
redeemed only in part shall be surrendered at a Place of Payment therefor (with,
if the Company or the Trustee so requires, due endorsement by, or a written
instrument of transfer in form satisfactory to the Company and the Trustee duly
executed by, the Holder thereof or his attorney duly authorized in writing), and
the Company shall execute, and the Trustee shall authenticate and deliver to the
Holder of such Security without service charge, a new Security or Securities of
the same series and of like tenor, of any authorized denomination as requested
by such Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Security so surrendered.
SECTION 11.08. RIGHT OF REPAYMENT. In order for any Security that is
subject to repayment at the option of the Holder to be repaid, the Paying Agent
must receive at least 30 days but not more than 60 days prior to the repayment
date (a) appropriate wire instructions and (b) either (i) the Security with the
form entitled Option to Elect Repayment (as set forth below) attached to the
Security duly completed or (ii) a telegram, telex, facsimile transmission or
letter from a member of a national securities exchange or the National
Association of Securities Dealers, Inc. or a commercial bank or trust company in
the United States setting forth the name of the Holder of such Security, the
principal amount of such Debenture, the portion of the principal amount of such
Security to be repaid, the certificate number or a description of the tenor and
terms of such Security, a statement that the option to elect repayment is being
exercised thereby and a guarantee that such Security to be repaid with the form
entitled Option to Elect Repayment attached to such Security duly completed will
be received by the Paying Agent not later than five Business Days after the date
of such telegram, telex, facsimile transmission or letter and such Security and
form duly completed must be received by the Paying Agent by such fifth Business
Day. Exercise of the repayment option by the Holder of such Security shall be
irrevocable, except as otherwise provided in the Board Resolution establishing
the term of the Security. The repayment option may be exercised by the Holder of
such Security for less than the entire principal amount of the Security provided
that the principal amount of the Security remaining outstanding after repayment
is an authorized denomination. No registration of, transfer or exchange of such
Security (or, in the event that such Security is to be repaid in part, the
portion of the Security to be repaid) will be permitted after exercise of a
repayment option. All questions as to the
44
<PAGE>
validity, eligibility (including time of receipt) and acceptance of any Security
for repayment will be determined by the Company, whose determination will be
final, binding and non-appealable.
SECTION 11.09. FORM OF OPTION TO ELECT REPAYMENT. The following text shall
be attached to each Security to which the provisions of Section 11.08 apply:
FORM OF OPTION TO ELECT REPAYMENT ON ,
. I or we hereby irrevocably elect to exercise the option to have the
principal sum of together with accrued interest thereon to
, repaid by the Company on , . If less than the entire
principal amount of the Security is to be repaid specify the denomination or
denominations (which shall be in authorized denominations) of the Securities to
be issued to the Holder for the portion of the within Security not being repaid
(in the absence of any such specification, one such Security will be issued for
the portion not being repaid.
Dated: ------------------------------
Signed:
------------------------------
Signature Guarantee:
--------------------------------------
(Signature must be guaranteed by an
eligible institution within the
meaning of Rule 17A(d)-15 under the
Securities Exchange Act of 1934, as
amended)
ARTICLE XII.
SINKING FUNDS
SECTION 12.01. APPLICABILITY OF ARTICLE. The provisions of this Article
shall be applicable to any sinking fund for the retirement of Securities of any
series except as otherwise specified as contemplated by Section 3.01 for such
Securities.
The minimum amount of any sinking fund payment provided for by the terms of
any Securities is herein referred to as a "mandatory sinking fund payment", and
any payment in excess of such minimum amount provided for by the terms of such
Securities is herein referred to as an "optional sinking fund payment". If
provided for by the terms of any Securities, the cash amount of any sinking fund
payment may be subject to reduction as provided in Section 12.02. Each sinking
fund payment shall be applied to the redemption of Securities as provided for by
the terms of such Securities.
SECTION 12.02. SATISFACTION OF SINKING FUND PAYMENTS WITH SECURITIES. The
Company (1) may deliver Outstanding Securities of a series (other than any
previously called for redemption) and (2) may apply as a credit Securities of a
series which have been redeemed either at the election of the Company pursuant
to the terms of such Securities or through the application of permitted optional
sinking fund payments pursuant to the terms of such Securities, in each case in
satisfaction of all or any part of any sinking fund payment with respect to any
Securities of such series required to be made pursuant to the terms of such
Securities as and to the extent provided for by the terms of such Securities;
PROVIDED that the Securities to be so credited have not been previously so
credited. The Securities to be so credited shall be received and credited for
such purpose by the Trustee at the Redemption Price, as specified in the
Securities so to be redeemed, for redemption through operation of the sinking
fund and the amount of such sinking fund payment shall be reduced accordingly.
SECTION 12.03. REDEMPTION OF SECURITIES FOR SINKING FUND. Not less than 30
days prior to each sinking fund payment date for any Securities, the Company
will deliver to the Trustee an Officers' Certificate specifying the amount of
the next ensuing sinking fund payment for such Securities pursuant to
45
<PAGE>
the terms of such Securities, the portion thereof, if any, which is to be
satisfied by payment of cash and the portion thereof, if any, which is to be
satisfied by delivering and crediting Securities pursuant to Section 12.02 and
will also deliver to the Trustee any Securities to be so delivered. Not less
than 20 days prior to each such sinking fund payment date, the Trustee shall
select the Securities to be redeemed upon such sinking fund payment date in the
manner specified in Section 11.03 and cause notice of the redemption thereof to
be given in the name of and at the expense of the Company in the manner provided
in Section 11.04. Such notice having been duly given, the redemption of such
Securities shall be made upon the terms and in the manner stated in Sections
11.06 and 11.07.
ARTICLE XIII.
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 13.01. COMPANY'S OPTION TO EFFECT DEFEASANCE OR COVENANT
DEFEASANCE. The Company may elect, at its option at any time, to have Section
13.02 or Section 13.03 applied to any Securities or any series of Securities, as
the case may be, designated pursuant to Section 3.01 as being defeasible
pursuant to such Section 13.02 or 13.03, in accordance with any applicable
requirements provided pursuant to Section 3.01 and upon compliance with the
conditions set forth below in this Article. Any such election shall be evidenced
by a Board Resolution or in another manner specified as contemplated by Section
3.01 for such Securities.
SECTION 13.02. DEFEASANCE AND DISCHARGE. Upon the Company's exercise of
its option (if any) to have this Section applied to any Securities or any series
of Securities, as the case may be, the Company shall be deemed to have been
discharged from its obligations with respect to such Securities as provided in
this Section on and after the date the conditions set forth in Section 13.04 are
satisfied (hereinafter called "Defeasance"). For this purpose, such Defeasance
means that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by such Securities and to have satisfied all its other
obligations under such Securities and this Indenture insofar as such Securities
are concerned (and the Trustee, at the expense of the Company, shall execute
proper instruments acknowledging the same), subject to the following which shall
survive until otherwise terminated or discharged hereunder: (1) the rights of
Holders of such Securities to receive, solely from the trust fund described in
Section 13.04 and as more fully set forth in such Section, payments in respect
of the principal of and any premium and interest on such Securities when
payments are due, (2) the Company's obligations with respect to such Securities
under Sections 3.04, 3.05, 3.06, 10.02 and 10.03, (3) the rights, powers,
trusts, duties and immunities of the Trustee hereunder and (4) this Article.
Subject to compliance with this Article, the Company may exercise its option (if
any) to have this Section applied to any Securities notwithstanding the prior
exercise of its option (if any) to have Section 13.03 applied to such
Securities.
SECTION 13.03. COVENANT DEFEASANCE. Upon the Company's exercise of its
option (if any) to have this Section applied to any Securities or any series of
Securities, as the case may be, (1) the Company shall be released from its
obligations under Section 8.01(3), Sections 10.06 through 10.10, inclusive, and
any covenants provided pursuant to Section 3.01(18), 9.01(2) or 9.01(7) for the
benefit of the Holders of such Securities and (2) the occurrence of any event
specified in Sections 501(4) (with respect to any of Section 8.01(3), Sections
10.06 through 10.10, inclusive, and any such covenants provided pursuant to
Section 3.01(18), 9.01(2) or 9.01(7)), 5.01(5) and 5.01(8) shall be deemed not
to be or result in an Event of Default, in each case with respect to such
Securities as provided in this Section on and after the date the conditions set
forth in Section 13.04 are satisfied (hereinafter called "Covenant Defeasance").
For this purpose, such Covenant Defeasance means that, with respect to such
Securities, the Company may omit to comply with and shall have no liability in
respect of any term, condition or limitation set forth in any such specified
Section (to the extent so specified in the case of Section 5.01(4)), whether
directly or indirectly by reason of any reference elsewhere herein to any such
Section or by reason of any reference in any such Section to any other provision
herein or in any other document, but the remainder of this Indenture and such
Securities shall be unaffected thereby.
46
<PAGE>
SECTION 13.04. CONDITIONS TO DEFEASANCE OR COVENANT DEFEASANCE. The
following shall be the conditions to the application of Section 13.02 or Section
13.03 to any Securities or any series of Securities, as the case may be:
(1) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee which satisfies the
requirements contemplated by Section 6.09 and agrees to comply with the
provisions of this Article applicable to it) as trust funds in trust for the
purpose of making the following payments, specifically pledged as security
for, and dedicated solely to, the benefits of the Holders of such
Securities, (A) money in an amount, or (B) U.S. Government Obligations which
through the scheduled payment of principal and interest in respect thereof
in accordance with their terms will provide, not later than one day before
the due date of any payment, money in an amount, or (C) a combination
thereof, in each case sufficient, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee, to pay and discharge, and which shall be
applied by the Trustee (or any such other qualifying trustee) to pay and
discharge, the principal of and any premium and interest on such Securities
on the respective Stated Maturities, in accordance with the terms of this
Indenture and such Securities. As used herein, "U.S. Government Obligation"
means (x) any security which is (i) a direct obligation of the United States
of America for the payment of which the full faith and credit of the United
States of America is pledged or (ii) an obligation of a Person controlled or
supervised by and acting as an agency or instrumentality of the United
States of America the payment of which is unconditionally guaranteed as a
full faith and credit obligation by the United States of America, which, in
either case (i) or (ii), is not callable or redeemable at the option of the
issuer thereof, and (y) any depositary receipt issued by a bank (as defined
in Section 3(a)(2) of the Securities Act) as custodian with respect to any
U.S. Government Obligation which is specified in Clause (x) above and held
by such bank for the account of the holder of such depositary receipt, or
with respect to any specific payment of principal of or interest on any U.S.
Government Obligation which is so specified and held, PROVIDED that (except
as required by law) such custodian is not authorized to make any deduction
from the amount payable to the holder of such depositary receipt from any
amount received by the custodian in respect of the U.S. Government
Obligation or the specific payment of principal or interest evidenced by
such depositary receipt.
(2) In the event of an election to have Section 13.02 apply to any
Securities or any series of Securities, as the case may be, the Company
shall have delivered to the Trustee an Opinion of Counsel stating that (A)
the Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (B) since the date of this instrument, there has
been a change in the applicable Federal income tax law, in either case (A)
or (B) to the effect that, and based thereon such opinion shall confirm
that, the Holders of such Securities will not recognize gain or loss for
Federal income tax purposes as a result of the deposit, Defeasance and
discharge to be effected with respect to such Securities and will be subject
to Federal income tax on the same amount, in the same manner and at the same
times as would be the case if such deposit, Defeasance and discharge were
not to occur.
(3) In the event of an election to have Section 13.03 apply to any
Securities or any series of Securities, as the case may be, the Company
shall have delivered to the Trustee an Opinion of Counsel to the effect that
the Holders of such Securities will not recognize gain or loss for Federal
income tax purposes as a result of the deposit and Covenant Defeasance to be
effected with respect to such Securities and will be subject to Federal
income tax on the same amount, in the same manner and at the same times as
would be the case if such deposit and Covenant Defeasance were not to occur.
(4) The Company shall have delivered to the Trustee an Officer's
Certificate to the effect that neither such Securities nor any other
Securities of the same series, if then listed on any securities exchange,
will be delisted as a result of such deposit.
47
<PAGE>
(5) No event which is, or after notice or lapse of time or both would
become, an Event of Default with respect to such Securities or any other
Securities shall have occurred and be continuing at the time of such deposit
or, with regard to any such event specified in Sections 5.01(6) and (7), at
any time on or prior to the 90th day after the date of such deposit (it
being understood that this condition shall not be deemed satisfied until
after such 90th day).
(6) Such Defeasance or Covenant Defeasance shall not cause the Trustee
to have a conflicting interest within the meaning of the Trust Indenture Act
(assuming all Securities are in default within the meaning of such Act).
(7) Such Defeasance or Covenant Defeasance shall not result in a breach
or violation of, or constitute a default under, any other agreement or
instrument to which the Company is a party or by which it is bound.
(8) Such Defeasance or Covenant Defeasance shall not result in the trust
arising from such deposit constituting an investment company within the
meaning of the Investment Company Act unless such trust shall be registered
under such Act or exempt from registration thereunder.
(9) The Company shall have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that all conditions
precedent with respect to such Defeasance or Covenant Defeasance have been
complied with.
SECTION 13.05. DEPOSITED MONEY AND U.S. GOVERNMENT OBLIGATIONS TO BE HELD
IN TRUST; MISCELLANEOUS PROVISIONS. Subject to the provisions of the last
paragraph of Section 10.03, all money and U.S. Government Obligations (including
the proceeds thereof) deposited with the Trustee or other qualifying trustee
(solely for purposes of this Section and Section 13.06, the Trustee and any such
other trustee are referred to collectively as the "Trustee") pursuant to Section
13.04 in respect of any Securities shall be held in trust and applied by the
Trustee, in accordance with the provisions of such Securities and this
Indenture, to the payment, either directly or through any such Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Holders of such Securities, of all sums due and to become due
thereon in respect of principal and any premium and interest, but money so held
in trust need not be segregated from other funds except to the extent required
by law. The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 13.04 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of Outstanding Securities.
Anything in this Article to the contrary notwithstanding, the Trustee shall
deliver or pay to the Company from time to time upon Company Request any money
or U.S. Government Obligations held by it as provided in Section 13.04 with
respect to any Securities which, in the opinion of a nationally recognized firm
of independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect the Defeasance or Covenant Defeasance, as
the case may be, with respect to such Securities.
SECTION 13.06. REINSTATEMENT. If the Trustee or the Paying Agent is unable
to apply any money in accordance with this Article with respect to any
Securities by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, then
the obligations under this Indenture and such Securities from which the Company
has been discharged or released pursuant to Section 13.02 or 13.03 shall be
revived and reinstated as though no deposit had occurred pursuant to this
Article with respect to such Securities, until such time as the Trustee or
Paying Agent is permitted to apply all money held in trust pursuant to Section
13.05 with respect to such Securities in accordance with this Article; PROVIDED,
HOWEVER, that if the Company makes any payment of principal of or any premium or
interest on any such Security following such reinstatement of its
48
<PAGE>
obligations, the Company shall be subrogated to the rights (if any) of the
Holders of such Securities to receive such payment from the money so held in
trust.
This instrument may be executed in any number of counterparts, each of which
so executed shall be deemed to be an original, but all such counterparts shall
together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly
executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
THE TORO COMPANY
By /s/ GERALD T. KNIGHT
-------------------------------------------
Attest: /s/ N. JEANNE RYAN
- ------------------------------
Its: Assistant Secretary
FIRST TRUST NATIONAL ASSOCIATION
By /s/ R. PROKOSCH
-------------------------------------------
Attest: /s/ K. BARRETT
- ------------------------------
49
<PAGE>
<TABLE>
<S> <C> <C>
State of Minnesota )
) ss.:
County of Hennepin )
</TABLE>
On the 19th day of February, 1997, before me personally came Gerald T.
Knight, to me known, who, being by me duly sworn, did depose and say that he
is Vice President & CFO of The Toro Company, one of the corporations
described in and which executed the foregoing instrument; that he knows the
seal of said corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by authority of the Board of Directors
of said corporation; and that he signed his name thereto by like authority.
/s/ KATHRYN J. NELSON
Kathryn J. Nelson
Notary Public - Minnesota
Washington County
My Commission Expires Jan. 31, 2000
50
<PAGE>
<TABLE>
<S> <C> <C>
State of Minnesota )
) ss.:
County of Ramsey )
</TABLE>
On the 19th day of February, 1997, before me personally came Richard H.
Prokosch, to me known, who, being by me duly sworn, did depose and say that
he is Trust Officer of First Trust National Association, one of the entities
described in and which executed the foregoing instrument; that he knows the
seal of said entity; that the seal affixed to said instrument is such seal;
that it was so affixed by authority of the Board of Directors of said entity;
and that he signed his name thereto by like authority.
/s/ S. DIGNAN
S. Dignan
Notary Public - Minnesota
Ramsey County
My Commission Expires on Jan. 31, 2000
51
<PAGE>
THE TORO COMPANY
OFFICERS' CERTIFICATE
ESTABLISHING
TERMS OF DEBT SECURITIES
The undersigned, Stephen P. Wolfe, Vice President Finance, Treasurer and
Chief Financial Officer of The Toro Company (the "Company") and J. Lawrence
McIntyre, Vice President, Secretary and General Counsel of the Company,
pursuant to authority vested in us by resolution of the Board of Directors of
the Company on May 27, 1997, hereby establish, and certify the establishment
of, the Company's 7.125% Notes due June 15, 2007 (the "Notes") and the
Company's 7.80% Debentures due June 15, 2027 (the "Debentures") to be issued
under the Indenture dated January 31, 1997 (the "Indenture") between the
Company and First Trust National Association, as Trustee (the "Trustee"), as
follows:
7.125% NOTES DUE JUNE 15, 2007
There is hereby established under the Indenture a series of debt
securities of the Company designated the 7.125% Notes due June 15, 2007, as
to which the following terms are hereby approved:
1. The title of the Notes is "7.125% Notes due June 15, 2007".
2. The limit upon the aggregate principal amount of the Notes which may
be authenticated and delivered under the Indenture (except for Notes
authenticated and delivered upon registration of, transfer of, or in exchange
for, or in lieu of other Notes pursuant to Sections 3.04, 3.05, 3.06, 9.06 or
11.07 of the Indenture) is $75,000,000.
3. Interest on the Notes shall be payable to the persons in whose name
the Notes are registered at the close of business on the Regular Record Date
(as defined in the Indenture) for such interest payment, except that interest
payable on June 15, 2007 shall be payable to the persons to whom principal is
payable on such date.
4. The date on which the principal of the Notes is payable, unless
accelerated pursuant to the Indenture, shall be June 15, 2007.
5. The rate at which each of the Notes shall bear interest shall be
7.125% per annum. The date from which interest shall accrue for each of the
Notes shall be June 15, 1997. The interest payment dates on which interest
on the Notes shall be payable are June 15 and December 15 commencing December
15, 1997. The regular record dates for the interest payable on the Notes on
any interest payment date shall be the May 31 and November 30 as the case may
be, immediately preceding such interest payment date.
<PAGE>
6. The place or places where the principal of and interest on the Notes
shall be payable, the Notes may be surrendered for registration of transfer,
the Notes may be surrendered for exchange and notices may be given to the
Company in respect of the Notes is at the office of the Trustee, which at the
date hereof is 180 East Fifth Street, St. Paul, Minnesota 55101, and at the
agency of the Trustee maintained for that purpose at the office of the
Trustee; provided that payment of interest, other than at Stated Maturity (as
defined in the Indenture), may be made at the option of the Company by check
mailed to the address of the person entitled thereto as such address shall
appear in the Security Register (as defined in the Indenture).
7. The Notes may be redeemed, in whole or in part, at the option of the
Company at any time at a redemption price equal to the greater of (i) 100% of
the principal amount of such Notes plus accrued interest thereon to the date
of redemption or (ii) as determined by a Quotation Agent (as defined below),
the sum of (x) the present value of the remaining scheduled payments of
principal and interest thereon (not including the portion of any such
payments of interest accrued as of the date of redemption) discounted to the
redemption date on a semi-annual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Adjusted Treasury Rate (as defined below) plus
(y) interest thereon, if any, accrued as of the date of redemption.
"Adjusted Treasury Rate" means, with respect to any redemption date, the
rate per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such redemption date, plus 0.15%.
"Comparable Treasury Issue" means the United States Treasury security
selected by a Quotation Agent as having a maturity comparable to the
remaining term of the Notes to be redeemed that would be utilized, at the
time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of such Securities.
"Comparable Treasury Price" means, with respect to any redemption date,
(A) the average of the Reference Treasury Dealer Quotations for such
redemption date, after excluding the highest and lowest such Reference
Treasury Dealer Quotations or (B) if the Trustee obtains fewer than three
such Reference Treasury Dealer Quotations, the average of all such Quotations.
"Quotation Agent" means the Reference Treasury Dealer appointed by the
Trustee after consultation with the Company. "Reference Treasury Dealer"
means (a) Goldman, Sachs & Co. and their successors; provided, however, that
if the foregoing shall cease to be a primary U.S. government securities
dealer in New York City (a "Primary Treasury Dealer"), the Company shall
substitute therefor another Primary Treasury Dealer; and (b) any other
Primary Treasury Dealer selected by the Trustee after consultation with the
Company.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined
by the Trustee, of the bid and asked
2
<PAGE>
prices for the Comparable Treasury Issue (expressed in each case as a
percentage of its principal amount) quoted in writing to the Trustee by such
Reference Treasury Dealer at 5:00 p.m. (New York City time) on the third
business day preceding such redemption date.
Notice of any redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to each holder of the Securities to
be redeemed.
Unless the Company defaults in payment of the redemption price, on and
after the redemption date, interest will cease to accrue on the Notes or
portions thereof called for redemption.
8. There is no obligation of the Company to redeem or purchase any of
the Notes pursuant to any sinking fund or analogous provisions, or to repay
any of the Notes prior to Stated Maturity at the option of a Holder thereof.
9. The Notes shall be issued as Global Securities (as defined in the
Indenture) under the Indenture. The Depository Trust Company is hereby
designated as the Depositary for the Notes under the Indenture. The form of
the Global Securities for the Notes shall be as set forth in Annex I hereto.
10. The entire principal amount of the Notes shall be payable upon
declaration of acceleration of the maturity thereof pursuant to Section 5.02
of the Indenture.
11. Interest on the Notes shall be computed on the basis of a 360-day
year of twelve 30-day months.
7.80% DEBENTURES DUE JUNE 15, 2027
There is hereby established under the Indenture a series of debt
securities of the Company designated the 7.80% Debentures due June 15, 2027,
as to which the following terms are hereby approved:
1. The title of the Debentures is 7.80% Debentures due June 15, 2027".
2. The limit upon the aggregate principal amount of the Debentures
which may be authenticated and delivered under the Indenture (except for
Debentures authenticated and delivered upon registration of, transfer of, or
in exchange for, or in lieu of other Debentures pursuant to Sections 3.04,
3.05, 3.06, 9.06 or 11.07 of the Indenture) is $100,000,000.
3. Interest on the Debentures shall be payable to the persons in whose
name the Debentures are registered at the close of business on the Regular
Record Date (as defined in the Indenture) for such interest payment, except
that interest payable on June 15, 2027 shall be payable to the persons to
whom principal is payable on such date.
3
<PAGE>
4. The date on which the principal of the Debentures is payable, unless
accelerated pursuant to the Indenture, shall be June 15, 2027.
5. The rate at which each of the Debentures shall bear interest shall
be 7.80% per annum. The date from which interest shall accrue for each of
the Debentures shall be June 15, 1997. The interest payment dates on which
interest on the Debentures shall be payable are June 15 and December 15
commencing December 15, 1997. The regular record dates for the interest
payable on the Debentures on any interest payment date shall be the May 31
and November 30 as the case may be, immediately preceding such interest
payment date.
6. The place or places where the principal of and interest on the
Debentures shall be payable, the Debentures may be surrendered for
registration of transfer, the Debentures may be surrendered for exchange and
notices may be given to the Company in respect of the Debentures is at the
office of the Trustee, which at the date hereof is 180 East Fifth Street, St.
Paul, Minnesota 55101, and at the agency of the Trustee maintained for that
purpose at the office of the Trustee; provided that payment of interest,
other than at Stated Maturity (as defined in the Indenture), may be made at
the option of the Company by check mailed to the address of the person
entitled thereto as such address shall appear in the Security Register (as
defined in the Indenture).
7. The Debentures may be redeemed, in whole or in part, at the option
of the Company at any time at a redemption price equal to the greater of (i)
100% of the principal amount of such Debentures plus accrued interest thereon
to the date of redemption or (ii) as determined by a Quotation Agent (as
defined below), the sum of (x) the present value of the remaining scheduled
payments of principal and interest thereon (not including the portion of any
such payments of interest accrued as of the date of redemption) discounted to
the redemption date on a semi-annual basis (assuming a 360-day year
consisting of twelve 30-day months) at the Adjusted Treasury Rate (as defined
below) plus (y) interest thereon, if any, accrued as of the date of
redemption.
"Adjusted Treasury Rate" means, with respect to any redemption date, the
rate per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such redemption date, plus 0.20%.
"Comparable Treasury Issue" means the United States Treasury security
selected by a Quotation Agent as having a maturity comparable to the
remaining term of the Debentures to be redeemed that would be utilized, at
the time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of such Securities.
"Comparable Treasury Price" means, with respect to any redemption date,
(A) the average of the Reference Treasury Dealer Quotations for such
redemption date, after excluding the highest and lowest such Reference
Treasury Dealer Quotations or (B) if the Trustee obtains fewer than three
such Reference Treasury Dealer Quotations, the average of all such Quotations.
4
<PAGE>
"Quotation Agent" means the Reference Treasury Dealer appointed by the
Trustee after consultation with the Company. "Reference Treasury Dealer"
means (a) Goldman, Sachs & Co. and their successors; provided, however, that
if the foregoing shall cease to be a primary U.S. government securities
dealer in New York City (a "Primary Treasury Dealer"), the Company shall
substitute therefor another Primary Treasury Dealer; and (b) any other
Primary Treasury Dealer selected by the Trustee after consultation with the
Company.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average, as determined
by the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. (New
York City time) on the third business day preceding such redemption date.
Notice of any redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to each holder of the Securities to
be redeemed.
Unless the Company defaults in payment of the redemption price, on and
after the redemption date, interest will cease to accrue on the Debentures or
portions thereof called for redemption.
8. There is no obligation of the Company to redeem or purchase any of
the Debentures pursuant to any sinking fund or analogous provisions, or to
repay any of the Debentures prior to Stated Maturity at the option of a
Holder thereof.
9. The Debentures shall be issued as Global Securities (as defined in
the Indenture) under the Indenture. The Depository Trust Company is hereby
designated as the Depositary for the Debentures under the Indenture. The
form of the Global Securities for the Debentures shall be as set forth in
Annex II hereto.
10. The entire principal amount of the Debentures shall be payable upon
declaration of acceleration of the maturity thereof pursuant to Section 5.02
of the Indenture.
11. Interest on the Debentures shall be computed on the basis of a
360-day year of twelve 30-day months.
GENERAL
The terms and conditions of the Indenture shall apply to the Notes and
Debentures generally subject to the specific terms of the Notes and
Debentures set forth herein.
The Trustee is appointed as Paying Agent (as defined in the Indenture).
The foregoing terms and forms of the respective Securities have been
established in conformity with the provisions of the Indenture.
5
<PAGE>
Each of the undersigned has read the provisions of Sections 3.01 and 3.03
of the Indenture and the definitions relating thereto and the resolutions
adopted by the Board of Directors of the Company authorizing the execution of
the Indenture and the establishment of the Notes and Debentures. In the
opinion of each of the undersigned, he has made such examination or
investigation as is necessary to enable him to express an informed opinion as
to whether or not all conditions precedent provided in the Indenture relating
to the establishment, authentication and delivery of the respective series of
Securities under the Indenture have been complied with. In the opinion of
each of the undersigned, all such conditions precedent have been complied
with.
IN WITNESS WHEREOF, the undersigned have hereunto executed this Officers'
Certificate as of the 18th day of June, 1997.
/s/ STEPHEN P. WOLFE
-----------------------------------
Stephen P. Wolfe
Vice President, Treasurer and
Chief Financial Officer
/s/ J. LAWRENCE McINTYRE
-----------------------------------
J. Lawrence McIntyre
Vice President, Secretary and
General Counsel
6
<PAGE>
ANNEX I
NO. ________________ $_____________
THE TORO COMPANY
7.125% NOTE DUE JUNE 15, 2007
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR
A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART
MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A
NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE
OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
PRINCIPAL AMOUNT:
MATURITY DATE: June 15, 2007
DATED DATE:
INTEREST RATE: 7.125%
CUSIP: 891092AC2
INTEREST PAYMENT DATES: June 15 and December 15, commencing December 15, 1997
REGULAR RECORD DATES: May 31 and November 30
7
<PAGE>
The Toro Company, a corporation duly organized and existing under the
laws of Delaware (herein called the "Company," which term includes any
successor Person under the Indenture hereinafter referred to), for value
received, hereby promises to pay to Cede & Co., or registered assigns, the
principal sum of $__________________ on June 15, 2007 and to pay interest
thereon from June 15, 1997 or from the most recent Interest Payment Date to
which interest has been paid or duly provided for, semi-annually on June 15
and December 15 in each year, commencing December 15, 1997, at the rate of
7.125% per annum, until the principal hereof is paid or made available for
payment. The interest so payable, and punctually paid or duly provided for,
on any Interest Payment Date will, as provided in such Indenture, be paid to
the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest, which shall be the May 31 or November 30 (whether or not a
Business Day), as the case may be, next preceding such Interest Payment Date.
Any such interest not so punctually paid or duly provided for will forthwith
cease to be payable to the Holder on such Regular Record Date and may either
be paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on a Special Record Date
for the payment of such Defaulted Interest to be fixed by the Trustee, notice
whereof shall be given to Holders of Securities of this series not less than
10 days prior to such Special Record Date, or be paid at any time in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities of this series may be listed, and upon such
notice as may be required by such exchange, all as more fully provided in
said Indenture.
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Company maintained for
that purpose in St. Paul, Minnesota, in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts; provided, however, that at the option of the
Company payment of interest may be made by check mailed to the address of the
Person entitled thereto as such address shall appear in the Security Register.
Unless the Certificate of Authentication hereon has been executed by the
Trustee by manual signature, this Security shall not be entitled to any
benefit under the Indenture or be valid or obligatory for any purpose.
This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued in one or
more series under an Indenture, dated as of January 31, 1997 (herein called
the "Indenture," which term shall have the meaning assigned to it in such
instrument), between the Company and First Trust National Association, as
Trustee (herein called the "Trustee," which term includes any successor
trustee under the Indenture), and reference is hereby made to the Indenture
and all indentures supplemental thereto for a statement of the respective
rights, limitations or rights, duties and immunities thereunder of the
Company, the Trustee and the Holders of the Securities and of the terms upon
which the Securities are, and are to be, authenticated and delivered. This
Security is one of the series designated on the face hereof, limited in
aggregate principal amount to $75,000,000.
8
<PAGE>
The Securities of this series may be redeemed, in whole or in part, at
the option of the Company at any time at a Redemption Price equal to the
greater of (i) 100% of the principal amount of such Securities plus accrued
interest thereon to the date of redemption or (ii) as determined by a
Quotation Agent (as defined below), the sum of (x) the present value of the
remaining scheduled payments of principal and interest thereon (not including
the portion of any such payments of interest accrued as of the date of
redemption) discounted to the Redemption Date on a semi-annual basis
(assuming a 360-day year consisting of twelve 30-day months) at the Adjusted
Treasury Rate (as defined below) plus (y) interest thereon, if any, accrued
as of the date of redemption.
"Adjusted Treasury Rate" means, with respect to any Redemption Date, the
rate per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such Redemption Date, plus 0.15%.
"Comparable Treasury Issue" means the United States Treasury security
selected by a Quotation Agent as having a maturity comparable to the
remaining term of the Securities to be redeemed that would be utilized, at
the time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of such Securities.
"Comparable Treasury Price" means, with respect to any Redemption Date,
(A) the average of the Reference Treasury Dealer Quotations for such
Redemption Date, after excluding the highest and lowest such Reference
Treasury Dealer Quotations or (B) if the Trustee obtains fewer than three
such Reference Treasury Dealer Quotations, the average of all such Quotations.
"Quotation Agent" means the Reference Treasury Dealer appointed by the
Trustee after consultation with the Company. "Reference Treasury Dealer"
means (a) Goldman, Sachs & Co. and their successors; provided, however, that
if the foregoing shall cease to be a primary U.S. government securities
dealer in New York City (a "Primary Treasury Dealer"), the Company shall
substitute therefor another Primary Treasury Dealer; and (b) any other
Primary Treasury Dealer selected by the Trustee after consultation with the
Company.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any Redemption Date, the average, as determined
by the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. (New
York City time) on the third Business Day preceding such Redemption Date.
Notice of any redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to each holder of the Securities to
be redeemed.
Unless the Company defaults in payment of the Redemption Price, on and
after the Redemption Date, interest will cease to accrue on the Securities or
portions thereof called for redemption.
9
<PAGE>
In the event of redemption of this Security in part only, a new Security
or Securities of this series and of like tenor for the unredeemed portion
hereof will be issued in the name of the Holder hereof upon the cancellation
hereof.
The Indenture contains provisions for Defeasance at any time of the
entire indebtedness of this Security or certain restrictive covenants and
Events of Default with respect to this Security, in each case upon compliance
with certain conditions set forth in the Indenture.
If an Event of Default with respect to Securities of this series shall
occur and be continuing, the principal of the Securities of this series may
be declared due and payable in the manner and with the effect provided in the
Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with
the consent of the Holders of a majority in principal amount of the
Securities at the time Outstanding of each series to be affected. The
Indenture also contains provisions permitting the Holders of specified
percentages in principal amount of the Securities of each series at the time
Outstanding, on behalf of the Holders of all Securities of such series, to
waive compliance by the Company with certain provisions of the Indenture and
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Security shall be conclusive and
binding upon such Holder and upon all future Holders of this Security and of
any Security issued upon the registration of transfer of this Security or in
exchange for or in lieu of this Security, whether or not notation of such
consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture, the Holder
of this Security shall not have the right to institute any proceeding with
respect to the Indenture or for the appointment of a receiver or trustee or
for any other remedy thereunder, unless such Holder shall have previously
given the Trustee written notice of a continuing Event of Default with
respect to the Securities of this series, the Holders of not less than 25% in
aggregate principal amount of the Securities of this series at the time
Outstanding shall have made written request to the Trustee to institute
proceedings in respect of such Event of Default as Trustee and offered the
Trustee reasonable indemnity, and the Trustee shall not have received from
the Holders of a majority in principal amount of Securities of this series at
the time Outstanding a direction inconsistent with such request, and shall
have failed to institute any such proceeding, for 60 days after receipt of
such notice, request and offer of indemnity. The foregoing shall not apply
to any suit instituted by the Holder of this Security for the enforcement of
any payment of principal hereof or any premium or interest hereon on or after
the respective due dates expressed herein.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of and any premium and
interest on this Security at the times, place and rate, and in the coin or
currency, herein prescribed.
10
<PAGE>
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in any place where the principal of and any
premium and interest on this Security are payable, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder hereof or its
attorney duly authorized in writing, and thereupon one or more new Securities
of this series and of like tenor, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated transferee
or transferees.
The Securities of this series are issuable only in registered form
without coupons in denominations of $1,000 and any integral multiple thereof.
As provided in the Indenture and subject to certain limitations therein set
forth, Securities of this series are exchangeable for a like aggregate
principal amount of Securities of this series and of like tenor of a
different authorized denomination, as requested by the Holder surrendering
the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name this Security is registered as the owner
hereof for all purposes, whether or not this Security be overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to
the contrary.
The Securities shall be governed by and construed in accordance with the
laws of the State of New York.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated: __________, _____ THE TORO COMPANY
[SEAL]
By:____________________________
Attest:
____________________________
11
<PAGE>
CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated herein referred to
in the within-mentioned Indenture.
FIRST TRUST NATIONAL ASSOCIATION, as Trustee
By:_________________________________________
Authorized Officer
12
<PAGE>
[FORM OF ASSIGNMENT]
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as
tenants in common
UNIF GIFT MIN ACT --____________________ Custodian ______________________
(Cust) (Minor)
under Uniform Gifts to Minors ct_________________________________________
(State)
Additional abbreviations may also be used though not in the above list.
_________________________________________________________________________
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfers
unto
Please insert Social Security or other
Identifying Number of Assignee ______________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF
ASSIGNEE
_________________________________
_________________________________
the within Security and all rights thereunder, hereby irrevocably
constituting and appointing ________________ Attorney to transfer said
Security on the books of the Company, with full power of substitution in the
premises.
Dated: _________________________
________________________________
13
<PAGE>
________________________________
Notice: The signature to this
assignment must
correspond with the
name as written on the
face of the within
instrument in every
particular, without
alteration or
enlargement, or any
change whatever.
14
<PAGE>
ANNEX II
NO. ________________ $_____________
THE TORO COMPANY
7.80% DEBENTURE DUE JUNE 15, 2027
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR
A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART
MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A
NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE
OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
PRINCIPAL AMOUNT:
MATURITY DATE: June 15, 2027
DATED DATE:
INTEREST RATE: 7.80%
CUSIP: 891092AD0
INTEREST PAYMENT DATES: June 15 and December 15, commencing December 15,
1997
REGULAR RECORD DATES: May 31 and November 30
15
<PAGE>
The Toro Company, a corporation duly organized and existing under the
laws of Delaware (herein called the "Company," which term includes any
successor Person under the Indenture hereinafter referred to), for value
received, hereby promises to pay to Cede & Co., or registered assigns, the
principal sum of $__________________ on June 15, 2027 and to pay interest
thereon from June 15, 1997 or from the most recent Interest Payment Date to
which interest has been paid or duly provided for, semi-annually on June 15
and December 15 in each year, commencing December 15, 1997, at the rate of
7.80% per annum, until the principal hereof is paid or made available for
payment. The interest so payable, and punctually paid or duly provided for,
on any Interest Payment Date will, as provided in such Indenture, be paid to
the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest, which shall be the May 31 or November 30 (whether or not a
Business Day), as the case may be, next preceding such Interest Payment Date.
Any such interest not so punctually paid or duly provided for will forthwith
cease to be payable to the Holder on such Regular Record Date and may either
be paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on a Special Record Date
for the payment of such Defaulted Interest to be fixed by the Trustee, notice
whereof shall be given to Holders of Securities of this series not less than
10 days prior to such Special Record Date, or be paid at any time in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities of this series may be listed, and upon such
notice as may be required by such exchange, all as more fully provided in
said Indenture.
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Company maintained for
that purpose in St. Paul, Minnesota, in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts; provided, however, that at the option of the
Company payment of interest may be made by check mailed to the address of the
Person entitled thereto as such address shall appear in the Security Register.
Unless the Certificate of Authentication hereon has been executed by the
Trustee by manual signature, this Security shall not be entitled to any
benefit under the Indenture or be valid or obligatory for any purpose.
This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued in one or
more series under an Indenture, dated as of January 31, 1997 (herein called
the "Indenture," which term shall have the meaning assigned to it in such
instrument), between the Company and First Trust National Association, as
Trustee (herein called the "Trustee," which term includes any successor
trustee under the Indenture), and reference is hereby made to the Indenture
and all indentures supplemental thereto for a statement of the respective
rights, limitations or rights, duties and immunities thereunder of the
Company, the Trustee and the Holders of the Securities and of the terms upon
which the Securities are, and are to be, authenticated and delivered. This
Security is one of the series designated on the face hereof, limited in
aggregate principal amount to $100,000,000.
16
<PAGE>
The Securities of this series may be redeemed, in whole or in part, at
the option of the Company at any time at a Redemption Price equal to the
greater of (i) 100% of the principal amount of such Securities plus accrued
interest thereon to the date of redemption or (ii) as determined by a
Quotation Agent (as defined below), the sum of (x) the present value of the
remaining scheduled payments of principal and interest thereon (not including
the portion of any such payments of interest accrued as of the date of
redemption) discounted to the Redemption Date on a semi-annual basis
(assuming a 360-day year consisting of twelve 30-day months) at the Adjusted
Treasury Rate (as defined below) plus (y) interest thereon, if any, accrued
as of the date of redemption.
"Adjusted Treasury Rate" means, with respect to any Redemption Date, the
rate per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such Redemption Date, plus 0.20%.
"Comparable Treasury Issue" means the United States Treasury security
selected by a Quotation Agent as having a maturity comparable to the
remaining term of the Securities to be redeemed that would be utilized, at
the time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of such Securities.
"Comparable Treasury Price" means, with respect to any Redemption Date,
(A) the average of the Reference Treasury Dealer Quotations for such
Redemption Date, after excluding the highest and lowest such Reference
Treasury Dealer Quotations or (B) if the Trustee obtains fewer than three
such Reference Treasury Dealer Quotations, the average of all such Quotations.
"Quotation Agent" means the Reference Treasury Dealer appointed by the
Trustee after consultation with the Company. "Reference Treasury Dealer"
means (a) Goldman, Sachs & Co. and their successors; provided, however, that
if the foregoing shall cease to be a primary U.S. government securities
dealer in New York City (a "Primary Treasury Dealer"), the Company shall
substitute therefor another Primary Treasury Dealer; and (b) any other
Primary Treasury Dealer selected by the Trustee after consultation with the
Company.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any Redemption Date, the average, as determined
by the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. (New
York City time) on the third Business Day preceding such Redemption Date.
Notice of any redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to each holder of the Securities to
be redeemed.
Unless the Company defaults in payment of the Redemption Price, on and
after the Redemption Date, interest will cease to accrue on the Securities or
portions thereof called for redemption.
17
<PAGE>
In the event of redemption of this Security in part only, a new Security
or Securities of this series and of like tenor for the unredeemed portion
hereof will be issued in the name of the Holder hereof upon the cancellation
hereof.
The Indenture contains provisions for Defeasance at any time of the
entire indebtedness of this Security or certain restrictive covenants and
Events of Default with respect to this Security, in each case upon compliance
with certain conditions set forth in the Indenture.
If an Event of Default with respect to Securities of this series shall
occur and be continuing, the principal of the Securities of this series may
be declared due and payable in the manner and with the effect provided in the
Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with
the consent of the Holders of a majority in principal amount of the
Securities at the time Outstanding of each series to be affected. The
Indenture also contains provisions permitting the Holders of specified
percentages in principal amount of the Securities of each series at the time
Outstanding, on behalf of the Holders of all Securities of such series, to
waive compliance by the Company with certain provisions of the Indenture and
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Security shall be conclusive and
binding upon such Holder and upon all future Holders of this Security and of
any Security issued upon the registration of transfer of this Security or in
exchange for or in lieu of this Security, whether or not notation of such
consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture, the Holder
of this Security shall not have the right to institute any proceeding with
respect to the Indenture or for the appointment of a receiver or trustee or
for any other remedy thereunder, unless such Holder shall have previously
given the Trustee written notice of a continuing Event of Default with
respect to the Securities of this series, the Holders of not less than 25% in
aggregate principal amount of the Securities of this series at the time
Outstanding shall have made written request to the Trustee to institute
proceedings in respect of such Event of Default as Trustee and offered the
Trustee reasonable indemnity, and the Trustee shall not have received from
the Holders of a majority in principal amount of Securities of this series at
the time Outstanding a direction inconsistent with such request, and shall
have failed to institute any such proceeding, for 60 days after receipt of
such notice, request and offer of indemnity. The foregoing shall not apply
to any suit instituted by the Holder of this Security for the enforcement of
any payment of principal hereof or any premium or interest hereon on or after
the respective due dates expressed herein.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of and any premium and
interest on this Security at the times, place and rate, and in the coin or
currency, herein prescribed.
18
<PAGE>
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in any place where the principal of and any
premium and interest on this Security are payable, duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Security Registrar duly executed by, the Holder hereof or its
attorney duly authorized in writing, and thereupon one or more new Securities
of this series and of like tenor, of authorized denominations and for the
same aggregate principal amount, will be issued to the designated transferee
or transferees.
The Securities of this series are issuable only in registered form
without coupons in denominations of $1,000 and any integral multiple thereof.
As provided in the Indenture and subject to certain limitations therein set
forth, Securities of this series are exchangeable for a like aggregate
principal amount of Securities of this series and of like tenor of a
different authorized denomination, as requested by the Holder surrendering
the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name this Security is registered as the owner
hereof for all purposes, whether or not this Security be overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to
the contrary.
The Securities shall be governed by and construed in accordance with the
laws of the State of New York.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated: __________, _____ THE TORO COMPANY
[SEAL]
By:______________________________
Attest:
____________________________
19
<PAGE>
CERTIFICATE OF AUTHENTICATION
This is one of the Securities of the series designated herein referred to
in the within-mentioned Indenture.
FIRST TRUST NATIONAL ASSOCIATION, as Trustee
By:_________________________________________
Authorized Officer
20
<PAGE>
[FORM OF ASSIGNMENT]
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as
tenants in common
UNIF GIFT MIN ACT --_________________ Custodian __________________________
(Cust) (Minor)
under Uniform Gifts to Minors Act ________________________________________
(State)
Additional abbreviations may also be used though not in the above list.
__________________________________________________________________________
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and transfers
unto
Please insert Social Security or other
Identifying Number of Assignee _____________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF
ASSIGNEE
___________________________
___________________________
the within Security and all rights thereunder, hereby irrevocably
constituting and appointing ________________ Attorney to transfer said
Security on the books of the Company, with full power of substitution in the
premises.
Dated: _________________________
___________________________________
21
<PAGE>
___________________________________
Notice: The signature to this
assignment must
correspond with the name
as written on the face of
the within instrument in
every particular, without
alteration or
enlargement, or any
change whatever.
22
<PAGE>
[DOHERTY RUMBLE & BUTLER LETTERHEAD]
June 27, 1997
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, DC 20549
Re: The Toro Company, File No. 1-8649
Ladies and Gentlemen:
We are transmitting herewith through the EDGAR system a Current
Report on Form 8-K of The Toro Company dated June 24, 1997.
Please call me at (612) 340-5575 if you require additional
information.
Very truly yours,
/s/ Dean R. Edstrom
Dean R. Edstrom
Attachment
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On December 2, 1996, Registrant completed the acquisition of James
Hardie Irrigation Group from James Hardie Limited of Australia, through the
acquisition of all of the outstanding stock of James Hardie Irrigation, Inc., a
Nevada corporation, James Hardie Irrigation Pty. Limited, a corporation
organized under the laws of South Australia, Australia, and James Hardie
Irrigation Europe S.p.A., a corporation organized under the laws of Italy, for a
purchase price of approximately $119 million, subject to adjustment upon
completion of closing audited financial statements. The purchase price was
determined through arms length negotiations by the parties. The purchase price
was funded out of the proceeds of a $160,000,000 revolving line of credit
furnished to Registrant by Bank of America Illinois, First Bank National
Association and NationsBank N.A. (Bank of America National Trust and Savings
Association, as Agent). In connection with the acquisition, Registrant obtained
an additional $150,000,000 revolving line of credit from Bank of America
Illinois, First Bank National Association and NationsBank N.A. (Bank of America
National Trust and Savings Association, as Agent).
Item 7. Financial Statements and Exhibits.
(a) Financial statements of businesses acquired.
To be filed by amendment not later than February 18, 1997.
(b) Pro forma financial information.
To be filed by amendment not later than February 18, 1997.
(c) Exhibits
(2) Agreement dated September 19, 1996, between The Toro Company
and James Hardie Irrigation Group (incorporated by reference
to the exhibit to Registrant's Current Report on Form 8-K
for September 19, 1996).
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE TORO COMPANY
By: /s/ J. Lawrence McIntyre
---------------------------------------
J. Lawrence McIntyre, Vice President,
Secretary and General Counsel
<PAGE>
December 16, 1996
Securities and Exchange Commission
Department of Corporate Finance
450 5th Street N.W.
Washington, DC 20549
RE: THE TORO COMPANY, FILE NO. 1-8649
Dear Sir or Madam:
On behalf of The Toro Company, we are herewith transmitting through the EDGAR
system the Company's Registration Statement on Form 8-K which reports on the
completion of the acquisition of James Hardie Irrigation Group from James Hardie
Limited of Australia.
Please call me at (612) 887-8443 if you require additional information.
Sincerely,
Kerry Juntti
Director of Corporate Control
CC: Jerry Knight
Larry McIntyre
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________
AMENDMENT NO. 2
TO CURRENT REPORT ON FORM 8-K
ON
FORM 8-K/A
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: ( Date of earliest event reported) December 2, 1996
THE TORO COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 1-8469 41-0580470
(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
8111 LYNDALE AVENUE SOUTH, BLOOMINGTON, MINNESOTA 55420-1196
(Address of principal executive office) (zip code)
612/888-8801
(Registrant's telephone number, including area code)
<PAGE>
Effective December 1, 1996, The Toro Company acquired James Hardie Irrigation
Group ("Hardie") from James Hardie, Ltd. under an agreement dated September
18, 1996. The initial purchase price pursuant to the agreement was estimated
to be $131,500,000. The purchase price was subsequently adjusted to
$119,125,000 based on estimated, unaudited aggregate shareholders' equity of
Hardie on December 1, 1996, subject to further adjustment based on final
audit results.
Based on the financial statements of Hardie as of the acquisition date,
shareholders' equity at the acquisition date was approximately $10,545,000 less
than the estimated equity used as the closing date purchase price, and this
$10,545,000 is to be returned from James Hardie, Ltd. to Toro. In addition,
under the procedures established in the purchase agreement, Toro has delivered a
letter of objections to James Hardie, Ltd. related to the valuation of assets,
accounting methods applied, estimates used and other items. The resolution of
these objections may result in an additional reduction of the purchase price.
The acquisition is accounted for using the purchase accounting method and,
accordingly, the adjusted purchase price of $108,580,000 has initially been
allocated based on the estimated fair values of assets acquired and liabilities
assumed on the date of acquisition. The excess of the purchase price over the
estimated fair value of net tangible assets acquired has been recorded as
goodwill and is being amortized on a straight-line basis over 20 years. Any
additional reductions in the purchase price as a result of resolution of the
objections discussed in the preceding paragraph will result in a reduction of
goodwill and/or other net assets. The related effect of these adjustments on
the Consolidated Statement of Earnings of The Toro Company is not expected to be
material.
Included in this Amendment No. 2 to Form 8-K are the audited combined
financial statements of the James Hardie Irrigation Group as of and for the
year ended December 1, 1996, and the unaudited pro forma condensed combined
financial statements of The Toro Company as of and for the year ended October
31, 1996, which supercede the audited combined financial statements of the
James Hardie Irrigation Group as of and for the year ended March 31, 1996,
the unaudited condensed combined financial statements of the James Hardie
Irrigation Group as of and for the seven months ended October 31, 1996 and
the unaudited pro forma condensed combined financial statements of The Toro
Company as of and for the year ended October 31, 1996, previously filed in
Amendment No. 1 to Form 8-K.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
THE FOLLOWING DOCUMENTS ARE INCLUDED AS PART OF THIS REPORT:
(a) Financial Statements of Business Acquired: Page No.
--------
James Hardie Irrigation Group Financial Statements
for the year ended December 1, 1996
Independent Auditors' Report A-1
Combined Balance Sheet as of December 1, 1996 A-2
Combined Statement of Operations for the year
ended December 1, 1996 A-3
Combined Statement of Divisional/Shareholders'
Equity for the year ended December 1, 1996 A-4
Combined Statement of Cash Flows for the year
ended December 1, 1996 A-5
Notes to the Combined Financial Statements A-6 to A-16
(b) Pro forma Financial Information:
Pro forma Information B-1
Pro forma Condensed Combined Balance Sheet
as of October 31, 1996 B-2
Pro forma Condensed Combined Statement of
Operations for the year ended
October 31, 1996 B-3
Notes to Pro forma Condensed Combined
Financial Statements B-4
(c) Exhibits:
Exhibit 23 - Consent of KPMG Peat Marwick LLP
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE TORO COMPANY
(Registrant)
Date: June 6, 1997 By /s/ J. Lawrence McIntyre
------------------------
J. Lawrence McIntyre
Vice President, Secretary and
General Counsel
<PAGE>
INDEPENDENT AUDITORS' REPORT
_______________
To the Board of Directors of
The Toro Company:
We have audited the accompanying combined balance sheet of James Hardie
Irrigation (a division of James Hardie Irrigation, Inc.), James Hardie
Irrigation Pty Limited and James Hardie Irrigation Europe S.p.A. (collectively,
"the James Hardie Irrigation Group") as of December 1, 1996 and the related
combined statements of operations, divisional/shareholders' equity and cash
flows for the year then ended. These financial statements are the
responsibility of the James Hardie Irrigation Group management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the combined financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the combined financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall combined financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
As discussed in Note 12 to the combined financial statements, effective December
1, 1996, the James Hardie Irrigation Group was acquired by The Toro Company.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the James
Hardie Irrigation Group as of December 1, 1996 and the results of their combined
operations and their combined cash flows for the year then ended, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
June 5, 1997
A-1
<PAGE>
JAMES HARDIE IRRIGATION GROUP
COMBINED BALANCE SHEET
December 1, 1996
________
ASSETS:
Current assets:
Cash and cash equivalents $ 971,435
Trade accounts receivable, less allowances of $4,515,780 24,067,044
Inventories 31,049,363
Prepaid and other current assets 812,690
Deferred income taxes 6,604,735
-----------
Total current assets 63,505,267
Property, plant and equipment, net 28,726,283
Intangible assets, net 2,978,390
Other assets 3,045,283
Deferred income taxes 475,202
-----------
Total assets $ 98,730,425
-----------
-----------
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Bank overdrafts $ 2,602,051
Trade accounts payable 9,707,770
Accrued expenses and other liabilities 9,716,496
Payable to affiliates 412,285
Loans due to the U.S. Parent and affiliates 48,812,721
-----------
Total current liabilities 71,251,323
Severance liability 249,154
-----------
Total liabilities 71,500,477
-----------
Commitments and contingencies (Note 8)
Shareholders' equity:
Share capital 10,288,675
Additional paid-in capital 48,108,308
Accumulated deficit (30,308,914)
Foreign currency translation adjustment (858,121)
-----------
Total shareholders' equity 27,229,948
-----------
Total liabilities and shareholders' equity $ 98,730,425
-----------
-----------
The accompanying notes are an integral part of the combined financial statements
A-2
<PAGE>
JAMES HARDIE IRRIGATION GROUP
COMBINED STATEMENT OF OPERATIONS
Year ended December 1, 1996
________
Net sales $142,861,091
Other revenues 1,013,254
------------
Total revenues 143,874,345
Cost of sales 101,071,541
------------
Gross profit 42,802,804
Selling, general and administrative expenses 40,612,641
Research and development expenses 1,184,738
------------
Operating income 1,005,425
Interest expense to third parties 82,914
Management fees and other expenses to the U.S. Parent
and affiliates 791,379
Interest expense to the U.S. Parent and affiliates 3,348,899
Interest income from the U.S. Parent and affiliates (1,363,510)
Other income, net (6,604,573)
------------
Income before income taxes 4,750,316
Income tax benefit (513,433)
------------
Net income $ 5,263,749
------------
------------
The accompanying notes are an integral part of the combined financial
statements.
A-3
<PAGE>
JAMES HARDIE IRRIGATION GROUP
COMBINED STATEMENT OF DIVISIONAL/SHAREHOLDERS' EQUITY
Year ended December 1, 1996
________
<TABLE>
<CAPTION>
Accumulated Foreign Total
Number of Additional Deficit/ Currency Divisional/
Shares Share Paid-In Divisional Translation Shareholders'
Outstanding Capital Capital Equity Adjustment Equity
------------ --------- ------------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
James Hardie Irrigation
at December 1, 1995 - $ - $ - $7,464,315 $ - $ 7,464,315
James Hardie Irrigation Pty
Limited at December 1, 1995 12,000,000 8,951,884 - (21,523,466) - (12,571,582)
James Hardie Irrigation
Europe S.p.A. at
December 1, 1995 2,090 1,308,786 632,475 (2,005,135) - (63,874)
---------- ----------- ----------- ------------ --------- ------------
Combined balances,
December 1, 1995 12,002,090 10,260,670 632,475 (16,064,286) - (5,171,141)
Net income - - - 5,263,749 - 5,263,749
Issuance of common stock
by James Hardie Irrigation
(Hardie U.S.) 1,000 10 19,508,367 (19,508,377) - -
Issuance of preference
shares by James Hardie
Irrigation Pty Limited
(Hardie Australia) 34,538 27,995 27,967,466 - - 27,995,461
Foreign currency translation
adjustment - - - - (858,121) (858,121)
----------- ----------- ----------- ------------ --------- ------------
Balance, December 1, 1996 12,037,628 $10,288,675 $48,108,308 ($30,308,914) ($858,121) $27,229,948
----------- ----------- ----------- ------------ --------- ------------
----------- ----------- ----------- ------------ --------- ------------
</TABLE>
The accompanying notes are an integral part of the combined financial statements
A-4
<PAGE>
JAMES HARDIE IRRIGATION GROUP
COMBINED STATEMENT OF CASH FLOWS
Year ended December 1, 1996
_______________
Cash flows from operating activities:
Net income $5,263,749
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 5,670,701
Loss on writedown and disposal of assets 795,370
Gain on sale of investment (7,065,294)
Deferred income taxes (137,767)
Changes in operating assets and liabilities:
Trade accounts receivable 1,366,199
Inventories 9,382,667
Prepaid and other current assets 438,178
Receivable from the U.S. Parent and affiliates (1,792,445)
Trade accounts payable 1,838,819
Accrued expenses and other liabilities 1,709,905
Increase in severance liability 41,457
----------
Net cash provided by operating activities 17,511,539
----------
Cash flows from investing activities:
Capital expenditures (5,022,051)
Increase in purchased software (859,873)
Decrease in other assets 281,780
----------
Net cash used in investing activities (5,600,144)
----------
Cash flows from financing activities:
Decrease in loans due to the U.S. Parent and affiliates (10,333,314)
Decrease in bank overdrafts (4,034,936)
----------
Net cash used in financing activities (14,368,250)
Effect of exchange rate changes on cash (43,802)
----------
Net decrease in cash and cash equivalents (2,500,657)
Cash and cash equivalents at beginning of year 3,472,092
----------
Cash and cash equivalents at end of year $971,435
----------
----------
Supplemental disclosure of cash flow information:
Interest paid to third parties $82,900
Interest paid to affiliates $3,628,000
The accompanying notes are an integral part of the combined financial statements
A-5
<PAGE>
JAMES HARDIE IRRIGATION GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
December 1, 1996
_______________
1. Basis of Presentation and Summary of Significant Accounting Policies:
THE COMPANIES
The combined financial statements of the James Hardie Irrigation Group (the
"Companies") have been prepared by combining the assets, liabilities,
divisional and shareholders' equity, results of operations and cash flows
of James Hardie Irrigation, a division of James Hardie Irrigation, Inc.
("Hardie U.S."), (a wholly owned subsidiary of J.H. Industries (USA), Inc.
(the "U.S. Parent")), James Hardie Irrigation Pty Limited ("Hardie
Australia"), a corporation organized under the laws of South Australia, and
James Hardie Irrigation Europe S.p.A. ("Hardie Europe"), a corporation
organized under the laws of Italy. The effects of all transactions between
the Companies have been eliminated in the combined financial statements.
Prior to the sale discussed in Note 12, the Companies were owned directly
or indirectly by an Australian company, James Hardie Industries Limited,
the ultimate parent company (the "Parent").
The Companies manufacture and distribute products for the landscape and
agricultural irrigation industries and market a wide selection of products
for residential and commercial irrigation applications. The Companies are
headquartered in Laguna Niguel, California; Beverly, South Australia; and
Fiano Romano, near Rome, Italy. The Companies also have production and
distribution facilities in various locations in the United States and
Australia.
Effective December 1, 1996 all of the issued and outstanding
shares of the Companies were acquired by The Toro Company ("Toro"). See
Note 12 to these combined financial statements.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash balances and all highly liquid
investments with original maturities of three months or less at the date of
purchase. The Companies maintain cash accounts with established commercial
banks.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using standard costs which approximate actual cost utilizing the first-in,
first-out ("FIFO") method. The Companies maintain inventory allowances for
slow-moving and obsolete inventory.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation of buildings, plant and
equipment is computed using the straight-line method based on the estimated
useful lives ranging from 3 to 40 years.
Continued
A-6
<PAGE>
JAMES HARDIE IRRIGATION GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
December 1, 1996
_______________
1. Basis of Presentation and Summary of Significant Accounting Policies,
Continued:
PROPERTY, PLANT AND EQUIPMENT, CONTINUED
Leasehold improvements are amortized on the straight-line basis over their
estimated economic useful lives or the life of the lease, whichever is
shorter.
Expenditures for maintenance and repairs are expensed as incurred. Costs
of major replacements and betterments are capitalized.
TOOLING COSTS
Perishable tooling costs are charged to expense in the year incurred.
Certain non-perishable tooling costs are capitalized in machinery and
equipment and depreciated over estimated useful lives which range from 3 to
8 years.
INTANGIBLE ASSETS
Intangible assets are stated at cost or at fair value as of the date
acquired in a business combination accounted for as a purchase, less
accumulated amortization. Amortization of intangible assets is computed on
a straight-line basis over their estimated useful lives of 17 years for
patents and 20 years for goodwill.
Goodwill is comprised of the excess of cost over the fair value of the net
assets of businesses acquired in purchase transactions. The Companies'
management periodically evaluates the realizability of goodwill, and
impairment losses, if any, are recognized when the expected nondiscounted
future operating cash flows derived from such assets are less than their
carrying value. During the year ended December 1, 1996, the
Companies adopted Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." SFAS No. 121 requires that long-lived assets
and certain identifiable intangible assets to be held and used be reviewed
for impairment whenever events or changes in circumstances indicate the
carrying amount of such assets may not be recoverable. The adoption of
SFAS No. 121 did not have any impact on the financial position, results of
operations, or cash flows of the Companies.
INCOME TAXES
The Companies are subject to taxation under applicable tax laws in the
United States, Australia, Italy and Greece. Hardie U.S. is included in
the consolidated tax return filed by the U.S. Parent, which is responsible
for making tax payments on behalf of the subsidiaries included in the
consolidated group. These tax payments are allocated to the various
members of the consolidated group through the intercompany accounts.
Hardie Australia and Hardie Europe file income tax returns and pay income
taxes on their own behalf. In the event of a taxable loss incurred by
Hardie Australia, the tax loss is transferred to the Parent or an affiliate
and the tax benefit is allocated to Hardie Australia.
Continued
A-7
<PAGE>
JAMES HARDIE IRRIGATION GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
December 1, 1996
_______________
1. Basis of Presentation and Summary of Significant Accounting Policies,
Continued:
INCOME TAXES, CONTINUED
The Companies account for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes", which prescribes an asset and liability
approach. The asset and liability method requires the recognition of
deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between tax bases and financial
reporting bases of assets and liabilities, using enacted tax rates in
effect for the year in which the differences are expected to reverse.
The provision for income taxes includes federal, state and foreign income
taxes currently payable as if each of the Companies had filed a separate
tax return, and those taxes deferred because of temporary differences
between the financial statement and tax bases of assets and liabilities.
Such temporary differences primarily result from the use of accelerated
methods of depreciation for tax purposes, allowances for accounts
receivable, differences between book and tax inventory, and accrued
expenses.
REVENUE RECOGNITION
The Companies recognize revenue when product is shipped to customers. The
Companies provide an allowance for potential sales returns when the product
is shipped.
WARRANTY COSTS
The Companies provide for estimated warranty costs as products are shipped.
ADVERTISING EXPENSES
Advertising expenses are charged to operations in the year incurred and
totalled $1,291,465 for the year ended December 1, 1996.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense in the year incurred
in accordance with SFAS No. 2, "Accounting for Research and Development
Costs."
SELF-INSURANCE
Hardie U.S. is self-insured through the U.S. Parent for health-related
costs for each employee working in the United States, up to a maximum of
$75,000 per covered person per policy year or an aggregate stop loss of
125% of Expected Paid Claims, as defined in the insurance contract. Any
amounts in excess of this maximum are subject to reimbursement by the
insurance carrier. Provisions for claims expected under this program are
recorded by the U.S. Parent (and allocated to Hardie U.S.), including the
U.S. Parent's estimate of the aggregate liability for claims incurred but
not reported through the year ended December 1, 1996 based on historical
information.
Continued
A-8
<PAGE>
JAMES HARDIE IRRIGATION GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
December 1, 1996
_______________
1. Basis of Presentation and Summary of Significant Accounting Policies,
Continued:
SEVERANCE COSTS
Under Italian and Greek law, Hardie Europe accrues deferred compensation
which is payable to employees when employment is terminated for any reason.
The severance liability included in the combined financial statements
represents the estimated amount payable to employees, based upon their
compensation and an inflation index as of December 1, 1996.
CONCENTRATION OF CREDIT RISK
The Companies are engaged in the business of manufacturing and distributing
products for the landscape and agricultural irrigation industries primarily
throughout the United States and Australia to various retailers,
wholesalers and installation contractors. Concentration of credit risk
with respect to trade receivables for the Companies is limited due to the
large number of customers comprising the Companies' customer base, and
their dispersion across several geographical regions. The Companies
maintain allowances for potential credit losses. In general, the Companies
do not require collateral in relation to these trade receivables.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires certain disclosures regarding the fair value of financial
instruments. Cash and cash equivalents, trade accounts receivable, trade
accounts payable, accrued expenses and other liabilities and amounts
currently due to and from affiliates approximate fair value because of the
short-term maturity of these instruments.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions for the reporting period and as of the financial statement
date. These estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent liabilities, and the
reported amounts of revenues and expenses. Actual results could differ
from those estimates.
FOREIGN CURRENCY TRANSLATION
The functional currency of each of the Companies is the applicable local
currency. The functional currency is translated into U.S. dollars in
accordance with SFAS No. 52, "Foreign Currency Translation," which is
performed for the balance sheet accounts using current exchange rates in
effect at the balance sheet date and for revenue and expense accounts using
a weighted average exchange rate during the year ended December 1, 1996.
The gains or losses resulting from such translations are included in
equity. Gains and losses from foreign currency transactions are included
in income currently.
Continued
A-9
<PAGE>
JAMES HARDIE IRRIGATION GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
December 1, 1996
_______________
2. Inventories:
Inventories consist of the following components as of December 1, 1996:
Finished goods $24,941,786
Raw materials 6,259,933
Work-in-process 3,974,316
-----------
35,176,035
Less: Inventory valuation allowance (4,126,672)
-----------
$31,049,363
-----------
-----------
3. Property, Plant and Equipment:
Property, plant and equipment consists of the following components as of
December 1, 1996:
Machinery and equipment $62,151,772
Buildings and improvements 11,885,333
Furniture and fixtures 1,364,615
Leasehold improvements 1,097,888
Land 1,391,522
Automobiles 1,011,927
Construction-in-progress 2,131,631
-----------
81,034,688
Less: Accumulated depreciation an
amortization (52,308,405)
-----------
$28,726,283
-----------
-----------
Construction-in-progress is primarily comprised of tooling and molds,
production machinery and equipment and certain computer equipment which has
not yet been placed in service.
Continued
A-10
<PAGE>
JAMES HARDIE IRRIGATION GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
December 1, 1996
_______________
4. Intangible Assets:
Intangible assets consist of the following components as of December 1,
1996:
Costs in excess of fair value of net assets of $7,642,904
businesses acquired
Patents and trade names 800,642
----------
8,443,546
Less: Accumulated amortization (5,465,156)
----------
$2,978,390
----------
----------
5. Other Assets:
Other assets consist of the following components as of December 1, 1996:
Purchased software $2,853,867
Deposits 191,416
----------
$3,045,283
----------
----------
In March 1994, Hardie U.S. suspended operations at its Carson City, Nevada
manufacturing facility and transferred the majority of the machinery and
equipment, inventory and personnel to other facilities of Hardie U.S. In
1995, the Carson City facility was held for sale and written down to its
net realizable value. Effective December 1, 1996, the Carson City land and
building were transferred to a subsidiary of the U.S. Parent.
In 1995, Hardie U.S. purchased satellite technology and computer software
from Sovran (PTY) Ltd. The acquired technology enables the operator to
control large irrigation systems from remote locations via computer.
Hardie U.S. is currently adapting the acquired technology to enhance its
line of irrigation products. As of December 1, 1996, Hardie U.S. has
capitalized $2,853,867 associated with the initial acquisition and
subsequent costs incurred to modify the then existing technology.
Amortization of these costs will commence upon the release of the new
product line to the market.
Continued
A-11
<PAGE>
JAMES HARDIE IRRIGATION GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
December 1, 1996
_______________
6. Income Taxes:
The following are the components of the income tax benefit income taxes
included in the combined statement of operations for the year ended
December 1, 1996. There was no provision for income taxes for Hardie Europe
for the year ended December 1, 1996.
Deferred:
U.S. Federal $10,800
Australian 499,433
U.S. State 3,200
-------
Income tax benefit $513,433
-------
-------
Deferred tax assets consist of the following components as of
December 1, 1996:
Gross deferred tax assets:
Inventory $1,885,744
Fixed assets 1,741,263
Allowance for doubtful accounts 786,724
Accrued expenses 3,122,513
Net operating loss carryforwards 937,137
Other 90,245
----------
Total deferred tax assets 8,563,626
Valuation allowance (1,483,689)
----------
Net deferred tax assets $7,079,937
----------
----------
Management has provided a valuation allowance against those net operating
loss carryforwards and temporary differences which will more likely than
not expire prior to utilization. This valuation allowance relates entirely
to the deferred tax assets of Hardie Europe. Management has not provided a
valuation allowance against deferred tax assets related to Hardie U.S. or
Hardie Australia, as management believes it is more likely than not that
sufficient taxable income will be generated in the foreseeable future to
realize these deferred tax assets. At December 1, 1996, net operating loss
carryforwards available to offset future taxable income of Hardie Europe
expire as follows:
March 1998 to March 1999 $2,033,000
March 1999 to March 2000 133,000
March 2000 to March 2001 368,000
----------
$2,534,000
----------
----------
Continued
A-12
<PAGE>
JAMES HARDIE IRRIGATION GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
December 1, 1996
_______________
6. Income Taxes, Continued:
The following is a reconciliation of the statutory U.S. federal tax rate
with the income tax rate effective for the Companies for the fiscal year
ended December 1, 1996:
U.S. statutory federal income rate 34.0%
State income rate, net of U.S. federal income tax benefit 5.3
Effect of U.S. permanent differences, net 4.0
Effect of foreign operations on income tax rate (54.1)
-----
Effective income tax rate (benefit) (10.8)%
-----
7. Accrued Expenses and Other Liabilities:
Accrued expenses and other liabilities consist of the following components
as of December 1, 1996:
Warranty $3,280,289
Advertising and promotion 639,906
Cooperative advertising 635,581
Vacation 1,869,472
Sales commissions 210,580
Accrued payroll 1,185,436
Deferred income 194,537
Other liabilities 1,700,695
----------
$9,716,496
----------
----------
8. Commitments and Contingencies:
The Companies conduct their operations from certain facilities that are
leased under operating leases over the next 3 to 7 years. There are
options to renew certain leases for additional periods of 2 to 5 years at
renegotiated rental amounts. Certain of these leases contain escalation
clauses and/or require the Companies to pay property taxes, insurance, and
maintenance costs. The Companies also lease certain vehicles and equipment
under operating lease agreements from various third parties with terms up
to 5 years.
Continued
A-13
<PAGE>
JAMES HARDIE IRRIGATION GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
December 1, 1996
_______________
8. Commitments and Contingencies, Continued:
The following are the remaining future minimum rental payments required
under the above operating leases for each of the next five years
ending December 1 and in total thereafter:
1997 $1,159,613
1998 586,455
1999 178,324
2000 17,010
2001 16,020
Thereafter 12,015
----------
$1,969,437
----------
----------
Rent expense was $1,117,494 for the year ended December 1, 1996.
Letters of credit are issued by the Companies during the ordinary course of
business, as required by certain vendor contracts. The Companies have
commitments for letters of credit totaling $3,097,981 at December 1, 1996.
The Companies are involved in certain asserted and unasserted potential
claims which have not been finally adjudicated. In the opinion of
management, the resolution of these matters will not have a material
adverse effect on the Companies' financial position or results of
operations.
9. Shareholders' and Divisional Equity:
At December 1, 1996, Hardie Australia had 100,000,000 authorized
ordinary shares and 34,538 authorized preference shares. All
authorized and issued shares have a par value of A$1 each. There were
12,000,000 ordinary shares and 34,538 preference shares issued and
outstanding at December 1, 1996. During 1996, certain loans due to
affiliates of Hardie Australia were repaid through the issuance of the
preference shares.
At December 1, 1996, Hardie U.S. had 25,000 shares of $.01 par value
common stock authorized, of which 1,000 shares were issued and
outstanding. During the year ended December 1, 1996, Hardie U.S.
recapitalized its divisional equity through the issuance of common
stock.
At December 1, 1996, Hardie Europe had 2,090 issued and outstanding shares
of stock with a par value of 1 Lit/million each.
10. Employee Benefit Plans:
The U.S. Parent sponsors a 401(k) defined contribution plan for Hardie U.S.
employees who have completed one year of service and are at least 21 years
of age. Employees may contribute up to 14% of their compensation on a
before-tax basis, subject to the maximum dollar amount allowed under
Section 404(a) of the Internal Revenue Code, as amended. The Company
matches 100% of each employee's contribution, limited to 6% of the
employee's compensation. Participants become immediately 100% vested in
their contributions and earnings thereon. All Company contributions vest
over a five-year period. The expense for Hardie U.S. related to this plan
was $360,487 for the year ended December 1, 1996.
Continued
A-14
<PAGE>
JAMES HARDIE IRRIGATION GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
December 1, 1996
_______________
10. Employee Benefit Plans, Continued:
The Parent also sponsors a defined contribution plan for employees of
Hardie Australia. Employees are eligible immediately upon commencement of
permanent employment, and may contribute up to 10% of their salary on a
before-tax basis. Hardie Australia provides a minimum benefit of at least
the superannuation guarantee amount determined by the Federal Government in
Australia (currently 6% of salary). Vesting is based on years of credited
service. Participants become immediately 100% vested in employee
contributions and earnings thereon. The expense for Hardie Australia
related to this plan was approximately $560,000 for the year ended December
1, 1996.
11. Related Party Transactions:
The Companies have short-term amounts receivable and payable to James
Hardie Industries Limited, the U.S. Parent and affiliates which are shown
net in the accompanying combined financial statements. These amounts are
related to various intercompany transactions including, among others, sales
of products to affiliates, purchases of product from affiliates, current
income taxes, and the allocation of certain operating expenses to the
Companies by James Hardie Industries Limited, the U.S. Parent and
affiliates. These amounts are due and payable on demand and do not bear
interest.
Sales of products to affiliates totaled approximately $1,600,000 for the
year ended December 1, 1996. Purchases of product from affiliates were
approximately $300,000 for the year ended December 1, 1996.
On June 12, 1996, Hardie Australia sold its investment interest in certain
depositary receipts issued by the Stichting Administration RIS
International Finance N.V. to an affiliate. This investment was acquired
in fiscal year 1988 at an initial cost of A$15,235,000 and was written down
to zero prior to the fiscal year ended December 1, 1996. Hardie Australia
did not receive cash in connection with this transaction but reduced an
intercompany payable account and recognized a gain of $7,065,294
(A$9,057,000) for the full amount of the sales price. This gain is
included in "other income, net" in the combined statement of operations.
Hardie U.S. has a loan payable to the U.S. Parent which bears interest at
the average six month LIBOR rate plus 0.4%. The effective interest rate on
this loan was 5.9% at December 1, 1996. The outstanding balance of this
loan was effectively repaid on December 2, 1996 when the companies were
acquired by The Toro Company. See Note 12 to these combined financial
statements.
Hardie Europe has a loan due to James Hardie Holdings Ltd., which bears
interest at the one-month LIBOR plus 0.75%. The effective interest rate on
this loan was 6.102% at December 1, 1996. The principal amount of this
loan is $5,000,000. In addition, Hardie Europe has a non-interest bearing
loan totaling $2,133,375 due to RIS International Finance N.V.. This loan
is denominated in Italian Lira. This loan was effectively repaid on
December 2, 1996 when the companies were acquired by The Toro Company. See
Note 12 to these combined financial statements.
Continued
A-15
<PAGE>
JAMES HARDIE IRRIGATION GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
December 1, 1996
_______________
11. Related Party Transactions, Continued:
Hardie U.S. receives interest income from or pays interest expense to the
U.S. Parent based upon the level of working capital employed. Hardie U.S.
also pays a management fee to the U.S. Parent and is allocated certain
general and administrative expenses.
12. Sale of the Company:
On September 18, 1996, the Parent entered into an agreement to sell
all of the issued and outstanding shares of the Companies to The Toro
Company for an initially estimated purchase price of $131,500,000.
The closing date purchase price was subsequently adjusted to
$119,125,000 based on the estimated unaudited aggregate shareholders'
equity on December 1, 1996. Based upon the shareholder's equity of
the Companies as of the closing date, the purchase price has been
reduced by approximately $10,545,000. In addition, under the
procedures established in the purchase agreement, Toro has delivered
a letter of objections to James Hardie, Ltd. related to the valuation
of assets, accounting methods applied, estimates used and other items.
The resolution of these objections may result in an additional reduction
of the purchase price.
A-16
<PAGE>
The Toro Company
Unaudited Pro Forma Condensed Combined Financial Statements
Effective December 1, 1996, The Toro Company acquired the James Hardie
Irrigation Group ("Hardie") from James Hardie, Ltd. under an agreement dated
September 18, 1996. The initial purchase price pursuant to the agreement was
estimated to be $131,500,000. The purchase price was subsequently adjusted
to $119,125,000 based on estimated, unaudited aggregate shareholders' equity
of Hardie on December 1, 1996, subject to further adjustment based on final
audit results.
Based on the financial statements of Hardie as of the acquisition date,
shareholders' equity at the acquisition date was approximately $10,545,000 less
than the estimated equity used as the closing date purchase price, and this
$10,545,000 is to be returned from James Hardie, Ltd. to Toro. In addition,
under the procedures established in the purchase agreement, Toro has delivered a
letter of objections to James Hardie, Ltd. related to the valuation of assets,
accounting methods applied, estimates used and other items. The resolution of
these objections may result in an additional reduction of the purchase price.
The acquisition is accounted for using the purchase method of accounting and,
accordingly, the adjusted purchase price of $108,580,000 has initially been
allocated based on the estimated fair values of assets acquired and
liabilities assumed on the date of acquisition. The excess of the purchase
price over the estimated fair value of net tangible assets acquired has been
recorded as goodwill and is being amortized on a straight-line basis over 20
years. Any additional reductions in the purchase price as a result of
resolution of the objections discussed in the preceding paragraph will result
in a reduction of goodwill and/or other net assets.
The unaudited pro forma condensed combined balance sheet and results of
operations are based on available information and certain assumptions regarding
the allocation of the purchase price, which could change significantly based on
the results of appraisals and finalization of the purchase price as a result of
the resolution of the objections discussed in the preceeding paragraph and other
analysis.
The accompanying pro forma condensed combined financial statements present the
effect of the acquisition on The Toro Company's financial position at October
31, 1996 and results of operations for the year then ended as if the acquisition
had taken place on October 31, 1996 with respect to the balance sheet and
November 1, 1995 with respect to the statement of operations. These pro forma
condensed combined financial statements were prepared utilizing The Toro
Company's October 31, 1996 balance sheet and results of operations for the year
then ended and Hardie Irrigation Group's December 1, 1996 balance sheet and
results of operations for the year then ended.
The pro forma condensed combined results of operations may not be indicative of
actual results which would have been obtained if the acquisition had occurred on
November 1, 1995.
B-1
<PAGE>
The Toro Company
Unaudited Pro Forma Condensed Combined Balance Sheet
October 31, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Hardie
The Toro Irrigation The Toro
Company Group Pro forma Company
(Historical) (Historical) adjustments (Pro forma)
---------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 66 971 1,037
Receivables, net 239,637 24,067 263,704
Inventories 130,288 31,049 161,337
Other current assets 35,010 7,418 42,428
---------- ---------- ----------
Total current assets 405,001 63,505 468,506
---------- ---------- ----------
Property, plant and equipment,
net 73,810 28,727 102,537
Other assets 18,066 6,498 43,625 (1) 68,189
---------- ---------- ---------- ----------
Total assets $ 496,877 98,730 43,625 639,232
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
LIABILITIES AND EQUITY
Bank overdrafts $ - 2,602 2,602
Current portion of long-term
debt 350 - 350
Short-term borrowing 41,025 - 119,667 (2) 160,692
Accounts payable and accrued
liabilites 166,482 19,837 186,319
Payable to affiliates - 48,813 (48,813) (1) -
---------- ---------- ---------- ----------
Total current liabilities 207,857 71,252 70,854 349,963
---------- ---------- ---------- ----------
Long-term debt, less current
portion 53,015 - 53,015
Other long term liabilities 22,438 249 22,687
---------- ---------- ---------- ----------
Total liabilities 283,310 71,501 70,854 425,665
Common shareholders' equity 213,567 27,229 (27,229) (1) 213,567
---------- ---------- ---------- ----------
Total liabilities and
common stockholders'
equity $ 496,877 98,730 43,625 639,232
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
B-2
<PAGE>
The Toro Company
Unaudited Pro Forma Condensed Combined Statement of Operations
Year ended October 31, 1996
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Hardie
The Toro Irrigation The Toro
Company Group Pro forma Company
(Historical) (Historical) adjustments (Pro forma)
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 930,909 143,874 $ 1,074,783
Cost of goods sold 589,186 101,072 690,258
----------- ---------- -----------
Gross profit 341,723 42,802 384,525
Selling, general and
administrative expenses 278,284 41,798 2,181 (3) 321,881
(382) (5)
----------- ---------- ---------- -----------
Earnings from operations 63,439 1,004 (1,799) 62,644
Interest expense to third parties 13,590 82 9,063 (4) 22,735
Management fees to affiliates - 791 (791) (5) -
Interest expense to affiliates - 3,349 (3,349) (5) -
Interest income from affiliates - (1,364) 1,364 (5) -
Other income, net (10,331) (6,605) 7,065 (6) (10,377)
(506) (5)
----------- ---------- ---------- -----------
Earnings before income
taxes 60,180 4,751 (14,645) 50,286
Income tax provision (benefit) 23,771 (513) (3,395) (7) 19,863
----------- ---------- ---------- -----------
Net earnings $ 36,409 5,264 (11,250) $ 30,423
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
Net earnings per share of
common stock and
common stock equivalent $ 2.90 $ 2.42
----------- -----------
----------- -----------
Weighted average shares of
common stock and common
stock equivalents outstanding
for the year (primary and fully 12,554,715 12,554,715
diluted) ----------- -----------
----------- -----------
</TABLE>
B-3
<PAGE>
The Toro Company
Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet
and Statement of Operations
1. Adjustments to reflect the acquisition of James Hardie Irrigation Group
and the allocation of the estimated purchase price and related capitalized
acquisition costs on the basis of estimated fair values of assets acquired
and liabilities assumed. The actual purchase price is based on the assets
acquired and liabilities assumed as of December 1, 1996, and is subject to
adjustment based on final audit results.
Hardie shareholder's equity at December 1, 1996 $ 27,229
Plus liabilities not assumed 48,813
Excess of purchase price over net book value of
assets acquired, including $16,725 of
estimated capitalized acquisition costs 43,625
-----------
$ 119,667
-----------
-----------
2. The acquisition has initially been financed with temporary short-term bank
debt; however, the Company has filed a shelf registration for issuance of
public debt which would replace all or a portion of the short-term debt
with long-term debt.
3. Represents amortization of the excess purchase price on a straight-line
basis over 20 years.
4. Additional interest expense related to the acquisition, assuming average
borrowings for acquisition debt and Hardie working capital of $125 million
at an annual interest rate of 7.25% representing the approximate average of
the long and short-term rates for the year. See Note 2 above regarding the
acquisition debt.
5. Represents intercompany interest income, interest expense, management fees
and other expenses to affiliates of Hardie which will not be recurring after
the acquisition.
6. In June 1996, Hardie sold a depositary receipt and realized a gain of
$7,065. This gain is not expected to be a recurring item subsequent to the
acquisition.
7. Represents the adjustment to tax expense required to arrive at a
combined pro forma tax rate of 39.5%. The income tax rate is based on
The Toro Company's tax structure.
B-4
<PAGE>
FORM 11-K
FOR ANNUAL REPORTS OF EMPLOYEE STOCK PURCHASE, SAVINGS
AND SIMILAR PLANS PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[ X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1996
-------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
-------------- ---------------
Commission file number 1-8649
-------------------
A. The Toro Company Investment and Savings Plan
B The Toro Company
8111 Lyndale Avenue South
Minneapolis, MN 55420
REQUIRED INFORMATION
The following financial statements shall be furnished for the plan:
1. An audited statement of financial condition as of the end of the latest two
fiscal years of the plan (or such lesser period as the plan has been in
existence).
2. An audited statement of income and changes in plan equity for each of the
latest three fiscal years of the plan (or such lesser period as the plan has
been in existence).
3. The statements required by Items 1 and 2 shall be prepared in accordance
with the applicable provisions of Article 6A of Regulation S-X (17 CFR
210.6A-01-.6A-05).
4. In lieu of the requirements of Items 1-3 above, plans subject to ERISA may
file plan financial statements and schedules prepared in accordance with the
financial reporting requirements of ERISA. To the extent required by ERISA, the
plan financial statements shall be examined by an independent accountant, except
that the "limited scope exemption" contained in Section 103(a)(3)(C) of ERISA
shall not be available.
Note: A written consent of the accountant is required with respect to the
plan annual financial statements which have been incorporated by reference in a
registration statement on Form S-8 under the Securities Act of 1933. The consent
should be filed as an exhibit to this annual report. Such consent shall be
currently dated and manually signed.
SIGNATURES
The Plan. Pursuant to the requirements of the Securities Exchange Act of
1934, the trustees (or other persons who administer the employee benefit plan)
have duly caused this annual report to be signed on its behalf by the
undersigned hereunto duly authorized.
The Toro Company Savings and Investment Plan
(Name of Plan)
Date June 30, 1997 /s/ Stephen P. Wolfe
------------- --------------------
Stephen P. Wolfe
Vice President - Finance
Chief Financial Officer
<PAGE>
THE TORO COMPANY
INVESTMENT AND SAVINGS PLAN
Financial Statements and Schedule
Year ended December 31, 1996 and the
five-month period ended December 31, 1995
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Plan Administrator
The Toro Company Investment and Savings Plan:
We have audited the accompanying statements of net assets available for plan
benefits of The Toro Company Investment and Savings Plan (the Plan) as of
December 31, 1996 and 1995, and the related statements of changes in net assets
available for plan benefits for the year ended December 31, 1996 and the
five-month period ended December 31, 1995. These financial statements are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for plan benefits as of December
31, 1996 and 1995 and the changes in net assets available for plan benefits for
the year ended December 31, 1996 and the five-month period ended December 31,
1995 in conformity with generally accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets held
for investment purposes is presented for the purpose of additional analysis and
is not a required part of the basic financial statements, but is supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. The fund information in the statement of net assets available for plan
benefits and the statement of changes in net assets available for plan benefits
is presented for purposes of additional analysis rather than to present the net
assets available for plan benefits and changes in net assets available for plan
benefits of each fund. The supplemental schedule and fund information have been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, are fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
<PAGE>
2
The Plan has not presented the schedule of reportable transactions (transactions
in excess of 5% of the current value of plan assets at the beginning year).
Disclosure of this information is required by the Department of Labor's Rules
and Regulations for Reporting and Disclosure under the Employee Retirement
Income Security Act of 1974.
KPMG Peat Marwick LLP
June 24, 1997
<PAGE>
THE TORO COMPANY INVESTMENT AND SAVINGS PLAN
Statement of Net Assets Available for Plan Benefits
December 31, 1996
<TABLE>
<CAPTION>
Putnam Putnam Putnam
Putnam Asset Asset Asset
Growth Allocation Allocation Allocation Putnam
and Fund Fund Fund Overseas
Toro Stable Income (Growth (Balanced (Conservative Growth
Value Fund Fund Portfolio) Portfolio) Portfolio) Fund
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets held by trustee:
Investments $ 37,129,761 28,800,695 6,197,085 8,420,008 4,235,289 4,268,244
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets available for plan benefits $ 37,129,761 28,800,695 6,197,085 8,420,008 4,235,289 4,268,244
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
The Toro
Putnam Company
Voyager Common
Fund Stock Total
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets held by trustee:
Investments 27,832,278 17,485,950 134,369,310
- --------------------------------------------------------------------------------------
Net assets available for plan benefits 27,832,278 17,485,950 134,369,310
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
1
<PAGE>
THE TORO COMPANY INVESTMENT AND SAVINGS PLAN
Statement of Net Assets Available for Plan Benefits
December 31, 1995
<TABLE>
<CAPTION>
Putnam Putnam Putnam
Putnam Asset Asset Asset
Growth Allocation Allocation Allocation Putnam
and Fund Fund Fund Overseas
Toro Stable Income (Growth (Balanced (Conservative Growth
Value Fund Fund Portfolio) Portfolio) Portfolio) Fund
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets held by trustee:
Investments $ 39,398,061 20,781,618 4,404,954 6,534,932 3,165,037 2,781,412
Employer contribution receivable 0 0 0 0 0 0
Employer contribution receivable 0 0 0 0 0 0
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets available for plan benefits $ 39,398,061 20,781,618 4,404,954 6,534,932 3,165,037 2,781,412
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
The Toro
Putnam Company
Voyager Common Unallocated
Fund Stock contributions Total
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets held by trustee:
Investments 21,055,823 16,019,914 0 114,141,751
Employer contribution receivable 0 0 13,582 13,582
Employer contribution receivable 0 0 43,150 43,150
- -----------------------------------------------------------------------------------------------------
Net assets available for plan benefits 21,055,823 16,019,914 56,732 114,198,483
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
THE TORO COMPANY INVESTMENT AND SAVINGS PLAN
Statement of Changes in Net Assets Available for Plan Benefits
Year ended December 31, 1996
<TABLE>
<CAPTION>
Putnam Putnam Putnam
Putnam Asset Asset Asset
Growth Allocation Allocation Allocation Putnam
and Fund Fund Fund Overseas
Toro Stable Income (Growth (Balanced (Conservative Growth
Value Fund Fund Portfolio) Portfolio) Portfolio) Fund
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Interest and dividends, net of plan expenses $ 1,301,562 2,413,654 327,202 604,156 265,079 57,647
Net appreciation in the fair value of investments 994,110 2,549,264 588,030 604,983 137,106 484,682
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income 2,295,672 4,962,918 915,232 1,209,139 402,185 542,329
Employer contributions 384,011 725,942 172,030 201,917 51,918 119,329
Employee contributions 645,683 1,499,130 424,444 429,955 113,006 317,597
Rollover contributions 5,207 31,931 12,209 11,871 10,776 11,621
- ----------------------------------------------------------------------------------------------------------------------------------
Total contributions 1,034,901 2,257,003 608,683 643,743 175,700 448,547
Benefit payments (2,801,479) (824,506) (62,915) (195,030) (65,457) (58,254)
Transfers between funds (2,826,759) 1,570,320 327,212 225,541 556,141 541,765
Transfers from other plans 29,365 53,342 3,919 1,683 1,683 12,445
- ----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
available for plan benefits (2,268,300) 8,019,077 1,792,131 1,885,076 1,070,252 1,486,832
Net assets available for plan benefits:
Beginning of year 39,398,061 20,781,618 4,404,954 6,534,932 3,165,037 2,781,412
- ----------------------------------------------------------------------------------------------------------------------------------
End of year $ 37,129,761 28,800,695 6,197,085 8,420,008 4,235,289 4,268,244
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
The Toro
Putnam Company
Voyager Common Unallocated
Fund Stock contributions Total
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:
Interest and dividends, net of plan expenses 1,747,782 235,428 0 6,952,510
Net appreciation in the fair value of investments 1,216,708 1,793,168 0 8,368,051
- --------------------------------------------------------------------------------------------------------------
Net investment income 2,964,490 2,028,596 0 15,320,561
Employer contributions 791,504 1,781,729 0 4,228,380
Employee contributions 2,123,524 272,353 0 5,825,692
Rollover contributions 66,833 4,511 0 154,959
- --------------------------------------------------------------------------------------------------------------
Total contributions 2,981,861 2,058,593 0 10,209,031
Benefit payments (806,314) (983,527) 0 (5,797,482)
Transfers between funds 1,314,305 (1,651,793) (56,732) 0
Transfers from other plans 322,113 14,167 0 438,717
- --------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 6,776,455 1,466,036 (56,732) 20,170,827
available for plan benefits
Net assets available for plan benefits:
Beginning of year 21,055,823 16,019,914 56,732 114,198,483
- --------------------------------------------------------------------------------------------------------------
End of year 27,832,278 17,485,950 0 134,369,310
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
THE TORO COMPANY INVESTMENT AND SAVINGS PLAN
Statement of Changes in Net Assets Available for Plan Benefits
Five-month period ended December 31, 1995
<TABLE>
<CAPTION>
Putnam Putnam Putnam
Putnam Asset Asset Asset
Growth Allocation Allocation Allocation Putnam
and Fund Fund Fund Overseas
Toro Stable Income (Growth (Balanced (Conservative Growth
Value Fund Fund Portfolio) Portfolio) Portfolio) Fund
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Interest and dividends, net of plan expenses $ 1,221,334 1,112,039 192,575 309,307 130,075 54,604
Net appreciation in the fair value of investments 0 1,065,772 89,045 108,071 60,389 101,675
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income 1,221,334 2,177,811 281,620 417,378 190,464 156,279
Employer contributions 94,133 152,050 36,922 42,522 10,867 22,339
Employee contributions 350,532 698,337 210,265 213,293 52,778 154,587
Rollover contributions 2,760 8,134 709 0 0 7,808
- ----------------------------------------------------------------------------------------------------------------------------------
Total contributions 447,425 858,521 247,896 255,815 63,645 184,734
Benefit payments (3,263,682) (210,490) (40,184) (24,399) (6,146) (7,280)
Transfers between funds (36,275,502) 10,368,725 (1,264,864) 5,886,138 2,917,074 2,447,679
Transfers from other plans 30,894,325 2,662,790 876,733 0 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
available for plan benefits (6,976,100) 15,857,357 101,201 6,534,932 3,165,037 2,781,412
Net assets available for plan benefits:
Beginning of period 46,374,161 4,924,261 4,303,753 0 0 0
- ----------------------------------------------------------------------------------------------------------------------------------
End of period $ 39,398,061 20,781,618 4,404,954 6,534,932 3,165,037 2,781,412
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
The Toro
Putnam Company
Voyager Common Unallocated
Fund Stock contributions Total
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment income:
Interest and dividends, net of plan expenses 1,112,269 63,836 0 4,196,039
Net appreciation in the fair value of investments 837,371 2,091,930 0 4,354,253
- --------------------------------------------------------------------------------------------------------------
Net investment income 1,949,640 2,155,766 0 8,550,292
Employer contributions 152,177 175,902 13,582 700,494
Employee contributions 978,443 128,069 43,150 2,829,454
Rollover contributions 29,317 0 0 48,728
- --------------------------------------------------------------------------------------------------------------
Total contributions 1,159,937 303,971 56,732 3,578,676
Benefit payments (202,592) (817,684) 0 (4,572,457)
Transfers between funds 18,148,838 2,027,479 (4,255,567) 0
Transfers from other plans 0 12,350,382 2,029,099 48,813,329
- --------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets 0
available for plan benefits 21,055,823 16,019,914 (2,169,736) 56,369,840
Net assets available for plan benefits:
Beginning of period 0 0 2,226,468 57,828,643
- --------------------------------------------------------------------------------------------------------------
End of period 21,055,823 16,019,914 56,732 114,198,483
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
THE TORO COMPANY
INVESTMENT AND SAVINGS PLAN
Notes to Financial Statements
December 31, 1996 and 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF STATEMENT PRESENTATION
Effective August 1, 1995, The Toro Company (the Company) merged four of its
profit sharing and retirement plans (the Toro Company Profit Sharing
Plan and Trust Agreement for Minneapolis Factory Employees, the Toro
Company Profit Sharing Plan and Trust Agreement for Windom Factory
Employees, the Toro Company Profit Sharing Plan and Trust Agreement for
Hourly Employees, and the Toro Company Matching Stock Plan) with the
Toro Company Profit Sharing Plan and Trust Agreement for Office
Employees. As a result of this merger, the net assets of the four plans
were transferred to the Toro Company Profit Sharing Plan and Trust
Agreement for Office Employees on August 1, 1995. The surviving plan,
The Toro Company Profit Sharing Plan and Trust Agreement for Office
Employees, was then renamed and restated as the Toro Company Investment
and Savings Plan (the Plan).
The fiscal year end of the Plan was changed from July 31st to December 31st
effective August 1, 1995. The periods presented in the accompanying
financial statements of the Plan represent the transitional period for
the change in the Plan's fiscal year and includes statements of net
assets available for plan benefits as of December 31, 1996 and 1995 and
statements of changes in net assets available for plan benefits for the
year ended December 31, 1996 and the five-month period ended December
31, 1995.
The accompanying financial statements of the Plan are presented in
accordance with generally accepted accounting principles.
INVESTMENTS
Currently, the Company maintains one fund, the Toro Stable Value Fund,
within the master trust agreement for three profit sharing and
retirement plans which are sponsored by the Company. The three plans
include the Toro Company Profit Sharing Plan and Trust Agreement for
Plymouth Union Employees, the Toro Company Investment and Savings Plan,
and the Toro Company Employee Stock Ownership Plan. The purpose of the
master trust is to pool investment transactions and achieve uniform
rates of return on comparable funds under all plans.
On August 1, 1995, the investment assets of the Toro Company Profit Sharing
Plan and Trust Agreement for Minneapolis Factory Employees, the Toro
Company Profit Sharing Plan and Trust Agreement for Windom Factory
Employees, the Toro Company Profit Sharing Plan and Trust Agreement for
Hourly Employees, and the Toro Company Matching Stock Plan were
transferred to the Plan.
(Continued)
5
<PAGE>
THE TORO COMPANY
INVESTMENT AND SAVINGS PLAN
The Plan's investments were held by Putnam Fiduciary Trust Company (the
Trustee) as of December 31, 1996. Plan investments are invested in the
following investment funds:
(a) The Toro Stable Value Fund is invested in investment contracts with
insurance companies, major banks, and other financial institutions.
The fund's holdings may also include U.S. government agency
mortgage-backed securities, AAA-rated asset-backed securities,
high-quality debt securities, and money market investments.
(b) The Putnam Growth and Income Fund is invested in common stock of
companies with current income and capital growth.
(c) The Putnam Asset Allocation Fund (Growth Portfolio) is invested in
approximately 80% equity securities (primarily common stock) and 20%
debt securities.
(d) The Putnam Asset Allocation Fund (Balanced Portfolio) is invested in
approximately 65% equity securities (primarily common stock) and 35%
debt securities.
(e) The Putnam Asset Allocation Fund (Conservative Portfolio) is
invested in approximately 35% equity securities (primarily common
stock) and 65% debt securities.
(f) The Putnam Overseas Growth Fund is invested primarily in equity
securities of companies located outside North America.
(g) The Putnam Voyager Fund is invested primarily in common stocks of
small to medium sized companies that have the potential for
long-term capital appreciation.
(h) The Toro Company's common stock.
The Plan's share of net investment income from the master trust is
determined by the Trustee based on the ratio of the fair value of the
Plan's equity in the investment funds to the total net assets of the
investment fund at the beginning of the plan year.
The investment securities are stated at market values based upon published
quotations or, in the absence of available quotations, at fair values
determined by the Trustee. Purchases and sales of securities are
recorded on a trade-date basis.
The short term securities of the Toro Stable Value Fund are stated at cost,
which approximates market. The Toro Stable Value Fund includes various
fully benefit responsive investment contracts. These contracts are
valued in the Plan at contract value, which includes cost plus accrued
interest. These contracts have stated interest rates ranging from 5.41%
to 8.98% and maturities ranging from the year 1997 through the year
2001.
(Continued)
6
<PAGE>
THE TORO COMPANY
INVESTMENT AND SAVINGS PLAN
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(2) DESCRIPTION OF PLAN
The Plan is a defined contribution profit sharing plan sponsored by the
Company. The Company, as administrator of the Plan, absorbs the major
portion of administrative costs and trustee fees of the Plan.
A general description of the Plan is contained in the Plan document dated
July 20, 1995. Participants should refer to the Plan document for more
complete information.
Contributions are made under control of the plan administrator. Unallocated
contributions represent contributions receivable which have not yet been
allocated to the above-mentioned funds in the participants'
predetermined allocation percentages. The allocation of the
participants' and Company contributions to these investment funds is
selected by the participants.
Benefit payments and transfers of participants' interests are made under
control of the Trustee. Company matching contributions, together with
income attributable thereto, will vest at the rate of 20% after one year
of vesting service, with an additional 20% being accumulated annually
thereafter until the participant is 100% vested.
(3) CONTRIBUTIONS
The Company's funding policy is to make annual contributions to the Plan in
amounts determined by a formula set forth in the Plan. The contribution
formula is based on 5.5% of the participants' total compensation earned
during the plan year plus 5.5% of the participants' compensation above
the Social Security taxable wage base as of the beginning of the plan
year. In addition, the Company is required to make a matching
contribution equal to 50% of the participants' contributions to the Plan
not to exceed two percent of the participant's total compensation. The
contribution formula specifies a minimum annual contribution to the
Plan. The Company contribution is allocated to participants based on
compensation earned during the plan year. Investment income is allocated
based on participants' account balances.
The employee contributions consist of salary reduction elections under a
401(k) feature and rollover funds from other qualified plans.
(Continued)
7
<PAGE>
THE TORO COMPANY
INVESTMENT AND SAVINGS PLAN
(4) PARTY-IN-INTEREST TRANSACTIONS
Putnam Fiduciary Trust Company and The Toro Company are parties-in-interest
with respect to the Plan. In the opinion of the Plan's legal counsel,
transactions between the Plan and the Trustee and the Company are exempt
from being considered as "prohibited transactions" under the Employee
Retirement Income Security Act of 1974 (ERISA) Section 408(b).
(5) PLAN TERMINATION
The Company has voluntarily agreed to make contributions to the Plan.
Although the Company has not expressed any intent to terminate the
profit sharing plan agreement, it may do so at any time. Upon
termination of the Plan, the interest of the participants in the Plan
shall fully vest.
(6) INVESTMENTS
Under the terms of the trust agreement, the Trustee manages investment
funds on behalf of the Plan. The Trustee has been granted discretionary
authority concerning the purchases and sales of the investments of the
investment funds. In accordance with the trust agreement, certain assets
of the Plan are held together with assets of other plans sponsored by
the Company in the master trust.
Guaranteed investment contracts of the Toro Stable Value Fund of $2,132,761
issued by Confederation Life Insurance Company (CL) were held as of
December 31, 1996. On August 12, 1994, CL was placed under court
supervised rehabilitation. Beginning August 1, 1995, payments from the
CL annuity contracts have been suspended pending further court action
until such time as the fair market value of the CL annuity contracts can
be determined. The action suspending distributions was consistent with
procedures published by the Internal Revenue Service. Effective August
1, 1995, a loan agreement has been established between the Company and
the Plan providing the Company to fund payments to plan participants (or
their beneficiaries) for 100% of the interests of plan participants in
the CL annuity contracts based on the valuation of the CL annuity
contracts as of August 11, 1994.
The CL annuity contracts are recorded in the accompanying financial
statements and schedule at cost plus accrued interest as of August 11,
1994. No earnings have been recorded in the Plan's financial statements
since August 11, 1994 related to these contracts.
As of the date of this report, the Company is not aware of any principal
loss associated with these investments. Accordingly, no provision for
loss on the CL annuity contracts has been recognized in the accompanying
financial statements.
(Continued)
8
<PAGE>
THE TORO COMPANY
INVESTMENT AND SAVINGS PLAN
The net assets available for benefits of the master trust totaled
$38,396,941 at December 31, 1996.
The net assets available for benefits of the master trust at December 31,
1995 were as follows:
Toro Stable
Value Fund
-----------------------------------------------------------
Investments:
Short term investment funds $824,163
Separate accounts 4,502,914
Guaranteed investment contracts 35,200,461
-----------------------------------------------------------
Total assets available for benefits $40,527,538
-----------------------------------------------------------
-----------------------------------------------------------
The changes in net assets available for benefits of the master trust for
the year ended December 31, 1996 were as follows:
Toro Stable
Value Fund
-----------------------------------------------------------
Investment income (interest and dividends) $2,379,455
Deposits by participating plans 1,085,723
Withdrawals by participating plans (5,595,775)
------------------------------------------------------------
Decrease in net assets (2,130,597)
Net assets available for benefits:
Beginning of year 40,527,538
-----------------------------------------------------------
End of period year $38,396,941
-----------------------------------------------------------
-----------------------------------------------------------
(Continued)
9
<PAGE>
THE TORO COMPANY
INVESTMENT AND SAVINGS PLAN
The changes in net assets available for benefits of the master trust for
the year ended December 31, 1995 were as follows:
Toro Stable
Value Fund
-----------------------------------------------------------
Investment income (interest and dividends) $1,251,849
Deposits by participating plans 3,288,117
Withdrawals by participating plans (42,581,535)
-----------------------------------------------------------
Decrease in net assets (38,041,569)
Net assets available for benefits:
Beginning of year 78,569,107
-----------------------------------------------------------
End of year $40,527,538
-----------------------------------------------------------
-----------------------------------------------------------
The Plan's proportionate share of net investment income from the master
trust is based upon the percentage of the fair value of the Plan's
investment in the master trust's assets. The Plan's percentage
interest in the net assets of the master trust was approximately 97%
as of December 31, 1996.
The following investments represent 5% or more of the Plan's net assets
available for plan benefits as of December 31, 1996:
Toro Stable Value Fund $37,129,761
Putnam Growth and Income Fund 28,800,695
Putnam Asset Allocation Fund (Balanced Portfolio) 8,420,008
Putnam Voyager Fund 27,832,278
The Toro Company common stock 17,485,950
(7) FEDERAL INCOME TAXES
The plan administrator has received a determination letter from the
Internal Revenue Service dated July 18, 1996 stating that the Plan is
qualified under Section 401(a) of the Internal Revenue Code and that the
trust created under the Plan is exempt from federal income taxes under
Section 501(a) of the Code. The plan administrator believes that the
Plan and its related trust continue to qualify under the provisions of
Sections 401(a) and 501(a) of the Code and are exempt from federal
income taxes.
10
<PAGE>
SCHEDULE 1
THE TORO COMPANY
INVESTMENT AND SAVINGS PLAN
Item 27a--Schedule of Assets Held for Investment Purposes
December 31, 1996
<TABLE>
<CAPTION>
Face amount Market
Description or shares Cost value
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Toro Stable Value Fund* 36,048,312 $ 36,171,281 37,129,761
Putnam Growth and Income Fund* 1,598,263 25,091,973 28,800,695
Putnam Asset Allocation Fund (Growth Portfolio)* 551,833 5,459,628 6,197,085
Putnam Asset Allocation Fund (Balanced Portfolio)* 802,670 7,739,733 8,420,008
Putnam Asset Allocation Fund (Conservative Portfolio)* 442,097 4,053,325 4,235,289
Putnam Overseas Growth Fund* 283,982 3,698,280 4,268,244
Putnam Voyager Fund* 1,726,568 26,018,927 27,832,278
The Toro Company common stock* 479,067 11,647,495 17,485,950
- --------------------------------------------------------------------------------------------------------------
Total investments $ 119,880,642 134,369,310
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
*Party-in-interest.
See accompanying independent auditor's report.
1
<PAGE>
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
The Toro Company:
We consent to the incorporation by reference in the registration statements of
The Toro Company on Forms S-3 and S-8 (File Nos. 333-20901, 33-26268, 33-31586,
33-38308, 33-44668, 33-51563, 33-55550, 33-59563, and 333-4521) of our report
dated June 24, 1997, relating to the statements of net assets available for plan
benefits of The Toro Company Investment and Savings Plan as of December 31,
1996 and 1995, and the related statements of changes in net assets available for
plan benefits for the year ended December 31, 1996 and the five-month period
ended December 31, 1995.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
June 30, 1997
<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
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
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 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was 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
February 10, 1997
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, March 13, 1997 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 1997.
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, March 13, 1997 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 three directors, each to serve for a term of three years;
2. To approve amendments to the Continuous Performance Award Plan as described
in the Proxy Statement which follows this Notice;
3. To approve amendments to the Annual Management Incentive Plan as described
in the Proxy Statement which follows this Notice;
4. To approve the selection of auditors for the Company for Fiscal 1997 (the
fiscal year ending October 31, 1997); and
5. 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 February 27, 1997, 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. The
list of stockholders will be available at the Annual Meeting for the same
purpose.
Only stockholders of record on January 13, 1997 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 ENCLOSED PROXY
CARD PROMPTLY.
February 10, 1997
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, March 13, 1997 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 February 10, 1997.
ANNUAL REPORT
The Annual Report of the Company for Fiscal 1996 (the fiscal year ended
October 31, 1996) 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 per share (the "Common Stock"), and the Company will reimburse them for
reasonable out-of-pocket expenses. In addition to solicitation by mail, certain
officers and employees of the Company, who will receive no compensation for such
services other than regular employee compensation, may solicit proxies by
telephone, electronic transmission and personally. The Company has retained
Morrow & Co. to assist in distributing proxy materials and in making mail,
telephone and personal solicitation of proxies from holders of the Common Stock.
The fee of such firm is estimated to be $4,500 plus out-of-pocket costs and
expenses.
VOTING RIGHTS
Holders of record of the Common Stock at the close of business on January
13, 1997 (the "Record Date") will be entitled to vote at the Annual Meeting and
any adjournment thereof. On that date, the Company had outstanding and entitled
to vote 12,125,331 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 749,472 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. An abstention will thus be the equivalent of a negative vote.
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.
FISCAL YEAR END/TRANSITION PERIOD
In August 1995, the Board of Directors of the Company approved a change in
the Company's fiscal year end from July 31 to October 31. The period from August
1, 1995 through October 31, 1995 thereby became a "Transition Period". The
disclosures made in this Proxy Statement relate to the fiscal year ended October
31, 1996, the Transition Period and, in some cases, the fiscal years ended July
31, 1995 and 1994.
PRINCIPAL HOLDERS OF COMPANY STOCK
The following table sets forth information as of January 13, 1997
regarding the beneficial ownership of the Common Stock of the Company by each of
the directors and nominees, each of the Chief Executive Officer and the four
other most highly compensated executive officers (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 PERCENT
TITLE OF NAME OF OF BENEFICIAL OF
CLASS BENEFICIAL OWNER (1) OWNERSHIP CLASS
- ------------ --------------------------- ------------------- ------
<S> <C> <C> <C>
Common Stock Fidelity Management & 909,000(2) 7.5%
Research Company
82 Devonshire Street
Boston, MA 02109-3614
Common Stock Ronald O. Baukol 776 *
Robert C. Buhrmaster 1,654 *
Janet K. Cooper 2,087(3) *
Calvin R. Hendrix(4) 7,713(3) *
Gerald T. Knight 57,846(3) *
Charles B. Lounsbury 40,613(3) *
J. David McIntosh 69,363(3)(5) *
Kendrick B. Melrose 588,563(3) 4.7%
Alex A. Meyer 2,804(3) *
Robert H. Nassau 2,025(3) *
Dale R. Olseth 7,418(3) *
Edwin H. Wingate 3,153(3) *
Common Stock All directors & executive 919,776(5)(6) 7.2%
officers as a group
(17 persons)
</TABLE>
- ------------------------
* Less than 1% of the outstanding shares of Common Stock.
2
<PAGE>
(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) According to a Form 13G filed by FMR Corp., Fidelity Management & Research
Company ("Fidelity"), a subsidiary of FMR Corp. and registered investment
advisor, is the beneficial owner of 780,600 of these shares or 6.48% of the
outstanding Common Stock. Edward C. Johnson 3d, Chairman of FMR Corp. ("Mr.
Johnson"), FMR Corp., through its control of Fidelity, and Fidelity Funds
each has sole power to dispose of the 780,600 shares owned by the Funds.
Neither FMR Corp. nor Mr. Johnson has the sole power to vote or direct the
voting of the shares owned directly by the Fidelity Funds, which power
resides with the Funds' Boards of Trustees. Fidelity carries out the voting
of the shares under written guidelines established by the Funds' Boards of
Trustees. Fidelity Management Trust Company ("Fidelity Trust"), a
wholly-owned subsidiary of FMR Corp. and a bank, is the beneficial owner of
128,400 shares or 1.07% of the outstanding Common Stock as a result of
serving as investment manager of institutional accounts. Mr. Johnson and FMR
Corp., through its control of Fidelity Trust, have sole dispositive power
over these 128,400 shares and sole power to vote or to direct the voting of
119,400 shares, and no power to vote or to direct the voting of 9,000
shares. According to the Form 13G, members of Mr. Johnson's family and
trusts for their benefit are deemed to form a controlling group with respect
to FMR Corp. This information is as of March 31, 1996, the date of the most
recent report on Form 13G received by the Company.
(3) Includes shares that may be acquired upon exercise of stock options within
60 days and shares allocated under employee benefit plans. Stock options
exercisable in 60 days for each of the named directors and executive
officers are as follows: Janet K. Cooper 1,000 shares, Alex A. Meyer 1,000
shares, Robert H. Nassau 1,000 shares, Dale R. Olseth 1,000 shares, Edwin H.
Wingate 1,000 shares, Kendrick B. Melrose 430,968 shares (including a
300,000 share salary replacement option, the final 100,000 shares which
became exercisable December 10, 1996), Gerald T. Knight 48,150 shares, J.
David McIntosh 39,485 shares, Calvin R. Hendrix no shares, Charles B.
Lounsbury 33,991 shares and all other executive officers as a group 82,489
shares.
(4) Mr. Hendrix resigned as an officer of the Company effective January 15,
1997.
(5) Includes 434 shares held of record by spouse as custodian for minor
children. Mr. McIntosh disclaims beneficial ownership of these shares.
(6) Includes 2,129 shares held of record by spouses or minor children of
executive officers, with respect to which the officer may disclaim
beneficial ownership.
3
<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. 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 has currently fixed the number of directors at eight. 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
Janet K. Cooper, Kendrick B. Melrose and Edwin H. Wingate. The three nominees
have consented to serve if elected.
- --------------------------------------------------------------------------------
NOMINEES FOR ELECTION TO BOARD OF DIRECTORS
(TERM ENDING AFTER FISCAL 1999)
- --------------------------------------------------------------------------------
[PHOTO] JANET K. COOPER, age 43.
Vice President and Treasurer since July
1992, The Quaker Oats Company, Chicago,
Illinois (foods and beverages). She
previously served as Assistant Treasurer
from March 1990 to July 1992 and as
Director-Planning of North American
Foods from September 1989 to March 1990.
First elected to the Toro Board in 1993,
she is also Chairman of the Audit
Committee and a member of the Nominating
Committee.
Ms. Cooper is a director of Midwest
Region Advisory Board of Awkwright
Insurance Company.
- --------------------------------------------------------------------------------
[PHOTO] KENDRICK B. MELROSE, age 56.
Chairman of Toro since December 1987 and
Chief Executive Officer of Toro since
December 1983. Elected President of Toro
in December 1995. Employed by The Toro
Company since 1970. First elected to the
Toro Board in February 1981, Mr. Melrose
is also Chairman of the Executive
Committee and an ex-officio member of
the Nominating Committee.
Mr. Melrose is a director of BSI
Corporation, Donaldson Company, Inc.,
Jostens, Inc. and The Valspar
Corporation.
4
<PAGE>
The Executive Committee's 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 either Fiscal 1996 or the Transition
Period.
The Audit Committee, which is comprised of directors elected by the Board
from among 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 or termination of the
Company's independent auditors; review of the professional services, proposed
fees and independence of such auditors; review with the independent auditors of
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. One meeting of the committee was held
during Fiscal 1996 and one meeting was held during the Transition Period.
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; incentive
compensation plans and officer salary adjustments; making incentive compensation
awards and setting base salaries for officers referred to in Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code") and administrative
oversight of stock option plans and other incentive and compensation plans. One
meeting of the committee was held during Fiscal 1996 and one meeting was held
during the Transition Period.
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 or its directors or employees 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. One meeting of the committee was held during Fiscal
1996 and no meeting was held during the Transition Period.
BOARD COMPENSATION. Board compensation for outside directors includes a
cash annual retainer and meeting fees, in addition to an annual Common Stock
grant having a $5,000 market value (valued at the average of the closing prices
of Common Stock during the three months prior to award) and a 1,000 share stock
option award (with an exercise price per share equal to 100% of the fair market
value of one share of Common Stock on the date of grant) pursuant to The Toro
Company 1992 Directors Stock Plan. During Fiscal 1996, each outside director was
paid an annual retainer of $15,000 plus a fee of $1,000 for each meeting of the
Board or a committee attended, except that no more than one committee meeting
fee was paid for committee meetings held in a single day. The Company also
supplies directors with 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, or a combination of both. Shares
issued in lieu of cash may be authorized but unissued Common Stock or shares of
Common Stock held in the Company's treasury.
7
<PAGE>
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 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 retirement plan, an outside director who was a member of the Board
of Directors prior to December 1995, who has completed five years of service and
who 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
full amount paid as an annual retainer at the date of termination. Commencing
December 1995, the annual payment may not exceed $12,000 annually to any outside
director, and payments to new directors will be limited to an amount equal to
50% of the amount paid as an annual retainer at the date of termination. In the
event of the death of a director who qualifies for the plan, the retirement
benefit will be paid to the director's beneficiary, in quarterly or annual
installments or a lump sum (discounted to then present value), as previously
elected by the director.
Each director is also a party to an indemnification agreement which
assures the director of indemnification and advancement of expenses to the
fullest extent permitted by Delaware law and the Company's Certificate of
Incorporation (regardless of, among other things, any amendment to or revocation
of the Certificate of Incorporation, any change in the composition of the Board
of Directors or the occurrence of any acquisition of the Company) and of
continued coverage under the Company's directors and officers liability
insurance, to the extent it is maintained.
VOTE REQUIRED. THE AFFIRMATIVE VOTE OF HOLDERS OF A MAJORITY OF SHARES OF
COMMON STOCK REPRESENTED AT THE MEETING IS REQUIRED FOR THE ADOPTION OF ITEM 1.
ALL PROXIES WILL BE VOTED FOR ITEM 1 UNLESS A CONTRARY CHOICE IS INDICATED.
8
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and non-cash compensation paid for
services in all capacities to the Company for the Chief Executive Officer and
each of its four other highest paid executive officers who were serving as
executive officers on October 31, 1996, for the fiscal years ended October 31,
1996, July 31, 1995 and July 31, 1994 and for the three-month Transition Period
ended October 31, 1995 ("TP95").
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
--------------------
ANNUAL COMPENSATION
-------------------------------------------- AWARDS
OTHER ANNUAL --------------------
NAME AND SALARY BONUS COMPENSATION RESTRICTED OPTIONS
PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) STOCK($)(3) (#)(4)
- -------------------------------------------------- ---- ----------- --------------- ------------ ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Kendrick B. Melrose 1996 438,337(7) 256,669 673,373 -0- 20,065
Chairman of the Board TP95 101,625(7) 189,938 643,632 -0- 29,028
& Chief Executive Officer 1995 380,000(7) 420,000 1,204,329 499,993 50,255
1994 355,304(7) 227,652 123,628 -0- 44,921
Gerald T. Knight 1996 239,550 95,820 105,313 -0- 2,446
Vice President Finance & TP95 58,656 38,126 66,068 -0- 10,893
Chief Financial Officer 1995 227,370 159,159 34,174 -0- 13,222
1994 218,463 87,385 22,176 -0- 37,385
J. David McIntosh 1996 215,328 83,729 281,971 -0- 2,026
Group Vice President TP95 50,124 32,581 305,299 -0- 8,238
1995 195,246 136,672 30,702 -0- 9,750
1994 179,976 89,988 10,188 -0- 7,982
Calvin R. Hendrix 1996 213,248 83,263 -0- -0- 2,084
Vice President & General TP95 51,610 33,547 31,642 -0- 9,443
Manager, Irrigation Division 1995 201,990 141,393 12,655 -0- 11,513
1994 166,251 88,805(9)(10) -0- 210,000 14,030
Charles B. Lounsbury 1996 223,754 68,491 -0- -0- 2,123
Group Vice President TP95 52,155 33,901 33,696 -0- 9,686
1995 205,752 128,904 12,710 -0- 11,802
1994 133,344 76,807(10) -0- 49,250 13,911
<CAPTION>
PAYOUTS
--------
LTIP ALL OTHER
NAME AND PAYOUTS COMPENSATION
PRINCIPAL POSITION ($)(5) ($)(6)
- -------------------------------------------------- -------- ------------
<S> <C> <C>
Kendrick B. Melrose 361,390 157,106
Chairman of the Board (8) 285
& Chief Executive Officer 427,964 139,146
317,529 100,029
Gerald T. Knight 42,161 35,786
Vice President Finance & (8) 134
Chief Financial Officer 50,680 43,350
38,089 15,678
J. David McIntosh 37,878 37,380
Group Vice President (8) 115
43,520 42,461
31,379 40,903
Calvin R. Hendrix 37,407 11,640
Vice President & General (8) 118
Manager, Irrigation Division 45,023 -0-
-0- -0-
Charles B. Lounsbury 39,381 33,163
Group Vice President (8) 119
45,862 37,786
-0- 16,292
</TABLE>
- ------------------------
(1) Amounts indicated include payments made or deferred at the election of the
officer pursuant to the Annual Management Incentive Plan, as in effect for
Fiscal 1996, the 1995 Annual Management Incentive Plan and the 1994
Management Recovery Incentive Plan. Bonus amounts paid under the Annual
Management Incentive Plan for Fiscal 1996 and the Transition Period are
based on an EPS goal. See the Compensation Committee Report. Amounts for the
Transition Period reflect bonus awards made in lieu of awards under the
Annual Management Incentive Plan and are based on achievement of a target
EPS goal established by the Committee. These amounts also include bonus
payments for the Transition Period in lieu of an award under the Continuous
Performance Award Plan, which amounts are not included under the LTIP
Payouts column. 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) on
stock options exercised. 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 exercise or actual sale price. The value of executive perquisites
otherwise reportable as Other Annual Compensation did not exceed $50,000 or
10% of the compensation reported in the table for any named individual.
(3) Amounts in column reflect the value of shares awarded as of the date of
award. Award of restricted stock to Mr. Melrose is subject to
performance-based conditions on vesting which, if not met, will result in
forfeiture of shares. A total of 17,467 shares (having the value set forth
in the table) were awarded to Mr. Melrose on July 31, 1995 under the Chief
Executive Officer Succession Incentive Plan which was approved by
stockholders in 1994. Those shares vest 15% not later than July 31, 1998,
15% not later than July 31, 1999 and 70% not later than July 31, 2000, but
only if Mr. Melrose achieves performance
9
<PAGE>
goals related to planning for and implementing a plan for his succession.
Under that plan, the Company also granted Mr. Melrose performance units. See
the Compensation Committee Report. The shares had a value of $548,027 at
October 31, 1996. Mr. Hendrix was awarded 8,400 shares of Restricted Stock
in Fiscal 1994 in connection with his becoming an employee of the Company.
Shares were to vest 10% per year over ten years and shares not vested were
subject to forfeiture upon termination of employment. The shares had a value
of $263,550 at October 31, 1996. Mr. Hendrix resigned from the Company
effective January 15, 1997 and consequently forfeited 5,880 shares not
vested at that time. Mr. Lounsbury was awarded 2,000 shares of Restricted
Stock in Fiscal 1994 in connection with his becoming an employee of the
Company, which shares vested in their entirety on November 29, 1995. The
shares had a value of $62,750 at October 31, 1996. All shares of restricted
stock are held by the Company until performance goals have been achieved or
other restrictions lapse. Dividends will be paid, if declared, on all shares
of restricted stock reported. Amounts shown in the Summary Compensation
Table and in this note are calculated by multiplying the closing price of
one share of Common Stock on the New York Stock Exchange as reported in THE
WALL STREET JOURNAL on the date of award and on October 31, 1996, times the
number of shares awarded or held.
(4) 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 long-term
performance goals. The number of shares covered by each option was reduced
with respect to Fiscal 1996, 1995 and 1994. Also includes options granted
pursuant to the Company's stock option plans.
(5) Amounts reflect payments made pursuant to the Continuous Performance Award
Plan. Based on the Company's ROBE and net income growth performance compared
with its peer group of businesses, payments of 70.4% of the maximum possible
award amount were paid or deferred with respect to the three year
performance period ending with Fiscal 1996. For a more detailed description
of the plan and awards, see the Compensation Committee Report and Proposal
Two.
(6) Amounts include Company contributions to defined contribution retirement
plans and the Company's Matching Stock Plan (which terminated on July 31,
1995 and was replaced by a similar feature in the Company's new Investment
and Savings 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 $150,000 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 actual 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). Because the Company's benefit
plans operate on a calendar basis, amounts shown for Fiscal 1996 may have
been accrued with respect to the prior fiscal year.
(7) Amount reflects the effect of the $100,000 salary reduction, as discussed
in the Compensation Committee Report.
(8) Amounts paid as long-term incentive payments with respect to the Transition
Period are included in the amount in the Bonus column. See note (1).
(9) Includes payment made in connection with Mr. Hendrix becoming employed by
the Company.
(10) Includes Continuous Performance Award Plan payment with respect to one-year
transition performance award. Payment is not included under LTIP Payouts
column.
10
<PAGE>
EMPLOYMENT AGREEMENTS. Each of the executive officers, including those
named in the Summary Compensation Table, is a party to a change of control
employment agreement adopted in Fiscal 1995 (the "Agreements"). The Agreements
are operative only upon the occurrence of a "change in control", which includes
substantially those events described below. Absent a "change in control", the
Agreements do not require the Company to retain the executives or to pay them
any specified level of compensation or benefits.
Each Agreement provides that for three years after a "change in control",
there will be no adverse change in the executive's salary, bonus, opportunity,
benefits or location of employment. If during this three-year period the
executive's employment is terminated by the Company other than for cause, or if
the executive terminates his employment for good reason (as defined in the
Agreements, and including compensation reductions, demotions, relocation and
excess travel), or voluntarily during the 30-day period following the first
anniversary of the "change in control", the executive is entitled to receive an
accrued salary and annual incentive payments through the date of termination
and, except in the event of death or disability, a lump sum severance payment
("Lump Sum Payment") equal to three times the sum of his base salary and annual
bonus (and certain insurance and other welfare plan benefits). Further, an
additional payment ("gross-up") is required in an amount such that after the
payment of all taxes, income and excise, the executive will be in the same
after-tax position as if no excise tax under the Code had been imposed.
Generally, and subject to certain exceptions, a "change in control" is
deemed to have occurred if: (i) a majority of Toro's Board of Directors becomes
comprised of persons other than persons for whose election proxies have been
solicited by the Board, or who are then serving as directors appointed by the
Board to fill vacancies caused by death or resignation (but not removal) of a
director or to fill newly created directorships; (ii) another party becomes the
beneficial owner of at least 20% of Toro's outstanding voting stock; or (iii)
Toro's stockholders approve a definitive agreement or plan to merge or
consolidate Toro with another party (other than certain limited types of
mergers), exchange shares of voting stock of Toro for shares of another
corporation pursuant to a statutory exchange, sell or otherwise dispose of all
or substantially all of Toro's assets, or liquidate or dissolve Toro.
If a "change in control" of the Company had occurred at the commencement
of the 1996 calendar year (January 1, 1996) and had resulted in the involuntary
termination of the named executives at such time or the termination by such
executives for good reason, the Lump Sum Payment to be made under such
Agreements to those executive officers named in the Summary Compensation Table
above in the aggregate would have been approximately $8,022,762. The Company has
also established a trust for the benefit of these officers which, in the event
of a threatened or actual change of control, will be funded in an amount equal
to the Company's accrued liability related to such Agreements.
11
<PAGE>
STOCK OPTIONS
The following table summarizes options granted under the Company's stock
option plans during Fiscal 1996 and the Transition Period.
OPTION GRANTS IN FISCAL 1996 AND TP95
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- --------------------------------------------------------------------------------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE
NUMBER OF TOTAL VALUE AT ASSUMED
SHARES OPTIONS EXERCISE ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO OR PRICE APPRECIATION FOR
OPTIONS EMPLOYEES BASE OPTION TERM
GRANTED IN PRICE ($ EXPIRATION ----------------------
NAME YEAR (#)(1) THE PERIOD PER SHARE) DATE 5%$ (2) 10%$ (2)
- -------------------------------- --------- ------------- ------------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Kendrick B. Melrose 1996 20,065(3) 41.14% $ 29.796 3/16/99 $ 78,651 $ 179,970
TP95 29,028 11.32% $ 29.00 8/15/00 $ 232,576 $ 513,934
Gerald T. Knight 1996 2,446(3) 5.02% $ 29.796 3/16/99 $ 9,587 $ 21,939
TP95 10,893 4.25% $ 29.00 8/15/00 $ 87,276 $ 192,858
J. David McIntosh 1996 2,026(3) 4.15% $ 29.796 3/16/99 $ 7,941 $ 18,171
TP95 8,238 3.21% $ 29.00 8/15/00 $ 66,003 $ 145,851
Calvin R. Hendrix 1996 2,084(3) 4.27% $ 29.796 3/16/99 $ 8,168 $ 18,692
TP95 9,443 3.68% $ 29.00 8/15/00 $ 75,658 $ 167,186
Charles B. Lounsbury 1996 2,123(3) 4.35% $ 29.796 3/16/99 $ 8,321 $ 19,041
TP95 9,686 3.78% $ 29.00 8/15/00 $ 77,605 $ 177,488
</TABLE>
- ------------------------
(1) Options are granted pursuant to the 1989 Stock Option Plan and the 1993
Stock Option Plan (the "plans"). The plans are administered by the Committee
which selects employees to whom options are granted. The exercise price of
each incentive and nonqualified stock option is equal to 100% of the fair
market value of the Common Stock on the date of grant, except for
performance-based stock options, such as those granted in connection with
the Continuous Performance Award Plan, for which the exercise price is an
average and on the date of grant could be higher or lower than fair market
value. The options are not transferable except by will or the laws of
descent and distribution. An option granted under any of the plans, except
those granted in connection with the Continuous Performance Award Plan, may
be exercised immediately after the date of grant in whole or in part from
time to time 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.
(2) Rules of the Securities and Exchange Commission (SEC) 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 the
future value of a stock option at the time of grant.
(3) Number of shares subject to reduction and option subject to expiration if
performance goals are not achieved under the Continuous Performance Award
Plan. Expected to become exercisable in December 1998, after the Company
first makes a public announcement of its earnings for Fiscal 1997.
Expiration date will be 90 days later. For more information, see the
Compensation Committee Report and Proposal Two.
12
<PAGE>
The following table summarizes stock options exercised by the named
executive officers during Fiscal 1996 and the Transition Period and the total
number of options held by each listed individual as of the end of each of Fiscal
1996 and the Transition Period.
AGGREGATED OPTION EXERCISES IN FISCAL 1996 AND TP95
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL PERIOD END (#) FISCAL PERIOD END ($)(1)
ACQUIRED ON VALUE -------------------------- -------------------------
NAME TITLE EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------- --------- ------------- ----------- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Kendrick B. Melrose 1996 29,310 673,373 309,280 168,665 4,463,157 2,190,202(2)
TP95 35,387 643,632 209,562 277,628 2,764,486 3,199,519(2)
Gerald T. Knight 1996 8,425 105,313 37,950 8,238 422,369 63,087(2)
TP95 3,693 66,068 35,482 16,685 373,089 44,745(2)
J. David McIntosh 1996 14,358 281,971 30,182 6,701 280,261 50,771(2)
TP95 17,142 305,299 36,302 12,913 417,811 35,884(2)
Calvin R. Hendrix 1996 -0- -0- 24,901 7,239 142,352 56,047(2)
TP95 2,434 31,642 15,458 14,598 81,280 39,869(2)
Charles B. Lounsbury 1996 -0- -0- 25,541 7,403 144,603 57,408(2)
TP95 2,496 33,696 15,855 14,966 81,961 40,855(2)
</TABLE>
- ------------------------
(1) Market value less option exercise price before payment of applicable income
taxes. Market value based on October 31, 1996 and October 31, 1995 closing
prices on the New York Stock Exchange as reported in The Wall Street
Journal.
(2) Includes options subject to reduction in number of shares and expiration if
performance goals are not achieved under Continuous Performance Award Plan.
13
<PAGE>
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 1996. Amounts paid pursuant to the Continuous
Performance Award Plan during Fiscal 1996 are set forth in the Summary
Compensation Table which appears elsewhere in this Proxy Statement.
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
PERFORMANCE OR UNDER NON-STOCK
OTHER PERIOD PRICE-BASED PLANS (3)
UNTIL -----------------------------------
NUMBER OF SHARES, UNITS OR MATURATION OR THRESHOLD TARGET MAXIMUM
NAME OTHER RIGHTS (#) PAYOUT ($ OR #) ($ OR #) ($ OR #)
- ------------------------------------ -------------------------- -------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Kendrick B. Melrose 1 Award(1) 3 fiscal $ 10,830 $ 405,620 $ 565,955
years(2)
Option (20,065 shares)
Gerald T. Knight 1 Award(1) 3 fiscal 1,263 7,321 66,026
years(2)
Option(2,446 shares)
J. David McIntosh 1 Award(1) 3 fiscal 1,306 48,915 68,250
years(2)
Option (2,026 shares)
Calvin R. Hendrix 1 Award(1)(4) 3 fiscal -0- -0- -0-
years(2)
Option (2,084 shares)
Charles B. Lounsbury 1 Award(1) 3 fiscal 1,306 48,915 68,250
years(2)
Option (2,123 shares)
</TABLE>
- ------------------------
(1) An award is the right to receive designated target percentages of annual
salary at the end of the three year performance period if the Company
achieves financial performance objectives based on return on beginning
stockholders equity and net income growth compared with rankings of the
Company's peer group of competitors, as established by the Compensation
Committee pursuant to the Continuous Performance Award Plan. The value of an
award is based on a participant's base compensation estimated to be paid
during the last fiscal year of an award term (three years, except for
transition awards), multiplied by an individual participation factor
determined by the Committee within a range set by the plan, 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 the
number of shares of the Company's Common Stock shown, if performance goals
are achieved. See the Compensation Committee Report and Proposal Two for
additional information on the Continuous Performance Award Plan.
(2) The three year performance period includes Fiscal 1996, 1997 and 1998.
(3) Calculated pursuant to the Continuous Performance Award Plan based on
estimated Fiscal 1998 salaries.
(4) Mr. Hendrix resigned from the Company effective January 15, 1997 and
consequently forfeited this award and related option.
14
<PAGE>
PERFORMANCE GRAPH
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 1992. The industry peer index is based on the Fortune 500 Industrial and
Farm Equipment Index, which 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>
1991 100 100 100
1992 99 110 103
1993 182 126 147
1994 203 131 161
1995 215 166 177
1996 237 206 229
</TABLE>
This graph assumes $100 invested on November 1, 1991 in the Company's
Common Stock, the S&P 500 Index and the peer group index.
The peer group includes: York International, Briggs & Stratton, Stewart
& Stevenson Services, Dover Corp., Cummins Engine, Cincinnati Milacron
Inc., Harnischfeger Industries Inc., Crane Co., Tecumseh Products Co.,
Ingersoll-Rand Co., Nacco Industries, Parker-Hannifin Corp., Terex Corp.,
Dresser Industries Inc., Trinova Corp., Deere & Co., Timken Co.,
Baker-Hughes Inc., Caterpillar Inc., The Black & Decker Corporation,
American Standard, Western Atlas Inc., Agco Corporation, Kennametal Inc.,
Lincoln Electric, Teleflex, Detroit Diesel and Case Corporation as well as
the Company. Pentair Corp., Figgie International, Outboard Marine Corp.,
IMO Industries Inc., Tenneco Inc. and Actava Group Inc. were removed from
the Industrial and Farm Group Index in 1996 and Case Corporation was added.
Neither the Compensation Committee Report nor this Performance Graph shall
be deemed to be "soliciting material" or to be filed with the SEC or subject to
Regulation 14A or 14C under the Securities Exchange Act of 1934, or to the
liabilities of Section 18 of that Act.
15
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For Fiscal 1996, the members of the Compensation Committee all were
outside members of the Board, and included Messrs. Olseth, Chairman, Baukol,
Meyer and Nassau. Although Mr. Melrose is not a member of the Committee, he
attends the meetings for the purpose of providing continuity and detailed
information about employees and 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. Melrose serves on the Board of
Directors and Compensation Committee of BSI Corporation of which Mr. Olseth
serves as president and chief executive officer. Mr. Olseth serves on the Board
of Directors and is Chairman of the Compensation Committee of the Company.
COMPENSATION COMMITTEE REPORT
The Compensation Committee is responsible for establishing policies and
administering the compensation plans 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. Some of these companies
are in the Company's peer group index for the Performance Graph on page 15 (29
companies comprising the Fortune 500 Industrial and Farm Equipment Group).
However, the Company relies on a broader group of companies for comparative
analysis of executive compensation because the Committee believes that the
Company's competitors for executive talent are more varied than its business
peer group.
While the policies of the Company are designed to compensate executive
officers for personal performance, a substantial portion of annual compensation,
especially that of the Chief Executive Officer, is designed to align the
financial interests of the executive officers with those of the Company
stockholders, by making certain components of compensation contingent upon the
financial performance of the Company. The Company's compensation program for
executive officers as well as other key management employees continues to be
composed of both cash and equity-based compensation. Cash compensation consists
of base salary, an annual incentive bonus under the Annual Management Incentive
Plan and long-term incentive compensation under the Continuous Performance Award
Plan. Equity-based compensation in the form of stock options constitutes an
additional component of long-term incentive compensation.
BASE SALARY
Base salaries for executive officers, including the Chief Executive
Officer, are initially established and thereafter are reviewed at least annually
by the Committee. Based on independent evaluation by professional compensation
consulting firms retained by the Company, a base salary range for each executive
position is established, reflecting average base salaries for similar positions
in businesses with revenues comparable to those 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 1996 and the Transition
Period, base salaries for executive officers were within the middle one-third of
the market range.
Mr. Melrose's salary with respect to Fiscal 1996 was set at $438,337,
based on the same method used in establishing other executive officers' base
salary, but reflecting a $100,000 reduction agreed on by the Committee and Mr.
Melrose in Fiscal 1992 to increase the "at risk" portion of Mr. Melrose's total
compensation. Mr. Melrose's base salary was reduced in a total amount of
$500,000 at a rate of $100,000 per calendar year through 1996, in exchange for
which he was granted a ten year salary replacement option to purchase 300,000
shares of the Company's Common Stock. The final one-third of the ten year option
vested in December 1996. The purpose of the option is to encourage Mr. Melrose
to focus his attention on
16
<PAGE>
increasing stockholder value. For the purpose of calculating incentive
compensation, Mr. Melrose's base salary was not reduced. His base salary for the
Transition Period also reflected the salary reduction on a prorated basis.
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 compensation is 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. If
targets are exceeded incentive compensation can result in above market level
compensation.
The incentive components of compensation are intended to encourage
achievement of both short-term and long-term objectives. Short-term performance
is evaluated using performance goal criteria selected annually by the Committee
from among those authorized in the Annual Management Incentive Plan as approved
by stockholders. Long-term performance has traditionally been evaluated by
reference to the Company's return on beginning equity ("ROBE") on a relative
basis compared with the performance of the peer group over a three year period.
In Fiscal 1996, net income growth was added to ROBE as a measure of long-term
performance for awards granted in November of 1995 with respect to the
performance award term including Fiscal 1996, 1997 and 1998. In November 1996
the Committee approved the modification of the long-term performance goals to
eliminate net income growth, and the Board is seeking the approval of
stockholders for the amendment. See Proposal Two.
For Fiscal 1996, 59% 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 any of its performance goals and Mr. Melrose
had received no incentive payments, his total cash compensation (including the
$100,000 salary reduction) would have equaled only 44% of average market levels
for total cash compensation paid to chief executive officers in businesses with
revenues comparable to the Company's.
ANNUAL CASH INCENTIVE COMPENSATION. Under the Company's
stockholder-approved Annual Management Incentive Plan, executive officers and
other key employees are eligible to receive an annual cash bonus based on a
percentage of base salary. The target amount of each award is determined by the
executive officer's position, the Company's achievement of performance goals
and, for certain participant's, division performance. If performance goals are
exceeded, award amounts increase up to a pre-established maximum, 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 Annual Management
Incentive Plan are recommended by management and selected by the Committee.
Under the Annual Management Incentive Plan as in effect for Fiscal 1996,
the Compensation Committee established an earnings per share ("EPS") performance
goal as the basis for a target award amount, and a ROANA goal as the basis for
payment of higher award amounts. Because the Company met the EPS goal but did
not exceed the ROANA goal, a bonus in an amount equal to an executive's target
award was paid. If the ROANA goal had been exceeded, a bonus amount of up to
175% of the target amount could have been paid. If the EPS had been below a
minimum level established by the Committee, no bonus would have been paid. In
considering and certifying achievement of performance goals for Fiscal 1996, the
Committee eliminated the dilutive effect on EPS of acquisitions which had not
been planned at the beginning of the Company's fiscal year. An additional
performance goal applicable to division participants was based on division
controllable profit contribution ("CPC"). If this goal was achieved, the award
payment would be increased by up to 25% of the target amount (up to a maximum of
175% of the target), but if the goal was not achieved, the award payment amount
could be reduced by up to 40% of the target. For Fiscal
17
<PAGE>
1996, some divisions achieved the CPC goal and others did not, which resulted in
award payments made to division participants ranging from slightly more than the
target amounts to substantially reduced payments. The Committee also has the
discretion to reduce award payments made to division general managers, including
certain named executive officers, by up to 10% in the event division performance
is below Committee expectations, judged with respect to supplemental division
performance goals specified in the plan. The Committee exercised this discretion
with respect to Fiscal 1996.
An executive's target award amount is based on a percentage of base
salary, 50% for Mr. Melrose and 40% for the other named executive officers. The
percentage is based on the executive's salary grade and job position and not on
individual factors.
The Committee has adopted amendments to the Annual Management Incentive
Plan, which are being submitted to stockholders for approval in Proposal Three
of this Proxy Statement. The amendments add two additional performance goal
criteria for Committee use in establishing Annual Performance Awards and
modifying participation factors.
The Committee established a performance goal based on EPS as the basis for
payment of a bonus with respect to the Transition Period, with the opportunity
for an increased payment only if EPS exceeded a designated amount. If EPS had
been lower than a preestablished amount, no award payment would have been made.
Target award amounts were based on participation factors established under the
Annual Management Incentive Plan, applied to Transition Period base
compensation. Because EPS was achieved within the target range, award amounts
were paid at the target level, without increase or reduction, and Mr. Melrose
received a bonus equal to 50% of his Transition Period earned base compensation.
LONG-TERM INCENTIVE COMPENSATION. Under the Continuous Performance Award
Plan as in effect for the three year period ending with Fiscal 1996, performance
awards could be earned by eligible executive officers if the Company achieved 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 compared favorably with ROBE rankings of all companies in the
Company's peer group described above. The additional performance goal of net
income growth was added with respect to Fiscal 1996 only, as approved by
stockholders. The maximum value of a performance award (100%) could be earned
only if the Company achieved performance goals that ranked among the top 25% of
companies in the peer group. The amount of an award payment is reduced
proportionately the lower the Company's performance ranks compared with the peer
group, and no award is paid if the Company does not rank in the top 75%.
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, which is a percentage of base salary ranging from 25% to
100% established by the Committee based on the individual's position and level
of responsibility. Mr. Melrose participates in the plan at a factor of 1.0 (one
times base salary), which means that if the Company's ROBE and net income
growth, weighted in accordance with the Committee's formula, rank in the top 25%
of companies in the peer group, Mr. Melrose would receive a long-term incentive
payment equal to his base salary during the last fiscal year of the award, as
estimated in advance by the Committee.
In Fiscal 1996, the Company's three year average ROBE performance ranked
at the 57th percentile level among its peer group and its net income growth for
Fiscal 1996 ranked at the 39th percentile, so that the amount of awards was
70.4% of the potential maximum for each named executive officer, including Mr.
Melrose. In Fiscal 1996, 34% of Mr. Melrose's cash compensation was comprised of
payments pursuant to the Continuous Performance Award Plan. This award is
reflected in the Summary Compensation Table.
With respect to the Transition Period, the Committee used the same EPS
performance goal established in connection with the Transition Period annual
bonus described above, as the basis for a bonus in lieu
18
<PAGE>
of an award under the Continuous Performance Award Plan. The amount of this
bonus was determined by applying the individual participation factors otherwise
applicable to plan participants under the Continuous Performance Award Plan to
base compensation for the Transition Period. If EPS had been lower than a
preestablished amount, no bonus in lieu of the usual Continuous Performance
Award Plan bonus would have been paid. If the EPS goal had been exceeded,
however, the amount of this bonus would not have been increased. Because the EPS
target was achieved, Mr. Melrose received a bonus equal to 100% of his
Transition Period earned base compensation.
Under a Continuous Performance Award Plan formula, the Committee also
grants to each participant a nonqualified stock option to purchase shares of
Common Stock. If performance 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. The option is
exercisable for only 90 days, following the Company's release of its earnings
for the last year of the award term. Payment of the option 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. No such options
were awarded with respect to the Transition Period. Options related to the award
payment made with respect to the three year period ended with Fiscal 1996 were
reduced by 29.6%.
In Fiscal 1995, a special committee of the Committee recommended, and the
Board and stockholders approved, a special incentive compensation plan for Mr.
Melrose, to encourage him to remain with the Company until his 60th birthday on
July 31, 2000, while assuring the timely development and election of his
successor as chief executive officer of the Company. Under the Chief Executive
Officer Succession Incentive Agreement, on July 31, 1995, Mr. Melrose was
awarded 17,467 shares of Common Stock and Common Stock performance units having
a fair market value of $500,000, subject to forfeiture or reduction in the event
performance goals related to the development and implementation of a senior
management succession plan and chief executive officer succession plan are not
met by target dates beginning in Fiscal 1997 and continuing through July 31,
2000. During Fiscal 1996, the Committee met with the Board, including Mr.
Melrose, to discuss the status of development of the succession plan, including
considering the advice of an executive search consultant. The Committee noted
that press reports had suggested that Mr. Melrose would be required to retire
from employment with the Company not later than July 31, 2000 in connection with
the election of a successor under the Plan. The agreement with Mr. Melrose does
not require that he retire from employment with the Company at any particular
date, and therefore the Committee recommended to the Board, and the Board
agreed, that the understanding regarding Mr. Melrose's retirement be made clear
that Mr. Melrose is not required to retire on July 31, 2000. The Board has
advised the Committee that it wishes to proceed with an orderly transition of
top management of the Company as Mr. Melrose nears retirement age.
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 Company's stock option plans. Options are granted to all key
management employees, including Mr. Melrose and the named executive officers, in
amounts determined based on annual base salary, salary grade and the fair market
value of the Common Stock on the date of grant. Except for performance-based
options granted in connection with the Continuous Performance Award Plan, all
options granted under the stock option plans have exercise prices that are equal
to fair market value at the date of grant. In Fiscal 1996 and the Transition
Period, Mr. Melrose was granted options to purchase a total of 49,093 shares
pursuant to the plans.
SECTION 162(M). Under Section 162(m) of 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 remuneration that is
otherwise subject to the deduction limitation. It is generally the policy of the
Company that the components of executive compensation that are
19
<PAGE>
inherently performance-based should qualify for the exclusion from the deduction
limitation under Section 162(m). The Committee believes that the annual
incentive awards, stock options and long-term incentive awards described above
currently qualify for the exclusion. The Committee also believes that while tax
deductibility is an important factor, it is not the sole factor to be considered
in setting executive compensation policy, and accordingly reserves the right, in
appropriate circumstances, to pay amounts, in addition to base salary, which
might not be deductible.
Certain components of the incentive plan for the Transition Period
resulting from the Company's change in fiscal year end were not submitted to
stockholders. The Company anticipates that neither Transition Period incentive
payments nor the remaining components of individual executive compensation
during the Transition Period for each highly compensated employee should cause
non-deductible compensation to exceed the Section 162(m) limitation for any such
employee, and should therefore qualify for deductibility.
APPROVAL OF INCENTIVE PLANS
All of the recommendations of the Committee with respect to compensation
attributable to Fiscal 1996 were approved and adopted by the Board of Directors.
In accordance with the Company's past practice under Section 16 of the Exchange
Act and practice under Section 162(m), decisions regarding the grant of stock
options and certain other awards continue to be made by the Committee and
reported to the Board.
Dale R. Olseth, Chairman
Ronald O. Baukol
Alex A. Meyer
Robert H. Nassau
20
<PAGE>
PROPOSAL TWO
AMENDMENTS TO THE CONTINUOUS PERFORMANCE AWARD PLAN
The stockholders are being asked to consider and vote upon a proposal to
amend the Continuous Performance Award Plan ("Performance Award Plan") (i) to
modify the financial performance goals upon which awards may be based to
eliminate net income growth as a performance measure, (ii) to establish a
participation factor (the percentage of base salary utilized to determine the
value of a participant's award) for Group Vice Presidents at .50 and (iii) to
increase the participation factor for the Chief Financial Officer and other
officers. Stockholder approval is sought to attempt to ensure that incentive
bonus payments made under the Performance Award Plan continue to qualify as
performance-based compensation for purposes of Section 162(m) of the Code. The
plan was first adopted by the Board and approved by stockholders in 1991. The
Board of Directors adopted amendments to the Performance Award Plan on November
19, 1996, subject to stockholder approval.
The purpose of the Performance Award Plan is to provide an incentive to
members of management of the Company who are primarily responsible for the
management, growth and sound development of the business of the Company and its
divisions and subsidiaries, to achieve the Company's long-term financial
objectives, by making cash awards based on achievement of long-term performance
goals ("Performance Awards").
If stockholder approval is not received, the Compensation Committee will
reconsider the amendments to the Performance Award Plan as they apply to
compensation that may be paid to any person referred to in Section 162(m) and
the plan will continue in effect as to such persons, as previously approved by
stockholders.
DESCRIPTION OF THE PERFORMANCE AWARD PLAN
The following summary description of material terms of the Performance
Award Plan, as amended, is subject to the specific provisions contained in the
Performance Award Plan, a copy of which is Exhibit A of this Proxy Statement.
Defined terms have the meanings set forth in the Performance Award Plan.
ELIGIBILITY AND ADMINISTRATION. Performance Awards may be made to any
employee who has primary responsibility for and directly influences achievement
of long-term financial results of the Company. Approximately 10 individuals
currently receive Awards under the plan. The Performance Award Plan is
administered by the Compensation Committee, which has the power to select
employees to whom Performance Awards are made, to determine the terms of the
Performance Awards, to prescribe rules and regulations relating to the
Performance Award Plan and to construe and otherwise implement the Performance
Award Plan.
AWARD TERM. Performance Awards are generally granted for a term of three
fiscal years commencing on the first day of the first year of the term and are
payable only at the conclusion of the term. For the purpose of bringing a person
who has not previously participated in the Performance Award Plan into the three
year award cycle of the Performance Award Plan, the Committee may grant a one
year or two year transition award, so that a Performance Award will be payable,
if earned, at the end of each fiscal year of an individual's participation. The
Committee may grant successive three year awards to any participant, and may
grant partial year awards to new participants. A Performance Award may not be
granted to a person who is covered by Section 162(m) later than 90 days after
the commencement of the period of service to which the Performance Award relates
or, under certain circumstances, after more than 25% of the period of service
has elapsed.
21
<PAGE>
AWARD VALUE AND PARTICIPATION FACTORS. The value of a Performance Award is
based on a Participant's actual base compensation paid during the last fiscal
year of an Award Term, multiplied by an individual participation factor either
set in the plan or determined by the Committee within a range established by the
plan, which is intended to reflect the participant's ability to implement policy
decisions which influence the financial results of the Company, or of its
divisions or subsidiaries, and the participant's relative seniority within
management. For any participant who is a person referred to in Section 162(m),
the maximum dollar amount that may be paid under a Performance Award must be
fixed at the time of grant. Participation factors, as amended, are 1.0 (or 100%
of base compensation) for the Chief Executive Officer, .75 for the President and
Chief Operating Officer, if one should be elected, .50 for the Group Vice
Presidents and the Chief Financial Officer and .25 to .35 for other officers,
including other named executive officers.
PERFORMANCE GOALS. As amended, the Performance Award Plan provides that a
Performance Award will be earned only if the Company achieves a financial
performance goal based upon ROBE, as established by the Committee with respect
to each Performance Award. The Committee amended the plan to eliminate net
income growth compared to the peer group as a financial performance goal because
the measure was too sensitive to extraordinary circumstances affecting companies
in the peer group, leading to volatile results. The maximum value of a
Performance Award ("Award Maximum") is earned if the Company achieves a ROBE
that ranks on a percentile basis among the highest 75% of comparable earnings
for corporations in the Industrial and Farm Equipment Group of the Fortune 500
(as reported for the calendar year ended during the applicable fiscal year of
the Company). If the Company's ROBE ranks between the 75th and 50th percentile,
the Award Payout will be reduced pro rata on a straight-line basis from 100% at
the 75th percentile to two-thirds of the Award Maximum at the 50th percentile.
If the Company's ROBE ranks between the 50th and 25th percentile, the Award
Payout will be reduced further on a straight-line basis to zero at the 25th
percentile, and at or below that level, no Award Payout will be made. No Award
Payout may be earned by or paid to a participant during the first six months of
any Award Term.
MAXIMUM AWARD. The maximum dollar amount that may be paid to a participant
with respect to any Performance Award is $1,500,000.
PAYMENT. Before any payment is made under the plan, the Committee must
certify in writing that the Performance Goal justifying the payment has been
met. Award payments are made only in cash and the Performance Award Plan
contemplates payment within a reasonable time following the end of any Award
Term. A participant can elect to defer compensation under the Performance Award
Plan in accordance with any cash deferred compensation plan of the Company in
effect at the time.
CHANGE OF CONTROL. Each Performance Award provides that in the event of a
threatened or actual change of control of the Company (as defined in the
Performance Award Plan) during the final six months of a one year Performance
Award or after the first full year of the Award Term of any other Performance
Award, the award will become immediately payable and the calculation of the
amount to be paid will be based on the ROBE of the Company for the fiscal period
then most recently ended.
MISCELLANEOUS. A Performance Award may not be transferred. A participant
may receive payment pursuant to an award only while an employee and only if
continuously employed since the date of grant of the Performance Award, except
that in the event of death, disability or retirement, an Award Payout, if
otherwise earned, will be made with respect to the portion of the applicable
Award Term completed at the date of such event. In addition, in the event of
involuntary termination of employment of a participant during the Award Term,
for reasons other than death, disability or retirement, an Award Payout will be
made with respect to the portion of the applicable Award Term completed at the
date of such event, and the payment will be based on the ROBE of the Company for
the fiscal period then most recently ended and the most recent Fortune 500
publication then available.
22
<PAGE>
STOCK OPTIONS. At the time of granting a Performance Award, the Committee
will also grant to each participant a nonqualified stock option to purchase
shares of Common Stock under the Company's then effective stock option plan, on
terms and conditions permitted under such stock option plan. The number of
shares to be covered by each stock option will be determined as follows: (i) the
estimated base compensation of the participant for the first fiscal year of the
Award Term will be multiplied by (ii) the participation factor applicable to the
participant and the result will be multiplied by (iii) either 1.0 for a one year
Award Term, 1.05 for a two year Award Term or 1.1 for a three year Award Term,
and the result will be divided by (iv) the fair market value of one share of
Common Stock, calculated by taking the average of the closing prices of the
Common Stock for the three months prior to the date of grant. However, if the
Company's ROBE performance as compared with other corporations comprising the
Industrial and Farm Equipment Group of the Fortune 500 ranks below the 75th
percentile, the number of shares subject to the option will be reduced on a
formula basis as provided in the Performance Award Plan and becomes zero at or
below the 25th percentile.
The calculation of whether the ROBE performance goal has been achieved
will be made and certified by the Committee promptly after the end of each
fiscal year. Provided the Committee has done so, the option will become
exercisable on the date the Company releases to the public its earnings for the
prior fiscal year, and will remain exercisable until 90 days thereafter. In the
event of a threatened or actual Change of Control of the Company, each option
will become immediately exercisable in the full option amount, unless otherwise
not permitted under the Company's then effective stock option plan or federal
securities laws.
PLAN AMENDMENT AND TERMINATION. The Committee may, in its sole discretion,
amend, suspend or terminate the Performance Award Plan at any time, with or
without advance notice to plan participants, provided that no amendment to the
Plan will be effective that would increase the maximum amount that may be paid
to a plan participant, that would change the financial performance goal or that
would modify the requirements as to eligibility for participation, unless the
stockholders of the Company approve such change in accordance with the
requirements of Section 162(m).
PLAN BENEFITS
The benefits or amounts that will be received by or allocated to the Chief
Executive Officer, the named executive officers, executive officers and officers
who are not executive officers under the Performance Award Plan are not
presently determinable. Amounts received by Mr. Melrose and the named executive
officers during the last fiscal year are set forth in the Summary Compensation
Table on page 9 and the Long-Term Incentive Compensation Table on page 14.
Amounts received by or allocated to the executive officers as a group, as of
October 31, 1996, equaled $641,854. Amounts received by or allocated to all
employees, including all officers who were not executive officers, as a group,
as of October 31, 1996, equaled $673,573. No payments under this plan were made
for the Transition Period. Directors who are not executive officers and
employees of the Company do not receive benefits under the Performance Award
Plan. Subject to the limitations imposed by Section 162(m), the Committee may
amend the Performance Award Plan so that the allocation of benefits may be
altered and costs may be increased.
VOTE REQUIRED. THE AFFIRMATIVE VOTE OF A 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.
23
<PAGE>
PROPOSAL THREE
AMENDMENTS TO THE ANNUAL MANAGEMENT INCENTIVE PLAN
The stockholders are being asked to consider and vote upon a proposal to
amend the Annual Management Incentive Plan (the "Annual Plan") (i) to add
economic value added and division profit adjustment to the permissable financial
performance goals upon which awards may be based and (ii) to eliminate fixed
participation factors (percentages of base salary utilized to determine the
value of a participant's award) for appointed officers and director level
employees and to establish a range from 25% to 40% for participation factors for
those employees. Stockholder approval is sought to attempt to ensure that
incentives under the Annual Plan continue to qualify as performance-based
compensation for purposes of Section 162(m) of the Code. The Annual Plan was
approved by stockholders on March 12, 1996 and was amended by the Compensation
Committee and the Board of Directors on January 20, 1997, subject to stockholder
approval.
The purpose of the Annual Plan is to reinforce the financial goals of the
Company by providing key employees, including executive officers, with an
opportunity to earn financial rewards based upon the attainment of corporate,
and in some cases, division goals.
If stockholder approval of the amendments to the Annual Plan is not
received, the Compensation Committee will reconsider the amendments as they
apply to compensation that may be paid to any person referred to in Section
162(m), and the Annual Plan will continue in effect as to such persons as
previously approved by stockholders.
DESCRIPTION OF THE ANNUAL PLAN
The following summary description of material terms of the Annual Plan, as
amended, is subject to the specific provisions contained in the Annual Plan, a
copy of which is Exhibit B of this Proxy Statement. Defined terms have the
meanings set forth in the Annual Plan.
PURPOSE. The purpose of the Annual Plan is to provide an annual incentive
to reinforce achievement of the performance goals of the Company; to link a
significant portion of a participating employee's compensation to the
achievement by the Company, and in certain cases, a division, of performance
goals; and to attract, motivate and retain key employees on a competitive basis.
ELIGIBILITY AND PARTICIPATION. Participation is limited to key employees
of the Company, including executive officers, who are in a position to have a
significant, positive impact on the Company's financial results, as determined
by the Committee. Approximately 67 individuals, including the Company's Chief
Executive Officer and the named executive officers, currently receive awards
under the Annual Plan.
AWARD AMOUNTS. The target amount "Target Payout" that may be paid with
respect to an Annual Performance Award is determined by the Committee and is
based on a percentage of a Plan Participant's annual base salary (a
"participation factor"), within a range established by the Annual Plan and
subject to adjustment as provided in the Annual Plan. The participation factors,
which are intended to reflect a Plan Participant's level of responsibility, are
50% for the Chairman and Chief Executive Officer, 45% for the President and
Chief Operating Officer, if one should be elected, 40% for other elected
officers, including the named executive officers, and 25 to 40% for other
officers and employees.
PERFORMANCE GOALS. An award payment under an Annual Performance Award will
be made only upon the achievement of Company Performance Goals established by
the Committee in writing not later than 90 days after the beginning of the
fiscal year to which the Performance Goals relate. The Committee may also
establish Maximum Payouts of up to 175% of Target Payouts in the event
Performance Goals are
24
<PAGE>
exceeded by an amount specified by the Committee. At the time Annual Performance
Awards are made, the Committee may decrease Target Payouts by up to 40% or
increase Maximum Payouts by up to 25% but not above 175%, for division vice
presidents and managers to reflect division specific Performance Goals. The
Committee has the discretion to reduce by up to 10% amounts that would otherwise
be paid to a division vice president or general manager based on the Committee's
evaluation of the quality of division performance. The Committee may establish
curves or other measurements for determination of the amount of prorated
payments for achievement of Performance Goals at less than the Target Payout or
Maximum Payout. With respect to any Participant who is a person referred to in
Section 162(m) of the Code, the Committee has the discretion to decrease the
amount of an award payment under the Annual Plan, but may not under any
circumstances increase such payment.
Performance Goals may be based on earnings per share (EPS), return on
average net assets (ROANA), division controllable profit contribution, return on
equity, revenue growth, earnings growth, division profit adjustment or economic
value added (EVA). EVA and division profit adjustment are the performance goals
added by the Committee for which stockholder approval is sought. EVA is a
measure similar to the microeconomic concepts of economic profit and opportunity
cost, which measure the economic return to stockholders on capital utilized in a
company's operating units. Division profit adjustment is controllable profit
contribution less interest which the Committee may use as a means to convert to
EVA. Each performance goal is to be specifically defined by the Committee on a
Company basis or division basis. Supplemental Performance Goals for division
vice presidents and managers may be established by the Committee and may be
based on division specific operating performance goals including revenue growth,
sustained earnings, product warranty experience, product recalls or inventory
levels.
MAXIMUM AWARD. To comply with Code limitations, the maximum amount a Plan
Participant may be paid under an Annual Performance Award with respect to any
fiscal year is $1,500,000.
PAYMENTS. Before any payment is made under the Annual Plan, the Committee
must certify in writing that the Performance Goals established with respect to
an Annual Performance Award have been met. To the extent necessary with respect
to any fiscal year, in order to avoid any undue windfall or hardship due to
external causes, the Committee may make the determination as to whether a
Performance Goal has been achieved without regard to the effect on the
Performance Goal measure, as it may otherwise be presented in the financial
statements, of any change in accounting standards, any acquisition by the
Company not planned for at the time the Performance Goals are established, any
Board-approved extraordinary or non-recurring event or item.
ADMINISTRATION. The Annual Plan is administered by the Committee which has
broad authority to administer and interpret the Annual Plan, establish policies
under the Annual Plan, amend the Plan, select Participants, establish
Performance Goals, make awards or terminate the Annual Plan, in its sole
discretion.
PLAN AMENDMENT AND TERMINATION. The Committee may, in its sole discretion,
amend, suspend or terminate the Annual Plan at any time, with or without advance
notice to Plan Participants, provided that no amendment to the Plan will be
effective which would increase the maximum amount that may be paid to a Plan
Participant, which would change the stated Performance Goal criteria or which
would modify the requirements as to eligibility for participation, unless the
stockholders of the Company approve such change in accordance with the
requirements of Section 162(m).
EFFECTIVE DATE OF THE PLAN. The Annual Plan first became effective on
August 15, 1995. Any amendment to the Annual Plan will be effective on the date
established by the Committee, subject to stockholder approval.
PLAN BENEFITS. The benefits or amounts that will be received by or
allocated to the Chief Executive Officer, the named executive officers and
executive officers and officers who are not executive officers under
25
<PAGE>
the Annual Plan as amended are not presently determinable. Amounts received by
Mr. Melrose and the named executive officers during the last fiscal year are set
forth in the Summary Compensation Table on page 9. Amounts received by or
allocated to the executive officers as a group, as of October 31, 1996, equaled
$885,195. Amounts received by or allocated to all employees, including all
officers who were not executive officers, as a group, as of October 31, 1996,
equaled $1,369,542. Directors who are not executive officers and employees of
the Company do not receive benefits under the Annual Plan. Subject to the
limitations imposed by Section 162(m), the Committee may amend the Annual Plan
so that the allocation of benefits may be altered and costs may be increased.
VOTE REQUIRED. THE AFFIRMATIVE VOTE OF A MAJORITY OF SHARES OF COMMON
STOCK PRESENT IN PERSON OR REPRESENTED BY PROXY AT THE ANNUAL MEETING IS
REQUIRED FOR THE ADOPTION OF ITEM 3. ALL PROXIES WILL BE VOTED FOR ITEM 3 UNLESS
A CONTRARY CHOICE IS INDICATED.
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 1997.
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 4 UNLESS A CONTRARY CHOICE IS INDICATED.
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
The 1998 Annual Meeting of Stockholders is expected to be held on March
12, 1998. Unless the date of the 1998 Annual Meeting is changed, a stockholder
proposal must be received by the Secretary of the Company no later than the
close of business on October 13, 1997, in order to be included in the Company's
Proxy Statement for the 1998 Annual Meeting. Procedures for nominations by a
stockholder of a person for election as a director at the 1998 Annual Meeting,
or any other meeting, are described on page 2.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The rules of the Securities and Exchange Commission require disclosure by
the Company of the identity of directors, executive officers and beneficial
owners of more than 10% of the Common Stock of the Company who did not file on a
timely basis reports required by Section 16 of the Exchange Act. Based solely on
a review of copies of those reports received by the Company, or written
representations from certain reporting persons that no Form 5 reports were
required for those persons, the Company believes that all directors, executive
officers and greater than 10% owners complied with all filing requirements
applicable to them during Fiscal 1996, except that a Form 4 report with respect
to one transaction was inadvertently filed late on behalf of Stephen P. Wolfe,
an executive officer of the Company.
26
<PAGE>
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: February 10, 1997 BY ORDER OF THE BOARD OF DIRECTORS
[SIGNATURE]
J. LAWRENCE MCINTYRE
Vice President, Secretary and General
Counsel
27
<PAGE>
PROPOSAL THREE
AMENDMENTS TO THE ANNUAL MANAGEMENT INCENTIVE PLAN
The stockholders are being asked to consider and vote upon a proposal to
amend the Annual Management Incentive Plan (the "Annual Plan") (i) to add to the
permissable financial performance goals upon which awards may be based and (ii)
to modify the percentages of base salary ("participation factors") utilized to
determine the value of a participant's award. Stockholder approval is sought to
attempt to ensure that incentives under the Annual Plan continue to qualify as
performance-based compensation for purposes of Section 162(m) of the Code. The
Annual Plan was approved by stockholders on March 12, 1996 and was amended by
the Compensation Committee and the Board of Directors on January 20, 1997,
subject to stockholder approval.
The purpose of the Annual Plan is to reinforce the financial goals of the
Company by providing key employees, including executive officers, with an
opportunity to earn financial rewards based upon the attainment of corporate,
and in some cases, division goals.
If stockholder approval of the amendments to the Annual Plan is not
received, the Compensation Committee will reconsider the amendments as they
apply to compensation that may be paid to any person referred to in Section
162(m), and the Annual Plan will continue in effect as to such persons as
previously approved by stockholders.
DESCRIPTION OF THE ANNUAL PLAN
The following summary description of material terms of the Annual Plan, as
amended, is subject to the specific provisions contained in the Annual Plan, a
copy of which is Exhibit B of this Proxy Statement. Defined terms have the
meanings set forth in the Annual Plan.
PURPOSE. The purpose of the Annual Plan is to provide an annual incentive
to reinforce achievement of the performance goals of the Company; to link a
significant portion of a participating employee's compensation to the
achievement by the Company, and in certain cases, a division, of performance
goals; and to attract, motivate and retain key employees on a competitive basis.
ELIGIBILITY AND PARTICIPATION. Participation is limited to key employees
of the Company, including executive officers, who are in a position to have a
significant, positive impact on the Company's financial results, as determined
by the Committee. Approximately 67 individuals, including the Company's Chief
Executive Officer and the named executive officers, currently receive awards
under the Annual Plan.
AWARD AMOUNTS. The target amount "Target Payout" that may be paid with
respect to an Annual Performance Award is determined by the Committee and is
based on a percentage of a Plan Participant's annual base salary (a
"participation factor"), within a range established by the Annual Plan and
subject to adjustment as provided in the Annual Plan. The participation factors,
which are intended to reflect a Plan Participant's level of responsibility, are
50% for the Chairman and Chief Executive Officer, 45% for the President and
Chief Operating Officer, if one should be elected, 40% for other elected
officers, including the named executive officers, and 25 to 40% for other
officers and employees.
PERFORMANCE GOALS. An award payment under an Annual Performance Award will
be made only upon the achievement of Company Performance Goals established by
the Committee in writing not later than 90 days after the beginning of the
fiscal year to which the Performance Goals relate. The Committee may also
establish Maximum Payouts of up to 175% of Target Payouts in the event
Performance Goals are exceeded by an amount specified by the Committee. At the
time Annual Performance Awards are made, the Committee may decrease Target
Payouts by up to 40% or and increase Maximum Payouts by up to 25% but not above
175%, for division vice presidents and managers to reflect division specific
Performance Goals. The Committee has the discretion to reduce by up to 10%
amounts that would otherwise be paid to a division
<PAGE>
vice presidents or general manager based on the Committee's evaluation of the
quality of division performance. The Committee may establish curves or other
measurements for determination of the amount of prorated payments for
achievement of Performance Goals at less than the Target Payout or Maximum
Payout. With respect to any Participant who is a person referred to in Section
162(m) of the Code, the Committee has the discretion to decrease the amount of
an award payment under the Annual Plan, but may not under any circumstances
increase such payment.
Performance Goals may be based on earnings per share (EPS), return on
average net assets (ROANA), division controllable profit contribution, return on
equity, revenue growth, earnings growth, division profit adjustment or economic
value added (EVA). EVA and division profit adjustment are the performance goals
added by the Committee for which stockholder approval is sought. EVA is a
measure similar to the microeconomic concepts of economic profit and opportunity
cost, which measure the economic return to stockholders on capital utilized in a
company's operating units. Division profit adjustment is controllable profit
contribution less interest which the Committee may use as a means to convert to
EVA. Each performance goal is to be specifically defined by the Committee on a
Company basis or division basis. Supplemental Performance Goals for division
vice presidents and managers may be established by the Committee and may be
based on division specific operating performance goals including revenue growth,
sustained earnings, product warranty experience, product recalls or inventory
levels.
MAXIMUM AWARD. To comply with Code limitations, the maximum amount a Plan
Participant may be paid under an Annual Performance Award with respect to any
fiscal year is $1,500,000.
PAYMENTS. Before any payment is made under the Annual Plan, the Committee
must certify in writing that the Performance Goals established with respect to
an Annual Performance Award have been met. To the extent necessary with respect
to any fiscal year, in order to avoid any undue windfall or hardship due to
external causes, the Committee may make the determination as to whether a
Performance Goal has been achieved without regard to the effect on the
Performance Goal measure, as it may otherwise be presented in the financial
statements, of any change in accounting standards, any acquisition by the
Company not planned for at the time the Performance Goals are established, any
Board-approved extraordinary or non-recurring event or item.
ADMINISTRATION. The Annual Plan is administered by the Committee which has
broad authority to administer and interpret the Annual Plan, establish policies
under the Annual Plan, amend the Plan, select Participants, establish
Performance Goals, make awards or terminate the Annual Plan, in its sole
discretion.
PLAN AMENDMENT AND TERMINATION. The Committee may, in its sole discretion,
amend, suspend or terminate the Annual Plan at any time, with or without advance
notice to Plan Participants, provided that no amendment to the Plan will be
effective which would increase the maximum amount that may be paid to a Plan
Participant, which would change the stated Performance Goal criteria or which
would modify the requirements as to eligibility for participation, unless the
stockholders of the Company approve such change in accordance with the
requirements of Section 162(m).
EFFECTIVE DATE OF THE PLAN. The Annual Plan first became effective on
August 15, 1995. Any amendment to the Annual Plan will be effective on the date
established by the Committee, subject to stockholder approval.
PLAN BENEFITS. The benefits or amounts that will be received by or
allocated to the Chief Executive Officer, the named executive officers and
executive officers and officers who are not executive officers under the Annual
Plan as amended are not presently determinable. Amounts received by Mr. Melrose
and the named executive officers during the last fiscal year are set forth in
the Summary Compensation Table on page . Amounts received by or allocated to
the executive officers as a group, as of October 31, 1996, equaled $885,195.
Amounts received by or allocated to all employees, including all officers who
were not executive officers, as a group, as of October 31, 1996, equaled
$1,369,542. Directors who are not executive
<PAGE>
officers and employees of the Company do not receive benefits under the Annual
Plan. Subject to the limitations imposed by Section 162(m), the Committee may
amend the Annual Plan so that the allocation of benefits may be altered and
costs may be increased.
VOTE REQUIRED. THE AFFIRMATIVE VOTE OF A MAJORITY OF SHARES OF COMMON
STOCK PRESENT IN PERSON OR REPRESENTED BY PROXY AT THE ANNUAL MEETING IS
REQUIRED FOR THE ADOPTION OF ITEM 3. ALL PROXIES WILL BE VOTED FOR ITEM 3 UNLESS
A CONTRARY CHOICE IS INDICATED.
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 1997.
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 1998 ANNUAL MEETING
The 1998 Annual Meeting of Stockholders is expected to be held on March
12, 1998. Unless the date of the 1998 Annual Meeting is changed, a stockholder
proposal must be received by the Secretary of the Company no later than the
close of business on October 9, 1997, in order to be included in the Company's
Proxy Statement for the 1998 Annual Meeting. Procedures for nominations by a
stockholder of a person for election as a director at the 1998 Annual Meeting,
or any other meeting, are described on page .
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The rules of the Securities and Exchange Commission require disclosure by
the Company of the identity of directors, executive officers and beneficial
owners of more than 10% of the Common Stock of the Company who did not file on a
timely basis reports required by Section 16 of the Exchange Act. Based solely on
a review of copies of those reports received by the Company, or written
representations from certain reporting persons that no Form 5 reports were
required for those persons, the Company believes that all directors, executive
officers and greater than 10% owners complied with all filing requirements
applicable to them during Fiscal 1996, except that a Form 4 report with respect
to one transaction was inadvertently filed late on behalf of Stephen P. Wolfe,
an executive officer of the Company.
<PAGE>
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: February 6, 1997 BY ORDER OF THE BOARD OF DIRECTORS
J. LAWRENCE MCINTYRE
Vice President, Secretary and General
Counsel
<PAGE>
EXHIBIT A
THE TORO COMPANY
CONTINUOUS PERFORMANCE AWARD PLAN
1. PURPOSE OF THE PLAN. The purpose of the Continuous Performance Award Plan
(the "Plan") is to provide an incentive to members of management of The Toro
Company (the "Company") who are primarily responsible for the management,
growth and sound development of the business of the Company to achieve the
Company's long-term financial objectives, by making awards based on
achievement of performance goals ("Performance Awards").
2. ADMINISTRATION. The Plan shall be administered by the Compensation Committee
of the Board of Directors of the Company, or its successor committee (the
"Committee"), it being intended that members of the Committee shall qualify
to administer the Plan as contemplated by Rule 16b-3 promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act") or any successor rule,
and as contemplated by Section 162(m) of the Internal Revenue Code of 1986,
as amended (the "Code") and the rules and regulations thereunder, and
provided further that, if the stock options granted pursuant to paragraph 5
hereof are authorized to be granted under the Company's stock option plans,
the members of the Committee shall also have authority to act under those
plans. The Committee shall have power to select employees to whom
Performance Awards are made, to determine the terms of the Performance
Awards consistent with the Plan, to prescribe rules and regulations relating
to the Plan and to construe and otherwise implement the Plan.
3. ELIGIBILITY. Performance Awards may be made to any employee who has primary
responsibility for and directly influences achievement of long-term
financial results of the Company. Officers of the Company who are also
members of the Board of Directors shall be eligible to receive Performance
Awards. Members of the Committee shall not be eligible to receive
Performance Awards. Individuals to whom Performance Awards are made are
referred to as "Participants."
4. TERMS OF AWARDS. Performance Awards shall be evidenced by written agreements
in such form, not inconsistent with this Plan, as the Committee shall
approve from time to time, which agreements shall contain in substance the
following terms and conditions:
a. "AWARD TERM". Unless otherwise provided herein, each Performance Award
shall have a term of three fiscal years and shall be payable only at the
conclusion of such term. Notwithstanding the foregoing, and for the
purpose of bringing a Participant who has not previously participated in
this Plan into the three year award cycle of the Plan, the Committee may
grant, in addition to a three year Performance Award, a Performance Award
having a term of one fiscal year and a Performance Award having a term of
two fiscal years, such that an award will be payable, if otherwise
earned, at the conclusion of each of the first two fiscal years after
commencement of participation in the Plan. The Committee may, in its
discretion, grant additional, successive three year Performance Awards to
any Participant with respect to subsequent three year periods.
Notwithstanding the foregoing, the Committee may, in its discretion, make
Performance Awards having a duration of less than the normal Award Term
to an individual who is selected to first become a Participant at a time
other than the beginning of a fiscal year of the Company or to reflect a
fiscal transition period resulting from a change in fiscal year end or
similar significant event; provided that such award shall otherwise be
generally on the same terms and conditions applicable to Performance
Awards granted as of the first day of the applicable fiscal year.
A-1
<PAGE>
SPECIAL RULE FOR PERSONS REFERRED TO IN SECTION 162(M). If a Performance
Award is granted at a time other than the beginning of a fiscal year,
such award shall not be granted later than 90 days after the commencement
of the period of service to which the Performance Award relates or after
more than 25% of the period of service has elapsed, in accordance with
the provisions of subparagraph 4.c.ii hereof.
b. DATE OF GRANT. Except as otherwise permitted under this Plan, Performance
Awards, whether one year, two year or three year awards, shall be granted
as of the date which marks the first day of any Award Term.
c. BASIS OF AWARD.
i. The maximum amount that may be paid with respect to any Performance
Award (the "Award Maximum") shall be determined by multiplying (a)
the base compensation actually paid to the Participant during the
period of any one-year Award Term or the last fiscal year of any
multiple-year Award Term, as the case may be, exclusive of any
bonus or other incentive compensation but including deferred
compensation, times (b) a participation factor, which represents a
percentage of base compensation (such as .25 for 25% of base
compensation) determined by the Committee at the time an award is
granted, which is intended to reflect the Participant's ability to
influence the financial results of the Company or of its divisions
or subsidiaries and the Participant's relative seniority within
management.
SPECIAL RULE FOR PERSONS REFERRED TO IN SECTION 162(M): With
respect to a Performance Award granted to a person referred to in
Section 162(m), the maximum dollar amount of the Award Maximum
shall be set by the Committee at the time of grant of a Performance
Award and the Committee shall have the discretion to decrease this
maximum dollar amount but may not increase such amount with respect
to a Performance Award granted to a person referred to in Section
162(m). The participation factors applicable to such persons, which
are intended to reflect a Plan Participant's level of
responsibility, are 1.0 for the Chairman and Chief Executive
Officer, .75 for the President and Chief Operating Officer, if one
should be elected, .50 for the Group Vice Presidents and Chief
Financial Officer, and .25 to .35 for other officers, including
other named executive officers.
ii. The Committee shall establish a financial performance goal based on
the Company's relative performance in achieving a return on
beginning stockholders equity ("ROBE") as compared with other
similarly classified Fortune 500 companies (the "Performance
Goal"), and the amount that shall be paid (the "Award Payout") with
respect to each Performance Award shall be based on the achievement
by the Company of such Performance Goal during the applicable Award
Term; provided that the Performance Goal shall be established not
later than 90 days after the commencement of the period of service
to which the Performance Goal relates, provided that the outcome is
substantially uncertain at the time the Committee actually
establishes the Performance Goal; and provided further that in no
event will a Performance Goal be considered to be preestablished if
it is established after 25% of the period of service (as scheduled
in good faith at the time the Performance Goal is established) has
elapsed.
SPECIAL RULE FOR PERSONS REFERRED TO IN SECTION 162(M): In no case
shall the Award Payout with respect to a Performance Award granted
to a person referred to in Section 162(m) exceed the maximum dollar
amount established by the Committee in accordance with the Special
Rule set forth in subparagraph 4.c.i. or set forth in subparagraph
4.e.
A-2
<PAGE>
d. CALCULATION OF AWARD PAYMENT.
i. STANDARD CALCULATION. The Company's ROBE for each fiscal year shall
be converted to a percentile score (the "Percentile Score") by
comparing the ROBE to comparable data for all companies in the
Industrial and Farm Equipment Group of Fortune 500 (as reported for
the calendar year ended during such fiscal year). The one year
Percentile Score shall be used to determine the Award Payout with
respect to a one year Award Term and the average of the Percentile
Scores for a two or three year Award Term shall be used in
determining the Award Payout for any multiple year Performance
Award. If the Percentile Score (or average Percentile Score for a
two or three year Award Term) is: (a) at or above the 75th
percentile, each Participant shall be paid the Award Maximum; (b)
between the 50th and 75th percentile, each Participant shall be
paid an amount equal to two-thirds of the Award Maximum at the 50th
percentile and ranging up on a straight line basis to 100% of the
Award Maximum at the 75th percentile; (c) between the 25th and 50th
percentile, each Participant shall be paid two-thirds of the Award
Maximum at the 50th percentile and ranging down on a straight line
basis to zero at the 25th percentile; and (d) at or below the 25th
percentile, no Performance Award shall be paid. The Award Payout
with respect to a Performance Award covering two or three fiscal
years shall not be earned or paid until the completion of the final
fiscal year of the Award Term. However, no Award Payout will be
earned or paid to any participant during the first six months of
any Award Term.
ii. Notwithstanding the provisions of subparagraph i of this
subparagraph 4.d., any individual who has participated in the Plan
for less than a full fiscal year during a one year Award Term shall
receive a payment only for that portion of the fiscal year during
which the individual was a Participant (expressed as a percentage
and based on a 360 day year).
e. MAXIMUM AWARD PAYMENT. Notwithstanding any other provision of this Plan,
the maximum dollar amount a Participant may be paid under a Performance
Award with respect to any Award Term is $1,500,000. The Committee may in
its discretion, decrease this maximum, but may not under any
circumstances increase this maximum.
f. PAYMENT. Before any payment is made under the Plan, the Committee must
certify in writing that the Performance Goal justifying the payment has
been met. Subject to the provisions of subparagraph 4.g. hereof, any
amount earned with respect to a Performance Award shall be paid in cash
within a reasonable time after the last day of the Award Term and after
the Committee has certified in writing that the applicable Performance
Goal and any other material terms were satisfied. A Participant shall
have no control over the date of payment.
g. CHANGE OF CONTROL. Each Performance Award shall provide that in the event
of a threatened or actual Change of Control of the Company after one full
year of any multiple year Award Term, or during the final six months of a
one year Award Term, any such Performance Award shall become immediately
payable and the calculation of the amount payable shall be based on the
ROBE of the Company for the fiscal period most recently ended and the
most recent Fortune 500 publication then available. 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 of, or announcement of an intention to make, a
tender offer or exchange offer the consummation of which would result in
the beneficial ownership by a 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 combination
A-3
<PAGE>
thereof, that causes 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.
h. TRANSFERABILITY. No Performance Award granted hereunder may be
transferred by a Participant. A Participant may receive payment with
respect to a Performance Award only while an employee of the Company or a
parent or subsidiary of the Company and only if he or she has been
continuously employed since the date the Performance Award was granted;
provided, however, that:
i. In the event of the death, disability or retirement of a
Participant, an Award Payout shall be made if otherwise earned in
accordance with subparagraph 4.d. hereof, with respect to the
portion of the applicable Award Term completed at the date of such
event (based on a 360 day year and expressed as a percentage). The
amount shall be calculated and paid in accordance with the
applicable provisions of subparagraphs 4.d. and 4.e.,
notwithstanding the earlier occurrence of such event.
ii. In the event of involuntary termination of employment of a
Participant, during the Award Term, for reasons other than death,
disability or retirement, an Award Payout shall be made, if
otherwise earned in accordance with subparagraph 4.d. hereof, with
respect to the portion of the applicable Award Term completed at
the date of such event (based on a 360 day year and expressed as a
percentage). Any payment made under this subparagraph 4.h.ii shall
be based on the ROBE of the Company for the fiscal period then most
recently ended and the most recent Fortune 500 publication then
available.
5. STOCK OPTIONS. At the time of granting any Performance Award, the Committee
shall grant to each Participant options to purchase shares of the Common
Stock, $1.00 par value and related Preferred Share Purchase Rights, of the
Company (the "Common Stock") under the Company's then effective stock option
plan or plans, on such terms and conditions as may be required or permitted
under such stock option plan, provided, however, that the following terms
shall be applicable unless otherwise not permitted by such stock option
plan:
a. Each Participant shall be granted one option with respect to each
Performance Award.
b. The number of shares to be subject to an option granted to a Participant
(the "Option Amount") shall be determined by: multiplying (i) the
estimated base compensation of the Participant during the first fiscal
year of the Award Term, as determined by the Human Resources department
of the Company, exclusive of any bonus or other incentive compensation
but including deferred compensation; times (ii) the participation factor
described in subparagraph 4.c.i above; times (iii) 1.0 for a one-year
Award Term, 1.05 for a two-year Award Term, and 1.1 for a three-year
Award Term; and dividing that result by (iv) the Fair Market Value of one
share of Common Stock of the Company determined in accordance with
subparagraph 5.d. hereof.
c. Notwithstanding paragraph 5.b., the number of shares subject to an option
shall be subject to reduction as follows: If the Company's Percentile
Score (or average Percentile Score for a multiple year Award Term) as
calculated in accordance with subparagraph 4.d. above, is not at or above
the 75th percentile, but is at or above the 25th percentile, a portion of
the option related to the applicable Performance Award shall be deemed to
expire so that the number of shares subject to the option shall be
reduced pro rata on a straight-line basis (full shares only) to two-
thirds of the Option Amount at a 50th Percentile Score and to zero at a
25th Percentile Score, on the same basis as provided in subparagraph 4.d.
above. Thus, if the Company does not achieve a Performance Goal equal to
at least the 25th percentile as herein provided for the Award Term,
A-4
<PAGE>
the option shall expire automatically. The calculation required by this
subparagraph shall be made and certified by the Committee promptly after
the end of each fiscal year, and any option or portion of an option
deemed to expire shall expire automatically upon the making of such
calculation. The Committee shall promptly notify the Participants of the
results of the calculation.
d. The exercise price per share under any option shall be the fair market
value of one share of Common Stock of the Company. The fair market value
of one share of Common Stock, for the purpose of determining the Option
Amount and the exercise price per share, shall be the average closing
price of the Common Stock on the New York Stock Exchange for the three
month period immediately prior to the grant date, provided that such
result shall otherwise be in accordance with the then effective stock
option plan.
e. An option granted with respect to any Performance Award, or the portion
thereof which remains after application of subparagraph 5.c. above, shall
become exercisable on the date the Company's releases to the public its
earnings for the prior fiscal year and shall remain exercisable until 90
days thereafter. If permitted under the then effective stock option plan
or under applicable securities laws, each option shall provide that in
the event of a Change of Control of the Company during the Award Term,
the option shall become immediately exercisable in the full Option Amount
and the calculation pursuant to paragraph 5.c. shall not be applicable.
f. An option shall, by its terms, expire upon the termination of employment
of a Participant, except that in the event of retirement by a Participant
after the end of an Award Term, such retired Participant shall be
entitled to exercise the option or options involved during the period
provided in subparagraph 5.e. above.
6. PLAN AMENDMENT AND TERMINATION. The Committee may, in its sole discretion,
amend, suspend or terminate the Plan at any time, with or without advance
notice to Plan Participants, provided that no amendment to the Plan shall be
effective which would increase the maximum amount payable under paragraph
4.e. to a Participant who is a person referred to in Section 162(m), which
would change the Performance Goal applicable to a Participant who is a
person referred to in Section 162(m) for payment of awards stated under
paragraph 4.c.ii.; or which would modify the requirements as to eligibility
for participation under paragraph 3, unless the stockholders of the Company
shall have approved such change in accordance with the requirements of
Section 162(m). Under no circumstances may the Plan be amended to permit the
Committee to increase an Award Payment in contravention of the requirements
of paragraph 4.c.i.
7. GOVERNING LAW. The Plan shall be construed, administered and governed in all
respects under and by the applicable laws of the State of Delaware.
8. EFFECTIVE DATE OF THE PLAN AND AMENDMENTS. The Plan first became effective
on August 1, 1991. Any amendment to the Plan shall be effective on the date
established by the Committee, subject to stockholder approval, if required
under the provisions of paragraph 6.
As amended by the Compensation Committee and Board of Directors November 19,
1996, subject to stockholder approval.
A-5
<PAGE>
EXHIBIT B
THE TORO COMPANY
ANNUAL MANAGEMENT INCENTIVE PLAN
1. PLAN PURPOSE. The purpose of The Toro Company Annual Management Incentive
Plan (the "Plan") is to provide an annual incentive to reinforce achievement
of the performance goals of The Toro Company (the "Company"); to link a
significant portion of a participating employee's annual compensation to the
achievement by the Company, and in certain cases, a division, of performance
goals; and to attract, motivate and retain key employees on a competitive
basis by making awards based on achievement of performance goals for each
fiscal year of the Company ("Annual Performance Awards").
2. ELIGIBILITY AND PARTICIPATION. Within the first 90 days of each fiscal year,
or before the first 25% of a shorter performance period has elapsed, the
Compensation Committee (the "Committee") shall select as recipients of
Annual Performance Awards ("Plan Participants") those employees who, through
their position or performance, can have a significant, positive impact on
the Company's financial results. Nominations may be made to the Chief
Executive Officer and presented by the Chief Executive Officer to the
Committee. Plan Participants are designated to participate in the Plan for
one fiscal year, but may be renominated and selected again. Newly-hired and
newly-promoted employees may be selected as participants after the first 90
days of a fiscal year.
3. AWARD AMOUNTS.
a. TARGET PAYOUT. The target amount that may be paid with respect to an
Annual Performance Award (the "Target Payout") shall be determined by the
Compensation Committee and shall be based on a percentage of a Plan
Participant's actual annual base salary ("Participation Factor"), within
the range established by this subparagraph, and subject to adjustment as
provided in subparagraph 4.b. The Participation Factors, which are
intended to reflect a Plan Participant's level of responsibility, are 50%
for the Chairman and Chief Executive Officer, 45% for the President and
Chief Operating Officer, if one should be elected, 40% for other elected
officers, including the named executive officers, and 25 to 40% for other
officers and employees. The Chief Executive Officer may approve
modifications to the foregoing Participation Factors for any participant
who is not a person referred to in Section 162(m) of the Internal Revenue
Code of 1986, as amended, or the regulations thereunder ("Section
162(m)"), if such modification is based on level of responsibility.
b. MAXIMUM PAYOUT. The Committee may also establish a maximum potential
payout level (the "Maximum Payout") with respect to an Annual Performance
Award of up to 175% of the Target Payout in the event Performance Goal
targets are exceeded by an amount established by the Committee at the
time Performance Goals are established. The Committee may establish
curves or other measurements for prorating the amount of payout for
achievement of Performance Goals at less than the Target Payout or
Maximum Payout.
c. DIVISION PAYOUT. At the time an Annual Performance Award is made, the
Committee may decrease the Target Payout by up to 40% or increase the
Maximum Payout by up to 25% for division Plan Participants but not above
75%, to reflect division specific Performance Goals. The Committee shall
also have the discretion to reduce by an amount up to 10% the amount that
would otherwise be paid under the division payout formula to a division
vice president or general manager based on the Committee's evaluation of
the quality of division performance.
B-1
<PAGE>
d. SECTION 162(M) MAXIMUM. With respect to any Plan Participant who is or
may become a person referred to in Section 162(m), the maximum dollar
amount that may be paid under an Annual Performance Award shall be set at
the time the Committee grants the award and establishes the Performance
Goals (as defined in subparagraph 4.a.) under the award.
4. PERFORMANCE GOALS.
a. ESTABLISHMENT. The Target Amount of an Annual Performance Award shall be
paid to a Plan Participant only if the Company achieves Performance
Goals, based on the criteria set forth in paragraph (4.b.) ("Performance
Goals"), established by the Committee in writing not later than 90 days
after the commencement of the fiscal year to which the Performance Goal
relates, provided that the outcome is substantially uncertain at the time
the Committee establishes the Performance Goal; and provided further that
in no event will a Performance Goal be considered to be preestablished if
it is established after 25% of the period of service (as scheduled in
good faith at the time the Performance Goal is established) has elapsed.
b. PERFORMANCE GOAL CRITERIA. Performance Goals to be established under
subparagraph 4.a. shall be based on earnings per share (EPS), return on
average net assets (ROANA), division profit adjustment, division
controllable profit contribution, return on equity, revenue growth,
earnings growth or economic value added (EVA). Supplemental Performance
Goals for division vice presidents and managers that may be established
under subparagraph 4.a. may be based on division specific operating
performance goals including revenue growth, sustained earnings, product
warranty experience, product recalls or inventory levels. Each
Performance Goal is to be specifically defined by the Compensation
Committee on a Company basis or division basis and/or in comparison with
peer group performance.
5. DISCRETION TO DECREASE AWARD PAYMENT. With respect to any Plan Participant
who is a person referred to in Section 162(m), the Committee shall have the
discretion to decrease an award payment under an Annual Performance Award,
but may not under any circumstances increase such amount.
6. MAXIMUM AWARD PAYMENT. Notwithstanding any other provision of this Plan, the
maximum dollar amount a Plan Participant may be paid under an Annual
Performance Award with respect to any fiscal year is $1,500,000. The
Committee may, in its discretion, decrease this maximum, but may not, under
any circumstances, increase this maximum.
7. PAYMENTS. Before any payment is made under the Plan, the Committee must
certify in writing that the Performance Goals established with respect to an
Annual Performance Award have been achieved. To the extent necessary with
respect to any fiscal year, in order to avoid any undue windfall or hardship
due to external causes, the Committee may make the determination as to
whether a Performance Goal has been achieved without regard to the effect on
the Performance Goal measure, as it may otherwise be presented in the
financial statements, of any change in accounting standards, any acquisition
by the Company not planned for at the time the Performance Goals are
established, or any Board-approved extraordinary or non-recurring event or
item.
8. TRANSFERABILITY. Awards shall not be assignable or transferable.
9. ADMINISTRATION. The Committee shall have the authority to administer the
Plan; establish policies under the Plan; amend the Plan, subject to the
provisions of paragraph 11; interpret provisions of the Plan; select Plan
Participants; establish Performance Goals; make Annual Performance Awards;
or terminate the Plan, in its sole discretion. The Committee may delegate
certain of these activities and all
B-2
<PAGE>
decisions not required to be exercised by it under Section 162(m), as it
solely determines. All decisions of the Committee shall be final and binding
upon all parties including the Company, its stockholders and Plan
Participants.
10. GOVERNING LAW. The Plan shall be construed, administered and governed in all
respects under and by the applicable laws of the State of Delaware.
11. PLAN AMENDMENT AND TERMINATION. The Committee may, in its sole discretion,
amend, suspend or terminate the Plan at any time, with or without advance
notice to Plan Participants, provided that no amendment to the Plan shall be
effective that would increase the maximum amount payable under paragraph 6
to a Plan Participant who is a person referred to in Section 162(m); that
would change the Performance Goal criteria applicable to a Plan Participant
who is a person referred to in Section 162(m) for payment of awards stated
under paragraph 4; or that would modify the requirements as to eligibility
for participation under paragraph 2, unless the stockholders of the Company
shall have approved such change in accordance with the requirements of
Section 162(m). Under no circumstances may be Plan be amended to permit the
Committee to increase an award payment in contravention of the requirements
of paragraph 5.
12. EFFECTIVE DATE OF THE PLAN AND AMENDMENTS. The Plan first became effective
on November 1, 1995. Any amendment to the Plan shall be effective on the
date established by the Committee, subject to stockholder approval, if
required under the provisions of paragraph 11.
As amended by the Compensation Committee and Board of Directors, January 20,
1997, to be effective as of November 1, 1996, subject to stockholder approval.
B-3
<PAGE>
THE TORO COMPANY
ANNUAL MEETING
The Toro Company
8111 Lyndale Avenue South
Bloomington, Minnesota 55420
MARCH 13, 1997
3:00 P.M. CENTRAL STANDARD TIME
Please detach here
The Toro Company
[LOGO]
Please detach here
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 / / WITHHOLD AUTHORITY
below (except as marked to
the contrary below)
Janet K. Cooper Kendrick B. Melrose Edwin H. Wingate
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ONE OR MORE INDIVIDUAL NOMINEES,
STRIKE A LINE THROUGH THE NOMINEE'S NAME.)
2. Approval of Amendment of Continuous Performance Award Plan
FOR / / AGAINST / / ABSTAIN / /
3. Approval of Amendment of Annual Management Incentive Plan
FOR / / AGAINST / / ABSTAIN / /
4. Approval of Selection of Independent Auditors
FOR / / AGAINST / / ABSTAIN / /
5. To consider and act upon such other matters as may properly come before the
meeting or any adjournments thereof.
TORO INV. & SVGS. PLAN
PLYMOUTH 401(K) PLAN
REGISTERED STOCK
------------------------------------
------------------------------------
SIGNATURE(S) DATE
This Proxy Card must be Signed
Exactly as Name Appears thereon
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 USING THE ENCLOSED
ENVELOPE.
<PAGE>
THE TORO COMPANY
8111 LYNDALE AVENUE SOUTH THIS PROXY IS SOLICITED ON BEHALF
MINNEAPOLIS, MINNESOTA 55420-1196 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 13th day of March, 1997 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>
FORM 8-A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FOR REGISTRATION OF CERTAIN CLASSES OF SECURITIES
PURSUANT TO SECTION 12(b) OF (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
THE TORO COMPANY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 41-0580470
- --------------------------------------------------------------------------------
(State of incorporation or organization) (IRS Employer
Identification No.)
8111 Lyndale Avenue South, Bloomington, MN 55420
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
------------------- ------------------------------
Common Shares, par New York Stock Exchange
value $1.00 per share
Securities to be registered pursuant to Section 12(g) of the Act:
None
<PAGE>
Item 1. CAPITAL STOCK TO BE REGISTERED.
DESCRIPTION OF COMMON SHARES
COMMON SHARES. The Toro Company is a Minnesota
corporation. Its Restated Articles of Incorporation, as amended,
authorize 5,000,000 Common Shares of a par value of $1.00 per
share. As of July 14, 1976, a total of 2,648,592 Common Shares
were outstanding; 99,500 Common Shares were reserved for issuance
to key employees under stock options granted or to be granted
under the Company's 1976 Stock Option Plan; 55,198 Common Shares
were reserved for issuance to key employees under stock options
granted under the Company's 1972 Parallel Stock Option Plan;
250,000 Common Shares were reserved for issuance to key officers
under a Performance Unit Award Plan; and 175,000 Common Shares
were reserved for issuance to employees under the terms of the
Toro Employee Stock Purchase Plan. The Transfer Agent and
Registrar for the Common Shares is the First National Bank,
Minneapolis, Minnesota. The Common Shares are presently traded
on the national over-the-counter market.
DIVIDEND RIGHTS. Holders of Common Shares are entitled
to receive such dividends as may be declared by the Board of
Directors. Under the terms of various senior notes and revolving
credit agreements with banks, the Company must maintain at least
$20,000,000.00 of working capital, limit the amount of long-term
debt to 80% of tangible net worth as defined, and is subject to
restrictions, among other things, on payment of cash dividends on
Common Shares. At July 31, 1997, the Company had complied with
such requirements and, under the most restrictive agreement,
retained earnings of approximately $16,700,000.00 were free from
such restrictions.
VOTING RIGHTS. Holders of Common shares are entitled
to one vote for each Common Share held. Shareholders do not have
any cumulative rights. The Board of Directors has the power to
issue authorized but unissued Shares of the Company at such times
and upon such terms and conditions as it may deem to be in the
best interest of the Company. The vote of Shareholders is not
required for the creation of debt. The holders of a majority of
the outstanding Common Shares have the power to authorize the
sale, lease, exchange or other disposal of all or substantially
all of the property and assets of the Company, including its good
will, and to amend the Articles of Incorporation.
OTHER PROVISIONS. The holders of Common Shares have no
preemptive right to subscribe to any new issue of Shares of the
Company. In any liquidation, the Common Shares will be entitled
to share ratably in all remaining assets available for
shareholders. No redemption or sinking fund provisions are
applicable to the Common Shares. There are no restrictions on
the repurchase or redemption of the Common shares by the Company
while there is any arrearage in the payment of dividends except
as may be imposed by the applicable provision of the Minnesota
Business Corporation Act. The issued and outstanding Common
Shares are fully paid and nonassessable.
<PAGE>
Item 2. DEBT SECURITIES TO BE REGISTERED.
Not applicable.
Item 3. OTHER SECURITIES TO BE REGISTERED.
Not applicable.
Item 4. EXHIBITS.
The following Exhibits are filed only with copies of
this Registration Statement filed with the New York Stock
Exchange:
1. Annual Report on Form 10-K for the year ended July
31, 1977.
2. Quarterly Report on Form 10-Q for the period ended
October 31, 1977.
3. Quarterly Report on Form 10-Q for the period ended
January 31, 1978.
4. Quarterly Report on Form 10-Q for the period ended
April 30, 1978.
5. Proxy Statement for Annual Meeting of Stockholders
held November 10, 1977.
6. Articles of Incorporation, as amended, and By-Laws, as amended.
7. Specimen copy of Stock Certificate.
8. Annual Report to Stockholders for year ended July
31, 1977.
SIGNATURE
Pursuant to the requirements of Section 12 of the
Securities Act of 1934, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized.
THE TORO COMPANY
By /s/David T. McLaughlin
--------------------------------------
David T. McLaughlin
Its Chairman of the Board of Directors
Dated: August 16, 1978
<PAGE>
FORM 8-A
FOR REGISTRATION OF CERTAIN CLASSES OF SECURITIES
PURSUANT TO SECTION 12(b) OF (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
THE TORO COMPANY
(Exact name of registrant as specified in its charter)
Delaware 41-0580470
(State of incorporation or organization) (IRS Employer
Identification No.)
8111 Lyndale Avenue South, Bloomington, MN 55420
(Address of principal executive offices) (Zip Code)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
------------------- ------------------------------
Preferred Share Purchase Rights New York Stock Exchange
Securities to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Page 1 of 5
<PAGE>
Item 1. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
On April 8, 1986 the Board of Directors of THE TORO COMPANY (the
"Company") declared a dividend one one preferred share purchase right (a
"Right") for each outstanding share of Common Stock, $1.00 par value (the
"Common Shares"), of the Company, payable to shareholders of record on April 28,
1986. Each Right will entitle the holder thereof until the earlier of
April 28, 1996 and the redemption of the Rights to buy one one-hundredth of a
share of Series B Junior Participating Voting Preferred Stock, $1.00 par
value (the "Preferred Shares"), of the Company, at an exercise price of $75
per one one-hundredth of a share, subject to adjustment. The Rights will be
represented by the certificates for Common Shares, will not be exercisable,
and will not be transferable apart from the Common Shares, until the earlier
of the tenth day after the announcement that a person or group has acquired
beneficial ownership of 20% or more of the Common Shares or the tenth day
after a person commences, or announces an intention to commence, an offer the
consummation of which would result in a person beneficially owning 30% or
more of the Common Shares (the earlier of such dates being called the
"Distribution Date"). Separate certificates for the Rights will be mailed to
holders of record of the Common Shares as of such date. The Rights could
then begin trading separately from the Common Shares.
In the event that the Company is acquired in a merger or other business
combination transaction, each Right will entitle its holder to purchase, at
the then current exercise price of the Right, that number of shares of common
stock of the surviving company which at the time of such transaction will
have a market value of two times the then current exercise price of the
Right. Alternatively, if a holder of 20% or more of the Common Shares
acquires the Company by means of a reverse merger in which the Company and
its stock survive, or engages in one of a number of self-dealing
transactions, each Right not owned by such holder will become exercisable for
that number of Common Shares which, at that time, will have a market value of
two times the then current exercise price of the Right.
The Rights are redeemable in whole, but not in part, at $.05 per Right
at any time prior to the acquisition by a person or group of beneficial
ownership of 20% or more of the Common Shares. The right to exercise the
Rights terminates at the time that the Board of Directors elects to redeem
the Rights. Notice of redemption shall be given by mailing such notice to
the registered holders of the Rights. The Rights will expire on April 28,
1996 (unless sooner redeemed). At no time will the Rights have any voting
rights. The Rights Agent is First Trust Company, Inc. (the "Rights Agent").
The exercise price payable, and the number of Preferred Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision,
Page 2 of 5
<PAGE>
combination or reclassification of, the Preferred Shares, (ii) upon the grant
to holders of the Preferred Shares of certain rights or warrants to subscribe
for or purchase preferred Shares at a price, or securities convertible into
Preferred Shares with a conversion price, less than the then current market
price of the Preferred Shares or (iii) upon the distribution to holders of
the Preferred Shares of evidences of indebtedness or assets (excluding
regular periodic cash dividends paid out of earnings or retained earnings or
dividends payable in Preferred Shares) or of subscription rights or warrants
(other than those referred to above).
The number of outstanding Rights and the number of one one-hundredths of
a Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of, or stock dividend on, or
subdivision, consolidation or combination of, the Common Shares prior to the
Distribution Date. With certain exceptions, no adjustment in the exercise
price will be required until cumulative adjustments require an adjustment of
at least 1% in such exercise price.
Upon exercise of the Rights, no fractional Preferred Shares probably
will be issued (other than fractions which are integral multiples of one
one-hundredth of a share, which may, at the election of the Company, be
evidenced by depositary receipts) and in lieu thereof an adjustment in cash
will be made.
As of April 8, 1986 there were 6,998,807 Common Shares issued and
outstanding (excluding 231,069 Common Shares held in the Company's treasury).
As of such date an additional 790,584 Common Shares were reserved for
issuance pursuant to the Company's employee benefit plans. One Right will be
distributed to shareholders of the Company for each Common Share owned of
record by them on April 28, 1986. Until the Distribution Date, the Company
will issue one Right with each Common Share that shall become outstanding so
that all Common Shares will have attached Rights. The Company has initially
reserved 100,000 Preferred Shares for issuance upon exercise of the Rights.
The Rights have certain anti-takeover effects. The Rights may cause
substantial dilution to a person or group that attempts to acquire the
Company on terms not approved by the Board of Directors of the Company,
except pursuant to an offer conditioned on a substantial number of Rights
being acquired. The Rights should not interfere with any merger or other
business combination approved by the Board of Directors since the Rights may
be redeemed by the Company at $.05 per Right prior to the acquisition by a
person or group of beneficial ownership of 20% or more of the Common Shares.
The Preferred Shares purchasable upon exercise of the Rights will be
junior to the Company's outstanding series of Preferred Stock and to such
other series of the Company's Preferred Stock as provide that they shall be
prior to the Preferred Shares and
Page 3 of 5
<PAGE>
will be nonredeemable. Each Preferred Share will be entitled to a minimum
preferential quarterly dividend of $10 per share, but will be entitled to an
aggregate dividend of 100 times the dividend declared per Common Share. In
the event of liquidation, the holders of the Preferred Shares will be
entitled to a minimum preferential liquidation payment of $100 per share, but
will be entitled to an aggregate payment of 100 times the payment made per
Common Share. Each Preferred Share will have 100 votes, voting together with
the Common Shares. In the event of any merger, consolidation or other
transaction in which Common Shares are exchanged, each Preferred Share will
be entitled to receive 100 times the amount and type of consideration
received per Common Share. These rights are protected by customary
anti-dilution provisions. Because of the nature of the Preferred Shares'
dividend, liquidation and voting rights, the value of the interest in a
Preferred Share purchasable upon the exercise of each Right should
approximate the value of one Common Share.
The form of Rights Agreement between the Company and the Rights Agent
specifying the terms of the Rights, which includes as Exhibit B the form of
Right Certificate, is attached hereto as an exhibit and incorporated herein
by reference. The foregoing description of the Rights is qualified by
reference to such exhibit.
Item 2. EXHIBIT.
1. Form of Rights Agreement dated as of April 8, 1986 between THE
TORO COMPANY and First Trust Company, Inc., as Rights Agent,
which includes as Exhibit B the form of Right Certificate.
Pursuant to the Rights Agreement, Right Certificates will not
be mailed until as soon as practicable after the earlier of
the tenth day after announcement that a person or group has
acquired beneficial ownership of 20% or more of the Common
Shares or the tenth day after a person commences, or announces
an intention to commence, an offer the consummation of which
would result in a person beneficially owning 30% or more of
the Common Shares.
Page 4 of 5
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereto duly authorized.
THE TORO COMPANY
Date: April 11, 1986 By: /s/Vernon A. Johnson
-----------------------------
Vernon A. Johnson
Secretary and General Counsel
Page 5 of 5
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington , D.C. 20549
FORM 8
AMENDMENT TO APPLICATION OR REPORT
Filed pursuant to Section 12, 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
The Toro Company
(Exact name of registrant as specified in charter)
AMENDMENT NO. 1
The undersigned Registrant hereby amends the following items,
financial statements, exhibits or other portions of its Registration
Statement on Form 8-A dated April 11, 1986 with respect to its Preferred
Share Purchase Rights as set forth below and on the pages attached hereto:
Item 1. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
Item 1 is hereby amended by adding thereto the following:
On May 18, 1987, a three-for-two split of the Common Stock, $1.00
par value (the "Common Shares"), of the Registrant was effected. As a result
of such stock split, certain adjustments were required with respect to the
Preferred Share Purchase Rights of the Registrant in accordance with the
terms and provisions of the Rights Agreement, dated as of April 8, 1986 (the
"Rights Agreement"), between the Registrant and First Trust Company, Inc., as
Rights Agent (the "Rights Agent"). A copy of the Certificate of Adjustment
delivered to the Rights Agent pursuant to Section 12 of the Rights Agreement,
which Certificate sets forth such required adjustments, is attached hereto as
Exhibit 2 and is incorporated herein by reference.
Item 2. EXHIBITS.
Item 2 is hereby amended by adding thereto the following:
2. Certificate of Adjustment delivered by The Toro
Company to First Trust Company, Inc., as Rights Agent on May 13,
1987.
<PAGE> Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this amendment to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE TORO COMPANY
DATE: May 13, 1987
By /s/ Vernon A. Johnson
-------------------------------
Vernon A. Johnson
Vice President & General Counsel
-2-
<PAGE>
EXHIBIT #2
CERTIFICATE OF ADJUSTMENT
Pursuant to Section 12 of the Rights Agreement, dated as of April
8, 1986 (the "Rights Agreement"), between The Toro Company (the "Company")
and First Trust Company, Inc., as Rights Agent, the Company hereby certifies
as follows:
I. STATEMENT OF FACTS.
At its April 14, 1987 meeting, the Company's Board of Directors
adopted resolutions effecting a three-for-two split of the shares of common
stock, $1.00 par value (the "Common Shares"), of the Company (the "Split") in
the form of a 50% share dividend. Pursuant to such resolutions, the
appropriate officers of the Company were authorized and directed to issue to
each stockholder of record at the close of business on May 18, 1987, one
additional Common Share and one additional Preferred Share Purchase Right (a
"Right") for each two Common Shares and Rights held of record by such
stockholder at the close of business on said date, payable June 10, 1987.
Pursuant to the provisions of Sections 11 and 23 of the Rights Agreement, as
a result of the Split, certain adjustments to the number of one
one-hundredths of a Preferred Share (as defined in the Rights Agreement)
purchasable upon exercise of a Right and to the Redemption Price (as defined
in the Rights Agreement) will be effected as set forth below.
II. ADJUSTMENTS.
The following adjustments will be effected as of May 18, 1987
pursuant to the terms of the Rights Agreement:
(a) NUMBER OF PREFERRED SHARES. Pursuant to Section 11(n) of the
Rights Agreement, the number of one one-hundredths of a Preferred Share
purchasable upon exercise of a Right will be adjusted so that after May 18,
1987, each Right will represent the right to purchase two-thirds of one
one-hundredths of a Preferred Share.
(b) REDEMPTION PRICE. Pursuant to Section 23(a) of the Rights
Agreement, the Redemption Price will be adjusted from $.05 to $.033 per Right.
Dated this 13th day of May, 1987.
THE TORO COMPANY
By: /s/ Vernon A. Johnson
-------------------------
Vernon A. Johnson
-3-
<PAGE>
Vice President & General Counsel
-4-
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
FORM 8-A
FOR REGISTRATION OF CERTAIN CLASSES OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
THE TORO COMPANY
(Exact name of registrant as specified in its charter)
Delaware 41-0580470
(State of incorporation or organization) (IRS Employer Identification No.)
8111 Lyndale Avenue South, Bloomington, Minnesota 55420
(Address of principal executive officers) (Zip Code)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
------------------- ------------------------------
Preferred Share Purchase Rights New York Stock Exchange
Securities to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Page 1 of 8
<PAGE>
Item 1. DESCRIPTION OF SECURITIES TO BE REGISTERED.
On June 14, 1988, the Board of Directors of The Toro Company (the
"Company") declared a dividend of one preferred share purchase right (a
"Right") for each outstanding share of Common Stock, $1.00 par value (the
"Common Shares"), of the Company. The dividend is payable on June 24, 1988
(the "Record Date") to the stockholders of record on that date. Each Right
entitles the registered holder to purchase from the Company one one-hundredth
of a share of Series B Junior Participating Voting Preferred Stock, $1.00 par
value (the "Preferred Shares"), of the Company, at a price of $85 per one
one-hundredth of a Preferred Share (the "Purchase Price"), subject to
adjustment. The description and terms of the Rights are set forth in a
Rights Agreement (the "Rights Agreement") between the Company and Norwest
Bank Minnesota, National Association, as Rights Agent (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") have acquired beneficial ownership of 20% or more of the
outstanding Common Shares or (ii) 10 business days (or such later date as may
be determined by action of the Board of Directors prior to such time as any
Person becomes an Acquiring Person) following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 20% or more of such outstanding Common Shares (the earlier of such
dates being called the "Distribution Date"), the Rights will be evidenced,
with respect to any of the Common Share certificates outstanding as of the
Record Date, by such Common Share certificate with a copy of the Summary of
Rights attached thereto.
The Rights Agreement provides that, until the Distribution Date,
the Rights will be transferred with and only with the Common Shares. Until
the Distribution Date (or earlier redemption or expiration of the Rights),
new Common Share certificates issued after the Record Date, upon transfer or
new issuance of Common Shares will contain a notation incorporating the
Rights Agreement by reference. Until the Distribution Date (or earlier
redemption or expiration of the Rights), the surrender for transfer of any
certificates for Common Shares, outstanding as of the Record Date, even
without such notation or a copy of the Summary of Rights being attached
thereto, will also constitute the transfer of the Rights associated with the
Common Shares represented by such certificate. As soon as practicable
following the Distribution Date, separate certificates evidencing the Rights
("Right Certificates") will be mailed to holders of record of the Common
Shares as of the close of business on the Distribution Date and such separate
Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The
Rights will expire on June 14, 1998 (the "Final Expiration Date"), unless the
Final Expiration Date is
Page 2 of 8
<PAGE>
extended or unless the Rights are earlier redeemed by the Company, in each
case, as described below.
The Purchase Price payable, and the number of Preferred Shares or
other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event
of a stock dividend on, or a subdivision, combination or reclassification of,
the Preferred Shares, (ii) upon the grant to holders of the Preferred Shares
of certain rights or warrants to subscribe for or purchase Preferred Shares
at a price, or securities convertible into Preferred Shares with a conversion
price, less than the then current market price of the Preferred Shares or
(iii) upon the distribution to holders of the Preferred Shares of evidences
of indebtedness or assets (excluding regular periodic cash dividends paid out
of earnings or retained earnings or dividends payable in Preferred Shares) or
of subscription rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one
one-hundredths of a Preferred Share issuable upon exercise of each Right are
also subject to adjustment in the event of a stock split of the Common Shares
or a stock dividend on the Common Shares payable in Common Shares or
subdivisions, consolidations or combinations of the Common Shares occurring,
in any such case, prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not
be redeemable. Each Preferred Share will be entitled to a minimum
preferential quarterly dividend payment of $1.00 per share but will be
entitled to an aggregate dividend of 100 times the dividend declared per
Common Share. In the event of liquidation, the holders of the Preferred
Shares will be entitled to a minimum preferential liquidation payment of $100
per share but will be entitled to an aggregate payment of 100 times the
payment made per Common Share. Each Preferred Share will have 100 votes,
voting together with the Common Shares. Finally, in the event of any merger,
consolidation or other transaction in which Common Shares are exchanged, each
Preferred Share will be entitled to receive 100 times the amount received per
Common Share. These rights are protected by customary antidilution
provisions.
Because of the nature of the Preferred Shares' dividend, voting and
liquidation rights, the value of the one one-hundredth interest in a
Preferred Share purchasable upon exercise of each Right should approximate
the value of one Common Share.
In the event that the Company is acquired in a merger or other
business combination transaction or 50% or more of its consolidated assets or
earning power are sold, proper provision will be made so that each holder of
a Right will thereafter have the right to receive, upon the exercise thereof
at the then current exercise price of the
Page 3 of 8
<PAGE>
Rights, that number of shares of common stock of the acquiring company which
at the time of such transaction will have a market value of two times the
exercise price of the Rights. In the event that (i) any person becomes an
Acquiring Person (unless such person first acquires 20% or more of the
outstanding Common Shares by a purchase pursuant to a tender offer for all of
the Common Shares for cash, which purchase increases such person's beneficial
ownership to 80% or more of the outstanding Common Shares) or (ii) during
such time as there is an Acquiring Person, there shall be any
reclassification of securities or recapitalization or reorganization of the
Company which has the effect of increasing by more than 1% the proportionate
share of the outstanding shares of any class of equity securities of the
Company or any of its subsidiaries beneficially owned by the Acquiring
Person, proper provision shall be made so that each holder of a Right, other
than Rights beneficially owned by the Acquiring Person (which will thereafter
be void), will thereafter have the right to receive upon exercise that number
of Common Shares having a market value of two times the exercise price of the
Rights.
At any time after the acquisition by a person or group of
affiliated or associated persons of beneficial ownership of 20% or more of
the outstanding Common Shares and prior to the acquisition by such person or
group of 50% or more of the outstanding Common Shares, the Board of Directors
of the Company may exchange the Rights (other than Rights owned by such
person or group which have become void), in whole or in part, at an exchange
ratio of one Common Share, or one one-hundredth of a Preferred Share (or of a
share of a class of series of the Company's preferred stock having equivalent
rights, preferences and privileges), per Right (subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will
be required until cumulative adjustments require an adjustment of at least 1%
in such Purchase Price. No fractional Preferred Shares will be issued (other
than fractions which are integral multiples of one one-hundredth of a
Preferred Share, which may, at the election of the Company, be evidenced by
depositary receipts) and in lieu thereof, an adjustment in cash will be made
based on the market price of the Preferred Shares on the last trading day
prior to the date of exercise.
At any time prior to the acquisition by a person or group of
affiliated or associated persons of beneficial ownership of 20% or more of
the outstanding Common Shares, the Board of Directors of the Company may
redeem the Rights in whole, but not in part, at a price of $.01 per Right
(the "Redemption Price"). The redemption of the Rights may be made effective
at such time on such basis and with such conditions as the Board of Directors
in its sole discretion may establish. In addition, if a bidder who does not
beneficially own more than 1% of the Common Shares (and who has not within
the past year owned in excess of 1% of the Common Shares and, at a time he
held such greater than 1% stake, disclosed, or caused the disclosure of, an
intention which relates
Page 4 of 8
<PAGE>
to or would result in the acquisition or influence of control of the Company)
proposes to acquire all of the Common Shares (and all other shares of capital
stock of the Company entitled to vote with the Common Shares in the election
of directors or on mergers, consolidations, sales of all or substantially all
of the Company's assets, liquidation, dissolutions or windings up) for cash
at a price which a nationally recognized investment banker selected by such
bidder states in writing is fair, and such bidder has obtained written
financing commitments (or otherwise has financing) and complies with certain
procedural requirements, then the Company, upon the request of the bidder,
will hold a special stockholders meeting to vote on a resolution requesting
the Board of Directors to accept the bidder's proposal. If a majority of the
outstanding shares entitled to vote on the proposal vote in favor of such
resolution, then for a period of 60 days after such meeting the Rights will
be automatically redeemed at the Redemption Price immediately prior to the
consummation of any tender offer for all of such shares at a price per share
in cash equal to or greater than the price offered by such bidder; PROVIDED,
HOWEVER, that no redemption will be permitted or required after the
acquisition by any person or group of affiliated or associated persons of
beneficial ownership of 20% or more of the outstanding Common Shares.
Immediately upon any redemption of the Rights, the right to exercise the
Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.
The terms of the Rights may be amended by the Board of Directors of
the Company without the consent of the holders of the Rights, including an
amendment to lower the threshold for exercisability of the Rights from 20% to
not less than the greater of (i) any percentage greater than the largest
percentage of the outstanding Common Shares then known to the Company to be
beneficially owned by any person or group of affiliated or associated persons
and (ii) 10%, except that from and after such time as any person becomes an
Acquiring Person no such amendment may adversely affect the interests of the
holders of the Rights.
Until a Right is exercised, the holder thereof, as such, will have
no rights as a stockholder of the Company, including, without limitation, the
right to vote or to receive dividends.
The Rights have certain anti-takeover effects. The Rights will
cause substantial dilution to a person or group that attempts to acquire the
Company on terms not approved by the Company's Board of Directors, except
pursuant to an offer conditioned on a substantial number of Rights being
acquired. The Rights should not interfere with any merger or other business
combination approved by the Board of Directors since the Rights may be
redeemed by the Company at the Redemption Price prior to the time that a
person or group has acquired beneficial ownership of 20% or more of the
Common Shares.
Page 5 of 8
<PAGE>
The Rights Agreement, dated as of June 14, 1988, between the
Company and Norwest Bank Minnesota, N.A., as Rights Agent, specifying the
terms of the Rights and including the form of the Certificate of Designation,
Preferences and Rights setting forth the terms of the Preferred Shares as an
exhibit thereto and the form of press release announcing the declaration of
the Rights are attached hereto as exhibits and are incorporated herein by
reference. The foregoing description of the Rights is qualified in its
entirety by reference to such exhibits.
Item 2. EXHIBITS.
1. Rights Agreement, dated as of June 14, 1988, between The
Toro Company and Norwest Bank Minnesota, N.A., which
includes the form of Certificate of Designation,
Preferences and Rights setting forth the terms of the
Series B Junior Participating Voting Preferred Stock, $1.00
par value, as Exhibit A, the form of Right Certificate as
Exhibit B and the Summary of Rights to Purchase Preferred
Shares as Exhibit C. Pursuant to the Rights Agreement,
printed Right Certificates will not be mailed until as soon
as practicable after the earlier of the tenth day after
public announcement that a person or group has acquired
beneficial ownership of 20% or more of the Common Shares or
the tenth business day (or such later date as may be
determined by action of the Board of Directors) after a
person commences, or announces its intention to commence, a
tender offer or exchange offer the consummation of which
would result in the beneficial ownership by a person or
group of 20% or more of the Common Shares.
2. Form of press release dated June 14, 1988.
3. Form of letter to stockholders dated June 15, 1988.
Page 6 of 8
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities
Exchange Act of 1934, the registrant has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: June 17, 1988
THE TORO COMPANY
By /s/ Vernon A. Johnson
---------------------------
Vernon A. Johnson
Secretary and General
Counsel
Page 7 of 8
<PAGE>
EXHIBIT LIST
1. Rights Agreement, dated as of June 14, 1988, between The Toro Company and
Norwest Bank Minnesota, N.A., which includes the form of Certificate of
Designation, Preferences and Rights setting forth the terms of the Series B
Junior Participating Voting Preferred Stock, $1.00 par value, as Exhibit A,
the form of Right Certificate as Exhibit B and the Summary of Rights to
Purchase Preferred Shares as Exhibit C. Pursuant to the Rights Agreement,
printed Right Certificates will not be mailed until as soon as practicable
after the earlier of the tenth day after public announcement that a person
or group has acquired beneficial ownership of 20% or more of the Common
Shares or the tenth business day (or such later date as may be determined
by action of the Board of Directors) after a person commences, or announces
its intention to commence, a tender offer or exchange offer the consumption
of which would result in the beneficial ownership by a person or group of
20% or more of the Common Shares.
2. Form of press release dated June 14, 1988.
3. Form of letter to stockholders dated June 15, 1988.
Page 8 of 8
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 8
AMENDMENT TO APPLICATION OR REPORT
Filed pursuant to Section 12, 13, or 15(d) of the
Securities Exchange Act of 1934
---------------------
THE TORO COMPANY
(Exact name of registrant as specified in its charter)
---------------------
AMENDMENT NO. 1
(to Registration Statement on Form 8-A
filed with the Commission on June 17, 1988)
<PAGE>
The undersigned registrant hereby amends Items 1 and 2
of its Registration Statement on Form 8-A, as heretofore amended
(the "Registration Statement"), as set forth in the pages
attached hereto:
Item 1. DESCRIPTION OF SECURITIES.
On August 14, 1990, the Board of Directors of The Toro
Company (the "Company") approved an amendment (the "Amendment")
to the Rights Agreement dated as of June 14, 1988 (the "Rights
Agreement"), between the Company and Norwest Bank Minnesota,
National Association, as Rights Agent. The Amendment, among
other things, (i) eliminates the 80% acquisition exception that
renders the "flip-in" provision of the Rights Plan inapplicable
in the event that at least 80% of the Common Shares are acquired
through an all-cash, all-shares tender offer, and (ii) eliminates
the stockholder referendum procedure that permits the Rights to
be redeemed by direct action of the stockholders without the
approval of the Company's Board of Directors.
The Amendment is attached hereto as an exhibit and is
incorporated herein by reference. The foregoing description of
the Amendment is qualified by reference to the Amendment.
Item 2. EXHIBITS
1. Amendment, dated as of August 14, 1990, between The
Toro Company and Norwest Bank Minnesota, National Association, as
Rights Agent.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this amendment to be
signed on its behalf by the undersigned, thereunto duly
authorized.
THE TORO COMPANY
By: /s/
---------------------------
Name: Kendrick B. Melrose
-------------------------
Title: Chief Executive Officer
------------------------
Dated: August 14, 1990
<PAGE>
INDEX TO EXHIBITS
Exhibit Page
- ------- ----
1. Amendment dated as of August 14, 1990 between The Toro
Company and Norwest Bank Minnesota, National
Association, as Rights Agent.
<PAGE>
AMENDMENT TO RIGHTS AGREEMENT
AMENDMENT, dated as of August 14, 1990, to the Rights
Agreement, dated as of June 14, 1988 (the "Rights Agreement"),
between The Toro Company, a Deleware corporation (the "Company"),
and Norwest Bank Minnesota, National Association, as Rights Agent
(the "Rights Agent").
The Company and the Rights Agent have heretofore
executed and entered into the Rights Agreement. Pursuant to
Section 27 of the Rights Agreement, the Company and the Rights
Agent may from time to time supplement or amend the Rights
Agreement in accordance with the provisions of Section 27
thereof. All acts and things necessary to make this Amendment a
valid agreement, enforceable according to its terms, have been
done and performed, and the execution and delivery of this
Amendment by the Company and the Rights Agent have been in all
respects duly authorized by the Company and the Rights Agent.
In consideration of the foregoing and the mutual agreements
set forth herein, the parties hereto agree as follows:
1. Section 1(a) of the Rights Agreement is hereby
modified and amended by adding the following sentence to the end
thereof:
Notwithstanding the foregoing, if the Board of
Directors of the Company determines in good faith that
a Person who would otherwise be an Acquiring Person, as
defined pursuant to the foregoing provisions of this
paragraph (a), has become such inadvertently, and such
Person divests as promptly as practicable a sufficient
number of Common Shares so that
<PAGE>
such Person would no longer be an Acquiring Person, as
defined pursuant to the foregoing provisions of this
paragraph (a), then such Person shall not be deemed to
be an "Acquiring Person" for any purposes of this
Agreement.
2. Section 1 of the Rights Agreement is hereby
further modified and amended by deleting paragraphs (i) and (o)
thereof in their entirety and relettering paragraphs (j) through
(n) thereof accordingly.
3. Section 11(a) of the Rights Agreement is hereby
modified and amended by deleting subparagraph (iii) thereof in
its entirety, renumbering subparagraph (iv) thereof as
subparagraph (iii), and amending and modifying subparagraph (ii)
thereof to read in its entirety as follows:
(ii) Subject to Section 24 of this Agreement, in
the event any Person becomes an Acquiring Person, each
holder of a Right shall thereafter have a right to
receive, upon exercise thereof at a price equal to the
then current Purchase Price multiplied by the number of
one-hundredths of a Preferred Share for which a Right
is then exercisable, in accordance with the terms of
this Agreement and in lieu of Preferred Shares, such
number of Common Shares or the Company as shall equal
the result obtained by (x) multiplying the then current
Purchase Price by the number of one-hundredths of a
Preferred Share for which a Right is then exercisable
and dividing that product by (y) 50% of the then
current
-2-
<PAGE>
per share market price of the Company's Common
Shares (determined pursuant to Section II(d) hereof) on
the date of the occurrence of such event. In the event
that any Person shall become an Acquiring Person and
the Rights shall then be outstanding, the Company shall
not take any action which would eliminate or diminish
the benefits intended to be afforded by the Rights.
From and after the occurrence of such event, any
Rights that are or were acquired or beneficially owned
by any Acquiring Person (or any Associate or Affiliate
of such Acquiring Person) shall be void and any holder
of such Rights shall thereafter have no right to
exercise such Rights under any provision of this
Agreement. No Right Certificate shall be issued
pursuant to Section 3 that represents Rights
beneficially owned by an Acquiring Person whose
Rights would be void pursuant to the preceding sentence
or any Associate or Affiliate thereof; no Right
Certificate shall be issued at any time upon the
transfer of any Rights to an Acquiring Person whose
Rights would be void pursuant to the preceding sentence
or any Associate or Affiliate thereof or to any nominee
of such Acquiring Person, Associate or Affiliate; and
any Right Certificate delivered to the Rights Agent for
transfer to an Acquiring Person whose Rights would be
void pursuant to the preceding sentence shall be
canceled.
-3-
<PAGE>
4. Section II(a) of the Rights Agreement is hereby
further modified and amended by adding to the end of newly
renumbered subparagraph (iii) thereof the following sentence:
In the event the Company shall, after good faith
effort, be unable to take all such action as may be
necessary to authorize such additional Common Shares,
the Company shall substitute, for each Common Share
that would otherwise be issuable upon exercise of a
Right, a number of Preferred Shares or fraction thereof
such that the current per share market price of one
Preferred Share multiplied by such number or fraction
is equal to the current per share market price of one
Common Share as of the date of issuance of such
Preferred Shares or fraction thereof.
5. Section 23 of the Rights Agreement is hereby
modified and amended to read in its entirety as follows:
Section 23. REDEMPTION. (a) The
Board of Directors of the Company may, at its option,
at any time prior to such time as any Person becomes an
Acquiring Person, redeem all but not less than all the
then outstanding Rights at a redemption price of $.01
per Right, appropriately adjusted to reflect any stock
split, stock dividend or similar transaction occurring
after the date hereof (such redemption price being
hereinafter referred to as the "Redemption Price").
The redemption of the Rights by the Board of Directors
may be made effective at such time, on such basis
-4-
<PAGE>
and with such conditions as the Board of Directors in
its sole discretion may establish.
(b) Immediately upon the action of the Board of
Directors of the Company ordering the redemption of the
Rights pursuant to subsection (a) of this Section 23,
and without any further action and without any notice,
the right to exercise the Rights will terminate and the
only right thereafter of the holders of Rights shall be
to receive the Redemption Price. The Company shall
promptly give public notice of any such redemption;
provided, however, that the failure to give or any
defect in any such notice shall not affect the validity
of such redemption. Within 10 days after such action
of the Board of Directors ordering the redemption of
the Rights, the Company shall mail a notice of
redemption to all the holders of the then outstanding
Rights at their last addresses as they appear upon the
registry books of the Rights Agent or, prior to the
Distribution Date, on the registry books of the
transfer agent for the Common Shares. Any notice which
is mailed in the manner herein provided shall be deemed
given, whether or not the holder receives the notice.
Each such notice of redemption will state the method by
which the payment of the Redemption Price will be made.
Neither the Company nor any of its Affiliates or
Associates may redeem, acquire or purchase for value
any Rights at any time in any manner other than that
specifically set
-5-
<PAGE>
forth in this Section 23 or in Section 24 hereof, and
other than in connection with the purchase of Common
Shares prior to the Distribution Date.
6. Section 24 of the Rights Agreement is hereby
modified and amended by deleting paragraph (c) thereof in its
entirety, relettering paragraphs (d) and (e) thereof as
paragraphs (c) and (d) respectively, and amending and modifying
the newly relettered paragraph (c) thereof to read in its
entirety as follows:
In the event that there shall not be sufficient Common
Shares issued but not outstanding or authorized but
unissued to permit any exchange of Rights as
contemplated in accordance with this Section 24, the
Company shall take all such action as may be necessary
to authorize additional Common Shares for issuance upon
exchange of the Rights. In the event the Company
shall, after good faith effort, be unable to take all
such action as may be necessary to authorize such
additional Common Shares, the Company shall substitute,
for each Common Share that would otherwise be issuable
upon exchange of a Right, a number of Preferred Shares
or fraction thereof such that the current per share
market price of one Preferred Share multiplied by such
number or fraction is equal to the current per share
market price of one Common Share as of the date of
issuance or such Preferred Shares or fraction thereof.
-6-
<PAGE>
7. This Amendment to the Rights Agreement shall be
governed by and construed in accordance with the laws of the
State of Deleware and for all purposes shall be governed by and
construed in accordance with the laws of such State applicable to
contracts to be made and performed entirely within such State.
8. This Amendment to the Rights Agreement may be
executed in any number of counterparts, each of which shall be an
original, but such counterparts shall together constituted one
and the same instrument. Terms not defined herein shall, unless
the context otherwise requires, have the meanings assigned to
such terms in the Rights Agreement.
9. In all respects not inconsistent with the terms
and provisions of this Amendment to the Rights Agreement, the
Rights Agreement is hereby ratified, adopted, approved and
confirmed. In executing and delivering this Amendment, the
Rights Agent shall be entitled to all the privileges and
immunities afforded to the Rights Agent under the terms and
conditions of the Rights Agreement.
10. If any term, provision, covenant or restriction of
this Amendment to the Rights Agreement is held by a court of
competent jurisdiction or other authority to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants
and restrictions of this Amendment to the Rights Agreement, and
of the Rights Agreement, shall remain in full force and effect
and shall in no way be affected, impaired or invalidated.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and attested, all as of the date
and year first above written.
Attest: THE TORO COMPANY
By: /s/ By: /s/
------------------------ ---------------------------
Attest: NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By: /s/ By: /s/
------------------------ ---------------------------
-8-
<PAGE>
EXHIBIT 5.1
[THE TORO COMPANY LETTERHEAD]
November 6, 1997
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
I am Vice President, Secretary and General Counsel for
The Toro Company, a Delaware corporation (the "Company"). Pursuant
to an Agreement and Plan of Merger (the "Merger Agreement") by and
among the Company, EMCI Acquisition Corp., a Nebraska corporation
and wholly owned subsidiary of the Company ("Merger Subsidiary"),
and Exmark Manufacturing Company Incorporated, a Nebraska
corporation ("Exmark"), Merger Subsidiary will be merged with and
into Exmark (the "Merger"). In connection with the Merger, the
Company is filing with the Securities and Exchange Commission a
Registration Statement on Form S-4 (the "Registration Statement")
under the Securities Act of 1933, as amended, relating to the
issuance of up to 1,646,600 shares of common stock of the Company,
par value $1.00 per share (the "Common Stock").
In connection with the rendering of this opinion, I, or
members of my staff, have examined originals or copies, certified
or otherwise identified to my satisfaction, of such instruments,
documents, certificates, agreements and records as I have deemed
necessary or appropriate under the circumstances for the purpose of
rendering this opinion. In all such examinations, I have assumed
the authenticity of all documents submitted to me as originals, the
genuineness of all signatures and the conformity to authentic
originals of all documents submitted to me as copies. I also have
assumed the legal capacity for all purposes relevant hereto of all
natural persons and, with respect to all parties to agreements or
instruments relevant hereto other than the Company, that such
parties had the requisite power and authority (corporate or
otherwise) to execute, deliver and perform such agreements or
instruments, that such agreements or instruments have been duly
authorized by all requisite action (corporate or otherwise),
executed and delivered by such parties and that such agreements or
instruments are the valid, binding and enforceable obligations of
such parties. As to questions of fact material to my opinion, I
have relied upon certificates of officers of the Company and of
public officials.
Based on the foregoing, I am of the opinion that the
shares of Common Stock to be issued in connection with the Merger,
when issued in accordance with the terms of the Merger Agreement,
will be duly authorized, validly issued, fully paid and
nonassessable.
<PAGE>
My opinion expressed above is limited to the laws of the
State of Minnesota and the Delaware General Corporation Law.
I hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and to the reference to me
under the heading "Legal Matters" in the Proxy Statement/Prospectus
constituting part of the Registration Statement.
Very truly yours,
/s/ J. Lawrence McIntyre
J. Lawrence McIntyre
Vice President, Secretary &
General Counsel
<PAGE>
EXHIBIT 8.1
[CROKER, HUCK, KASHER, DEWITT, ANDERSON & GODERINGER, P.C. LETTERHEAD]
November 7, 1997
Exmark Manufacturing Company Incorporated
2101 Ashland Avenue
Beatrice, NE 68310
Dear Ladies and Gentlemen:
We have acted as your counsel in connection with the Registration
Statement on Form S-4 filed on November 7, 1997, (the "Registration
Statement") with the Securities and Exchange Commission under the Securities
Act of 1933, as amended (the "Securities Act"). The Registration Statement
relates to the proposed merger of EMCI Acquisition Corp., a wholly owned
subsidiary of The Toro Company, with and into Exmark Manufacturing Company
Incorporated. This opinion is delivered in accordance with the requirements
of Item 601(b)(8) of Regulation S-K under the Securities Act.
In connection with this opinion, we have examined and are familiar
with originals or copies, certified or otherwise identified to our
satisfaction, of the Registration Statement, the Proxy Statement/Prospectus
included therein (the "Proxy Statement/Prospectus") and such other documents
as we have deemed necessary or appropriate.
We hereby confirm that the discussions in the Proxy
Statement/Prospectus under the captions "SUMMARY--The Merger--Certain Federal
Income Tax Consequences" and "THE MERGER--Certain Federal Income Tax
Consequences" are a fair and accurate summary of the matters addressed
therein, based upon current law and the facts and assumptions stated or
referred to therein. There can be no assurance that contrary positions may
not be taken by the Internal Revenue Service.
We hereby consent to the filing of this opinion as
Exhibit 8.1 to the Registration Statement and to the use of our
name under the caption "THE MERGER--Certain Federal Income Tax
Consequences" in the Proxy Statement/Prospectus. In giving such
consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the
Securities Act.
Very truly yours,
/s/ Croker, Huck, Kasher,DeWitt,
Anderson & Gonderinger, P.C.
<PAGE>
EXHIBIT 10.1
STOCKHOLDER AGREEMENT
AND
IRREVOCABLE PROXY
This Stockholder Agreement (the "Agreement"), dated as of __________, 1997
is made and entered into by and among The Toro Company, a Delaware corporation
("Toro"), and the undersigned stockholder (the "Stockholder") of Exmark
Manufacturing Company Incorporated, a Nebraska corporation (the "Company").
RECITALS
WHEREAS, concurrently with delivery of this Agreement, Toro, the Company
and EMCI Acquisition Corp., a Nebraska corporation and a wholly owned subsidiary
of Toro ("Merger Subsidiary"), are entering into an Agreement and Plan of Merger
(the "Merger Agreement"), which provides for the merger (the "Merger") of the
Merger Subsidiary with and into the Company.
WHEREAS, pursuant to the terms of the Merger Agreement, the shares of
capital stock of the Company will be converted into the right to receive cash
and shares of Toro Common Stock on the basis described in the Merger Agreement.
WHEREAS, the Stockholder is the record holder and beneficial owner (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of the number of shares of the outstanding capital stock of the
Company and has the right to acquire the number of shares of capital stock of
the Company as is indicated on the signature page of this Agreement (all of such
outstanding shares and any shares of the Company's capital stock hereafter
acquired by the Stockholder are referred to herein as the "Shares").
WHEREAS, Toro has made it a condition to its entering into the Merger
Agreement that the Stockholder enter into and be bound by this Agreement
pursuant to which the Stockholder agrees (a) not to transfer or otherwise
dispose of any of the Shares, or any other shares of capital stock of the
Company acquired hereafter and prior to the Expiration Date (as defined in
Section 1.1 below), and (b) to vote the Shares and any other such shares of
capital stock of the Company held by the Stockholder so as to facilitate
consummation of the Merger.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations and covenants set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, and
intending to be legally bound hereby, the parties hereby agree as follows:
<PAGE>
1. DEFINITIONS. Capitalized terms used but not defined in this
Agreement shall have the respective meanings ascribed to them in the Merger
Agreement. The term "Expiration Date" shall mean the earlier to occur of (a)
such date and time as the Merger shall become effective in accordance with the
terms and provisions of the Merger Agreement, and (b) such date and time as the
Merger Agreement shall be terminated pursuant to Article 9 thereof.
2. AGREEMENT TO RETAIN SHARES.
2.1 TRANSFER AND ENCUMBRANCE. The Stockholder agrees not to transfer
(except as may be specifically required by court order), sell, exchange, pledge
or otherwise dispose of or encumber any of the Shares or any New Shares (as
defined in Section 2.2 below), grant any proxies (except the proxy referred to
in Section 3(b)) with respect to the Shares or any New Shares), or make any
offer or agreement relating thereto, at any time prior to the Expiration Date.
2.2 ADDITIONAL PURCHASES. The Stockholder agrees that any shares of
capital stock of the Company that such Stockholder purchases or with respect to
which such Stockholder otherwise acquires beneficial ownership after the
execution of this Agreement and prior to the Expiration Date ("New Shares")
shall be Subject to the terms and conditions of this Agreement to the same
extent as if they constituted Shares.
2.3 LEGEND. Stockholder further agrees to submit the certificate(s)
representing the Shares, and certificates representing any New Shares, to the
Company for placement thereon of a legend in the following form:
The securities represented by this certificate are subject to the terms of
a Stockholder Agreement dated October 23, 1997 between the holder and The
Toro Company, a Delaware corporation, under which The Toro Company has been
granted an irrevocable proxy to vote the share(s) represented by this
certificate with respect to certain corporate transactions.
3. AGREEMENT TO VOTE SHARES AND IRREVOCABLE PROXY.
(a) At every meeting of the stockholders of the Company called with
respect to any of the following, and at every adjournment thereof, and on every
action or approval by written consent of the stockholders of the Company with
respect to any of the following, the Stockholder agrees to vote the Shares and
any New Shares: (i) in favor of approval of the Merger Agreement, the Merger,
the Signing Bonuses and the New Articles of Incorporation, and any other matter
that could reasonably be expected to facilitate the Merger; and (ii) against
approval of any proposal made in opposition to or competition with consummation
of the Merger and against any merger, consolidation, sale of assets,
reorganization or recapitalization, with any party other than Toro, the Merger
Subsidiary and their affiliates and against any liquidation or winding up of the
Company (each of the
-2-
<PAGE>
foregoing is hereinafter referred to as an "Opposing Proposal"). The
Stockholder agrees not to take any actions contrary to such Stockholder's
obligations under this Agreement.
(b) In furtherance of Section 3(a) and limited to the issues set
forth therein, the Stockholder hereby irrevocably appoints, during the term of
this Agreement, Toro as proxy to vote the Shares and any New Shares which the
Stockholder is entitled to vote, for and in the name, place and stead of such
Stockholder (the "Proxy"), at any annual, special or other meeting of the
holders of capital stock of the Company and at any adjournments thereof or
pursuant to any consent in lieu of a meeting or otherwise.
(c) The Proxy is granted in consideration of the execution and
delivery of the Merger Agreement by Toro. The Stockholder agrees that the Proxy
is coupled with an interest sufficient in law to support an irrevocable proxy.
(d) The Proxy shall revoke all prior proxies given by the Stockholder
with respect to any Shares or New Shares.
(e) Notwithstanding any other provision of this Agreement Stockholder
shall not be required to take any action hereunder that would constitute a
violation of Stockholder's fiduciary duties as a director of the Company.
4. NONSOLICITATION. During the term of this Agreement, the Stockholder
shall not, directly or indirectly, solicit, initiate or encourage submission of
any proposal or offer from any person, group or entity relating to any
acquisition of the assets, business or capital stock of the Company, or other
similar transaction or business combination involving the business of the
Company; shall not participate in any negotiations or discussions regarding or
furnish to any other person any information with respect to, or otherwise
cooperate in any way with, or assist or participate in, facilitate or encourage
any effort or attempt by any other person or entity to do or seek such
acquisition or other transaction; and shall inform Toro of any such inquiry.
Without limiting the generality of the foregoing, the Stockholder will not, and
will not permit any person or entity under Stockholder's control to, (a) solicit
proxies or become a "participant" in a "solicitation" (as such terms are defined
in Regulation 14A under the Exchange Act) with respect to an Opposing Proposal
or otherwise encourage or assist any party in taking or planning any action that
would compete with, restrain or otherwise serve to interfere with or inhibit the
timely consummation of the Merger in accordance with the terms of the Merger
Agreement; (b) initiate a stockholders' vote or action by consent of the Company
stockholders with respect to an Opposing Proposal; or (c) become a member of a
"group" (as such term is used in Section 13(d) of the Exchange Act) with respect
to any voting securities of the Company with respect to an Opposing Proposal.
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. The Stockholder
hereby represents and warrants to Toro as follows:
-3-
<PAGE>
5.1 OWNERSHIP OF SHARES. The Stockholder (a) is the beneficial owner
of the number of Shares set forth on the signature page of this Agreement, which
at the date hereof and at all times up until the Expiration Date will be free
and clear of any liens, claims, options, charges or other encumbrances; and (b)
does not beneficially own any shares of capital stock of the Company other than
such Shares (excluding shares as to which Stockholder currently disclaims
beneficial ownership in accordance with applicable law).
5.2 AUTHORITY; ENFORCEABILITY. The Stockholder has the legal right
and power, and all authorization and approval required by law, to enter into
this Agreement and to grant the Proxy. This Agreement, including the Proxy, has
been duly authorized, executed and delivered by or on behalf of the Stockholder
and constitutes a valid and binding obligation of the Stockholder enforceable in
accordance with its respective terms.
5.3 NO CONFLICT. The execution and delivery by the Stockholder of,
and the performance by the Stockholder of its obligations under, this Agreement
will not contravene any provision of applicable law, or the articles of
incorporation or bylaws, partnership agreement, limited liability company
agreement, trust agreement or other charter documents of the Company or the
Stockholder, any agreement or other instrument binding upon the Company or the
Stockholder, or any judgment, order or decree of any governmental body, agency
or court having jurisdiction over the Company or the Stockholder. No consent,
approval, authorization or order of, or qualification with, any governmental
body or agency is required for the performance by the Stockholder of its
obligations under this Agreement, except (i) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable state and federal securities laws, (ii) filings under the
Hart-Scott-Rodino Act, and (iii) such other consents, authorizations, filings,
approvals and registrations which if not obtained or made would not have a
material adverse effect on the ability of the Stockholder to consummate the
transactions contemplated by this Agreement and the Merger Agreement.
6. ADDITIONAL DOCUMENTS. The Stockholder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of Toro, to carry out the intent of this Agreement.
7. CONSENT AND WAIVER. The Stockholder hereby gives any consents or
waivers that are reasonably required for the consummation of the Merger under
the terms of any agreements to which the Stockholder is a party or pursuant to
any rights the Stockholder may have.
8. TERMINATION. This Agreement and the Proxy delivered in connection
herewith shall terminate and shall have no further force or effect as of the
Expiration Date.
9. MISCELLANEOUS.
-4-
<PAGE>
9.1 SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, then the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
9.2 BINDING EFFECT AND ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of any Stockholder may be assigned by the
Stockholder without the prior written consent of Toro.
9.3 AMENDMENTS AND MODIFICATION. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the party against whom enforcement is sought.
9.4 SPECIFIC PERFORMANCE; INJUNCTIVE RELIEF. The parties hereto
acknowledge that Toro will be irreparably harmed and that there will be no
adequate remedy at law for a violation of any of the covenants or agreements of
any Stockholder set forth herein. Therefore, it is agreed that, in addition to
any other remedies that may be available to Toro upon any such violation, Toro
shall have the right to enforce such covenants and agreements by specific
performance, injunctive relief or by any other means available to Toro at law or
in equity, in any event without the necessity of posting bond or proving actual
damages.
9.5 NOTICES. All notices, demands and other communications to be
given or delivered under or by reason of the provisions of this Agreement will
be in writing and will be deemed to have been given when personally delivered or
three days after being mailed, if mailed by first class mail, return receipt
requested, or when receipt is acknowledged, if sent by facsimile, telecopy or
other electronic transmission device. Notices, demands and communications to
Toro and the Stockholder will, unless another address is specified in writing,
be sent to the address indicated below:
NOTICES TO TORO: WITH A COPY TO:
- --------------- --------------
The Toro Company Dorsey & Whitney LLP
8111 Lyndale Avenue South 220 South Sixth Street
Minneapolis, MN 55420 Minneapolis, MN 55402
Attn: General Counsel Attention: J. Andrew Herring
Facsimile: (612) 340-8738
NOTICES TO THE STOCKHOLDER:
- ---------------------------
-5-
<PAGE>
To the address set forth on the signature page.
9.6 GOVERNING LAW. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Minnesota.
9.7 ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties with respect of the subject matter hereof, and
supersedes all prior negotiations and understandings between the parties with
respect to such subject matter.
9.8 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
9.9 EFFECT OF HEADINGS. The section headings herein are for
convenience only and shall not affect the construction or interpretation of this
Agreement.
9.10 EFFECTIVE TIME. This Agreement shall become effective only upon
execution of the Merger Agreement by each of the Company, Toro and Merger
Subsidiary.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the date and year first above written.
THE TORO COMPANY
By
---------------------------------
Its
------------------------------
STOCKHOLDER:
-----------------------------------
Name:
------------------------------
Shares:
----------------------------
Address:
---------------------------
-----------------------------------
-----------------------------------
-7-
<PAGE>
EXHIBIT 10.2
THE TORO COMPANY
AFFILIATE AGREEMENT
OCTOBER 23, 1997
The Toro Company
8111 Lyndale Avenue South
Minneapolis, MN 55420
Gentlemen:
Pursuant to the terms of the Agreement and Plan of Merger, dated as of
October 23, 1997 (the "Agreement"), among The Toro Company, a Delaware
corporation ("Toro"), EMCI Acquisition Corp., a Nebraska corporation and wholly
owned subsidiary of Toro ("Merger Subsidiary"), and Exmark Manufacturing Company
Incorporated, a Nebraska corporation (the "Exmark"), Toro will acquire Exmark
through the merger of the Merger Subsidiary with and into Exmark (the "Merger").
Subject to the terms and conditions of the Agreement, at the Effective Time (as
defined in the Agreement), outstanding shares of the capital stock of Exmark
(the "Exmark Capital Stock") will be converted into the right to receive cash
and shares of common stock of Toro ("Toro Common Stock").
The undersigned has been advised that as of the date hereof the undersigned
may be deemed to be an "affiliate" of Exmark, as the term "affiliate" is used in
paragraphs (c) and (d) of Rule 145 of the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Securities Act").
The undersigned understands that the representations, warranties and
covenants set forth herein will be relied upon by Toro and Exmark.
The undersigned represents and warrants to and agrees with Toro that:
1. The undersigned has full power to execute and deliver this Affiliate
Agreement and to make the representations and warranties herein and to perform
its obligations hereunder.
2. The undersigned has carefully read this Affiliate Agreement and the
Agreement and has discussed the applicable limitations upon his/her ability to
sell, transfer or otherwise dispose of Toro Common Stock to the extent the
undersigned felt necessary with his/her counsel or counsel for Exmark.
3. The undersigned shall not make any sale, transfer or other disposition
of Toro Common Stock in violation of the Securities Act or the Rules and
Regulations.
4. The undersigned has been advised that, since, at the time the Merger
is to be submitted for a vote of the shareholders of Exmark, the undersigned may
be deemed to be an affiliate of Exmark, the undersigned may not sell, transfer
or otherwise dispose of Toro Common Stock issued to the undersigned in the
Merger unless such sale, transfer or other disposition is made in conformity
with the requirements of Rule 145 promulgated by the SEC under the Securities
Act.
5. Except as provided in the Agreement, Toro is under no obligation to
register the sale, transfer or other disposition of Toro Common Stock by the
undersigned or on its behalf under the Securities Act or to take any other
action necessary in order to make compliance with an exemption from such
registration available.
6. Stop transfer instructions will be given to Toro's transfer agent with
respect to the Toro Common Stock and a legend will be placed on the certificates
for the Toro Common Stock issued to the undersigned, or any substitutions
therefor, stating in substance:
<PAGE>
"The shares represented by this certificate were issued in a
transaction to which Rule 145 promulgated under the Securities Act of 1933
applies. The shares represented by this certificate may only be
transferred in accordance with the terms of an Affiliate Agreement dated
October 23, 1997 between the registered holder hereof and The Toro Company,
a copy of which agreement is on file at the principal offices of The Toro
Company."
7. The legend set forth above shall be removed by delivery of substitute
certificates without such legend if the undersigned shall have delivered to Toro
a copy of an opinion of counsel, in form and substance reasonably satisfactory
to Toro, to the effect that such legend is not required for purposes of the
Securities Act.
8. The undersigned is the beneficial owner of all the shares of Exmark
Capital Stock and options to purchase Exmark Capital Stock as is indicated below
on this Affiliate Agreement (the "Exmark Securities"). Except for Exmark
Securities, the undersigned does not beneficially own any shares of Exmark
Capital Stock or any other equity securities of Exmark or any options, warrants
or other rights to acquire any equity securities of Exmark.
Number of shares of Exmark Capital Stock beneficially owned by the
undersigned:
Common Stock ____________
Preferred Stock ____________
Class B Preferred Stock ____________
Class C Preferred Stock ____________
Number of shares of Exmark Capital Stock subject to options or warrants
beneficially owned by the undersigned:
Common Stock ____________
Preferred Stock ____________
Class B Preferred Stock ____________
Class C Preferred Stock __________________________________
Very truly yours,
----------------------------------
(print name of stockholder above)
By:
-------------------------------
Title:
----------------------------
Accepted this ____ day of _________,
1997, by
THE TORO COMPANY
By:
------------------------------------------
Name:
----------------------------------------
-2-
<PAGE>
Title:
---------------------------------------
-3-
<PAGE>
EXHIBIT 10.3
THE TORO COMPANY
EMPLOYMENT AGREEMENT
AND COVENANT NOT TO COMPETE
THIS EMPLOYMENT AGREEMENT AND COVENANT NOT TO COMPETE (the "Agreement")
dated October 23, 1997, is made and entered into by and among The Toro Company,
a Delaware corporation ("Toro"), Exmark Manufacturing Company Incorporated, a
Nebraska corporation ("Exmark"), and _____________, a resident of __________,
__________ ("Employee").
WHEREAS, Employee is employed by Exmark;
WHEREAS, Toro has agreed, subject to certain terms and conditions, to
acquire Exmark pursuant to the terms of an Agreement and Plan of Merger dated
October 23, 1997 (the "Merger Agreement"), by and among Toro, Exmark and EMCI
Acquisition Corp., a wholly owned subsidiary of Toro ("Merger Subsidiary");
WHEREAS, under the terms of the Merger Agreement, Merger Subsidiary will be
merged with and into Exmark (the "Merger"), and Exmark will be the surviving
corporation and a wholly owned subsidiary of Toro ("Surviving Corporation");
WHEREAS, Employee is a shareholder of Exmark and will receive a portion of
the consideration paid by Toro in connection with the Merger, and the execution
of this Agreement is an express condition of Toro to the consummation of the
Merger;
WHEREAS, Toro desires Employee to continue to be employed by Exmark
following the Merger because Employee possesses certain unique skills, talents,
contacts, judgment, and knowledge of Exmark's businesses, strategies, and
objectives;
WHEREAS, in order to provide for continuity in the management of the
Surviving Corporation as a subsidiary of Toro, which continuity is deemed to be
vital to the continued growth and success of Toro, and in order that Toro and
the Surviving Corporation may continue to avail itself of the unique skills,
talents, contacts, judgment, and knowledge of Employee, Toro desires to ensure
the retention of Employee in the employ of the Surviving Corporation;
WHEREAS, the parties recognize the critical importance to Toro, its
employees and shareholders of preserving the confidentiality of Toro's and the
Surviving Corporation's trade secrets and its proprietary and confidential
information, and of protecting Toro and the Surviving Corporation against
competition from former executives or other key employees of Toro and the
Surviving Corporation following their separation from the Surviving Corporation;
<PAGE>
WHEREAS, for the benefit of all of the parties, each of Toro, the Surviving
Corporation and Employee desire to set forth the terms and conditions of future
employment as provided herein;
NOW, THEREFORE, in consideration of the mutual promises herein and the
terms and conditions set forth herein, the parties hereto mutually agree as
follows:
1. DEFINITIONS. For purposes of this Agreement, the terms listed below
shall be defined as follows:
(a) "Company" shall mean, individually and collectively, each of
Toro, Exmark and the Surviving Corporation following the Merger and any
past, present or future parent, subsidiary or affiliate of Toro, Exmark or
the Surviving Corporation.
(b) "Products" shall mean all products and services developed,
manufactured, marketed, licensed, leased, sold, or serviced by Exmark, the
Surviving Corporation, the Landscape Contractor Group of Toro or any other
subsidiary of Toro engaged directly or indirectly in the commercial
landscape equipment business (collectively, the "LCG Group") individually
or jointly with third parties, or by their employees, agents or independent
representatives in the course of their relationship with the LCG Group.
Products shall specifically exclude products and services relating to the
residential consumer landscape equipment business.
(c) "Customers" shall mean any person, firm, corporation,
partnership, joint venture or other entity or enterprise called upon by any
member of the LCG Group or by their employees, agents or independent
representatives for the purposes of developing, manufacturing, marketing,
licensing, leasing, selling, or servicing products of the LCG Group at any
time during the 18-month period immediately preceding the effective date of
the termination of Employee's employment with the Surviving Corporation.
Customers shall also include all existing customers, licensees, lessees, or
clients of the LCG Group.
(d) "Confidential Information" shall include, but is not limited to,
the following types of Company information and other information of a
similar nature (whether or not reduced to writing): names of Customers and
other information relating to Customers, lists of Customers, employee
expense records containing the names of Customers, price lists, pricing
policy, Company strategy and business plans, Company tactics, sales
forecasts, sales reports and other sales materials, computer software in
various stages of development, computer software source codes and object
codes, copyrights, concepts, data, designs, diagrams, documentation,
drawings, discoveries, financial statements or reports, flowcharts,
-2-
<PAGE>
ideas, inventions, "know-how," manuals, marketing and development plans,
marketing techniques and materials, models, prototypes, procedures,
processes, research, trade secrets, techniques and any other proprietary
information. Confidential Information also includes any information
described above that the Company obtains from another party and that the
Company or such other party treats as proprietary or designates as
confidential information, whether or not owned or developed by the Company.
Confidential Information shall NOT include any of the following:
(i) information in the public domain at the time of the disclosure to
Employee by the Company; (ii) information that, after disclosure to
Employee, becomes part of the public domain, other than by an act or
omission of Employee; (iii) information that is subsequently disclosed or
made available to Employee without any obligation of confidence by a third
party having a bona fide right to disclose or make available such
information; and (iv) information that has been made public by way of sales
literature, Company newsletters, public speeches by officers of the
Company, or information disclosed to the media by officers of the Company.
(e) "Effective Date" means the date the Merger becomes effective in
accordance with the terms of the Merger Agreement. In the event the Merger
is not consummated, this Agreement shall be of no force or effect.
2. TERMS OF EMPLOYMENT.
2.01 LENGTH OF EMPLOYMENT. Subject to the terms and conditions
provided herein, and subject to the consummation of the Merger, the Surviving
Corporation hereby agrees to employ Employee, and Employee hereby accepts
employment by the Surviving Corporation, for a term commencing as of the
Effective Date and continuing until October 31, 1999 (the "Initial Employment
Term"). The Initial Employment Term of Employee will expire on October 31,
1999, without further obligation for either party. In addition, the Surviving
Corporation may terminate the employment of Employee at any time during the
Initial Employment Term upon 30 days notice, without cause, provided the
Surviving Corporation pays Employee severance pay as described in Section 6 of
this Agreement. Following the expiration of the Initial Employment Term, the
parties hereto acknowledge and agree that Employee's employment with the
Surviving Corporation shall be an at-will relationship, that either Employee or
the Surviving Corporation may terminate such employment, without cause, at any
time, and that such termination shall not constitute a breach of any express or
implied contract or covenant, and will not be deemed tortious, wrongful or give
rise to any claim or liability whatsoever (unless a waiver of such a claim is
expressly prohibited by statute). Further, after the Initial Employment Term,
Employee's employment shall continue to be subject to the terms and conditions
of this Agreement, specifically including, without limitation, Sections 7, 8, 9,
10, 11 and 18 hereof.
-3-
<PAGE>
2.02 TERMINATION FOR CAUSE. Notwithstanding the foregoing, the
Surviving Corporation may terminate Employee's employment for cause without
notice and without further obligation of any kind to Employee. For purposes of
this Agreement, "cause" shall mean:
(a) any fraud, misappropriation of funds or any corporate
opportunity, dishonesty, sexual or other harassment, or embezzlement by
Employee in connection with the business of the Surviving Corporation;
(b) any conviction of or nolo contendere plea to a felony by Employee
that has or can reasonably be expected to have a demonstrably detrimental
effect on the Surviving Corporation;
(c) any gross neglect or persistent neglect by Employee to perform
the duties assigned to him by the Surviving Corporation, provided that
Employee shall first have received a written notice from the Surviving
Corporation that sets forth in reasonable detail the manner in which
Employee has grossly or persistently neglected his duties and Employee
shall have a period of 20 days to cure the same, unless the same cannot be
reasonably cured within the 20-day period, in which event Employee shall
have up to an additional 20 days to cure the same so long as Employee is
diligently seeking to cure the same; provided, however, that the Surviving
Corporation shall not be required to give written notice of, nor shall
Employee have a period to cure, the same or any similar gross neglect or
persistent neglect of which the Surviving Corporation has previously given
written notice to Employee hereunder;
(d) any material breach by Employee of Employee's obligations under
this Agreement other than a breach covered by any other subsection of this
Section 2.02, provided that Employee shall first have received a written
notice from the Surviving Corporation that sets forth in reasonable detail
the manner in which Employee materially breached this Agreement and
Employee shall have a period of 20 days to cure the same, unless the same
cannot be reasonably cured within the 20-day period, in which event
Employee shall have up to an additional 20 days to cure the same so long as
Employee is diligently seeking to cure the same; provided, however, that
the Surviving Corporation shall not be required to give written notice of,
nor shall Employee have a period to cure, the same or any similar material
breach of this Agreement of which the Surviving Corporation has previously
given written notice to Employee hereunder;
(e) Employee's use of narcotics, liquor or illicit drugs that has a
demonstrably detrimental effect on the performance of his employment
responsibilities; and
-4-
<PAGE>
(f) any violation of Toro's then-current Ethics and Conflict of
Interest Policy that has or can reasonably be expected to have a
demonstrably detrimental effect on Toro or the Surviving Corporation.
2.03 TERMINATION UPON DEATH OF EMPLOYEE. The term of Employee's
employment under this Agreement shall automatically terminate in the event of
Employee's death, in which case no severance payment shall be made.
2.04 TERMINATION UPON DISABILITY OF EMPLOYEE. In the event Employee
becomes mentally or physically disabled during the term of employment hereunder,
his employment under this Agreement shall terminate as of the date such
disability is established, in which case no severance payment shall be made.
For purposes of this Agreement, "disabled" means suffering from any mental or
physical condition, other than the use of alcohol or illegal use of narcotics or
other illicit drugs, which renders Employee unable to perform substantially all
of Employee's duties and services under this Agreement in a satisfactory manner
for a period of 90 consecutive days. The date that Employee's disability is
established shall be the 91st day upon which such impaired condition exists.
2.05 TERMINATION BY MUTUAL AGREEMENT. The Surviving Corporation and
Employee may terminate the employment relationship at any time by mutual written
agreement signed by both the Surviving Corporation and Employee, in which case
no severance payment shall be made unless specifically provided for in the
mutual written agreement terminating the employment relationship. Also, if at
any time Employee voluntarily terminates his employment with the Surviving
Corporation, no severance payment shall be made to Employee.
3. SERVICE WITH THE COMPANY. During the term of this Agreement, Employee
agrees to perform such reasonable employment duties as the Surviving Corporation
shall assign to him from time to time, which shall be reasonably consistent with
executive level services. Employee shall not be obligated to relocate.
4. PERFORMANCE OF DUTIES. Employee agrees to serve the Surviving
Corporation faithfully and to the best of his ability and to devote his full
business time, attention, and efforts to the business and affairs of the
Surviving Corporation during the term of this Agreement. Employee shall not at
any time during the term of this Agreement render any services for compensation
to any person or entity other than the Surviving Corporation and the Company;
provided, however, that Employee may engage in business activities unrelated to
the commercial landscape equipment business if such activities do not interfere
with Employee's obligations to the Surviving Corporation and if substantially
all of such activities are conducted outside regular working hours.
5. COMPENSATION AND EMPLOYEE BENEFITS.
-5-
<PAGE>
5.01 SIGNING BONUS. On the Effective Date, Toro shall, or shall cause
the Surviving Corporation to, pay to Employee a one-time signing bonus of
$_________ (the "Signing Bonus"); provided, however, that Employee expressly
agrees to repay to the Surviving Corporation (a) an amount equal to 20% of the
Signing Bonus plus (b) the amount of severance paid pursuant to Section 6 below,
if any, and Toro and the Surviving Corporation shall have the right to seek
recovery of such amounts, if Employee knowingly violates any of the obligations
under Section 9 below. Employee expressly agrees that these repayment
obligations are in addition to any other remedies to which the Surviving
Corporation and/or Toro may be entitled, including but not limited to the
remedies of injunctive relief and monetary damages.
5.02 BASE SALARY. As base compensation for all services to be
rendered by Employee under this Agreement during the Initial Employment Term,
the Surviving Corporation shall pay to Employee the following annual base
salary: (a) for the period between the date Employee commences employment with
the Surviving Corporation through October 31, 1998, the Surviving Corporation
will pay Employee an annual base salary of $_________, and (b) for the period
from November 1, 1998 through October 31, 1999, the Surviving Corporation will
pay Employee an annual base salary of $_________. The annual base salary shall
be payable in substantially equal periodic installments in accordance with the
Surviving Corporation's standard payroll procedures and policies. If Employee
continues to be employed by the Surviving Corporation after the Initial
Employment Term, his base salary shall remain unchanged unless Employee and the
Surviving Corporation shall agree otherwise.
5.03 NO INCENTIVE OR PERFORMANCE BONUSES. During the Initial
Employment Term, Employee will not be eligible to receive any incentive or
performance bonuses of the Surviving Corporation or Toro. Following the Initial
Employment Term, Employee shall be eligible to participate in such Toro
incentive or other performance bonus programs to the extent that his position,
title, tenure, salary and other qualifications make him eligible.
5.04 NO PARTICIPATION IN STOCK OPTION PLANS. During the Initial
Employment Term, Employee will not be eligible to participate in any stock
option plans of Toro. Following the Initial Employment Term, Employee and Toro
agree to discuss whether Employee will be eligible to participate in any Toro
stock option plans, which eligibility for participation shall be in the absolute
and sole discretion of Toro.
5.05 PARTICIPATION IN BENEFIT PLANS. Employee shall be entitled to
participate in all employee benefit plans or programs of the Surviving
Corporation, unless otherwise expressly prohibited herein, to the extent that
his position, title, tenure, salary, age, health, and other qualifications make
him eligible to participate and to the extent that such participation is not
prohibited by this Agreement. The Surviving Corporation does not guarantee the
adoption or continuation of any particular employee benefit plan or program
-6-
<PAGE>
during the term of this Agreement, and Employee's participation in any plan or
program shall be subject to the provisions, rules and regulations applicable
thereto.
5.06 VACATION. Employee shall be entitled to four weeks paid vacation
per year pursuant to such general polices and procedures of the Surviving
Corporation as are from time-to-time adopted by the Surviving Corporation.
5.07 EMPLOYMENT-RELATED EXPENSES. The Surviving Corporation shall pay
or reimburse Employee for all reasonable and necessary out-of-pocket expenses
incurred by him in the performance of his duties pursuant to this Agreement,
according to the general policies and procedures of the Surviving Corporation,
and subject to the timely presentment of appropriate vouchers in accordance with
the Surviving Corporation's general policies and procedures for expense
verification.
5.08 AUTOMOBILE. The Surviving Corporation shall provide Employee
with an automobile for use in the performance of his duties for the Surviving
Corporation and shall pay all reasonable and necessary maintenance, repair,
insurance, fuel and other costs assigned with such automobile.
6. SEVERANCE PAY. If, at any time prior to October 31, 1999, Employee's
employment with the Surviving Corporation is terminated without cause (as
defined in Section 2.02 above) by the Surviving Corporation pursuant to
Section 2.01 above, and provided Employee executes a comprehensive release of
all claims acceptable to the Surviving Corporation, Employee shall be entitled
to receive as severance pay (a) a lump-sum payment in an amount equal to the
remainder of Employee's annual base salary from the date of such termination
through October 31, 1999, as though Employee had remained in the employment of
the Surviving Corporation, and (b) the continued payment of premiums for health
insurance through October 31, 1999, as though Employee had remained in the
employment of the Surviving Corporation. This severance pay shall be in lieu of
any other compensation of any kind otherwise payable to Employee under this
Agreement. Neither the Surviving Corporation nor Toro shall be required to
continue providing benefits pursuant to Section 5.05 above, unless otherwise
required to by the provisions, rules and regulations of a particular plan or by
law or as expressly agreed in this Section 6. Employee shall not be entitled to
severance pay if at any time prior to October 31, 1999, (a) the Surviving
Corporation terminates Employee's employment for cause as defined in Section
2.02 above or (b) Employee dies, becomes disabled as defined in Section 2.04
above, or voluntarily terminates employment with the Surviving Corporation. If
Employee's employment with the Surviving Corporation is terminated for any
reason after October 31, 1999, Employee shall not be entitled to any severance
pay or other severance related compensation of any kind.
7. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. Except with prior written
permission from the Surviving Corporation and Toro or as required by his duties
to the Surviving Corporation, Employee shall never disclose or use any
Confidential Information
-7-
<PAGE>
of which Employee becomes informed during his past, present or future employment
with the Surviving Corporation, whether or not developed by Employee. Employee
agrees that he will hold in strictest confidence and not use for his own
benefit, or the benefit of any third party, any Confidential Information at any
time before or after termination of Employee's employment with the Company
(whether by the Surviving Corporation, by Employee or by operation of this
Agreement or law).
8. DELIVERY OF CONFIDENTIAL INFORMATION. Upon termination of his
employment (whether by the Surviving Corporation, by Employee or by operation of
this Agreement or law), Employee agrees to deliver to the Surviving Corporation
all materials that include Confidential Information then in the possession of
Employee or an agent of Employee. Employee agrees and understands that the
Confidential Information and all information contained therein shall be at all
times the property of the Company. Further, upon termination of his employment,
Employee agrees to make available to any person designated by the Surviving
Corporation all information concerning pending or prior transactions that may
affect the operation of the Surviving Corporation or Toro about which Employee
has knowledge. The obligations of Employee contained in this Section 8 are in
addition to the obligations of Employee to return to the Surviving Corporation,
upon the termination of his employment, all property of the Company then in his
possession.
9. NON-COMPETITION AND NON-SOLICITATION. The execution of this Agreement
is an express condition precedent of Toro to the acquisition of Exmark through
the Merger, and the parties mutually agree that Employee is receiving
substantial consideration through the payment of the Signing Bonus for, among
other things, the covenants of Employee set forth in this Section 9. Further,
it is mutually acknowledged that, by virtue of Employee's employment with the
Surviving Corporation, the Company will divulge or make accessible to Employee,
and Employee will become possessed of, certain Confidential Information
concerning the Company's business. Without limitation, it is also specifically
acknowledged that great trust on the part of the Company will reside in Employee
because Employee's duties will include involvement in the management, promotion,
and development of the Company's business. Accordingly, the parties deem it
necessary to enter into the protective agreements set forth below, the terms and
conditions of which have been negotiated by and between the parties hereto:
(a) Employee understands and agrees that Exmark has devoted and the
Surviving Corporation and Toro will continue to devote a great effort in
building an effective organization with the reputation of honesty,
reliability, dependability, and quality in its Products by utilizing unique
and effective management, sales, service, marketing, finance, and other
corporate techniques. Employee further understands and agrees that the
Company has gained a unique reputation in its industry by developing,
marketing, licensing, leasing, and selling only high-quality Products, and
for its ability to develop, market, sell, license, lease, and service these
Products to the greatest extent possible. Employee further understands and
agrees that this reputation is a major factor in developing and acquiring
high-quality
-8-
<PAGE>
Products and bringing about the sales of such Products, and accounts for
the continued success of the Company in the technologically complex and
competitive business in which the Company engages.
(b) Employee understands and agrees that he will necessarily become
privy to relationships with Customers and employees of the Company, names
and lists of Customers, confidential plans and structures, lists and
specifications of Products, and other Confidential Information. Employee
also understands and agrees that, to the extent he is directly or
indirectly involved in the marketing or sales aspect of the LCG Group's
business, he will necessarily establish a unique and strong personal and
professional relationship with certain of the LCG Group's Customers during
the term of this Agreement. Furthermore, Employee understands and agrees
that such information, as well as information obtained as to Customers'
methods of doing business, specifications of Customers' product
requirements, the time, places and other details of when, where, and how to
contact and best serve the Customers, the Customers' prior, present and
future product usage, the Customers' general "school" of thought as to the
product, the Customers' biases and prejudices as to various products,
information as to other employees or third parties who influence Customers'
decisions, and the extensive and frequent contact with Customers in the
personal relationship acquired with Customers, all constitute legitimate
and protectable business interests of the Company. This information is now
and, even if such information is enhanced by Employee, will continue to be
extremely proprietary and confidential and thereby the exclusive property
of the Company.
(c) Employee agrees that any inventions, discoveries, information,
ideas, or other Confidential Information in whole or part conceived,
developed, or made by Employee (at any time prior to or after the date of
this Agreement) through the use of Confidential Information or any of the
Company's equipment, facilities, trade secrets or time, or which resulted
or will result from any work performed by any employee of the Company,
belongs and shall belong exclusively to the Surviving Corporation, are, and
shall be deemed part of the Confidential Information for purposes of this
Agreement, and have been, or shall be disclosed to and assigned only to the
Surviving Corporation. Employee shall assist the Surviving Corporation in
filing any related patent applications or copyright registrations.
Notwithstanding the above, Employee shall retain all rights to any
invention developed by Employee for which no equipment, supplies,
facilities, or trade secret information of the Company was used and which
was developed entirely on Employee's own time unless: (i) the invention
relates directly to the business of the LCG Group or to the LCG Group's
actual or demonstrably anticipated research or development; or (ii) the
invention results from any work performed by Employee for the Company.
(d) Employee acknowledges and agrees that the Company has a
legitimate protectable interest in the assets, Confidential Information and
trade
-9-
<PAGE>
secrets which will necessarily be imparted to Employee during the term of
his employment by the Surviving Corporation, together with a legitimate
business interest and right to prohibit the Surviving Corporation's former
employees from soliciting Customers or other employees of the Company after
termination of Employee's relationship with the Surviving Corporation.
(e) Employee acknowledges and agrees that the restrictions,
limitations, and covenants made by Employee herein, including the
non-compete and non-solicitation agreements contained in this Section 9,
are reasonable and valid and should be strictly enforced and upheld by any
court of competent jurisdiction.
(f) Employee further understands and agrees that all present
Customers and all future Customers called upon by Employee during the term
of his employment by the Surviving Corporation are the exclusive Customers
of the Company and not those of Employee.
(g) Employee, therefore, agrees that, during the period Employee is
employed by the Surviving Corporation or associated with the Surviving
Corporation or Toro and for a period of 18 months after the effective date
of termination of Employee's employment (whether by the Surviving
Corporation, by Employee or by operation of this Agreement or law) or
Employee's association with the Surviving Corporation or Toro, whichever is
later, he will not directly or indirectly, either for his own account or
for the benefit of any person, firm or corporation, engage in the
development, marketing, sale, service or distribution of Products of the
LCG Group, of any other product or service substantially similar to such
Products or that perform substantially similar functions as such Products,
or of any otherwise competitive products or services, provided, however,
that products and services relating to the residential consumer landscape
equipment business shall not be covered by this Section 9(g).
(h) Employee agrees that during the period Employee is employed by
the Surviving Corporation or associated with the Surviving Corporation or
Toro and for a period of 18 months after the effective date of termination
of Employee's employment (whether by the Surviving Corporation, by Employee
or by operation of this Agreement or law) or Employee's association with
the Surviving Corporation or Toro, whichever is later, Employee shall not
enter into substantive discussions regarding or accept any relationship or
position as a sales or marketing representative, consultant, direct
manager, officer, executive, or other employee or representative with any
person, firm, corporation, association, partnership or entity which, during
the term of Employee's employment by the Surviving Corporation or
association with the Surviving Corporation or Toro or for a period of 18
months thereafter, was or is engaged in any business that is in competition
with the commercial landscape equipment business of the LCG Group.
-10-
<PAGE>
(i) During Employee's employment by the Surviving Corporation or
association with the Surviving Corporation or Toro and for a period of 18
months after the effective date of termination of Employee's employment
(whether by the Surviving Corporation, by Employee or by operation of this
Agreement or law) or Employee's association with the Surviving Corporation
or Toro, whichever is later, Employee shall not directly or indirectly own
or be a shareholder of, member of, partner of, or otherwise participate in
any company engaged in any business that is in competition with the
commercial landscape equipment business of the LCG Group. Notwithstanding
the above, Employee may hold or be the beneficial owner of up to a one
percent (1%) interest in any publicly held or traded company and shall have
an unlimited right to invest in any mutual fund which is publicly traded or
managed by a financial institution.
(j) During Employee's employment by the Surviving Corporation or
association with the Surviving Corporation or Toro and for a period of 18
months after the effective date of termination of Employee's employment
(whether by the Surviving Corporation, by Employee or by operation of this
Agreement or law) or Employee's association with the Surviving Corporation
or Toro, whichever is later, Employee agrees to refrain from directly or
indirectly soliciting or enticing, on his own behalf or in the service of
or on behalf of others, either (i) the Company's employees or independent
agents so as to induce them to leave their employment or relationship with
the Company, or (ii) any current or former Customers of the Company so as
to induce them to use any company other than the Company.
(k) For a period of 18 months after the effective date of termination
of Employee's employment (whether by the Surviving Corporation, by Employee
or by operation of this Agreement or law) or Employee's association with
the Surviving Corporation or Toro, whichever is later, Employee shall
inform any prospective new employer or associate prior to accepting any
employment or any business relationship of the existence of this Agreement
and provide them with a copy of this Agreement (with compensation
information redacted, if desired).
(l) Employee understands and agrees that the restrictions and
covenants in this Section 9 will not prohibit Employee from pursuing his
career upon termination of this Agreement. Further, Employee acknowledges
that his career skills and livelihood are not limited to the markets or
industry served by the LCG Group and that, upon termination, he could
obtain employment in industries within or outside of the industry in which
the LCG Group is engaged.
10. SPECIFIC ENFORCEMENT. Employee understands and agrees that a breach
by him of any provisions of this Agreement may cause the Surviving Corporation
or Toro irreparable injury and damage that cannot be compensated by receipt of
money damages. Employee, therefore, expressly agrees that the Surviving
Corporation and Toro shall be
-11-
<PAGE>
entitled, in addition to any other remedies legally available, to injunctive
and/or other equitable relief to prevent a breach of this Agreement or any part
hereof.
11. RECOVERY OF ATTORNEY FEES. Except as provided for in Section 18 below
concerning matters submitted to arbitration, the losing party agrees to pay all
reasonable attorneys' fees and court costs that may be incurred by the
prevailing party in enforcing this Agreement and any of the covenants of this
Agreement, together with attorneys' fees and costs for the collection of any
judgments in its favor arising out of this Agreement.
12. ASSIGNMENTS. This Agreement shall be binding upon and inure to the
benefit of Exmark, the Surviving Corporation and Toro and their successors and
assigns. Employee expressly acknowledges and agrees to any assignment of this
Agreement resulting from the Merger by operation of law or otherwise and the
Surviving Corporation shall for all purposes herein be deemed to be Exmark's
successor in interest with all of the rights that Exmark held under this
Agreement or otherwise prior to the Merger. Employee may not assign this
Agreement or any rights hereunder. Any purported or attempted assignment or
transfer by Employee of this Agreement or any of Employee's duties,
responsibilities, or obligations hereunder shall be void.
13. NOTICES. All notices, requests, demands, and other communications
under this Agreement shall be in writing, and shall be deemed to have been duly
given on the date of service if personally served on the party to whom notice is
to be given, or on the third day after mailing if mailed to the party to whom
notice is given, by first class mail, postage prepaid, and properly addressed as
follows:
TO THE COMPANY AT: The Toro Company
8111 Lyndale Avenue South
Bloomington, MN 55420-1196
Attn: General Counsel
TO EMPLOYEE AT: ______________________
______________________
______________________
______________________
Any party may change the address for the purpose of this Section 13 by
giving the other written notice of the new address in the manner set forth
above.
14. CONSTRUCTION AND SEVERABILITY. The validity, interpretation,
performance, and enforcement of this Agreement shall be governed by the laws of
the State of Minnesota. In any dispute not arbitrable under Section 18,
Employee agrees to submit to the personal jurisdiction of the federal and state
courts located in Minnesota, and both parties agree to commence any lawsuit
related to such non-arbitrable dispute in the federal or state courts
-12-
<PAGE>
located in Minnesota. To the extent that any provision of this Agreement shall
be determined to be invalid or unenforceable, the invalid or unenforceable
portion of such provision shall be deleted from this Agreement, and the validity
and enforceability of the remainder of such provision and of this Agreement
shall be unaffected. In furtherance and not in limitation of the foregoing, it
is expressly agreed that, should the duration of, or geographical extent of, or
business activities covered by, the non-competition and non-solicitation
covenants contained in Section 9 above be determined to be in excess of that
which is valid or enforceable under applicable law, then such provision shall be
construed to cover only that duration, or extent, or those activities that may
validly or enforceably be covered. Employee acknowledges the uncertainty of the
law in this respect and expressly stipulates that this Agreement shall be
construed in a manner which renders its provisions valid and enforceable to the
maximum extent (not exceeding its express terms) possible under applicable law.
Any provision of this Agreement that is found by a court of competent
jurisdiction to be prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective only the extent of such prohibition or
unenforceability without invalidating the remaining terms hereof or affecting
the validity or enforceability of such provisions in any other jurisdiction.
15. ENTIRE AGREEMENT. This Agreement sets forth the entire Agreement
between the Surviving Corporation and Employee with respect to his employment by
the Surviving Corporation, and there are no undertakings, covenants, or
commitments other than as set forth herein. This Agreement may not be altered
or amended, except by a writing executed by the party against whom such
alteration or amendment is to be enforced. This Agreement supersedes any and
all prior understandings or agreements between the parties.
16. SURVIVAL. The parties expressly acknowledge and agree that the
provisions of this Agreement which, by their express or implied terms, extend
beyond the expiration of this Agreement or the termination of Employee's
employment hereunder, shall continue in full force and effect, notwithstanding
the expiration of this Agreement or the termination of Employee's employment
hereunder.
17. WAIVERS. No failure on the part of either party to exercise, and no
delay in exercising, any right or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right or remedy
hereunder preclude any other or further exercise thereof, or the exercise of any
other right or remedy granted hereby or by any related document or law.
18. ARBITRATION OF DISPUTES. Except with respect to rights enforceable by
means of injunctive relief or specific performance from a court of competent
jurisdiction, including but not limited to the Company's right to recover the
Signing Bonus or its right to enforce Employee's obligations under Sections 7, 8
and 9 above, if a dispute arises out of or relates to this Agreement, or the
performance or breach thereof, the parties agree to resolve the controversy or
claim arising out of or relating to this Agreement, or the performance or
-13-
<PAGE>
breach thereof, through binding arbitration by a single arbitrator pursuant to
the Rules of the American Arbitration Association. The arbitration shall be
conducted in Minneapolis, Minnesota, and the arbitrator shall apply the laws of
the State of Minnesota. Any award rendered shall be final and conclusive upon
the parties and a judgment thereon may be entered in any court of competent
jurisdiction. All costs and expense, including reasonable attorney's fees, of
all parties incurred in any dispute which is determined by arbitration pursuant
to this Section 18 shall be borne by the party determined to be liable in
respect of such dispute; provided, however, that if complete liability is not
assessed against only one party, the parties shall share the total costs in
proportion to their respective amounts of liability so determined. Employee
agrees to continue performing his obligations under Sections 7, 8 and 9 above
while the dispute is being resolved.
19. WITHHOLDING TAXES. The Company may withhold from any benefits payable
under this Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or governmental regulation or ruling.
20. CAPTIONS AND HEADINGS. The captions and section headings used in this
Agreement are for convenience of reference only and shall not affect the
construction or interpretation of this Agreement or any of the provisions
hereof.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed in Minneapolis, Minnesota, as of the day and year first above written.
EXMARK MANUFACTURING COMPANY
INCORPORATED
By ________________________
Its ______________________
THE TORO COMPANY
By ________________________
Its ______________________
[EMPLOYEE]
__________________________
-14-
<PAGE>
EXHIBIT 10.4
EMPLOYEE AGREEMENT
As a condition of the undersigned's commencement of employment with The
Toro Company, its subsidiary or affiliate (hereafter referred to collectively as
the "Company"), the undersigned (hereinafter referred to as "Employee"), agrees
as follows:
Name and address of Employee: ____________________________________
____________________________________
____________________________________
1. TERM. This agreement shall remain in force and effect throughout the
term of Employee's employment with the Company. Further, the covenants
contained herein shall remain in force and effect subsequent to termination of
this Agreement for the time periods governing such covenants. Employee
acknowledges that his relationship with the Company is terminable at will by
either party and that the Company and/or the Employe can terminate the
relationship with or without cause, and with or without notice. Further, the
parties agree that nothing contained in this Agreement shall be relied upon to
alter the terminable at will relationship between the parties.
2. RETURN OF PROPERTY. Employee agrees that upon leaving the employment
of the Company, regardless whether his departure is voluntary or involuntary, he
will not take with him any of the Company's property including, but not limited
to, any and all Company apparatuses, equipment, blueprints, drawings, sketches,
notebooks, computer programs, customer lists, accounting information, production
costs, sales information, formulae or any copies or duplicates of any of the
above.
3. NON-DISCLOSURE. Except as required by Employee's duties at the
Company, Employee will not disclose, without the Company's prior written
consent, directly or indirectly, to anyone outside of the Company or to any
unauthorized employee of the Company, either during or after his employment with
the Company, any confidential information concerning the Company's business
acquired by Employee during his employment with the Company. Employee
acknowledges that "confidential information," as used herein, means information
which is not publicly known, including but not limited to, information relating
to the Company's product, processes, systems, research, development,
manufacturing, purchasing, accounting, engineering, marketing, merchandising,
inventions, designs, formulae, future plans, or strategies.
4. COPYRIGHT AND INVENTIONS. Employee agrees to promptly and fully
disclose to the Company any items subject to copyright which are useable by the
Company in its business, or related thereto, which he may make or has made,
individually or jointly with others, while employed by the Company and for a
period of one year thereafter, whether made on the Company's time or his own
time. Unless items subject to copyrights are listed on a separate sheet and
attached hereto, and specifically excluded herefrom, such items subject to
copyright shall be the sole property of the Company whether or not a copyright
registration application has been filed thereon, and Employee hereby assigns to
the Company, all of his interest in such items subject to copyright and will,
without charge to the Company, but at the expense of the Company, assign and
deliver promptly all papers and do all other acts necessary to assist the
Company to obtain copyright registration on such items in any and all countries.
Employee further agrees to promptly and fully disclose to the Company
any and all inventions which are useable by the Company in its business, or
related thereto, which he may make or has made, individually or jointly with
others, while employed by the Company or for one year thereafter. Employee
further agrees that unless certain of said inventions are listed on a separate
sheet and attached hereto, and specifically excluded herefrom, such inventions
shall be the sole property of the Company, whether or not patent applications
are filed thereon, and Employee hereby assigns to the Company all of his
interest in such inventions and will, without charge to the Company, but at the
expense of the Company, sign
<PAGE>
and deliver promptly all papers and do all other acts necessary to assist the
Company to obtain patents on such inventions in any and all countries.
Provided, however, that if Employee is employed by the Company in Minnesota, no
provisions of this Agreement assigning or purporting to assign ownership or
property rights in any such invention shall apply to an invention for which no
equipment, supplies, facility or trade secret information of the Company was
used and which was developed entirely on his own time, and (1) which does not
relate (a) directly to the business of the Company or (b) to the Company's
actual or demonstrably anticipated research or development, or (2) which does
not result from any work performed by him for the Company.
5. NON-COMPETITION. Because Employee will be exposed to or have access
to the Company's confidential information and to assist the Company in
protecting the confidentiality of that information, Employee agrees that for a
period of one (1) year subsequent to termination of Employee's employment with
the Company, he will not render services, directly or indirectly, to any firm or
organization in competition with the Company, except that Employee may accept
employment with such a firm or organization whose business is diversified, and
for that part of its business which is not in competition with the Company,
provided, the Company, prior to Employee beginning such employment, shall
receive separate written assurances satisfactory to the Company from such a firm
or organization and from the Employee, and further provided that the Employee
will not render services directly or indirectly in connection with any product
which competes with a product offered by the Company.
6. ENFORCEMENT OF THIS AGREEMENT. Employee acknowledges that compliance
with the covenants set forth in paragraphs 3, 4, and 5 are necessary to enable
the Company to do business with its customers for the term of this Agreement and
thereafter, and that any breach of these covenants will result in the
irreparable and continuing damage to the Company for which there will be no
adequate remedy at law. In the event of any breach of these covenants, the
Company shall be entitled to injunctive or such other and further relief
including damages as may be proper. In addition, if any court having
jurisdiction shall at any time hereafter hold these covenants to be
unenforceable or unreasonable as to scope, territory, or period of time
specified therein, then the scope, territory, or period of time shall be that
declared or determined by said court to be reasonable.
7. CHANGE IN STATUS. Employee acknowledges that the terms and conditions
set forth in this Agreement will not be affected by any change in Employee's
(1) type of employment, (2) employee benefits, or (3) wages or salary,
subsequent to execution of this Agreement, even though any such subsequent
change should become the basis for the voluntary or involuntary termination of
his employment with the Company, it being recognized that Company has the right
to effect such changes. It is further understood that the obligations recited
herein are binding, regardless of the manner in which voluntary or involuntary
termination of my employment is effected, and regardless of the basis of either
type of termination.
8. GENERAL. Employee agrees that waiver of any of the provisions of this
Agreement by the Company in any particular instance shall not be deemed to be a
waiver of any such provision in any subsequent instance and/or of the Company's
other rights at law or under this Agreement; that the provisions of this
Agreement shall accrue to and be binding upon the heirs, successors and assigns
of the parties. Employee further agrees that the Company may notify anyone
hereinafter employing him of the existence and provisions of this Agreement.
References herein to the masculine gender shall be construed to also apply to
the feminine. The captions set forth herein shall be for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. This Agreement shall be governed by current state law.
<PAGE>
I have read the above and accept employment on the terms and conditions
above stated.
__________________________________
Employee Signature
__________________________________
Date
__________________________________
Witness
__________________________________
Date
<PAGE>
EXHIBIT 10.5
STOCK FOR STOCK EXCHANGE AGREEMENT
This Stock for Stock Exchange Agreement (this "Agreement"), dated
October 23, 1997, is made and entered into by and among Exmark Manufacturing
Company Incorporated, a Nebraska corporation ("Exmark"), and Roger Smith
("Smith"), an individual resident of New Cumberland, Pennsylvania, and the owner
of all of the outstanding shares of capital stock of The Holiman Co., Inc., a
Pennsylvania corporation ("Holiman").
RECITAL
Smith desires to deliver to Exmark, and Exmark desires to acquire from
Smith, all of the capital stock of Holiman, which is owned beneficially and of
record by Smith, pursuant to the terms and conditions set forth in this
Agreement. It is intended that the transactions contemplated by this Agreement
qualify, for federal income tax purposes, as a tax-free reorganization under the
provisions of Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as
amended (the "Code").
In consideration of the foregoing and the mutual covenants, conditions and
agreements set forth in this Agreement (the receipt and sufficiency of which are
hereby acknowledged), the parties hereto agree as follows:
1. AGREEMENT BY SMITH TO DELIVER SHARES AND EXMARK TO ACQUIRE SHARES.
Subject to the terms and conditions of this Agreement, on the Closing Date (as
defined in Section 8 below), Smith agrees to deliver and Exmark agrees to
acquire from Smith all of the outstanding shares of capital stock of Holiman
(the "Shares"). At the Effective Time (as defined in Section 2(c) below), and
subject to the terms and conditions of this Agreement, Exmark shall be the sole
owner of all outstanding shares of capital stock of Holiman.
2. EXCHANGE OF SHARES. The Shares shall be acquired solely in exchange
for shares of Class C Preferred Stock, $.01 par value per share, of Exmark (the
"Exmark Class C Stock") as follows:
(a) EXCHANGE OF SHARES. In exchange for the delivery of the Shares
by Smith to Exmark, Exmark shall deliver to Smith, as full consideration for the
Shares, 3,689 shares of Exmark Class C Stock (the "Acquisition Consideration").
Such exchange is referred to herein as the "Share Exchange."
<PAGE>
(b) PAYMENT OF ACQUISITION CONSIDERATION. On the Closing Date,
Exmark shall deliver the Acquisition Consideration to Smith and
contemporaneously Smith shall deliver to Exmark share certificates representing
the Shares together with duly executed stock powers attached thereto
transferring the Shares to Exmark.
(c) EFFECTIVE TIME. The Share Exchange shall be effected as promptly
as practicable, but in no event more than three business days, after the
satisfaction or waiver of the conditions set forth in Sections 6 and 7 of this
Agreement. The time at which the Share Exchange is effected is referred to
herein as the "Effective Time."
3. REPRESENTATIONS AND WARRANTIES OF SMITH. Smith hereby represents and
warrants to Exmark as follows, except as set forth in the Disclosure Schedule
delivered by Smith to Exmark on the date hereof (the "Disclosure Schedule")
(which Disclosure Schedule sets forth certain exhibits referenced herein and
exceptions to the representations and warranties contained in this Agreement
under captions referencing each and every Section to which such exhibits or
exceptions apply):
(a) INCORPORATION AND CORPORATE POWER. Holiman is a corporation duly
incorporated, validly existing and in good standing under the laws of the state
of Pennsylvania, and Holiman has the requisite corporate power and authority to
execute and deliver this Agreement and to perform its obligations hereunder.
Holiman has the corporate power and authority and all authorizations, licenses,
permits and certifications necessary to own and operate its properties and to
carry on its business as now conducted and presently proposed to be conducted.
The copies of the articles of incorporation and bylaws of Holiman are set forth
in the Disclosure Schedule and reflect all amendments made thereto and are
correct and complete as of the date hereof. Holiman is qualified to do business
as a foreign corporation in every jurisdiction in which the nature of its
business or its ownership of property requires it to be so qualified.
(b) NO BREACH. The execution, delivery and performance of this
Agreement by Smith and the consummation by Smith of the transactions
contemplated hereby do not conflict with or result in any breach of any of the
provisions of, constitute a default under, result in a violation of, result in
the creation of a right of termination or acceleration or any lien, security
interest, charge or encumbrance upon any assets of Holiman, or require any
authorization, consent, approval, exemption or other action by or notice to any
court, other governmental body or other "Person" (such term shall mean an
individual, corporation, partnership, association, joint-stock company, trust,
unincorporated organization, or government or political subdivision thereof)
under the provisions of the articles of incorporation or bylaws of Holiman or
any contract, indenture, mortgage, lease, loan agreement or other agreement,
relationship, commitment or instrument, written or oral, by which Holiman or
Smith are bound or affected, or any law, statute, rule or regulation or order,
judgment or decree to which Holiman or Smith are subject.
-2-
<PAGE>
(c) GOVERNMENTAL AUTHORITIES; CONSENTS. Neither Smith nor Holiman is
required to submit any notice, report or other filing with any governmental
authority in connection with the execution or delivery by Smith of this
Agreement or the consummation of the transactions contemplated hereby. No
consent, approval or authorization of any governmental or regulatory authority
or any other party or person is required to be obtained by Holiman or Smith in
connection with Smith's execution, delivery and performance of this Agreement or
the transactions contemplated hereby.
(d) SUBSIDIARIES; PREDECESSORS. Holiman does not own any stock,
partnership interest, joint venture interest or any other security or ownership
interest issued by any other corporation, organization, joint venture,
partnership, limited liability company or entity.
(e) CAPITAL STOCK.
(i) On the date hereof, the authorized capital stock of
Holiman consists of 4,000 shares of common stock, par value $10.00 per
share, ("Holiman Common Stock"), of which 2,820 shares are issued and
outstanding as of the date hereof. On the date hereof and immediately
prior to the Effective Time, all of Holiman's issued and outstanding
capital stock is held of record by Smith. All such outstanding shares of
Holiman Common Stock (A) have been duly authorized and are validly issued,
fully paid and nonassessable, (B) are not subject to preemptive rights
created by statute, Holiman's articles of incorporation or bylaws, or any
other agreement to which either Holiman or Smith is bound and (C) were
issued in full compliance with all applicable securities laws.
(ii) There are no rights, subscriptions, warrants, options,
conversion rights or agreements of any kind outstanding to purchase or
otherwise acquire from Holiman any shares of Holiman Common Stock or other
securities of Holiman of any kind (and there are no agreements or other
obligations of Holiman to grant any of the foregoing) and there are no
agreements or other obligations (contingent or otherwise) which may require
Holiman to repurchase or otherwise acquire any shares of Holiman Common
Stock.
(iii) No persons other than Smith and Francine H. Smith are, in
Holiman's reasonable judgment, "affiliates" of Holiman within the meaning
of Rule 145 promulgated by the Securities Exchange Commission (the "SEC")
under the Securities Act of 1933, as amended (the "Securities Act").
(f) FINANCIAL STATEMENTS. The Disclosure Schedule sets forth copies
of the unaudited balance sheets, as of June 30, 1997, June 30, 1996 and June 30,
1995, of Holiman and the unaudited statements of earnings, shareholders' equity
and cash flows of Holiman for each of the years ended June 30, 1997, June 30,
1996 and June 30, 1995 (collectively, the "Holiman Annual Financial
Statements"). Except as set forth in the Disclosure Schedule, the Holiman
Annual Financial Statements are based upon the information contained in the
-3-
<PAGE>
books and records of Holiman and fairly present the financial condition of
Holiman as of the dates thereof and respective results of operations for the
periods referred to therein. The Holiman Annual Financial Statements have been
prepared in accordance with generally accepted accounting principles (as such
principles apply to unaudited financial statements ("GAAP")), on a basis
consistent with the method used by Holiman in preparing the unaudited financial
statements of Holiman for the three-year period from July 1, 1994 to June 30,
1997, which financial statements are presented in accordance with GAAP.
(g) ABSENCE OF UNDISCLOSED LIABILITIES. Except as reflected in the
June 30, 1997 balance sheet included in the Holiman Annual Financial Statements
(the "Latest Balance Sheet"), Holiman has no liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise, whether due or to become due,
whether known or unknown, and regardless of when asserted) arising out of
transactions or events heretofore entered into, or any action or inaction, or
any state of facts existing, with respect to or based upon transactions or
events heretofore occurring, except liabilities which have arisen in the
ordinary course of business (none of which is an uninsured liability in excess
of $10,000 for breach of contract, breach of warranty, tort, infringement, claim
or lawsuit).
(h) NO MATERIAL ADVERSE CHANGES. Since the date of the Latest
Balance Sheet, there has been no material adverse change in the assets,
financial condition, operating results, co-distributor, customer, employee or
supplier relations, business condition or prospects of Holiman (other than as a
direct result of general economic conditions or an industry downturn).
(i) ABSENCE OF CERTAIN DEVELOPMENTS. Since May 1, 1997, Holiman has
not (except as described in the Disclosure Schedule):
(i) borrowed any amount or incurred or become subject to any
liability in excess of $25,000, except (A) current liabilities incurred in
the ordinary course of business and (B) liabilities under contracts entered
into in the ordinary course of business;
(ii) mortgaged, pledged or subjected to any lien, charge or
any other encumbrance, any of its assets with a fair market value in excess
of $25,000, except (A) liens for current property Taxes not yet due and
payable, (B) liens imposed by law and incurred in the ordinary course of
business for obligations not yet due to carriers, warehousemen, laborers,
materialmen and the like, (C) liens in respect of pledges or deposits under
workers' compensation laws, or (D) liens voluntarily created in the
ordinary course of business, all of which liens aggregate less than
$25,000;
(iii) discharged or satisfied any lien or encumbrance or paid
any liability, in each case with a value in excess of $25,000, other than
current liabilities paid in the ordinary course of business;
-4-
<PAGE>
(iv) sold, assigned or transferred (including, without
limitation, transfers to any employees, affiliates or shareholders) any
tangible assets with a fair market value in excess of $25,000, or canceled
any debts or claims, in each case, except in the ordinary course of
business;
(v) sold, assigned or transferred (including, without
limitation, transfers to any employees, affiliates or shareholders) any
patents, trademarks, trade names, copyrights, trade secrets or other
intangible assets;
(vi) disclosed, to any person other than Exmark, the Toro
Company, a Delaware corporation ("Toro"), and authorized representatives of
Exmark and Toro, any proprietary confidential information, other than
pursuant to a confidentiality agreement prohibiting the use or further
disclosure of such information, which agreement is identified in the
Disclosure Schedule and is in full force and effect on the date hereof;
(vii) waived any rights of material value or suffered any
extraordinary losses or adverse changes in collection loss experience,
whether or not in the ordinary course of business or consistent with past
practice;
(viii) declared or paid any dividends or other distributions
with respect to any shares of Holiman's capital stock or redeemed or
purchased, directly or indirectly, any shares of Holiman's capital stock or
any options, warrants or other rights to purchase the same, except for the
payment of a one-time cash dividend to be paid between the date hereof and
the Effective Time, which dividend shall not exceed the difference between
(A) the net worth of Holiman prior to the payment of such dividend and (B)
$200,000;
(ix) issued, sold or transferred any of its equity securities,
securities convertible into or exchangeable for its equity securities or
options, warrants or other rights to acquire its equity securities, or any
bonds or debt securities;
(x) taken any other action or entered into any other
transaction other than in the ordinary course of business and in accordance
with past custom and practice, or entered into any transaction with any
"Insider" (as defined in Section 3(u) hereof) other than employment
arrangements otherwise disclosed in this Agreement and the Disclosure
Schedule, or the transactions expressly contemplated by this Agreement;
(xi) suffered any material theft, damage, destruction or loss
of or to any property or properties owned or used by it, whether or not
covered by insurance;
(xii) other than in the ordinary course of business consistent
with past practices, and except as expressly contemplated by Section 5(b)
of this
-5-
<PAGE>
Agreement, made or granted any bonus, or any wage, salary or compensation
increase to any director, officer, employee or consultant whose annual
compensation from Holiman in the preceding fiscal year exceeded $45,000, or
made or granted any increase in any employee benefit plan or arrangement,
or amended or terminated any existing employee benefit plan or arrangement,
or adopted any new employee benefit plan or arrangement or made any
commitment or incurred any liability to any labor organization;
(xiii) made any single capital expenditure or commitment
therefor in excess of $25,000;
(xiv) made any loans or advances to, or guarantees for the
benefit of, any persons in excess of $10,000;
(xv) made any charitable contributions or pledges in excess
of $10,000;
(xvi) made any change in accounting principles or practices
from those utilized in the preparation of the Holiman Annual Financial
Statements;
(xvii) experienced any amendment, modification or termination
of any existing, or entered into any new, contract, agreement, plan, lease,
license, permit or franchise which is, either individually or in the
aggregate, material to the business, operations, financial position or
prospects of Holiman other than in the ordinary course of business;
(xviii) experienced any labor dispute material to the business,
operations, financial position or prospects of Holiman;
(xix) experienced any change in any assumption underlying or
method of calculating, any bad debt, inventory, contingency or other
reserve;
(xx) experienced any lapse or termination of any material
permit that was issued or relates to Holiman or its business, including any
failure to renew any such permit; or
(xxi) discontinued or altered, in any material respect, its
advertising or promotional activities or its pricing and purchasing
policies.
(j) TITLE TO PROPERTIES.
(i) Holiman does not own any real property. The real
property listed as leased (the "Leased Property") in the Disclosure
Schedule constitutes all of the real property owned, used or occupied by
Holiman (the "Real Property"). Such Disclosure Schedule includes the
location, uses thereof and Holiman indebtedness
-6-
<PAGE>
thereon, if any, for all Real Property. The Real Property has access,
sufficient for the conduct of the business of Holiman as now conducted or
as presently proposed to be conducted, to public roads and to all
utilities, including electricity, sanitary and storm sewer, potable water,
natural gas and other utilities, used in the operation of the business of
Holiman at that location.
(ii) The leases for the Leased Property (the "Leases") are in
full force and effect, and Holiman holds a valid and existing leasehold
interest under each of the Leases for the term set forth in the Disclosure
Schedule. Holiman has delivered to Exmark complete and accurate copies of
each of the Leases, and none of the Leases has been modified in any
respect, except to the extent that such modifications are disclosed by the
copies delivered to Exmark. Except as set forth in the Disclosure
Schedule, Holiman is not in default, and to the knowledge of Holiman no
circumstances exist which, if unremedied, would, either with or without
notice or the passage of time or both, result in such default under any of
the Leases; nor to the knowledge of Holiman is any other party to any of
the Leases in default.
(iii) Holiman owns good and marketable title to each of the
tangible properties and tangible assets reflected on the Latest Balance
Sheet or acquired since the date thereof, free and clear of all liens and
encumbrances, except for (A) liens for current Taxes not yet due and
payable, (B) liens set forth in the Disclosure Schedule, (C) the properties
subject to the Leases, (D) assets disposed of since the date of the Holiman
Latest Balance Sheet in the ordinary course of business, (E) liens imposed
by law and incurred in the ordinary course of business for obligations not
yet due to carriers, warehousemen, laborers and materialmen and (F) liens
in respect of pledges or deposits under workers' compensation laws, all of
which liens aggregate less than $25,000.
(iv) All of the buildings, machinery, vehicles, equipment and
other tangible assets necessary for the conduct of the business of Holiman
are in good condition and repair, ordinary wear and tear excepted, and are
usable in the ordinary course of business. There are no defects in such
assets or other conditions relating thereto which adversely affect the
operation or value of such assets. Holiman owns or leases under valid
leases, all buildings, machinery, equipment and other tangible assets
necessary for the conduct of its business as presently conducted, except
for defects of title that do not materially affect the use of such assets
by Holiman and except for such assets that can be purchased or leased for
nominal consideration.
(k) ACCOUNTS RECEIVABLE. The accounts receivable reflected on the
Holiman Latest Balance Sheet and those arising thereafter are valid receivables,
are not subject to valid counterclaims or set-offs, and are collectible in
accordance with their terms, except to the extent of the bad debt reserve
reflected on the Holiman Latest Balance Sheet.
-7-
<PAGE>
(l) TAX MATTERS.
(i) Each of Holiman and any affiliated, combined or unitary
group of which Holiman is or was a member, any predecessor of Holiman and
any Plans (as defined in Section 3(q) hereof), as the case may be (each, a
"Tax Affiliate" and, collectively, the "Tax Affiliates"), has: (A) timely
filed (or has had timely filed on its behalf) all returns, declarations,
reports, estimates, information returns, and statements ("Returns")
required to be filed or sent by it in respect of any Taxes (as defined in
Section 3(l)(xi) hereof) or required to be filed or sent by it by any
taxing authority having jurisdiction and all such Returns are true and
correct in all material respects; (B) timely and properly paid (or has had
paid on its behalf) all Taxes due and payable with respect to the periods
covered by such Returns; (C) established on its Latest Balance Sheet, in
accordance with GAAP, reserves that are adequate for the payment of any
Taxes not yet due and payable for all Tax periods or portions thereof
ending on, prior to, or including the Closing Date, the amount of which as
of the date of the Latest Balance Sheet is set forth in the Disclosure
Schedule; and (D) complied with all applicable laws, rules, and regulations
relating to the withholding of Taxes and the payment thereof (including,
without limitation, withholding of Taxes under Sections 1441 and 1442 of
the Code, or similar provisions under any foreign laws), and timely and
properly withheld from individual employee wages or other payments to
employees and paid over to the proper governmental authorities all amounts
required to be so withheld and paid over under all applicable laws. Since
the incorporation of Holiman, all of the compensation paid to Smith was
"reasonable allowance for salaries or other compensation" within the
meaning of Section 162(a)(1) of the Code and was fully deductible by
Holiman. True and correct copies of any and all Returns filed by any Tax
Affiliate have been provided to Exmark.
(ii) There are no liens for Taxes upon any assets of Holiman
or of any Tax Affiliate, except liens for Taxes not yet due. Holiman is
not a party to any tax sharing agreement or other arrangement for the
payment or reimbursement of Taxes.
(iii) No deficiency for any Taxes has been proposed, asserted
or assessed against Holiman or the Tax Affiliates that has not been
resolved and paid in full. No waiver, extension or comparable consent
given by Holiman or the Tax Affiliates regarding the application of the
statute of limitations with respect to any Taxes or Returns is outstanding,
nor is any request for any such waiver or consent pending. There has been
no Tax audit or other administrative proceeding or court proceeding with
regard to any Taxes or Returns, nor is any such Tax audit or other
proceeding pending, nor has there been any notice to Holiman by any Taxing
authority regarding any such Tax, audit or other proceeding, nor, to the
best knowledge of Holiman, is any such Tax audit or other proceeding
threatened with regard to any Taxes or Returns. Holiman does not expect
the assessment of any additional Taxes of Holiman or the Tax Affiliates and
is not aware of any
-8-
<PAGE>
unresolved questions, claims or disputes concerning the liability for Taxes
of Holiman or the Tax Affiliates which would exceed the estimated reserves
established on its books and records.
(iv) Neither Holiman nor any Tax Affiliate is a party to any
agreement, contract or arrangement that would result, separately or in the
aggregate, in the payment of any "excess parachute payments" within the
meaning of Section 280G of the Code and the consummation of the
transactions contemplated by this Agreement will not be a factor causing
payments to be made by Holiman or any Tax Affiliate that are not deductible
(in whole or in part) under Section 280G of the Code.
(v) Neither Holiman nor any Tax Affiliate has requested any
extension of time within which to file any Return, which Return has not
since been filed.
(vi) No property of Holiman or any Tax Affiliate is property
that Holiman or any Tax Affiliates is or will be required to treat as being
owned by another person under the provisions of Section 168(f)(8) of the
Code (as in effect prior to amendment by the Tax Reform Act of 1986) or is
"tax-exempt use property" within the meaning of Section 168 of the Code.
(vii) Neither Holiman nor any Tax Affiliate is required to
include in income any adjustment under Section 481(a) of the Code by reason
of a voluntary change in accounting method initiated by Holiman or any Tax
Affiliate as a result of the Tax Reform Act of 1986 and neither Holiman nor
any Tax Affiliate has knowledge that the Internal Revenue Service has
proposed any such adjustment or change in accounting method.
(viii) All transactions that could give rise to an
understatement of federal income tax (within the meaning of Section 6661 of
the Code as it applied prior to repeal) or an underpayment of tax (within
the meaning of Section 6662 of the Code) were reported in a manner for
which there is substantial authority or were adequately disclosed (or, with
respect to Returns filed before the Effective Time, will be reported in
such a manner or adequately disclosed) on the Returns required in
accordance with Sections 6661(b)(2)(B) and 6662(d)(2)(B) of the Code.
(ix) Neither Holiman nor any Tax Affiliate has engaged in any
transaction that would result in a deemed election under Section 338(e) of
the Code, and neither Holiman nor any Tax Affiliate will engage in any such
transaction within any applicable "consistency period" (as such term is
defined in Section 338 of the Code).
(x) Neither Holiman nor any Tax Affiliate has filed any
consent under Section 341(f) of the Code.
-9-
<PAGE>
(xi) For purposes of this Agreement, the term "Taxes" means
all taxes, charges, fees, levies, or other assessments, including, without
limitation, all net income, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, withholding, payroll,
employment, social security, unemployment, excise, estimated, severance,
stamp, occupation, property, or other taxes, customs duties, fees,
assessments, or charges of any kind whatsoever, including, without
limitation, all interest and penalties thereon, and additions to tax or
additional amounts imposed by any taxing authority, domestic or foreign,
upon Holiman or any Tax Affiliate.
(m) CONTRACTS AND COMMITMENTS.
(i) The Disclosure Schedule lists the following agreements,
whether oral or written, to which Holiman is a party or by which Holiman or
its assets are bound: (A) collective bargaining agreement or contract with
any labor union; (B) bonus, pension, profit sharing, retirement or other
form of deferred compensation plan; (C) hospitalization insurance or other
welfare benefit plan or practice, whether formal or informal; (D) stock
purchase or stock option plan; (E) contract for the employment of any
officer, individual employee or other person on a full-time or consulting
basis or relating to severance pay for any such person; (F) confidentiality
agreement with employees and with consultants, vendors, customers or other
third parties; (G) contract, agreement or understanding relating to the
voting of Holiman's capital stock or the election of directors of Holiman;
(H) agreement or indenture relating to the borrowing of money or to
mortgaging, pledging or otherwise placing a lien on any of the assets of
Holiman; (I) guaranty of any obligation for borrowed money or otherwise;
(J) lease or agreement under which it is lessee of, or holds or operates
any property, real or personal, owned by any other party; (K) lease or
agreement under which it is lessor of, or permits any third party to hold
or operate, any property, real or personal, for which the annual rental
exceeds $10,000 (L) contract or group of related contracts with the same
party (other than any contract or group of related contracts for the
purchase or sale of products or services) continuing over a period of more
than six months from the date or dates thereof, not terminable by it on 30
days' or less notice without penalty and involving more than $10,000;
(M) contract which prohibits Holiman from freely engaging in business
anywhere in the world; (N) contract for the distribution of products
through or in conjunction with Holiman (including any distributor, sales
and original equipment manufacturer contract); (O) franchise agreement;
(P) license agreement or agreement providing for the payment or receipt of
royalties or other compensation by Holiman in connection with the
intellectual property rights set forth in the Disclosure Schedule;
(Q) contract or commitment for capital expenditures in excess of $10,000,
(R) agreement for the sale of any capital asset; (S) contract with any
affiliate which in any way relates to Holiman (other than for employment on
customary terms); or (T) other agreement which is either material to the
business of Holiman or was not entered into in the ordinary course of
business (other than agreements required to be listed in the Disclosure
Schedule).
-10-
<PAGE>
(ii) The Disclosure Schedule lists the following agreements,
whether oral or written, to which Holiman is a party or by which Holiman or
its assets are bound: (A) contract or group of related contracts with the
same party for the purchase of products or services by Holiman under which
the undelivered balance of such products or services is in excess of
$10,000; (B) contract or group of related contracts with the same party for
the sale of products or services by Holiman under which the undelivered
balance of such products or services (including, without limitation, any
free upgrades or ongoing services) has a sales price in excess of $10,000;
and (C) sales agreement or other customer commitment (other than the
standard form of purchase order) which entitles any purchaser to a rebate
from or right of set-off against Holiman, to return any product to Holiman
after acceptance thereof or to delay the acceptance thereof, to receive
future services, upgrades or enhancements, or which varies in any material
respect from Holiman's standard form agreements for sales.
(iii) Holiman has performed all material obligations required
to be performed through the date hereof by it in connection with the
contracts or commitments required to be disclosed in the Disclosure
Schedule and has not been notified of any claim of default under any
contract or commitment required to be disclosed in the Disclosure Schedule;
Holiman has no present expectation or intention of not fully performing any
material obligation pursuant to any contract or commitment required to be
disclosed thereunder; and Holiman has no knowledge of any breach or
anticipated breach by any other party to any contract or commitment
required to be disclosed in the Disclosure Schedule.
(iv) Prior to the date of this Agreement, Exmark has been
provided with a correct and complete copy of each written contract or
commitment referred to in the Disclosure Schedule, together with all known
amendments, waivers or other changes thereto.
(n) INTELLECTUAL PROPERTY RIGHTS.
(i) Holiman does not own, hold or possess any patents,
registrations for trademarks, service marks, trade names, copyrights or
mask works, and none are necessary to the conduct of the business of
Holiman as now conducted or as planned to be conducted as described herein.
(ii) Holiman is not a party to any agreement granting to
Holiman rights in patents, patent applications, trademarks, service marks,
trade names, corporate names, copyrights, mask works, trade secrets or
other intellectual property rights used in or necessary to the conduct of
the business of Holiman as now conducted or as planned to be conducted as
described herein.
(iii) Holiman has not received any notice of any infringement,
misappropriation or violation by Holiman of any intellectual property
rights of any
-11-
<PAGE>
third parties and Holiman, to its knowledge, has not infringed,
misappropriated or otherwise violated any such intellectual property
rights; and to the knowledge of Holiman, no infringement,
misappropriation or violation of any intellectual property rights of any
third parties has occurred or will occur with respect to products
currently being sold by Holiman or with respect to the products
currently under development (in their present state of development) or
with respect to the conduct of the business of Holiman as now conducted.
(iv) Holiman has not entered into any agreement restricting
Holiman from selling, leasing or otherwise distributing any of its current
products or products under development to any class of customers, in any
geographic area, during any time period or in any segment of the market.
(v) To Holiman's knowledge, Holiman has the right to make
available to Exmark all trade secrets and other confidential information
entrusted to Holiman by third parties.
(o) LITIGATION. There are no actions, suits, proceedings, orders or
investigations pending or, to the best knowledge of Holiman, threatened against
Holiman, at law or in equity, or before or by any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, nor is there any basis therefor.
(p) EMPLOYEES. (i) To the best knowledge of Holiman, no employee of
Holiman and no group of the employees of Holiman has any plans to terminate his,
her or their employment; (ii) Holiman has complied with all laws relating to the
employment of labor, including provisions thereof relating to wages, hours,
equal opportunity, collective bargaining and the payment of social security and
other taxes; (iii) Holiman has no labor relations problem pending and Holiman's
labor relations are satisfactory; (iv) there are no workers' compensation claims
pending against Holiman nor is Holiman aware of any facts that would give rise
to such a claim; and (v) no employee of Holiman is subject to any secrecy or
noncompetition agreement or any other agreement or restriction of any kind that
would impede in any way the ability of such employee to carry out fully all
activities of such employee in furtherance of the business of Holiman. The
Disclosure Schedule lists, as of the date set forth in the Disclosure Schedule,
each employee of Holiman. The Disclosure Schedule also states the position,
title, remuneration (including any scheduled salary or remuneration increases),
date of employment and accrued vacation pay of each such employee.
(q) EMPLOYEE BENEFIT PLANS.
-12-
<PAGE>
(i) For the purpose of this Section 3(u), "ERISA" means the
Employee Retirement Income Security Act of 1974, as amended, and the term
"plan" means every plan, fund, contract, program and arrangement (whether
written or not) which is maintained or contributed to by Holiman for the
benefit of present or former employees, including those intended to
provide: (A) medical, surgical, health care, hospitalization, dental,
vision, workers' compensation, life insurance, death, disability, legal
services, severance, sickness or accident benefits (whether or not defined
in Section 3(1) of ERISA), (B) pension, profit sharing, stock bonus,
retirement, supplemental retirement or deferred compensation benefits
(whether or not tax qualified and whether or not defined in Section 3(2) of
ERISA), (C) bonus, incentive compensation, stock option, stock appreciation
right, phantom stock or stock purchase benefits, or (D) salary
continuation, unemployment, supplemental unemployment, termination pay,
vacation or holiday benefits (whether or not defined in Section 3(3) of
ERISA).
(ii) The term "plan" shall include every such plan, fund,
contract, program and arrangement: (A) which Holiman has committed to
implement, establish, adopt or contribute to in the future, (B) for which
Holiman is or may be financially liable as a result of the direct sponsor's
affiliation to Holiman or its owners (whether or not such affiliation
exists at the date of this Agreement and notwithstanding that the plan is
not maintained by Holiman for the benefit of its employees or former
employees), (C) which is in the process of terminating (but such term does
not include any arrangement that has been terminated and completely wound
up prior to the date of this Agreement such that Holiman has no present or
potential liability with respect to such arrangement), or (D) for or with
respect to which Holiman is or may become liable under any common law
successor doctrine, express successor liability provisions of law,
provisions of a collective bargaining agreement, labor or employment law or
agreement with a predecessor employer.
(iii) The Disclosure Schedule sets forth all plans by name and
brief descriptions identifying: (A) the type of plan, (B) the funding
arrangements for the plan, (C) the sponsorship of the plan, and (D) the
participating employers in the plan.
(iv) Each plan identified in the Disclosure Schedule is
further identified on such Disclosure Schedule by reference to such one or
more of the following characteristics as may apply to such plan:
(A) defined contribution plan as defined in Section 3(34) of ERISA or
Section 414(i) of the Code, (B) defined benefit plan as defined in Section
3(35) of ERISA or Section 414(j) of the Code, (C) plan which is or is
intended to be tax qualified under Section 401(a) or 403(a) of the Code,
(D) plan which is or is intended to be an employee stock ownership plan as
defined in Section 4975(e)(7) of the Code (and whether or not such plan has
entered into an exempt loan), (E) nonqualified deferred compensation
arrangement, (F) employee
-13-
<PAGE>
welfare benefit plan as defined in Section 3(1) of ERISA, (G) multiemployer
plan as defined in Section 3(37) of ERISA or Section 414(f) of the Code,
(H) plan maintained by more than one employer as defined in Section 413(c)
of the Code (a "multiple employer plan"), (I) plan providing benefits after
separation from service or termination of employment, (J) plan which owns
any Company or other employer securities as an investment, (K) plan which
provides benefits (or provides increased benefits or vesting) as a result
of a change in control of Holiman, (L) plan which is maintained pursuant to
collective bargaining, and (M) a plan funded, in whole or in part, through
a voluntary employees' beneficiary association exempt from tax under
Section 501(c)(9) of the Code.
(v) The Disclosure Schedule sets forth the identity of each
corporation, trade or business (separately for each category below that
applies): (A) which is (or was during the preceding five years) under
common control with Holiman within the meaning of Section 414(b) or (c) of
the Code, (B) which is (or was during the preceding five years) in an
affiliated service group with Holiman within the meaning of Section 414(m)
of the Code, (C) which is (or was during the preceding five years) the
legal employer of persons providing services to Holiman as leased employees
within the meaning of Section 414(n) of the Code, and (D) with respect to
which Holiman is a successor employer for purposes of group health or other
welfare plan continuation rights (including Section 601 et. seq. of ERISA)
or the Family and Medical Leave Act.
(vi) To the extent that they exist, Holiman has furnished
Exmark with true and complete copies of: (A) the most recent determination
letter, if any, received by Holiman from the Internal Revenue Service
regarding each plan, (B) the most recent determination or opinion letter
ruling from the Internal Revenue Service that each trust established in
connection with plans which are intended to be tax exempt under Section
501(a) or (c) of the Code are so tax exempt, (C) all pending applications
for rulings, determinations, opinions, no action letters and the like filed
with any governmental agency (including but not limited to the Department
of Labor, Internal Revenue Service, Pension Benefit Guaranty Corporation
and the SEC), (D) the financial statements for each plan for the three most
recent fiscal or plan years (in audited form if required by ERISA) and,
where applicable, Annual Report/Return (Form 5500) with disclosure
schedules, if any, and attachments for each plan, (E) the most recently
prepared actuarial valuation report for each plan (including but not
limited to reports prepared for funding, deduction and financial accounting
purposes), (F) plan documents, trust agreements, insurance contracts,
service agreements and all related contracts and documents (including any
employee summaries and material employee communications) with respect to
each plan, and (G) collective bargaining agreements (including side
agreements and letter agreements) relating to the establishment,
maintenance, funding and operation of any plan.
-14-
<PAGE>
(vii) The Disclosure Schedule identifies each employee of
Holiman who is: (A) absent from active employment due to short or long
term disability, (B) absent from active employment on a leave pursuant to
the Family and Medical Leave Act or a comparable state law, (C) absent from
active employment on any other leave or approved absence (together with the
reason for such leave or absence), (D) absent from active employment due to
military service (under conditions that give the employee rights to
re-employment), or (E) not an "at will" employee.
(viii) With respect to continuation rights arising under
federal or state law as applied to plans that are group health plans (as
defined in Section 601 et. seq. of ERISA), the Disclosure Schedule
identifies: (A) each employee, former employee or qualifying beneficiary
who has elected continuation, and (B) each employee, former employee or
qualifying beneficiary who has not elected continuation coverage but is
still within the period in which such election may be made.
(ix) Except as set forth in the Disclosure Schedule: (A) all
plans intended to be tax qualified under Section 401(a) or Section 403(a)
of the Code are so qualified; (B) all trusts established in connection with
plans which are intended to be tax exempt under Section 501(a) or (c) of
the Code are so tax exempt; (C) to the extent required either as a matter
of law or to obtain the intended tax treatment and tax benefits, all plans
comply in all respects with the requirements of ERISA and the Code; (D) all
plans have been administered in accordance with the documents and
instruments governing the plans; (E) all reports and filings with
governmental agencies (including but not limited to the Department of
Labor, Internal Revenue Service, Pension Benefit Guaranty Corporation and
the SEC) required in connection with each plan have been timely made; (F)
all disclosures and notices required by law or plan provisions to be given
to participants and beneficiaries in connection with each plan have been
properly and timely made; (G) no plan, separately or in the aggregate,
requires or would result in the payment of any "excess parachute payments"
within the meaning of Section 280G of the Code, and the consummation of the
transactions contemplated by this Agreement will not be a factor in causing
payments to be made by Exmark or Holiman that are not deductible (in whole
or in part) under Section 280G of the Code; and (H) Holiman has made a good
faith effort to comply with the reporting and taxation requirements for
FICA taxes with respect to any deferred compensation arrangements under
Section 3121(v) of the Code.
(x) Except as set forth in the Disclosure Schedule: (A) all
contributions, premium payments and other payments required to be made in
connection with the plans as of the date of this Agreement have been made;
(B) a proper accrual has been made on the books of Holiman for all
contributions, premium payments and other payments due in the current
fiscal year but not made as of the date of this Agreement; (C) no
contribution, premium payment or other
-15-
<PAGE>
payment has been made in support of any plan that is in excess of the
allowable deduction for federal income tax purposes for the year with
respect to which the contribution was made (whether under Section 162,
Section 280G, Section 404, Section 419, Section 419A of the Code or
otherwise); and (D) with respect to each plan that is subject to
Section 301 et. seq. of ERISA or Section 412 of the Code, Holiman is not
liable for any accumulated funding deficiency as that terms is defined in
Section 412 of the Code and the projected benefit obligations determined as
of the date of this Agreement do not exceed the assets of the plan.
(xi) Except as set forth in the Disclosure Schedule: (A) no
action, suit, charge, complaint, proceeding, hearing, investigation or
claim is pending with regard to any plan other than routine uncontested
claims for benefits; (B) the consummation of the transactions contemplated
by this Agreement will not cause any plan to increase benefits payable to
any participant or beneficiary; (C) the consummation of the transactions
contemplated by this Agreement will not: (1) entitle any current or former
employee of Holiman to severance pay, unemployment compensation or any
other payment, benefit or award, or (2) accelerate or modify the time of
payment or vesting, or increase the amount of any benefit, award or
compensation due any such employee; (D) no plan is currently under
examination or audit by the Department of Labor, the Internal Revenue
Service or the Pension Benefit Guaranty Corporation; (E) Holiman has no
actual or potential liability arising under Title IV of ERISA as a result
of any plan that has terminated or is in the process of terminating; (F)
Holiman has no actual or potential liability under section 4201 et. seq. of
ERISA for either a complete withdrawal or a partial withdrawal from a
multiemployer plan; and (G) with respect to the plans, Holiman has no
liability (either directly or as a result of indemnification) for (and the
transaction contemplated by this Agreement will not cause any liability
for): (1) any excise taxes under section 4971 through section 4980B,
section 4999, section 5000 or any other section of the Code, (2) any
penalty under section 502(i), section 502(l), Part 6 of Title I or any
other provision of ERISA, or (3) any excise taxes, penalties, damages or
equitable relief as a result of any prohibited transaction, breach of
fiduciary duty or other violation under ERISA or any other applicable law.
(xii) Except as set forth in the Disclosure Schedule: (A) all
accruals required under FAS 106 have been properly accrued on the financial
statements of Holiman; (B) no condition, agreement or plan provision limits
the right of Holiman to amend, cut back or terminate any plan (except to
the extent such limitation arises under ERISA); and (C) Holiman has no
liability for life insurance, death or medical benefits after separation
from employment other than: (1) death benefits under the plans set forth
in the Disclosure Schedule or (2) Health care continuation benefits
described in section 4980B of the Code.
(r) INSURANCE. The Disclosure Schedule lists and briefly describes
each insurance policy maintained by Holiman with respect to the properties,
assets and
-16-
<PAGE>
operations of Holiman (collectively, the "Insurance Policies") and sets forth
the date of expiration of each such insurance policy. All of such insurance
policies are in full force and effect and are issued by insurers of recognized
responsibility. Holiman is not in default with respect to its obligations under
any of such insurance policies.
(s) AFFILIATE TRANSACTIONS. Other than pursuant to this Agreement,
no officer, director or employee of Holiman or any member of the immediate
family of any such officer, director or employee, or any entity in which any of
such persons owns any beneficial interest (other than any publicly held
corporation whose stock is traded on a national securities exchange or in the
over-the-counter market and less than one percent of the stock of which is
beneficially owned by any of such persons) (collectively, "Insiders"), has any
agreement with Holiman (other than normal employment arrangements) or any
interest in any property, real, personal or mixed, tangible or intangible, used
in or pertaining to the business of Holiman (other than ownership of capital
stock of Holiman). None of the Insiders has any direct or indirect interest
(other than beneficial ownership of less than one percent of the stock of a
publicly held corporation whose stock is traded on a national securities
exchange or in the over-the-counter market) in any competitor, supplier (other
than Exmark) or customer of Holiman or in any person, firm or entity from whom
or to whom Holiman leases any property, or in any other person, firm or entity
(other than Exmark) with whom Holiman transacts business of any nature. For
purposes of this Section 3(s), the members of the immediate family of an
officer, director or employee shall consist of the spouse, parents, children,
siblings, mothers- and fathers-in-law, sons- and daughters-in-law, and brothers-
and sisters-in-law of such officer, director or employee. All agreements and
transactions between Holiman and any Insider identified in the Disclosure
Schedule were made for bona fide business purposes on terms no less favorable
than could be obtained from an unaffiliated third party.
(t) DISTRIBUTORS/DEALERS. The Disclosure Schedule lists (i) all
former distributors/dealers of Holiman that have been terminated since
January 1, 1992 and the circumstances surrounding such termination; (ii) all
litigation and disputes between Holiman and any of its past or present
distributors/dealers, including any claims initiated by any distributors/dealers
against Holiman, whether such litigation dispute resulted in a settlement,
financial payment or not; and (iii) all buying consortium arrangements by which
any distributors/dealers of Holiman purchases goods (including wholegoods,
parts, supplies or other goods) or services from Holiman.
(u) OFFICERS AND DIRECTORS; BANK ACCOUNTS. The Disclosure Schedule
lists all officers and directors of Holiman and all of the bank accounts of
Holiman (designating each authorized signer).
(v) COMPLIANCE WITH LAWS; PERMITS.
(i) Holiman, its predecessors and their respective officers,
directors, agents and employees have complied in all material respects with
all
-17-
<PAGE>
applicable laws, regulations and other requirements, including, but not
limited to, federal, state, local and foreign laws, ordinances, rules,
regulations and other requirements pertaining to product labeling, consumer
products safety, equal employment opportunity, employee retirement,
affirmative action and other hiring practices, occupational safety and
health, workers' compensation, unemployment and building and zoning codes
to which Holiman (including any product sold by Holiman) may be subject,
and Holiman has received no notice of any allegation or claim of any
noncompliance and no claims have been filed against Holiman alleging a
violation of any such laws, regulations or other requirements. Holiman has
no knowledge of any action, pending or threatened, to change the zoning or
building ordinances or any other laws, rules, regulations or ordinances
affecting the Real Property. Holiman is not relying on any exemption from
or deferral of any such applicable law, regulation or other requirement
that would not be available to Holiman or Exmark after the Effective Time.
(ii) Holiman has, in full force and effect, all licenses,
permits and certificates, from federal, state, local and foreign
authorities (including, without limitation, federal and state agencies
regulating occupational health and safety) necessary to conduct its
business and own and operate its properties (other than Environmental
Permits, as such term is defined in Section 3(w)(iii) hereof)
(collectively, the "Permits"). Holiman has conducted its business in
compliance with all material terms and conditions of the Permits.
(iii) Holiman has not made or agreed to make gifts of money,
other property or similar benefits (other than incidental gifts of articles
of nominal value) to any actual or potential customer, supplier,
governmental employee or any other person in a position to assist or hinder
Holiman in connection with any actual or proposed transaction.
(w) ENVIRONMENTAL MATTERS.
(i) As used in this Section 3(w), the following terms shall
have the following meanings:
(A) "Hazardous Materials" means any dangerous, toxic
or hazardous pollutant, contaminant, chemical, waste, material or
substance as defined in or governed by any federal, state or local
law, statute, code, ordinance, regulation, rule or other requirement
relating to such substance or otherwise relating to the environment or
human health or safety, including without limitation any waste,
material, substance, pollutant or contaminant that might cause any
injury to human health or safety or to the environment or might
subject Holiman to any imposition of costs or liability under any
Environmental Law (as defined in Section 3(w)(i)(B) hereof).
-18-
<PAGE>
(B) "Environmental Laws" means all applicable federal,
state, local and foreign laws, rules, regulations, codes, ordinances,
orders, decrees, directives, permits, licenses and judgments relating
to pollution, contamination or protection of the environment
(including, without limitation, all applicable federal, state, local
and foreign laws, rules, regulations, codes, ordinances, orders,
decrees, directives, permits, licenses and judgments relating to
Hazardous Materials in effect as of the date of this Agreement).
(C) "Release" shall mean the spilling, leaking,
disposing, discharging, emitting, depositing, ejecting, leaching,
escaping or any other release or threatened release, however defined,
whether intentional or unintentional, of any Hazardous Material.
(ii) Holiman and the Real Property are in compliance with all
applicable Environmental Laws.
(iii) Holiman has obtained, and maintained in full force and
effect, all environmental permits, licenses, certificates of compliance,
approvals and other authorizations necessary to conduct its business and
operate the Real Property (collectively, the "Environmental Permits"). A
correct and complete copy of each such Environmental Permit shall be
provided by Holiman to Exmark at least 14 days prior to the Effective Time.
Holiman has conducted its business in compliance with all terms and
conditions of the Environmental Permits. Holiman has filed all reports and
notifications required to be filed under and pursuant to all applicable
Environmental Laws.
(iv) (A) No Hazardous Materials have been generated, treated,
contained, handled, located, used, manufactured, processed, buried,
incinerated, deposited, stored, or released on, under or about any part of
the Real Property during the period Holiman was in possession thereof,
(B) the Real Property and any improvements thereon, contain no asbestos,
urea, formaldehyde, radon at levels above natural background,
polychlorinated biphenyls ("PCB"s) or pesticides, and (C) no aboveground or
underground storage tanks are located on, under or about the Real Property.
(v) Holiman has not received any notice alleging in any
manner that it is, or might be potentially responsible for any Release of
Hazardous Materials, or any costs arising under or violation of
Environmental Laws.
(vi) No expenditure, including penalties, fines or cleanup
costs arising under applicable Environmental Laws, will be required in
order for Exmark or Holiman to comply with any Environmental Laws in effect
at the time of the Effective Time in connection with the operation or
continued operation of the
-19-
<PAGE>
business of Holiman or the Real Property in a manner consistent with the
current operation thereof by Holiman.
(vii) Holiman and the Real Property are not and have not been
listed on the United States Environmental Protection Agency National
Priorities List of Hazardous Waste Sites (the "National Priorities List"),
or any other list, schedule, law, inventory or record of hazardous or solid
waste sites maintained by any federal, state or local agency.
(viii) Holiman has disclosed and delivered to Exmark all
environmental reports and investigations which Holiman has obtained or
ordered with respect to the business of Holiman and the Real Property.
(ix) To the knowledge of Holiman, no part of the business of
Holiman, or the Real Property has been used as a landfill, dump or other
disposal, storage, transfer, handling or treatment area for Hazardous
Materials, or as a gasoline service station or a facility for selling,
dispensing, storing, transferring, disposing or handling petroleum and/or
petroleum products.
(x) No lien has been attached or filed against Holiman or
the Real Property in favor of any governmental or private entity for
(A) any liability or imposition of costs under or violation of any
applicable Environmental Law, or (B) any Release of Hazardous Materials.
(xi) Holiman, on behalf of itself and its successors and
assigns, hereby waives, releases and agrees not to bring any claim, demand,
cause of action or proceeding, including without limitation any cost
recovery action, against Exmark under any Environmental Law for any
condition existing prior to the Closing.
(xii) The storage, transportation, handling, use or disposal,
if any, by Holiman of Hazardous Materials on or under the Real Property
and/or disposal elsewhere, if any, of Hazardous Materials generated on or
from the Real Property is currently, and at all times has been, in
compliance in all materials respects with all applicable Environmental
Laws. Holiman has not transported or arranged for the transportation of
any Hazardous Materials or other material or substances to any location
which is: (A) listed on the National Priorities List, or (B) listed for
possible inclusion on the National Priorities List, in the Comprehensive
Environmental Response, Compensation and Liabilities Act of 1980 ("CERCLA")
or on any similar state list.
(xiii) For purposes of the representations and warranties
provided in this Section 3(w), the term "Real Property" shall include all
real property owned, used or occupied by Holiman currently or previously
owned, used or occupied by Holiman and its predecessors.
-20-
<PAGE>
(x) BROKERAGE. No third party shall be entitled to receive any
brokerage commissions, finder's fees, fees for financial advisory services or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by or on behalf of Holiman.
(y) REGISTRATION STATEMENT. None of the information regarding
Holiman supplied or to be supplied by Holiman to Exmark or Toro for inclusion in
the registration statement on Form S-4 (the "Registration Statement") under the
Securities Act relating to the merger consideration to be paid by Toro pursuant
to that certain Agreement and Plan of Merger by and among Toro, EMCI Acquisition
Corp. and Exmark, dated October 23, 1997 (the "Merger Agreement") and any other
related documents regarding Holiman supplied or to be supplied by Holiman to be
filed with the SEC or any regulatory authority in connection with the
transactions contemplated herein or in the Merger Agreement will, at the
respective times the Registration Statement, Prospectus-Proxy Statement (as
defined in the Merger Agreement) and other related documents are filed with the
SEC or any regulatory authority and, in the case of the Registration Statement,
when it becomes effective and, with respect to the Prospectus-Proxy Statement,
when mailed, and, in the case of the Prospectus-Proxy Statement or any amendment
thereof or supplement thereto, at the time of the Stockholders' Meeting (as
defined in the Merger Agreement) and at the Effective Time (for purposes of this
Subsection (y) only, as such term is defined in the Merger Agreement), contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading. All documents which Holiman is responsible for filing with the SEC
and any other regulatory authority in connection with the Merger will comply as
to form in all material respects with the provisions of applicable law,
including the applicable provisions of the Securities Act and the Exchange Act
of 1934, as amended (the "Exchange Act").
(z) DISCLOSURE. Neither this Agreement nor any of the exhibits
hereto nor any of the documents delivered by or on behalf of Smith or Holiman
pursuant to Sections 3 or 6 hereof, the Disclosure Schedule or any of the
financial statements referred to in Section 3 hereof contains any untrue
statement of a material fact regarding Smith or Holiman or any of the other
matters dealt with in this Section 3 relating to Smith or Holiman or the
transactions contemplated by this Agreement. This Agreement, the exhibits
hereto, the documents delivered to Exmark by or on behalf of Smith or Holiman
pursuant to Sections 3 or 6 hereof, the Disclosure Schedule or any of the
financial statements referred to in Section 3 hereof do not omit any material
fact necessary to make the statements contained herein or therein, in light of
the circumstances in which they were made, not misleading, and there is no fact
which has not been disclosed to Exmark of which Holiman or any officer or
director of Holiman is aware which materially affects adversely or could
reasonably be anticipated to materially affect adversely the business, including
the operating results, assets, customer relations, employee relations and
business prospects, of Holiman. Smith has delivered to Toro copies of all
documents delivered to Exmark by or on behalf of Smith or Holiman pursuant to
this Agreement.
-21-
<PAGE>
(aa) TREATMENT OF COMPENSATION. All amounts owing for compensation
and benefits, including a proportionate part (determined in accordance with
GAAP) of all bonuses, are accrued on a monthly basis on the books of Holiman.
4. REPRESENTATIONS AND WARRANTIES OF EXMARK. Exmark hereby represents
and warrants to Smith that:
(a) INCORPORATION AND CORPORATE POWER. Exmark is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Nebraska, with the requisite corporate power and authority to execute
and deliver this Agreement and to perform its obligations hereunder.
(b) EXECUTION, DELIVERY AND PERFORMANCE; VALID AND BINDING
AGREEMENT. The execution, delivery and performance of this Agreement by Exmark,
and the consummation of the transactions contemplated hereby have been duly and
validly authorized by all requisite corporate action, and no other corporate
proceedings are necessary to authorize the execution, delivery or performance of
this Agreement. This Agreement has been duly executed and delivered by Exmark
and constitutes the valid and binding obligation of Exmark, enforceable in
accordance with its terms.
(c) NO BREACH. The execution, delivery and performance of this
Agreement by Exmark, and the consummation by Exmark of the transactions
contemplated hereby do not conflict with or result in any breach of any of the
provisions of, constitute a default under, result in a violation of, result in
the creation of a right of termination or acceleration or any lien, security
interest, charge or encumbrance upon any assets of Exmark, or require any
authorization, consent, approval, exemption or other action by or notice to any
court or other governmental body, under the provisions of the articles of
incorporation or bylaws of Exmark or any indenture, mortgage, lease, loan
agreement or other agreement or instrument by which Exmark is bound or affected,
or any law, statute, rule or regulation or order, judgment or decree to which
Exmark is subject.
(d) GOVERNMENTAL AUTHORITIES; CONSENTS. Exmark is not required to
submit any notice, report or other filing with any governmental authority in
connection with the execution or delivery by it of this Agreement or the
consummation of the transactions contemplated hereby, and no consent, approval
or authorization of any governmental or regulatory authority or any other party
or person is required to be obtained by Exmark in connection with its execution,
delivery and performance of this Agreement or the transactions contemplated
hereby.
(e) BROKERAGE. No third party shall be entitled to receive any
brokerage commissions, finder's fees, fees for financial advisory services or
similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement or agreement made by or on behalf of Exmark.
-22-
<PAGE>
(f) CAPITAL STOCK. On the date hereof, the authorized capital
stock of Exmark consists of 24,000 shares of Common Stock, par value $10.00 per
share, of Exmark of which 15,431 shares are issued and outstanding as of the
date hereof; and 21,000 shares of Preferred Stock, par value $40.00 per share,
of Exmark of which 7,416 shares are issued and outstanding as of the date
hereof. Prior to the Effective Time, Exmark's articles of incorporation shall
have been amended to authorize 10,000 shares of Class B Stock, par value $.01
per share, of Exmark ("Exmark Class B Stock"), and 10,000 shares of Exmark Class
C Stock and, as of the Effective Time, 10,000 shares of Exmark Class B Stock and
3,689 shares of Exmark Class C Stock will be issued and outstanding. All such
outstanding shares of Exmark's capital stock (A) have been duly authorized and
are validly issued, fully paid and nonassessable, (B) are not subject to
preemptive rights created by statute, Exmark's articles of incorporation or
bylaws, or any other agreement to which either Exmark or, to the knowledge of
Exmark, Exmark's stockholders are bound and (C) were not issued in violation of
any applicable securities laws that would subject the Surviving Corporation to
fines, penalties, or rescission or civil damages that are material in amount.
As used in this Agreement, "knowledge" of Exmark and similar words to that
effect shall mean the actual knowledge of Exmark's officers after due inquiry.
5. CERTAIN MATTERS PENDING THE CLOSING. Unless written waiver or consent
to the contrary is obtained from Exmark, from and after the effective date of
this Agreement and until the Closing, Holiman and Smith shall comply (and Smith
shall cause Holiman to so comply) with the following covenants, as applicable:
(a) ACCESS. Exmark and Toro and Exmark's and Toro's authorized
agents and representatives shall have reasonable access to the properties,
books, records, contracts, information and documents of Holiman to conduct such
examination and investigation of Holiman as they deem necessary, and Holiman
shall cooperate in all reasonable respects with such examinations and
investigations; provided, however, such examinations (i) shall be conducted
during Holiman's normal business hours, and (ii) shall not unreasonably
interfere with Holiman's operations and activities.
If the transactions covered by this Agreement are not consummated, Exmark and
Exmark's agents and representatives will hold in confidence, and will not
utilize in any manner, any information obtained from Smith or Holiman, with the
exception of any such information which: (i) was or is in the public domain;
(ii) was in fact known to Exmark or Exmark's agents or representatives prior to
disclosure by Smith or Holiman; (iii) becomes information generally available to
the public through no act or failure to act on the part of Exmark or Exmark's
agents or representatives; or (iv) is required to be disclosed by court order.
(b) CARRY ON BUSINESS IN THE ORDINARY COURSE. Holiman shall carry
on its business in the ordinary course substantially in the same manner as
heretofore conducted and will not enter into any agreement outside of the
ordinary course involving an amount in excess of $10,000 for each separate
agreement or in excess of an aggregate amount of $50,000 for all agreements
collectively. Notwithstanding anything in this Agreement to the
-23-
<PAGE>
contrary, Holiman may pay to Smith a one-time bonus or dividend prior to the
Effective Time, provided that after payment of such bonus or dividend, the book
value of Holiman (equal to total assets minus total liabilities) at the
Effective Time, as determined in accordance with GAAP, is in excess of $200,000
and such assets are cash or other readily marketable Securities.
(c) USE AND MAINTENANCE OF EQUIPMENT AND OTHER ASSETS. Holiman
shall use, operate, maintain and repair all of its equipment and other assets
and properties in accordance with its previous practices.
(d) PRESERVATION OF RELATIONSHIPS. Holiman will use its best
efforts to preserve its business organization intact, to retain the services of
its present employees and to conduct business with suppliers, customers and
others having business relations with Holiman in the same manner in which such
business has been conduct by Holiman in the past.
(e) NO DEFAULT. Holiman shall not do any act or omit to do any
act, or (to the extent such conduct is within Holiman's control) permit any act
or omission to act, which will cause a breach of any contracts or agreements to
which Holiman is a party.
(f) INSURANCE POLICIES. Holiman shall maintain all Insurance
Policies in full force and effect.
(g) COOPERATION. Holiman and Smith will cooperate in all respects
in connection with securing any consents of third parties necessary for the
consummation of the transactions contemplated hereby and the giving of any
notices to any person or the securing of permission, approval, determination,
consent or waiver of any person required in connection with the transactions
contemplated by this Agreement.
(h) COMPENSATION; NEW AGREEMENTS. Holiman shall not:
(i) except as expressly provided for in Section 5(b) above,
grant any increase in the rate of pay to or pay bonuses to any person,
other than the payment of normal base salary increases and bonuses to
employees and Smith pursuant to historic practices and policies of Holiman
(provided that all such bonus payments have been and continue to be accrued
monthly and that Smith provides the name of the recipient of such bonus to
Exmark 15 days prior to payment thereof and provided further that no
bonuses shall be accrued for any officer, director or employee of Holiman
for services performed after October 31, 1997);
(ii) institute any new employee benefit plans, as described
in Section 3(q) above; or
(iii) except as contemplated in this Agreement, enter into any
employment or consulting or noncompetition agreements with any person.
-24-
<PAGE>
(i) INDEBTEDNESS. Holiman shall not guarantee the obligations of
any person; and, other than in amounts and for purposes encountered in the
ordinary course of conducting its business, Holiman shall not create, incur or
assume any indebtedness for any borrowed money.
(j) NO ISSUANCE OF OR REDEMPTIONS OF SHARES AND NO DISTRIBUTIONS.
Holiman:
(i) shall not issue any additional shares of any class or
grant any warrants, options or rights to subscribe for any additional
shares of any class; and
(ii) shall not directly or indirectly redeem, purchase or
otherwise acquire or recapitalize or reclassify any of its capital shares.
(k) COMPLIANCE WITH LAWS. Holiman shall comply with all applicable
laws and orders of any court or federal, state, municipal or other unit of
government.
(l) TAXES. Holiman shall timely and properly file all Returns
which are required to be filed, and shall pay or make provision for the payment
of all Taxes owed by it.
(m) AMENDMENT TO DISCLOSURE SCHEDULE. From time to time after the
date hereof and prior to the Effective Time, Holiman shall promptly supplement
or amend any of its representations and warranties which apply to the period
after the date hereof by delivering an updated Disclosure Schedule to Exmark
pursuant to this Section 5(m) with respect to any matter hereafter arising which
would render any such representation or warranty after the date of this
Agreement materially untrue, inaccurate or incomplete as a result of such
matter. Such supplement or amendment to Holiman's representations and
warranties contained in an updated Disclosure Schedule delivered pursuant to
this Section 5(m) shall be deemed to have modified the representations and
warranties of Holiman, and no such supplement or amendment, or the information
contained in such updated Disclosure Schedule, shall constitute a breach of a
representation or warranty of Holiman; provided that no such supplement or
amendment may cure any breach of a covenant or agreement of Holiman under this
Section 5. Within 15 days after receipt of such supplement or amendment, Exmark
may terminate this Agreement pursuant to Section 9 hereof if the information in
such supplement or amendment together with the information in any and all of the
supplements or amendments previously provided by Holiman indicate that Holiman
has suffered or is reasonably likely to suffer a material adverse change.
6. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF EXMARK. Each and every
obligation of Exmark to be performed under this Agreement shall be subject to
the satisfaction prior to or at the Effective Time of the following conditions
precedent:
-25-
<PAGE>
(a) COMPLIANCE WITH AGREEMENT BY SMITH AND HOLIMAN. Smith and
Holiman shall have substantially performed and complied with all of their
respective obligations under this Agreement which are to be performed or
complied with by them prior to or at the Effective Time.
(b) PROCEEDINGS AND INSTRUMENTS TO BE SATISFACTORY. All
proceedings, corporate or other, required to be taken in order to give effect to
the transactions contemplated by this Agreement, and all material documents
incidental thereto, shall be reasonably satisfactory in form and substance to
Exmark and Exmark's legal counsel; and Smith and Holiman shall have made
available to Exmark and Exmark's agents and representatives for examination the
originals, or true and complete copies of, all documents which Exmark may
reasonably request in connection with the transactions contemplated by this
Agreement.
(c) NO ADVERSE PROCEEDINGS. No investigation, suit, action or
other proceeding shall be threatened or pending before any court or governmental
agency that seeks the restraint, prohibition, damages or other relief in
connection with this Agreement or the consummation of the transactions
contemplated by this Agreement.
(d) REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by Smith in this Agreement shall be true and correct as of the
Effective Time with the same force and effect as though said representations and
warranties had been made at the Effective Time.
(e) APPROVALS AND CONSENTS; FILINGS. Holiman shall have obtained
such approvals, determinations, consents and waivers in, and all filings with
and notifications of governmental authorities, regulatory agencies or other
entities which regulate the business of Holiman, if any, as may be required
under the provisions of any material law, permit, contract, agreement or
instrument, to which Holiman or Smith are parties (or which are deemed material
and necessary by Exmark) in order to consummate the transactions contemplated by
this Agreement or to permit the continued operation of the business of Holiman
in the same manner after the Effective Time as theretofore conducted.
(f) NO ADVERSE CHANGE; CONDUCT OF BUSINESS IN THE ORDINARY COURSE.
At the Effective Time, no condition nor fact which, individually or in the
aggregate, is or may be materially adverse to the financial condition,
properties, business, results of operation or prospects of Holiman shall have
arisen or become known to Exmark which was not disclosed to or known by Exmark
as of the date of the Latest Balance Sheet. In addition, except as specifically
provided for in Section 5(b) of this Agreement, during the period from the date
of execution of this Agreement through the Effective Time, Holiman shall not
have conducted its business or entered into any transaction other than in the
ordinary course, and shall not have incurred or become subject to any
liabilities or obligations other than those entered into in the ordinary course
or approved by Exmark.
-26-
<PAGE>
(g) CORPORATE ACTION TAKEN. This Agreement shall have been duly
and validly authorized by Holiman's board of directors and shall have been duly
and validly approved by Smith, and Smith shall have delivered to Exmark
evidence, in form satisfactory to Exmark's legal counsel, of such authorization
and approval.
(h) EMPLOYMENT AGREEMENT. Smith shall have entered into an
employment agreement with Exmark and Toro in the form attached to the Merger
Agreement as Exhibit 12.03(c) (the "Employment Agreement").
(i) OTHER DOCUMENTS. Smith shall have delivered to Exmark such
certificates and documents of officers of Holiman and of public officials as may
be reasonably requested to establish the existence and good standing of Holiman
and the due authorization by Holiman of this Agreement and performance of the
transactions contemplated by this Agreement.
7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SMITH AND HOLIMAN. Each
and every material obligation of Smith and Holiman to be substantially performed
under this Agreement shall be subject to the reasonable satisfaction prior to or
at the Effective Time of the following conditions precedent:
(a) COMPLIANCE WITH AGREEMENT BY EXMARK. Exmark shall have
substantially performed and complied with all material obligations under this
Agreement which are to be performed or complied with by Exmark prior to or at
the Effective Time.
(b) PROCEEDINGS AND INSTRUMENTS TO BE SATISFACTORY. All
proceedings required to be taken in order to give effect to the transactions
contemplated by this Agreement, and all documents incidental thereto, shall be
reasonably satisfactory in form and substance to Smith and Smith's legal
counsel.
(c) NO ADVERSE PROCEEDINGS. No investigation, suit, action or
other proceeding shall be threatened or pending before any court or governmental
agency that seeks the restraint, prohibition, damages or other relief in
connection with this Agreement or the consummation of the transactions
contemplated by this Agreement.
(d) REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by Exmark in or as contemplated by this Agreement shall be true
and correct as of the Effective Time with the same force and effect as though
said representations and warranties had been made on the Effective Time.
(e) CORPORATE ACTION TAKEN. This Agreement shall have been duly
and validly authorized and approved by Exmark's board of directors and shall
have been duly and validly approved by Exmark's stockholders, and Exmark shall
have delivered to Smith and Holiman evidence, in form satisfactory to Smith's
and Holiman's legal counsel, of such authorization and approval.
-27-
<PAGE>
(f) CONDITIONS PRECEDENT FOR MERGER. All conditions of Toro and
Exmark described in Article VIII of the Merger Agreement shall have been
satisfied or waived.
(g) OTHER DOCUMENTS. Exmark shall have delivered to Smith such
documents as Smith may reasonably request relative to the transactions
contemplated by this Agreement.
(h) OUTSTANDING EXMARK STOCK. At the time of the Closing, the
representations and warrants made by Exmark in Section 3.07 of the Merger
Agreement shall be true and correct in all respects.
8. CLOSING AND CLOSING DATE. The Closing will take place at the offices
of Dorsey & Whitney LLP, 220 South Sixth Street, Minneapolis, Minnesota 55402 on
a date to be specified by the parties, which shall be no later than the third
business day after satisfaction or waiver of the conditions set forth in
Sections 6 and 7 hereof (the "Closing Date"). The parties shall hold the
Closing on the same day as the closing of the merger described in the Merger
Agreement. At the Closing, the parties hereto shall deliver to each other the
following items:
(a) DELIVERIES BY SMITH TO EXMARK. Smith shall deliver to Exmark
the following documents and considerations against the simultaneous delivery by
Exmark of the documents and considerations described in Section 8(b) below to
Smith:
(i) Share certificates issued by Holiman to Smith
representing in the aggregate all of the issued and outstanding shares of
Holiman's capital stock, together with duly executed stock powers attached
thereto transferring the shares represented by such certificates to Exmark.
(ii) Resignations of all officers and directors of Holiman,
effective as of the Closing.
(iii) Corporate records of Holiman.
(iv) Smith's closing certificate in a form acceptable to
Exmark.
(v) Opinion of legal counsel for Holiman acceptable to legal
counsel for Exmark.
(vi) Other documents as may be required to consummate the
transactions contemplated by this Agreement.
(b) DELIVERIES BY EXMARK TO SMITH. Exmark shall deliver to Smith
the following documents and considerations against the simultaneous delivery of
the documents and considerations by Smith to Exmark as set forth in Section 8(a)
above:
-28-
<PAGE>
(i) The Acquisition Consideration.
(ii) Exmark's closing certificate in a form acceptable to
Holiman.
(iii) Opinion of legal counsel for Exmark acceptable to legal
counsel for Holiman.
(iv) Other documents as may be reasonably required to
consummate the transactions contemplated by this Agreement.
9. TERMINATION. In addition to the rights of termination set forth
elsewhere in this Agreement, this Agreement may be terminated and the
transactions contemplated herein abandoned at any time prior to the Closing Date
in the manner hereinafter provided upon the happening of the following events:
(a) MISREPRESENTATION; NONFULFILLMENT OF CONDITIONS. If Smith or
Exmark has made any material misrepresentation of a material fact to the other
party and such misrepresentation is not cured within 10 days after notice
thereof from the other party; or if the material conditions precedent to the
Closing to be performed by a party shall not have been substantially fulfilled
by such party on or before the Closing Date (unless waived by the other party);
(b) DEFAULT. If either party fails to observe or perform in a
timely manner any of the covenants and agreements herein contained and fails to
substantially cure the same within a period of 10 days after notice thereof from
the other party;
(c) ACTION BY COURT. If there shall be a final nonappealable order
of a federal or state court in effect preventing consummation of the
transaction, or there shall be any action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
transaction by any governmental authority or agency, foreign or domestic, which
would make the consummation of the transaction illegal and such action, statute,
rule, regulation or order shall have become final and unappealable;
(d) ACTION BY GOVERNMENT AUTHORITY. If there shall be any action
taken, or any statute, rule, regulation or order enacted, promulgated or issued
or deemed applicable to the transaction by any governmental authority or agency,
which would (i) prohibit Holiman's or Exmark's ownership or operation of all or
a portion of Holiman's business, or (ii) compel Exmark or Holiman to dispose of
or hold separate all or a portion of the business or assets of Holiman or Exmark
as a result of the transaction;
(e) IMPOSSIBILITY. If any of the conditions to either party's
obligations to consummate the transaction as set forth in Section 6 or Section 7
become impossible to satisfy; or
-29-
<PAGE>
(f) MUTUAL WRITTEN CONSENT. If the parties hereto agree by mutual
written consent.
Provided, however, the options to terminate this Agreement as set forth in
Subsections (a), (b), (c), (d) and (e) of this Section 9 shall be deemed to be
an additional right of the party having the power to exercise the option, and it
shall not relieve the other party from the obligation to perform the provisions
of this Agreement or preclude an action for specific performance of the
provisions of this Agreement by the party having the power to exercise the
option.
10. SURVIVAL OF REPRESENTATIONS, WARRANTIES, UNDER-TAKINGS AND AGREEMENTS;
INDEMNITIES. The parties hereto agree that all representations, warranties,
undertakings and agreements of Smith contained in or made pursuant to this
Agreement shall survive the Closing for the greater of the following periods:
(a) 30 months from the Effective Time, or (b) with respect to any specific
representation or warranty under which Exmark shall have made a claim with
respect to any Loss (as defined in Section 10(b) below) for indemnification
hereunder prior to the 30-month anniversary of the Effective Time and as to
which such claim has not been completely and finally resolved prior to the
30-month anniversary of the Effective Time, such representation or warranty
shall survive for the period of time beyond the 30-month anniversary of the
Effective Time sufficient to resolve, completely and finally, the claim relating
to such representation or warranty; provided, however, that the representations
of Smith in Section 3(l) shall survive until the expiration of any applicable
statute of limitations with respect thereto. During such period, Smith agrees
as follows regarding indemnification of Exmark concerning claims, actions or
proceedings arising from this Agreement:
(a) SMITH'S INDEMNITIES. Smith agrees to save harmless, defend and
otherwise indemnify Exmark from and against any and all losses, damages, costs,
expenses, liabilities, obligations and claims of any kind (including without
limitation, reasonable attorney's fees and other legal costs and expenses) that
Exmark may at any time suffer or incur, or become subject to as a result of or
in connection with:
(i) BREACH OR INACCURACY OF REPRESENTATIONS AND WARRANTIES
BY SMITH. Any breach or inaccuracy of any of the representations and
warranties made by Smith in or pursuant to this Agreement.
(ii) FAILURE BY SMITH OR HOLIMAN TO PERFORM AGREEMENTS. Any
failure by Smith or Holiman to substantially carry out, perform, satisfy or
discharge any of their respective covenants, agreements, undertakings,
liabilities or obligations under this Agreement or under any of the
documents and materials delivered to Exmark by Smith or Holiman pursuant to
this Agreement.
-30-
<PAGE>
(iii) RESULTING LITIGATION. Any suit, action or other
proceeding brought by any governmental authority or Person arising out of,
or in any way related to, any of the matters referred to in clauses (i) and
(ii) above.
(iv) TAXES. Any amounts payable in respect of Taxes arising
out of, or in any way related to, the payment of dividends, distributions
or compensation by Holiman to Smith prior to the Effective Time.
The amounts for which Smith shall be liable under this Section 10(a) shall be
net of insurance proceeds, if any, received by Exmark in connection with the
facts giving rise to the right of indemnification.
(b) METHOD OF ASSERTING CLAIMS. As used herein, "Losses" shall
mean any loss, liability, deficiency, damage, expense or cost covered under
Section 10(a).
(i) In the event that Exmark is made a defendant in or party
to any action or proceeding, judicial or administrative, instituted by any
third party for the liability or the costs or expenses of which are Losses
(any such third party action or proceeding being referred to as a "Claim"),
Exmark shall give Smith prompt notice thereof. The failure to give such
notice shall not affect Exmark's ability to seek reimbursement unless such
failure has materially and adversely affected Smith's ability to defend
successfully a Claim. Smith shall be entitled to contest and defend such
Claim; provided, that Smith (A) has a reasonable basis for concluding that
such defense may be successful and (B) diligently contests and defends such
Claim. Notice of the intention so to contest and defend shall be given by
Smith to Exmark within 20 business days after Exmark's notice of such Claim
(but, in all events, at least five business days prior to the date that an
answer to such Claim is due to be filed). Such contest and defense shall
be conducted by reputable attorneys employed by Smith. Exmark shall be
entitled at any time, at its own cost and expense (which expense shall not
constitute Losses unless Exmark reasonably determines that Smith is not
adequately representing or, because of a conflict of interest, may not
adequately represent, the interests of Exmark, and only to the extent that
such expenses are reasonable), to participate in such contest and defense
and to be represented by attorneys of Exmark's own choosing. If Exmark
elects to participate in such defense, Exmark will cooperate with Smith in
the conduct of such defense. Neither Exmark nor Smith may concede, settle
or compromise any Claim without the consent of the other party, which
consents will not be unreasonably withheld. Notwithstanding the foregoing,
(A) if a Claim seeks equitable relief or (B) if the subject matter of a
Claim relates to the ongoing business of Exmark, which Claim, if decided
against Exmark, would materially adversely affect the ongoing business or
reputation of Exmark, then, in each such case, Exmark alone shall be
entitled to contest, defend and settle such Claim in the first instance
and, if Exmark does not contest, defend or settle such Claim, Smith shall
then have the right to contest and defend (but not settle) such Claim.
-31-
<PAGE>
(ii) In the event Exmark should have a claim against Smith
that does not involve a Claim, Exmark shall deliver a notice of such claim
with reasonable promptness to Smith. If Smith notifies Exmark that he does
not dispute the claim described in such notice or fails to notify Exmark
within 30 days after delivery of such notice by Exmark whether Smith
disputes the claim described in such notice, Losses in the amount specified
in Exmark's notice will be conclusively deemed a liability of Smith and
Smith shall pay the amount of such Losses to Exmark on demand. If Smith
has timely disputed its liability with respect to such claim, duly
authorized representatives of each of Smith and Exmark will proceed in good
faith to negotiate a resolution of such dispute, and if not resolved
through the negotiations of such representatives within 60 days after the
delivery of Exmark's notice of such claim, such dispute shall be resolved
fully and finally in Minneapolis, Minnesota by an arbitrator selected
pursuant to, and an arbitration governed by, the Commercial Arbitration
Rules of the American Arbitration Association. The arbitrator shall
resolve the dispute within 30 days after selection and judgment upon the
award rendered by such arbitrator may be entered in any court of competent
jurisdiction.
(iii) After the Effective Time, the rights set forth in this
Section 10 shall be Exmark's sole and exclusive remedies against Smith for
misrepresentations or breaches of covenants contained in this Agreement and
the documents and materials delivered by Smith to Exmark pursuant to this
Agreement. Notwithstanding the foregoing, nothing herein shall prevent
Exmark from bringing an action based upon allegations of fraud or other
intentional breach of an obligation of or with respect to Smith in
connection with this Agreement and such documents and materials. In the
event such action is brought, the prevailing party's attorneys' fees and
costs shall be paid by the nonprevailing party.
(c) LIMITATIONS ON SMITH'S LIABILITY FOR CERTAIN REPRESENTATIONS.
Smith shall be liable under Section 10(a) only if the aggregate amount of all
Losses exceeds $30,000 (the "Basket Amount"), in which case Smith shall be
obligated to indemnify Exmark only for the excess of the aggregate amount of
such Losses over the Basket Amount, and only up to a maximum amount of $318,000
(the "Indemnification Limit"); provided, however, that neither the Basket Amount
nor the Indemnification Limit shall apply to any Loss associated with any
misrepresentation claims in respect of Taxes, and provided further that the
Basket Amount shall not apply to any Loss for claims under Section 10(a)(ii)
above.
11. ADDITIONAL INSTRUMENTS AND FURTHER ASSURANCES. Smith and Holiman
agree from time to time, upon the request of Exmark, to execute and deliver to
Exmark such other instruments of transfer, assignment and conveyance and to take
such other action as Exmark may reasonably request more effectively to vest
ownership of the Shares in Exmark and to put Exmark in possession of all the
assets of Holiman. Exmark agrees from time to time, to execute and deliver to
Smith and Holiman such additional instruments and to take such additional action
as Smith and Holiman may reasonably
-32-
<PAGE>
request to evidence the assumption, covenants and agreements of Exmark under
this Agreement.
12. SPECIFIC PERFORMANCE. Exmark and Smith agree that the assets and the
business of Holiman as a going concern constitute unique property and that the
Shares of Holiman to be transferred under the terms of this Agreement also
constitute unique property since such shares evidence indirect ownership of
control of the assets and business of Holiman. Accordingly, Smith acknowledges
and agrees that there is no adequate remedy at law for the damage which Exmark
might sustain in the event of the failure of Smith to consummate the
transactions contemplated by this Agreement. Therefore, Smith agrees that
Exmark shall be entitled, at Exmark's option, to the remedy of specific
performance to enforce the terms of this Agreement.
13. TORO IS A THIRD PARTY BENEFICIARY. The parties hereto agree that the
transactions contemplated by this Agreement were entered into in contemplation
of the merger by and among Toro, Exmark and EMCI Acquisition, Inc. (the
"Merger") pursuant to the terms of the Merger Agreement and further agree that,
following the effective time of the Merger, the rights and obligations of Exmark
hereunder shall inure to the benefit of Toro, including its subsidiaries, as if
Toro replaced Exmark as a party hereto. Except for Toro, no third party is
entitled to rely on any of the representations, warranties or agreements of
Exmark or Smith contained in this Agreement. Exmark and Smith assume no
liability to any third party, other than Toro, because of any reliance on the
representations, warranties and agreements of Exmark or Smith contained in this
Agreement.
14. PRESS RELEASES AND ANNOUNCEMENTS. Prior to the Effective Time, no
party hereto shall issue any press release (or make any other public
announcement) related to this Agreement or the transactions contemplated hereby
or make any announcement to either party's employees, customers or suppliers
without prior written approval of the other party, except that Toro may issue
any such release (or other announcement) as it determines, in its sole
discretion, as may be necessary to comply with the requirements of this
Agreement or applicable law or by obligations pursuant to any listing agreement
with any national securities exchange. If Toro determines any such press
release or public announcement is so required, Toro shall use reasonable efforts
to consult in good faith with the parties hereto (but shall not be required to
obtain their consent) prior to issuing such press release or making such
announcement.
15. EXPENSES. Except as otherwise expressly provided for herein, the
parties hereto will each pay all of their own expenses (including attorneys',
financial advisors' and accountants' fees) in connection with the negotiation of
this Agreement, the performance of their respective obligations under this
Agreement and the Articles of Share Exchange and the consummation of the
transactions contemplated hereby and thereby (whether consummated or not). Each
party will indemnify and hold harmless the other against the claims of any
brokers or finders in respect of the Share Exchange.
-33-
<PAGE>
16. AMENDMENT AND WAIVER. This Agreement may not be amended or waived
except in a writing executed by the party against which such amendment or waiver
is sought to be enforced; provided, however, that after the approval of this
Agreement by Holiman's shareholders, no amendment may be made which reduces the
Acquisition Consideration or which effects any changes that would materially
adversely affect Holiman's shareholders without the further approval of
Holiman's shareholders. No course of dealing between or among any persons
having any interest in this Agreement will be deemed effective to modify or
amend any part of this Agreement or any rights or obligations of any person
under or by reason of this Agreement.
17. NOTICES. All notices, demands and other communications to be given or
delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when personally delivered or three
days after being mailed, if mailed by first class mail, return receipt
requested, or when receipt is acknowledged, if sent by facsimile, telecopy or
other electronic transmission device. Notices, demands and communications to
Exmark, Holiman, Smith and Smith's Closing Agent will, unless another address is
specified in writing, be sent to the address indicated below:
NOTICES TO EXMARK: WITH A COPY TO:
- ----------------- --------------
Exmark Manufacturing Company Incorporated Croker, Huck, Kasher, DeWitt,
2101 Ashland Avenue
Anderson & Gonderinger, P.C.
Beatrice, Nebraska 68310 Suite 1250
Attn: H. John Smith, Commercial Federal Tower
President and Chief Executive Officer 2120 South 72nd Street
Facsimile: (402) 223-5489 Omaha, Nebraska 68124
Attn: Richard A. DeWitt
Facsimile: (402) 390-9221
-34-
<PAGE>
NOTICES TO SMITH: WITH A COPY TO:
Roger Smith Koley, Jessen, Daubman &
108 Valley View Road
Rupiper, P.C.
New Cumberland, Pennsylvania 17070 One Pacific Place, Suite 800
1125 South 103rd Street
Omaha, Nebraska 68124
Attn:
Michael M. Hupp
Facsimile: (402) 390-9005
18. ARBITRATION. In the event of any dispute between the parties
regarding this Agreement or the documents attached hereto, the parties agree to
resolve such dispute through binding arbitration by a single arbitrator pursuant
to the Commercial Arbitration Rules of the American Arbitration Association.
The arbitration shall be conducted in Minneapolis, Minnesota. Any award
rendered shall be final and conclusive upon the parties and a judgment thereon
may be entered in any court of competent jurisdiction. All costs and expenses,
including reasonable attorneys' fees and experts' fees, of all parties incurred
in any dispute which is determined by arbitration pursuant to this Section 19
shall be borne by the party determined to be liable in respect of such dispute;
provided, however, that if complete liability is not assessed against only one
party, the parties shall share the total costs in proportion to their respective
amounts of liability so determined. Except where clearly prevented by the area
in dispute, both parties agree to continue performing their respective
obligations under this Agreement and the documents attached hereto while the
dispute is being resolved. Nothing herein shall preclude a party hereto from
seeking equitable relief to prevent any immediate, irreparable harm to its
interest, including multiple breaches of this Agreement or the documents
attached hereto. Otherwise, these procedures are exclusive and shall be fully
exhausted prior to the initiation of any litigation. Either party may seek
specific enforcement of any arbitrator's decision under this Section 19. The
other party's only defense to such a request for specific enforcement shall be
fraud by or on the arbitrator.
19. ASSIGNMENT. This Agreement and all of the provisions hereof will be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, except that neither this Agreement nor any of
the rights, interests or obligations hereunder may be assigned by any party
hereto without the prior written consent of the other parties hereto.
20. SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or
-35-
<PAGE>
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
21. COMPLETE AGREEMENT. This Agreement, the Disclosure Schedule and the
other documents attached hereto and referred to herein contain the complete
agreement between the parties and supersede any prior understandings, agreements
or representations by or between the parties, written or oral, which may have
related to the subject matter hereof in any way.
22 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together will constitute one and the same
instrument. Any such counterpart may be delivered by facsimile. Any party
delivering a counterpart by facsimile shall deliver an original copy within 48
hours, provided that the failure to so deliver an original shall not effect the
enforceability of this agreement against such party.
23. GOVERNING LAW. The internal law, without regard for conflicts of laws
principles, of the State of Minnesota will govern all questions concerning the
construction, validity and interpretation of this Agreement and the performance
of the obligations imposed by this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
EXMARK MANUFACTURING ROGER SMITH
COMPANY INCORPORATED
By /s/ H. John Smith /s/ Roger Smith
---------------------------- ------------------------------
Its President
-36-
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
The Toro Company
We consent to the use of our reports included herein and to the
reference to our firm under the heading "Experts" in the
prospectus.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 6, 1997
<PAGE>
EXHIBIT 23.2
We have issued our report dated October 6, 1997, accompanying the financial
statements of Exmark Manufacturing Company Incorporated contained in the
Registration Statement. We consent to the use of the aforementioned report in
the Registration Statement, and the use of our name as it appears under the
caption "Experts".
/s/ Grant Thornton LLP
Lincoln, Nebraska
November 6, 1997
<PAGE>
[McCARTHY & CO. LETTERHEAD]
We hereby consent to the inclusion in the Proxy Statement/Prospectus
forming part of this Registration Statement on Form S-4 of The Toro Company of
our opinion attached as Exhibit C thereto and to the reference to such opinion
and to our firm therein. We also confirm the accuracy in all material respects
of the description and summary of such fairness opinion and the description and
summary of our analyses, observations, beliefs and conclusions relating thereto,
set forth under the heading "Opinion of McCarthy as Exmark's Financial Advisor"
therein. In giving such consent, we do not admit that we come within the
category of the persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, and the rules and regulations of the
Securities and Exchange Commission issued thereunder.
McCARTHY & CO.
By: /s/ McCarthy & Co.
----------------------------
Managing Director
Dated: November 6, 1997
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature
appears below constitutes and appoints each of Kendrick B. Melrose, Stephen
P. Wolfe and J. Lawrence McIntyre, each with full power to act without the
other, his or her true and lawful attorney-in-fact and agent with full power
of substitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign the Registration Statement on Form S-4
relating to the registration under the Securities Act of 1933 of common stock
(including the associated preferred share purchase rights) of The Toro
Company (the "Company") and the Contingent Payment Rights issuable pursuant
to the Agreement and Plan of Merger dated as of October 23, 1997 providing
for the merger of EMCI Acquisition Corp., a Nebraska corporation and wholly
owned subsidiary of the Company, with and into Exmark Manufacturing Company
Incorporated, a Nebraska corporation, and any or all amendments or
post-effective amendments thereto, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, and to file the same with such state commissions and
other agencies as necessary, granting unto each such attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that each such attorney-in-fact and agent, or
his substitute, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, this Power of Attorney has been signed on the
22nd day of October, 1997, by the following persons.
/s/ Kendrick B. Melrose /s/ Ronald O. Baukol
- --------------------------- -----------------------------
Kendrick B. Melrose Ronald O. Baukol
/s/ Robert C. Buhrmaster /s/ Janet K. Cooper
- --------------------------- -----------------------------
Robert C. Buhrmaster Janet K. Cooper
/s/ Alex A. Meyer /s/ Robert H. Nassau
- --------------------------- -----------------------------
Alex A. Meyer Robert H. Nassau
/s/ Dale R. Olseth /s/ Edwin H. Wingate
- --------------------------- -----------------------------
Dale R. Olseth Edwin H. Wingate
<PAGE>
EXHIBIT 99.1
EXMARK MANUFACTURING COMPANY INCORPORATED
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
H. John Smith, Ray Rickard and Roger Smith, or any of them, are hereby
appointed attorneys-in-fact and proxies of the undersigned, each with the
power of substitution, to attend, vote and act for the undersigned at the
special meeting of shareholders of Exmark Manufacturing Company Incorporated
("Exmark") to be held at Exmark's corporate offices, 2101 Ashland Avenue,
Beatrice, Nebraska 68310, on ______, 1997, and at any postponement or
adjournment thereof, and in connection therewith to present and vote all of
the shares of common stock, $10.00 par value, of Exmark ("Exmark Common
Stock") and all of the shares of preferred stock, $40.00 par value ("Exmark
Preferred Stock") that the undersigned would be entitled to vote as follows:
1. To consider and vote upon a proposal to approve an Agreement and Plan
of Merger (as it may be amended, supplemented or modified from time
to time, the "Merger Agreement"), dated as of October 23, 1997, by
and among Exmark, The Toro Company, a Delaware corporation ("Toro"),
and EMCI Acquisition Corp., a Nebraska corporation and wholly owned
subsidiary of Toro ("Merger Subsidiary"), pursuant to which, among
other things, Merger Subsidiary will merge with and into Exmark (the
"Merger"), with Exmark continuing as the surviving corporation (the
"Surviving Corporation"). If the Merger Agreement is approved and the
Merger becomes effective, then, except for shares of Exmark capital
stock with respect to which dissenters' rights have been properly
exercised and shares of Exmark capital stock issued and outstanding
prior to the effective time of the Merger that are owned by Toro,
Exmark or Merger Subsidiary, (1) each issued and outstanding share of
Exmark Common Stock will be converted into and become a right to
receive (a) cash and shares of common stock, $1.00 par value, of Toro
("Toro Common Stock") representing the Initial Per Share Payment
Consideration (as defined in the Merger Agreement) and (b) one
Common/Preferred Contingent Payment Right (as defined in the Merger
Agreement), (2) each issued and outstanding share of Exmark Preferred
Stock shall be converted into and become a right to receive (a) four
times the Initial Per Share Payment Consideration and (b) four
Common/Preferred Contingent Payment Rights, (3) each issued and
outstanding share of Class B preferred stock, $.01 par value, of
Exmark ("Exmark Class B Stock") shall be converted into and become a
right to receive (a) one-tenth of a share of Toro Common Stock and
(b) one Class B Contingent Payment Right (as defined in the Merger
Agreement), and (4) each issued and outstanding share of Class C
preferred stock, $.01 par value, Exmark ("Exmark Class C Stock")
shall be converted into and become a right to receive the Initial Per
Share Payment Consideration. The terms of the Merger Agreement are
described in more detail in the Proxy Statement/Prospectus.
Abstain For Against
2. To consider and vote upon a proposal to adopt amended and restated
articles of incorporation, which authorize the issuance of the Exmark
Class B Stock and the Exmark Class C Stock and clarifies the
four-to-one distribution preference associated with the Exmark
Preferred Stock.
Abstain For Against
3. To consider and vote upon a proposal to approve the payment in
connection with the Merger of signing bonuses to H. John Smith and
Ray Rickard. Such bonuses will be paid by Toro in cash in the
aggregate amount of $2,075,000 in connection with the execution of
employment agreements, which employment agreements also will include
noncompete covenants.
<PAGE>
Abstain For Against
4. To consider and vote upon a proposal to ratify the appointment of
H. John Smith, Ray Rickard and Roger Smith as the initial stockholders'
representatives as described in the Merger Agreement.
Abstain For Against
5. To transact such other business as may properly come before the
Special Meeting or any adjournment or postponement thereof.
IF THIS PROXY IS DULY EXECUTED AND RETURNED, THIS PROXY WILL BE VOTED, AND
WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS SPECIFIED ABOVE. IF NO
INSTRUCTION IS SPECIFIED, THE PROXY WILL BE VOTED FOR ITEMS 1 TO 4.
The undersigned hereby revokes any other proxy or proxies heretofore given
to vote or act with respect to such Exmark Common Stock or Exmark Preferred
Stock and hereby ratifies and confirms all action that said attorneys-in-fact
and proxies, their substitutes, or any of them, may have lawfully taken by
virtue thereof.
Dated: ______________, 1997 ___________________________________
___________________________________
Signature(s) of Stockholder
This proxy should be signed exactly as your name appears on the stock
certificates or stock register. Joint owners should both sign. If signed by
an attorney, executor, guardian or in some other capacity or as officer of a
corporation, please add title as such.
PLEASE COMPLETE, DATE AND SIGN THIS PROXY
AND RETURN IT IN THE ENCLOSED ENVELOPE.
<PAGE>
EXHIBIT 99.2
CASH ELECTION FORM
As a holder of securities of Exmark Manufacturing Company Incorporated
("Exmark"), you will be entitled to receive a portion of the consideration to
be paid in connection with the merger of a subsidiary of The Toro Company
("Toro") with and into Exmark. The merger consideration will be paid both in
cash and in shares of Toro Common Stock, and the standard percentage
breakdown for the cash and stock will be 12% and 88%, respectively.
Alternatively, you may elect to receive a different percentage of cash (a
"Cash Election"). In the absence of a Cash Election on your part, you will be
deemed to have elected to receive your portion of the merger consideration in
the form of 12% cash and 88% shares of Toro Common Stock. Please note,
however, that the percentage you elect may be subject to adjustment in
accordance with the procedures set forth in Section 2.02(c) of the Agreement
and Plan of Merger by and among Toro, Exmark and a subsidiary of Toro, dated
October 23, 1997 (a copy of which is included as Exhibit A to the
accompanying Proxy Statement/Prospectus), as the aggregate percentage
breakdown of the merger consideration must equal 12% cash and 88% shares of
Toro Common Stock.
Please return this form by mail or facsimile transmission to the Escrow
Agent. To be eligible to receive the merger consideration in a percentage
other than the standard percentage, you must properly complete this form,
sign it and return it to the Escrow Agent prior to November __, 1997, the
date of the Special Meeting of Exmark's stockholders to consider and vote
upon the Merger.
Percentage Election (check one of the following):
Standard Percentage (I.E., 12% cash/88% stock)*
Modified Percentage (E.G., 8% cash/92% stock)*
Percentage Cash Election: ____
_______
* Please note that the final percentage breakdown
of cash and stock you receive may vary from the
percentages you elect due to certain adjustments
that may be made in order to make the weighted
average of all Cash Elections or deemed Cash
Elections equal to 12%.
Today's Date: ________________________
Name: _____________________________
Signature: ___________________________
Return The Completed Form To: Norwest Bank Minnesota, N.A.
----------------------------
Northstar East Building, 12th Floor
608 Second Avenue South
Minneapolis, Minnesota 55402
Attn: Michelle Healy
Facsimile: (612) 667-9825
