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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
| Filed by the Registrant /x/ | ||
| Filed by a Party other than the Registrant / / | ||
| Check the appropriate box: |
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| / / | Preliminary Proxy Statement | |
| / / | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
| /x/ | Definitive Proxy Statement | |
| /x/ | Definitive Additional Materials | |
| / / | Soliciting Material Pursuant to §240.14a-11(c) or §240.14a-12 |
|
| THE TORO COMPANY |
| (Name of Registrant as Specified In Its Charter) |
| J. LAWRENCE MCINTYRE |
| (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. |
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| (1) | Title of each class of securities to which transaction applies: |
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| (2) | Aggregate number of securities to which transaction applies: |
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| (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): |
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| (4) | Proposed maximum aggregate value of transaction: |
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| (5) | Total fee paid: |
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| / / |
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Fee paid previously with preliminary materials. |
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| / / |
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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. |
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(1) |
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Amount Previously Paid: |
| (2) | Form, Schedule or Registration Statement No.: |
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| (3) | Filing Party: |
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| (4) | Date Filed: |
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[LOGO]
The Toro Company
8111 Lyndale Avenue South, Bloomington, Minnesota 55420-1196
Telephone 612/888-8801
Kendrick B. Melrose
Chairman and CEO
February 9, 2000
Dear Fellow Stockholders:
I would like to thank you for your continued support through Toro's Fiscal 1999 and to invite you to join us for the Toro Annual Meeting of Stockholders to be held on Wednesday, March 29, 2000 at our corporate offices. Details about the meeting, nominees for the Board of Directors and other matters to be acted on are presented in the Notice of Annual Meeting and Proxy Statement that follow.
In addition to Annual Meeting formalities, we will report to stockholders generally on Toro's business, and will be pleased to answer stockholders' questions relating to the Company. Refreshments will be served after the meeting.
We hope you plan to attend the Annual Meeting. Please exercise your right to vote by signing, dating and returning the enclosed proxy card or using our new Internet or telephone voting described in the Proxy Statement, even if you plan to attend the meeting.
On behalf of your Toro Board of Directors and management, it is my pleasure to express our appreciation for your continued support.
Sincerely,
[SIG]
Kendrick B. Melrose
YOUR VOTE IS IMPORTANT. PLEASE SIGN AND RETURN THE ENCLOSED
PROXY CARD OR VOTE BY THE INTERNET OR TELEPHONE AS SOON AS POSSIBLE. BY DOING SO, YOU MAY SAVE THE COMPANY THE EXPENSE OF ADDITIONAL SOLICITATION.
[LOGO]
NOTICE OF ANNUAL MEETING
The Toro Company 2000 Annual Meeting of Stockholders will be held on Wednesday, March 29, 2000 at 3:00 p.m. C.S.T. at Toro's corporate offices at 8111 Lyndale Avenue South, Bloomington, Minnesota, for the following purposes:
Stockholders of record at the close of business on January 31, 2000 (the "Record Date") will be entitled to vote at the meeting or any adjournments.
A stockholder list will be available at the Company's corporate offices beginning March 16, 2000 during normal 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.
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 PROMPTLY SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD OR VOTE BY INTERNET OR TELEPHONE.
| February 9, 2000 | |
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BY ORDER OF THE BOARD OF DIRECTORS |
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[SIG] |
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J. LAWRENCE MCINTYRE Vice President, Secretary and General Counsel |
THE TORO COMPANY
8111 Lyndale Avenue South
Bloomington, MN 55420-1196
The Toro Company Board of Directors is soliciting your proxy for use at the 2000 Annual Meeting of Stockholders on Wednesday, March 29, 2000. This Notice, Proxy Statement and enclosed form of proxy will be mailed to stockholders beginning February 9, 2000.
Who Can Vote
Only stockholders of record at the close of business on January 31, 2000 will be entitled to notice of and to vote at the Annual Meeting or any adjournments of the meeting. On that date the Company had 12,775,899 shares of Common Stock outstanding. Each share of Toro Common Stock you own entitles you to one vote.
Dividend Reinvestment Plan Shares. If you are a participant in the Company's Dividend Reinvestment Plan, the number shown on the enclosed proxy card includes shares held for your account in that plan.
Employee Benefit Plan Shares. If you are a participant in a Company employee benefit plan that allows participant-directed voting of Common Stock held in the plan, the number shown on the enclosed proxy card includes shares you hold in each plan, as well as shares you own of record, if any. The trustee for each plan will cause votes to be cast confidentially in accordance with your instructions. Plan shares not voted by participants will be voted by the trustee in the same proportion as the votes actually cast by participants, in accordance with the terms of the respective plan.
How You Can Vote
You may vote your shares in person by attending the Annual Meeting or by one of the three following methods:
If your shares are held in "street name" (through a broker or other nominee), you may need to contact your broker or other nominee to determine whether you will be able to vote electronically using the Internet or telephone.
If you return your signed proxy card or use Internet or telephone voting before the Annual Meeting, the named proxies will vote your shares as you direct. You have three choices on each matter to be voted upon. For the election of directors, you may vote for (1) all of the nominees, (2) none of the nominees or (3) all of the nominees except those you designate. See Proposal One—Election of Directors. For each of the other proposals, you may vote "FOR", "AGAINST" or "ABSTAIN" from voting.
If you send in your proxy card or use Internet or telephone voting, but do not specify how you want to vote your shares, we will vote them FOR the election of all nominees for director as described under Proposal One—Election of Directors, FOR Proposal Two—Amendment of The Toro Company Annual Management Incentive Plan II, FOR Proposal Three—Amendment of The Toro Company Performance Share Plan, FOR Proposal Four—Amendment of The Toro Company Directors Stock Plan, FOR Proposal Five—Approval and Adoption of The Toro Company 2000 Stock Option Plan and FOR Proposal Six—Selection of Independent Auditors.
How You May Revoke or Change Your Vote
You may revoke your proxy at any time before it is voted at the Annual Meeting by one of the following methods:
Quorum and Vote Requirements
A majority of the outstanding shares of Common Stock must be present in person or by proxy in order to have a quorum to conduct business at the Annual Meeting. Shares represented by proxies marked "Abstain" and "broker non-votes" are counted in determining whether a quorum is present. A "broker non-vote" is a proxy submitted by a broker that does not indicate a vote for some or all of the proposals because the broker does not have discretionary voting authority and has not received instructions from its client as to how to vote on a particular proposal.
The affirmative vote of a plurality of shares present at the meeting is required for the election of directors. Other matters will be decided by the affirmative vote of a majority of the shares of Common Stock present, in person or represented by proxy. "Broker non-votes" are not counted, but abstentions are counted, in determining the total number of votes cast on a proposal. An abstention has the effect of a negative vote on matters requiring approval by a majority of votes present.
Procedures at the Annual Meeting
The presiding officer at the meeting will determine how business at the Annual Meeting will be conducted. Only matters brought before the Annual Meeting in accordance with the Company's Bylaws will be considered.
Only a natural person present at the Annual Meeting who either is a Toro stockholder or is acting on behalf of a stockholder may make a motion or second a motion. 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.
The following table shows how much Toro Common Stock each of the directors and nominees, the Chief Executive Officer and the four other most highly compensated executive officers named in the Summary Compensation Table ("named executive officers") beneficially owned as of January 31, 2000. The table also shows beneficial ownership by holders of more than 5% of the Common Stock and by all directors and executive officers as a group, including the named executive officers.
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Name of Beneficial Owner(1) |
Amount and Nature of Beneficial Ownership |
Percent Of Class |
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|---|---|---|---|---|---|---|
| Common Stock | Franklin Resources, Inc. 777 Mariners Island Blvd. San Mateo, CA 95504 |
828,100 | (2) | 6.5 | ||
| Common Stock | Ronald O. Baukol | 5,327 | (3) | * | ||
| Robert C. Buhrmaster | 5,150 | (3) | * | |||
| Winslow H. Buxton | 3,485 | (3) | * | |||
| Janet K. Cooper | 6,156 | (3) | * | |||
| J. David McIntosh | 97,438 | (3)(4) | * | |||
| J. Lawrence McIntyre | 43,657 | (3)(5) | * | |||
| Kendrick B. Melrose | 680,537 | (3)(5) | 4.9 | |||
| Alex A. Meyer | 4,300 | (3) | * | |||
| Karen M. Meyer | 66,104 | (3)(5) | * | |||
| Robert H. Nassau | 5,521 | (3) | * | |||
| Dale R. Olseth | 11,669 | (3) | * | |||
| Gregg W. Steinhafel | 136 | (3) | * | |||
| Christopher A. Twomey | 2,369 | (3) | * | |||
| Edwin H. Wingate | 6,649 | (3) | * | |||
| Stephen P. Wolfe | 65,675 | (3)(5) | * | |||
| Common Stock | All directors and executive officers as a group (20 persons) | 1,108,986 | (3)(4)(5)(6) | 8.1 |
SECTION 16(b) 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 Securities Exchange Act of 1934. Based solely on 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 1999, except that a Form 4 report with respect to one transaction was inadvertently filed late on behalf of J. Lawrence McIntyre, an executive officer of the Company.
PROPOSAL ONE
ELECTION OF DIRECTORS
Under the Company's Certificate of Incorporation, the Toro Board of Directors may be comprised of between eight and eleven directors. Alex A. Meyer who has served as a director since 1986, has given notice that he will be retiring following this Annual Meeting. The Board has fixed the number of directors at ten. The Board expects, however, to increase its number to eleven during Fiscal 2000 after the Nominating Committee completes its candidate selection process. The maximum and minimum number of directors can be changed only by amendment of the Certificate of Incorporation approved by the affirmative vote of 80% of the outstanding Common Stock of the Company. The Board is divided into three classes, with each class elected in a different year for a term of three years. The four nominees for election at the 2000 Annual Meeting—Janet K. Cooper, Kendrick B. Melrose, Gregg W. Steinhafel and Edwin H. Wingate have consented to serve if elected. If any nominee is unable to stand for election, the Board may, by resolution, designate a substitute.
The Board held six meetings during Fiscal 1999. Each incumbent director with the exception of Mr. Baukol attended at least 75% of the aggregate total number of meetings held by the Board and all committees on which he or she served.
The following information with respect to business experience of nominees for election to the Board and the continuing directors has been furnished by the respective directors or nominees or obtained from the records of the Company.
Nominees for Election to Board of Directors (Term ending after Fiscal 2002)
Janet K. Cooper, age 46. Vice President Finance and Controller since June 1999, U S West, Denver, Colorado (telecommunications). Served as Vice President—Treasurer and Controller from February 1999 to June 1999 and Vice President—Treasurer from May 1998 to February 1999. She previously was employed by The Quaker Oats Company and served as Vice President, Treasurer and Tax from July 1997 to May 1998 and Vice President and Treasurer from July 1992 to July 1997. First elected to the Toro Board in 1994, she is Chair of the Audit Committee and a member of the Compensation Committee. Ms. Cooper is a director of Lennox International Inc., Dallas, Texas.
Kendrick B. Melrose, age 59. Chairman of Toro since December 1987 and Chief Executive Officer of Toro since December 1983. Employed by Toro since 1970. First elected to the Toro Board in 1981. Mr. Melrose is also Chair of the Executive Committee and an ex-officio member of the Nominating Committee. Mr. Melrose is a director of SurModics, Inc., Donaldson Company, Inc., Jostens, Inc. and The Valspar Corporation.
Gregg W. Steinhafel, age 45. President since August 1999, Target Stores, a division of Target Corporation, Minneapolis, Minnesota (retailing). Served as Executive Vice President Merchandising from July 1994 to August 1999. First elected to the Toro Board in 1999, he is a member of the Audit Committee and the Executive Committee.
Edwin H. Wingate, age 67. Retired. From June 1980 through August 1997 served as Senior Vice President—Personnel, Dayton Hudson Corporation, Minneapolis, Minnesota (retailing). First elected to the Toro Board in 1989, he is Chair of the Nominating Committee and a member of the Audit Committee.
Members of Board of Directors Continuing in Office (Term ending after Fiscal 2000)
Robert C. Buhrmaster, age 52. Chairman since February 1998 and President and Chief Executive Officer since May 1994, Jostens, Inc., Minneapolis, Minnesota (consumer manufacturing). Served as President and Chief Operating Officer from June 1993 to March 1994, as Executive Vice President from December 1992 to June 1993. First elected to the Toro Board in 1996, he is a member of the Audit Committee, Executive Committee and Nominating Committee. Mr. Buhrmaster is a director of Jostens, Inc.
Winslow H. Buxton, age 60. Chairman of the Board of Directors since January 1993 and Chief Executive Officer since August 1992, Pentair, Inc., Saint Paul, Minnesota (diversified manufacturer). From August 1992 to December 1999 he also served as President. From August 1990 to August 1992 he served as Chief Operating Officer. First elected to the Toro Board in 1998, he is a member of the Audit Committee, Executive Committee and Nominating Committee. Mr. Buxton is a director of Bemis Company, Inc., Willamette Industries, Inc., Portland, Oregon and Pentair, Inc.
Robert H. Nassau, age 58. Former President and Chief Executive Officer, St. Raymond Wood Products Holding Limited, Boston, Massachusetts (wood manufacturing). From January 1997 to August 1999, he served as President and Chief Executive Officer, St. Raymond Wood Products Holding Limited. From September 1994 to December 1996 he served as Senior Vice President Ply Gem Industries, Inc., New York, New York and President and CEO of the Goldenberg Group, its wholly-owned subsidiary. Also President and Chief Executive Officer, Allied Plywood Corporation, Concord, Massachusetts, a wholly-owned subsidiary of Ply-Gem Industries, Inc. from July 1991 to December 1996. First elected to the Toro Board in 1988, he is a member of the Compensation Committee and Nominating Committee.
Christopher A. Twomey, age 51. President and Chief Executive Officer since February 1986, Arctic Cat Inc., Thief River Falls, Minnesota (recreational vehicle manufacturer). Served as an executive officer in various capacities since 1983. First elected to the Toro Board in 1998 and is a member of the Compensation Committee and Nominating Committee. Mr. Twomey is a director of Arctic Cat Inc.
Members of Board of Directors Continuing in Office (Term ending after Fiscal 2001)
Ronald O. Baukol, age 62. Executive Vice President, International Operations since May 1995, Minnesota Mining and Manufacturing Company (3M), Saint Paul, Minnesota (manufacturing). Served as Vice President, Asia Pacific, Canada and Latin America from February 1994 to April 1995, and as Vice President, Asia Pacific from July 1991 to February 1994. First elected to the Toro Board in 1995, he is a member of the Executive Committee, Compensation Committee and Nominating Committee. Mr. Baukol is a director of Graco, Inc. and 3M.
Dale R. Olseth, age 69. Chairman of the Board and Chief Executive Officer since November 1996, SurModics, Inc., Eden Prairie, Minnesota (surface modification). He also served as President of SurModics, Inc. from November 1996 to July 1998. First elected to the Toro Board in 1980, he is Chair of the Compensation Committee and a member of the Executive Committee. Mr. Olseth is a director of Graco, Inc. and SurModics, Inc.
Committees of the Board
To assist in carrying out its duties, the Board has delegated certain authority to the following four standing committees:
Executive Committee. Its function is to exercise all of the powers and authority of the Board, including the power to declare dividends on Toro Common Stock, during intervals between meetings of the Board. No meetings of the committee were held during Fiscal 1999.
Audit Committee. Members are not employees of the Company ("outside directors") and must have no relationship to the Company that would interfere with the director's independence from management and the Company. It assists the Board in fulfilling its responsibility to stockholders relating to the quality and integrity of the Company's financial reports and accounting and reporting practices. Its duties include reviewing the qualifications, independence and performance of the Company's independent public accountants; review of the scope, magnitude and budgets of all examinations of the Company's financial statements by the auditors; review of general policies and procedures with respect to accounting and financial matters and internal controls; reviewing and approving of the cost and types of audit and non-audit services performed by independent public accountants; meeting with independent public accountants not less than once a year without Company representatives to discuss internal controls and accuracy and completeness of the financial statements; reviewing the Company's Code of Business Conduct and monitoring compliance; receiving analyses and comments regarding accounting pronouncements; reviewing results of audits with the independent public accountants and management with a focus on difficulties encountered, material errors or irregularities, weaknesses in internal accounting controls and similar issues, and notifying the Board of major problems or deficiencies discovered with respect to its duties. Three meetings of the committee were held during Fiscal 1999.
Compensation Committee. All members are outside directors. Its functions 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 plan 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. Two meetings of the committee were held during Fiscal 1999.
Nominating Committee. All members are outside directors (except that the Chief Executive Officer serves as an ex-officio non-voting member). Its functions include determining an appropriate size and composition of the Board; 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; 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, described on page 27; 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 individual'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 1999.
Board Compensation
Fees. Toro's compensation for directors who are not employees attempts to link a director's compensation with stockholder interests. The compensation includes cash and stock components. Cash compensation includes an annual retainer and meeting fees ($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 is paid for committee meetings held in a single day). In addition, outside directors receive an annual grant of Common Stock having a $5,000 market value (valued at the average of the closing prices of Common Stock during the three months prior to the 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 Directors Stock Plan ("Directors Plan"). A director may receive the annual retainer fee and meeting fees in cash or shares of Common Stock, or a combination of both, as provided for under the Directors Plan. The Company also supplies directors with Company products for their use.
On December 2, 1999, the Board took action to increase the annual retainer from $15,000 to $20,000, effective January 1, 2000, and to amend the Directors Plan to increase the value of the annual Common Stock grant from $5,000 to $10,000, effective November 1, 2000. See Proposal Four—Amendment of The Toro Company Directors Stock Plan on page 23.
Retirement 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. Since December 1995, that annual payment has been limited to $12,000 annually and payments to new directors are limited to an amount equal to 50% of the amount paid as an annual retainer at the date of termination. In the event of the death of a director who qualifies for the plan, the retirement benefit will be paid to the director's beneficiary.
Other Arrangements. An outside director may elect to defer receipt of Board compensation under a standard deferred compensation plan, under which interest is accrued quarterly on deferred amounts at the average prime rate charged by U. S. Bank National Association, Minneapolis, Minnesota (ranging from 7.75% to 8.37% in Fiscal 1999). Each director is a party to an indemnification agreement that assures the director of indemnification and advancement of expenses to the fullest extent permitted by Delaware law and the Company's Certificate of Incorporation, and of continued coverage under the Company's directors and officers liability insurance, to the extent it is maintained.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The table below shows compensation of the Company's Chief Executive Officer and the named executive officers for the last three fiscal years. The named executive officers include the four most highly compensated executive officers, other than the CEO, who were serving as executive officers on October 31, 1999.
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Long Term Compensation |
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Annual Compensation |
Awards |
Payouts |
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| Name and Principal Position |
Year |
Salary ($) |
Bonus ($)(1) |
Other Annual Compensation ($)(2) |
Restricted Stock($) |
Options (#)(3) |
LTIP Payouts ($)(4) |
All Other Compensation ($)(5) |
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| Kendrick B. Melrose | 1999 | $ | 597,503 | $ | 1,190,530 | $ | 497,025 | $ | 167,845 | (6) | 48,500 | $ | 88,589 | (7) | $ | 306,932 | ||||||
| Chairman of the Board & | 1998 | 574,371 | 0 | 497,624 | 0 | 50,215 | 45,835 | 146,764 | ||||||||||||||
| Chief Executive Officer | 1997 | 541,859 | 186,264 | 1,188,463 | 0 | 40,054 | 302,682 | 141,546 | ||||||||||||||
| J. David McIntosh | 1999 | 302,500 | 427,981 | 0 | 0 | 16,000 | (7) | 129,887 | ||||||||||||||
| Executive Vice President | 1998 | 272,898 | 0 | 154,807 | 0 | 17,585 | 10,889 | 59,978 | ||||||||||||||
| Professional Business | 1997 | 261,837 | 69,125 | 242,136 | 0 | 11,970 | 73,131 | 50,237 | ||||||||||||||
| and International | ||||||||||||||||||||||
| Stephen P. Wolfe | 1999 | 237,333 | 340,933 | 54,077 | 50,009 | (6) | 13,200 | (7) | 99,848 | |||||||||||||
| Vice President Finance & | 1998 | 186,669 | 0 | 0 | 0 | 13,159 | 5,214 | 49,228 | ||||||||||||||
| Chief Financial Officer | 1997 | 151,816 | 38,968 | 121,130 | 0 | 3,833 | 0 | 45,316 | ||||||||||||||
| Karen M. Meyer | 1999 | 227,670 | 327,852 | 0 | 47,946 | (6) | 12,700 | (7) | 97,057 | |||||||||||||
| Vice President | 1998 | 171,804 | 0 | 14,970 | 0 | 9,905 | 4,799 | 46,808 | ||||||||||||||
| Administration | 1997 | 160,519 | 44,143 | 24,265 | 0 | 7,009 | 31,381 | 23,383 | ||||||||||||||
| J. Lawrence McIntyre | 1999 | 211,227 | 291,744 | 107,165 | 44,497 | (6) | 10,700 | (7) | 78,927 | |||||||||||||
| Vice President, Secretary | 1998 | 200,100 | 0 | 16,438 | 0 | 11,537 | 5,589 | 35,851 | ||||||||||||||
| and General Counsel | 1997 | 189,670 | 52,159 | 191,086 | 0 | 8,324 | 37,082 | 35,133 | ||||||||||||||
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 and amended in Fiscal 1998. 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 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: (1) 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; (2) another party becomes the beneficial owner of at least 15% of Toro's outstanding voting stock; or (3) 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 2000 calendar year (January 1, 2000) 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 $12,465,279. The Company has also established a trust for the benefit of these officers which, in the event of a threatened or actual change of control, must be funded in an amount equal to the Company's accrued liability related to such agreements. The Company has prefunded this trust with shares of Common Stock that it would be obligated to transfer to the trust in connection with a change of control under the Officers Deferred Plan, and may further prefund the trust as permitted by plans and the related trust agreement. Prefunding of obligations denominated in Common Stock fixes the Company's compensation expense affording greater certainty.
The following table shows options granted under The Toro Company 1993 Stock Option Plan (the "1993 Plan") during Fiscal 1999.
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Individual Grants |
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Number of Shares Underlying Options Granted (#)(1) |
Percent of Total Options Granted to Employees In Fiscal Year |
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Exercise or Base Price ($ Per Share) |
Market Price on Date of Grant ($ Per Share) |
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| Name |
Expiration Date |
Grant Date Present Value ($)(2) |
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| Kendrick B. Melrose | 48,500 | 12.76 | % | $ | 24.9375 | $ | 24.9375 | 11/18/2008 | $ | 414,190 | |||||
| J. David McIntosh | 16,000 | 4.21 | % | 24.9375 | 24.9375 | 11/18/2008 | 136,640 | ||||||||
| Stephen P. Wolfe | 13,200 | 3.47 | % | 24.9375 | 24.9375 | 11/18/2008 | 112,728 | ||||||||
| Karen M. Meyer | 12,700 | 3.34 | % | 24.9375 | 24.9375 | 11/18/2008 | 108,458 | ||||||||
| J. Lawrence McIntyre | 10,700 | 2.82 | % | 24.9375 | 24.9375 | 11/18/2008 | 91,378 | ||||||||
AGGREGATED OPTION EXERCISES IN FISCAL 1999
AND FISCAL YEAR-END OPTION VALUES
The following table summarizes stock options exercised by the named executive officers during Fiscal 1999 and the total number of options held by each listed individual as of the end of Fiscal 1999.
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Number of Securities Underlying Unexercised Options at Fiscal Period End(#) |
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Value of Unexercised In-the-Money Options at Fiscal Period End($)(1) |
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| Name |
Shares Acquired on Exercise(#) |
Value Realized($) |
|||||||||||||
| Exercisable |
Unexercisable |
Exercisable |
Unexercisable |
||||||||||||
| Kendrick B. Melrose | 29,965 | $ | 413,572 | 433,432 | 0 | $ | 7,103,726 | $ | 0 | ||||||
| J. David McIntosh | 0 | 0 | 44,860 | 0 | 246,091 | 0 | |||||||||
| Stephen P. Wolfe | 3,880 | 54,077 | 30,450 | 0 | 187,349 | 0 | |||||||||
| Karen M. Meyer | 0 | 0 | 32,928 | 0 | 196,065 | 0 | |||||||||
| J. Lawrence McIntyre | 12,364 | 107,165 | 22,352 | 0 | 85,199 | 0 | |||||||||
LONG TERM INCENTIVE COMPENSATION
The following table shows awards of long term incentive compensation made under the Company's Performance Share Plan to the named executive officers during Fiscal 1999. The new Performance Share Plan was adopted in Fiscal 1999, necessitating one and two year transitional awards in order to phase into the three year award term. In future years, only one award for a full three year term is likely to be awarded to a participant who has previously participated in the plan.
| |
|
|
Estimated Future Payouts under Non-Stock Price-Based Plan(s)(2) |
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|---|---|---|---|---|---|---|---|---|---|---|
| Name |
Number of Shares, Units or Other Rights (#) |
Performance or Other Period Until Maturation or Payout |
Threshold (#) |
Target (#) |
Maximum (#) |
|||||
| Kendrick B. Melrose | 3 Awards(1) | Fiscal 1999 Fiscal 1999 to 2000 Fiscal 1999 to 2001 |
1 1 1 |
10,500 15,750 21,000 |
21,000 28,000 42,000 |
|||||
| J. David McIntosh | 3 Awards(1) | Fiscal 1999 Fiscal 1999 to 2000 Fiscal 1999 to 2001 |
1 1 1 |
3,500 5,250 7,000 |
7,000 10,500 14,000 |
|||||
| Stephen P. Wolfe | 3 Awards(1) | Fiscal 1999 Fiscal 1999 to 2000 Fiscal 1999 to 2001 |
1 1 1 |
2,850 4,275 5,700 |
5,700 8,550 11,400 |
|||||
| Karen M. Meyer | 3 Awards(1) | Fiscal 1999 Fiscal 1999 to 2000 Fiscal 1999 to 2001 |
1 1 1 |
2,750 4,125 5,500 |
5,500 8,250 11,000 |
|||||
| J. Lawrence McIntyre | 3 Awards(1) | Fiscal 1999 Fiscal 1999 to 2000 Fiscal 1999 to 2001 |
1 1 1 |
2,300 3,450 4,600 |
4,600 6,900 9,200 |
|||||
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 1994.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
| Comparison of Five Year Total Return Among |
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|
|
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|---|---|---|---|---|---|---|
| The Toro Company, S&P 500, and Peer Group | ||||||
| The Toro Co | Peer Group | S&P 500 | ||||
| 1994 | $100 | $100 | $100 | |||
| 1995 | $106 | $111 | $126 | |||
| 1996 | $117 | $139 | $157 | |||
| 1997 | $161 | $193 | $207 | |||
| 1998 | $85 | $153 | $253 | |||
| 1999 | $139 | $178 | $299 | |||
| Fiscal Year Ending October 31, |
This graph assumes $100 invested on October 31, 1994 in the Company's Common Stock, the S&P 500 Index and the peer group index including reinvestment of dividends.
The industry peer index is based on the Fortune 500 Industrial and Farm Equipment Index for 1998, the most recent year available, which includes: York International Corporation, Briggs & Stratton Corporation, Stewart & Stevenson Services, Inc., Dover Corporation, Cummins Engine Company, Inc., Harnischfeger Industries Inc., Crane Co., Tecumseh Products Company, Ingersoll-Rand Company, NACCO Industries, Inc., Parker-Hannifin Corporation, Deere & Company, Timken Company, Baker-Hughes Incorporated, Caterpillar Inc., The Black & Decker Corporation, American Standard Companies, Inc., AGCO Corporation, Kennametal Inc., The Lincoln Electric Company, Teleflex, Detroit Diesel Corporation, Case Corporation, Cooper Cameron Corporation, Smith International, Inc., Terex Corporation and Nortek, Inc. New companies added were Premark International, Inc., Milacron Inc., ITT Industries, Inc., Unova, Inc., Weatherford International, Inc., Applied Power Inc. and Hussman International, Inc. Companies removed were Aeroquip-Vickers, Inc. and Lam Research Corporation.
Neither this Performance Graph nor the Compensation Committee Report which follows shall be deemed to be "soliciting material" or to be filed with the Securities and Exchange Commission or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934, or to the liabilities of Section 18 of that act.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
This report is furnished by Toro's Compensation Committee of the Board of Directors, which reviews, establishes and approves changes to the compensation policies and administers compensation plans for executive officers of the Company.
General Policies
The compensation policies of the Company are designed to attract, retain and motivate highly qualified executives, to assure that the Company competes successfully for executive talent to accomplish the Company's goals and to compensate executive officers for personal performance. However, a substantial portion of total compensation of individual executive officers is aligned with the financial and operational performance of the Company because it is contingent upon achievement of financial goals of the Company and its divisions, and linked to the Company's stock price. The Committee believes it has been successful in achieving these goals. For instance, the Company's Fiscal 1998 financial results were disappointing. As a result, total cash compensation for named executive officers who were also named executive officers for Fiscal 1997 was substantially lower for Fiscal 1998. For Fiscal 1999, however, the Company's financial and operational performance exceeded targets and total compensation increased from Fiscal 1998.
The Committee bases its executive compensation decisions on an independent evaluation of the market competitiveness of Toro's officer compensation program by professional compensation consulting firms retained by the Company. The Committee establishes a target total compensation package for each executive position at a median (approximately 50th percentile) market level for similar positions in businesses with revenues comparable to those of the Company.
Base Salary
The Committee establishes a base salary range for each executive position, reflecting median base salaries for the comparative group. Although surveys may be conducted annually, salaries are adjusted only if market surveys indicate adjustment is necessary, so that greater weight remains on the variable incentive portion of the compensation package. In Fiscal 1998, these surveys indicated to the Committee that it must be watchful to maintain compensation at market competitive levels in order to retain its most talented executives. The Committee therefore increased base salary levels for selected officers for Fiscal 1999.
A base salary within the market range is set for each executive by considering the experience and individual performance of the executive. For Fiscal 1999, base salaries for executive officers were within 5% of the median (50th percentile) of the market level. Mr. Melrose's salary with respect to Fiscal 1999 was set at $597,503, based on the same method used in establishing other executive officers' base salaries. For compensation purposes, the Committee evaluates Mr. Melrose's performance 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 tied to achievement of performance goals is earned. If those goals are exceeded, incentive compensation can cause total compensation to exceed median market levels. The incentive components of compensation are intended to encourage achievement of both short term and long term financial and operational objectives.
Beginning with Fiscal 1999, the Committee placed greater emphasis on compensation tied to the market price of the Company's Common Stock. Compensation under the new Performance Share Plan is exclusively in the form of shares of Common Stock, rather than in cash and stock options as under the earlier Continuous Performance Award Plan. Stock Retention Awards under the amended Annual Management Incentive Plan II provide for the award of matching shares or units of Common Stock if a participating officer converts a portion of the annual cash bonus to shares of Common Stock or stock units.
For Fiscal 1999 the Company exceeded both its annual and long term performance goals, so that 69% of Mr. Melrose's total compensation (excluding stock option exercise gains) consisted of incentive payments, and his total compensation package, including cash and stock or stock units but excluding stock option exercise gains, was above the median (at the 55th percentile) for chief executive officers in comparable businesses. Due to the Company's disappointing financial results for Fiscal 1998, however, only 7% of Mr. Melrose's total cash compensation was comprised of incentive payments under the Company's short term and long term incentive plans, and his total cash compensation for Fiscal 1998 was therefore below the median level (at the 35th percentile) of total cash compensation paid to chief executive officers in businesses with revenues comparable to the Company's.
Annual Incentive Compensation. Under the Company's stockholder-approved Annual Plan, executive officers and other key employees are eligible to receive an annual cash bonus based on a percentage of base salary (determined by the executive officer's position) and the Company's achievement of performance goals and, for certain participants, division and individual performance. If performance goals are exceeded, award amounts increase up to a pre-established maximum, but not more than 200% of the target award amount. If goals are not met, awards are reduced or not paid at all. Proposed participants in the Annual Plan are recommended by management and selected by the Committee. The target award amount for Mr. Melrose is 60% of his base salary and for the other named executive officers is 45%. The percentage is based on the executive's salary grade and job position and not on individual factors.
The Committee may also select officers to receive Stock Retention Awards, which entitle an officer to convert up to 50% of a cash award payout to shares of Common Stock or deferred Common Stock units, and to receive one additional share of stock for each two shares acquired in the conversion. Mr. Melrose and each of the named executive officers received these awards for Fiscal 1999.
Under the Annual Plan as in effect for Fiscal 1999, the Compensation Committee established earnings per share (EPS) and corporate average net asset dollar level performance goals as the basis for payment of a target award amount for each corporate participant. Target award amounts for division participants were based 50% on performance goals for corporate participants and 50% on division controllable profit contribution (net income before taxes and interest expense and before corporate allocations) and division total average asset goals. Strategic Performance Measure goals, under which a recipient's pre-established cash payout may be adjusted up to 120% of the award payment otherwise determined under the plan (but to not more than 200% of the target award) were also established for Mr. Melrose and each of the named executive officers for Fiscal 1999, but the Committee did not adjust their total payouts for SPM goal performance.
The Company exceeded its corporate and division goals for Fiscal 1999. Bonus payments were therefore made under the Annual Plan at 187% of target awards for corporate participants, including Mr. Melrose and the named executive officers. Award payments of between 130% and 182% of targets were made to division participants based 50% on the respective division's achievement of its performance goals and 50% on the Company's achievement of corporate goals. In addition, matching deferred Common Stock units having a value of 25% of the total cash award payment were credited to Mr. Melrose and three of the named executive officers who elected to convert cash awards under their Stock Retention Awards. These shares or units are subject to vesting over a five year period.
The Committee has approved and recommended to stockholders the amendment of the Annual Plan to add additional corporate and division performance goals. See Proposal Two in this Proxy Statement.
For Fiscal 1999, 42.9% of Mr. Melrose's cash and stock-based compensation (excluding income from stock option exercises) was comprised of payments pursuant to the Annual Plan.
Long Term Incentive Compensation. Key employees may receive long term incentive compensation in the form of Performance Shares under the new Performance Share Plan, approved by stockholders in March 1999, and under the Company's stockholder-approved stock option plans. A compensation survey conducted in 1998 by outside consultants indicated that the long term incentive component of Toro's total compensation for executives lagged the market. Outside consultants reported that while option grants improved long term incentive competitiveness, additional opportunities were necessary to be competitive at the 50th percentile market level. For that reason, the Committee adopted the Performance Share Plan.
A recipient of a Performance Share Award may receive shares of Common Stock if the Company achieves pre-established performance goals. The number of shares covered by an award is based on a target dollar value that is a component of total compensation divided by the market value of the Common Stock prior to the time of the award, discounted for projected annual forfeitures. In Fiscal 1999, the Committee granted transitional awards, in order to phase into three year awards under this new plan. For the Fiscal 1999 one year transition period, the Committee established performance goals based on net income and after tax interest expense and corporate average net assets. The Company exceeded the goals and the Committee certified payments to plan participants, including Mr. Melrose and the named executive officers, at 146% of target award amounts. For Fiscal 1999, 26.5% of Mr. Melrose's cash and stock-based compensation (excluding stock option gains) was comprised of payments pursuant to the Performance Share 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, using a target dollar value that is a percentage of target total compensation and a Black-Scholes valuation of the Common Stock. All options granted under the stock option plans have exercise prices that are equal to fair market value at the date of grant. The options granted to Mr. Melrose and the named executive officers in Fiscal 1999 were exercisable immediately after grant and remain exercisable for a period of ten years. Beginning in Fiscal 1999, the Committee changed the exercise period for options granted to executive officers from five to ten years. In Fiscal 1999, the Committee granted Mr. Melrose options to purchase a total of 48,500 shares.
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, while assuring the timely development and election of his successor as Chief Executive Officer of the Company. Under the Chief Executive Officer Succession Incentive Award Agreement, the Company awarded Mr. Melrose 17,467 shares of Common Stock and Common Stock performance units having a fair market value of $500,000 on July 31, 1995, subject to forfeiture or reduction in the event performance goals related to the development and implementation of a senior management and chief executive officer succession plan were not met by target dates beginning October 31, 1999 and continuing through October 31, 2003.
On December 2, 1999, the Board of Directors certified that Mr. Melrose had achieved Goal 1—timely development of a CEO and senior management succession plan and progress towards fulfillment of the plan. The Committee certified goal achievement and payment to Mr. Melrose of 15% of the shares of restricted stock, having a total value of $88,589. The value of the vested performance units has been accrued and will be used, together with the value of additional performance units that may vest in the future, to purchase a retirement annuity for Mr. Melrose at the time of his retirement conditioned upon his entering into a noncompetition agreement with Toro.
Section 162(m). In making its decisions about compensation for Mr. Melrose and other officers likely to be named executive officers, the Committee considers Section 162(m) of the Code, which limits to $1 million per year the compensation expense deduction the Company may take for compensation paid to a person who is "highly-compensated" for purposes of the Code, unless the compensation is "performance-based". Although the Company's compensation levels have not historically resulted in total compensation in excess of $1 million for named executive officers other than Mr. Melrose, it is generally the policy of the Company that the components of executive compensation that are inherently performance-based should qualify for exclusion from the deduction limitation under Section 162(m). The Committee believes that annual incentive award payments under the Annual Plan, long term incentive award payments under the Performance Share Plan and stock options currently qualify as performance based.
The Committee believes, however, 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 that might not be deductible. The Committee's purpose in doing so is to assure that the Company retains its best executives and remains competitive in the market for executive talent.
If non-performance-based compensation in excess of $1 million should become payable to a person who is "highly-compensated" for purposes of the Code and regulations, the Committee may consider requiring deferral of receipt of any amounts earned in excess of the cap to a tax year following the year in which the individual leaves the employment of the Company.
Stock Ownership Guidelines
In November 1997, the Committee adopted guidelines to encourage accumulation and retention of Toro Common Stock by officers of the Company, ranging from a goal of five times base salary for the Chief Executive Officer to two or three times for other corporate officers. The recommended time period for reaching the guideline is five years. Most officers have achieved established guidelines. The Committee will continue to review compliance with the policy on an annual basis.
Approval of Incentive Plans
All of the recommendations of the Committee with respect to compensation attributable to Fiscal 1999 were approved and adopted by the Board of Directors. In accordance with the Company's past practice under Section 16 of the Securities Exchange Act of 1934 and Section 162(m), decisions regarding the grant of stock options and certain other awards continue to be made by the Committee and reported to and ratified by the Board.
| Dale R. Olseth, Chair | Alex A. Meyer | |||
| Ronald O. Baukol | Robert H. Nassau | |||
| Janet K. Cooper | Christopher A. Twomey |
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Dale R. Olseth, Chair, Ronald O. Baukol, Janet K. Cooper, Alex A. Meyer, Robert H. Nassau and Christopher A. Twomey. None of these directors is or has been an officer or employee of the Company. 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 incentive award decision or any decision of the Committee that might affect him personally.
Mr. Melrose serves on the Board of Directors and Compensation Committee of SurModics, Inc., of which Mr. Olseth serves as chairman and chief executive officer. Mr. Olseth serves on the Toro Board of Directors and is Chair of the Compensation Committee of the Company.
PROPOSAL TWO
AMENDMENT OF THE TORO COMPANY ANNUAL MANAGEMENT INCENTIVE PLAN II
At its December 2, 1999 meeting, the Compensation Committee recommended, and the Board of Directors adopted, further amendments to the Annual Plan, including additional performance goals that are intended to be used to align an executive's total compensation even more closely with the Company's financial performance, by increasing management's focus on effective use of assets and on customer satisfaction. The amendments are also intended to improve the quality of the Company's earnings.
The new performance goals are average current asset turns, average net asset turns, return on average total assets, return on average current assets, average inventory asset turns, controllable value added, revenue, cost of goods sold, customer satisfaction scores, customer care, fill rate, product innovation and asset management. Stockholders are being asked to consider and approve these additional financial performance goals to ensure that payments made under the Annual Plan continue to qualify as "performance-based" for purposes of Section 162(m) of the Code and in order to satisfy New York Stock Exchange guidelines relating to equity compensation for officers. Controllable value added is a measure of economic value added on a divisional basis, without an allocation for corporate overhead. Economic value added was previously approved as a performance goal by Toro stockholders. It measures after tax return on total invested capital, and is derived by taking earnings from operations plus other income, net of other expenses, adjusted by the effective tax rate, less the Company's tax adjusted target cost of invested capital. The target cost of invested capital is based on Toro's blended cost of attracting and retaining debt and equity.
These goals, and others previously approved by stockholders, may be used by the Compensation Committee in establishing required levels of achievement on a corporate, division or individual basis, as the Committee determines to be appropriate. Average net asset turns on a corporate basis is the average monthly net assets for a year divided by cost of goods sold. Net assets equals consolidated assets less consolidated liabilities plus consolidated long and short term debt. Average current asset turns as applicable on a division basis is the average monthly current assets for the year divided by divisional cost of goods sold. Current assets equals cash, inventory, receivables, prepaids and other current assets, excluding deferred income taxes. Average inventory asset turns is a measure of the number of times inventory is sold and replaced each year, calculated by taking average monthly inventory for a year divided by cost of goods sold. Customer care is a measure of customer feedback related to product quality, experience, price or services. Decisions by the Committee regarding achievement of customer care goals may be based on qualitative or quantitative factors.
The Annual Plan was originally approved by stockholders in March 1996 and was again approved as amended at annual meetings in 1997, 1998 and 1999.
If stockholder approval of the performance goal amendments is not obtained, 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 as previously approved by stockholders will continue in effect as to such persons.
Following is a description of the more important features of the Annual Plan as amended.
Description of the Annual Plan
Purpose. The purpose of the Annual Plan is to enhance stockholder value by providing participants an annual incentive to reinforce achievement of the Company's performance goals; to link a significant portion of a participating officer's compensation to the achievement by the Company, and in certain cases, a division or an individual, of performance goals; to attract, motivate and retain officers on a competitive basis; and to encourage selected officers of the Company for whom stock ownership goals have been established to acquire and retain Common Stock. See the Compensation Committee Report for information on stock ownership guidelines.
Eligibility and Participation. Participation is limited to officers of the Company, including executive officers, who through their position or performance, can have a significant, positive impact on the Company's financial results, as determined by the Compensation Committee. The Company maintains a separate annual bonus plan for key employees who are not officers. Approximately 12 individuals, including the Company's Chief Executive Officer and the named executive officers, are expected to receive awards under the Annual Plan each year.
Award Amounts. The target payout for an Annual Performance Award is based on a percentage of a plan participant's annual base salary ("participation factor"), which is intended to reflect the participant's level of responsibility. Participation factors are up to 60% for the Chairman and Chief Executive Officer, up to 55% for the President and Chief Operating Officer, up to 50% for other elected officers and up to 45% for appointed officers.
The target payout can be earned only if performance goals are achieved at levels established in advance by the Compensation Committee. The Committee may establish maximum payouts of up to 200% of target payouts in the event goals are exceeded in amounts established by the Committee. At the time an award is made, the Committee may establish additional individual performance goals ("SPM Performance Goals"). If an SPM Performance Goal is achieved, an award payment may be increased by up to 20% of the award payment that would otherwise be made with respect to Performance Goal achievement, but to not more than 200% of the target payout. If these goals are not achieved, award payments may be reduced.
Performance Goals. An award payment under an Annual Performance Award will be paid only upon the achievement of performance goals established by the Compensation Committee in writing not later than 90 days after the beginning of the fiscal year to which the performance goals relate.
The Board is seeking approval of the addition of average current asset turns, average net asset turns, return on average total assets, return on average current assets, average inventory asset turns, controllable value added, revenue, cost of goods sold, customer satisfaction scores, customer care, product innovation, asset management and fill rate as performance goals. Performance goal measures previously approved by stockholders include earnings per share, return on average net assets, division controllable profit contribution, division profit adjustment, return on equity, revenue growth, earnings growth and economic value added. Previously-approved Supplemental Division Performance Goal measures for division participants include all of the foregoing measures plus sustained earnings, product warranty experience, product recalls or inventory levels. Previously-approved SPM Performance Goals included aggressive revenue growth, sustained earnings initiative, warranty experience, product recalls, field inventory, acquisition experience, customer satisfaction, inventory reduction and inventory turnover. SPM Performance Goals are intended to be either qualitative or quantitative.
Maximum Award. The maximum amount that may be paid under an Annual Performance Award, whether in cash or in Common Stock or Common Stock units, to a plan participant who is or may become a person referred to in Section 162(m) 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 pre-established performance goals 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 or any Board-approved extraordinary or non-recurring event or item.
Stock Retention Award. The Annual Plan authorizes the grant of Stock Retention Awards to encourage selected participants to increase their ownership of Toro Common Stock. Under a Stock Retention Award, a participant may elect to convert up to 50% of a cash award payment to shares of Common Stock, or defer the compensation into Common Stock units under the Officers Deferred Plan, at fair market value on the date the Committee certifies payment of the cash award. For each two shares of Common Stock or units acquired upon conversion, a stock participant will receive as additional incentive compensation one additional share or unit of Common Stock ("Matching Shares" or "Matching Units"). The shares or units received on conversion are retained by the Company during vesting periods applicable to the Matching Shares or Matching Units. Matching Shares and Matching Units vest in increments of 25% of the total at the end of each of the second, third, fourth and fifth years after the date such shares or units are issued or credited. In the event of an actual or threatened change of control of the Company as defined in the Annual Plan or the Officers Deferred Plan, all Matching Shares and Matching Units that have not yet vested will vest.
Shares Authorized. The number of shares of Common Stock authorized for issuance under the Annual Plan is 100,000, subject to adjustment in the event of stock splits, recapitalization or other similar changes affecting the Common Stock. On December 2, 1999, the Company issued or credited an aggregate of 38,120 shares or units of Common Stock to participants under the Annual Plan for the award year ended October 31, 1999, leaving a balance of 61,880 shares available under the plan.
Plan Amendment and Termination. The Committee may amend, suspend or terminate the Annual Plan at any time, with or without advance notice to plan participants, but 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 stated performance goal criteria or that would modify the requirements as to eligibility for participation, unless the stockholders of the Company approve the change in accordance with the requirements of Section 162(m).
Benefits. It is not presently possible to determine the dollar value of award payments that may be made, or the individuals who may be selected for such awards, in the future under this plan. Award payments made with respect to Fiscal 1999 to the Chief Executive Officer and each of the named executive officers are shown in Note (1) and in the Restricted Stock column of the Summary Compensation Table. Award payments made to all executive officers as group for Fiscal 1999 aggregated $1,951,935 and to all non-executive officer employees as a group aggregated $261,344. Non-executive directors (outside directors) are not eligible to participate in this plan.
PROPOSAL THREE
AMENDMENT OF THE TORO COMPANY PERFORMANCE SHARE PLAN
At its December 2, 1999 meeting, the Compensation Committee recommended, and the Board of Directors adopted, an amendment to add additional Performance Goals to The Toro Company Performance Share Plan (the "Long Term Plan"), a plan designed to tie a portion of executive compensation to achievement of the Company's Long Term financial goals through the grant of Performance Shares. Stockholders are being asked to consider and approve additional financial goals of economic value added, fill rate, customer satisfaction scores, customer care and cumulative average net asset turns, to ensure that payments made under the Long Term Plan continue to qualify as "performance based" for purposes of Section 162(m) of the Code and in order to satisfy New York Stock Exchange guidelines relating to equity compensation for officers.
The additional performance goals are intended for use in focusing management's attention on improved asset use and customer satisfaction. Economic value added measures the economic return to stockholders on capital utilized in a company's operating units. It is similar to the microeconomic concepts of opportunity cost and economic profit. As described under Proposal Two, economic value added measures after tax return on total invested capital, and is derived by taking earnings from operations plus other income, net of other expenses, adjusted by the effective tax rate, less the Company's tax-adjusted target cost of invested capital. Average net asset turns and customer care are described in Proposal Two.
If stockholder approval of the new Long Term Plan is not obtained, 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 Long Term Plan as previously approved by stockholders will continue in effect as to such persons.
The following is a summary of the material terms of the Long Term Plan as amended.
Description of the Plan
Purpose. The purpose of the Long Term Plan is to enhance long term stockholder value by reinforcing the incentives of key employees to achieve long term performance goals of the Company, to link a significant portion of a participant's compensation to the achievement by the Company of performance goals and to the value of the Common Stock and to attract, motivate and retain executives on a competitive basis.
Eligibility and Participation. Participation in the plan is limited to key employees of the Company who are in a position to have a significant, positive impact on the Company's financial results and who are selected by the Compensation Committee. Approximately 12 individuals, including the Company's Chief Executive Officer and the named executive officers, are expected to receive awards under the plan annually.
Performance Goals. The performance goals that have previously been approved by stockholders for use by the Committee with respect to each Performance Share Award are cumulative earnings, cumulative earnings per share, profit after tax, net income, return on invested capital, invested capital dollars, earnings per share, average net assets, after-tax interest expense, return on average net assets, return on equity, return on beginning equity, revenue growth and earnings growth. The new performance goals will supplement these and permit a greater focus on asset use.
Maximum Award. The maximum award payment that may be made with respect to any Performance Share Award is 100,000 shares, subject to adjustment to give effect to adjustments in the Common Stock or changes in the corporate structure of the Company.
Payment. Before any payment or delivery of Common Stock is made under the plan to any participant who is a person referred to in Section 162(m) of the Code, the Committee must certify that the performance goals established with respect to the award have been achieved. Award payments are made in Common Stock, although a participant may defer award compensation into Common Stock units in accordance with the Officers Deferred Plan.
Change of Control. In the event of a threatened or actual change of control of the Company (as defined in the Long Term Plan), Performance Shares that have been awarded but have not yet vested will vest and become immediately payable.
Miscellaneous. Neither Performance Shares nor Performance Share Awards may be transferred. A participant may receive payment pursuant to a Performance Share Award only while an employee and only if continuously employed since the date the award was granted, except that in the event of death, disability or retirement, shares of Common Stock will be delivered with respect to an award if otherwise earned, subject to proration to reflect the portion of the applicable award term completed at the date of death, disability or retirement.
Shares Authorized. The number of shares of Common Stock authorized for issuance under the Long Term Plan is 500,000, subject to adjustment in the event of stock splits, recapitalization or other similar changes affecting the Common Stock. 42,912 shares of Common Stock were earned and issued or deferred under the Long Term Plan for the one year transition period ended October 31, 1999.
Plan Amendment and Termination. The Committee may amend, suspend or terminate the Annual Plan at any time, with or without advance notice to plan participants, but 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 stated performance goal criteria or that would modify the requirements as to eligibility for participation, unless the stockholders of the Company approve the change in accordance with the requirements of Section 162(m).
Benefits. It is not presently possible to determine the dollar value of award payments that may be made, or the individuals who may be selected for such awards, in the future under this plan. Award payments made with respect to the one year Fiscal 1999 transition award to the Chief Executive Officer and each of the named executive officers are shown in Note (1) to the Summary Compensation Table and the grant of awards for the two year transition period and the Fiscal 1999 to 2001 award term are shown in the Long Term Incentive Compensation table. The dollar value of Performance Shares awarded to all executive officers as group for Fiscal 1999 aggregated $1,349,592 and to non-executive officer employees as a group aggregated $101,370. The value is based on the closing price of Toro Common Stock on December 2, 1999. Non-executive directors (outside directors) are not eligible to participate in this plan.
PROPOSAL FOUR
AMENDMENT OF THE TORO COMPANY DIRECTORS STOCK PLAN
At its December 2, 1999 meeting, the Board of Directors adopted an amendment to the Directors Plan to increase the value of shares of Common Stock granted annually to nonemployee directors ("Directors Shares") from $5,000 to $10,000. Management believes it is in the interest of stockholders to increase the compensation of its nonemployee directors in order to stay competitive with other companies in attracting and retaining experienced and knowledgeable independent directors to serve on the Board of Directors. By paying the compensation in shares of Common Stock, the interests of directors are intended to be further aligned with those of stockholders. The Board of Directors first adopted, and the stockholders first approved, the Directors Plan in 1992. The plan was amended by the Board in 1995 and approved by stockholders in 1996 to provide for Directors Options and to increase the authorized shares. Although the Board is not required to obtain stockholder approval of the amendments, it wishes to do so and, if approval is not given, the Board of Directors will reconsider its decision.
The Plan is intended to conform to the provisions of Rule 16b-3 under the Securities Exchange Act of 1934 Act, so that the receipt of stock and options by a nonemployee director will be exempt acquisitions for purposes of Section 16(b) under the Securities Exchange Act of 1934 Act and so that nonemployee directors are eligible to serve on the Compensation Committee.
Following is a summary of the material features of the Directors Plan as amended.
Description of the Directors Plan
Purpose. The purpose of the Directors Plan is to attract and retain experienced and knowledgeable nonemployee directors to serve as members of the Board of Directors of the Company and to further align their interests with those of stockholders.
Eligibility. Members of the Board of Directors who are not current employees of the Company or any subsidiary are eligible to receive awards under the Directors Plan. At the present time, 10 individuals are eligible to participate.
Award of Directors Shares. Under the Directors Plan as amended, the Company will annually issue to each nonemployee director, on the first day of each fiscal year, Directors Shares, which are shares of Toro Common Stock having a fair market value of $10,000, based on the average of the closing prices of the Common Stock on the New York Stock Exchange for each of the trading days in the three month calendar period immediately prior to the date of issue.
Award of Directors Options and Terms. Under the Directors Plan, the Company annually grants to each nonemployee director, on the first day of each fiscal year, a Directors Option to purchase 1,000 shares of Toro Common Stock, on the terms and conditions described below. Options may be granted only as nonqualified stock options. Each Directors Option has a term of five years and is exercisable six months following the date of grant. The exercise price per share of Common Stock at the date of grant is equal to the 4 p.m. Eastern Time closing price of a share of Common Stock on the New York Stock Exchange on that date.
Options may not be transferred except by will or the laws of descent and distribution. In the event a nonemployee director's service terminates prior to exercise of any outstanding option, such options will be immediately cancelled and will again become available for option grants.
Methods of Exercise. The Directors Plan permits exercise of an option by payment in cash or shares of Common Stock.
Change of Control. In the event of an actual or threatened change of control of the Company as defined in the Directors Plan, all options will fully vest.
Miscellaneous. The maximum number of shares to be made available for issuance under the Directors Plan is 65,000, subject to adjustment to reflect changes in the corporate or capital structure of the Company. Shares may be authorized but unissued Common Stock or shares of Common Stock held in the Company's treasury. To date 50,239 shares have been issued under the Directors Plan.
Term and Amendment. The term of the Directors Plan is ten years, which expires on August 20, 2002, unless terminated sooner by the Board of Directors. The Directors Plan may be amended, suspended or discontinued at any time by the Board of Directors.
Tax Consequences Under the Plan
The award of Directors Shares will result in taxable income to a nonemployee director and an income expense and related deduction to the Company at the time of issuance of Directors Shares. The grant of a Directors Option is not a taxable event for the option holder. Upon exercise of a Directors Option, the option holder will generally be required to recognize ordinary income in an amount equal to the excess of the fair market value of the Common Stock acquired upon exercise (generally determined as of the date of exercise) over the exercise price of the option, and the Company will be entitled to a deduction in an equal amount.
PROPOSAL FIVE
2000 STOCK OPTION PLAN
At its December 2, 1999 meeting, the Compensation Committee recommended, and the Board of Directors adopted, subject to stockholder approval, The Toro Company 2000 Stock Option Plan (the "2000 Plan") under which options may be granted to key employee to purchase shares of Toro Common Stock. The Board took this action because most shares of Common Stock available under the Company's 1993 Stock Option Plan have been used, no further grants may be made under the 1989 Stock Option Plan and the Board wishes to provide for future option grants. The plan authorizes 1,000,000 shares.
Following is a summary of the material features of the 2000 Plan.
Summary of the 2000 Plan Features
Purpose. The purpose of the 2000 Plan is to provide an incentive to key employees, including executive officers, and consultants, to contribute significantly to the strategic and long term performance objectives and growth of the Company.
Eligibility. Any employee regularly employed in an executive, managerial, professional or technical position, and any other individual who performs services for the Company, who contributes significantly to the strategic and long term performance objectives of the Company is eligible to participate in the 2000 Plan. The Compensation Committee will have the power to select the individuals to whom options will be granted. At the present time, approximately 100 employees are eligible to participate in the proposed plan.
Award of Options and Terms. Options may be granted either as incentive stock options under Section 422 of the Code, or as nonqualified options. The term of each option will be fixed by the Committee, subject to the requirements of Section 422 for incentive stock options. The exercise price of an option shall not be less than 100% of fair market value of the Common Stock on the date of grant. The fair market value of one share of the Common Stock on January 31, 2000 was $33.9375.
Options may not be transferred except by will or the laws of descent and distribution. During the lifetime of the option holder, the option may be exercised only by the option holder and only while an employee of the Company or of a parent or a subsidiary of the Company and only if continuously so employed since the date the option was granted, except that (1) options may be exercised not later than the earlier of the date the option expires or one year after termination by reason of disability or death, and (2) nonqualified stock options may be exercised not later than the earlier of the date the option expires or up to four years after the date of retirement as defined in the 2000 Plan. In the event an option holder terminates employment or performance of services and is employed or retained by a competitor of the Company within one year thereafter or violates a confidentiality or similar agreement with the Company or engages in conduct detrimental to the Company, any outstanding options held by such person may be cancelled or rescinded and the Company will have the right to the return of the economic value of any option realized during the 12 month period prior to such termination. In the event an option holder's employment or service terminates prior to exercise of any outstanding option, other than as a result of disability, death or retirement (as defined in the plan), such options will be cancelled three months after termination, and will again become available for option grants.
The Committee may include a provision in an option permitting the grant of a new option when payment of the exercise price of an option is made in shares of Common Stock (an accelerated ownership option). The terms of the accelerated ownership option would be the same as those of the original option, except that the exercise price would be fair market value at the date of grant of the new option.
The 2000 Plan provides that the Committee may permit exercise of an option by a variety of methods, including payment in cash or shares of Common Stock or a combination of cash and shares of Common Stock, or a same day sale through a brokerage firm in accordance with regulations of the Federal Reserve Board.
Maximum Award. The maximum number of shares that may be covered by options granted to any individual during any calendar year will be 100,000. To the extent that the aggregate fair market value (as of grant date) of Common Stock with respect to which incentive stock options are exercisable for the first time during any calendar year by an individual exceeds $100,000 or such other limit as may be required by the Code, options which exceed such limit will be treated as nonqualified options. This dollar limit does not apply to nonqualified options.
Change of Control. In the event of a change of control of the Company as defined in the 2000 Plan, all unvested options will fully vest, unless otherwise limited by the Committee at the time of grant.
Plan Amendment and Termination. The 2000 Plan may be amended, suspended or terminated at any time by the Board of Directors, including an amendment to increase the number of shares of Common Stock with respect to which options may be granted; provided that no amendment that would increase the maximum number of options that may be awarded to a person referred to in Section 162(m) of the Code or that would modify requirements as to eligibility will be effective without approval of the stockholders, in accordance with the Code. No amendment to the 2000 Plan may, without the consent of the option holder, alter or impair any option previously granted under the 2000 Plan. The 2000 Plan will remain in effect until all shares of Common Stock reserved for issuance have been purchased, except that no options may be granted under the 2000 Plan later than ten years after its effective date.
Shares Authorized. The number of shares authorized for issuance under the 2000 Plan is 1,000,000, subject to adjustment in the event of stock splits, recapitalization or other similar events affecting the Common Stock. Shares of Common Stock to be issued upon the exercise of options may be either original issue or treasury shares. Shares of Common Stock covered by options which terminate without being exercised will again be available for option grants.
Benefits. It is not presently possible to determine the dollar value of award payments that may be made, or the individuals who may be selected for such awards, in the future under this plan. Stock option grants under the 1993 Plan made in Fiscal 1999 to the Chief Executive Officer and each of the named executive officers are shown in the Summary Compensation table and the Stock Options table. Options granted in Fiscal 1999 to all executive officers as a group aggregated 133,400 and to all non-executive officer employees as a group aggregated 11,000. Non-executive directors (outside directors) are not eligible to participate in this plan.
Tax Consequences Under the Plan
The following is a brief description of the federal income tax treatment which will generally apply to options granted under the 2000 Plan, based on the Code as presently in effect.
With respect to incentive stock options, generally, the option holder is not taxed and the Company is not entitled to a deduction on either the grant or the exercise of an incentive stock option, so long as the requirements of Section 422 continue to be met. If the option holder meets the employment requirements and does not dispose of the shares of Common Stock acquired upon exercise of an incentive stock option until at least (1) one year after transfer of the shares pursuant to the exercise of the option and (2) two years after the date the option was granted, gain or loss realized on sale of the shares will be treated as long term capital gain or loss. If the shares of Common Stock are disposed of before those periods expire, which is called a disqualifying disposition, the option holder will be required to recognize ordinary income in an amount equal to the lesser of (1) the excess, if any, of the fair market value of the Common Stock on the date of exercise over the exercise price or (2) if the disposition is a taxable sale or exchange, the amount of gain realized. Upon such a disqualifying disposition, the Company will generally be entitled, at the same time, to a deduction equal to the amount of ordinary income recognized by such person.
The grant of an option which does not qualify for treatment as an incentive stock option is generally not a taxable event for the option holder. Upon exercise of the option, the option holder will generally be required to recognize ordinary income in an amount equal to the excess of the fair market value of the Common Stock acquired upon exercise (determined as of the date of exercise) over the exercise price of the option, and the Company will be entitled to a deduction in an equal amount.
Option agreements under the 2000 Plan may provide for accelerated vesting in the event of a change of control of the Company. If such a provision becomes effective, certain amounts with respect to benefits derived may be characterized as "parachute payments" under certain provisions of the Code. If such provisions are applicable, an employee will be subject to a 20% excise tax on any "excess parachute payment" pursuant to Code Section 4999 and the Company will be denied a deduction with respect to such excess parachute payment pursuant to Code Section 280G. An employee generally is deemed to have received a "parachute payment" if such employee receives compensation that (1) is contingent upon a change in the ownership of control of the Company and (2) exceeds, in the aggregate, an amount equal to three times the employee's "base amount". The "base amount" generally is the average of the annual compensation of such employee for the five years preceding the change in ownership or control. An "excess parachute payment" with respect to any employee is the excess of the total parachute payments to such person over such person's base amount.
PROPOSAL SIX
SELECTION OF INDEPENDENT AUDITORS
KPMG LLP has served as independent auditors to the Company for many years. The Audit Committee of the Board of Directors has again selected KPMG LLP to serve as independent auditors for Fiscal 2000. Although it is not required to do so, the Board of Directors wishes to submit the selection of KPMG LLP for stockholder approval at the meeting.
A representative of KPMG LLP is expected to be present at the Annual Meeting with the opportunity to make a statement and to be available to respond to appropriate questions.
If the stockholders do not approve the selection of KPMG LLP, the Board of Directors will reconsider its selection.
Stockholder Proposals for 2001 Annual Meeting
The 2001 Annual Meeting of Stockholders is expected to be held on March 22, 2001. If you wish to make a proposal to be included in the Company's Proxy Statement for the 2001 Annual Meeting, you must assure that the proposal is received by the Secretary of the Company no later than the close of business on October 12, 2000, unless the date of the meeting is delayed by more than 30 calendar days.
If you wish to nominate a candidate for election to the Board of Directors or propose other business at the 2001 Annual Meeting, you must give complete and timely written notice to the Secretary of the Company, in accordance with the Company's Bylaws. The deadline for the 2001 Annual Meeting is not later than December 26, 2000 nor earlier than November 11, 2000, unless the date of the meeting is advanced by more than 30 days or delayed by more than 60 days. If you would like a copy of Toro's Bylaws, you may write to Toro's Assistant Corporate Secretary. If a proposal is not timely and properly made in accordance with the procedures set forth in the Bylaws, it will be defective and may not be brought before the meeting. If the proposal is nonetheless brought before the meeting and the chairman of the meeting does not exercise the power and duty to declare the proposal defective, the persons named in the proxy may use their discretionary voting with respect to the proposal.
Annual Report
The Annual Report of the Company for Fiscal 1999 (the fiscal year ended October 31, 1999) including financial statements is enclosed.
Cost and Method of Solicitation
The Company will pay the cost of soliciting proxies and may make arrangements with brokerage houses, custodians, nominees and other fiduciaries to send proxy material to beneficial owners of the Common Stock. 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., for an estimated fee of $7,500 plus out-of-pocket costs and expenses, to assist in distributing proxy materials and in making mail, telephone and personal solicitation of proxies.
Other Matters
The Company's management 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, the persons named on the enclosed proxy card intend to vote such proxy in accordance with their best judgment.
| Dated: February 9, 2000 | |
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BY ORDER OF THE BOARD OF DIRECTORS |
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[SIG] |
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J. LAWRENCE MCINTYRE Vice President, Secretary and General Counsel |
The Toro Company
Annual Management Incentive Plan II
Change of Control means:
(A) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of 15% or more of either (A) the then-outstanding shares of Common Stock of the Company (the "Outstanding Company Common Stock") or (B) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subparagraph (A), the following acquisitions shall not constitute a Change of Control: (a) any acquisition directly from the Company, (b) any acquisition by the Company, (c) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (d) any acquisition by any corporation pursuant to a transaction that complies with clauses (a), (b) and (c) of subparagraph (C) of this subparagraph 8.f.vi.; or
(B) Individuals who, as of the date hereof, constitute the Board of Directors of the Company (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or
(C) Consummation of a reorganization, merger or consolidation of the Company or sale or other disposition of all or substantially all of the assets of the Company or the acquisition by the Company of assets or stock of another entity (a "Business Combination"), in each case, unless, following such Business Combination, (a) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (b) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 15% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such Business Combination, or the combined voting power of the then-outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (c) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or
(D) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.
The Toro Company
Performance Share Plan
Change of Control means:
(A) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of 15% or more of either (a) the then-outstanding shares of Common Stock of the Company (the "Outstanding Company Common Stock") or (b) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subparagraph (A), the following acquisitions shall not constitute a Change of Control: (a) any acquisition directly from the Company, (b) any acquisition by the Company, (c) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, or (d) any acquisition by any corporation pursuant to a transaction that complies with clauses (a), (b) and (c) of subparagraph (C) of this subparagraph 3.e.(iii); or
(B) Individuals who, as of the date hereof, constitute the Board of Directors of the Company (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or
(C) Consummation of a reorganization, merger or consolidation of the Company or sale or other disposition of all or substantially all of the assets of the Company or the acquisition by the Company of assets or stock of another entity (a "Business Combination"), in each case, unless, following such Business Combination, (a) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (b) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 15% or more of, respectively, the then-outstanding shares of common stock of the corporation resulting from such Business Combination, or the combined voting power of the then-outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (c) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or
(D) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company.
THE TORO COMPANY
DIRECTORS STOCK PLAN
Change of Control means:
THE TORO COMPANY
2000 STOCK OPTION PLAN
(a) Disability. In the event of disability of an option holder, options may be exercised by such individual or his or her guardian or legal representative, 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.
(b) Death. An option may be exercised after the death of an option holder 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) Retirement. A nonqualified option may be exercised by an option holder after such individual ceases to be an employee by reason of retirement for up to four years after the date of retirement but not later than the date the option expires. "Retirement" shall have the meaning established by the Committee from time to time or, if no such meaning is established, shall mean termination of employment with the Company at an age and with a number of years of service to the Company which, when added together, equal at least 65.
(d) Other Termination of Employment. An option may be exercised by an option holder after such individual ceases to be an employee (for reasons other than disability, death or retirement) for up to three months after the date of termination of employment but not later than the date the option expires.
No shares of Common Stock shall be issued until full payment has been made.
Subject to the express provisions of the Plan, the Committee shall have authority, in its discretion, to grant options; 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 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 to make all other determinations deemed necessary or advisable for the administration of the Plan.
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[LOGO] |
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THE TORO COMPANY |
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ANNUAL MEETING OF STOCKHOLDERS |
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Wednesday, March 29, 2000 3:00 p.m. C.S.T. |
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The Toro Company 8111 Lyndale Avenue South Bloomington, MN 55420 |
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| THE TORO COMPANY 8111 LYNDALE AVENUE SOUTH, BLOOMINGTON, MINNESOTA 55420-1196 |
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This Proxy is Solicited on Behalf of the Board of Directors for use at the Annual Meeting on March 29, 2000.
The shares of stock held in your account or in a dividend reinvestment account will be voted as you specify below or by telephone or Internet. 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.
If no choice is specified, the proxy will be voted FOR Items 1, 2, 3, 4, 5 and 6.
By signing, dating and mailing this proxy card, you revoke all prior proxies, including any proxy previously given by telephone or Internet, and appoint K. B. Melrose and J. L. McIntyre, or either of them, with full power of substitution to vote your shares on the matters shown on the reverse side and any other matters which may properly come before the Annual meeting and all adjournments.
See reverse for voting instructions.
| There are three ways to vote your Proxy |
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Company # Control # |
Your telephone or Internet vote authorizes K.B. Melrose and J.L. McIntyre or either of them, the Named Proxies to vote your shares in the same manner as if you marked, signed, dated and returned your proxy card.
VOTE BY TELEPHONE — TOLL FREE — 1-800-240-6326 — QUICK *** EASY *** IMMEDIATE
VOTE BY INTERNET — http://www.eproxy.com/ttc/ — QUICK *** EASY *** IMMEDIATE
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we've provided or return it to The Toro Company, c/o Shareowner Services,SM P.O. Box 64873, St. Paul, MN 55164-0873.
If you vote by telephone or Internet, please do not mail your proxy card
The Board of Directors Recommends a Vote FOR Items 1, 2, 3, 4, 5 and 6.
| 1. | Election of Directors: | 01 J. K. Cooper 03 G. W. Steinhafel |
02 K. B. Melrose 04 E. H. Wingate |
/ / | Vote FOR all nominees |
/ / | Vote WITHHELD from all nominees |
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| 2. | Approve amendment of the Annual Management Incentive Plan II. | / / | For | / / | Against | / / | Abstain | |||||||
| 3. | Approve amendment of the Performance Share Plan. | / / | For | / / | Against | / / | Abstain | |||||||
| 4. | Approve amendment of the Directors Stock Plan. | / / | For | / / | Against | / / | Abstain | |||||||
| 5. | Approve adoption of the 2000 Stock Option Plan. | / / | For | / / | Against | / / | Abstain | |||||||
| 6. | Approve the selection of auditors for Fiscal 2000. | / / | For | / / | Against | / / | Abstain | |||||||
| 7. | To transact any other business properly brought before the Annual Meeting or any adjournment of the meeting. | / / | For | / / | Against | / / | Abstain |
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
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Please sign exactly as your name(s) appear on Proxy. If held in joint tenancy, all persons must sign. Trustees, administrators, etc., should include title and authority. Corporations should provide full name of corporation and title of authorized officer signing the proxy. |
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PROXY STATEMENT
VOTING
STOCK OWNERSHIP
SECTION 16(b) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
PROPOSAL ONE ELECTION OF DIRECTORS
EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE
STOCK OPTIONS
AGGREGATED OPTION EXERCISES IN FISCAL 1999 AND FISCAL YEAR-END OPTION VALUES
LONG TERM INCENTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
PROPOSAL TWO AMENDMENT OF THE TORO COMPANY ANNUAL MANAGEMENT INCENTIVE PLAN II
PROPOSAL THREE AMENDMENT OF THE TORO COMPANY PERFORMANCE SHARE PLAN
PROPOSAL FOUR AMENDMENT OF THE TORO COMPANY DIRECTORS STOCK PLAN
PROPOSAL FIVE 2000 STOCK OPTION PLAN
PROPOSAL SIX SELECTION OF INDEPENDENT AUDITORS
OTHER INFORMATION
The Toro Company Annual Management Incentive Plan II
The Toro Company Performance Share Plan
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