TOLL BROTHERS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
Annual Meeting of Stockholders-March 5, 1998
The undersigned stockholder of Toll Brothers, Inc. (the"Company"), revoking
all previous proxies, hereby appoints ROBERT I. TOLL, BRUCE E. TOLL AND CARL B.
MARBACH, and each of them individually, as the attorney and proxy of the
undersigned, with full power of substitution, to vote all shares of Common Stock
of the Company which the undersigned would be entitled to vote if personally
present at the Annual Meeting of Stockholders of the Company, to be held at the
offices of the Company, 3103 Philmont Avenue, Huntingdon Valley, Pennsylvania on
March 5, 1998, and at any adjournment or postponement thereof. Said proxies are
authorized and directed to vote as indicated with respect to the matters
specified on the reverse side.
This proxy is solicited on behalf of the Board of Directors. This proxy,
when properly executed, will be voted in the manner directed herein by the
undersigned. Unless otherwise specified, the shares will be voted "FOR" the
election of the three director nominees, "FOR" the approval of the Toll
Brothers, Inc. Stock Incentive Plan(1998), "FOR" the approval of amendment of
the Company's Certificate of Incorporation to increase the number of authorized
shares of the Company's capital stock, and "FOR" the approval of Ernst & Young
LLP as the Company's independent auditors for the 1998 fiscal year. This proxy
also delegates discretionary authority to vote with respect to any other
business which may properly come before the meeting or any adjournment or
postponement thereof.
(continued on reverse side)
<PAGE>
1. FOR all nominees WITHHOLD (INSTRUCTION: To withhold authority to
listed(except as AUTHORITY vote for any individual
marked to the to vote for nominee, strike a line
contrary) all nominees through the nominee's
listed name below.)
Zvi Barzilay, Richard J. Braemer and Carl B. Marbach
----------------------------------------------------
2. The approval of the Toll Brothers, Inc. Stock Incentive Plan (1998).
FOR AGAINST ABSTAIN
--- ------- -------
3. The approval of amendment of the Company's Certificate of Incorporation to
increase the number of authorized shares of the Company's capital stock.
FOR AGAINST ABSTAIN
--- ------- -------
4. The approval of Ernst & Young LLP as the Company's auditors for the 1998
fiscal year.
FOR AGAINST ABSTAIN
--- ------- -------
5. To vote upon such other business as may properly come before the meeting or
any adjournment or postponement thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING,
PROXY STATEMENT AND 1997 ANNUAL REPORT OF TOLL BROTHERS, INC.
DATED , 1998
---------------------------
---------------------------------------
Signature of Stockholder
---------------------------------------
Signature of Stockholder
NOTE: Please sign this proxy exactly as name(s) appear(s) in address. When
signing as attorney-in-fact, executor, administrator, trustee or guardian,
please add your title as such. If the stockholder is a corporation, please sign
by full corporate name by duly authorized officer or officers and affix the
corporate seal. Where shares are held in the name of two or more persons, all
such persons should sign.
PLEASE SIGN, DATE AND RETURN THIS PROXY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE>
TOLL BROTHERS, INC.
3103 PHILMONT AVENUE
HUNTINGDON VALLEY, PA 19006
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, MARCH 5, 1998
The Annual Meeting of Stockholders (the "Meeting") of Toll Brothers, Inc. (the
"Company") will be held on Thursday, March 5, 1998, at 10:00 a.m., at the
offices of the Company, 3103 Philmont Avenue, Huntingdon Valley, Pennsylvania
19006, for the following purposes:
1. To elect three directors to hold office until the 2001 Annual Meeting of
Stockholders and until their respective successors are duly elected and
qualified. (The terms of office of the other directors do not expire until
1999 or 2000.)
2. To consider and act upon the approval of the Toll Brothers, Inc. Stock
Incentive Plan (1998).
3. To consider and act upon approval of amendment of the Company's
Certificate of Incorporation to increase the number of authorized shares of
the Company's capital stock.
4. To consider and act upon the selection of Ernst & Young LLP as the
Company's independent auditors for the 1998 fiscal year.
5. To transact such other business as may properly come before the Meeting
or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on January 19, 1998 as
the record date for the Meeting. Only stockholders of record at that time are
entitled to notice of and to vote at the Meeting and any adjournment or
postponement thereof.
The enclosed proxy is solicited by the Board of Directors of the Company.
Reference is made to the attached proxy statement for further information with
respect to the business to be transacted at the Meeting. The Board of Directors
urges you to sign, date and return the enclosed proxy promptly, although you are
cordially invited to attend the Meeting in person. The return of the enclosed
proxy will not affect your right to vote in person if you do attend the Meeting.
BRUCE E. TOLL
Secretary
February , 1998
<PAGE>
TOLL BROTHERS, INC.
3103 PHILMONT AVENUE
HUNTINGDON VALLEY, PA 19006
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
MARCH 5, 1998
GENERAL
This proxy statement is furnished in connection with the solicitation of proxies
by the Board of Directors of Toll Brothers, Inc., a Delaware corporation (the
"Company"), for use at the Company's Annual Meeting of Stockholders (the
"Meeting"), which will be held on the date, at the time and place, and for the
purposes set forth in the foregoing notice, and any adjournment or postponement
thereof. This proxy statement, the foregoing notice and the enclosed proxy are
first being sent to stockholders of the Company (the "Stockholders") on or about
January 29, 1998.
The Board of Directors does not intend to bring any matter before the Meeting
except as specifically indicated in the notice and does not know of anyone else
who intends to do so. If any other matters properly come before the Meeting,
however, the persons named in the enclosed proxy, or their duly constituted
substitutes acting at the Meeting, will be authorized to vote or otherwise act
thereon in accordance with their judgment on such matters. If the enclosed proxy
is properly executed and returned prior to voting at the Meeting, the shares
represented thereby will be voted in accordance with the instructions marked
thereon. In the absence of instructions, the shares will be voted "FOR" the
nominees of the Board of Directors in the election of the three directors whose
terms of office will extend until the 2001 Annual Meeting of Stockholders and
until their respective successors are duly elected and qualified, "FOR" the
approval of the Toll Brothers, Inc. Stock Incentive Plan (1998), "FOR" the
approval of amendment of the Company's Certificate of Incorporation to increase
the number of shares of the Company's capital stock, and "FOR" the approval of
Ernst & Young LLP as the Company's independent auditors for the current fiscal
year ending October 31, 1998.
Any proxy may be revoked at any time prior to its exercise by notifying the
Secretary in writing, by delivering a duly executed proxy bearing a later date,
or by attending the Meeting and voting in person.
4
<PAGE>
VOTING SECURITIES AND SECURITY OWNERSHIP
SHARES ENTITLED TO VOTE, REQUIRED VOTE AND QUORUM
At the close of business on January 19, 1998, there were 36,894,673 shares of
the Company's common stock outstanding. There is no other class of voting
securities outstanding. The record date fixed by the Board of Directors for the
determination of Stockholders entitled to notice of and to vote at the Meeting
is the close of business on January 19, 1998. At the Meeting, such Stockholders
will be entitled to one vote for each share of common stock owned at the record
date. The presence at the Meeting, in person or by proxy, of persons entitled to
cast the votes of a majority of such outstanding shares of common stock will
constitute a quorum for consideration of the matters expected to be voted on at
the Meeting. Abstentions and broker non-votes will be included in the
calculation of the number of Stockholders who are present at the Meeting for the
purposes of determining a quorum. The affirmative vote of the holders of at
least a majority of the outstanding shares of common stock present in person or
represented by proxy at the Meeting and entitled to vote is required to approve
each of Proposals Two and Four. The affirmative vote of the holders of at least
a majority of the outstanding shares of common stock entitled to vote is
required to approve Proposal Three; accordingly, abstentions will have the
effect of a vote against Proposal Three. Under the rules of the New York Stock
Exchange, brokers who hold shares in street name for customers will not have the
authority to vote on Proposal Two unless they receive specific instructions from
beneficial owners. Broker non-votes will not be counted as a vote for or against
the approval of Proposal Two.
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth certain information as of January 19, 1998
respecting the holdings of: (i) each person who was known to the Company to be
the beneficial owner of more than 5% of the common stock of the Company; (ii)
each director and nominee for director of the Company and each executive officer
named in the Summary Compensation Table under "Executive Compensation"; and
(iii) all directors and executive officers of the Company as a group. Each of
the persons named in the table below as beneficially owning the shares set forth
therein has sole voting power and sole investment power with respect to such
shares, unless otherwise indicated.
<TABLE>
<CAPTION>
PERCENT OF
AMOUNT AND NATURE OF COMMON
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) STOCK(1)
- ------------------------ ----------------------- --------
<S> <C> <C>
Robert I. Toll................................................... 6,936,507(2)(3) 18.4
Bruce E. Toll.................................................... 6,283,230(2) 16.7
Firstar Corporation/Firstar Investment Research
& Management Company/Firstar Bank Wisconsin................... 2,888,300(4) 7.8
Zvi Barzilay..................................................... 364,000 1.0
Robert S. Blank.................................................. 83,500 *
Richard J. Braemer............................................... 78,500 *
Roger S. Hillas.................................................. 93,500 *
Carl B. Marbach.................................................. 76,200(5) *
Joel H. Rassman.................................................. 186,981 1.0
Paul E. Shapiro.................................................. 53,500 *
All directors and executive officers as a group
(9 persons)................................................... 14,155,918(3)(5)(6) 36.0
</TABLE>
* Less than 1%.
5
<PAGE>
(1) Shares issuable pursuant to options exercisable within 60 days of December
31, 1997 are deemed to be beneficially owned; accordingly, information
includes the following number of shares of common stock underlying options
held by the following individuals, and all directors and executive officers
as a group: Robert I. Toll and Bruce E. Toll, 797,750 shares each; Mr.
Barzilay, 345,700 shares; Mr. Blank, 82,500 shares; Mr. Braemer 67,500
shares; Mr. Hillas, 82,500 shares; Mr. Marbach, 72,500 shares; Mr. Rassman,
177,500 shares; Mr. Shapiro 52,500 shares and all directors and executive
officers as a group, 2,476,200 shares.
(2) The address for Robert I. Toll and Bruce E. Toll is c/o Toll Brothers,
Inc., 3103 Philmont Avenue, Huntingdon Valley, Pennsylvania 19006.
(3) Includes 17,500 shares owned by the Robert and Jane Toll Foundation of
which Robert I. Toll is a trustee, with dispositive power, as to which he
disclaims beneficial ownership.
(4) Based on a Schedule 13G as of December 31, 1996 which states that the
address of Firstar Corporation is 777 E. Wisconsin Avenue, Milwaukee,
Wisconsin 53202, that the amount of shares is as of December 31, 1996 and
that Firstar Corporation has sole voting power with respect to 2,164,800
shares, shared voting power with respect to 600,900 shares, sole
dispositive power with respect to 2,287,400 shares and shared dispositive
power with respect to 600,900 shares. In addition, Firstar Investment
Research Management Company ("Firstar Investment"), a wholly owned
subsidiary of Firstar Corporation, filed a Schedule 13G as of December 31,
1996, that the Company believes is related to the same shares of the
Company's common stock as those reported by Firstar Corporation, which
states that the address of Firstar Investment is 777 E. Wisconsin Avenue,
Milwaukee, Wisconsin 53202, that the amount of shares is as of December 31,
1996 and that Firstar Investment has sole voting power with respect to
828,200 shares, shared voting power with respect to 1,853,300 shares, sole
dispositive power with respect to 950,800 shares and shared dispositive
power with respect to 1,937,500 shares. Firstar Bank Wisconsin ("Firstar
Bank") a subsidiary of Firstar Corporation also filed a Schedule 13G as of
December 31, 1996, that the Company believes is related to the same shares
of the Company's common stock as those reported by Firstar Corporation
which states that the address of Firstar Bank is One South Pinckney Street,
Madison, Wisconsin 55703, that the amount of shares is as of December 31,
1996 and that Firstar Bank has sole voting power with respect to 1,333,200
shares, shared voting power with respect to 451,700 shares, sole
dispositive power with respect to 1,333,200 shares, and shared dispositive
power with respect to 451,700 shares.
(5) Includes 2,350 shares beneficially owned by individual retirement accounts
for the benefit of Mr. Marbach and his wife. Mr. Marbach disclaims
beneficial ownership of the 1,175 shares held by his wife's IRA.
(6) The Board of Directors, after reviewing the functions of all of the
Company's officers, both in terms of designated function and functions
actually performed, has determined
6
<PAGE>
that, for purposes of Section 16 of the Securities Exchange Act of 1934 and
the rules thereunder and Regulation S-K, only the Chief Executive Officer,
Chief Operating Officer, Executive Vice President, and the Senior Vice
President and Chief Financial Officer are deemed to be officers or
executive officers of the Company for reporting purposes under such
provisions, respectively.
7
<PAGE>
PROPOSAL ONE
ELECTION OF THREE DIRECTORS FOR TERMS ENDING 2001
At the Meeting, the Stockholders will elect three directors to hold office until
the 2001 Annual Meeting of Stockholders and until their respective successors
have been duly elected and qualified. The Company's Board of Directors is
divided into three classes serving staggered three-year terms, with the term of
one class of directors expiring each year. The directors whose three year terms
of office expire at the Meeting are Messrs. Zvi Barzilay, Richard J. Braemer and
Carl B. Marbach.
The Board of Directors has nominated Messrs. Zvi Barzilay, Richard J. Braemer
and Carl B. Marbach to serve again as directors until the 2001 Annual Meeting of
Stockholders and until their respective successors have been duly elected and
qualified. Such nominees have indicated a willingness to continue to serve as
directors. Should a nominee become unavailable to accept election as a director,
the persons named in the enclosed proxy will vote the shares which such proxy
represents for the election of such other person as the Board of Directors may
recommend.
The nominees for election as the directors to be elected at the Meeting and the
directors whose terms of office continue after the Meeting, together with
certain information about them, are set forth below:
<TABLE>
<CAPTION>
DIRECTOR TERM
NAME AGE SINCE EXPIRES POSITIONS WITH THE COMPANY
- ---- --- ----- ------- --------------------------
<S> <C> <C> <C> <C>
Robert I. Toll............ 57 1986 1999 Chairman of the Board of Directors
and Chief Executive Officer
Bruce E. Toll............. 54 1986 1999 President, Chief Operating Officer,
Secretary and Director
Zvi Barzilay.............. 51 1994 1998 Executive Vice President and
Director
Robert S. Blank........... 57 1986 2000 Director
Richard J.Braemer .........56 1986 1998 Director
Roger S. Hillas........... 70 1988 2000 Director
Carl B. Marbach........... 56 1991 1998 Director
Joel H. Rassman........... 52 1996 1999 Senior Vice President, Treasurer,
Chief Financial Officer and Director
Paul E. Shapiro........... 56 1993 2000 Director
</TABLE>
Robert I. and Bruce E. Toll, who are brothers, co-founded the Company's
predecessors' operations in 1967 and have been members of the Board of Directors
since the Company's inception in May 1986. Both are also members of the Stock
Option Committee, which administers the Company's Amended and Restated Stock
Option Plan (1986) (the "1986 Plan") and the Company's Stock Option and
Incentive Stock Plan (1995) (the "1995 Plan"), the Shelf Terms Committee, the
Compensation Committee of the Board of Directors, the Employee Stock Purchase
Plan Committee and the Special Transactions Committee. Their principal
occupations since the Company's inception have been related to their various
homebuilding and other real estate related activities.
Zvi Barzilay became a member of the Board of Directors in June 1994. Mr.
Barzilay joined the Company in 1980 as a project manager, was appointed a Vice
President in 1983 and held the position of Executive Vice President-Operations
of the Company from September 1989 until October 1992 when he was appointed to
the position of Executive Vice President of the Company. Mr. Barzilay is a
member of the Special Transactions Committee.
Robert S. Blank became a member of the Board of Directors in September 1986. For
more than five years, Mr. Blank has been a partner in Whitcom Partners, a
partnership with offices in New York City, which owns and operates newspapers
and cable television systems and formerly owned and operated broadcast
television stations and radio stations, in some cases in partnership with
others. Mr. Blank is a member of the Subordinated Debt-Repurchase Authorization
Committee, the Special Transactions Committee and the Real Estate Utilization
Committee. Mr. Blank is a member of the Board of Directors of Devon Group, Inc.,
a publicly traded reporting company.
Richard J. Braemer became a member of the Board of Directors in September
1986. Since January 1994, Mr. Braemer has been a partner in the Philadelphia law
firm of Ballard, Spahr, Andrews & Ingersoll. From May 1992 to December 1993, Mr.
Braemer was a shareholder in the Philadelphia law firm of Hangley Connolly
Epstein Chicco Foxman & Ewing, P.C. Mr. Braemer is a member of the Subordinated
Debt-Repurchase Authorization Committee and the Real Estate Utilization
Committee. Mr. Braemer is a member of the Board of Directors of Advanta Corp., a
publicly traded reporting company.
8
<PAGE>
Roger S. Hillas became a member of the Board of Directors in April 1988.
From July 1988 until December 1992, Mr. Hillas was chairman and chief executive
officer of Meritor Savings Bank, a publicly traded reporting company; since that
time, he has been retired. Prior to July 1988, Mr. Hillas was chairman of PNC
Financial Corp. and of Provident National Bank. Mr. Hillas is a member of the
Subordinated Debt-Repurchase Authorization Committee and the Special
Transactions Committee. Mr. Hillas is a member of the Board of Directors of P.H.
Glatfelter Company, Conrail Inc, and The Bon-Ton Stores, Inc., each of which is
a publicly traded reporting company.
Carl B. Marbach became a member of the Board of Directors in December 1991 and
is a member of the Compensation Committee of the Board of Directors, the Audit
Committee, the Compensation Committee for Key Executives and Non-Employee
Directors which administers Key Executives and Non-Employee Directors Stock
Option Plan (1993) (the "1993 Plan") and the Shelf Terms Committee. Since
January 1995, Mr. Marbach has been President of Internetwork Publishing Corp.,
an electronic publisher, which he founded. From September 1992 to December 1994,
Mr. Marbach was the President of M-2 Systems, Inc., a consulting firm which he
founded.
Joel H. Rassman became a member of the Board of Directors in September
1996. Mr. Rassman joined the Company in 1984 as Senior Vice President, Treasurer
and Chief Financial Officer of the Company. Mr. Rassman is a member of the
Employee Stock Purchase Plan Committee and the Special Transactions Committee.
Paul E. Shapiro became a member of the Board of Directors in December 1993 and
is a member of the Audit Committee and the Compensation Committee for Key
Executives and Non-Employee Directors. Since July 1997, Mr. Shapiro has been
Executive Vice President and General Counsel of The Coleman Company, Inc. From
January 1994 to June 1997, Mr. Shapiro had been an Executive Vice
President/Chief Administrative Officer/General Counsel of Marvel Entertainment
Group, Inc., a publicly traded reporting company. In December 1996, Marvel
Entertainment Group, Inc. filed a Chapter 11 bankruptcy petition. From March
1991 to December 1993, Mr. Shapiro was a shareholder of the West Palm Beach,
Florida law firm of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quental and was
of counsel to that firm until January 1, 1996.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held four meetings during the Company's last fiscal year
and also acted by unanimous consent in writing.
The Board of Directors currently has an Audit Committee, a Stock Option
Committee, a Compensation Committee of the Board of Directors, a Compensation
Committee for Key Executives and Non-Employee Directors, a Subordinated
Debt-Repurchase Authorization Committee, a Shelf Terms Committee, an Employee
Stock Purchase Plan Committee, a Special Transactions Committee, and a Real
Estate Utilization Committee. The Audit Committee held three formal meetings
during the last fiscal year, of which two were attended by the Company's
independent auditors, to discuss the scope of the annual audit and questions of
accounting policy and internal control. The Stock Option Committee held one
formal meeting during the Company's last fiscal year. During the Company's last
fiscal year, the Compensation Committee for Key Executives and Non-Employee
Directors which administers the Cash Bonus Plan, the 1986 Plan, 1993 Plan and
the 1995 Plan held one formal meeting. The Shelf Terms Committee, the Special
Transactions Committee and the Real Estate Utilization Committee each held one
formal meeting during the Company's last fiscal year.
COMPENSATION OF DIRECTORS
Non-employee directors receive $4,000 for each full-day meeting that they
attend, $2,000 for each half-day meeting that they attend, and $1,500 for each
telephonic Board of Directors meeting or committee meeting in which they
participate. In addition, each non-employee director receives an annual grant of
options for 15,000 shares of the Company's common stock under the 1993 Plan.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR"
ZVI BARZILAY, RICHARD J. BRAEMER AND CARL B. MARBACH FOR DIRECTOR.
9
<PAGE>
PROPOSAL TWO
APPROVAL OF THE COMPANY'S STOCK INCENTIVE PLAN (1998)
On December 17, 1997, the Board of Directors of the Company adopted,
subject to stockholder approval, the Toll Brothers, Inc. Stock Incentive Plan
(1998), (the "1998 Plan"), making 2,500,000 shares of stock in the Company
available for grants of options ("Options") and awards of stock ("Awards"),
subject to the terms and conditions set forth in the Plan. The 1998 Plan is
intended to form a part of the Company's overall compensation programs for
employees and directors of the Company and of its affiliates, and to serve as a
particular incentive for all such employees and directors to devote themselves
to the future success of the Company by providing compensation in the form of
such Options and Awards. The affirmative vote of the holders of a majority of
the Company's common stock present in person or represented by proxy at the
meeting and entitled to vote is required to approve the adoption of the Plan. If
not so approved, the Plan shall be null and void, and any options or awards
granted thereunder will also be null and void.
Each Option granted under the 1998 Plan to an employee of the Company or an
affiliate (as that term is defined in that plan) is intended to be an incentive
stock option ("ISO") within the meaning of section 422(b) of the Internal
Revenue Code of 1986, as amended (the "Code"), for federal income tax purposes,
except to the extent (i) any such ISO grant would exceed the statutory
limitations on such grants, (ii) any Option is specifically designated at the
time of grant as not being an ISO ("Non-Qualified Stock Option"), and (iii) any
Option is granted to a Non-employee member of the Board of Directors (a
"Non-employee Director") under the special provisions for such grants discussed
below. No Option granted to a person who is not an employee of the Company or an
affiliate on the date the Option is granted will be an ISO.
In the opinion of the Board of Directors of the Company, the ability to
grant Options and make Awards to employees and to Non-employee Directors permits
the Company to recognize the contributions made to the Company by such persons
and provides them with an additional incentive to enter into or remain in the
employ of the Company or on the Board of Directors of the Company and to devote
themselves to the Company's success by providing them with an opportunity to
acquire or increase their proprietary interest in the Company.
The key provisions of the Plan are as follows:
1. Number of Shares. Initially, the aggregate maximum number of shares of
the Company's common stock ("common stock") for which Options may be granted
under the Plan is 2,500,000, subject to adjustment in the event there is a
reorganization, merger, consolidation, recapitalization, reclassification, stock
split-up, or similar transaction with respect to the Company's stock. In such
event, the Committee (as defined below) has the authority to determine what
adjustments are appropriate. For each fiscal year during the term of the Plan
commencing with November 1, 1998, the number of shares of the common stock which
are available for grants of Options and Awards will be equal to the total number
of such shares which were available for such grants in the immediately preceding
fiscal year (reduced by the number of shares subject to grants actually made
during that fiscal year), plus a number of additional shares of common stock
equal to 2.5% of the Company's outstanding shares of common stock (including
treasury shares) as of the first day of the fiscal year in which those
additional shares are to become available for grants of Options and Awards. The
total number of shares of common stock available for the issuance of Options and
grants of Awards during any one fiscal year, however, shall in no event exceed
2,500,000. As of January 26, 1998, the market value of the 2,500,000 shares of
common stock available for issuance under the Plan was $70,156,250 based on the
closing price for the common stock on the New York Stock Exchange on that date.
2. Administration. The Plan will be administered by the Board of Directors
(without the participation by any member of the Board of Directors on any
matters pertaining to him or her), unless the Board of Directors designates a
committee or more than one committee (each such committee being composed of two
or more members of the Board) to operate and administer the Plan in its stead.
The members of the Board of Directors will, in all events, operate and
administer the Plan with respect to Option grants made to the non-employee
members of the Board pursuant to the formula for such grants set forth in the
Plan (as explained in more detail below). Any administrative committee
designated by the Board of Directors, and the Board of Directors itself in its
administrative capacity with respect to the Plan is referred to as the
"Committee."
3. Eligibility. All employees of the Company or its affiliates (including
employees who are members of the Board of Directors or of a board of directors
of any affiliate) are eligible under the terms of the Plan to receive "ISOs" or
"incentive stock options" (as defined under applicable provisions of the Code).
In addition, all such employees and all members of the Board of Directors are
eligible under the terms of the Plan to receive Awards and Options that are not
ISOs ("NQSOs"). The Committee, in its sole discretion, determines whether an
individual qualifies to receive any Options or Awards under the Plan. As of
December 31, 1997, approximately ___ employees of the Company and its
affilitates and ___ Non-employee Directors are eligible to participate in the
Plan.
4. Term of Plan. No Option may be granted under the Plan after December 16,
2007.
5. Number of Option Grants. Each grant of an Option under the Plan will be
set forth in an Option document that will specify the number of shares subject
to the Option. An optionee may receive more than one Option and may be granted
Options
10
<PAGE>
which are ISOs, NQSOs or a combination. In no event, however, will Options to
acquire more than 1,000,000 shares of the Company's common stock be granted to
any individual employee during any one calendar year.
6. Term of Options. In general, any Option granted under the Plan will
terminated on the first to occur of the following events:
(a) The end of the term specified in the Option Document. This may not
be more than ten years from the date the Option is granted if the Option is
an ISO (and may not be more than 5 years from that date in the case of an ISO
that is granted to an employee who, as of the date of the grant, owns or is
treated as owning under certain rules applicable under the Code, more than ten
percent of the total combined voting power of all classes of stock of the
Company or of any affiliate of the Company). The term for any Option other than
ISOs may not be for more than ten years and one day from the date the Option is
granted.
(b) The end of the three month period (or the end of a shorter period
set forth in the Option Document for this purpose by the Committee) from
the date the Optionee's employment or service with the Company or its affiliates
terminates other than by reason of the Optionee's disability or death.
(c) The end of the one year period from the date the Optionee's
employment or service with the Company terminates by reason of the Optionee's
death or disability.
(d) The occurrence of the date, if any, which is established by the
Committee as an accelerated expiration date in the event of a "Change in
Control" (as defined below) provided an Optionee who holds an Option is given
written notice at least 30 days before the date so fixed.
(e) The occurrence of the date established by the Committee as
an accelerated expiration date after a finding by the Committee that a change in
the financial accounting treatment for Options (as compared with the accounting
treatment of Options in effect on the date the Plan was adopted) has or may in
the foreseeable future have an adverse effect on the Company. In such
circumstances, the Committee may take any other action (including accelerating
the exercisability of Options) which it deems necessary.
(f) A finding by the Committee, after full consideration of the facts
presented on behalf of both the Company and the Optionee, that the Optionee
has breached his or her employment or service contract with the Company or an
Affiliate, or has been engaged in any sort of disloyalty to the Company or an
Affiliate, including, without limitation, fraud, embezzlement, theft, commission
of a felony or proven dishonesty in the course of his or her employment or
service or has disclosed trade secrets of the Company or an Affiliate. In such
event, the Optionee will also automatically forfeit all subject to Options
previously exercised that have not yet been delivered to the Optionee and the
Optionee will receive a refund of any amounts paid for such shares.
During the period following an Optionee's termination of service or
employment with the Company or its affiliates, the Optionee may only exercise
his or her Option to acquire the shares which could have been acquired under
that Option as of the date the Optionee's service or employment with the Company
or its affiliates terminated.
Notwithstanding the general termination provisions described above, the
Committee has the authority under the Plan to permit an Option to continue to
vest following an Optionee's termination of employment or service, and may
extend the period during which an Option may be exercised to a date no later
than the date of the expiration of the Option term originally specified in the
Option Documents.
7. Option Exercise Price. The option exercise price for all Options will in
all cases be at least equal to the fair market value of the shares subject to
the Option determined on the date of grant. In the case of an ISO granted to an
employee who, as of the date of the grant, owns or is treated as owning under
certain rules applicable under the Code, more than ten percent of the total
combined voting power of all classes of stock of the Company or of any affiliate
of the Company, the option exercise price will be at least equal to 110% of the
fair market value of the shares subject to the ISO. Under the Plan, fair market
value generally is the last reported sale price of shares on the relevant date
on the New York Stock Exchange or on such exchange as determined by the
Committee from time to time. If the Company's common stock is not listed on a
national securities exchange or included in the NASDAQ National Market System,
fair market value will be the mean between the last reported "bid" and "asked"
prices for such shares on the relevant date, as reported on NASDAQ or, if not so
reported, as reported by the National Daily Quotation Bureau, Inc. or as
otherwise reported in a customary financial reporting service, as applicable. In
all events, determinations as to the fair market value of the Company's stock
will be made by the Committee.
11
<PAGE>
8. Payment. An Option holder may pay for shares in cash, certified or
cashier's check, or by such mode of payment as the Committee may approve,
including payment through a broker. The Committee also has the authority to
provide in an Option Document that the Optionee may make payment for his or her
shares in whole or in part using shares of the Company's held by the Optionee
for more than one year, subject to the Committee's right to refuse to accept
such shares as payment, at its sole discretion.
9. Option Documents; Restriction on Transferability; Other Provisions. All
Options will be evidenced by a document containing provisions consistent with
the Plan and such other provisions as the Committee deems appropriate. No Option
granted under the Plan may be transferred, except by will, the laws of descent
and distribution or, in the case of a non-qualified stock option, pursuant to a
"qualified domestic relations order," within the meaning of the Code or in Title
I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
The Committee also has the authority under the Plan to include other terms and
conditions in Option Documents to the extent such terms and conditions are not
inconsistent with applicable provisions of the Plan.
10. Options Granted to Non-employee Members of the Board of Directors.
Under the Plan, Options are granted to Non-employee Directors automatically
under a formula set forth in the Plan. The Option granted to each Non-employee
Director under the formula will be a NQSO, will have an option exercise price
equal to the fair market value of the underlying shares as of the date granted,
will vest in two equal annual installments on the first and second anniversary
of the date the Option is granted, and, except as specified in the formula
provisions under the Plan, will be subject to the same terms and conditions as
any other Options granted under the Plan.
(a) The formula for the Option grants to Non-employee Directors provides
for the following:
(i) Basic Grant. Each Non-employee Director who was a member of the
Board of Directors on December 17, 1997, receives an Option, starting
December 20, 1998 and on each December 20 thereafter during the term of the Plan
to purchase 15,000 shares of Company common stock. Any Non-employee Director who
becomes a member of the Board of Directors during the term of the Plan on any
date from December 1 through December 20 of any year after 1997 is granted an
Option as of the December 20 on or after the day he or she first becomes a
member of the Board of Directors (for a number of shares described below), and
on each December 20 thereafter during the term of the Plan, for 15,000 shares of
common stock on the same terms as granted to other Non-employee Directors. Any
Non-employee Director who becomes a member of the Board of Directors on any
other date receives an initial grant of an option on the day he or she becomes a
member of the Board as follows: If a Non-employee Director first becomes a
member of the Board on any date from December 21 through September 1 (of the
next year), his or her initial grant will be for 10,000 shares. If a
Non-employee Director first becomes a member of the Board on any date from
September 1, through November 20, his or her initial option will be for 5,000
shares. Each such Non-employee Director receives, thereafter, annual option
grants on each December 20 while continuing to serve as a Non-employee Director,
on the terms described above with respect to the annual grants to Non-employee
Directors.
(ii) Committee Membership Supplement. Effective for each grant to
Non-employee Directors made under the formula described above, starting with the
grant to be made on December 20, 1998, the number of shares for which Options
are granted to each Non-employee Director, will be equal to the number of shares
determined under the above formula plus an additional number of shares
determined by reference to the Non-employee Director's participation in certain
committees. If the Non-employee Director is a member of the Audit Committee, he
or she will be granted an additional 1,000 shares. If the Non-employee Director
is a member of any other committee, he or she will be granted an additional 500
shares for each such committee.
For purposes of determining the additional shares for which Options are
granted on account of committee membership, the following rules apply: A
Non-employee Director is treated as serving on a committee of the Board if he or
she was, at any time during the calendar year in which the Option is granted, a
member of the committee and sat on one or more meetings of such committee during
such calendar year. In making the determination of the additional shares to be
granted to any Non-employee Director, no more than four committees if one of the
committees is the Audit Committee are taken into account, and, in all other
cases, no more than three committees are taken into account. The committees of
the Board that are taken into account in this determination are determined by
the Board of Directors from time to time. Currently the committees are the Audit
Committee, the Compensation Committee, the Subordinated Debt-Repurchase
Authorization Committee, the Shelf Term Committee and the Employee Stock
Purchase Plan Committee.
(b) The Options granted to the Non-employee Directors under the formula
described above are intended as a replacement of, and not as an addition to, any
options that are granted to such Non-employee Directors under the formula
provisions of the Toll Brothers, Inc. Key Executives and Non-employee Directors
Stock Option Plan (the "1993 Plan"). As a consequence, the number of shares of
for which an Option would otherwise be granted to a Non-employee Director under
the formula described above
12
<PAGE>
is reduced by the number of shares subject to any option granted under the terms
of the 1993 Plan as of the same date.
If the Plan had been in effect during fiscal year 1997, Non-employee
directors as a group would have received, in the aggregate, options for the
purchase of _____ shares of common stock pursuant to the formula option grant
provisions described in paragraphs 10 (a) (i) and 10 (a) (ii) above.
(c) Termination of Non-employee Director Options. The Options granted
pursuant to the formula described above terminate on the first of the following
events: (i) expiration of ten years from the date of grant, (ii) expiration of
three months from the date the Optionee's service with the Company or its
affiliates terminates for any reason other than disability or death, or (iii)
expiration of one year from the date the Optionee's service with the Company or
its affiliates terminates by reason of his or her disability or death.
11. Awards. Under the terms of the Plan, the Committee has the authority to
make stock awards ("Awards"), in which case the terms are set forth in a written
"Award Agreement." These Awards will be consistent with the terms of the Plan
and may have such other terms or conditions (including conditions which may
result in a forfeiture) which the Committee deems appropriate, which may be
established on a case by case basis. The restrictions, if any, on an Award may
lapse (i.e., the Award may become vested) at specific times or on the occurrence
of events. This vesting may occur as to all of the shares subject to an Award or
may occur in installments. The Committee also has the authority under the Plan
to shorten or waive any condition or restriction with respect to all or any
portion of an Award. Any shares granted under an Award will become fully vested
and transferable if they have not been forfeited as of the date the grantee
becomes disabled or dies. The Award Agreement will specify the following
information: (a) the number of shares granted,(b) the purchase price, if any, to
be paid by the grantee, (c) the date on which shares granted are to be
transferred, (d) the terms and conditions under which the shares may be
forfeited, or (e) the manner in which the restrictions, if any, will lapse
(i.e., become vested).
Once the shares of common stock granted under an Award become fully vested,
a stock certificate for those shares will be delivered, free of all restrictions
other than those that may be imposed by law or under the terms of any
shareholders agreement in effect at the time. If an Award includes any
fractional shares, the Company may, at its option, pay the fair market value of
the fractional share rather than deliver a certificate for the fractional share.
If the shares of common stock granted under an Award are subject to
restrictions and the grantee of such an Award files an election with the
Internal Revenue Service to include the fair market value of any shares of
common stock granted pursuant to an Award in gross income without regard to such
restrictions, the grantee must promptly provide a copy of that election to the
Company, along with the amount of any federal, state, local or other taxes
required to be withheld in order to enable the Company to claim an income tax
deduction with respect to such election.
If the Committee determines that the grantee of an Award has breached his
or her employment or service contract with the Company or an Affiliate, or has
been engaged in disloyalty to the Company or an Affiliate, including, without
limitation, fraud, embezzlement, theft, commission of a felony or proven
dishonesty in the course of his or her employment or service, or has disclosed
trade secrets or confidential information of the Company or any of its
affiliates, the shares subject to the Award that have not previously become
fully vested or for which certificates have not yet been delivered will be
forfeited. The Company has the right to withhold delivering any certificates for
any shares pending the resolution of an inquiry that could lead to a finding
resulting in a forfeiture.
The Committee generally has the right to amend the terms of outstanding
Awards, subject to the consent of the grantee of the Award if the proposed
amendment is not favorable to him or her. This requirement for the grantee's
consent does not apply if the amendment to the Award is made in connection with
a Change of Control of the Company.
12. Provisions Relating to a "Change of Control" of the Company. In the
event of a Change of Control (as defined below), the Committee may take whatever
action with respect to the Options or Awards outstanding that it deems necessary
or desirable, including, without limitation, accelerating the expiration or
termination date of any Options to a date no earlier than 30 days after notice
of the acceleration is given to the Optionees. In addition to the foregoing, in
the event of a Change of Control, Options and Awards granted pursuant to the
Plan will become immediately fully vested, the Options will become exercisable
in full, and all restrictions, if any, as may be applicable to shares granted
pursuant to Awards will lapse.
A "Change of Control" occurs under the Plan on the date any of the
following events occurs:
(a) The stockholders of the Company (or the Board of Directors, if
stockholder action is not required) approve a plan or other arrangement pursuant
to which the Company will be dissolved or liquidated.
13
<PAGE>
(b) The stockholders of the Company (or the Board of Directors, if
stockholder action is not required) approve a definitive agreement to sell or
otherwise dispose of substantially all of the assets of the Company.
(c) The stockholders of the Company (or the Board of Directors, if
stockholder action is not required) and the stockholders of the other
constituent corporation (or its board of directors if stockholder action is not
required) have approved a definitive agreement to merge or consolidate the
Company with or into such other corporation, other than, in either case, a
merger or consolidation of the Company in which holders of shares of the common
stock immediately prior to the merger or consolidation will hold at least a
majority of the ownership of common stock of the surviving corporation (and, if
one class of common stock is not the only class common stock of voting
securities entitled to vote on the election of directors of the surviving
corporation, a majority of the voting power of the surviving corporation's
voting securities) immediately after the merger or consolidation, which common
stock (and, if applicable, voting securities) is to be held in the same
proportion as such holders' ownership of common stock immediately before the
merger or consolidation.
(d) Any entity, person or group, (within the meaning of Section
13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934, as
amended), (other than (A) the Company or any of its subsidiaries or any employee
benefit plan (or related trust) sponsored or maintained by the Company or any of
its subsidiaries or (B) any person who, on the date the Plan is effective, shall
have been the beneficial owner of at least twenty percent of the outstanding
common stock ), shall have become the beneficial owner of, or shall have
obtained voting control over, more than fifty percent of the outstanding shares
of the common stock.
(e) Directors are elected such that a majority of the Board of Directors
shall have been members of the Board of Directors for less than twenty-four
months (unless the nomination for election of each new director who was not a
director at the beginning of such twenty-four month period was approved by a
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of such period).
13. Amendments to Option Documents and the Plan. Subject to the provisions
of the Plan, the Committee may amend an Option document, subject to the consent
of the Option holder if the amendment is not favorable and is not being made
pursuant to provisions of the Plan relating to a "Change of Control" of the
Company. The Board of Directors may amend the Plan from time to time in such
manner as it may deem advisable. Nevertheless, the Board of Directors may not,
without obtaining approval by vote of a majority of the outstanding voting stock
of the Company, within twelve months before or after such action, change the
class of individuals eligible to receive an ISO, extend the expiration date of
the Plan, decrease the minimum Option Price of an ISO granted under the Plan or
increase the maximum number of shares as to which Options may be granted.
14. Tax Aspects of the Plan. The following discussion is intended to
summarize briefly the general principles of federal income tax law applicable to
Options granted under the Plan as of the date hereof.
Taxation of ISOs. A recipient of an ISO will not recognize regular taxable
income upon either the grant or exercise of the ISO. The Option holder will
recognize capital gain or loss on a disposition of the shares acquired upon
exercise of an ISO, provided the Option holder does not dispose of those shares
within two years from the date the ISO was granted or within one year after the
shares were transferred to such Option holder. For regular federal income tax
purposes, the maximum rate of tax applicable to capital gains is dependent on
the length of time the shares have been held at the time of sale. If the shares
have been held for more than 18 months, the maximum regular federal tax rate
applicable to the gain on the sale will be 20%. If the shares have been held for
more than a year, but not more than 18 months, the maximum regular federal tax
rate will be 28%. If the shares have been held for one year or less, the gain on
the sale will be taxed at the same maximum tax rate (39.6%) applicable to other
taxable income generally. If the Option holder satisfies both of the foregoing
holding periods, then the Company will not be allowed a deduction by reason of
the grant or exercise of an ISO.
As a general rule, if the Option holder disposes of the shares acquired
through the exercise of an ISO before satisfying both holding period
requirements (a "disqualifying disposition"), the gain recognized by the Option
holder on the disqualifying disposition will be taxed as ordinary income to the
extent of the difference between (a) the lesser of the fair market value of the
shares on the date of exercise or the amount received for the shares in the
disqualifying disposition, and (b) the adjusted basis of the shares, and the
Company will be entitled to a deduction in that amount. The gain (if any) in
excess of the amount recognized as ordinary income on a disqualifying
disposition will be treated as capital gain, with the maximum federal tax rate
determined by reference to the length of time the Option holder held the shares
prior to the disposition, as discussed above.
The amount by which the fair market value of a share at the time of
exercise exceeds the option exercise price will be included in the computation
of such Option holder's "alternative minimum taxable income" in the year the
Option holder exercises
14
<PAGE>
the ISO. Currently, the maximum alternative minimum tax rate is 28%. If an
Option holder pays alternative minimum tax with respect to the exercise of an
ISO, then the amount of such tax paid will be allowed as a credit against
regular tax liability in subsequent years. The Option holder's basis in the
shares for purposes of the alternative minimum tax will be adjusted when income
from a disposition of the shares is included in alternative minimum taxable
income.
Taxation of Non-qualified Stock Options. A recipient of a non-qualified
stock option will not recognize taxable income at the time of grant, and the
Company will not be allowed a deduction by reason of the grant. Such an Option
holder will generally recognize ordinary income in the taxable year in which the
Option holder exercises the non-qualified stock option in an amount equal to the
excess of the fair market value of the shares received upon exercise at the time
of exercise of such Options over the option exercise price of the Option. The
Company will, subject to various limitations, be allowed a deduction in the same
amount. Upon disposition of the shares subject to the Option, an Option holder
will recognize capital gain or loss equal to the difference between the amount
realized on disposition and the Option holder's basis in the share (which
ordinarily would be the fair market value of the share on the date the Option
was exercised). The maximum federal tax rate applicable to such capital gain is
determined by reference to the length of time the Option holder held the shares
prior to the disposition, as discussed above.
Withholding. Whenever the Company would otherwise transfer a share of
Company common stock under the terms of the Plan, the Company has the right to
require the recipient to make available sufficient funds to satisfy all
applicable federal, state and local withholding tax requirements as a condition
to the transfer, or to take whatever other action the Company deems necessary
with respect to its tax liabilities.
Deductibility of Executive Compensation Under the Million Dollar Cap
Provisions of the Internal Revenue Code. Section 162(m) of the Code sets limits
on the deductibility of compensation in excess of $1,000,000 paid by publicly
held companies to certain employees (the "million dollar cap"). The IRS has also
issued Treasury Regulations which provide rules for the application of the
"million dollar cap" deduction limitations. Income which is treated as
"performance-based compensation" under these rules will not be subject to the
limitation on deductibility imposed by Code Section 162(m). In order for income
which is recognized as ordinary compensation income on the exercise of a
non-qualified stock option to be treated as "performance-based" compensation
under these rules (i.e., not subject to the deduction limitations of the
"million dollar cap"), the non-qualified stock option must be granted under a
plan which complies in form with certain rules, the plan must be administered
consistent with those rules, and the non-qualified stock option must meet
certain requirements. The Plan and the non-qualified stock options comply in
form with the applicable "performance-based compensation" rules. It is the
intention of the Board of Directors to cause the Plan to be administered by
"outside directors" consistent with the rules applicable to plan administration
to the extent that is possible and to the extent other considerations do not
cause the Board of Directors to conclude that such compliance with the
administrative rules is not in the best interests of the Company. It is,
therefore, anticipated that ordinary compensation income attributable to
non-qualified stock options granted under the Plan as amended generally will be
treated as "performance-based" compensation exempt from the "million dollar cap"
rules unless circumstances at the time of any such grant cause the Board of
Directors to determine that compliance with the applicable requirements is not
in the best interests of the Company. The Board of Directors also anticipates
that it will, in such event, take such steps as it deems appropriate in order to
avoid to the extent practicable any detrimental impact of the "million dollar
cap."
Except as otherwise specifically described above with respect to Options to
be granted to Non-employee Directors, the benefits or amounts that will be
received by or allocated to any executive officers, directors or employees are
not currently determinable since no specific grants have been decided upon.
The affirmative vote of the holders of a majority of the Company's common
stock present at the Meeting in person or by proxy is required to approve the
1998 Plan. The Company has been advised that Robert I. Toll and Bruce E. Toll
intend to vote the shares of they beneficially own in favor of the approval of
the 1998 Plan. If they do so, it is likely that the 1998 Plan will be approved
by the Shareholders. See "Voting Securities and Security Ownership -- Security
Ownership of Principal Shareholders and Management."
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" PROPOSAL TWO
PROPOSAL THREE
APPROVAL OF AMENDMENT OF THE CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER
OF AUTHORIZED SHARES OF THE COMPANY'S CAPITAL STOCK
15
<PAGE>
Due to the substantial costs to the Company of the Delaware corporate
franchise tax, which is based in part on the number of authorized shares of
capital stock, the Stockholders, at the 1993 annual meeting, authorized the
Board of Directors to file certificates of amendment to the Company's
Certificate of Incorporation (the "Certificate") to reduce the Company's capital
stock from 60,000,000 shares of common stock to 40,000,000 shares of common
stock and from 15,000,000 shares of preferred stock to 1,000,000 shares of
preferred stock, and thereafter to increase the authorized capital should the
need arise. Accordingly, an amendment of the Certificate was approved
authorizing the increase of the capital stock back to a maximum of 60,000,000
shares of common stock in one increment or in up to four separate increments
over a five year period and back to 15,000,000 shares of preferred stock in one
increment during the five year period, in each case upon the filing an
appropriate certificate of amendment by order of the Board of Directors. In this
way, the Company was able to save on its Delaware corporate franchise taxes,
while retaining the flexibility to increase quickly its authorized capital by
action of the Board of Directors.
Pursuant to the action of the Stockholders at the 1993 annual meeting, the
Company's capital stock was reduced to 40,000,000 shares of common stock and
1,000,000 shares of preferred stock. Since then, the authorized common stock was
increased to 45,000,000 shares, pursuant to the aforementioned authorization.
The Company currently has outstanding approximately 36,895,000 shares of common
stock and options for an additional 5,055,019 shares of common stock. No shares
of preferred stock are currently outstanding. The 1993 authorization with
respect to the aforementioned increases expires on March 11, 1998, and the Board
of Directors, upon review of the Company's current capital structure, has
determined to present to the Stockholders this Proposal Three to provide for the
future increase in the number of authorized shares of the Company's capital
stock. Proposal Three would authorize amendment of the Certificate of
Incorporation to increase the authorized common stock to 100,000,000 shares and
the authorized preferred stock to 15,000,000 shares; however, in order to allow
the Company to minimize its annual Delaware corporate franchise taxes, Proposal
Three would authorize increases in common and preferred stock to be made at the
sole discretion of the Board of Directors, in any combination of one or more
increments of 5,000,000 shares of common stock and a single increment of
14,000,000 shares of preferred stock. The Board believes that Proposal Three
would permit the Corporation to save taxes while maintaining the flexibility to
increase the authorized capital stock quickly, and without additional
stockholder approval, for possible stock splits, stock dividends, stock and
convertible debt or equity offerings, acquisitions and other corporate purposes.
Notwithstanding Stockholder approval of Proposal Three, under Section 242(c) of
the Delaware General Corporation Law, the Board of Directors could decide to
abandon the filing of a certificate of amendment as to any authorized increment.
Based on the foregoing, the Board of Directors has approved and unanimously
recommends to the Stockholders that the Stockholders approve Proposal Three. Any
certificate of amendment authorized by Proposal Three is to be submitted by the
Board of Directors, by action of a duly authorized officer, to the Secretary of
State for the State of Delaware for filing no later than March 31, 2003. After
March 31, 2003, a further Stockholder approval would be required if the Board of
Directors then determines that it still needs the ability to increase the number
of authorized shares of capital stock beyond the amount then authorized. A vote
for Proposal Three will be a vote approving each certificate of amendment filed
in accordance with Proposal Three. Approval of Proposal Three requires the
affirmative vote of the holders of a majority of the outstanding shares of
common stock .
Together, Robert I. Toll and Bruce E. Toll own or control approximately
31.5% of the common stock of the Company and have expressed their intention to
cast their votes in favor of the proposed amendments.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" PROPOSAL THREE
PROPOSAL FOUR
APPROVAL OF THE COMPANY'S INDEPENDENT AUDITORS
The Company's Board of Directors recommends that the Stockholders consider and
approve a proposal to select Ernst & Young LLP, which served as the Company's
independent auditors for the last fiscal year, to serve as the Company's
independent auditors for the current fiscal year ending October 31, 1998. A
representative of Ernst & Young LLP is expected to be present at the Meeting,
will have the opportunity to make a statement if such representative desires to
do so and will be available to respond to appropriate questions of Stockholders.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR"
PROPOSAL FOUR
16
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and noncash compensation for each of the
last three fiscal years awarded to or earned by the Chief Executive Officer of
the Company and the other executive officers of the Company.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
SECURITIES
FISCAL ANNUAL COMPENSATION UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) OPTIONS(#) COMPENSATION($)(2)
- --------------------------- ---- --------- ----------- ---------- ------------------
<S> <C> <C> <C> <C> <C>
Robert I. Toll........................... 1997 907,748 1,782,103 138,750 7,913
Chairman of the Board 1996 829,432 1,146,938 73,000 7,776
and Chief Executive Officer 1995 748,804 1,177,198 190,000 7,788
Bruce E. Toll............................ 1997 907,748 1,782,103 138,750 7,913
President, Chief Operating 1996 829,432 1,146,938 73,000 7,776
Officer and Secretary 1995 748,804 1,177,198 190,000 7,788
Zvi Barzilay............................. 1997 724,601 120,000 100,000 7,913
Executive Vice President (3) 1996 639,794 120,000 100,000 7,776
1995 515,801 120,000 100,000 7,788
Joel H. Rassman.......................... 1997 540,833 120,000 50,000 7,913
Senior Vice President, Chief 1996 509,212 120,000 50,000 7,776
Financial Officer and Treasurer (3) 1995 461,908 120,000 50,000 7,788
</TABLE>
(1) The cash bonus for services rendered in fiscal year 1995 has been listed in
the year earned, but was actually paid in the subsequent year. The bonuses
listed for Messrs. Toll for fiscal years 1997 and 1996 were paid in common
stock of the Company pursuant to the terms of the Cash Bonus Plan and the
1995 Plan. The amounts listed were the fair value of the bonus award shares
at October 31, 1997 in the case of the fiscal 1997 bonuses and at October
31, 1996 in the case of the fiscal 1996 bonuses Had the bonuses been paid
in cash Robert I. Toll and Bruce E. Toll would have each received
$1,379,377 for the 1997 cash bonus and $1,146,938 for the 1996 cash bonus.
(2) The compensation reported represents the Company's contribution and
matching payments under its 401(k) salary deferred plan for each executive
listed.
(3) Under the terms of an Agreement dated June 30, 1988 between the Company and
Mr. Rassman, in the event of Mr. Rassman's termination by the Company
without cause (as defined), any material reduction or material adverse
change (as defined) in Mr. Rassman's duties, any failure by the Company to
provide Mr. Rassman with compensation, including salary and bonus, in an
amount less than $350,000 and the exercise of an election by Mr. Rassman to
terminate his employment or the removal of fringe benefits (as defined),
Mr. Rassman will receive $250,000, and, in certain instances, an additional
amount equal to the difference between $350,000 and his actual total
compensation during a specified period prior to his termination.
17
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on option grants in the fiscal year
ended October 31, 1997 to the named executive officers and information relating
to all outstanding common shares as of October 31, 1997.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------
NAME GRANTED(#) FISCAL YEAR(3) ($/SH) DATE 5% 10%
- ---- ---------- -------------- ------ ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Robert I. Toll(1)(5)...... 50,000 4.92% 17.1250 11/01/06 $533,401 $1,356,537
Robert I. Toll(2)(5)...... 42,500 4.19 19.5000 03/14/07 529,850 1,334,593
Robert I. Toll(2)(5)...... 46,250 4.55 19.7500 12/30/06 560,330 1,433,292
Bruce E. Toll(1)(5)....... 50,000 4.92 17.1250 11/01/06 533,401 1,356,537
Bruce E. Toll(2)(5)....... 42,500 4.19 19.5000 03/14/07 529,850 1,334,593
Bruce E. Toll(2)(5)....... 46,250 4.55 19.7500 12/30/06 560,330 1,433,292
Zvi Barzilay(3)........... 100,000 9.85 19.5000 12/20/06 1,226,345 3,107,798
Joel H. Rassman(3)........ 50,000 4.92 19.5000 12/20/06 613,172 1,553,899
All Outstanding
Common Shares(6)........ 34,275,288 N/A N/A N/A $416,022,008 $1,054,281,449
</TABLE>
(1) Options become fully exercisable on the first anniversary of the date of
the grant.
(2) Options were fully exercisable at date of grant.
(3) Options become exercisable starting on the first anniversary of the grant,
with 25% becoming exercisable at that time and 25% becoming exercisable on
each of the second, third and fourth anniversary dates.
(4) The Company granted options representing 1,015,400 shares of common stock
to employees and 75,000 shares to non-employee directors in fiscal 1997.
(5) Issued pursuant to formula grant provisions of the 1995 Plan. In addition,
pursuant to the grant provisions of the 1995 Plan, options for 50,000
shares of common stock were granted on November 1, 1997, and options for
240,000 shares of common stock were granted on December 30, 1997, to each
of Robert I. Toll and Bruce E. Toll.
(6) Illustrates the aggregate appreciation in value of all shares of common
stock outstanding on October 31, 1997 based on the assumed 5% and 10% rates
of appreciation that produced the realizable value of the options granted
to executive officers shown in this table (measured from the dates of grant
of the options to their expiration, on a weighted average basis).
18
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION VALUES
The following table sets forth certain information with regard to the aggregated
option exercises in the fiscal year ended October 31, 1997 and the option values
as of the end of that year for the chief executive officer and other executive
officers of the Company.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
OCTOBER 31, OCTOBER 31,
SHARES 1997(#) 1997($)(1)
ACQUIRED ON VALUE EXERCISABLE(E) EXERCISABLE(E)
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE(U) UNEXERCISABLE(U)
---- ----------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C>
Robert I. Toll....................... None N/A 507,750(E) 3,883,844(E)
50,000(U) 250,000(U)
Bruce E. Toll........................ None N/A 507,750(E) 3,883,844(E)
50,000(U) 250,000(U)
Zvi Barzilay......................... 20,000 395,000 314,000(E) 2,741,600(E)
175,000(U) 403,125(U)
Joel H. Rassman...................... 5,000 97,250 152,500(E) 1,330,313(E)
87,500(U) 201,563(U)
</TABLE>
(1) Based upon the difference between the exercise price of the option and the
closing price of $22.125 per share of the Company's common stock as
reported on the New York Stock Exchange on October 31, 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors currently consists of
Robert I. Toll, Bruce E. Toll and Carl B. Marbach. Robert I. Toll is the
Company's Chairman of the Board and Chief Executive Officer and Bruce E. Toll is
the Company's President and Chief Operating Officer. In naming these individuals
to the Compensation Committee, the Board decided that salary, bonus and option
grants for the Company's Chief Executive Officer and Chief Operating Officer
should be determined pursuant to certain objective measurements of the Company's
performance and base salary percentage increases for other executives of the
Company and that the Company's Chief Executive Officer and Chief Operating
Officer should have the primary roles in determining compensation for the
Company's other executive officers.
In order to help provide for an orderly market in the Company's common stock in
the event of the death of either Robert I. Toll or Bruce E. Toll (the "Tolls"),
or both of them, the Company and the Tolls have entered into agreements in which
the Company has agreed to purchase from the estate of each of the Tolls $10
million of the Company's common stock (or a lesser amount under certain
circumstances), at a price equal to the greater of fair market value (as
defined) or book value (as defined). Further, the Tolls have agreed to allow the
Company to purchase $10 million of life insurance on each of their lives. In
addition, the Tolls granted the Company, at no cost to it, an option to purchase
up to an additional $30 million (or a lesser amount under certain circumstances)
of common stock from each of their estates. The agreements expire in October
2005.
In addition to the performance of their duties for the Company, Messrs. Robert
I. Toll and Bruce E. Toll have engaged, and continue to engage, in certain other
businesses in real estate. These businesses include the purchase, sale and
management of townhome, apartment, condominium, commercial and industrial real
estate projects for rental. The Company leases, at what it believes to be
competitive market rates certain office space from a business controlled by
Messrs. Robert I. Toll and Bruce E. Toll. During the last fiscal year, the
Company paid such business approximately $27,303. The Company has also provided
various services to businesses controlled by Messrs. Robert I. Toll and Bruce E.
Toll. During the past fiscal year, these businesses were charged by the Company
for its costs in the amount of $265,678.
The Company had engaged the services of a company owned by Robbi Toll, the wife
of Bruce E. Toll, the President and Chief Operating Officer of the Company, to
perform interior design work for a number of its communities' model homes. The
Company paid $216,689 during the last fiscal year to this company for interior
design services. The Company believes that these transactions were entered into
on a competitive basis.
19
<PAGE>
During the past fiscal year, the Company purchased a number of vehicles with an
aggregate purchase price of $26,522 from an auto dealership which was owned by
Bruce E. Toll. The Company believes that the purchases were at competitive
prices.
REPORT OF THE COMPENSATION COMMITTEE ON
EXECUTIVE COMPENSATION
Basic Policy Considerations
The Company's compensation policies with respect to its executive officers,
as established by the Compensation Committee of the Board of Directors and the
Compensation Committee for Key Executives and Non-Employee Directors
(collectively, the "Compensation Committee" or the "Committee", continue to be
based on the principles that compensation should, to a significant extent, be
reflective of the financial performance of the Company, and that a significant
portion of executive officers' compensation should provide long-term incentives.
Executive compensation is set at levels that are sufficiently competitive so
that the Company may attract, retain and motivate the highest quality
individuals to contribute to the Company's goals and objectives and its overall
financial success. Methods of compensation are designed to provide incentives
for performance that result in continuing improvements in the Company's
financial results or condition, over both the short-term and the long-term, and
to assure continued service to the Company. Stock options and stock awards
constitute payment of a significant portion of incentive compensation, which
causes the ultimate interests of the executives to be aligned with the interests
of the Stockholders in increasing the value of their investment. Each executive
officer's compensation is based largely upon both individual and Company
performance.
The compensation program is comprised of two elements: annual salary and
possible short-term incentive awards in the form of cash bonuses, and a
long-term incentive program (principally, stock options) based on performance of
the Company's common stock. The details of this compensation program, with
specific discussion of the programs applicable to the Chief Executive Officer
and the Chief Operating Officer are set out below.
Annual Compensation
For salary levels other than those for the Chief Executive Officer and the
Chief Operating Officer, the Committee continues to establish annual salaries by
evaluating individual performance and considering marketplace valuations of
comparable executives, although salary determinations have not been based upon
any specific constant criteria.
Executives other than the Chief Executive Officer and the Chief Operating
Officer are eligible for annual incentive bonuses granted at the discretion of
the Committee. These awards are not intended to be in addition to market level
compensation but instead are designed to make a significant part of an
executive's annual compensation dependant on the Committee's assessment of the
executive's performance. Factors the Committee considers include the Company's
overall financial results, as well as the individual's contributions to the
Company's economic and strategic objectives, the efforts required and expended
by the individual, the individual's abilities to develop, execute and implement
short-term and long-term corporate goals, including expansion of operations into
new areas, and the executive's role in maximizing Company profitability,
managing costs and addressing the impact of economic and demographic
restrictions on Company performance. The Committee continues to be cognizant of
its competitors' results of operations, including earnings, margins, return on
equity and other factors, all of which, when considered in the context of the
Company's comparative results, contribute to the determination of compensation
for the Company's executives.
Long Term Compensation -- Stock Options
The stock option component of the executive officers' compensation package
has been designed to provide incentives for the enhancement of Stockholder
value, since the full benefit of stock option grants will not be realized unless
there has been appreciation in per share values over several years. In this
regard, options have been granted at fair market value on the date of grant and
generally vest over a number of years, usually not less than two years, with
significant restrictions, for a typical period of three years, on the
executive's ability to exercise the options and sell the shares received without
the consent of the respective stock option committee. As with the grant of
incentive cash bonuses, no constant criteria are used year after year; instead,
the Committee makes a determination of the effectiveness of the executive and
the level of the executive's contributions to the Company's success. Because the
options are granted at fair market value relative to the date of grant, any
value which ultimately accrues to the executives is based entirely upon the
Company's performance, as perceived by investors who establish the price for the
common stock.
20
<PAGE>
1997 Compensation For Chief Executive Officer And Chief Operating Officer
Messrs. Robert I. Toll and Bruce E. Toll continue to be viewed by the Board
of Directors to have the primary roles in determining or recommending
compensation for the Company's executive officers other than themselves.
Accordingly, the Board decided, in 1990, that salary, bonus and option grants
for Messrs. Robert I. Toll and Bruce E. Toll should be determined pursuant to
objective measurements, including appropriate performance criteria and market
rates for comparable executives. Commencing January 1, 1995, the Board of
Directors determined that the formula for increasing the base salaries of
Messrs. Robert I. Toll and Bruce E. Toll should be based on no less than the
increase in the Consumer Price Index (as defined, using U.S. Department of Labor
definitions) and no more than the average percentage increase in compensation of
the five highest percentage compensation increases of the Company's next ten
most highly compensated employees, other than Messrs. Robert I. Toll and Bruce
E. Toll, for the adjustment year. Since 1990, cash bonuses for Messrs. Robert I.
Toll and Bruce E. Toll in addition to such annual salaries also have been
determined based on the formula contained in the Company's Cash Bonus Plan
approved by Stockholders in 1992 and amended in 1997. Under the Cash Bonus Plan,
each of Robert I. Toll and Bruce E. Toll is entitled to receive a bonus equal to
the sum of (a) 1.5% of the Company's income before income taxes (as defined in
the Cash Bonus Plan) in excess of 10% and up to 20% of Stockholders' equity (as
defined in the Cash Bonus Plan) of the Company as of the end of the preceding
fiscal year, plus (b) 2.0% of the Company's income before income taxes in excess
of 20% and up to 30% of Stockholders' equity of the Company as of the end of the
preceding fiscal year, plus (c) 2.25% of the Company's income before income
taxes in excess of 30% of Stockholders' equity of the Company as of the end of
the preceding fiscal year. This method of compensation ties the compensation of
these executive officers to various indicators of the Company's performance.
Accordingly, during the past five years, this method generated a substantial
bonus in 1993, a bonus in 1994 that was approximately 42% higher than the bonus
for 1993, a bonus in 1995 that was 53% higher than the bonus for 1994, a bonus
in 1996 that was slightly less than the bonus in 1995, and a bonus in 1997 that
was 20% higher than 1996, before consideration of the stock award feature
described below. The Stockholders, at the 1997 Annual Meeting, amended the Cash
Bonus Plan, and the Stock Option and Incentive Plan (1995) (the "1995 Plan") to
provide that (i) all bonus payments made under the Cash Bonus Plan with respect
to the Cash Bonus Plan years ending October 31, 1996, October 31, 1997 and
October 31, 1998 shall be paid in the form of shares of common stock , which
payments shall be in the form of an award under the terms of the 1995 Plan; (ii)
the number of shares of common stock awarded pursuant to the aforementioned
provisions of the Cash Bonus Plan shall be determined by dividing the dollar
amount of each bonus (as determined in accordance with the Cash Bonus Plan) by
$17.125 (the fair market value of a share of , determined as of May 29, 1996 in
accordance with the provisions for determination of fair market value as set
forth in the 1995 Plan); and (iii) the Compensation Committee for Key Executives
and Non-Employee Directors ("committee") shall have the discretion to terminate
the application of the provisions of the Cash Bonus Plan described in
subparagraphs (i) and (ii) above at any time, effective no sooner than six
months after such decision to terminate is made by the committee, in which event
all bonuses payable on or after the effective date of such termination shall be
payable in cash only. In addition, the Cash Bonus Plan was amended to clarify
that, upon receipt of a request by both participants in the Cash Bonus Plan
(based on their concerns regarding adverse tax consequences to them), the
committee may, in its sole discretion (provided that such action will not cause
any increase in the amount or value of a bonus that would otherwise be payable
under the Cash Bonus Plan), suspend the application of the provisions described
in subparagraphs (i) and (ii) above, in which event all bonuses payable under
the Cash Bonus Plan shall be payable only in cash until such time as the
committee determines to reinstate such provisions. Messrs. Robert I. Toll and
Bruce E. Toll have agreed that all bonuses payable under the Cash Bonus Plan for
each of the three years ending October 31, 1996, October 31, 1997 and October
31, 1998 shall be made in the form of awards of common stock. Accordingly,
payment of the Cash Bonus to each of them for the fiscal year 1997 was made in
the form of 80,547 shares of common stock, which as of the end of such fiscal
year had a market value of $22.125 per share.
Pursuant to the Company's 1995 Plan whereby Messrs. Robert I. Toll and
Bruce E. Toll each will receive an annual option award of 50,000 shares
commencing November 1, 1996 and ending on November 1, 1998 and additional option
grants if certain defined targets for the Company's pre-tax return on equity,
after-tax return on equity and increase in common stock value, over one year,
three year and two year fiscal periods, respectively, are met.
COMPENSATION COMMITTEE (As Defined)
OF THE BOARD OF DIRECTORS
Robert I. Toll
Bruce E. Toll
Carl B. Marbach
Paul E. Shapiro
21
<PAGE>
PERFORMANCE GRAPH
The following graph compares the five year cumulative total return of the
Company's common stock, assuming reinvestment of dividends, with the S & P 500
Index and the S & P Homebuilding Index:
[ INSERT GRAPH HERE ]
22
<PAGE>
COMPLIANCE WITH SECTION 16 (a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, and the regulations
thereunder, requires the Company's officers and directors and persons who own
more than ten percent of a registered class of the Company's equity securities
(collectively, the "reporting persons") to file reports of ownership and changes
in ownership with the Securities and Exchange Commission and to furnish the
Company with copies of these reports. Based on the Company's review of the
copies of these reports received by it, and written representations received
from reporting persons, the Company believes that all filings required to be
made by the reporting persons for the period November 1, 1997 through October
31, 1997 were made on a timely basis.
CERTAIN TRANSACTIONS
Ballard, Spahr, Andrews & Ingersoll, the law firm of which Director Richard J.
Braemer is a partner, acted as counsel to the Company in various matters during
fiscal 1997 and was paid aggregate fees of $97,064 during that period.
For information regarding certain other transactions, see "Compensation
Committee Interlocks and Insider Participation," elsewhere in this proxy
statement.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the 1999 Annual Meeting of
Stockholders must be received by the Company at the address appearing on the
first page of this proxy statement by October X, 1998 in order to be considered
for inclusion in the Company's proxy statement and form of proxy relating to
that meeting.
SOLICITATION OF PROXIES
The enclosed form of proxy is being solicited on behalf of the Company's Board
of Directors. The Company will bear the cost of the solicitation of proxies for
the Meeting, including the cost of preparing, assembling and mailing proxy
materials, the handling and tabulation of proxies received, and charges of
brokerage houses and other institutions, nominees and fiduciaries in forwarding
such materials to beneficial owners.
In addition to the mailing of the proxy material, such solicitation may by made
in person or by telephone, telegraph or telecopy by directors, officers or
regular employees of the Company, or by a professional proxy solicitation
organization engaged by the Company.
ANNUAL REPORT ON FORM 10-K
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS BEING
SOLICITED BY THIS PROXY STATEMENT, ON THE WRITTEN REQUEST OF ANY SUCH PERSON, A
COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K (INCLUDING THE FINANCIAL
STATEMENTS AND SCHEDULE THERETO) AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION FOR ITS MOST RECENT FISCAL YEAR. SUCH WRITTEN REQUESTS SHOULD BE
DIRECTED TO JOSEPH R. SICREE, DIRECTOR OF INVESTOR RELATIONS, AT THE ADDRESS OF
THE COMPANY APPEARING ON THE FIRST PAGE OF THIS PROXY STATEMENT.
