[LOGO]
TOLL BROTHERS, INC.
3103 PHILMONT AVENUE
HUNTINGDON VALLEY, PA 19006
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, MARCH 5, 1998
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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 6, 1998
<PAGE>
TOLL BROTHERS, INC.
3103 PHILMONT AVENUE
HUNTINGDON VALLEY, PA 19006
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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
February 6, 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.
<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%.
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(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 individual
retirement account.
(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 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.
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
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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.
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
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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 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, the Key
Executives and Non-Employee Directors Stock Option Plan (1993) (the "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. See
"Proposal Two," at Item 10(a), for description of annual option grants to
Non-employee Directors and committee members under the Company's Stock Incentive
Plan (1998).
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR"
ZVI BARZILAY, RICHARD J. BRAEMER AND CARL B. MARBACH FOR DIRECTOR.
5
<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 "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 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 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" or "NQSO"), 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 for which Options and Awards 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 common 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 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 then 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
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<PAGE>
the Plan with respect to Option grants made to the Non-employee Directors
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 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 1,200 employees of
the Company and its affilitates and five Non-employee Directors were
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 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 terminate 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
shares subject to Options previously exercised that have not yet been
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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.
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
8
<PAGE>
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 30, 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, each
Non-employee Director will receive 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 of the Board of
Directors, the Subordinated Debt-Repurchase Authorization Committee, the
Shelf Term Committee, the Compensation Committee for Key Executives and
Non-employee Directors, the Stock Option Committee, the Special
Transactions Committee, the Real Estate Utilization 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 for which an Option would otherwise be
granted to a Non-employee Director under the formula described above 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 79,500 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
9
<PAGE>
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, and (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:
10
<PAGE>
(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.
(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
fifteen 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.
11
<PAGE>
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 acquired by such Option holder. 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. 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.
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 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 NQSO 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 ("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
12
<PAGE>
"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
Plan. The Company has been advised that Robert I. Toll and Bruce E. Toll intend
to vote the shares they beneficially own in favor of the approval of the Plan.
If they do so, it is likely that the 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
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 of 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.
13
<PAGE>
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. While there are no
current plans to issue additional shares of the Company's common or preferred
stock beyond the limits currently authorized by the Certificate of
Incorporation, 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. 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 Company 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 outstanding 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
14
<PAGE>
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
15
<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
------------
ANNUAL COMPENSATION SECURITIES
FISCAL ----------------------- 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 1995 461,908 120,000 50,000 7,788
Treasurer(3)
</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 $350,000 and his actual total
compensation during a specified period prior to his termination.
16
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on option grants in the fiscal
year ended October 31, 1997 to the named executive officers of the Company and
information relating to all outstanding common shares as of October 31, 1997.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------------------------------
NAME GRANTED(#) FISCAL YEAR(4) ($/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 $1,054,281,449
</TABLE>
- ------------------
(1) Options become fully exercisable on the first anniversary of the date of the
grant.
(2) Options were fully exercisable at date of grant.
(3) Options become exercisable starting on the first anniversary of the grant,
with 25% becoming exercisable at that time and 25% becoming exercisable on
each of the second, third and fourth anniversary dates.
(4) The Company granted options representing 1,015,400 shares of common stock to
employees and 75,000 shares to Non-employee Directors in fiscal 1997.
(5) Issued pursuant to formula grant provisions of the 1995 Plan. In addition,
pursuant to the grant provisions of the 1995 Plan, options for 50,000 shares
of common stock were granted on November 1, 1997, and options for 240,000
shares of common stock were granted on December 30, 1997, to each of Robert
I. Toll and Bruce E. Toll.
(6) Illustrates the aggregate appreciation in value of all shares of common
stock outstanding on October 31, 1997 based on the assumed 5% and 10% rates
of appreciation that produced the realizable value of the options granted to
executive officers shown in this table (measured from the dates of grant of
the options to their expiration, on a weighted average basis).
17
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth certain information with regard to the
aggregated option exercises in the fiscal year ended October 31, 1997 and the
option values as of the end of that year for the chief executive officer and
other executive officers of the Company.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
OCTOBER 31, OCTOBER 31,
SHARES 1997(#) 1997($)(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 of the Company 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
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<PAGE>
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.
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
19
<PAGE>
economic and demographic restrictions on Company performance. The Committee
continues to be cognizant of its principal 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 (as to executives other than the Chief Executive Officer and Chief
Operating Officer) 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.
1997 COMPENSATION FOR CHIEF EXECUTIVE OFFICER AND CHIEF OPERATING OFFICER
Messrs. Robert I. Toll and Bruce E. Toll continued to be viewed by the
Board of Directors in fiscal 1997 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. An
amended Cash Bonus Plan was adopted by the Board of Directors in 1993 and
approved by the Stockholders in 1994. 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
Board of Directors further amended the Cash Bonus Plan and the 1995 Plan in
1996, and the Stockholders approved such amendments in 1997 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
20
<PAGE>
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. Under the Cash Bonus Plan, as
amended and approved by the Stockholders, 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. The Cash Bonus Plan is
intended to provide bonuses that will be treated as "performance-based
compensation" exempt from the limitations on deductibility imposed under Section
162(m) of the Code.
Pursuant to the Company's 1995 Plan 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:
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG TOLL BROTHERS, INC., THE S&P 500 INDEX
AND THE S&P HOMEBUILDING INDEX
[GRAPHIC]
In the printed version of the document, a line graph
appears which depicts the following plot points:
10/92 10/93 10/94 10/95 10/96 10/97
Toll Brothers, Inc. 100 136 238 166 270 257
S&P 500 100 110 126 131 166 206
S&P Homebuilding 100 149 219 121 164 158
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, 1996 through October
31, 1997 were made on a timely basis.
22
<PAGE>
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 9, 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.
23
<PAGE>
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>
<TABLE>
<S> <C> <C>
1. FOR all nominees WITHHOLD (INSTRUCTION: To withhold authority to vote for any individual
listed(except as AUTHORITY nominee, strike a line through the nominee's name
marked to the to vote for below.)
contrary) all nominees
listed
</TABLE>
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.
