SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
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(Name of Registrant as Specified In Its Charter)
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/X/ No fee required
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[LOGO] THE TORO COMPANY
- ---------- -------------------------------------------------------
8111 Lyndale Avenue South, Bloomington, Minnesota
55420-1196
612/888-8801 - Telex 290928 - FAX NBR 887-8258
KENDRICK B. MELROSE
Chairman and CEO
February 10, 1997
Dear Stockholder:
You are cordially invited to join us for the Toro Annual
Meeting of Stockholders, to be held at 3:00 p.m. C.S.T. on
Thursday, March 13, 1997 at the corporate offices of The
Toro Company, 8111 Lyndale Avenue South, Bloomington,
Minnesota. Details about the meeting, nominees for the Board
of Directors and other matters to be acted upon are
presented in the Notice of Annual Meeting and Proxy
Statement which follow.
In addition to Annual Meeting formalities, we plan to report
to stockholders generally on the Company, and will be
pleased to answer stockholders' questions relating to the
Company.
As a stockholder of Toro, you have a vested interest in the
future of the Company and we therefore hope you plan to
attend the Annual Meeting. However, if you will not be able
to join us, we urge you to exercise your right as a
stockholder and to vote by proxy. For this purpose, please
promptly sign, date and return the enclosed proxy card.
On behalf of your Toro Board of Directors and management, it
is my pleasure to express our appreciation for your
continued support during 1997.
Sincerely,
[SIGNATURE]
Kendrick B. Melrose
IT IS IMPORTANT THAT YOU VOTE, SIGN AND RETURN THE ACCOMPANYING
PROXY CARD AS SOON AS POSSIBLE. BY DOING SO, YOU MAY SAVE THE COMPANY THE
EXPENSE OF ADDITIONAL SOLICITATION.
[LOGO]
NOTICE OF ANNUAL MEETING
Notice is hereby given that the Annual Meeting of Stockholders of The Toro
Company will be held on Thursday, March 13, 1997 at 3:00 p.m. C.S.T. at the
corporate offices of The Toro Company, 8111 Lyndale Avenue South, Bloomington,
Minnesota, for the purpose of considering and acting upon the following matters
as described in the accompanying Proxy Statement:
1. To elect three directors, each to serve for a term of three years;
2. To approve amendments to the Continuous Performance Award Plan as described
in the Proxy Statement which follows this Notice;
3. To approve amendments to the Annual Management Incentive Plan as described
in the Proxy Statement which follows this Notice;
4. To approve the selection of auditors for the Company for Fiscal 1997 (the
fiscal year ending October 31, 1997); and
5. To transact such other business as may properly come before the Annual
Meeting and any adjournment thereof.
A list of stockholders entitled to vote at the Annual Meeting will be available
at the corporate offices of The Toro Company, 8111 Lyndale Avenue South,
Bloomington, Minnesota, commencing February 27, 1997, during ordinary business
hours, for examination by any stockholder registered on the Company's Stock
Ledger as of the record date, for any purpose germane to the Annual Meeting. The
list of stockholders will be available at the Annual Meeting for the same
purpose.
Only stockholders of record on January 13, 1997 will be entitled to vote at the
meeting. Since a majority of the outstanding shares of the Company's Common
Stock must be represented either in person or by proxy to constitute a quorum
for the conduct of business, PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY
CARD PROMPTLY.
February 10, 1997
BY ORDER OF THE BOARD OF DIRECTORS
[SIGNATURE]
J. LAWRENCE MCINTYRE
Vice President, Secretary and General Counsel
THE TORO COMPANY
8111 Lyndale Avenue South
Bloomington, Minnesota 55420-1196
PROXY STATEMENT
The enclosed proxy is solicited by the Board of Directors of The Toro
Company (the "Company" or "Toro") for use at the Annual Meeting of Stockholders
(the "Annual Meeting") to be held in the corporate offices of the Company, 8111
Lyndale Avenue South, Bloomington, Minnesota, on Thursday, March 13, 1997 at
3:00 p.m. C.S.T. Any stockholder giving a proxy has the power to revoke it at
any time before it is voted by filing with an officer of the Company a revoking
instrument or duly executed proxy bearing a later date. This Notice, Proxy
Statement and enclosed form of proxy are first being mailed to stockholders of
the Company on or about February 10, 1997.
ANNUAL REPORT
The Annual Report of the Company for Fiscal 1996 (the fiscal year ended
October 31, 1996) including financial statements is enclosed.
COST AND METHOD OF SOLICITATION
The cost of soliciting proxies will be borne by the Company. Arrangements
may be made with brokerage houses, custodians, nominees and other fiduciaries to
send proxy material to the beneficial owners of the Common Stock, par value
$1.00 per share (the "Common Stock"), and the Company will reimburse them for
reasonable out-of-pocket expenses. In addition to solicitation by mail, certain
officers and employees of the Company, who will receive no compensation for such
services other than regular employee compensation, may solicit proxies by
telephone, electronic transmission and personally. The Company has retained
Morrow & Co. to assist in distributing proxy materials and in making mail,
telephone and personal solicitation of proxies from holders of the Common Stock.
The fee of such firm is estimated to be $4,500 plus out-of-pocket costs and
expenses.
VOTING RIGHTS
Holders of record of the Common Stock at the close of business on January
13, 1997 (the "Record Date") will be entitled to vote at the Annual Meeting and
any adjournment thereof. On that date, the Company had outstanding and entitled
to vote 12,125,331 shares of Common Stock. Each of such shares is entitled to
one vote on each matter presented at the Annual Meeting. The presence at the
Annual Meeting, in person or by proxy, of the holders of a majority of the
issued and outstanding shares of Common Stock constitutes a quorum for the
transaction of business. As of the Record Date, there were 749,472 shares held
by the Company in its treasury which will not be counted to determine a quorum,
and will not be voted. Abstentions and "broker non-votes" will be counted in
determining whether a quorum is present. "Broker non-votes" will not be counted,
but abstentions will be counted, in determining the total number of votes cast
on a proposal. An abstention will thus be the equivalent of a negative vote.
If a stockholder of record is also a participant in the Company's Dividend
Reinvestment Plan, the enclosed proxy card will present the number of shares
held of record by the participant, including the shares held for the account of
the participant in that plan. If a stockholder of record is also a participant
in a Company employee benefit plan allowing for participant-directed voting of
Common Stock held in such plan, the enclosed proxy card will contain separate
entries for the number of shares held by the participant in each such plan, as
well as shares held of record. If a participant in such plans does not otherwise
hold Common Stock of record, the participant will receive a proxy card
containing entries for the number of shares held in each plan. The trustee for
each plan will cause votes to be cast confidentially in accordance with the
participant's instructions. In accordance with the terms of the respective
plans, plan shares not voted by participants will be voted by the trustee in the
same proportion as the votes cast by participants.
Business at the Annual Meeting will be conducted in accordance with the
procedures determined by the presiding officer and will be limited to matters
properly brought before the Annual Meeting by or at the direction of the Board
of Directors or, in the case of nominations of candidates for the Board by a
stockholder, pursuant to the procedures prescribed by the Company's Bylaws.
No matter will be considered at the Annual Meeting except upon a motion
duly made and seconded. Any motion or second of a motion may be made only by a
natural person present at the Annual Meeting who either is a Company stockholder
or is acting on behalf of a Company stockholder. If the person is acting on
behalf of a stockholder, a written statement must be presented, executed by the
stockholder or the duly authorized representative of the stockholder on whose
behalf the person purports to act.
1
PROCEDURE FOR NOMINATIONS
Stockholders who propose to nominate a candidate for election to the Board
of Directors at an annual meeting must give timely written notice to the
Secretary of the Company, in accordance with the Company's Bylaws. In order to
be timely, the notice must be received by the Company not less than 60 days nor
more than 90 days prior to the first anniversary of the preceding year's regular
meeting; provided, however, that in the event that the date of the regular
meeting is advanced by more than 30 days or delayed by more than 60 days from
such anniversary date, notice by the stockholder to be timely must be so
delivered not earlier than the 90th day prior to such regular meeting and not
later than the close of business on the later of the 60th day prior to such
regular meeting or the 10th day following the day on which public announcement
of the date of such meeting is first made. The notice shall set forth all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required,
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (including such person's written consent to being named in
the Proxy Statement as a nominee and to serving as a director if elected). In
addition, the notice must contain the name and address of the nominating
stockholder(s) as they appear on the Company's books, and the class and number
of shares of the Common Stock beneficially owned.
FISCAL YEAR END/TRANSITION PERIOD
In August 1995, the Board of Directors of the Company approved a change in
the Company's fiscal year end from July 31 to October 31. The period from August
1, 1995 through October 31, 1995 thereby became a "Transition Period". The
disclosures made in this Proxy Statement relate to the fiscal year ended October
31, 1996, the Transition Period and, in some cases, the fiscal years ended July
31, 1995 and 1994.
PRINCIPAL HOLDERS OF COMPANY STOCK
The following table sets forth information as of January 13, 1997
regarding the beneficial ownership of the Common Stock of the Company by each of
the directors and nominees, each of the Chief Executive Officer and the four
other most highly compensated executive officers (the "named executive
officers"), holders of more than 5% of the Common Stock and by all directors and
executive officers as a group.
AMOUNT AND NATURE PERCENT
TITLE OF NAME OF OF BENEFICIAL OF
CLASS BENEFICIAL OWNER (1) OWNERSHIP CLASS
- ------------ --------------------------- ------------------- ------
Common Stock Fidelity Management & 909,000(2) 7.5%
Research Company
82 Devonshire Street
Boston, MA 02109-3614
Common Stock Ronald O. Baukol 776 *
Robert C. Buhrmaster 1,654 *
Janet K. Cooper 2,087(3) *
Calvin R. Hendrix(4) 7,713(3) *
Gerald T. Knight 57,846(3) *
Charles B. Lounsbury 40,613(3) *
J. David McIntosh 69,363(3)(5) *
Kendrick B. Melrose 588,563(3) 4.7%
Alex A. Meyer 2,804(3) *
Robert H. Nassau 2,025(3) *
Dale R. Olseth 7,418(3) *
Edwin H. Wingate 3,153(3) *
Common Stock All directors & executive 919,776(5)(6) 7.2%
officers as a group
(17 persons)
- ------------------------
* Less than 1% of the outstanding shares of Common Stock.
2
(1) Shares are deemed to be "beneficially owned" by a person if such person,
directly or indirectly, has or shares (i) the power to vote or to direct the
voting of such shares or (ii) the power to dispose or direct the disposition
of such shares. In addition, beneficial ownership includes shares which such
person has the right to acquire within 60 days.
(2) According to a Form 13G filed by FMR Corp., Fidelity Management & Research
Company ("Fidelity"), a subsidiary of FMR Corp. and registered investment
advisor, is the beneficial owner of 780,600 of these shares or 6.48% of the
outstanding Common Stock. Edward C. Johnson 3d, Chairman of FMR Corp. ("Mr.
Johnson"), FMR Corp., through its control of Fidelity, and Fidelity Funds
each has sole power to dispose of the 780,600 shares owned by the Funds.
Neither FMR Corp. nor Mr. Johnson has the sole power to vote or direct the
voting of the shares owned directly by the Fidelity Funds, which power
resides with the Funds' Boards of Trustees. Fidelity carries out the voting
of the shares under written guidelines established by the Funds' Boards of
Trustees. Fidelity Management Trust Company ("Fidelity Trust"), a
wholly-owned subsidiary of FMR Corp. and a bank, is the beneficial owner of
128,400 shares or 1.07% of the outstanding Common Stock as a result of
serving as investment manager of institutional accounts. Mr. Johnson and FMR
Corp., through its control of Fidelity Trust, have sole dispositive power
over these 128,400 shares and sole power to vote or to direct the voting of
119,400 shares, and no power to vote or to direct the voting of 9,000
shares. According to the Form 13G, members of Mr. Johnson's family and
trusts for their benefit are deemed to form a controlling group with respect
to FMR Corp. This information is as of March 31, 1996, the date of the most
recent report on Form 13G received by the Company.
(3) Includes shares that may be acquired upon exercise of stock options within
60 days and shares allocated under employee benefit plans. Stock options
exercisable in 60 days for each of the named directors and executive
officers are as follows: Janet K. Cooper 1,000 shares, Alex A. Meyer 1,000
shares, Robert H. Nassau 1,000 shares, Dale R. Olseth 1,000 shares, Edwin H.
Wingate 1,000 shares, Kendrick B. Melrose 430,968 shares (including a
300,000 share salary replacement option, the final 100,000 shares which
became exercisable December 10, 1996), Gerald T. Knight 48,150 shares, J.
David McIntosh 39,485 shares, Calvin R. Hendrix no shares, Charles B.
Lounsbury 33,991 shares and all other executive officers as a group 82,489
shares.
(4) Mr. Hendrix resigned as an officer of the Company effective January 15,
1997.
(5) Includes 434 shares held of record by spouse as custodian for minor
children. Mr. McIntosh disclaims beneficial ownership of these shares.
(6) Includes 2,129 shares held of record by spouses or minor children of
executive officers, with respect to which the officer may disclaim
beneficial ownership.
3
PROPOSAL ONE
ELECTION OF DIRECTORS
Pursuant to Article VI, Section 1 of the Certificate of Incorporation of
the Company, the number of directors is to consist of not less than eight nor
more than eleven directors. The maximum and minimum number of directors can be
changed only by amendment of the Certificate of Incorporation approved by the
affirmative vote of holders of 80% of the outstanding Common Stock of the
Company. The Board has currently fixed the number of directors at eight. The
Board is divided into three classes, with each class elected in a different year
for a term of three years, except that shorter terms may be used from time to
time in order to effect an appropriate balance among the members of the classes.
The class standing for election to a three year term this year is comprised of
Janet K. Cooper, Kendrick B. Melrose and Edwin H. Wingate. The three nominees
have consented to serve if elected.
- --------------------------------------------------------------------------------
NOMINEES FOR ELECTION TO BOARD OF DIRECTORS
(TERM ENDING AFTER FISCAL 1999)
- --------------------------------------------------------------------------------
[PHOTO] JANET K. COOPER, age 43.
Vice President and Treasurer since July
1992, The Quaker Oats Company, Chicago,
Illinois (foods and beverages). She
previously served as Assistant Treasurer
from March 1990 to July 1992 and as
Director-Planning of North American
Foods from September 1989 to March 1990.
First elected to the Toro Board in 1993,
she is also Chairman of the Audit
Committee and a member of the Nominating
Committee.
Ms. Cooper is a director of Midwest
Region Advisory Board of Awkwright
Insurance Company.
- --------------------------------------------------------------------------------
[PHOTO] KENDRICK B. MELROSE, age 56.
Chairman of Toro since December 1987 and
Chief Executive Officer of Toro since
December 1983. Elected President of Toro
in December 1995. Employed by The Toro
Company since 1970. First elected to the
Toro Board in February 1981, Mr. Melrose
is also Chairman of the Executive
Committee and an ex-officio member of
the Nominating Committee.
Mr. Melrose is a director of BSI
Corporation, Donaldson Company, Inc.,
Jostens, Inc. and The Valspar
Corporation.
4
- --------------------------------------------------------------------------------
[PHOTO] EDWIN H. WINGATE, age 64.
Senior Vice President-Personnel since
June 1980, Dayton Hudson Corporation,
Minneapolis, Minnesota (retailing).
First elected to the Toro Board in 1989,
he is also a member of the Nominating
Committee and the Executive Committee.
Mr. Wingate is a director of Roche
Brothers Supermarkets, Inc., Wellesley,
Massachusetts and Linbeck Corporation,
Houston, Texas.
- --------------------------------------------------------------------------------
MEMBERS OF BOARD OF DIRECTORS CONTINUING IN OFFICE
(TERM ENDING AFTER FISCAL 1997)
- --------------------------------------------------------------------------------
[PHOTO] ROBERT C. BUHRMASTER, age 49.
President and Chief Executive Officer
since March 1994, Jostens, Inc.,
Minneapolis, Minnesota (consumer
manufacturing). Served as President and
Chief Operating Officer from June 1993
to March 1994, as Executive Vice
President from December 1992 to June
1993. Served in various capacities at
Corning, Inc. for 18 years, serving as
Senior Vice President of Strategy and
Business Development immediately prior
to joining Jostens, Inc. First elected
to the Toro Board in March 1996, he is
also a member of the Audit Committee and
the Executive Committee.
Mr. Buhrmaster is a director of Jostens
Learning Corporation and Marietta
Corporation.
- --------------------------------------------------------------------------------
[PHOTO] ROBERT H. NASSAU, age 55.
President and Chief Executive Officer
since January 1, 1997, St. Raymond Wood
Products Holding Limited, Boston,
Massachusetts (wood manufacturing). From
September 1994 to December 1996 he
served as Senior Vice President Ply Gem
Industries, Inc., New York, New York and
President and CEO of the Goldenberg
Group, its wholly-owned subsidiary.
Also, President and Chief Executive Of-
ficer, Allied Plywood Corporation,
Concord, Massachusetts, a wholly-owned
subsidiary of Ply-Gem Industries, Inc.
(wood distribution and manufacturing)
from July 1991 to December 1996. First
elected to the Toro Board in 1988, he is
also a member of the Compensation
Committee and the Nominating Committee.
5
- --------------------------------------------------------------------------------
MEMBERS OF BOARD OF DIRECTORS CONTINUING IN OFFICE
(TERM ENDING AFTER FISCAL 1998)
- --------------------------------------------------------------------------------
[PHOTO] RONALD O. BAUKOL, age 59.
Executive Vice President, International
Operations since May 1995, Minnesota
Mining and Manufacturing Company (3M),
St. Paul, Minnesota (manufacturing).
Served as Vice President, Asia Pacific,
Canada and Latin America from February
1994 to April 1995, as Vice President,
Asia Pacific from July 1991 to February
1994 and as Group Vice President,
Medical Products Group from September
1990 to July 1991. First elected to the
Toro Board in December 1995, he is also
a member of the Audit Committee and the
Executive Committee.
Mr. Baukol is a director of Graco, Inc.
and Minnesota Mining and Manufacturing
Company.
- --------------------------------------------------------------------------------
[PHOTO] ALEX A. MEYER, age 65.
Retired. From January 1986 through April
1992 was Senior Vice President of Amana
Refrigeration, Inc., a subsidiary of
Raytheon, Inc., Amana, Iowa
(manufacturing). First elected to the
Toro Board in 1986, he is also a member
of the Audit Committee and the
Compensation Committee.
- --------------------------------------------------------------------------------
[PHOTO] DALE R. OLSETH, age 66.
President and Chief Executive Officer
since November 1986, BSI Corporation
(formerly Bio-Metric Systems, Inc.),
Eden Prairie, Minnesota (biotechnology).
First elected to the Toro Board of
Directors in 1980, he is also Chairman
of the Compensation Committee and a
member of the Audit Committee and the
Executive Committee.
Mr. Olseth is a director of Graco, Inc.
COMMITTEES OF THE BOARD. The Board of Directors is responsible for the
overall affairs of the Company. Six Board meetings were held during Fiscal 1996
and two Board meetings were held during the Transition Period. With the
exception of Mr. Baukol, each incumbent director attended at least 75% of the
aggregate total number of meetings of the Board and of all committees on which
he or she served, held during Fiscal 1996. With respect to the Transition Period
each incumbent director attended at least 75% of the aggregate total number of
meetings held of the Board and of all committees on which he or she served. To
assist in carrying out its duties, the Board has delegated certain authority to
four standing committees: Executive, Audit, Compensation and Nominating.
6
The Executive Committee's function is to exercise all of the powers and
authority of the Board, including the power to declare dividends on the
Company's Common Stock, during intervals between meetings of the Board. No
meetings of the committee were held during either Fiscal 1996 or the Transition
Period.
The Audit Committee, which is comprised of directors elected by the Board
from among members who are not employees of the Company ("outside directors"),
assists the Board of Directors in fulfilling the Board's responsibility to
oversee the Company's accounting controls and policies and financial reporting
practices. Principal functions of the Audit Committee include making
recommendations regarding the selection, retention or termination of the
Company's independent auditors; review of the professional services, proposed
fees and independence of such auditors; review with the independent auditors of
matters such as the scope of the audit and authorization for special reviews or
audits; review of internal auditing procedures and the adequacy of internal
controls; and review of policies and practices regarding conflict of interest
and compliance with applicable laws. One meeting of the committee was held
during Fiscal 1996 and one meeting was held during the Transition Period.
The functions of the Compensation Committee, which is comprised only of
outside directors, include study and analysis of and recommendations to the
Board concerning specific and general matters of management compensation;
periodic review of management compensation policies and practices; incentive
compensation plans and officer salary adjustments; making incentive compensation
awards and setting base salaries for officers referred to in Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code") and administrative
oversight of stock option plans and other incentive and compensation plans. One
meeting of the committee was held during Fiscal 1996 and one meeting was held
during the Transition Period.
The functions of the Nominating Committee, which is comprised of outside
directors (except that the Chief Executive Officer serves as an ex officio
non-voting member), include determining an appropriate size and composition of
the Board of Directors; considering qualifications of prospective Board member
candidates, including stockholder recommendations; conducting research to
identify and recommend nomination of suitable candidates who are willing to
serve as members of the Board of Directors; reviewing the experience,
background, interests, ability and availability of prospective nominees to meet
time commitments of the Board and committee responsibilities; consideration of
nominees recommended by stockholders who comply with the procedures set forth in
the Company's Bylaws, as described on page 2; and determining whether any
prospective member of the Board has any economic or familial relationship with
the Company or its directors or employees which may impair the member's
suitability for such service. The committee also has responsibility to monitor
current members of the Board in light of the same guidelines used to select
candidates, and to direct the activities of the Board and management in matters
of corporate governance. One meeting of the committee was held during Fiscal
1996 and no meeting was held during the Transition Period.
BOARD COMPENSATION. Board compensation for outside directors includes a
cash annual retainer and meeting fees, in addition to an annual Common Stock
grant having a $5,000 market value (valued at the average of the closing prices
of Common Stock during the three months prior to award) and a 1,000 share stock
option award (with an exercise price per share equal to 100% of the fair market
value of one share of Common Stock on the date of grant) pursuant to The Toro
Company 1992 Directors Stock Plan. During Fiscal 1996, each outside director was
paid an annual retainer of $15,000 plus a fee of $1,000 for each meeting of the
Board or a committee attended, except that no more than one committee meeting
fee was paid for committee meetings held in a single day. The Company also
supplies directors with Company products for their personal use.
An outside director may elect to receive the annual retainer fee and
meeting fees in cash or shares of Common Stock, or a combination of both. Shares
issued in lieu of cash may be authorized but unissued Common Stock or shares of
Common Stock held in the Company's treasury.
7
An outside director may elect to defer receipt of any portion of or all
Board compensation until a future date or until occurrence of specified events,
including disability or death, resignation, retirement or other termination from
the Board. Distribution of deferred amounts may be accelerated at the discretion
of the Board of Directors. Amounts deferred are not subject to federal and state
income tax until received by the participant, are commingled with the Company's
general operating funds and earn interest at the average prime rate charged by
First Bank National Association, Minneapolis, Minnesota. Although deferred funds
remain a part of the general assets of the Company, upon occurrence of a threat
of or change of control of the Company (as defined in the plan), or upon
election by a qualified participant to direct investment of the participant's
account, the Company will transfer to a trust an amount in cash equal to the
total amount of all accrued compensation and interest for all participants or
for the electing participant, as the case may be. Amounts deferred will be paid
to the director at retirement or such other time as may be permitted by the
plan.
Under a retirement plan, an outside director who was a member of the Board
of Directors prior to December 1995, who has completed five years of service and
who ceases to be a member of the Board of Directors for any reason is entitled
to receive, for a period of years equal to the number of full years the director
served on the Board but not more than ten years, an annual payment equal to the
full amount paid as an annual retainer at the date of termination. Commencing
December 1995, the annual payment may not exceed $12,000 annually to any outside
director, and payments to new directors will be limited to an amount equal to
50% of the amount paid as an annual retainer at the date of termination. In the
event of the death of a director who qualifies for the plan, the retirement
benefit will be paid to the director's beneficiary, in quarterly or annual
installments or a lump sum (discounted to then present value), as previously
elected by the director.
Each director is also a party to an indemnification agreement which
assures the director of indemnification and advancement of expenses to the
fullest extent permitted by Delaware law and the Company's Certificate of
Incorporation (regardless of, among other things, any amendment to or revocation
of the Certificate of Incorporation, any change in the composition of the Board
of Directors or the occurrence of any acquisition of the Company) and of
continued coverage under the Company's directors and officers liability
insurance, to the extent it is maintained.
VOTE REQUIRED. THE AFFIRMATIVE VOTE OF HOLDERS OF A MAJORITY OF SHARES OF
COMMON STOCK REPRESENTED AT THE MEETING IS REQUIRED FOR THE ADOPTION OF ITEM 1.
ALL PROXIES WILL BE VOTED FOR ITEM 1 UNLESS A CONTRARY CHOICE IS INDICATED.
8
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and non-cash compensation paid for
services in all capacities to the Company for the Chief Executive Officer and
each of its four other highest paid executive officers who were serving as
executive officers on October 31, 1996, for the fiscal years ended October 31,
1996, July 31, 1995 and July 31, 1994 and for the three-month Transition Period
ended October 31, 1995 ("TP95").
LONG TERM
COMPENSATION
--------------------
ANNUAL COMPENSATION
-------------------------------------------- AWARDS
OTHER ANNUAL --------------------
NAME AND SALARY BONUS COMPENSATION RESTRICTED OPTIONS
PRINCIPAL POSITION YEAR ($) ($)(1) ($)(2) STOCK($)(3) (#)(4)
- -------------------------------------------------- ---- ----------- --------------- ------------ ---------- -------
Kendrick B. Melrose 1996 438,337(7) 256,669 673,373 -0- 20,065
Chairman of the Board TP95 101,625(7) 189,938 643,632 -0- 29,028
& Chief Executive Officer 1995 380,000(7) 420,000 1,204,329 499,993 50,255
1994 355,304(7) 227,652 123,628 -0- 44,921
Gerald T. Knight 1996 239,550 95,820 105,313 -0- 2,446
Vice President Finance & TP95 58,656 38,126 66,068 -0- 10,893
Chief Financial Officer 1995 227,370 159,159 34,174 -0- 13,222
1994 218,463 87,385 22,176 -0- 37,385
J. David McIntosh 1996 215,328 83,729 281,971 -0- 2,026
Group Vice President TP95 50,124 32,581 305,299 -0- 8,238
1995 195,246 136,672 30,702 -0- 9,750
1994 179,976 89,988 10,188 -0- 7,982
Calvin R. Hendrix 1996 213,248 83,263 -0- -0- 2,084
Vice President & General TP95 51,610 33,547 31,642 -0- 9,443
Manager, Irrigation Division 1995 201,990 141,393 12,655 -0- 11,513
1994 166,251 88,805(9)(10) -0- 210,000 14,030
Charles B. Lounsbury 1996 223,754 68,491 -0- -0- 2,123
Group Vice President TP95 52,155 33,901 33,696 -0- 9,686
1995 205,752 128,904 12,710 -0- 11,802
1994 133,344 76,807(10) -0- 49,250 13,911
PAYOUTS
--------
LTIP ALL OTHER
NAME AND PAYOUTS COMPENSATION
PRINCIPAL POSITION ($)(5) ($)(6)
- -------------------------------------------------- -------- ------------
Kendrick B. Melrose 361,390 157,106
Chairman of the Board (8) 285
& Chief Executive Officer 427,964 139,146
317,529 100,029
Gerald T. Knight 42,161 35,786
Vice President Finance & (8) 134
Chief Financial Officer 50,680 43,350
38,089 15,678
J. David McIntosh 37,878 37,380
Group Vice President (8) 115
43,520 42,461
31,379 40,903
Calvin R. Hendrix 37,407 11,640
Vice President & General (8) 118
Manager, Irrigation Division 45,023 -0-
-0- -0-
Charles B. Lounsbury 39,381 33,163
Group Vice President (8) 119
45,862 37,786
-0- 16,292
- ------------------------
(1) Amounts indicated include payments made or deferred at the election of the
officer pursuant to the Annual Management Incentive Plan, as in effect for
Fiscal 1996, the 1995 Annual Management Incentive Plan and the 1994
Management Recovery Incentive Plan. Bonus amounts paid under the Annual
Management Incentive Plan for Fiscal 1996 and the Transition Period are
based on an EPS goal. See the Compensation Committee Report. Amounts for the
Transition Period reflect bonus awards made in lieu of awards under the
Annual Management Incentive Plan and are based on achievement of a target
EPS goal established by the Committee. These amounts also include bonus
payments for the Transition Period in lieu of an award under the Continuous
Performance Award Plan, which amounts are not included under the LTIP
Payouts column. See the Compensation Committee Report.
(2) Includes the dollar value of the difference between the fair market value
and the option exercise price (before payment of applicable income taxes) on
stock options exercised. Fair market value is based on the closing price on
the New York Stock Exchange as reported in THE WALL STREET JOURNAL on the
date of exercise or actual sale price. The value of executive perquisites
otherwise reportable as Other Annual Compensation did not exceed $50,000 or
10% of the compensation reported in the table for any named individual.
(3) Amounts in column reflect the value of shares awarded as of the date of
award. Award of restricted stock to Mr. Melrose is subject to
performance-based conditions on vesting which, if not met, will result in
forfeiture of shares. A total of 17,467 shares (having the value set forth
in the table) were awarded to Mr. Melrose on July 31, 1995 under the Chief
Executive Officer Succession Incentive Plan which was approved by
stockholders in 1994. Those shares vest 15% not later than July 31, 1998,
15% not later than July 31, 1999 and 70% not later than July 31, 2000, but
only if Mr. Melrose achieves performance
9
goals related to planning for and implementing a plan for his succession.
Under that plan, the Company also granted Mr. Melrose performance units. See
the Compensation Committee Report. The shares had a value of $548,027 at
October 31, 1996. Mr. Hendrix was awarded 8,400 shares of Restricted Stock
in Fiscal 1994 in connection with his becoming an employee of the Company.
Shares were to vest 10% per year over ten years and shares not vested were
subject to forfeiture upon termination of employment. The shares had a value
of $263,550 at October 31, 1996. Mr. Hendrix resigned from the Company
effective January 15, 1997 and consequently forfeited 5,880 shares not
vested at that time. Mr. Lounsbury was awarded 2,000 shares of Restricted
Stock in Fiscal 1994 in connection with his becoming an employee of the
Company, which shares vested in their entirety on November 29, 1995. The
shares had a value of $62,750 at October 31, 1996. All shares of restricted
stock are held by the Company until performance goals have been achieved or
other restrictions lapse. Dividends will be paid, if declared, on all shares
of restricted stock reported. Amounts shown in the Summary Compensation
Table and in this note are calculated by multiplying the closing price of
one share of Common Stock on the New York Stock Exchange as reported in THE
WALL STREET JOURNAL on the date of award and on October 31, 1996, times the
number of shares awarded or held.
(4) Includes options granted pursuant to the Company's Continuous Performance
Award Plan, which are subject to cancellation or reduction in the number of
shares covered in the event the Company does not achieve its long-term
performance goals. The number of shares covered by each option was reduced
with respect to Fiscal 1996, 1995 and 1994. Also includes options granted
pursuant to the Company's stock option plans.
(5) Amounts reflect payments made pursuant to the Continuous Performance Award
Plan. Based on the Company's ROBE and net income growth performance compared
with its peer group of businesses, payments of 70.4% of the maximum possible
award amount were paid or deferred with respect to the three year
performance period ending with Fiscal 1996. For a more detailed description
of the plan and awards, see the Compensation Committee Report and Proposal
Two.
(6) Amounts include Company contributions to defined contribution retirement
plans and the Company's Matching Stock Plan (which terminated on July 31,
1995 and was replaced by a similar feature in the Company's new Investment
and Savings Plan) and allocations to the Company's Employee Stock Ownership
Plan. Also includes amounts accrued pursuant to the Company's Supplemental
Management Retirement Plan for executive officers who receive annual
compensation of $150,000 or more. Participants' accounts are credited with
an amount equal to the difference between the aggregate amount that would
have been allocated to tax-qualified profit-sharing and other defined
contribution plans without regard to limitations imposed by the Code, and
the aggregate amount of contributions actually allocated. Although deferred
funds remain a part of the general assets of the Company, upon occurrence of
a threat of or actual change of control of the Company (as defined in the
plan), or upon election by a qualified participant to direct investment of
the account, the Company will transfer to a trust an amount in cash equal to
the total amount of all accrued benefits for all participants (or for the
electing participant, as the case may be). Because the Company's benefit
plans operate on a calendar basis, amounts shown for Fiscal 1996 may have
been accrued with respect to the prior fiscal year.
(7) Amount reflects the effect of the $100,000 salary reduction, as discussed
in the Compensation Committee Report.
(8) Amounts paid as long-term incentive payments with respect to the Transition
Period are included in the amount in the Bonus column. See note (1).
(9) Includes payment made in connection with Mr. Hendrix becoming employed by
the Company.
(10) Includes Continuous Performance Award Plan payment with respect to one-year
transition performance award. Payment is not included under LTIP Payouts
column.
10
EMPLOYMENT AGREEMENTS. Each of the executive officers, including those
named in the Summary Compensation Table, is a party to a change of control
employment agreement adopted in Fiscal 1995 (the "Agreements"). The Agreements
are operative only upon the occurrence of a "change in control", which includes
substantially those events described below. Absent a "change in control", the
Agreements do not require the Company to retain the executives or to pay them
any specified level of compensation or benefits.
Each Agreement provides that for three years after a "change in control",
there will be no adverse change in the executive's salary, bonus, opportunity,
benefits or location of employment. If during this three-year period the
executive's employment is terminated by the Company other than for cause, or if
the executive terminates his employment for good reason (as defined in the
Agreements, and including compensation reductions, demotions, relocation and
excess travel), or voluntarily during the 30-day period following the first
anniversary of the "change in control", the executive is entitled to receive an
accrued salary and annual incentive payments through the date of termination
and, except in the event of death or disability, a lump sum severance payment
("Lump Sum Payment") equal to three times the sum of his base salary and annual
bonus (and certain insurance and other welfare plan benefits). Further, an
additional payment ("gross-up") is required in an amount such that after the
payment of all taxes, income and excise, the executive will be in the same
after-tax position as if no excise tax under the Code had been imposed.
Generally, and subject to certain exceptions, a "change in control" is
deemed to have occurred if: (i) a majority of Toro's Board of Directors becomes
comprised of persons other than persons for whose election proxies have been
solicited by the Board, or who are then serving as directors appointed by the
Board to fill vacancies caused by death or resignation (but not removal) of a
director or to fill newly created directorships; (ii) another party becomes the
beneficial owner of at least 20% of Toro's outstanding voting stock; or (iii)
Toro's stockholders approve a definitive agreement or plan to merge or
consolidate Toro with another party (other than certain limited types of
mergers), exchange shares of voting stock of Toro for shares of another
corporation pursuant to a statutory exchange, sell or otherwise dispose of all
or substantially all of Toro's assets, or liquidate or dissolve Toro.
If a "change in control" of the Company had occurred at the commencement
of the 1996 calendar year (January 1, 1996) and had resulted in the involuntary
termination of the named executives at such time or the termination by such
executives for good reason, the Lump Sum Payment to be made under such
Agreements to those executive officers named in the Summary Compensation Table
above in the aggregate would have been approximately $8,022,762. The Company has
also established a trust for the benefit of these officers which, in the event
of a threatened or actual change of control, will be funded in an amount equal
to the Company's accrued liability related to such Agreements.
11
STOCK OPTIONS
The following table summarizes options granted under the Company's stock
option plans during Fiscal 1996 and the Transition Period.
OPTION GRANTS IN FISCAL 1996 AND TP95
INDIVIDUAL GRANTS
- --------------------------------------------------------------------------------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE
NUMBER OF TOTAL VALUE AT ASSUMED
SHARES OPTIONS EXERCISE ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO OR PRICE APPRECIATION FOR
OPTIONS EMPLOYEES BASE OPTION TERM
GRANTED IN PRICE ($ EXPIRATION ----------------------
NAME YEAR (#)(1) THE PERIOD PER SHARE) DATE 5%$ (2) 10%$ (2)
- -------------------------------- --------- ------------- ------------- ----------- ---------- --------- -----------
Kendrick B. Melrose 1996 20,065(3) 41.14% $ 29.796 3/16/99 $ 78,651 $ 179,970
TP95 29,028 11.32% $ 29.00 8/15/00 $ 232,576 $ 513,934
Gerald T. Knight 1996 2,446(3) 5.02% $ 29.796 3/16/99 $ 9,587 $ 21,939
TP95 10,893 4.25% $ 29.00 8/15/00 $ 87,276 $ 192,858
J. David McIntosh 1996 2,026(3) 4.15% $ 29.796 3/16/99 $ 7,941 $ 18,171
TP95 8,238 3.21% $ 29.00 8/15/00 $ 66,003 $ 145,851
Calvin R. Hendrix 1996 2,084(3) 4.27% $ 29.796 3/16/99 $ 8,168 $ 18,692
TP95 9,443 3.68% $ 29.00 8/15/00 $ 75,658 $ 167,186
Charles B. Lounsbury 1996 2,123(3) 4.35% $ 29.796 3/16/99 $ 8,321 $ 19,041
TP95 9,686 3.78% $ 29.00 8/15/00 $ 77,605 $ 177,488
- ------------------------
(1) Options are granted pursuant to the 1989 Stock Option Plan and the 1993
Stock Option Plan (the "plans"). The plans are administered by the Committee
which selects employees to whom options are granted. The exercise price of
each incentive and nonqualified stock option is equal to 100% of the fair
market value of the Common Stock on the date of grant, except for
performance-based stock options, such as those granted in connection with
the Continuous Performance Award Plan, for which the exercise price is an
average and on the date of grant could be higher or lower than fair market
value. The options are not transferable except by will or the laws of
descent and distribution. An option granted under any of the plans, except
those granted in connection with the Continuous Performance Award Plan, may
be exercised immediately after the date of grant in whole or in part from
time to time until the expiration of the option. Most options are subject to
cancellation upon termination of the option holder's employment; however,
some nonqualified stock options can be exercised for up to four years
following retirement at or after age 60, but not later than the expiration
date of the option.
(2) Rules of the Securities and Exchange Commission (SEC) require the
information set forth in the 5% and 10% columns. The actual gains, if any,
on stock option exercises depend on the future performance of the Company's
Common Stock. Since there is no means of accurately predicting the future
price of the Company's Common Stock, no determination can be made as to the
future value of a stock option at the time of grant.
(3) Number of shares subject to reduction and option subject to expiration if
performance goals are not achieved under the Continuous Performance Award
Plan. Expected to become exercisable in December 1998, after the Company
first makes a public announcement of its earnings for Fiscal 1997.
Expiration date will be 90 days later. For more information, see the
Compensation Committee Report and Proposal Two.
12
The following table summarizes stock options exercised by the named
executive officers during Fiscal 1996 and the Transition Period and the total
number of options held by each listed individual as of the end of each of Fiscal
1996 and the Transition Period.
AGGREGATED OPTION EXERCISES IN FISCAL 1996 AND TP95
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL PERIOD END (#) FISCAL PERIOD END ($)(1)
ACQUIRED ON VALUE -------------------------- -------------------------
NAME TITLE EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------- --------- ------------- ----------- ----------- ------------- ----------- ------------
Kendrick B. Melrose 1996 29,310 673,373 309,280 168,665 4,463,157 2,190,202(2)
TP95 35,387 643,632 209,562 277,628 2,764,486 3,199,519(2)
Gerald T. Knight 1996 8,425 105,313 37,950 8,238 422,369 63,087(2)
TP95 3,693 66,068 35,482 16,685 373,089 44,745(2)
J. David McIntosh 1996 14,358 281,971 30,182 6,701 280,261 50,771(2)
TP95 17,142 305,299 36,302 12,913 417,811 35,884(2)
Calvin R. Hendrix 1996 -0- -0- 24,901 7,239 142,352 56,047(2)
TP95 2,434 31,642 15,458 14,598 81,280 39,869(2)
Charles B. Lounsbury 1996 -0- -0- 25,541 7,403 144,603 57,408(2)
TP95 2,496 33,696 15,855 14,966 81,961 40,855(2)
- ------------------------
(1) Market value less option exercise price before payment of applicable income
taxes. Market value based on October 31, 1996 and October 31, 1995 closing
prices on the New York Stock Exchange as reported in The Wall Street
Journal.
(2) Includes options subject to reduction in number of shares and expiration if
performance goals are not achieved under Continuous Performance Award Plan.
13
LONG-TERM INCENTIVE COMPENSATION
The following table summarizes all awards of long-term incentive
compensation made under the Company's Continuous Performance Award Plan to the
named individuals during Fiscal 1996. Amounts paid pursuant to the Continuous
Performance Award Plan during Fiscal 1996 are set forth in the Summary
Compensation Table which appears elsewhere in this Proxy Statement.
ESTIMATED FUTURE PAYOUTS
PERFORMANCE OR UNDER NON-STOCK
OTHER PERIOD PRICE-BASED PLANS (3)
UNTIL -----------------------------------
NUMBER OF SHARES, UNITS OR MATURATION OR THRESHOLD TARGET MAXIMUM
NAME OTHER RIGHTS (#) PAYOUT ($ OR #) ($ OR #) ($ OR #)
- ------------------------------------ -------------------------- -------------- ----------- --------- -----------
Kendrick B. Melrose 1 Award(1) 3 fiscal $ 10,830 $ 405,620 $ 565,955
years(2)
Option (20,065 shares)
Gerald T. Knight 1 Award(1) 3 fiscal 1,263 7,321 66,026
years(2)
Option(2,446 shares)
J. David McIntosh 1 Award(1) 3 fiscal 1,306 48,915 68,250
years(2)
Option (2,026 shares)
Calvin R. Hendrix 1 Award(1)(4) 3 fiscal -0- -0- -0-
years(2)
Option (2,084 shares)
Charles B. Lounsbury 1 Award(1) 3 fiscal 1,306 48,915 68,250
years(2)
Option (2,123 shares)
- ------------------------
(1) An award is the right to receive designated target percentages of annual
salary at the end of the three year performance period if the Company
achieves financial performance objectives based on return on beginning
stockholders equity and net income growth compared with rankings of the
Company's peer group of competitors, as established by the Compensation
Committee pursuant to the Continuous Performance Award Plan. The value of an
award is based on a participant's base compensation estimated to be paid
during the last fiscal year of an award term (three years, except for
transition awards), multiplied by an individual participation factor
determined by the Committee within a range set by the plan, which is
intended to reflect the participant's ability to implement policy decisions
which influence the financial results of the Company or its divisions or
subsidiaries. Each award recipient also receives an option to purchase the
number of shares of the Company's Common Stock shown, if performance goals
are achieved. See the Compensation Committee Report and Proposal Two for
additional information on the Continuous Performance Award Plan.
(2) The three year performance period includes Fiscal 1996, 1997 and 1998.
(3) Calculated pursuant to the Continuous Performance Award Plan based on
estimated Fiscal 1998 salaries.
(4) Mr. Hendrix resigned from the Company effective January 15, 1997 and
consequently forfeited this award and related option.
14
PERFORMANCE GRAPH
The following graph depicts total cumulative stockholder return (assuming
reinvestment of dividends) of the Company's Common Stock, the S&P 500 Index and
an industry peer index for the preceding five fiscal years commencing with
Fiscal 1992. The industry peer index is based on the Fortune 500 Industrial and
Farm Equipment Index, which is comprised of the companies listed below.
COMPARISON OF FIVE YEAR TOTAL RETURN AMONG
THE TORO COMPANY, S&P 500, AND PEER GROUP
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
THE TORO CO S&P 500 PEER GROUP
1991 100 100 100
1992 99 110 103
1993 182 126 147
1994 203 131 161
1995 215 166 177
1996 237 206 229
This graph assumes $100 invested on November 1, 1991 in the Company's
Common Stock, the S&P 500 Index and the peer group index.
The peer group includes: York International, Briggs & Stratton, Stewart
& Stevenson Services, Dover Corp., Cummins Engine, Cincinnati Milacron
Inc., Harnischfeger Industries Inc., Crane Co., Tecumseh Products Co.,
Ingersoll-Rand Co., Nacco Industries, Parker-Hannifin Corp., Terex Corp.,
Dresser Industries Inc., Trinova Corp., Deere & Co., Timken Co.,
Baker-Hughes Inc., Caterpillar Inc., The Black & Decker Corporation,
American Standard, Western Atlas Inc., Agco Corporation, Kennametal Inc.,
Lincoln Electric, Teleflex, Detroit Diesel and Case Corporation as well as
the Company. Pentair Corp., Figgie International, Outboard Marine Corp.,
IMO Industries Inc., Tenneco Inc. and Actava Group Inc. were removed from
the Industrial and Farm Group Index in 1996 and Case Corporation was added.
Neither the Compensation Committee Report nor this Performance Graph shall
be deemed to be "soliciting material" or to be filed with the SEC or subject to
Regulation 14A or 14C under the Securities Exchange Act of 1934, or to the
liabilities of Section 18 of that Act.
15
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For Fiscal 1996, the members of the Compensation Committee all were
outside members of the Board, and included Messrs. Olseth, Chairman, Baukol,
Meyer and Nassau. Although Mr. Melrose is not a member of the Committee, he
attends the meetings for the purpose of providing continuity and detailed
information about employees and compensation plans. Mr. Melrose does not
participate in any option grant or award decisions or any decisions of the
Committee that might affect him personally. Mr. Melrose serves on the Board of
Directors and Compensation Committee of BSI Corporation of which Mr. Olseth
serves as president and chief executive officer. Mr. Olseth serves on the Board
of Directors and is Chairman of the Compensation Committee of the Company.
COMPENSATION COMMITTEE REPORT
The Compensation Committee is responsible for establishing policies and
administering the compensation plans for executive officers of the Company. The
Company's compensation policies are intended to align total compensation for its
executive officers and employees with the financial performance of the Company,
as compared with the financial results and compensation practices of companies
with revenues in the $500 million to $1 billion range. Some of these companies
are in the Company's peer group index for the Performance Graph on page 15 (29
companies comprising the Fortune 500 Industrial and Farm Equipment Group).
However, the Company relies on a broader group of companies for comparative
analysis of executive compensation because the Committee believes that the
Company's competitors for executive talent are more varied than its business
peer group.
While the policies of the Company are designed to compensate executive
officers for personal performance, a substantial portion of annual compensation,
especially that of the Chief Executive Officer, is designed to align the
financial interests of the executive officers with those of the Company
stockholders, by making certain components of compensation contingent upon the
financial performance of the Company. The Company's compensation program for
executive officers as well as other key management employees continues to be
composed of both cash and equity-based compensation. Cash compensation consists
of base salary, an annual incentive bonus under the Annual Management Incentive
Plan and long-term incentive compensation under the Continuous Performance Award
Plan. Equity-based compensation in the form of stock options constitutes an
additional component of long-term incentive compensation.
BASE SALARY
Base salaries for executive officers, including the Chief Executive
Officer, are initially established and thereafter are reviewed at least annually
by the Committee. Based on independent evaluation by professional compensation
consulting firms retained by the Company, a base salary range for each executive
position is established, reflecting average base salaries for similar positions
in businesses with revenues comparable to those of the Company. A base salary
for each executive is set within that market range by considering the experience
and individual performance of the executive. For Fiscal 1996 and the Transition
Period, base salaries for executive officers were within the middle one-third of
the market range.
Mr. Melrose's salary with respect to Fiscal 1996 was set at $438,337,
based on the same method used in establishing other executive officers' base
salary, but reflecting a $100,000 reduction agreed on by the Committee and Mr.
Melrose in Fiscal 1992 to increase the "at risk" portion of Mr. Melrose's total
compensation. Mr. Melrose's base salary was reduced in a total amount of
$500,000 at a rate of $100,000 per calendar year through 1996, in exchange for
which he was granted a ten year salary replacement option to purchase 300,000
shares of the Company's Common Stock. The final one-third of the ten year option
vested in December 1996. The purpose of the option is to encourage Mr. Melrose
to focus his attention on
16
increasing stockholder value. For the purpose of calculating incentive
compensation, Mr. Melrose's base salary was not reduced. His base salary for the
Transition Period also reflected the salary reduction on a prorated basis.
The Committee conducts a performance evaluation of Mr. Melrose on an
annual basis. The other named executive officers receive evaluations by Mr.
Melrose, which are used by the Committee in establishing base salaries.
INCENTIVE COMPENSATION
An executive of the Company will earn total compensation that is market
competitive only if incentive compensation is earned. In order for an executive
to earn incentive compensation sufficient to bring total compensation to average
market levels, Company financial performance targets must be achieved. If
targets are exceeded incentive compensation can result in above market level
compensation.
The incentive components of compensation are intended to encourage
achievement of both short-term and long-term objectives. Short-term performance
is evaluated using performance goal criteria selected annually by the Committee
from among those authorized in the Annual Management Incentive Plan as approved
by stockholders. Long-term performance has traditionally been evaluated by
reference to the Company's return on beginning equity ("ROBE") on a relative
basis compared with the performance of the peer group over a three year period.
In Fiscal 1996, net income growth was added to ROBE as a measure of long-term
performance for awards granted in November of 1995 with respect to the
performance award term including Fiscal 1996, 1997 and 1998. In November 1996
the Committee approved the modification of the long-term performance goals to
eliminate net income growth, and the Board is seeking the approval of
stockholders for the amendment. See Proposal Two.
For Fiscal 1996, 59% of Mr. Melrose's total cash compensation was
comprised of incentive payments under the Company's short-term and long-term
plans. If the Company had not met any of its performance goals and Mr. Melrose
had received no incentive payments, his total cash compensation (including the
$100,000 salary reduction) would have equaled only 44% of average market levels
for total cash compensation paid to chief executive officers in businesses with
revenues comparable to the Company's.
ANNUAL CASH INCENTIVE COMPENSATION. Under the Company's
stockholder-approved Annual Management Incentive Plan, executive officers and
other key employees are eligible to receive an annual cash bonus based on a
percentage of base salary. The target amount of each award is determined by the
executive officer's position, the Company's achievement of performance goals
and, for certain participant's, division performance. If performance goals are
exceeded, award amounts increase up to a pre-established maximum, but if goals
are not met, awards are reduced or not paid at all. For instance, no awards were
paid for Fiscal 1991 or 1992. Proposed participants in the Annual Management
Incentive Plan are recommended by management and selected by the Committee.
Under the Annual Management Incentive Plan as in effect for Fiscal 1996,
the Compensation Committee established an earnings per share ("EPS") performance
goal as the basis for a target award amount, and a ROANA goal as the basis for
payment of higher award amounts. Because the Company met the EPS goal but did
not exceed the ROANA goal, a bonus in an amount equal to an executive's target
award was paid. If the ROANA goal had been exceeded, a bonus amount of up to
175% of the target amount could have been paid. If the EPS had been below a
minimum level established by the Committee, no bonus would have been paid. In
considering and certifying achievement of performance goals for Fiscal 1996, the
Committee eliminated the dilutive effect on EPS of acquisitions which had not
been planned at the beginning of the Company's fiscal year. An additional
performance goal applicable to division participants was based on division
controllable profit contribution ("CPC"). If this goal was achieved, the award
payment would be increased by up to 25% of the target amount (up to a maximum of
175% of the target), but if the goal was not achieved, the award payment amount
could be reduced by up to 40% of the target. For Fiscal
17
1996, some divisions achieved the CPC goal and others did not, which resulted in
award payments made to division participants ranging from slightly more than the
target amounts to substantially reduced payments. The Committee also has the
discretion to reduce award payments made to division general managers, including
certain named executive officers, by up to 10% in the event division performance
is below Committee expectations, judged with respect to supplemental division
performance goals specified in the plan. The Committee exercised this discretion
with respect to Fiscal 1996.
An executive's target award amount is based on a percentage of base
salary, 50% for Mr. Melrose and 40% for the other named executive officers. The
percentage is based on the executive's salary grade and job position and not on
individual factors.
The Committee has adopted amendments to the Annual Management Incentive
Plan, which are being submitted to stockholders for approval in Proposal Three
of this Proxy Statement. The amendments add two additional performance goal
criteria for Committee use in establishing Annual Performance Awards and
modifying participation factors.
The Committee established a performance goal based on EPS as the basis for
payment of a bonus with respect to the Transition Period, with the opportunity
for an increased payment only if EPS exceeded a designated amount. If EPS had
been lower than a preestablished amount, no award payment would have been made.
Target award amounts were based on participation factors established under the
Annual Management Incentive Plan, applied to Transition Period base
compensation. Because EPS was achieved within the target range, award amounts
were paid at the target level, without increase or reduction, and Mr. Melrose
received a bonus equal to 50% of his Transition Period earned base compensation.
LONG-TERM INCENTIVE COMPENSATION. Under the Continuous Performance Award
Plan as in effect for the three year period ending with Fiscal 1996, performance
awards could be earned by eligible executive officers if the Company achieved a
financial goal based on average ROBE for the three year award term, as
established by the Committee, and if the relative rank of the Company's average
ROBE achieved compared favorably with ROBE rankings of all companies in the
Company's peer group described above. The additional performance goal of net
income growth was added with respect to Fiscal 1996 only, as approved by
stockholders. The maximum value of a performance award (100%) could be earned
only if the Company achieved performance goals that ranked among the top 25% of
companies in the peer group. The amount of an award payment is reduced
proportionately the lower the Company's performance ranks compared with the peer
group, and no award is paid if the Company does not rank in the top 75%.
If the Company's performance goals are achieved, the amount of an
individual participant's award payment is determined based on the individual's
participation factor, which is a percentage of base salary ranging from 25% to
100% established by the Committee based on the individual's position and level
of responsibility. Mr. Melrose participates in the plan at a factor of 1.0 (one
times base salary), which means that if the Company's ROBE and net income
growth, weighted in accordance with the Committee's formula, rank in the top 25%
of companies in the peer group, Mr. Melrose would receive a long-term incentive
payment equal to his base salary during the last fiscal year of the award, as
estimated in advance by the Committee.
In Fiscal 1996, the Company's three year average ROBE performance ranked
at the 57th percentile level among its peer group and its net income growth for
Fiscal 1996 ranked at the 39th percentile, so that the amount of awards was
70.4% of the potential maximum for each named executive officer, including Mr.
Melrose. In Fiscal 1996, 34% of Mr. Melrose's cash compensation was comprised of
payments pursuant to the Continuous Performance Award Plan. This award is
reflected in the Summary Compensation Table.
With respect to the Transition Period, the Committee used the same EPS
performance goal established in connection with the Transition Period annual
bonus described above, as the basis for a bonus in lieu
18
of an award under the Continuous Performance Award Plan. The amount of this
bonus was determined by applying the individual participation factors otherwise
applicable to plan participants under the Continuous Performance Award Plan to
base compensation for the Transition Period. If EPS had been lower than a
preestablished amount, no bonus in lieu of the usual Continuous Performance
Award Plan bonus would have been paid. If the EPS goal had been exceeded,
however, the amount of this bonus would not have been increased. Because the EPS
target was achieved, Mr. Melrose received a bonus equal to 100% of his
Transition Period earned base compensation.
Under a Continuous Performance Award Plan formula, the Committee also
grants to each participant a nonqualified stock option to purchase shares of
Common Stock. If performance goals for the related performance award are not
achieved, the number of shares subject to the option is reduced in accordance
with the formula applicable to reduction of the Performance Award. The option is
exercisable for only 90 days, following the Company's release of its earnings
for the last year of the award term. Payment of the option exercise price is
intended to be facilitated by the incentive compensation payments made near the
time the option becomes exercisable. One of the purposes of this option is to
encourage stock ownership by executive officers of the Company. No such options
were awarded with respect to the Transition Period. Options related to the award
payment made with respect to the three year period ended with Fiscal 1996 were
reduced by 29.6%.
In Fiscal 1995, a special committee of the Committee recommended, and the
Board and stockholders approved, a special incentive compensation plan for Mr.
Melrose, to encourage him to remain with the Company until his 60th birthday on
July 31, 2000, while assuring the timely development and election of his
successor as chief executive officer of the Company. Under the Chief Executive
Officer Succession Incentive Agreement, on July 31, 1995, Mr. Melrose was
awarded 17,467 shares of Common Stock and Common Stock performance units having
a fair market value of $500,000, subject to forfeiture or reduction in the event
performance goals related to the development and implementation of a senior
management succession plan and chief executive officer succession plan are not
met by target dates beginning in Fiscal 1997 and continuing through July 31,
2000. During Fiscal 1996, the Committee met with the Board, including Mr.
Melrose, to discuss the status of development of the succession plan, including
considering the advice of an executive search consultant. The Committee noted
that press reports had suggested that Mr. Melrose would be required to retire
from employment with the Company not later than July 31, 2000 in connection with
the election of a successor under the Plan. The agreement with Mr. Melrose does
not require that he retire from employment with the Company at any particular
date, and therefore the Committee recommended to the Board, and the Board
agreed, that the understanding regarding Mr. Melrose's retirement be made clear
that Mr. Melrose is not required to retire on July 31, 2000. The Board has
advised the Committee that it wishes to proceed with an orderly transition of
top management of the Company as Mr. Melrose nears retirement age.
STOCK OPTION PLANS. In addition to options granted in connection with the
Continuous Performance Award Plan, the Committee makes stock option grants
pursuant to the Company's stock option plans. Options are granted to all key
management employees, including Mr. Melrose and the named executive officers, in
amounts determined based on annual base salary, salary grade and the fair market
value of the Common Stock on the date of grant. Except for performance-based
options granted in connection with the Continuous Performance Award Plan, all
options granted under the stock option plans have exercise prices that are equal
to fair market value at the date of grant. In Fiscal 1996 and the Transition
Period, Mr. Melrose was granted options to purchase a total of 49,093 shares
pursuant to the plans.
SECTION 162(M). Under Section 162(m) of the Code, no deduction by a
publicly-held corporation is allowed for remuneration paid to certain highly
compensated employees to the extent that the amount of such remuneration for a
taxable year for such individual exceeds $1,000,000. Section 162(m) provides for
the exclusion of performance-based compensation from remuneration that is
otherwise subject to the deduction limitation. It is generally the policy of the
Company that the components of executive compensation that are
19
inherently performance-based should qualify for the exclusion from the deduction
limitation under Section 162(m). The Committee believes that the annual
incentive awards, stock options and long-term incentive awards described above
currently qualify for the exclusion. The Committee also believes that while tax
deductibility is an important factor, it is not the sole factor to be considered
in setting executive compensation policy, and accordingly reserves the right, in
appropriate circumstances, to pay amounts, in addition to base salary, which
might not be deductible.
Certain components of the incentive plan for the Transition Period
resulting from the Company's change in fiscal year end were not submitted to
stockholders. The Company anticipates that neither Transition Period incentive
payments nor the remaining components of individual executive compensation
during the Transition Period for each highly compensated employee should cause
non-deductible compensation to exceed the Section 162(m) limitation for any such
employee, and should therefore qualify for deductibility.
APPROVAL OF INCENTIVE PLANS
All of the recommendations of the Committee with respect to compensation
attributable to Fiscal 1996 were approved and adopted by the Board of Directors.
In accordance with the Company's past practice under Section 16 of the Exchange
Act and practice under Section 162(m), decisions regarding the grant of stock
options and certain other awards continue to be made by the Committee and
reported to the Board.
Dale R. Olseth, Chairman
Ronald O. Baukol
Alex A. Meyer
Robert H. Nassau
20
PROPOSAL TWO
AMENDMENTS TO THE CONTINUOUS PERFORMANCE AWARD PLAN
The stockholders are being asked to consider and vote upon a proposal to
amend the Continuous Performance Award Plan ("Performance Award Plan") (i) to
modify the financial performance goals upon which awards may be based to
eliminate net income growth as a performance measure, (ii) to establish a
participation factor (the percentage of base salary utilized to determine the
value of a participant's award) for Group Vice Presidents at .50 and (iii) to
increase the participation factor for the Chief Financial Officer and other
officers. Stockholder approval is sought to attempt to ensure that incentive
bonus payments made under the Performance Award Plan continue to qualify as
performance-based compensation for purposes of Section 162(m) of the Code. The
plan was first adopted by the Board and approved by stockholders in 1991. The
Board of Directors adopted amendments to the Performance Award Plan on November
19, 1996, subject to stockholder approval.
The purpose of the Performance Award Plan is to provide an incentive to
members of management of the Company who are primarily responsible for the
management, growth and sound development of the business of the Company and its
divisions and subsidiaries, to achieve the Company's long-term financial
objectives, by making cash awards based on achievement of long-term performance
goals ("Performance Awards").
If stockholder approval is not received, the Compensation Committee will
reconsider the amendments to the Performance Award Plan as they apply to
compensation that may be paid to any person referred to in Section 162(m) and
the plan will continue in effect as to such persons, as previously approved by
stockholders.
DESCRIPTION OF THE PERFORMANCE AWARD PLAN
The following summary description of material terms of the Performance
Award Plan, as amended, is subject to the specific provisions contained in the
Performance Award Plan, a copy of which is Exhibit A of this Proxy Statement.
Defined terms have the meanings set forth in the Performance Award Plan.
ELIGIBILITY AND ADMINISTRATION. Performance Awards may be made to any
employee who has primary responsibility for and directly influences achievement
of long-term financial results of the Company. Approximately 10 individuals
currently receive Awards under the plan. The Performance Award Plan is
administered by the Compensation Committee, which has the power to select
employees to whom Performance Awards are made, to determine the terms of the
Performance Awards, to prescribe rules and regulations relating to the
Performance Award Plan and to construe and otherwise implement the Performance
Award Plan.
AWARD TERM. Performance Awards are generally granted for a term of three
fiscal years commencing on the first day of the first year of the term and are
payable only at the conclusion of the term. For the purpose of bringing a person
who has not previously participated in the Performance Award Plan into the three
year award cycle of the Performance Award Plan, the Committee may grant a one
year or two year transition award, so that a Performance Award will be payable,
if earned, at the end of each fiscal year of an individual's participation. The
Committee may grant successive three year awards to any participant, and may
grant partial year awards to new participants. A Performance Award may not be
granted to a person who is covered by Section 162(m) later than 90 days after
the commencement of the period of service to which the Performance Award relates
or, under certain circumstances, after more than 25% of the period of service
has elapsed.
21
AWARD VALUE AND PARTICIPATION FACTORS. The value of a Performance Award is
based on a Participant's actual base compensation paid during the last fiscal
year of an Award Term, multiplied by an individual participation factor either
set in the plan or determined by the Committee within a range established by the
plan, which is intended to reflect the participant's ability to implement policy
decisions which influence the financial results of the Company, or of its
divisions or subsidiaries, and the participant's relative seniority within
management. For any participant who is a person referred to in Section 162(m),
the maximum dollar amount that may be paid under a Performance Award must be
fixed at the time of grant. Participation factors, as amended, are 1.0 (or 100%
of base compensation) for the Chief Executive Officer, .75 for the President and
Chief Operating Officer, if one should be elected, .50 for the Group Vice
Presidents and the Chief Financial Officer and .25 to .35 for other officers,
including other named executive officers.
PERFORMANCE GOALS. As amended, the Performance Award Plan provides that a
Performance Award will be earned only if the Company achieves a financial
performance goal based upon ROBE, as established by the Committee with respect
to each Performance Award. The Committee amended the plan to eliminate net
income growth compared to the peer group as a financial performance goal because
the measure was too sensitive to extraordinary circumstances affecting companies
in the peer group, leading to volatile results. The maximum value of a
Performance Award ("Award Maximum") is earned if the Company achieves a ROBE
that ranks on a percentile basis among the highest 75% of comparable earnings
for corporations in the Industrial and Farm Equipment Group of the Fortune 500
(as reported for the calendar year ended during the applicable fiscal year of
the Company). If the Company's ROBE ranks between the 75th and 50th percentile,
the Award Payout will be reduced pro rata on a straight-line basis from 100% at
the 75th percentile to two-thirds of the Award Maximum at the 50th percentile.
If the Company's ROBE ranks between the 50th and 25th percentile, the Award
Payout will be reduced further on a straight-line basis to zero at the 25th
percentile, and at or below that level, no Award Payout will be made. No Award
Payout may be earned by or paid to a participant during the first six months of
any Award Term.
MAXIMUM AWARD. The maximum dollar amount that may be paid to a participant
with respect to any Performance Award is $1,500,000.
PAYMENT. Before any payment is made under the plan, the Committee must
certify in writing that the Performance Goal justifying the payment has been
met. Award payments are made only in cash and the Performance Award Plan
contemplates payment within a reasonable time following the end of any Award
Term. A participant can elect to defer compensation under the Performance Award
Plan in accordance with any cash deferred compensation plan of the Company in
effect at the time.
CHANGE OF CONTROL. Each Performance Award provides that in the event of a
threatened or actual change of control of the Company (as defined in the
Performance Award Plan) during the final six months of a one year Performance
Award or after the first full year of the Award Term of any other Performance
Award, the award will become immediately payable and the calculation of the
amount to be paid will be based on the ROBE of the Company for the fiscal period
then most recently ended.
MISCELLANEOUS. A Performance Award may not be transferred. A participant
may receive payment pursuant to an award only while an employee and only if
continuously employed since the date of grant of the Performance Award, except
that in the event of death, disability or retirement, an Award Payout, if
otherwise earned, will be made with respect to the portion of the applicable
Award Term completed at the date of such event. In addition, in the event of
involuntary termination of employment of a participant during the Award Term,
for reasons other than death, disability or retirement, an Award Payout will be
made with respect to the portion of the applicable Award Term completed at the
date of such event, and the payment will be based on the ROBE of the Company for
the fiscal period then most recently ended and the most recent Fortune 500
publication then available.
22
STOCK OPTIONS. At the time of granting a Performance Award, the Committee
will also grant to each participant a nonqualified stock option to purchase
shares of Common Stock under the Company's then effective stock option plan, on
terms and conditions permitted under such stock option plan. The number of
shares to be covered by each stock option will be determined as follows: (i) the
estimated base compensation of the participant for the first fiscal year of the
Award Term will be multiplied by (ii) the participation factor applicable to the
participant and the result will be multiplied by (iii) either 1.0 for a one year
Award Term, 1.05 for a two year Award Term or 1.1 for a three year Award Term,
and the result will be divided by (iv) the fair market value of one share of
Common Stock, calculated by taking the average of the closing prices of the
Common Stock for the three months prior to the date of grant. However, if the
Company's ROBE performance as compared with other corporations comprising the
Industrial and Farm Equipment Group of the Fortune 500 ranks below the 75th
percentile, the number of shares subject to the option will be reduced on a
formula basis as provided in the Performance Award Plan and becomes zero at or
below the 25th percentile.
The calculation of whether the ROBE performance goal has been achieved
will be made and certified by the Committee promptly after the end of each
fiscal year. Provided the Committee has done so, the option will become
exercisable on the date the Company releases to the public its earnings for the
prior fiscal year, and will remain exercisable until 90 days thereafter. In the
event of a threatened or actual Change of Control of the Company, each option
will become immediately exercisable in the full option amount, unless otherwise
not permitted under the Company's then effective stock option plan or federal
securities laws.
PLAN AMENDMENT AND TERMINATION. The Committee may, in its sole discretion,
amend, suspend or terminate the Performance Award Plan at any time, with or
without advance notice to plan participants, provided that no amendment to the
Plan will be effective that would increase the maximum amount that may be paid
to a plan participant, that would change the financial performance goal or that
would modify the requirements as to eligibility for participation, unless the
stockholders of the Company approve such change in accordance with the
requirements of Section 162(m).
PLAN BENEFITS
The benefits or amounts that will be received by or allocated to the Chief
Executive Officer, the named executive officers, executive officers and officers
who are not executive officers under the Performance Award Plan are not
presently determinable. Amounts received by Mr. Melrose and the named executive
officers during the last fiscal year are set forth in the Summary Compensation
Table on page 9 and the Long-Term Incentive Compensation Table on page 14.
Amounts received by or allocated to the executive officers as a group, as of
October 31, 1996, equaled $641,854. Amounts received by or allocated to all
employees, including all officers who were not executive officers, as a group,
as of October 31, 1996, equaled $673,573. No payments under this plan were made
for the Transition Period. Directors who are not executive officers and
employees of the Company do not receive benefits under the Performance Award
Plan. Subject to the limitations imposed by Section 162(m), the Committee may
amend the Performance Award Plan so that the allocation of benefits may be
altered and costs may be increased.
VOTE REQUIRED. THE AFFIRMATIVE VOTE OF A MAJORITY OF SHARES OF COMMON
STOCK PRESENT IN PERSON OR REPRESENTED BY PROXY AT THE ANNUAL MEETING IS
REQUIRED FOR THE ADOPTION OF ITEM 2. ALL PROXIES WILL BE VOTED FOR ITEM 2 UNLESS
A CONTRARY CHOICE IS INDICATED.
23
PROPOSAL THREE
AMENDMENTS TO THE ANNUAL MANAGEMENT INCENTIVE PLAN
The stockholders are being asked to consider and vote upon a proposal to
amend the Annual Management Incentive Plan (the "Annual Plan") (i) to add
economic value added and division profit adjustment to the permissable financial
performance goals upon which awards may be based and (ii) to eliminate fixed
participation factors (percentages of base salary utilized to determine the
value of a participant's award) for appointed officers and director level
employees and to establish a range from 25% to 40% for participation factors for
those employees. Stockholder approval is sought to attempt to ensure that
incentives under the Annual Plan continue to qualify as performance-based
compensation for purposes of Section 162(m) of the Code. The Annual Plan was
approved by stockholders on March 12, 1996 and was amended by the Compensation
Committee and the Board of Directors on January 20, 1997, subject to stockholder
approval.
The purpose of the Annual Plan is to reinforce the financial goals of the
Company by providing key employees, including executive officers, with an
opportunity to earn financial rewards based upon the attainment of corporate,
and in some cases, division goals.
If stockholder approval of the amendments to the Annual Plan is not
received, the Compensation Committee will reconsider the amendments as they
apply to compensation that may be paid to any person referred to in Section
162(m), and the Annual Plan will continue in effect as to such persons as
previously approved by stockholders.
DESCRIPTION OF THE ANNUAL PLAN
The following summary description of material terms of the Annual Plan, as
amended, is subject to the specific provisions contained in the Annual Plan, a
copy of which is Exhibit B of this Proxy Statement. Defined terms have the
meanings set forth in the Annual Plan.
PURPOSE. The purpose of the Annual Plan is to provide an annual incentive
to reinforce achievement of the performance goals of the Company; to link a
significant portion of a participating employee's compensation to the
achievement by the Company, and in certain cases, a division, of performance
goals; and to attract, motivate and retain key employees on a competitive basis.
ELIGIBILITY AND PARTICIPATION. Participation is limited to key employees
of the Company, including executive officers, who are in a position to have a
significant, positive impact on the Company's financial results, as determined
by the Committee. Approximately 67 individuals, including the Company's Chief
Executive Officer and the named executive officers, currently receive awards
under the Annual Plan.
AWARD AMOUNTS. The target amount "Target Payout" that may be paid with
respect to an Annual Performance Award is determined by the Committee and is
based on a percentage of a Plan Participant's annual base salary (a
"participation factor"), within a range established by the Annual Plan and
subject to adjustment as provided in the Annual Plan. The participation factors,
which are intended to reflect a Plan Participant's level of responsibility, are
50% for the Chairman and Chief Executive Officer, 45% for the President and
Chief Operating Officer, if one should be elected, 40% for other elected
officers, including the named executive officers, and 25 to 40% for other
officers and employees.
PERFORMANCE GOALS. An award payment under an Annual Performance Award will
be made only upon the achievement of Company Performance Goals established by
the Committee in writing not later than 90 days after the beginning of the
fiscal year to which the Performance Goals relate. The Committee may also
establish Maximum Payouts of up to 175% of Target Payouts in the event
Performance Goals are
24
exceeded by an amount specified by the Committee. At the time Annual Performance
Awards are made, the Committee may decrease Target Payouts by up to 40% or
increase Maximum Payouts by up to 25% but not above 175%, for division vice
presidents and managers to reflect division specific Performance Goals. The
Committee has the discretion to reduce by up to 10% amounts that would otherwise
be paid to a division vice president or general manager based on the Committee's
evaluation of the quality of division performance. The Committee may establish
curves or other measurements for determination of the amount of prorated
payments for achievement of Performance Goals at less than the Target Payout or
Maximum Payout. With respect to any Participant who is a person referred to in
Section 162(m) of the Code, the Committee has the discretion to decrease the
amount of an award payment under the Annual Plan, but may not under any
circumstances increase such payment.
Performance Goals may be based on earnings per share (EPS), return on
average net assets (ROANA), division controllable profit contribution, return on
equity, revenue growth, earnings growth, division profit adjustment or economic
value added (EVA). EVA and division profit adjustment are the performance goals
added by the Committee for which stockholder approval is sought. EVA is a
measure similar to the microeconomic concepts of economic profit and opportunity
cost, which measure the economic return to stockholders on capital utilized in a
company's operating units. Division profit adjustment is controllable profit
contribution less interest which the Committee may use as a means to convert to
EVA. Each performance goal is to be specifically defined by the Committee on a
Company basis or division basis. Supplemental Performance Goals for division
vice presidents and managers may be established by the Committee and may be
based on division specific operating performance goals including revenue growth,
sustained earnings, product warranty experience, product recalls or inventory
levels.
MAXIMUM AWARD. To comply with Code limitations, the maximum amount a Plan
Participant may be paid under an Annual Performance Award with respect to any
fiscal year is $1,500,000.
PAYMENTS. Before any payment is made under the Annual Plan, the Committee
must certify in writing that the Performance Goals established with respect to
an Annual Performance Award have been met. To the extent necessary with respect
to any fiscal year, in order to avoid any undue windfall or hardship due to
external causes, the Committee may make the determination as to whether a
Performance Goal has been achieved without regard to the effect on the
Performance Goal measure, as it may otherwise be presented in the financial
statements, of any change in accounting standards, any acquisition by the
Company not planned for at the time the Performance Goals are established, any
Board-approved extraordinary or non-recurring event or item.
ADMINISTRATION. The Annual Plan is administered by the Committee which has
broad authority to administer and interpret the Annual Plan, establish policies
under the Annual Plan, amend the Plan, select Participants, establish
Performance Goals, make awards or terminate the Annual Plan, in its sole
discretion.
PLAN AMENDMENT AND TERMINATION. The Committee may, in its sole discretion,
amend, suspend or terminate the Annual Plan at any time, with or without advance
notice to Plan Participants, provided that no amendment to the Plan will be
effective which would increase the maximum amount that may be paid to a Plan
Participant, which would change the stated Performance Goal criteria or which
would modify the requirements as to eligibility for participation, unless the
stockholders of the Company approve such change in accordance with the
requirements of Section 162(m).
EFFECTIVE DATE OF THE PLAN. The Annual Plan first became effective on
August 15, 1995. Any amendment to the Annual Plan will be effective on the date
established by the Committee, subject to stockholder approval.
PLAN BENEFITS. The benefits or amounts that will be received by or
allocated to the Chief Executive Officer, the named executive officers and
executive officers and officers who are not executive officers under
25
the Annual Plan as amended are not presently determinable. Amounts received by
Mr. Melrose and the named executive officers during the last fiscal year are set
forth in the Summary Compensation Table on page 9. Amounts received by or
allocated to the executive officers as a group, as of October 31, 1996, equaled
$885,195. Amounts received by or allocated to all employees, including all
officers who were not executive officers, as a group, as of October 31, 1996,
equaled $1,369,542. Directors who are not executive officers and employees of
the Company do not receive benefits under the Annual Plan. Subject to the
limitations imposed by Section 162(m), the Committee may amend the Annual Plan
so that the allocation of benefits may be altered and costs may be increased.
VOTE REQUIRED. THE AFFIRMATIVE VOTE OF A MAJORITY OF SHARES OF COMMON
STOCK PRESENT IN PERSON OR REPRESENTED BY PROXY AT THE ANNUAL MEETING IS
REQUIRED FOR THE ADOPTION OF ITEM 3. ALL PROXIES WILL BE VOTED FOR ITEM 3 UNLESS
A CONTRARY CHOICE IS INDICATED.
SELECTION OF INDEPENDENT AUDITORS
The Audit Committee of the Board of Directors has selected KPMG Peat
Marwick LLP to serve as independent auditors to the Company for Fiscal 1997.
Although it is not required to do so, the Board of Directors wishes to submit
the selection of KPMG Peat Marwick LLP for stockholder approval at the meeting.
A representative of KPMG Peat Marwick LLP is expected to be present at the
Annual Meeting with the opportunity to make a statement if so desired, and to be
available to respond to appropriate questions.
VOTE REQUESTED. THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO APPROVE THE
SELECTION OF KPMG PEAT MARWICK LLP. IF THE HOLDERS OF A MAJORITY OF THE SHARES
OF COMMON STOCK REPRESENTED AT THE MEETING DO NOT APPROVE THE SELECTION OF
PUBLIC ACCOUNTANTS, THE BOARD OF DIRECTORS WILL RECONSIDER ITS SELECTION. ALL
PROXIES WILL BE VOTED FOR ITEM 4 UNLESS A CONTRARY CHOICE IS INDICATED.
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
The 1998 Annual Meeting of Stockholders is expected to be held on March
12, 1998. Unless the date of the 1998 Annual Meeting is changed, a stockholder
proposal must be received by the Secretary of the Company no later than the
close of business on October 13, 1997, in order to be included in the Company's
Proxy Statement for the 1998 Annual Meeting. Procedures for nominations by a
stockholder of a person for election as a director at the 1998 Annual Meeting,
or any other meeting, are described on page 2.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The rules of the Securities and Exchange Commission require disclosure by
the Company of the identity of directors, executive officers and beneficial
owners of more than 10% of the Common Stock of the Company who did not file on a
timely basis reports required by Section 16 of the Exchange Act. Based solely on
a review of copies of those reports received by the Company, or written
representations from certain reporting persons that no Form 5 reports were
required for those persons, the Company believes that all directors, executive
officers and greater than 10% owners complied with all filing requirements
applicable to them during Fiscal 1996, except that a Form 4 report with respect
to one transaction was inadvertently filed late on behalf of Stephen P. Wolfe,
an executive officer of the Company.
26
OTHER MATTERS
The management of the Company knows of no other matters that may come
before the Annual Meeting. However, if matters other than those referred to
above should properly come before the Annual Meeting, it is the intention of the
persons named on the enclosed proxy card to vote such proxy in accordance with
their best judgment.
Dated: February 10, 1997 BY ORDER OF THE BOARD OF DIRECTORS
[SIGNATURE]
J. LAWRENCE MCINTYRE
Vice President, Secretary and General
Counsel
27
EXHIBIT A
THE TORO COMPANY
CONTINUOUS PERFORMANCE AWARD PLAN
1. PURPOSE OF THE PLAN. The purpose of the Continuous Performance Award Plan
(the "Plan") is to provide an incentive to members of management of The Toro
Company (the "Company") who are primarily responsible for the management,
growth and sound development of the business of the Company to achieve the
Company's long-term financial objectives, by making awards based on
achievement of performance goals ("Performance Awards").
2. ADMINISTRATION. The Plan shall be administered by the Compensation Committee
of the Board of Directors of the Company, or its successor committee (the
"Committee"), it being intended that members of the Committee shall qualify
to administer the Plan as contemplated by Rule 16b-3 promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act") or any successor rule,
and as contemplated by Section 162(m) of the Internal Revenue Code of 1986,
as amended (the "Code") and the rules and regulations thereunder, and
provided further that, if the stock options granted pursuant to paragraph 5
hereof are authorized to be granted under the Company's stock option plans,
the members of the Committee shall also have authority to act under those
plans. The Committee shall have power to select employees to whom
Performance Awards are made, to determine the terms of the Performance
Awards consistent with the Plan, to prescribe rules and regulations relating
to the Plan and to construe and otherwise implement the Plan.
3. ELIGIBILITY. Performance Awards may be made to any employee who has primary
responsibility for and directly influences achievement of long-term
financial results of the Company. Officers of the Company who are also
members of the Board of Directors shall be eligible to receive Performance
Awards. Members of the Committee shall not be eligible to receive
Performance Awards. Individuals to whom Performance Awards are made are
referred to as "Participants."
4. TERMS OF AWARDS. Performance Awards shall be evidenced by written agreements
in such form, not inconsistent with this Plan, as the Committee shall
approve from time to time, which agreements shall contain in substance the
following terms and conditions:
a. "AWARD TERM". Unless otherwise provided herein, each Performance Award
shall have a term of three fiscal years and shall be payable only at the
conclusion of such term. Notwithstanding the foregoing, and for the
purpose of bringing a Participant who has not previously participated in
this Plan into the three year award cycle of the Plan, the Committee may
grant, in addition to a three year Performance Award, a Performance Award
having a term of one fiscal year and a Performance Award having a term of
two fiscal years, such that an award will be payable, if otherwise
earned, at the conclusion of each of the first two fiscal years after
commencement of participation in the Plan. The Committee may, in its
discretion, grant additional, successive three year Performance Awards to
any Participant with respect to subsequent three year periods.
Notwithstanding the foregoing, the Committee may, in its discretion, make
Performance Awards having a duration of less than the normal Award Term
to an individual who is selected to first become a Participant at a time
other than the beginning of a fiscal year of the Company or to reflect a
fiscal transition period resulting from a change in fiscal year end or
similar significant event; provided that such award shall otherwise be
generally on the same terms and conditions applicable to Performance
Awards granted as of the first day of the applicable fiscal year.
A-1
SPECIAL RULE FOR PERSONS REFERRED TO IN SECTION 162(M). If a Performance
Award is granted at a time other than the beginning of a fiscal year,
such award shall not be granted later than 90 days after the commencement
of the period of service to which the Performance Award relates or after
more than 25% of the period of service has elapsed, in accordance with
the provisions of subparagraph 4.c.ii hereof.
b. DATE OF GRANT. Except as otherwise permitted under this Plan, Performance
Awards, whether one year, two year or three year awards, shall be granted
as of the date which marks the first day of any Award Term.
c. BASIS OF AWARD.
i. The maximum amount that may be paid with respect to any Performance
Award (the "Award Maximum") shall be determined by multiplying (a)
the base compensation actually paid to the Participant during the
period of any one-year Award Term or the last fiscal year of any
multiple-year Award Term, as the case may be, exclusive of any
bonus or other incentive compensation but including deferred
compensation, times (b) a participation factor, which represents a
percentage of base compensation (such as .25 for 25% of base
compensation) determined by the Committee at the time an award is
granted, which is intended to reflect the Participant's ability to
influence the financial results of the Company or of its divisions
or subsidiaries and the Participant's relative seniority within
management.
SPECIAL RULE FOR PERSONS REFERRED TO IN SECTION 162(M): With
respect to a Performance Award granted to a person referred to in
Section 162(m), the maximum dollar amount of the Award Maximum
shall be set by the Committee at the time of grant of a Performance
Award and the Committee shall have the discretion to decrease this
maximum dollar amount but may not increase such amount with respect
to a Performance Award granted to a person referred to in Section
162(m). The participation factors applicable to such persons, which
are intended to reflect a Plan Participant's level of
responsibility, are 1.0 for the Chairman and Chief Executive
Officer, .75 for the President and Chief Operating Officer, if one
should be elected, .50 for the Group Vice Presidents and Chief
Financial Officer, and .25 to .35 for other officers, including
other named executive officers.
ii. The Committee shall establish a financial performance goal based on
the Company's relative performance in achieving a return on
beginning stockholders equity ("ROBE") as compared with other
similarly classified Fortune 500 companies (the "Performance
Goal"), and the amount that shall be paid (the "Award Payout") with
respect to each Performance Award shall be based on the achievement
by the Company of such Performance Goal during the applicable Award
Term; provided that the Performance Goal shall be established not
later than 90 days after the commencement of the period of service
to which the Performance Goal relates, provided that the outcome is
substantially uncertain at the time the Committee actually
establishes the Performance Goal; and provided further that in no
event will a Performance Goal be considered to be preestablished if
it is established after 25% of the period of service (as scheduled
in good faith at the time the Performance Goal is established) has
elapsed.
SPECIAL RULE FOR PERSONS REFERRED TO IN SECTION 162(M): In no case
shall the Award Payout with respect to a Performance Award granted
to a person referred to in Section 162(m) exceed the maximum dollar
amount established by the Committee in accordance with the Special
Rule set forth in subparagraph 4.c.i. or set forth in subparagraph
4.e.
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d. CALCULATION OF AWARD PAYMENT.
i. STANDARD CALCULATION. The Company's ROBE for each fiscal year shall
be converted to a percentile score (the "Percentile Score") by
comparing the ROBE to comparable data for all companies in the
Industrial and Farm Equipment Group of Fortune 500 (as reported for
the calendar year ended during such fiscal year). The one year
Percentile Score shall be used to determine the Award Payout with
respect to a one year Award Term and the average of the Percentile
Scores for a two or three year Award Term shall be used in
determining the Award Payout for any multiple year Performance
Award. If the Percentile Score (or average Percentile Score for a
two or three year Award Term) is: (a) at or above the 75th
percentile, each Participant shall be paid the Award Maximum; (b)
between the 50th and 75th percentile, each Participant shall be
paid an amount equal to two-thirds of the Award Maximum at the 50th
percentile and ranging up on a straight line basis to 100% of the
Award Maximum at the 75th percentile; (c) between the 25th and 50th
percentile, each Participant shall be paid two-thirds of the Award
Maximum at the 50th percentile and ranging down on a straight line
basis to zero at the 25th percentile; and (d) at or below the 25th
percentile, no Performance Award shall be paid. The Award Payout
with respect to a Performance Award covering two or three fiscal
years shall not be earned or paid until the completion of the final
fiscal year of the Award Term. However, no Award Payout will be
earned or paid to any participant during the first six months of
any Award Term.
ii. Notwithstanding the provisions of subparagraph i of this
subparagraph 4.d., any individual who has participated in the Plan
for less than a full fiscal year during a one year Award Term shall
receive a payment only for that portion of the fiscal year during
which the individual was a Participant (expressed as a percentage
and based on a 360 day year).
e. MAXIMUM AWARD PAYMENT. Notwithstanding any other provision of this Plan,
the maximum dollar amount a Participant may be paid under a Performance
Award with respect to any Award Term is $1,500,000. The Committee may in
its discretion, decrease this maximum, but may not under any
circumstances increase this maximum.
f. PAYMENT. Before any payment is made under the Plan, the Committee must
certify in writing that the Performance Goal justifying the payment has
been met. Subject to the provisions of subparagraph 4.g. hereof, any
amount earned with respect to a Performance Award shall be paid in cash
within a reasonable time after the last day of the Award Term and after
the Committee has certified in writing that the applicable Performance
Goal and any other material terms were satisfied. A Participant shall
have no control over the date of payment.
g. CHANGE OF CONTROL. Each Performance Award shall provide that in the event
of a threatened or actual Change of Control of the Company after one full
year of any multiple year Award Term, or during the final six months of a
one year Award Term, any such Performance Award shall become immediately
payable and the calculation of the amount payable shall be based on the
ROBE of the Company for the fiscal period most recently ended and the
most recent Fortune 500 publication then available. A Change of Control
means the earliest to occur of (a) a public announcement that a party
shall have acquired or obtained the right to acquire beneficial ownership
of 20% or more of the outstanding shares of Common Stock of the Company,
(b) the commencement of, or announcement of an intention to make, a
tender offer or exchange offer the consummation of which would result in
the beneficial ownership by a party of 30% or more of the outstanding
shares of Common Stock of the Company or (c) the occurrence of a tender
offer, exchange offer, merger, consolidation, sale of assets or contested
election or any combination
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thereof, that causes the persons who were directors of the Company
immediately before such Change of Control to cease to constitute a
majority of the Board of Directors of the Company or any parent of or
successor to the Company.
h. TRANSFERABILITY. No Performance Award granted hereunder may be
transferred by a Participant. A Participant may receive payment with
respect to a Performance Award only while an employee of the Company or a
parent or subsidiary of the Company and only if he or she has been
continuously employed since the date the Performance Award was granted;
provided, however, that:
i. In the event of the death, disability or retirement of a
Participant, an Award Payout shall be made if otherwise earned in
accordance with subparagraph 4.d. hereof, with respect to the
portion of the applicable Award Term completed at the date of such
event (based on a 360 day year and expressed as a percentage). The
amount shall be calculated and paid in accordance with the
applicable provisions of subparagraphs 4.d. and 4.e.,
notwithstanding the earlier occurrence of such event.
ii. In the event of involuntary termination of employment of a
Participant, during the Award Term, for reasons other than death,
disability or retirement, an Award Payout shall be made, if
otherwise earned in accordance with subparagraph 4.d. hereof, with
respect to the portion of the applicable Award Term completed at
the date of such event (based on a 360 day year and expressed as a
percentage). Any payment made under this subparagraph 4.h.ii shall
be based on the ROBE of the Company for the fiscal period then most
recently ended and the most recent Fortune 500 publication then
available.
5. STOCK OPTIONS. At the time of granting any Performance Award, the Committee
shall grant to each Participant options to purchase shares of the Common
Stock, $1.00 par value and related Preferred Share Purchase Rights, of the
Company (the "Common Stock") under the Company's then effective stock option
plan or plans, on such terms and conditions as may be required or permitted
under such stock option plan, provided, however, that the following terms
shall be applicable unless otherwise not permitted by such stock option
plan:
a. Each Participant shall be granted one option with respect to each
Performance Award.
b. The number of shares to be subject to an option granted to a Participant
(the "Option Amount") shall be determined by: multiplying (i) the
estimated base compensation of the Participant during the first fiscal
year of the Award Term, as determined by the Human Resources department
of the Company, exclusive of any bonus or other incentive compensation
but including deferred compensation; times (ii) the participation factor
described in subparagraph 4.c.i above; times (iii) 1.0 for a one-year
Award Term, 1.05 for a two-year Award Term, and 1.1 for a three-year
Award Term; and dividing that result by (iv) the Fair Market Value of one
share of Common Stock of the Company determined in accordance with
subparagraph 5.d. hereof.
c. Notwithstanding paragraph 5.b., the number of shares subject to an option
shall be subject to reduction as follows: If the Company's Percentile
Score (or average Percentile Score for a multiple year Award Term) as
calculated in accordance with subparagraph 4.d. above, is not at or above
the 75th percentile, but is at or above the 25th percentile, a portion of
the option related to the applicable Performance Award shall be deemed to
expire so that the number of shares subject to the option shall be
reduced pro rata on a straight-line basis (full shares only) to two-
thirds of the Option Amount at a 50th Percentile Score and to zero at a
25th Percentile Score, on the same basis as provided in subparagraph 4.d.
above. Thus, if the Company does not achieve a Performance Goal equal to
at least the 25th percentile as herein provided for the Award Term,
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the option shall expire automatically. The calculation required by this
subparagraph shall be made and certified by the Committee promptly after
the end of each fiscal year, and any option or portion of an option
deemed to expire shall expire automatically upon the making of such
calculation. The Committee shall promptly notify the Participants of the
results of the calculation.
d. The exercise price per share under any option shall be the fair market
value of one share of Common Stock of the Company. The fair market value
of one share of Common Stock, for the purpose of determining the Option
Amount and the exercise price per share, shall be the average closing
price of the Common Stock on the New York Stock Exchange for the three
month period immediately prior to the grant date, provided that such
result shall otherwise be in accordance with the then effective stock
option plan.
e. An option granted with respect to any Performance Award, or the portion
thereof which remains after application of subparagraph 5.c. above, shall
become exercisable on the date the Company's releases to the public its
earnings for the prior fiscal year and shall remain exercisable until 90
days thereafter. If permitted under the then effective stock option plan
or under applicable securities laws, each option shall provide that in
the event of a Change of Control of the Company during the Award Term,
the option shall become immediately exercisable in the full Option Amount
and the calculation pursuant to paragraph 5.c. shall not be applicable.
f. An option shall, by its terms, expire upon the termination of employment
of a Participant, except that in the event of retirement by a Participant
after the end of an Award Term, such retired Participant shall be
entitled to exercise the option or options involved during the period
provided in subparagraph 5.e. above.
6. PLAN AMENDMENT AND TERMINATION. The Committee may, in its sole discretion,
amend, suspend or terminate the Plan at any time, with or without advance
notice to Plan Participants, provided that no amendment to the Plan shall be
effective which would increase the maximum amount payable under paragraph
4.e. to a Participant who is a person referred to in Section 162(m), which
would change the Performance Goal applicable to a Participant who is a
person referred to in Section 162(m) for payment of awards stated under
paragraph 4.c.ii.; or which would modify the requirements as to eligibility
for participation under paragraph 3, unless the stockholders of the Company
shall have approved such change in accordance with the requirements of
Section 162(m). Under no circumstances may the Plan be amended to permit the
Committee to increase an Award Payment in contravention of the requirements
of paragraph 4.c.i.
7. GOVERNING LAW. The Plan shall be construed, administered and governed in all
respects under and by the applicable laws of the State of Delaware.
8. EFFECTIVE DATE OF THE PLAN AND AMENDMENTS. The Plan first became effective
on August 1, 1991. Any amendment to the Plan shall be effective on the date
established by the Committee, subject to stockholder approval, if required
under the provisions of paragraph 6.
As amended by the Compensation Committee and Board of Directors November 19,
1996, subject to stockholder approval.
A-5
EXHIBIT B
THE TORO COMPANY
ANNUAL MANAGEMENT INCENTIVE PLAN
1. PLAN PURPOSE. The purpose of The Toro Company Annual Management Incentive
Plan (the "Plan") is to provide an annual incentive to reinforce achievement
of the performance goals of The Toro Company (the "Company"); to link a
significant portion of a participating employee's annual compensation to the
achievement by the Company, and in certain cases, a division, of performance
goals; and to attract, motivate and retain key employees on a competitive
basis by making awards based on achievement of performance goals for each
fiscal year of the Company ("Annual Performance Awards").
2. ELIGIBILITY AND PARTICIPATION. Within the first 90 days of each fiscal year,
or before the first 25% of a shorter performance period has elapsed, the
Compensation Committee (the "Committee") shall select as recipients of
Annual Performance Awards ("Plan Participants") those employees who, through
their position or performance, can have a significant, positive impact on
the Company's financial results. Nominations may be made to the Chief
Executive Officer and presented by the Chief Executive Officer to the
Committee. Plan Participants are designated to participate in the Plan for
one fiscal year, but may be renominated and selected again. Newly-hired and
newly-promoted employees may be selected as participants after the first 90
days of a fiscal year.
3. AWARD AMOUNTS.
a. TARGET PAYOUT. The target amount that may be paid with respect to an
Annual Performance Award (the "Target Payout") shall be determined by the
Compensation Committee and shall be based on a percentage of a Plan
Participant's actual annual base salary ("Participation Factor"), within
the range established by this subparagraph, and subject to adjustment as
provided in subparagraph 4.b. The Participation Factors, which are
intended to reflect a Plan Participant's level of responsibility, are 50%
for the Chairman and Chief Executive Officer, 45% for the President and
Chief Operating Officer, if one should be elected, 40% for other elected
officers, including the named executive officers, and 25 to 40% for other
officers and employees. The Chief Executive Officer may approve
modifications to the foregoing Participation Factors for any participant
who is not a person referred to in Section 162(m) of the Internal Revenue
Code of 1986, as amended, or the regulations thereunder ("Section
162(m)"), if such modification is based on level of responsibility.
b. MAXIMUM PAYOUT. The Committee may also establish a maximum potential
payout level (the "Maximum Payout") with respect to an Annual Performance
Award of up to 175% of the Target Payout in the event Performance Goal
targets are exceeded by an amount established by the Committee at the
time Performance Goals are established. The Committee may establish
curves or other measurements for prorating the amount of payout for
achievement of Performance Goals at less than the Target Payout or
Maximum Payout.
c. DIVISION PAYOUT. At the time an Annual Performance Award is made, the
Committee may decrease the Target Payout by up to 40% or increase the
Maximum Payout by up to 25% for division Plan Participants but not above
75%, to reflect division specific Performance Goals. The Committee shall
also have the discretion to reduce by an amount up to 10% the amount that
would otherwise be paid under the division payout formula to a division
vice president or general manager based on the Committee's evaluation of
the quality of division performance.
B-1
d. SECTION 162(M) MAXIMUM. With respect to any Plan Participant who is or
may become a person referred to in Section 162(m), the maximum dollar
amount that may be paid under an Annual Performance Award shall be set at
the time the Committee grants the award and establishes the Performance
Goals (as defined in subparagraph 4.a.) under the award.
4. PERFORMANCE GOALS.
a. ESTABLISHMENT. The Target Amount of an Annual Performance Award shall be
paid to a Plan Participant only if the Company achieves Performance
Goals, based on the criteria set forth in paragraph (4.b.) ("Performance
Goals"), established by the Committee in writing not later than 90 days
after the commencement of the fiscal year to which the Performance Goal
relates, provided that the outcome is substantially uncertain at the time
the Committee establishes the Performance Goal; and provided further that
in no event will a Performance Goal be considered to be preestablished if
it is established after 25% of the period of service (as scheduled in
good faith at the time the Performance Goal is established) has elapsed.
b. PERFORMANCE GOAL CRITERIA. Performance Goals to be established under
subparagraph 4.a. shall be based on earnings per share (EPS), return on
average net assets (ROANA), division profit adjustment, division
controllable profit contribution, return on equity, revenue growth,
earnings growth or economic value added (EVA). Supplemental Performance
Goals for division vice presidents and managers that may be established
under subparagraph 4.a. may be based on division specific operating
performance goals including revenue growth, sustained earnings, product
warranty experience, product recalls or inventory levels. Each
Performance Goal is to be specifically defined by the Compensation
Committee on a Company basis or division basis and/or in comparison with
peer group performance.
5. DISCRETION TO DECREASE AWARD PAYMENT. With respect to any Plan Participant
who is a person referred to in Section 162(m), the Committee shall have the
discretion to decrease an award payment under an Annual Performance Award,
but may not under any circumstances increase such amount.
6. MAXIMUM AWARD PAYMENT. Notwithstanding any other provision of this Plan, the
maximum dollar amount a Plan Participant may be paid under an Annual
Performance Award with respect to any fiscal year is $1,500,000. The
Committee may, in its discretion, decrease this maximum, but may not, under
any circumstances, increase this maximum.
7. PAYMENTS. Before any payment is made under the Plan, the Committee must
certify in writing that the Performance Goals established with respect to an
Annual Performance Award have been achieved. To the extent necessary with
respect to any fiscal year, in order to avoid any undue windfall or hardship
due to external causes, the Committee may make the determination as to
whether a Performance Goal has been achieved without regard to the effect on
the Performance Goal measure, as it may otherwise be presented in the
financial statements, of any change in accounting standards, any acquisition
by the Company not planned for at the time the Performance Goals are
established, or any Board-approved extraordinary or non-recurring event or
item.
8. TRANSFERABILITY. Awards shall not be assignable or transferable.
9. ADMINISTRATION. The Committee shall have the authority to administer the
Plan; establish policies under the Plan; amend the Plan, subject to the
provisions of paragraph 11; interpret provisions of the Plan; select Plan
Participants; establish Performance Goals; make Annual Performance Awards;
or terminate the Plan, in its sole discretion. The Committee may delegate
certain of these activities and all
B-2
decisions not required to be exercised by it under Section 162(m), as it
solely determines. All decisions of the Committee shall be final and binding
upon all parties including the Company, its stockholders and Plan
Participants.
10. GOVERNING LAW. The Plan shall be construed, administered and governed in all
respects under and by the applicable laws of the State of Delaware.
11. PLAN AMENDMENT AND TERMINATION. The Committee may, in its sole discretion,
amend, suspend or terminate the Plan at any time, with or without advance
notice to Plan Participants, provided that no amendment to the Plan shall be
effective that would increase the maximum amount payable under paragraph 6
to a Plan Participant who is a person referred to in Section 162(m); that
would change the Performance Goal criteria applicable to a Plan Participant
who is a person referred to in Section 162(m) for payment of awards stated
under paragraph 4; or that would modify the requirements as to eligibility
for participation under paragraph 2, unless the stockholders of the Company
shall have approved such change in accordance with the requirements of
Section 162(m). Under no circumstances may be Plan be amended to permit the
Committee to increase an award payment in contravention of the requirements
of paragraph 5.
12. EFFECTIVE DATE OF THE PLAN AND AMENDMENTS. The Plan first became effective
on November 1, 1995. Any amendment to the Plan shall be effective on the
date established by the Committee, subject to stockholder approval, if
required under the provisions of paragraph 11.
As amended by the Compensation Committee and Board of Directors, January 20,
1997, to be effective as of November 1, 1996, subject to stockholder approval.
B-3
THE TORO COMPANY
ANNUAL MEETING
The Toro Company
8111 Lyndale Avenue South
Bloomington, Minnesota 55420
MARCH 13, 1997
3:00 P.M. CENTRAL STANDARD TIME
Please detach here
The Toro Company
[LOGO]
Please detach here
UNLESS YOU INDICATE OTHERWISE, THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
BOARD OF DIRECTORS' RECOMMENDATIONS.
1. Election of Directors / / FOR all nominees listed / / WITHHOLD AUTHORITY
below (except as marked to
the contrary below)
Janet K. Cooper Kendrick B. Melrose Edwin H. Wingate
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ONE OR MORE INDIVIDUAL NOMINEES,
STRIKE A LINE THROUGH THE NOMINEE'S NAME.)
2. Approval of Amendment of Continuous Performance Award Plan
FOR / / AGAINST / / ABSTAIN / /
3. Approval of Amendment of Annual Management Incentive Plan
FOR / / AGAINST / / ABSTAIN / /
4. Approval of Selection of Independent Auditors
FOR / / AGAINST / / ABSTAIN / /
5. To consider and act upon such other matters as may properly come before the
meeting or any adjournments thereof.
TORO INV. & SVGS. PLAN
PLYMOUTH 401(K) PLAN
REGISTERED STOCK
------------------------------------
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SIGNATURE(S) DATE
This Proxy Card must be Signed
Exactly as Name Appears thereon
When shares are held by joint
tenants, both should sign. When
signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such. If a
corporation, please sign in full
corporate name by president or other
authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
PLEASE MARK, SIGN, DATE AND RETURN
THE PROXY CARD USING THE ENCLOSED
ENVELOPE.
THE TORO COMPANY
8111 LYNDALE AVENUE SOUTH THIS PROXY IS SOLICITED ON BEHALF
MINNEAPOLIS, MINNESOTA 55420-1196 OF THE BOARD OF DIRECTORS
The undersigned hereby appoints K.B. Melrose and J.L. McIntyre, or either of
them, with full power of substitution to each, as attorneys and proxies to
represent the undersigned at the Annual Meeting of Stockholders of The Toro
Company to be held in the corporate offices of The Toro Company, 8111 Lyndale
Avenue South, Bloomington, Minnesota on the 13th day of March, 1997 at 3:00
p.m. C.S.T. and at any adjournment(s) thereof, and to vote all shares of
Common Stock which the undersigned may be entitled to vote at said meeting as
directed below with respect to the proposals as set forth in the Proxy
Statement, and in their discretion upon any other matters that may properly
come before said meeting.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE APPROPRIATE BOXES
ON THE REVERSE SIDE, BUT YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN
ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS EXCEPT THAT SHARES
HELD IN EMPLOYEE BENEFIT PLANS FOR WHICH A PROXY IS NOT RECEIVED WILL BE
VOTED BY THE TRUSTEE IN THE SAME PROPORTION AS VOTES ACTUALLY CAST BY PLAN
PARTICIPANTS. THE TABULATOR CANNOT VOTE YOUR SHARES UNLESS YOU SIGN AND
RETURN THIS PROXY CARD.
SEE REVERSE SIDE
