[LOGO]
TOLL BROTHERS, INC.
3103 PHILMONT AVENUE
HUNTINGDON VALLEY, PA 19006
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, MARCH 4, 1999
------------------------
The Annual Meeting of Stockholders (the "Meeting") of Toll Brothers, Inc.
(the "Company") will be held on Thursday, March 4, 1999, at 10:00 a.m., at the
offices of the Company, 3103 Philmont Avenue, Huntingdon Valley, Pennsylvania
19006, for the following purposes:
1. To elect three directors to hold office until the 2002 Annual
Meeting of Stockholders and until their respective successors are duly
elected and qualified. (The terms of office of the other directors do not
expire until 2000 or 2001.)
2. To consider and act upon the proposed Amendment to the Toll
Brothers, Inc. Cash Bonus Plan.
3. To consider and act upon the selection of Ernst & Young LLP as the
Company's independent auditors for the 1999 fiscal year.
4. To transact such other business as may properly come before the
Meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on January 15, 1999
as the record date for the Meeting. Only stockholders of record at that time are
entitled to notice of and to vote at the Meeting and any adjournment or
postponement thereof.
The enclosed proxy is solicited by the Board of Directors of the Company.
Reference is made to the attached proxy statement for further information with
respect to the business to be transacted at the Meeting. The Board of Directors
urges you to sign, date and return the enclosed proxy promptly, although you are
cordially invited to attend the Meeting in person. The return of the enclosed
proxy will not affect your right to vote in person if you do attend the Meeting.
MICHAEL I. SNYDER
Secretary
January 22, 1999
TOLL BROTHERS, INC.
3103 PHILMONT AVENUE
HUNTINGDON VALLEY, PA 19006
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PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
THURSDAY, MARCH 4, 1999
----------------------------
GENERAL
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Toll Brothers, Inc., a Delaware corporation
(the "Company"), for use at the Company's Annual Meeting of Stockholders (the
"Meeting"), which will be held on the date, at the time and place, and for the
purposes set forth in the foregoing notice, and any adjournment or postponement
thereof. This proxy statement, the foregoing notice and the enclosed proxy are
first being sent to stockholders of the Company (the "Stockholders") on or about
January 29, 1999.
The Board of Directors does not intend to bring any matter before the
Meeting except as specifically indicated in the notice and does not know of
anyone else who intends to do so. If any other matters properly come before the
Meeting, however, the persons named in the enclosed proxy, or their duly
constituted substitutes acting at the Meeting, will be authorized to vote or
otherwise act thereon in accordance with their judgment on such matters. If the
enclosed proxy is properly executed and returned prior to voting at the Meeting,
the shares represented thereby will be voted in accordance with the instructions
marked thereon. In the absence of instructions, the shares will be voted "FOR"
the nominees of the Board of Directors in the election of the three directors
whose terms of office will extend until the 2002 Annual Meeting of Stockholders
and until their respective successors are duly elected and qualified, "FOR" the
approval of the proposed Amendment to the Toll Brothers, Inc. Cash Bonus Plan,
and "FOR" the approval of Ernst & Young LLP as the Company's independent
auditors for the current fiscal year ending October 31, 1999.
Any proxy may be revoked at any time prior to its exercise by notifying the
Secretary in writing, by delivering a duly executed proxy bearing a later date,
or by attending the Meeting and voting in person.
VOTING SECURITIES AND SECURITY OWNERSHIP
SHARES ENTITLED TO VOTE, REQUIRED VOTE AND QUORUM
At the close of business on January 15, 1999, there were 37,022,104 shares
of the Company's common stock outstanding. There is no other class of voting
securities outstanding. The record date fixed by the Board of Directors for the
determination of Stockholders entitled to notice of and to vote at the Meeting
is the close of business on January 15, 1999. At the Meeting, such Stockholders
will be entitled to one vote for each share of common stock owned at the record
date. The presence at the Meeting, in person or by proxy, of persons entitled to
cast the votes of a majority of such outstanding shares of common stock will
constitute a quorum for consideration of the matters expected to be voted on at
the Meeting. Abstentions and broker non-votes will be included in the
calculation of the number of Stockholders who are present at the Meeting for the
purposes of determining a quorum.
Proposal One: Directors are elected by a plurality and the three nominees
who receive the most votes will be elected. Abstentions and broker non-votes
will not be taken into account in determining the outcome of the election.
Proposal Two: To be approved, the Amendment to the Cash Bonus Plan must
receive the affirmative vote of a majority of the outstanding shares of common
stock present in person or by proxy at the Meeting and entitled to vote. Brokers
holding shares of record for customers are not entitled to vote on this matter
unless they receive voting instructions from their customers. Accordingly,
broker non-votes will not affect the outcome of the vote on this matter.
Abstentions will have the effect of negative votes.
Proposal Three: To be approved, this matter must receive the affirmative
vote of the majority of the outstanding shares of common stock present in person
or by proxy at the Meeting and entitled to vote. Brokers holding shares of
record for their customers are entitled to vote on this matter. Accordingly,
broker non-votes and abstentions will have the effect of negative votes.
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth certain information as of January 15, 1999
respecting the holdings of: (i) each person who was known to the Company to be
the beneficial owner of more than 5% of the common stock of the Company; (ii)
each director and nominee for director of the Company and each executive officer
named in the Summary Compensation Table under "Executive Compensation"; and
(iii) all directors and executive officers of the Company as a group. Each of
the persons named in the table below as beneficially owning the shares set forth
therein has sole voting power and sole investment power with respect to such
shares, unless otherwise indicated.
PERCENT OF
AMOUNT AND NATURE OF COMMON
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) STOCK(1)
- ------------------------ ----------------------- ----------
Robert I. Toll................................. 7,199,193(2)(3) 19.0
Bruce E. Toll.................................. 6,038,230(2) 15.9
Firstar Corporation/Firstar Investment Research
& Management Company/Firstar Bank
Wisconsin.................................... 3,157,600(5) 8.5
Wellington Management Company, L.L.P........... 3,108,766(4) 8.4
Zvi Barzilay................................... 419,000 1.1
Robert S. Blank................................ 92,500 *
Richard J. Braemer............................. 93,500 *
Roger S. Hillas................................ 104,625 *
Carl B. Marbach................................ 85,350(6) *
Joel H. Rassman................................ 217,597 *
Paul E. Shapiro................................ 68,500 *
All directors and executive officers as a group
(9 persons).................................. 14,318,495(3)(6)(7) 35.8
- ------------------
* Less than 1%.
2
(1) Shares issuable pursuant to options exercisable within 60 days of December
31, 1998 are deemed to be beneficially owned; accordingly, information
includes the following number of shares of common stock underlying options
held by the following individuals, and all directors and executive officers
as a group: Robert I. Toll, 957,750 shares; and Bruce E. Toll, 1,002,750
shares; Mr. Barzilay, 400,700 shares; Mr. Blank, 82,500 shares; Mr. Braemer
82,500 shares; Mr. Hillas, 82,500 shares; Mr. Marbach, 82,500 shares; Mr.
Rassman, 200,700 shares; Mr. Shapiro 67,500 shares and all directors and
executive officers as a group, 2,959,400 shares.
(2) The address for Robert I. Toll and Bruce E. Toll is c/o Toll Brothers,
Inc., 3103 Philmont Avenue, Huntingdon Valley, Pennsylvania 19006.
(3) Includes 14,000 shares owned by the Robert and Jane Toll Foundation of
which Robert I. Toll is a trustee, with dispositive power, as to which he
disclaims beneficial ownership.
(4) Based on a Schedule 13G, dated as of January 17, 1998 and filed as of
February 11, 1998, which states that the address of Wellington Management
Company, LLP ("WMC") is 75 State Street, Boston, Massachusetts 02109, that
WMC has shared voting power with respect to 128,000 shares and shared
dispositive power with respect to 3,108,766 shares, and that the shares as
to which the Schedule 13G is filed by WMC, in its capacity as an investment
advisor, are owned by clients of WMC who have the right to receive or the
power to direct the receipt of dividends from or proceeds of such shares.
The Schedule 13G filed by WMC further states that none of such clients,
except Vanguard/Windsor Funds, Inc. ("Vanguard"), is known to have such
right or power with respect to more that 5% of the common stock of the
Company. In addition, Vanguard filed a Schedule 13G as of February 10, 1998
that the Company believes relates to shares that are included in the shares
reported by WMC, which states that Vanguard has sole voting power and
shared dispositive power with respect to 2,904,200 shares. The Company
believes that Vanguard's address is Post Office Box 2600, Valley Forge,
Pennsylvania.
(5) Based on a Schedule 13G as of December 31, 1997 which states that the
address of Firstar Corporation is 777 E. Wisconsin Avenue, Milwaukee,
Wisconsin 53202, that the amount of shares is as of December 31, 1997 and
that Firstar Corporation has sole voting power with respect to 2,307,600
shares, shared voting power with respect to 656,200 shares, sole
dispositive power with respect to 2,501,400 shares and shared dispositive
power with respect to 656,200 shares. In addition, Firstar Investment
Research Management Company, LLC ("Firstar Investment"), a wholly owned
subsidiary of Firstar Corporation, filed a Schedule 13G as of December 31,
1997, that the Company believes is related to the same shares of the
Company's common stock as those reported by Firstar Corporation, which
states that the address of Firstar Investment is 777 E. Wisconsin Avenue,
Milwaukee, Wisconsin 53202, that the amount of shares is as of December 31,
1997 and that Firstar Investment has sole voting power with respect to
1,057,700 shares, shared voting power with respect to 1,830,200 shares,
sole dispositive power with respect to 1,251,900 shares and shared
dispositive power with respect to 1,905,700 shares. Firstar Bank Wisconsin
("Firstar Bank") a subsidiary of Firstar Corporation also filed a Schedule
13G as of December 31, 1997, that the Company believes is related to the
same shares of the Company's common stock as those reported by Firstar
Corporation which states that the address of Firstar Bank is One South
Pinckney Street, Madison, Wisconsin 55703, that the amount of shares is as
of December 31, 1997 and that Firstar Bank has sole voting power with
respect to 1,241,900 shares, shared voting power with respect to 449,700
shares, sole dispositive power with respect to 1,241,900 shares, and shared
dispositive power with respect to 449,700 shares.
(6) Includes 2,350 shares beneficially owned by individual retirement accounts
for the benefit of Mr. Marbach and his wife. Mr. Marbach disclaims
beneficial ownership of the 1,175 shares held by his wife's IRA.
(7) The Board of Directors, after reviewing the functions of all of the
Company's officers, both in terms of designated function and functions
actually performed, has determined that, for purposes of Section 16 of the
Securities Exchange Act of 1934 and the rules thereunder and Regulation
S-K, only the Chief Executive Officer, Chief Operating Officer, President
and the Senior Vice President/Chief Financial Officer are deemed to be
officers or executive officers of the Company for reporting purposes under
such provisions, respectively.
\
3
PROPOSAL ONE
ELECTION OF THREE DIRECTORS FOR TERMS ENDING 2002
At the Meeting, the Stockholders will elect three directors to hold office
until the 2002 Annual Meeting of Stockholders and until their respective
successors have been duly elected and qualified. The Company's Board of
Directors is divided into three classes serving staggered three-year terms, with
the term of one class of directors expiring each year. The directors whose three
year terms of office expire at the Meeting are Messrs. Robert I. Toll, Bruce E.
Toll and Joel H. Rassman.
The Board of Directors has nominated Messrs. Robert I. Toll, Bruce E. Toll
and Joel H. Rassman to serve again as directors until the 2002 Annual Meeting of
Stockholders and until their respective successors have been duly elected and
qualified. In March 1998, upon Bruce E. Toll's determination to withdraw from
day-to-day operations of the Company, the Board of Directors and Bruce E. Toll
stated that it was their mutual intention, but not a binding obligation, that
Bruce E. Toll be nominated to serve an additional three year term on the Board
beginning in 1999. All such nominees have indicated a willingness to continue to
serve as directors. Should a nominee become unavailable to accept election as a
director, the persons named in the enclosed proxy will vote the shares which
such proxy represents for the election of such other person as the Board of
Directors may recommend.
The nominees for election as the directors to be elected at the Meeting and
the directors whose terms of office continue after the Meeting, together with
certain information about them, are set forth below:
DIRECTOR TERM
NAME AGE SINCE EXPIRES POSITIONS WITH THE COMPANY
- ---- --- -------- ------- --------------------------
Robert I. Toll...... 58 1986 1999 Chairman of the Board of Directors
and Chief Executive Officer
Bruce E. Toll....... 55 1986 1999 Vice Chairman of the Board of
Directors
Zvi Barzilay........ 52 1994 2001 President, Chief Operating Officer,
and Director
Robert S. Blank..... 58 1986 2000 Director
Richard J. Braemer.. 57 1986 2001 Director
Roger S. Hillas..... 71 1988 2000 Director
Carl B. Marbach..... 57 1991 2001 Director
Joel H. Rassman..... 53 1996 1999 Senior Vice President, Chief
Financial Officer, Treasurer and
Director
Paul E. Shapiro..... 57 1993 2000 Director
Robert I. Toll and Bruce E. Toll, who are brothers, co-founded the
Company's predecessors' operations in 1967 and have been members of the Board of
Directors since the Company's inception in May 1986. Both are also members of
the Compensation Committee of the Board of Directors, the Employee Stock
Purchase Plan Committee, the Shelf Terms Committee, and the Special Transactions
Committee. Their principal occupations since the Company's inception have been
related to their various homebuilding and other real estate related activities.
Bruce E. Toll is a member of the Board of Directors of Westower Corp.
Zvi Barzilay became a member of the Board of Directors in June 1994. Mr.
Barzilay joined the Company in 1980 as a project manager, was appointed a Vice
President in 1983 and held the position of Executive Vice President --
Operations of the Company from September 1989 until October 1992 when he was
appointed to the position of Executive Vice President of the Company. In April
1998, Mr. Barzilay was appointed to the position of Chief Operating Officer and
in November 1998 to the position of President. Mr. Barzilay is a member of the
Special Transactions Committee.
Robert S. Blank became a member of the Board of Directors in September
1986. For more than five years, Mr. Blank has been a partner in Whitcom
Partners, a partnership with offices in New York City, which owns and operates
newspapers and cable television systems and formerly owned and operated
broadcast television stations and radio stations, in some cases in partnership
with others. Mr. Blank is a member of the Subordinated Debt-Repurchase
Authorization Committee, the Special
4
Transactions Committee and the Real Estate Utilization Committee. Mr. Blank is a
member of the Board of Directors of Devon Group, Inc., a publicly traded
reporting company.
Richard J. Braemer became a member of the Board of Directors in September
1986. Since January 1994, Mr. Braemer has been a partner in the Philadelphia law
firm of Ballard, Spahr, Andrews & Ingersoll. From May 1992 to December 1993, Mr.
Braemer was a shareholder in the Philadelphia law firm of Hangley Connolly
Epstein Chicco Foxman & Ewing, P.C. Mr. Braemer is a member of the Subordinated
Debt-Repurchase Authorization Committee and the Real Estate Utilization
Committee.
Roger S. Hillas became a member of the Board of Directors in April 1988.
From July 1988 until December 1992, Mr. Hillas was chairman and chief executive
officer of Meritor Savings Bank, a publicly traded reporting company; since that
time, he has been retired. Prior to July 1988, Mr. Hillas was chairman of PNC
Financial Corp. and of Provident National Bank. Mr. Hillas is a member of the
Subordinated Debt-Repurchase Authorization Committee and the Special
Transactions Committee. Mr. Hillas is a member of the Board of Directors of P.H.
Glatfelter Company and Millennium Bank.
Carl B. Marbach became a member of the Board of Directors in December 1991.
Since January 1995, Mr. Marbach has been President of Internetwork Publishing
Corp., an electronic publisher, which he founded. From September 1992 to
December 1994, Mr. Marbach was the President of M-2 Systems, Inc., a consulting
firm which he founded. Mr. Marbach is a member of the Compensation Committee of
the Board of Directors, the Audit Committee, the Compensation and Stock Based
Compensation Committee for Key Executives and Non-Employee Directors and the
Shelf Terms Committee.
Joel H. Rassman became a member of the Board of Directors in September
1996. Mr. Rassman joined the Company in 1984 as Senior Vice President, Treasurer
and Chief Financial Officer of the Company. Mr. Rassman is a member of the
Employee Stock Purchase Plan Committee and the Special Transactions Committee.
Paul E. Shapiro became a member of the Board of Directors in December 1993.
Since June 1998, Mr. Shapiro has been Executive Vice President and Chief
Administrative Officer of Sunbeam Corp. From July 1997 to June 1998, Mr. Shapiro
was Executive Vice President and General Counsel of The Coleman Company, Inc.
From January 1994 to June 1997, Mr. Shapiro was an Executive Vice
President/Chief Administrative Officer/General Counsel of Marvel Entertainment
Group, Inc., a publicly traded reporting company which, in December 1996, filed
a Chapter 11 bankruptcy petition. Mr. Shapiro is a member of the Audit
Committee, the Compensation and Stock Based Compensation Committee for Key
Executives and Non-Employee Directors and the Special Transaction Committee. Mr.
Shapiro is a director of The Coleman Company.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held four meetings during the Company's last fiscal
year and also acted by unanimous consent in writing.
The Board of Directors currently has an Audit Committee, a Compensation
Committee of the Board of Directors, a Compensation and Stock Based Compensation
Committee for Key Executives and Non-Employee Directors, a Subordinated
Debt-Repurchase Authorization Committee, a Shelf Terms Committee, an Employee
Stock Purchase Plan Committee, a Special Transactions Committee, and a Real
Estate Utilization Committee. The Audit Committee held four formal meetings
during the last fiscal year, of which three were attended by the Company's
independent auditors to discuss the scope of the annual audit and questions of
accounting policy and internal controls. During the Company's last fiscal year,
the Compensation and Stock Based Compensation Committee for Key Executives and
Non-Employee Directors which administers the Cash Bonus Plan, the Company's
Amended and Restated Stock Option Plan (1986) (the "1986 Plan"), the Company's
Key Executives and Non-Employee Directors Stock Option Plan (1993) (the "1993
Plan"), the Company's Stock Option and Incentive Plan (1995) (the "1995 Plan")
and the Company's Stock Incentive Plan (1998) (the "1998 Plan") held seven
formal meetings. The Real Estate Utilization Committee held one formal meeting
during the last fiscal year. The Compensation Committee of the Board of
Directors, Employee Stock Purchase Plan Committee, Subordinated Debt Repurchase
Authorization Committee, Shelf
5
Terms Committee, and the Special Transactions Committee did not meet formally
during the Company's last fiscal year.
COMPENSATION OF DIRECTORS
Non-employee directors receive $4,000 for each full-day meeting they
attend, $2,000 for each half-day meeting they attend, and $1,500 for each
telephonic Board of Directors meeting or committee meeting in which they
participate. In addition, each non-employee director receives an annual grant of
options for 15,000 shares of the Company's common stock under the 1993 Plan or
the 1998 Plan, plus, under the 1998 Plan, an annual grant for 1,000 shares of
the Company's common stock for each Non-Employee director who is a member of the
Audit Committee and participated in at least one meeting during the year and an
annual grant for 500 shares of the Company's common stock for each eligible
committee (as determined by the Board of Directors from time to time) that a
non-employee director serves other than the Audit Committee and participated in
at least one meeting during the year. No non-employee director can receive more
than three annual grants for service on committees other than the Audit
Committee.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR" THE ELECTION OF
ROBERT I. TOLL, BRUCE E. TOLL AND JOEL H. RASSMAN
PROPOSAL TWO
APPROVAL OF AMENDMENT TO CASH BONUS PLAN
In January 1990, the Board of Directors decided that salary, bonus and
option grants for the Company's Chief Executive Officer, Robert I. Toll, should
be determined pursuant to objective measurements, including appropriate
performance criteria, in addition to compensation that reflected market rates
for comparable executives. Commencing January 1, 1995, the Board of Directors
determined that the formula for increasing the base salary for Mr. Toll should
be based on no less than the increase in the Consumer Price Index (as defined,
using U.S. Department of Labor definitions) and no more than the average
percentage increase in compensation of the five highest percentage compensation
increases of the Company's next ten most highly compensated employees other than
Mr. Toll for the adjustment year. Cash bonuses for Mr. Toll in addition to such
annual salary also have been determined since 1990 based on certain formulae
relating to the Company's income before taxes and shareholders' equity as
described below.
The Company's outside directors adopted the Cash Bonus Plan in December
1993, as further amended in February 1994, and the Shareholders approved the
Cash Bonus Plan at the 1994 Annual Meeting. In general, the Cash Bonus Plan is
intended to continue the previous bonus program for Robert I. Toll, Chairman of
the Board, under a plan meeting the requirements of Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), so that amounts payable
under the Cash Bonus Plan will be "performance-based" compensation, and,
therefore, will be exempt from the limitations on deductibility under Section
162(m). The Board of Directors continues to believe that the Cash Bonus Plan
will assist the Company in motivating and retaining an individual of superior
ability, industry and loyalty, without limiting the Company's ability to take a
tax deduction for such compensation. The Cash Bonus Plan is administered by a
committee consisting of "outside" directors (as that term is used in Section
162(m)), which committee is currently comprised of Messrs. Carl B. Marbach and
Paul E. Shapiro.
In May 1996, the Board of Directors further amended the Cash Bonus Plan,
which amendment the Shareholders approved at the 1997 Annual Meeting to provide
that (i) all bonus payments made under the Cash Bonus Plan with respect to the
Cash Bonus Plan years ending October 31, 1996, October 31, 1997 and October 31,
1998 would be paid in shares of common stock, which payments would be in the
form of an award under the terms of the Company's Stock Option and Incentive
Stock Plan (1995) (the "1995 Plan"); (ii) the number of shares of Common Stock
awarded pursuant to the aforementioned provisions of the Cash Bonus Plan would
be determined by dividing the dollar amount of each bonus (as determined in
accordance with the Cash Bonus Plan) by $17.125 (the fair market value of a
share
6
of Common Stock, determined as of May 29, 1996 in accordance with the provisions
for determination of fair market value as set forth in the 1995 Plan).
The provision to pay the Chief Executive Officer in shares of the Company's
Common Stock terminated with the fiscal 1998 Cash Bonus Plan payment. The
committee which administers the Cash Bonus Plan and the Board of Directors
believe this provision, tying the value of the bonus of the Chief Executive
Officer to the stock price, is a valuable incentive to align the interests of
the Chief Executive Officer with those of the shareholders. Accordingly, the
committee which administers the Cash Bonus Plan and the Board of Directors
amended the Cash Bonus Plan on December 10, 1998, subject to Shareholder
approval (which is the subject matter of this Proposal Two), to provide that (i)
all bonus payments made under the Cash Bonus Plan with respect to the Cash Bonus
Plan years ending October 31, 1999, October 31, 2000, and October 31, 2001 shall
be paid in shares of Common Stock, which payments shall be in the form of an
award under the terms of the 1998 Plan; (ii) the number of shares of Common
Stock awarded pursuant to the aforementioned provisions of the Cash Bonus Plan
shall be determined by dividing the dollar amount of each bonus (as determined
in accordance with the Cash Bonus Plan) by $24.25 (the fair market value of a
share of Common Stock, determined, as of December 10, 1998, in accordance with
the provisions for determination of fair market value as set forth in the 1998
Plan); (iii) the committee administering the Cash Bonus Plan shall have the
discretion to terminate the application of the provision of the Cash Bonus Plan
described in subparagraphs (i) and (ii) above at any time, effective no sooner
than six months after such decision to terminate is made by such committee, in
which event all bonuses payable on or after the effective date of such
termination shall be payable in cash only; and (iv) upon receipt of a request by
Robert I. Toll (based on his concerns regarding adverse tax consequences to
him), such committee may, in its sole discretion, provided that such action will
not cause any increase in the amount or value of a bonus that would otherwise be
payable under the Cash Bonus Plan, suspend the application of the provisions
described in subparagraphs (i) and (ii) above, in which event all bonuses will
be payable only in cash until such time such committee determines to reinstate
such provisions. The amendment to the Cash Bonus Plan described in this
paragraph constitutes the Amendment for which Stockholder approval is being
sought in Proposal Two.
The material features of the Cash Bonus Plan are as follows:
1. Participants and Amount of Cash Bonus. The sole current participant
in the Cash Bonus Plan is Robert I. Toll, Chairman of the Board and Chief
Executive Officer. Under the Cash Bonus Plan, Robert I. Toll is entitled to
receive a bonus equal to the sum of (a) 1.5% of the Company's income before
income taxes (as defined in the Cash Bonus Plan) in excess of 10% and up to
20% of shareholders' equity (as defined in the Cash Bonus Plan) of the
Company as of the end of the preceding fiscal year, plus (b) 2.0% of the
Company's income before income taxes in excess of 20% and up to 30% of
shareholders' equity of the Company as of the end of the preceding fiscal
year, plus 2.25% of the Company's income before income taxes in excess of
30% of shareholders' equity of the Company as of the end of the preceding
fiscal year.
2. Administration. The definitions of the applicable measurements for
the cash bonus described in Paragraph 1, above, are as set forth in the
Cash Bonus Plan. Subject to the foregoing and other provisions of the Cash
Bonus Plan, a committee, consisting of at least two members of the Board of
Directors (currently Carl B. Marbach and Paul E. Shapiro), administers the
Plan and, together with the Audit Committee (also currently consisting of
Carl B. Marbach and Paul E. Shapiro), determines whether the various
targets under the Cash Bonus Plan have been met.
3. Term of Plan. The Cash Bonus Plan became effective as of November
1, 1993 and shall continue until terminated by the Board of Directors.
4. Amendments to the Plan. The Cash Bonus Plan may be terminated or
revoked by the Company at any time and amended by the Company from time to
time, provided that neither the termination, revocation or amendment of the
Plan may, without the written approval of the participants, reduce the
amount of a bonus payment that is due, but has not yet been paid, and no
changes may be made that would increase the amount of bonuses determined
under the formula described in Paragraph 1, above, shall be effective
without approval by the committee and without
7
disclosure to and approval by the Stockholders in a separate vote prior to
payment of such bonuses. In addition, the Cash Bonus Plan may be modified
or amended by the committee as it deems appropriate, in order to comply
with any rules, regulations or other guidance promulgated by the Internal
Revenue Service with respect to applicable provisions of the Code as they
relate to the exemption for "performance-based compensation" under the
limitations on the deductibility of compensation imposed under Section
162(m) and any other applicable provisions of the Code.
5. Tax Aspects of the Plan. The Cash Bonus Plan is designed to
maintain the deductibility of compensation for the Cash Bonus Plan
participants, currently the Company's Chief Executive Officer, under the
limitation of Section 162(m). Any recipient of a bonus under the Cash Bonus
Plan will pay Federal income tax on such bonus at ordinary income rates,
which currently are at a maximum rate of 39.6%. The participant is required
to make appropriate arrangements with the Company for satisfaction of any
Federal, state or local income tax withholding requirements and Social
Security or other tax requirements applicable to the accrual or payment of
benefits under the Cash Bonus Plan. If no other arrangements are made, the
Company may provide, at its discretion, for any withholding and tax
payments as may be required.
The following table sets forth the benefits or amounts that were received
by or allocated to
Robert I. Toll under the Cash Bonus Plan for the last three fiscal years of the
Company.
CASH BONUS PLAN BENEFITS
NUMBER OF FAIR MARKET VALUE
SHARES AS OF OCTOBER 31
YEAR ENDED OCTOBER 31 OF COMMON STOCK OF YEAR EARNED
- --------------------- --------------- -----------------
1998............................................ 106,186 $2,462,192
1997............................................ 80,547 $1,782,103
1996............................................ 66,975 $1,146,938
The Cash Bonus Plan also applied to Bruce E. Toll, the Company's President
and Chief Operating Officer, until his withdrawal from those positions in 1998.
See "Report of the Compensation Committee on Executive Compensation -- 1998
Compensation for Chief Executive Officer and Chief Operating Officer."
The Company has been advised that it is the intention of Robert I. Toll and
Bruce E. Toll to vote the shares of Common Stock they beneficially own in favor
of Proposal Two. See "Voting Securities and Security Ownership -- Security
Ownership of Principal Shareholders and Management."
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR"
PROPOSAL TWO
PROPOSAL THREE
APPROVAL OF THE COMPANY'S INDEPENDENT AUDITORS
The Company's Board of Directors recommends that the Stockholders consider
and approve a proposal to select Ernst & Young LLP, which served as the
Company's independent auditors for the last fiscal year, to serve as the
Company's independent auditors for the current fiscal year ending October 31,
1999. A representative of Ernst & Young LLP is expected to be present at the
Meeting, will have the opportunity to make a statement if such representative
desires to do so and will be available to respond to appropriate questions of
Stockholders.
THE BOARD OF DIRECTORS RECOMMENDS VOTING "FOR"
PROPOSAL THREE
8
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the cash and noncash compensation for each
of the last three fiscal years awarded to or earned by the Chief Executive
Officer of the Company and the other executive officers of the Company.
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION SECURITIES
FISCAL --------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)(3)
--------------------------- ------ --------- --------- ------------ ------------------
Robert I. Toll................... 1998 987,805 2,462,192 352,500 8,292
Chairman of the Board 1997 907,748 1,782,103 138,750 7,913
and Chief Executive Officer(1) 1996 829,432 1,146,938 73,000 7,776
Bruce E. Toll.................... 1998 926,830 1,466,447 445,000 8,292
Vice Chairman of the Board 1997 907,748 1,782,103 138,750 7,913
(commencing November 1, 1998), 1996 829,432 1,146,938 73,000 7,716
President (through October 31,
1998) and Chief Operating Officer
(through April 30, 1998)(2)
Zvi Barzilay..................... 1998 780,369 120,000 100,000 8,292
Chief Operating Officer 1997 724,601 120,000 100,000 7,913
(commencing May 1, 1998), 1996 639,794 120,000 100,000 7,776
Executive Vice President
(through October 31, 1998)
and President (commencing
November 1, 1998)
Joel H. Rassman.................. 1998 573,637 120,000 50,000 8,292
Senior Vice President, 1997 540,833 120,000 50,000 7,913
Chief Financial Officer 1996 509,212 120,000 50,000 7,776
and Treasurer(4)
- ------------------
(1) The bonuses listed for Robert I. Toll for fiscal 1998, 1997 and 1996 were
paid in common stock of the Company pursuant to the terms of the Cash Bonus
Plan and the 1995 Plan. The amounts listed were the fair market value of the
bonus award shares as October 31, 1998 in the case of the fiscal 1998 bonus,
the fair market value of the bonus award shares as of October 31, 1997 in
the case of the fiscal 1997 bonus and the fair market value of the bonus
award shares as of October 31, 1996 in the case of the fiscal 1996 bonus.
Had the bonuses been paid in cash Robert I. Toll would have received
$1,818,439 for the 1998 cash bonus, $1,379,377 for the 1997 bonus and
$1,146,938 for the 1996 cash bonus.
(2) The bonuses listed for Bruce E. Toll for fiscal 1997 and 1996 were paid in
common stock of the Company pursuant to the terms of the Cash Bonus Plan and
the 1995 Plan. The amounts listed were the fair market value of the bonus
award shares as of October 31, 1997 in the case of the fiscal 1997 bonus and
the fair market value of the bonus award shares as of October 31, 1996 in
the case of the fiscal 1996 bonus. Had the bonuses been paid in cash, Bruce
E. Toll would have received $1,379,377 for the 1997 bonus and $1,146,938 for
the 1996 bonus. In March 1998, in connection with Bruce E. Toll's withdrawal
from the day to day operations of the business, the Board of Directors and
Bruce E. Toll agreed to modify his cash bonus award whereby his 1998 cash
bonus award would be paid in cash and the amount would be calculated based
upon 50% of the estimated bonus that he would have earned for the entire
fiscal year. The bonus listed for fiscal 1998 represents that amount.
9
(3) The compensation reported represents the Company's contribution and matching
payments under its 401(k) salary deferred plan for each executive listed.
(4) Under the terms of an agreement dated June 30, 1988 between the Company and
Mr. Rassman, in the event of Mr. Rassman's termination by the Company
without cause (as defined), any material reduction or material adverse
change (as defined) in Mr. Rassman's duties, any failure by the Company to
provide Mr. Rassman with compensation, including salary and bonus, in an
amount less than $350,000 and the exercise of an election by Mr. Rassman to
terminate his employment or the removal of fringe benefits (as defined), Mr.
Rassman will receive $250,000, and, in certain instances, an additional
amount equal to the difference between $350,000 and his actual total
compensation during a specified period prior to his termination.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on option grants in the fiscal
year ended October 31, 1998 to the named executive officers and information
relating to all outstanding common shares as of October 31, 1998.
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SHARES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------------------------------
NAME GRANTED(#) FISCAL YEAR(4) ($/SH) DATE 5% 10%
- ---- ---------- ----------------- -------- ---------- --------------------- ---------------------
Robert I. Toll(1)(5)...... 50,000 2.91 23.0625 11/03/07 $ 687,017 $ 1,776,993
Robert I. Toll(2)(5)...... 240,000 13.95 27.4375 12/30/07 4,043,537 10,339,170
Robert I. Toll(2)(5)...... 62,500 3.63 29.5000 03/13/08 1,159,524 2,938,463
Bruce E. Toll(1)(5)....... 50,000 2.91 23.0625 11/03/07 687,017 1,776,993
Bruce E. Toll(2)(5)....... 240,000 13.95 27.4375 12/30/07 4,043,537 10,339,170
Bruce E. Toll(2)(5)....... 92,500 5.38 29.0000 03/05/08 1,687,010 4,275,214
Bruce E. Toll(2)(5)....... 62,500 3.63 29.5000 03/13/08 1,159,524 2,938,463
Zvi Barzilay(3)........... 100,000 5.81 25.5625 12/20/07 1,607,612 4,074,004
Joel H. Rassman(3)........ 50,000 2.91 25.5625 12/20/07 803,806 2,037,002
All Outstanding
Common Shares(6)........ 36,935,434 N/A N/A N/A $538,610,751 $1,364,945,392
- ------------------
(1) Options become fully exercisable on the first anniversary of the date of the
grant.
(2) Options were fully exercisable at date of grant.
(3) Options become exercisable starting on the first anniversary of the grant,
with 25% becoming exercisable at that time and 25% becoming exercisable on
each of the second, third and fourth anniversary dates.
(4) The Company granted options representing 1,645,575 shares of common stock to
employees and 75,000 shares to non-employee directors in fiscal 1998.
(5) Issued pursuant to formula grant provisions of the 1995 Plan. In addition,
pursuant to the grant provisions of the 1995 Plan, options for 50,000 shares
of common stock were granted on November 1, 1998 to Robert I. Toll.
(6) Illustrates the aggregate appreciation in value of all shares of common
stock outstanding on October 31, 1998 based on the assumed 5% and 10% rates
of appreciation on the closing price of the Company's common stock on
October 31, 1998 that produced the realizable value of the options granted
to executive officers shown in this table (based upon the weighted average
life of the grants).
10
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth certain information with regard to the
aggregated option exercises in the fiscal year ended October 31, 1998 and the
option values as of the end of that year for the chief executive officer and
other executive officers of the Company.
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
OCTOBER 31, OCTOBER 31,
SHARES 1998(#) 1998($)(1)
ACQUIRED ON VALUE EXERCISABLE(E) EXERCISABLE(E)
NAME EXERCISE(#) REALIZED($) UNEXERCISABLE(U) UNEXERCISABLE(U)
---- ----------- ----------- ---------------- ----------------
Robert I. Toll.................. None N/A 860,250(E) 4,726,453(E)
50,000(U) 6,250(U)
Bruce E. Toll................... None N/A 1,002,750(E) 4,732,703(E)
0(U) 0(U)
Zvi Barzilay.................... 38,300 585,231 325,700(E) 2,796,369(E)
225,000(U) 423,438(U)
Joel H. Rassman................. 7,300 120,834 170,200(E) 1,481,925(E)
112,500(U) 211,719(U)
- ------------------
(1) Based upon the difference between the exercise price of the option and the
closing price of $23.1875 per share of the Company's common stock as
reported on the New York Stock Exchange on October 31, 1998.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company has two compensation committees, the Compensation Committee of
the Board of Directors (the "Compensation Committee") and the Compensation and
Stock Based Compensation Committee for Key Employees and Non-Employees Directors
(the "Executive Compensation Committee"). The Compensation Committee, currently
consisting of Robert I. Toll, Bruce E. Toll and Carl B. Marbach, determines the
compensation of the Company's executive officers other than the Company's Chief
Executive Officer (and Chief Operating Officer through October 31, 1998). The
Executive Compensation Committee, consisting of Carl B. Marbach and Paul E.
Shapiro, administers the Cash Bonus Plan and the Company's stock option plans,
determines the salary of the Chief Executive Officer (and through October 31,
1998, the Chief Operating Officer) and reviews the recommendations of the
Compensation Committee as to the compensation of the executive officers other
than the Chief Executive Officer.
Robert I. Toll is the Company's Chairman of the Board and Chief Executive
Officer. Bruce E. Toll is the Company's Vice Chairman (effective November 1,
1998) and prior to November 1, 1998 he was its President and prior to May 1998
he was its Chief Operating Officer. In naming these individuals to the
Compensation Committee, the Board decided that salary, bonus and option grants
for the Company's Chief Executive Officer and its then Chief Operating Officer
should be determined pursuant to certain objective measurements of the Company's
performance and base salary percentage increases for other executives of the
Company and that the Company's Chief Executive Officer and its then Chief
Operating Officer should have the primary roles in determining compensation for
the Company's other executive officers.
In order to help provide for an orderly market in the Company's common
stock in the event of the death of either Robert I. Toll or Bruce E. Toll (the
"Tolls"), or both of them, the Company and the Tolls have entered into
agreements in which the Company has agreed to purchase from the estate of each
of the Tolls $10 million of the Company's common stock (or a lesser amount under
certain circumstances), at a price equal to the greater of fair market value (as
defined) or book value (as defined). Further, the Tolls have agreed to allow the
Company to purchase $10 million of life insurance on each of their lives. In
addition, the Tolls granted the Company, at no cost to it, an option to purchase
up to an additional $30 million (or a lesser amount under certain circumstances)
of common stock from each of their estates. The agreements expire in October
2005.
In addition to the performance of their duties for the Company, the Tolls
have engaged, and continue to engage, in certain other businesses involving real
estate. These businesses, which do not involve for-sale residential
homebuilding, include the purchase, sale and management of townhome,
11
apartment, condominium, commercial and industrial real estate projects for
rental. The Company leases, at what it believes to be competitive market rates,
certain office space from a business controlled by the Tolls. During the last
fiscal year, the Company paid such business approximately $35,000. During the
last fiscal year, the Company provided services related to a property,
controlled by the Tolls in which the Company was seeking to acquire an interest.
These services were billed at the Company's cost and paid throughout the year.
The amount due the Company for such services, as of October 31, 1998, was
approximately $114,000, which was the largest amount of such costs due the
Company at any time during the fiscal year. The Company is entitled to receive a
5% developer's advisory fee on such development costs. See, "Formation of Real
Estate Entities," below. The Company also provided services to other businesses
controlled by the Tolls during the fiscal year, which were also billed at cost
and paid throughout the year. The largest amount due the Company from these
businesses at any time during the year was approximately $93,000, and the amount
due at October 31, 1998 was approximately $68,000. These transactions are
reviewed and monitored by the Audit Committee.
FORMATION OF REAL ESTATE ENTITIES
The Company's Board of Directors, on June 12, 1997, considered the
formation of an entity or related entities (collectively, the "Real Estate
Entity") to acquire properties which, though not suitable for the Company's
homebuilding activities, would be suitable for development and ownership of
income producing residential and commercial properties and operations
("commercial activities") operating in the format of a real estate investment
trust, an operating partnership or other vehicle, or a combination thereof. The
Board was desirous of exploring ways for the Company to benefit from the many
opportunities for commercial activities that are or become available to the
Company either because they are appurtenant to the Company's homebuilding
operations or are brought to management's attention in the normal course of its
efforts to locate land to build for-sale housing. At that time, Messrs. Robert
I. Toll and Bruce E. Toll advised the Board of the status of development of an
apartment property located in Fairfax, Virginia, named Dulles Greene ("Dulles
Greene"), which was owned by partnerships controlled, and 89%-owned, by Messrs.
Robert I. Toll and Bruce E. Toll (and trusts for his children) and in which
certain members of management, including Directors Zvi Barzilay and Joel
Rassman, owned limited partnership interests (collectively, the "Dulles Greene
Partnership"). Phase I of Dulles Greene was on the verge of being developed at
that time. Messrs. Robert I. Toll and Bruce E. Toll stated that, if the Board
considered it advisable and in the best interests of the Company to engage in
commercial activities through a Real Estate Entity, they would consider
facilitating the Company's entry into this field by transferring Dulles Greene
on favorable terms to a Real Estate Entity formed by the Company. The Board
determined to proceed to develop a business plan and documentation for the
establishment of a Real Estate Entity to be initially owned or controlled by the
Company and to form a Real Estate Utilization Committee (the "Committee"),
comprised of two Directors, Richard J. Braemer and Robert S. Blank.
The Committee and management proceeded to pursue various alternatives with
respect to the development of the Real Estate Entity, including the possibility
of including a third-party institutional investor or investors. The Committee
reported to the Board in June 1998 that the Dulles Greene Partnership would
consider conveyance of Dulles Greene to the Real Estate Entity; that a
subsidiary of the Company would contribute $6 million in cash to the Real Estate
Entity, and an institutional investor would contribute $10 million in cash, and
that each of the three contributing parties initially would effectively own a
one-third interest in the properties owned by the Real Estate Entity (in
addition, the Real Estate Entity would be expected to pay a developer's advisory
fee to the Company equal to 5% of all costs, exclusive of land and interest,
incurred by the Real Estate Entity, including those costs incurred by Dulles
Greene prior to the contribution to the Real Estate Entity). The Board of
Directors, at that time, having received an appraisal concluding that, as of
April 2, 1998, the market value of the fee simple interest in Dulles Greene, in
its unfinished condition (exclusive of borrowings incurred in connection with
development of the property, which would be repaid at closing with bank
refinancing), would be in excess of the Company's $6 million contribution,
authorized management to proceed with the proposed transactions.
The Board of Directors was advised on November 16, 1998 that formal
approval and closing of the transaction, with the institutional investor, the
Pennsylvania State Employees Retirement System ("PaSERS"), would likely consume
further time. Because the continuing development of Dulles Greene had required
substantial borrowings which were to be refinanced at the proposed closing, and
12
the lending bank desired to complete the refinancing promptly but could not do
so until the property was effectively owned by the Real Estate Entity, the Board
was requested to consider the approval of the proposed transactions, effectively
consisting of the Company's $6 million cash contribution to the Real Estate
Entity, the transfer of Dulles Greene to the Real Estate Entity by the Dulles
Greene partners and the closing of the related bank loan to the Real Estate
Entity (collectively, the "closing") absent the PaSERS contribution, but
otherwise on a basis consistent with the transactions which contemplated PaSERS'
investment. The Board was further apprised that the Real Estate Entity would
allow PaSERS to invest in the Real Estate Entity generally on the previously
agreed upon basis if necessary approvals were obtained by PaSERS within a
reasonable time. The Board of Directors also considered the increased value of
Dulles Greene resulting from continued construction development financed through
additional funds supplied by partners of the Dulles Greene Partnership. The
Board was advised that, in negotiations among the Dulles Greene Partnership and
PaSERS, PaSERS had agreed to the payment by the Real Estate Entity of an amount
which, for the period June 30, 1997 through November 30, 1998, would total
approximately $2.2 million to the partners of the Dulles Greene Partnership (the
"incremental amount"), effectively reflecting interest and return on equity to
the partners of the Dulles Greene Partnership on account of their continued
funding of all development expenditures and assumption of all risks since June
1997. The Board of Directors, in addressing the increase in value of the
property resulting from the Dulles Greene Partnership's continued development
activities, requested an updated appraisal report to enable the Board to
determine whether the value of the interest in the Real Estate Entity to be
received by the Company, upon closing of the proposed transactions, and the
payment of an incremental amount to the Dulles Greene partners, would be in
excess of the Company's $6 million cash contribution.
Thereafter, upon receipt of an updated appraisal report, the Board
determined that it was reasonable to conclude that the value of interests being
contributed by the Dulles Greene partners was greater than the Company's $6
million contribution, and that, since the Company would effectively own 50% of
the value of the Real Estate Entity assets upon closing of the proposed
transactions, the proposed transactions would be advantageous to the Company
regardless of whether the PaSERS investment ultimately occurred. Messrs. Robert
I. Toll and Bruce E. Toll, speaking for the partners of the Dulles Greene
Partnership, advised that, in the absence of an investment by PaSERS, they would
commit to contribute up to 50% (or such lesser percentage interest in the Real
Estate Entity then owned in the aggregate by the current partners of the Dulles
Greene Partnership) of additional equity, if required, in order to continue to
build and develop Dulles Greene. The Board approved the proposed transactions
and the closing occurred on November 20, 1998. Thereafter, on December 24, 1998,
PaSERS closed on its $10 million commitment pursuant to which it made its
initial cash investment of $6 million in the Real Estate Entity, with an
additional $4 million of equity contributions required to be made in 1999,
resulting in each of the three contributing parties owning a one-third interest
in the properties owned by the Real Estate Entity.
REPORT OF THE COMPENSATION COMMITTEES ON
EXECUTIVE COMPENSATION
BASIC POLICY CONSIDERATIONS
The Company's compensation policies with respect to its executive officers,
as originally established by the Compensation Committee and the Executive
Compensation Committee, continue to be based on the principles that compensation
should, to a significant extent, be reflective of the financial performance of
the Company, and that a significant portion of executive officers' compensation
should provide long-term incentives. Executive compensation is set at levels
that are sufficiently competitive so that the Company may attract, retain and
motivate the highest quality individuals to contribute to the Company's goals
and objectives and its overall financial success. Methods of compensation are
designed to provide incentives for performance that result in continuing
improvements in the Company's financial results or condition, over both the
short-term and the long-term, and to assure continued service to the Company.
Stock options and stock awards constitute payment of a significant portion of
incentive compensation, which causes the ultimate interests of the executives to
be aligned with the interests of the Stockholders in increasing the value of
their investment. Each executive officer's compensation is based largely upon
both individual and Company performance.
13
The compensation program is comprised of two elements: (i) annual salary
and possible short-term incentive awards in the form of cash bonuses, and (ii) a
long-term incentive program (principally stock options and a stock based feature
of the Cash Bonus Plan) based on performance of the Company's common stock. The
details of this compensation program, with specific discussion of the programs
applicable to the Chief Executive Officer, are set out below.
ANNUAL COMPENSATION
For salary levels other than for the Chief Executive Officer, the
Compensation Committee continues to establish annual salaries by evaluating
individual performance and considering marketplace valuations of comparable
executives, although salary determinations have not been based upon any specific
constant criteria.
Executives other than the Chief Executive Officer are eligible for annual
incentive bonuses granted at the discretion of the Compensation Committee. These
awards are not intended to be in addition to market level compensation but
instead are designed to make a significant part of an executive's annual
compensation dependent on the Compensation Committee's assessment of the
executive's performance. Factors the Compensation Committee considers include
the Company's overall financial results, as well as the individual's
contributions to the Company's economic and strategic objectives, the efforts
required and expended by the individual, the individual's abilities to develop,
execute and implement short-term and long-term corporate goals, including
expansion of operations into new areas, and the executive's role in maximizing
Company profitability, managing costs and addressing the impact of economic and
demographic restrictions on Company performance. The Compensation Committee
continues to be cognizant of its competitors' results of operations, including
earnings, margins, return on equity and other factors, all of which, when
considered in the context of the Company's comparative results, contribute to
the determination of compensation for the Company's executives.
LONG TERM COMPENSATION -- STOCK OPTIONS
The stock option component of the executive officers' compensation package
has been designed to provide incentives for the enhancement of Stockholder
value, since the full benefit of stock option grants will not be realized unless
there has been appreciation in per share values over several years. In this
regard, options have been granted at fair market value on the date of grant and
generally vest over a number of years, usually not less than two years, with
significant restrictions, for a typical period of three years, on the
executive's ability to exercise the options and sell the shares received without
the consent of the respective stock option committee. As with the grant of
incentive cash bonuses, no constant criteria are used year after year; instead,
the Compensation Committee makes a determination of the effectiveness of the
executive and the level of the executive's contributions to the Company's
success. Because the options are granted at fair market value relative to the
date of grant, any value which ultimately accrues to the executives is based
entirely upon the Company's performance, as perceived by investors who establish
the price for the common stock.
1998 COMPENSATION FOR CHIEF EXECUTIVE OFFICER AND CHIEF OPERATING OFFICER
Messrs. Robert I. Toll and Bruce E. Toll continued through 1998 to be
viewed by the Board of Directors to have the primary roles in determining or
recommending compensation for the Company's executive officers other than
themselves. Accordingly, the Board decided, in 1990, that salary, bonus and
option grants for Messrs. Robert I. Toll and Bruce E. Toll should be determined
pursuant to objective measurements, including appropriate performance criteria
and market rates for comparable executives. Commencing January 1, 1995, the
Board of Directors determined that the formula for increasing the base salaries
of Messrs. Robert I. Toll and Bruce E. Toll should be based on no less than the
increase in the Consumer Price Index (as defined, using U.S. Department of Labor
definitions) and no more than the average percentage increase in compensation of
the five highest percentage compensation increases of the Company's next ten
most highly compensated employees, other than Messrs. Robert I. Toll and Bruce
E. Toll, for the adjustment year. In March 1998, in connection with Bruce E.
Toll's withdrawal from the day-to-day operations of the Company, the Board of
Directors agreed to fix his entitlement to a bonus under the Cash Bonus Plan,
described below, at a pro-rated cash amount of $1,466,447. Since 1990, cash
bonuses for Messrs. Robert I. Toll and for Bruce E. Toll (through 1997) in
addition to such annual salaries also have been determined based on the formula
contained in the Company's Cash Bonus Plan approved by Stockholders in 1992 and
amended in 1997. Under the Cash Bonus Plan, Robert I. Toll (and Bruce E. Toll
through 1997) is entitled to receive a
14
bonus equal to the sum of (a) 1.5% of the Company's income before income taxes
(as defined in the Cash Bonus Plan) in excess of 10% and up to 20% of
Stockholders' equity (as defined in the Cash Bonus Plan) of the Company as of
the end of the preceding fiscal year, plus (b) 2.0% of the Company's income
before income taxes in excess of 20% and up to 30% of Stockholders' equity of
the Company as of the end of the preceding fiscal year, plus (c) 2.25% of the
Company's income before income taxes in excess of 30% of Stockholders' equity of
the Company as of the end of the preceding fiscal year. This method of
compensation ties the compensation of these executive officers to various
indicators of the Company's performance. Accordingly, during the past five
years, this method generated a bonus in 1994 that was approximately 42% higher
than the bonus for 1993, a bonus in 1995 that was 53% higher than the bonus for
1994, a bonus in 1996 that was slightly less than the bonus in 1995, a bonus in
1997 that was 20% higher than 1996, and a bonus (for Robert I. Toll) in 1998
that was 32% was higher than 1997, before consideration of the stock award
feature described below. The Stockholders, at the 1997 Annual Meeting, amended
the Cash Bonus Plan, and the Stock Option and Incentive Plan (1995) (the "1995
Plan") to provide that (i) all bonus payments made under the Cash Bonus Plan
with respect to the Cash Bonus Plan years ending October 31, 1996, October 31,
1997 and October 31, 1998 shall be paid in the form of shares of common stock,
which payments shall be in the form of an award under the terms of the 1995
Plan; (ii) the number of shares of common stock awarded pursuant to the
aforementioned provisions of the Cash Bonus Plan shall be determined by dividing
the dollar amount of each bonus (as determined in accordance with the Cash Bonus
Plan) by $17.125 (the fair market value of a share of, determined as of May 29,
1996 in accordance with the provisions for determination of fair market value as
set forth in the 1995 Plan); and (iii) the committee administering the Cash
Bonus Plan ("committee") shall have the discretion to terminate the application
of the provisions of the Cash Bonus Plan described in items (i) and (ii) above
at any time, effective no sooner than six months after such decision to
terminate is made by the committee, in which event all bonuses payable on or
after the effective date of such termination shall be payable in cash only. In
addition, the Cash Bonus Plan was amended to clarify that, upon receipt of a
request by both participants in the Cash Bonus Plan (based on their concerns
regarding adverse tax consequences to them), the committee may, in its sole
discretion (provided that such action will not cause any increase in the amount
or value of a bonus that would otherwise be payable under the Cash Bonus Plan),
suspend the application of the provisions described in items (i) and (ii) above,
in which event all bonuses payable under the Cash Bonus Plan shall be payable
only in cash until such time as the committee determines to reinstate such
provisions. Messrs. Robert I. Toll and Bruce E. Toll agreed that all bonuses
payable under the Cash Bonus Plan for each of the three years ended October 31,
1996, October 31, 1997 and, as to Robert I. Toll only, October 31, 1998 were to
be made in the form of awards of common stock. Accordingly, payment of the Cash
Bonus to Robert I. Toll for the fiscal year 1998 was made in the form of 106,186
shares of common stock, which as of the end of such fiscal year had a market
value of $22.125 per share. The Cash Bonus Plan is intended to provide bonuses
that will be treated as "performance based compensation" exempt from the
limitations on deductability imposed under Section 162 (m) of the Code.
Pursuant to the Company's 1995 Plan each of Messrs. Robert I. Toll and
Bruce E. Toll was to receive an annual option award of 50,000 shares commencing
November 1, 1996 and ending on November 1, 1998 and additional option grants if
certain defined targets for the Company's pre-tax return on equity, after-tax
return on equity and increase in common stock value, over one year, three year
and two year fiscal periods, respectively, are met. For the year 1998, Robert I.
Toll received the 50,000 share annual option award due November 1, 1998 and an
option award for 47,500 shares under the pre-tax return on equity formula; Mr.
Bruce E. Toll, in accordance with his withdrawal from the day-to-day operations
of the Company, his final option awards under the Company's stock option plans
for an aggregate of 92,500 shares in lieu of his 1998 entitlements.
COMPENSATION COMMITTEES
OF THE BOARD OF DIRECTORS
Robert I. Toll
Bruce E. Toll
Carl B. Marbach
Paul E. Shapiro
15
PERFORMANCE GRAPH
The following graph compares the five year cumulative total return of the
Company's common stock, assuming reinvestment of dividends, with the S&P 500
Index and the S&P Homebuilding Index:
In the printed version of the document, a line graph appears which depicts
the following plot points:
10/93 10/94 10/95 10/96 10/97 10/98
----- ----- ----- ----- ----- -----
Toll............................................ 100 70 113 108 140 147
S&P 500......................................... 100 104 131 163 215 263
S&P Homebuilding................................ 100 55 75 72 104 127
16
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, and the regulations
thereunder, requires the Company's officers and directors and persons who own
more than ten percent of a registered class of the Company's equity securities
(collectively, the "reporting persons") to file reports of ownership and changes
in ownership with the Securities and Exchange Commission and to furnish the
Company with copies of these reports. Based on the Company's review of the
copies of these reports received by it, and written representations received
from reporting persons, the Company believes that all filings required to be
made by the reporting persons for the period November 1, 1997 through October
31, 1998 were made on a timely basis.
CERTAIN TRANSACTIONS
Ballard, Spahr, Andrews & Ingersoll, the law firm of which Director Richard
J. Braemer is a partner, acted as counsel to the Company in various matters
during fiscal 1998 and was paid aggregate fees of $334,240 during that period.
For information regarding certain other transactions, see "Compensation
Committee Interlocks and Insider Participation," elsewhere in this proxy
statement.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the 2000 Annual Meeting
of Stockholders must be received by the Company at the address appearing on the
first page of this proxy statement by October 2, 1999 in order to be considered
for inclusion in the Company's proxy statement and form of proxy relating to
that meeting.
A shareholder of the Company may wish to have a proposal presented at the
2000 Annual Meeting of Stockholders, but not to have such proposal included in
the Company's proxy statement and form of proxy relating to that meeting. If
notice of any such proposal is not received by the Company at the address
appearing on the first page of this proxy statement by December 15, 1999, then
such proposal shall be deemed "untimely" for purposes of Rule 14a-4(c)
promulgated under the Securities Exchange Act of 1934 and, therefore, the
Company will have the right to exercise discretionary voting authority with
respect to such proposal.
SOLICITATION OF PROXIES
The enclosed form of proxy is being solicited on behalf of the Company's
Board of Directors. The Company will bear the cost of the solicitation of
proxies for the Meeting, including the cost of preparing, assembling and mailing
proxy materials, the handling and tabulation of proxies received, and charges of
brokerage houses and other institutions, nominees and fiduciaries in forwarding
such materials to beneficial owners.
In addition to the mailing of the proxy material, such solicitation may by
made in person or by telephone, telegraph or telecopy by directors, officers or
regular employees of the Company, or by a professional proxy solicitation
organization engaged by the Company.
ANNUAL REPORT ON FORM 10-K
THE COMPANY WILL PROVIDE WITHOUT CHARGE TO EACH PERSON WHOSE PROXY IS BEING
SOLICITED BY THIS PROXY STATEMENT, ON THE WRITTEN REQUEST OF ANY SUCH PERSON, A
COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K (INCLUDING THE FINANCIAL
STATEMENTS AND SCHEDULE THERETO) AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION FOR ITS MOST RECENT FISCAL YEAR. SUCH WRITTEN REQUESTS SHOULD BE
DIRECTED TO JOSEPH R. SICREE, DIRECTOR OF INVESTOR RELATIONS, AT THE ADDRESS OF
THE COMPANY APPEARING ON THE FIRST PAGE OF THIS PROXY STATEMENT.
17
TOLL BROTHERS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
Annual Meeting of Stockholders - March 4, 1999
The undersigned stockholder of Toll Brothers, Inc. (the "Company"), revoking
all previous proxies, hereby appoints ROBERT I. TOLL, BRUCE E. TOLL AND CARL
B. MARBACH, and each of them individually, as the attorney and proxy of the
undersigned, with full power of substitution, to vote all shares of Common Stock
of the Company which the undersigned would be entitled to vote if personally
present at the Annual Meeting of Stockholders of the Company, to be held at the
offices of the Company, 3103 Philmont Avenue, Huntingdon Valley, Pennsylvania on
March 4, 1999, and at any adjournment or postponement thereof. Said proxies are
authorized and directed to vote as indicated with respect to the matters
specified on the reverse side.
This proxy is solicited on behalf of the Board of Directors. This proxy, when
properly executed, will be voted in the manner directed herein by the
undersigned. Unless otherwise specified, the shares will be voted "FOR" the
election of the three Director nominees, "FOR" the approval of the Amendment to
the Toll Brothers, Inc. Cash Bonus Plan and "FOR" the approval of Ernst & Young
LLP as the Company's independent auditors for the 1999 fiscal year. This proxy
also delegates discretionary authority to vote with respect to any other
business which may properly come before the meeting or any adjournment or
postponement thereof.
(continued on reverse side)
(triangle) FOLD AN DETACH HERE (triangle)
1. FOR WITHHOLD (INSTRUCTION: To withhold authority to vote for any nominee,
all nominees authority strike a line through the nominee's name below.)
listed (except as to vote for all
marked to the nominees Robert I. Toll, Bruce E. Toll and Joel H. Rassman
contrary) listed
-----------------------------------------------------------
------ ------
------ ------
2. The approval of the amendment 3. The approval of Ernst & Young
of the Toll Brothers, Inc. Cash LLP as the Company's auditor
Bonus Plan. for the 1999 fiscal year.
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
- ------- ------- ------- ------- ------- -------
- ------- ------- ------- ------- ------- -------
4. To vote upon such other business as may properly
come before the meeting or any adjournment or
postponement thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE
NOTICE OF ANNUAL MEETING, PROXY STATEMENT AND 1999
ANNUAL REPORT OF TOLL BROTHERS, INC.
Dated:__________________________________________1999
____________________________________________________
Signature of Stockholder
____________________________________________________
Signature of Stockholder
NOTE: Please sign this Proxy exactly as name(s) appear(s) in address.
When signing as attorney-in-fact, executor, administrator, trustee or
guardian, please add your title as such. If the stockholder is a
corporation, please sign by full corporate name by duly authorized
officer or officers and affix the corporate seal. Where shares are held
in the name of two or more persons, all such persons should sign.
PLEASE SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
(triangle) FOLD AND DETACH HERE (triangle)