Company Name: Toll Brothers, Inc.
Public Availability Date: January 5, 2006
Document Sections:
INQUIRY LETTER
APPENDIX
INQUIRY LETTER
INQUIRY LETTER
STAFF REPLY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
November 23, 2005
VIA ELECTRONIC MAIL AND FEDERAL EXPRESS
cfletters@sec.gov
Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
100 F Street, N.E.
Washington, D.C. 20549
Re: Toll Brothers, Inc. Commission File No. 1-9186 Omission of Shareholder
Proposal
Ladies and Gentlemen:
On behalf of our client, Toll Brothers, Inc., a Delaware corporation (the
"Company"), this letter is to inform you of the Company's intention to omit from
its proxy statement and form of proxy for its 2006 Annual Meeting of
Shareholders (the "2006 Proxy Materials") a shareholder proposal (the
"Proposal") and statement in support thereof (the "Supporting Statement")
received from the Western Pennsylvania Laborers' Pension Fund (the "Proponent"),
relating to executive compensation and indexed stock option grants. The Proposal
and Supporting Statement, which the Company received via facsimile on October
21, 2005, are attached hereto as Exhibit A.
Pursuant to Rule 14a-8(j)(2), this letter sets forth the grounds on which the
Company believes it can omit the Proposal from its proxy materials. Further, the
Company files herewith six copies of the Proposal, and encloses six copies of
this letter pursuant to Rule 14a-8(j)(2). By copy of this letter and
accompanying material, the Proponent is being notified, pursuant to Rule
14a-8(j)(1), of the Company's intention to omit the Proposal from its 2006 Proxy
Materials.
For the reasons set forth below, the Company hereby requests (i) that the Staff
of the Division of Corporation Finance of the Securities and Exchange Commission
(the "Staff") grant the Company's request to waive the 80-day requirement, set
forth in Rule 14a-8(j)(1) of the Securities Exchange Act of 1934 (the "Exchange
Act"), for filing objections to shareholder proposals and (ii) confirmation that
the Staff will not recommend an enforcement action if, in reliance on certain
provisions of Rule 14a-8 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Company omits the Proposal and Supporting Statement from
its 2006 Proxy Materials.
I. Waiver of 80-Day Deadline
Rule 14a-8(j)(1) under the Exchange Act requires that a company intending to
exclude a shareholder proposal from its proxy materials file its reasons with
the Securities and Exchange Commission (the "Commission") no later than 80
calendar days before filing its definitive proxy statement, or later than 80
days upon a showing of "good cause" for missing the deadline. The Staff has
noted that the most common basis for a company's showing of good cause is that a
proposal was not submitted timely and the company did not receive the proposal
until after the 80-day deadline had passed. Division of Corporation Finance
Staff Legal Bulletin No. 14B, Section D (Sept. 15, 2004).
In the present case, although the Proposal was submitted timely, the Company
received the Proposal on October 21, 2005, the final day on which shareholder
proposals could be submitted for inclusion in the Company's proxy materials for
the 2006 Meeting. According to the Company's records, the Proponent is not a
record holder of the Company's securities and, therefore, was required by Rule
14a-8(b)(2) to provide the Company with proof of ownership at the time it
submitted the Proposal. The Proponent failed to submit such proof with the
Proposal. Rather, the cover letter to the Proposal indicated that the record
holder of the Proponent's stock would provide "appropriate verification of the
[Proponent's] beneficial ownership by separate letter." When the Company did not
receive such a letter during the subsequent 13-day period, in order to preserve
its right to exclude the Proposal on procedural grounds, the Company, by letter
dated November 3, 2005, notified the Proponent of this eligibility deficiency in
accordance with Rule 14a-8(f). Under Rule 14a-8(f), the Company was required to
give the Proponent an additional 14 days in which to cure such deficiency. The
Proponent received this letter on November 4, 2005, making the expiration date
of this cure period November 18, 2005 (the "Cure Expiration Date"). Because the
Proponent did not provide verification of ownership on or before the Cure
Expiration Date, the Company has, as promptly as practicable, prepared the
request set forth herein.
The Company currently expects to file its definitive proxy materials on February
3, 2006. The Company respectfully requests that the Commission waive the 80-day
requirement in the present case because the Company acted as promptly as
practicable on the Proponent's Proposal, provided the Proponent with the
opportunity to cure its eligibility deficiency and, due to the late submission
of the Proposal and delay caused by the Rule 14a-8(f) cure period, compliance
with the Rule 14a-8(j) 80-day period would be impossible unless the Company
delayed the filing of its proxy materials. The Commission has previously granted
waivers in similar circumstances where the reason for the delayed submission of
a request for "no action" was that the company had been waiting for a response
from the proponent to correct deficiencies in their submissions. See e.g.,
E*TRADE Group, Inc. (Oct. 31, 2000); PHP Healthcare Corp. (Aug. 25, 1998). Given
the brevity of the Company's argument below and the recent passage of the 80-day
deadline, the Company believes that the Staff will not be unduly burdened by
this request and will have adequate time to consider the request presented
herein. In addition, the Company does not believe that the Proponent will be
prejudiced or harmed by the waiver in light of the recent passage of the
deadline.
II. The Proposal
The Company believes that the Proposal and the Supporting Statement may properly
be excluded from the 2006 Proxy Materials pursuant to the Rules 14a-8(b) and
14a-8(f)(1), because the Proponent has failed to respond, within 14 days, to the
Company's request for documentary support of continuous beneficial ownership.
A. Text of the Proposal
The Proposal requests that the Company's Board of Directors:
"[A]dopt an executive compensation policy that all future stock option grants to
senior executives shall be performance-based. For the purposes of this
resolution, a stock option is performance-based if the option exercise price is
indexed or linked to an industry peer group stock performance index so that the
options have value only to the extent that the Company's stock price performance
exceeds the peer group performance level."
B. Basis for Exclusion
Rule 14a-8(b)(1) provides that a shareholder, in order to be eligible to submit
a proposal, must have continuously held at least $2,000 in market value, or 1%,
of the company's securities entitled to be voted on the proposal at the meeting
for at least one year by the date the shareholder submits the proposal. The Rule
also requires that the shareholder continue to hold those securities through the
date of the meeting. Rule 14a-8(b)(2) provides that a shareholder who is not a
shareholder of record for the requisite period, nor a report filer (i.e., filer
of Schedule 13D, Schedule 13G, Form 4, etc.), must prove his eligibility by
submitting a written statement from the record holder of his securities (usually
a broker or bank) verifying that he has continuously held the requisite amount
of securities for at least one year.
Rule 14a-8(f)(1) permits a company to exclude a shareholder proposal if it has
notified the proponent within 14 days of receipt of the proposal of any
procedural or eligibility deficiencies, such as the failure to provide proof of
ownership, and the proponent has failed to adequately respond within 14 days of
receipt of the company's notification.
The Company received the Proposal via facsimile on October 21, 2005, the
properly determined deadline for submitting shareholder proposals for inclusion
in the 2006 Proxy Materials. The Proposal was accompanied by a cover letter from
the Proponent indicating that the Proponent is the beneficial owner of
approximately 8,200 shares of the Company's common stock, that such stock has
been held continuously for more than a year prior to the date of the submission,
and that the Proponent intends to hold the shares through the date of the 2006
Annual Meeting of Shareholders. The letter further provides, "The record holder
of the stock will provide the appropriate verification of the [Proponent's]
beneficial ownership by separate letter." The Proponent's cover letter is
attached hereto as Exhibit B.
The Proponent also submitted, via facsimile, a separate letter dated October 21,
2005 from Dennis Sarnowski, administrator of the Proponent, indicating that "Aronson+Johnson+Ortiz
LP holds 8,200 shares of the Company's common stock beneficially (sic) for [the
Proponent]," that such shares were purchased prior to October 18, 2004, and that
the Proponent continues to hold the stock. This letter is attached hereto as
Exhibit C.
Because the Proponent was not listed on the Company's books as a record owner of
its stock, and because the letter from Mr. Sarnowski does not satisfy the Rule
14a-8(b)(2) requirement that a beneficial shareholder submit written
verification of ownership from the record holder of its securities, the Company
requested, by letter dated November 3, 2005 and pursuant to 14a-8(f)(1), that
the Proponent submit proof of ownership within 14 days. A copy of this letter,
which the Company attempted to deliver via facsimile on November 3, 2005, and
was subsequently delivered via e-mail and overnight courier on November 4, 2005,
is attached hereto as Exhibit D. As of the date hereof, the Proponent has failed
to respond to the Company's request.
The Staff has repeatedly concurred in the excludability of a proposal under Rule
14a-8(f)(1) when the proponent does not timely provide the information called
for by Rule 14a-8(b)(2) in support of his eligibility to submit a proposal. See,
e.g., Charles Schwab Corp. (Feb. 2, 2005); Intel Corp. (Feb. 1, 2005); General
Electric Co. (Dec. 27, 2004); AT&T Corp. (Dec. 23, 2004); Intel Corp. (Mar. 7,
2003); Knight-Ridder, Inc. (Feb 28, 2003). The Staff has extended a proponent's
correction period beyond 14 days only upon finding deficiencies in the company's
communication. See, e.g., Boise Cascade Corp. (Feb 8, 2002); Kmart Corp (Mar.
27, 2000).
The Company believes it satisfied its obligations under Rule 14a-8 in its
November 3, 2005 letter, which clearly stated the ownership requirements of Rule
14a-8(b)(1), the type of documentation necessary to demonstrate beneficial
ownership under Rule 14a-8(b)(2), and that the Proponents' response had to be
submitted within 14 days of receipt of the letter.
Accordingly, the Company believes that the Proposal may be omitted from the 2006
Proxy Materials pursuant to Rule 14a-8(f)(1).
III. Conclusion
Based on the foregoing discussion, the Company believes that the Proposal may
properly be omitted from its 2006 Proxy Materials pursuant to Rules 14a-8(b) and
14a-8(f)(1). The Company respectfully requests the Staff confirm that it will (i)
waive the 80-day requirement, set forth in Rule 14a-8(j)(1) of the Exchange Act,
for filing objections to shareholder proposals and (ii) not recommend
enforcement if the Proposal is omitted from the 2006 Proxy Materials. If the
Staff disagrees with the Company's conclusion that the Proposal may be so
omitted, we request the opportunity to confer with the Staff prior to the
issuance of its position.
If you have any questions or need any additional information with regard to the
enclosed or the foregoing, please contact the undersigned at 215-977-2576.
Please indicate your receipt of this letter and the enclosures by signing the
enclosed copy of this letter and returning it to the undersigned in the enclosed
stamped, self-addressed envelope.
Very truly yours,
/s/
Mark K. Kessler
For WOLF, BLOCK, SCHORR and SOLIS-COHEN LLP
Enclosures
cc: Don H. Liu, Esquire
Mr. Dennis Sarnowski,
Western Pennsylvania Laborers' Pension Fund
[APPENDIX]
Indexed Options Proposal
Resolved, that the shareholders of Toll Brothers, Inc. (the "Company") request
that the Board of Directors adopt an executive compensation policy that all
future stock option grants to senior executives shall be performance-based. For
the purposes of this resolution, a stock option is performance-based if the
option exercise price is indexed or linked to an industry peer group stock
performance index so that the options have value only to the extent that the
Company's stock price performance exceeds the peer group performance level.
Statement of Support: As long-term shareholders of the Company, we support
executive compensation policies and practices that provide challenging
performance objectives and serve to motivate executives to achieve long-term
corporate value maximization goals. While salaries and bonuses compensate
management for short-term results, the grant of stock and stock options has
become the primary vehicle for focusing management on achieving long-term
results. Unfortunately, stock option grants can and do often provide levels of
compensation well beyond those merited. It has become abundantly clear that
stock option grants without specific performance-based targets often reward
executives for stock price increases due solely to a general stock market rise,
rather than to extraordinary company performance.
Indexed stock options are options whose exercise price moves with an appropriate
peer group index composed of a company's primary competitors, The resolution
requests that the Company's Board ensure that future senior executive stock
option plans link the options exercise price to an industry performance index
associated with a peer group of companies selected by the Board, such as those
companies used in the Company's proxy statement to compare 5 year stock price
performance.
Implementing an indexed stock option plan would mean that our Company's
participating executives would receive payouts only If the Company's stock price
performance was better then that of the peer group average. By tying the
exercise price to a market index, indexed options reward participating
executives for outperforming the competition. Indexed options would have value
when our Company's stock price rises in excess of its peer group average or
declines less than its peer group average stock price decline. By downwardly
adjusting the exercise price of the option during a downturn in the industry,
indexed options remove pressure to reprice stock options. In short, superior
performance would be rewarded.
At present, stock options granted by the Company are not indexed to peer group
performance standards. As long-term owners, we feel strongly that our Company
would benefit from the Implementation of a stock option program that rewarded
superior long-term corporate performance. In response to strong negative public
and shareholder reactions to the excessive financial rewards provided executives
by non-performance based option plans, a growing number of shareholder
organizations, executive compensation experts, and companies are supporting the
implementation of performance-based stock option plans such as that advocated in
this resolution. We urge your support for this important governance reform.
[INQUIRY LETTER]
10/21/2005
Mr. Michael I. Snyder
Secretary
Toll Brothers, Inc.
250 Gibraltar Road
Horsham, PA 19044
Dear Mr. Snyder,
On behalf of the Western Pennsylvania Laborers' Pension Fund ("Fund"), I hereby
submit the enclosed shareholder proposal ("Proposal") for inclusion in the Toll
Brothers, Inc. ("Company") proxy statement to be circulated to Company
shareholders in conjunction with the next annual meeting of shareholders. The
Proposal is submitted under Rule 14(a)-8 (Proposals of Security Holders) of the
U.S. Securities and Exchange Commission's proxy regulations.
The Fund is the beneficial owner of approximately 8200 shares of the Company's
common stock, which have been held continuously for more than a year prior to
this date of submission. The Proposal is submitted in order to promote a
governance system at the Company that enables the Board and senior management to
manage the Company for the long-term. Maximizing the Company's wealth generating
capacity over the long-term will best serve the interests of the Company
shareholders and other important constituents of the Company.
The Fund intends to hold the shares through the date of the Company's next
annual meeting of shareholders. The record holder of the stock will provide the
appropriate verification of the Fund's beneficial ownership by separate letter.
Either the undersigned or a designated representative will present the Proposal
for consideration at the annual meeting of shareholders.
If you have any questions or wish to discuss the Proposal, please contact our
Corporate Governance Advisor, Linda Priscilla at (202) 942-2359. Copies of
correspondence or a request for a "no-action" letter should be forwarded to
Linda Priscilla, Laborers' International Union of North America Corporate
Governance Project, 905 16thStreet, NW, Washington, DC 20006.
Sincerely,
Laborers' District Council of Western Pennsylvania Pension Fund
/s/
Dennis Sarnowski
Administrator
Cc. Linda Priscilla
Enclosure
[INQUIRY LETTER]
10/21/2005
Mr. Michael I, Snyder
Secretary
Toll Brothers, Inc.
250 Gibraltar Road
Horsham, PA 19044
Re: Shareholder Proposal
Dear Mr. Snyder,
Aronson+Johnson+Ortiz LP holds 8,200 shares of Toll Brothers, Inc. common stock
beneficially for Westen Pennsylvania Laborers' Pension Fund the proponent of a
shareholder proposal submitted to Toll Brothers, Inc. and submitted in
accordance with Rule 14(a)-8 of the Securities and Exchange Act of 1934. The
shares of the Company stock held by the Western Pennsylvania Laborers' Pension
Fund were purchased prior to 10/18/2004 and the fund continues to hold said
stock.
Please contact me if there are any questions regarding this matter.
Sincerely,
Laborers District Council of Western Pennsylvania Pension Fund
/s/
Dennis Sarnowski, Administrator
[STAFF REPLY LETTER]
November 3, 2005
VIA FACSIMILE (412-263-2084) and UPS OVERNIGHT DELIVERY
Dennis Sarnowski
Administrator
Laborers' District Council of Western Pennsylvania Pension Fund
1109 Fifth Avenue
Pittsburgh, PA 15219-6203
Dear Mr. Sarnowski,
On October 21, 2005, we received the shareholder proposal and supporting
materials (the "Proposal") relating to an executive compensation policy
involving indexed stock options, submitted by you on behalf of the Western
Pennsylvania Laborers' Pension Fund for inclusion in the proxy statement for our
2006 Annual Meeting of Stockholders.
Rule 14a-8(b) under the Securities Exchange Act of 1934, as amended, provides
that a shareholder wishing to submit a proposal must have continuously held at
least $2,000 in market value, or 1%, of a company's securities entitled to be
voted on the proposal at the meeting for at least one year prior to the date of
submission of the proposal. A shareholder who is not a registered holder is
required to prove that he satisfies this requirement in one of the ways
described in paragraph (2) of Rule 14a-8(b), including submission of a written
statement from the record holder verifying that, at the time of submission of
the proposal, the beneficial owner continuously held the securities for at least
one year. You indicate in your cover letter accompanying the Proposal that such
a statement from the record holder of your stock would be forthcoming; however,
as of the date of this letter, we have not received this statement. Your letter
claiming ownership of Toll shares by Aronson+Johnson+Ortiz LP does not satisfy
this requirement. Because you have not submitted to us a written statement from
the record holder verifying that at the time you submitted your proposal you
continuously held the requisite amount of securities for at least one year, you
have failed to meet all of the procedural requirements of Rule 14a-8.
We are providing you with notice of this deficiency pursuant to Rule
14a-8(f)(1). If you wish to cure this deficiency, you must submit proof of your
ownership to us within 14 days from the date you receive this letter. If you do
not submit proof of your ownership within this period, we will seek to exclude
your proposal from our proxy statement for the 2006 Annual Meeting as permitted
under Rule 14a-8(f). If you do submit proof of your ownership within this
period, we will review it to determine if the deficiency has been cured and may
still object to your proposal on the basis of other grounds described in Rule
14a-8.
Sincerely,
/s/
Don H. Liu
[STAFF REPLY LETTER]
January 5, 2006
Response of the Office of Chief Counsel Division of Corporation Finance
Re: Toll Brothers, Inc. Incoming letter dated November 23, 2005
The proposal relates to stock options.
There appears to be some basis for your view that Toll Brothers may exclude the
proposal under rule 14a-8(f). We note that the proponent appears not to have
responded to Toll Brothers' request for documentary support indicating it
satisfied the minimum ownership requirement for the one year period required by
rule 14a-8(b). Accordingly, we will not recommend enforcement action to the
Commission if Toll Brothers excludes the proposal from its proxy materials in
reliance on rules 14a-8(b) and 14a-8(f).
We note that Toll Brothers did not file its statement of objections to including
the proposal in its proxy materials at least 80 days before the date on which it
will file definitive proxy materials as required by rule 14a-8(j)(1). Noting the
circumstances of the delay, we grant Toll Brothers' request that the 80-day
requirement be waived.
Sincerely,
/s/
Mark F. Vilardo
Special Counsel
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