THE TORO COMPANY
CONTINUOUS PERFORMANCE AWARD PLAN
1. PURPOSE OF THE PLAN. The purpose of the Continuous Performance Award Plan
(the "Plan") is to provide an incentive to members of management of The
Toro Company (the "Company") who are primarily responsible for the
management, growth and sound development of the business of the Company to
achieve the Company's long-term financial objectives, by making awards
based on achievement of performance goals ("Performance Awards").
2. EFFECTIVE DATE. The Plan shall become effective as of August 1, 1991,
subject to the approval of the stockholders of the Company at its Annual
Meeting of Stockholders on December 10, 1991, and shall continue in effect
unless and until terminated by the Board of Directors of the Company.
3. ADMINISTRATION. The Plan shall be administered by the Compensation
Committee of the Board of Directors of the Company, or its successor
committee (the "Committee"), it being intended that members of the
Committee shall qualify to administer the Plan as contemplated by Rule
16b-3 promulgated under the Securities Exchange Act of 1934 (the "Exchange
Act") or any successor rule, and as contemplated by Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code") and the rules and
regulations thereunder, and provided further that, if the stock options
granted pursuant to paragraph 6 hereof are authorized to be granted under
the Company's stock option plans, the members of the Committee shall also
have authority to act under those plans. The Committee shall have power to
select employees to whom Performance Awards are made, to determine the
terms of the Performance Awards consistent with the Plan, to prescribe
rules and regulations relating to the Plan and to construe and otherwise
implement the Plan.
4. ELIGIBILITY. Performance Awards may be made to any employee who has
primary responsibility for and directly influences achievement of long-term
financial results of the Company. Officers of the Company who are also
members of the Board of Directors shall be eligible to receive Performance
Awards. Members of the Committee shall not be eligible to receive
Performance Awards. Individuals to whom Performance Awards are made are
referred to as "Participants."
5. TERMS OF AWARDS. Performance Awards shall be evidenced by written
agreements in such form, not inconsistent with this Plan, as the Committee
shall approve from time to time, which agreements shall contain in
substance the following terms and conditions:
a. "AWARD TERM". Unless otherwise provided herein, each Performance
Award shall have a term of three fiscal years and shall be payable
only at the conclusion of such term. Notwithstanding the foregoing,
and for the purpose of bringing a Participant who has not previously
participated in this Plan into the three year award cycle of the Plan,
the Committee shall grant, in addition to a three year Performance
Award, a
Performance Award having a term of one fiscal year and a Performance
Award having a term of two fiscal years, such that an award shall be
payable, if otherwise earned, at the conclusion of each of the first
two fiscal years after commencement of participation in the Plan. The
Committee may, in its discretion, grant additional, successive three
year Performance Awards to any Participant with respect to subsequent
three year periods. Notwithstanding the foregoing, the Committee may,
in its discretion, make Performance Awards having a duration of less
than the normal Award Term to an individual who is selected to first
become a Participant at a time other than the beginning of a fiscal
year of the Company or to reflect a fiscal transition period resulting
from a change in fiscal year end or similar significant event;
provided that such award shall otherwise be generally on the same
terms and conditions applicable to Performance Awards granted as of
the first day of the applicable fiscal year.
SPECIAL RULE FOR PERSONS REFERRED TO IN SECTION 162(M). If a
Performance Award is granted at a time other than the beginning of a
fiscal year, such award shall not be granted later than 90 days after
the commencement of the period of service to which the Performance
Award relates or after more than 25% of the period of service has
elapsed, in accordance with the provisions of paragraph 5.c.ii
hereof.
b. DATE OF GRANT. Except as otherwise permitted under this Plan,
Performance Awards, whether one year, two year or three year awards,
shall be granted as of the date which marks the first day of any Award
Term.
c. BASIS OF AWARD.
i. The maximum amount that may be paid with respect to any
Performance Award (the "Award Maximum") shall be determined by
multiplying (a) the base compensation actually paid to the
Participant during the period of any one-year Award Term or the
last fiscal year of any multiple-year Award Term, as the case may
be, exclusive of any bonus or other incentive compensation but
including deferred compensation, times (b) a performance factor
(such as .25, .50, 1.0, etc.) determined by the Committee, which
is intended to reflect the Participant's ability to influence the
financial results of the Company and the Participant's relative
seniority within management. The maximum dollar amount of the
Award Maximum of each Performance Award shall be set by the
Committee at the time of grant of such award.
SPECIAL RULE FOR PERSONS REFERRED TO IN SECTION 162(M): The
maximum amount that may be paid with respect to a Performance
Award granted to a person referred tp om Section 162(m) shall be
determined based on an estimate of such base compensation to be
paid during a one-year Award Term or the last fiscal year of a
multiple year Award Term, and the maximum dollar amount of the
Award Maximum shall be set by the Committee at the time of grant
of such award. Performance factors applicable to such persons
shall be as follows:
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Chief Executive Officer 1.00
President and Chief Operating Officer .75
Other Officers .25
ii. The Committee shall establish a financial performance goal based
on the Company's relative performance in achieving a return on
beginning stockholders equity (ROBE) and net income growth as
compared with other similarly classified Fortune 500 companies
(the "Performance Goal"), and the amount that shall be paid (the
"Award Payment") with respect to each Performance Award shall be
based on the achievement by the Company of such Performance Goal
during the applicable Award Term; provided that the Performance
Goal shall be established not later than 90 days after the
commencement of the period of service to which the Performance
Goal relates, provided that the outcome is substantially
uncertain at the time the Committee actually establishes the
Performance Goal; and provided further that in no event will a
Performance Goal be considered to be preestablished if it is
established after 25% of the period of service (as scheduled in
good faith at the time the Performance Goal is established) has
elapsed.
d. CALCULATION OF AWARD PAYMENT.
i. STANDARD CALCULATION. The Company's ROBE and net income growth
for each fiscal year shall be converted to a percentile score
(the Percentile Score) by comparing the ROBE and net income
growth to comparable data for all companies in the Industrial and
Farm Equipment Group of Fortune 500 (as reported for the calendar
year ended during such fiscal year). The one year Percentile
Score shall be used to determine the Award Payment with respect
to a one year Award Term and the average of the Percentile Scores
for a two or three year Award Term shall be used in determining
the Award Payment for any multiple year Performance Award. If
the Percentile Score (or average Percentile Score for a two or
three year Award Term) is: (a) at or above the 75th percentile,
each Participant shall be paid the Award Maximum; (b) between the
50th and 75th percentile, each Participant shall be paid an
amount equal to two-thirds of the Award Maximum at the 50th
percentile and ranging up on a straight line basis to 100% of the
Award Maximum at the 75th percentile; (c) between the 25th and
50th percentile, each Participant shall be paid two-thirds of the
Award Maximum at the 50th percentile and ranging down on a
straight line basis to zero at the 25th percentile; and (d) at or
below the 25th percentile, no Performance Award shall be paid.
The Award Payment with respect to a Performance Award covering
two or three fiscal years shall not be earned or paid until the
completion of the final fiscal year of the Award Term. However,
no award payment will be earned or paid to any participant during
the first six months of any Award Term.
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ii. Notwithstanding the provisions of subparagraph i of this
subparagraph 5.d., any individual who has participated in the
Plan for less than a full fiscal year during a one-year Award
Term shall receive a payment only for that portion of the fiscal
year during which the individual was a Participant (expressed as
a percentage and based on a 360 day year).
e. MAXIMUM AWARD. Notwithstanding any other provision of this Plan, the
Maximum Award Payment with respect to any Performance Award is
$1,100,000.
f. PAYMENT. Before any payment is made under the Plan, the Committee
must certify in writing that the Performance Goal justifying the
payment has been met. Subject to the provisions of subparagraph 5.g.
hereof, any amount earned with respect to a Performance Award shall be
paid in cash within a reasonable time after the last day of the Award
Term and after the Committee has certified in writing that the
applicable Performance Goal and any other material terms were
satisfied. A Participant shall have no control over the date of
payment; provided, however, that a Participant may elect to defer
receipt of the cash payment for investment in a deferred compensation
account in accordance with the Company's usual procedures, provided
that such deferred compensation account shall be maintained in cash or
cash equivalents and not in the equity securities of the Company. An
election to defer shall be made by the Participant not later than 61
days prior to the last day of an applicable Award Term, and if deemed
to be required by applicable securities laws or regulations, shall be
made during a period that qualifies as a "window period" for purposes
of rules and regulations under the Exchange Act.
g. CHANGE OF CONTROL. Each Performance Award shall provide that in the
event of a threatened or actual change of control of the Company after
one full year of any multiple year Award Term, or during the final six
months of a one-year Award Term, any such Performance Award shall
become immediately payable and the calculation of the amount payable
shall be based on the ROBE and net income growth of the Company for
the fiscal period most recently ended and the most recent Fortune 500
publication then available. A Change of Control means the earliest to
occur of (a) a public announcement that a party shall have acquired or
obtained the right to acquire beneficial ownership of 20% or more of
the outstanding shares of Common Stock of the Company, (b) the
commencement of, or announcement of an intention to make, a tender
offer or exchange offer the consummation of which would result in the
beneficial ownership by a party of 30% or more of the outstanding
shares of Common Stock of the Company, or (c) the occurrence of a
tender offer, exchange offer, merger, consolidation, sale of assets or
contested election or any combination thereof, that causes the persons
who were directors of the Company immediately before such Change of
Control to cease to constitute a majority of the Board of Directors of
the Company or any parent of or successor to the Company."
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h. TRANSFERABILITY. No Performance Award granted hereunder may be
transferred by a Participant. A Participant may receive payment with
respect to a Performance Award only while an employee of the Company
or a parent or subsidiary of the Company and only if he or she has
been continuously employed since the date the Performance Award was
granted; provided, however, that:
i. In the event of the death, disability or retirement of a
Participant, an Award Payment shall be paid if otherwise earned
in accordance with subparagraph 5.d. hereof, with respect to the
portion of the applicable Award Term completed at the date of
such event (based on a 360 day year and expressed as a
percentage). The amount shall be calculated and paid in
accordance with the applicable provisions of subparagraphs 5.d.
and 5.e., notwithstanding the earlier occurrence of such event.
ii. In the event of involuntary termination of employment of a
Participant, during the Award Term, for reasons other than death,
disability or retirement, an Award Payment shall be paid, if
otherwise earned in accordance with subparagraph 5.d. hereof,
with respect to the portion of the applicable Award Term
completed at the date of such event (based on a 360 day year and
expressed as a percentage). Any payment made under this
subparagraph 5.g. shall be based on the ROBE of the Company for
the fiscal period then most recently ended and the most recent
Fortune 500 publication then available.
6. STOCK OPTIONS. At the time of granting any Performance Award, the
Committee shall grant to each Participant options to purchase shares of the
Common Stock, $1.00 par value, of the Company (the "Common Stock") under
the Company's then effective stock option plan or plans, on such terms and
conditions as may be required or permitted under such stock option plan,
provided, however, that the following terms shall be applicable unless
otherwise not permitted by such stock option plan:
a. Each Participant shall be granted one option with respect to each
Performance Award.
b. The number of shares to be subject to an option granted to a
Participant (the "Option Amount") shall be determined by: multiplying
(a) the estimated base compensation of the Participant during the
first fiscal year of the Award Term, as determined by the Human
Resources department of the Company, exclusive of any bonus or other
incentive compensation but including deferred compensation; times (b)
the performance factor described in subparagraph 5.c.i above; times
(c) 1.0 for a one-year Award Term, 1.05 for a two-year Award Term, and
1.1 for a three-year Award Term; and dividing that result by (d) the
Fair Market Value of one share of the Common Stock of the Company
determined in accordance with subparagraph 6.d. hereof.
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c. Notwithstanding paragraph 6.b., the number of shares subject to an
option shall be subject to reduction as follows: If the Company's
Percentile Score (or average Percentile Score for a multiple year
Award Term) as calculated in accordance with subparagraph 5.d. above,
is not at or above the 75th percentile, but is at or above the 25th
percentile, a portion of the option related to the applicable
Performance Award shall be deemed to expire so that the number of
shares subject to the option shall be reduced pro rata on a
straight-line basis (full shares only) to two-thirds of the Option
Amount at a 50th Percentile Score and to zero at a 25th Percentile
Score, on the same basis as provided in subparagraph 5.d. above.
Thus, if the Company does not achieve a performance equal to at least
the 25th percentile as herein provided for the Award Term, the option
shall expire automatically. The calculation required by this
subparagraph shall be made by the Committee promptly after the end of
each fiscal year, and any option or portion of an option deemed to
expire shall expire automatically upon the making of such calculation.
The Committee shall promptly notify the Participants of the results of
the calculation.
d. The exercise price per share under any option shall be the Fair Market
Value of one share of the Common Stock of the Company. The Fair
Market Value of one share of the Common Stock, for the purpose of
determining the Option Amount and the exercise price per share, shall
be the average closing price of the Common Stock on the New York Stock
Exchange for the three month period immediately prior to the grant
date, provided that such result shall otherwise be in accordance with
the then effective stock option plan.
e. An option granted with respect to any Performance Award, or the
portion thereof which remains after application of subparagraph 6.c.
above, shall become exercisable on the date the Committee notifies the
Participants in accordance with subparagraph 6.c., and may be
exercised until 90 days following the Company's public year-end
earnings announcement. If permitted under the then effective stock
option plan or under applicable securities laws, each option shall
provide that in the event of a Change of Control of the Company during
the Award Term, the option shall become immediately exercisable in the
full Option Amount and the calculation pursuant to paragraph 6.c.
shall not be applicable.
f. An option shall, by its terms, expire upon the termination of
employment of a Participant, except that in the event of retirement by
a Participant after the end of an Award Term, such retired Participant
shall be entitled to exercise the option or options involved during
the period provided in subparagraph 6.e. above.
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