THE TORO COMPANY
CONTINUOUS PERFORMANCE AWARD PLAN
1. PURPOSE OF THE PLAN. The purpose of the Continuous Performance Award
Plan (the "Plan") is to provide an incentive to members of management of
The Toro Company (the "Company") who are primarily responsible for the
management, growth and sound development of the business of the Company
to achieve the Company's long-term financial objectives, by making awards
based on achievement of performance goals ("Performance Awards").
2. ADMINISTRATION. The Plan shall be administered by the Compensation
Committee of the Board of Directors of the Company, or its successor
committee (the "Committee"), it being intended that members of the
Committee shall qualify to administer the Plan as contemplated by Rule
16b-3 promulgated under the Securities Exchange Act of 1934 (the
"Exchange Act") or any successor rule, and as contemplated by Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code") and
the rules and regulations thereunder, and provided further that, if the
stock options granted pursuant to paragraph 5 hereof are authorized to be
granted under the Company's stock option plans, the members of the
Committee shall also have authority to act under those plans. The
Committee shall have power to select employees to whom Performance Awards
are made, to determine the terms of the Performance Awards consistent
with the Plan, to prescribe rules and regulations relating to the Plan
and to construe and otherwise implement the Plan.
3. ELIGIBILITY. Performance Awards may be made to any employee who has
primary responsibility for and directly influences achievement of
long-term financial results of the Company. Officers of the Company who
are also members of the Board of Directors shall be eligible to receive
Performance Awards. Members of the Committee shall not be eligible to
receive Performance Awards. Individuals to whom Performance Awards are
made are referred to as "Participants."
4. TERMS OF AWARDS. Performance Awards shall be evidenced by written
agreements in such form, not inconsistent with this Plan, as the
Committee shall approve from time to time, which agreements shall contain
in substance the following terms and conditions:
a. "AWARD TERM". Unless otherwise provided herein, each Performance
Award shall have a term of three fiscal years and shall be payable
only at the conclusion of such term. Notwithstanding the
foregoing, and for the purpose of bringing a Participant who has
not previously participated in this Plan into the three year award
cycle of the Plan, the Committee may grant, in addition to a three
year Performance Award, a Performance Award having a term of one
fiscal year and a Performance Award having a term of two fiscal
years, such that an award may 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
subparagraph 4.c.ii hereof.
b. DATE OF GRANT. Except as otherwise permitted under this Plan,
Performance Awards, whether one year, two year or three year
awards, shall be granted as of the date which marks the first day
of any Award Term.
c. BASIS OF AWARD.
i. The maximum amount that may be paid with respect to any
Performance Award (the "Award Maximum") shall be determined
by multiplying (a) the base compensation actually paid to the
Participant during the period of any one-year Award Term or
the last fiscal year of any multiple-year Award Term, as the
case may be, exclusive of any bonus or other incentive
compensation but including deferred compensation, times (b) a
participation factor which represents a percentage of base
compensation (such as .25 for 25% of base compensation)
determined by the Committee at the time an award is granted ,
which is intended to reflect the Participant's ability to
influence the financial results of the Company or its
divisions or subsidiaries and the Participant's relative
seniority within management.
SPECIAL RULE FOR PERSONS REFERRED TO IN SECTION 162(m): With
respect to a Performance Award granted to a person referred
to in Section 162(m), the maximum dollar amount of the Award
Maximum shall be set by the Committee at the time of grant of
a Performance Award and the Committee shall have the
discretion to decrease this maximum dollar amount but may not
increase such amount with respect to a Peformance Award
granted to a person referred to in Section 162(m). The
participation factors applicable to such persons, which are
intended to reflect a Plan Participant's level of
responsibility, are 1.0 for the Chairman and Chief Executive
Officer, .75 for the President and Chief Operating Officer,
if one should be elected, .50 for the Group Vice Presidents
and Chief Financial Officer, and .25 to .35 for other
officers, including other named executive officers.
ii. The Committee shall establish a financial performance goal
based on the Company's relative performance in achieving a
return on beginning stockholders equity (ROBE) as compared
with other similarly classified Fortune 500 companies (the
"Performance Goal"), and the amount that shall be paid (the
"Award Payout") with respect to each Performance Award shall
be based on the achievement by the Company of such
Performance Goal during the applicable Award Term; provided
that the Performance Goal shall be established not later than
90 days after the commencement of the period of service to
which the Performance Goal relates,
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provided that the outcome is substantially uncertain at the
time the Committee actually establishes the Performance Goal;
and provided further that in no event will a Performance Goal
be considered to be preestablished if it is established after
25% of the period of service (as scheduled in good faith at
the time the Performance Goal is established) has elapsed.
SPECIAL RULE FOR PERSONS REFERRED TO IN SECTION 162(m): In
no case shall the Award Payout with respect to a Performance
Award granted to a person referred to in Section 162(m)
exceed the maximum dollar amount established by the Committee
in accordance with the Special Rule set forth in subparagraph
4.c.i. or set forth in subparagraph 4.e.
d. CALCULATION OF AWARD PAYMENT.
i. STANDARD CALCULATION. The Company's ROBE for each fiscal
year shall be converted to a percentile score (the
"Percentile Score") by comparing the ROBE to comparable data
for all companies in the Industrial and Farm Equipment Group
of Fortune 500 (as reported for the calendar year ended
during such fiscal year). The one year Percentile Score
shall be used to determine the Award Payout with respect to a
one year Award Term and the average of the Percentile Scores
for a two or three year Award Term shall be used in
determining the Award Payout for any multiple year
Performance Award. If the Percentile Score (or average
Percentile Score for a two or three year Award Term) is: (a)
at or above the 75th percentile, each Participant shall be
paid the Award Maximum; (b) between the 50th and 75th
percentile, each Participant shall be paid an amount equal to
two-thirds of the Award Maximum at the 50th percentile and
ranging up on a straight line basis to 100% of the Award
Maximum at the 75th percentile; (c) between the 25th and 50th
percentile, each Participant shall be paid two-thirds of the
Award Maximum at the 50th percentile and ranging down on a
straight line basis to zero at the 25th percentile; and (d)
at or below the 25th percentile, no Performance Award shall
be paid. The Award Payout with respect to a Performance
Award covering two or three fiscal years shall not be earned
or paid until the completion of the final fiscal year of the
Award Term. However, no Award Payout will be earned or paid
to any participant during the first six months of any Award
Term.
ii. Notwithstanding the provisions of subparagraph i of this
subparagraph 4.d., any individual who has participated in the
Plan for less than a full fiscal year during a one year
Award Term shall receive a payment only for that portion of
the fiscal year during which the individual was a Participant
(expressed as a percentage and based on a 360 day year).
e. MAXIMUM AWARD PAYMENT. Notwithstanding any other provision of this
Plan, the maximum dollar amount a Participant may be paid under a
Performance Award with respect to any Award Term is $1,500,000.
The Committee may in its discretion, decrease this maximum, but may
not under any circumstances increase the maximum.
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f. PAYMENT. Before any payment is made under the Plan, the Committee
must certify in writing that the Performance Goal justifying the
payment has been met. Subject to the provisions of subparagraph
4.g. hereof, any amount earned with respect to a Performance Award
shall be paid in cash within a reasonable time after the last day
of the Award Term and after the Committee has certified in writing
that the applicable Performance Goal and any other material terms
were satisfied. A Participant shall have no control over the date
of payment.
g. CHANGE OF CONTROL. Each Performance Award shall provide that in
the event of a threatened or actual Change of Control of the
Company after one full year of any multiple year Award Term, or
during the final six months of a one year Award Term, any such
Performance Award shall become immediately payable and the
calculation of the amount payable shall be based on the ROBE of the
Company for the fiscal period most recently ended and the most
recent Fortune 500 publication then available. A Change of Control
means the earliest to occur of (i) a public announcement that a
Person shall have acquired or obtained the right to acquire
Beneficial Ownership (within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934 (the "Exchange Act")), of 15% or
more of the outstanding shares of Common Stock of the Company, (ii)
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 Person of 15% or more of
the outstanding shares of Common Stock of the Company or (iii) the
occurrence of a tender offer, exchange offer, merger,
consolidation, sale of assets or earning power, or contested
election or any combination thereof, that causes or would cause 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.
For purposes of this paragraph, Person means any individual,
corporation, partnership, trust, other entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act)
(excluding the Company, a subsidiary of the Company, any employee
benefit plans of the Company or any subsidiary or any entity
holding shares of Common Stock for or pursuant to the terms of any
such plan). For purposes of this paragraph, Beneficial Ownership
includes securities beneficially owned, directly or indirectly, by
a Person and such Person's affiliates and associates, as defined
under Rule 12b-2 under the Exchange Act, and securities which such
Person and its affiliates and associates have the right to acquire
or the right to vote, or by any other Person with which such Person
or any of such Person's affiliates or associates has any agreement,
arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of shares of Common Stock, as more fully
described in The Toro Company Preferred Share Purchase Rights Plan
dated as of May 20, 1998.
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:
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i. In the event of the death, disability or retirement of a
Participant, an Award Payout shall be made if otherwise
earned in accordance with subparagraph 4.d. hereof, with
respect to the portion of the applicable Award Term completed
at the date of such event (based on a 360 day year and
expressed as a percentage). The amount shall be calculated
and paid in accordance with the applicable provisions of
subparagraphs 4.d. and 4.e., notwithstanding the earlier
occurrence of such event.
ii. In the event of involuntary termination of employment of a
Participant, during the Award Term, for reasons other than
death, disability or retirement, an Award Payout shall be
made, if otherwise earned in accordance with subparagraph
4.d. hereof, with respect to the portion of the applicable
Award Term completed at the date of such event (based on a
360 day year and expressed as a percentage). Any payment
made under this subparagraph 4.h.ii. shall be based on the
ROBE of the Company for the fiscal period then most recently
ended and the most recent Fortune 500 publication then
available.
5. STOCK OPTIONS. At the time of granting any Performance Award, the
Committee shall grant to each Participant options to purchase shares of
the Common Stock, $1.00 par value and related Preferred Share Purchase
Rights of the Company (the "Common Stock") under the Company's then
effective stock option plan or plans, on such terms and conditions as may
be required or permitted under such stock option plan, provided, however,
that the following terms shall be applicable unless otherwise not
permitted by such stock option plan:
a. Each Participant shall be granted one option with respect to each
Performance Award.
b. The number of shares to be subject to an option granted to a
Participant (the "Option Amount") shall be determined by
multiplying (i) the estimated base compensation of the Participant
during the first fiscal year of the Award Term, as determined by
the Human Resources department of the Company, exclusive of any
bonus or other incentive compensation but including deferred
compensation times (ii) the participation factor described in
subparagraph 4.c.i above times (iii) 1.0 for a one-year Award Term,
1.05 for a two-year Award Term, and 1.1 for a three-year Award
Term; and dividing that result by (iv) the Fair Market Value of one
share of Common Stock of the Company determined in accordance with
subparagraph 5.d. hereof.
c. Notwithstanding subparagraph 5.b., the number of shares subject to
an option shall be subject to reduction as follows: If the
Company's Percentile Score (or average Percentile Score for a
multiple year Award Term) as calculated in accordance with
subparagraph 4.d. above, is not at or above the 75th percentile,
but is at or above the 25th percentile, a portion of the option
related to the applicable Performance Award shall be deemed to
expire so that the number of shares subject to the option shall be
reduced pro rata on a straight-line basis (full shares only) to
two-thirds of the Option Amount at a 50th Percentile Score and to
zero at a 25th Percentile Score, on the same basis as provided in
subparagraph 4.d. above. Thus, if the Company does not achieve a
Performance Goal equal to at least the 25th percentile as herein
provided for the Award Term, the option shall expire automatically.
The calculation required by this subparagraph shall be made and
certified by the Committee promptly after the end of each fiscal
year, and any option or portion of an option deemed to expire shall
expire automatically upon the making of
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such calculation. The Committee shall promptly notify the
Participants of the results of the calculation.
d. The exercise price per share under any option shall be the fair
market value of one share of Common Stock of the Company. The fair
market value of one share of Common Stock, for the purpose of
determining the Option Amount and the exercise price per share,
shall be the average closing price of the Common Stock on the New
York Stock Exchange for the three month period immediately prior to
the grant date, provided that such result shall otherwise be in
accordance with the then effective stock option plan.
e. An option granted with respect to any Performance Award, or the
portion thereof which remains after application of subparagraph
5.c. above, shall become exercisable on the date the Company
releases to the public its earnings for the prior fiscal year and
shall remain exercisable until 90 days thereafter. If permitted
under the then effective stock option plan or under applicable
securities laws, each option shall provide that in the event of a
Change of Control of the Company during the Award Term, the option
shall become immediately exercisable in the full Option Amount and
the calculation pursuant to subparagraph 5.c. shall not be
applicable.
f. An option shall, by its terms, expire upon the termination of
employment of a Participant, except that in the event of retirement
by a Participant after the end of an Award Term, such retired
Participant shall be entitled to exercise the option or options
involved during the period provided in subparagraph 5.e. above.
6. PLAN AMENDMENT AND TERMINATION. The Committee may, in its sole
discretion, amend, suspend or terminate the Plan at any time, with
or without advance notice to Plan Participants, provided that no
amendment to the Plan shall be effective which would increase the
maximum amount payable under subparagraph 4.e. to a Participant who
is a person referred to in Section 162(m), which would change the
Performance Goal applicable to a Participant who is a person
referred to in Section 162(m) for payment of awards stated under
subparagraph 4.c.ii.; or which would modify the requirements as to
eligibility for participation under paragraph 3, unless the
stockholders of the Company shall have approved such change in
accordance with the requirements of Section 162(m). Under no
circumstances may the Plan be amended to permit the Committee to
increase an Award Payment in contravention of the requirements of
subparagraph 4.c.i.
7. GOVERNING LAW. The Plan, awards granted under the Plan and
agreements entered into under the Plan shall be construed,
administered and governed in all respects under and by the
applicable laws of the State of Delaware, without giving effect to
principles of conflicts of laws.
8. EFFECTIVE DATE OF THE PLAN AND AMENDMENTS. The Plan first became
effective on August 1, 1991. Any amendment to the Plan shall be
effective on the date established by the Committee, subject to
stockholder approval, if required under the provisions of paragraph
6.
As amended by the Compensation Committee and Board of Directors
July 30, 1998.
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