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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended JULY 30, 1999 Commission File Number 1-8649
THE TORO COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 41-0580470
(State of Incorporation) (I.R.S. Employer Identification Number)
8111 LYNDALE AVENUE SOUTH
BLOOMINGTON, MINNESOTA 55420
TELEPHONE NUMBER: (612) 888-8801
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--------- ---------
The number of shares of Common Stock outstanding as of September 3, 1999 was
12,674,206.
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<PAGE>
THE TORO COMPANY
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
PART I. FINANCIAL INFORMATION:
ITEM 1. Condensed Consolidated Statements of Operations (Unaudited) -
Three and Nine Months Ended July 30, 1999 and July 31, 1998.......................................3
Condensed Consolidated Balance Sheets (Unaudited) -
July 30, 1999, July 31, 1998 and October 31, 1998.................................................4
Condensed Consolidated Statements of Cash Flows (Unaudited) -
Nine Months Ended July 30, 1999 and July 31, 1998.................................................5
Notes to Condensed Consolidated Financial Statements (Unaudited).....................................6-8
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................................................9-16
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk...........................................17
PART II. OTHER INFORMATION:
ITEM 6. Exhibits and Reports on Form 8-K....................................................................18-19
Signatures...........................................................................................20
</TABLE>
2
<PAGE>
PART I. ITEM 1. FINANCIAL INFORMATION
THE TORO COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------ -------------------------------------
July 30, July 31, July 30, July 31,
1999 1998 1999 1998
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net sales.............................................$ 325,317 $ 290,993 $ 1,009,186 $ 880,738
Cost of sales......................................... 199,478 189,713 642,549 573,457
----------------- ----------------- ----------------- -----------------
Gross profit................................... 125,839 101,280 366,637 307,281
Selling, general, and administrative expenses......... 103,140 89,532 292,276 256,431
Restructuring and other unusual expense............... 722 10,452 722 10,452
----------------- ----------------- ----------------- -----------------
Earnings from operations....................... 21,977 1,296 73,639 40,398
Interest expense...................................... (6,790) (6,650) (18,517) (19,366)
Other income, net..................................... 1,736 1,135 2,599 6,140
----------------- ----------------- ----------------- -----------------
Earnings (loss) before income taxes............ 16,923 (4,219) 57,721 27,172
Provision (benefit) for income taxes.................. 6,600 (1,666) 22,511 10,733
----------------- ----------------- ----------------- -----------------
Net earnings (loss)............................$ 10,323 $ (2,553) $ 35,210 $ 16,439
----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- -----------------
Basic earnings (loss) per share of common stock.......$ .80 $ (0.20) $ 2.72 $ 1.28
----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- -----------------
Diluted earnings (loss) per share of common stock.....$ .78 $ (0.20) $ 2.66 $ 1.24
----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- -----------------
Weighted average number of shares of common stock
outstanding - basic............................ 12,825 12,854 12,961 12,845
Weighted average number of shares of common stock
outstanding - dilutive......................... 13,244 12,854 13,235 13,302
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
THE TORO COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
July 30, July 31, October 31,
1999 1998 1998
----------------- ----------------- -----------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents........................................$ 1,915 $ 2,800 $ 90
Receivables, net................................................. 339,748 328,628 241,426
Inventories, net................................................. 194,225 202,999 184,306
Prepaid expenses and other current assets........................ 8,352 7,238 14,618
Deferred income taxes............................................ 39,154 44,831 38,997
----------------- ----------------- -----------------
Total current assets..................................... 583,394 586,496 479,437
----------------- ----------------- -----------------
Property, plant, and equipment................................... 345,430 325,473 330,539
Less accumulated depreciation............................ 222,631 192,510 203,402
----------------- ----------------- -----------------
122,799 132,963 127,137
Deferred income taxes............................................ 3,786 1,182 3,763
Goodwill and other assets........................................ 128,230 112,722 113,654
----------------- ----------------- -----------------
Total assets.............................................$ 838,209 $ 833,363 $ 723,991
----------------- ----------------- -----------------
----------------- ----------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt................................$ 644 $ 684 $ 580
Short-term debt.................................................. 115,356 158,031 31,000
Accounts payable................................................. 39,119 30,505 65,273
Accrued liabilities.............................................. 196,153 161,581 161,357
----------------- ----------------- -----------------
Total current liabilities................................ 351,272 350,801 258,210
----------------- ----------------- -----------------
Long-term debt, less current portion............................. 195,617 196,947 196,844
Other long-term liabilities...................................... 6,325 6,625 5,538
Stockholders' equity:
Common stock, par value $1.00, authorized 35,000,000 shares;
issued and outstanding 12,657,994 shares at July 30, 1999
(net of 850,061 treasury shares), 12,867,614 shares at July
31, 1998 (net of 640,441 treasury shares), and 12,769,560
shares at October 31, 1998 (net of 738,495 treasury shares)... 12,658 12,868 12,770
Additional paid-in capital...................................... 48,883 59,455 56,546
Retained earnings............................................... 231,200 214,501 200,609
Foreign currency translation adjustment......................... (7,746) (7,834) (6,526)
----------------- ----------------- -----------------
Total stockholders' equity............................... 284,995 278,990 263,399
----------------- ----------------- -----------------
Total liabilities and stockholders' equity...............$ 838,209 $ 833,363 $ 723,991
----------------- ----------------- -----------------
----------------- ----------------- -----------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
THE TORO COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
Nine Months Ended
-----------------------------------------------
July 30, July 31,
1999 1998
------------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings................................................................... $ 35,210 $ 16,439
Adjustments to reconcile net earnings to net cash used in operating
activities:
Provision for depreciation and amortization................................. 26,897 22,593
Loss on disposal of property, plant, and equipment.......................... 264 301
Deferred income taxes....................................................... 282 (2,490)
Tax benefits related to employee stock option transactions.................. 393 1,815
Changes in operating assets and liabilities:
Receivables, net....................................................... (95,299) (60,811)
Inventories, net....................................................... (4,060) (31,448)
Prepaid expenses and other current assets.............................. 5,886 4,283
Accounts payable and accrued expenses.................................. 8,520 (18,100)
------------------- -------------------
Net cash used in operating activities.............................. (21,907) (67,418)
------------------- -------------------
Cash flows from investing activities:
Purchases of property, plant, and equipment................................. (18,551) (24,514)
Proceeds from asset disposals............................................... 256 1,330
(Increase) decrease in investment in affiliates............................. (4,901) 26
(Increase) decrease in other assets......................................... (2,207) 1,336
Acquisitions, net of cash acquired.......................................... (2,748) (17,173)
------------------ -------------------
Net cash used in investing activities.............................. (28,151) (38,995)
------------------- -------------------
Cash flows from financing activities:
Increase in short-term debt................................................. 79,736 117,031
Repayments of long-term debt................................................ (1,554) (3,601)
Increase in other long-term liabilities..................................... 763 972
Proceeds from exercise of stock options..................................... 3,326 2,176
Purchases of common stock................................................... (24,549) -
Dividends on common stock................................................... (4,619) (4,619)
------------------- -------------------
Net cash provided by financing activities.......................... 53,103 111,959
------------------- -------------------
Foreign currency translation adjustment........................................ (1,220) (2,754)
------------------- -------------------
Net increase in cash and cash equivalents...................................... 1,825 2,792
Cash and cash equivalents at beginning of period............................... 90 8
------------------- -------------------
Cash and cash equivalents at end of period.....................................$ 1,915 $ 2,800
------------------- -------------------
------------------- -------------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
THE TORO COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JULY 30, 1999
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not include all
the information and notes required by generally accepted accounting principles
for complete financial statements. Unless the context indicates otherwise, the
terms "company" and "Toro" refer to The Toro Company and its subsidiaries. In
the opinion of management, the unaudited condensed consolidated financial
statements include all adjustments, consisting primarily of recurring accruals,
considered necessary for a fair presentation of the financial position and the
results of operations. Since the company's business is seasonal, operating
results for the nine months ended July 30, 1999 are not necessarily indicative
of the results that may be expected for the fiscal year ending October 31, 1999.
Certain amounts from prior period's financial statements have been reclassified
to conform to this period's presentation.
For further information, refer to the consolidated financial statements and
notes included in the company's Annual Report on Form 10-K for the year ended
October 31, 1998. The policies described in that report are used for preparing
quarterly reports.
INVENTORIES
Inventories are valued at the lower of cost or net realizable value with cost
determined by the last-in, first-out (LIFO) method for most inventories.
Inventories were as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) July 30, July 31,
1999 1998
------------- -------------
<S> <C> <C>
Raw materials and work in process....................$ 171,194 $ 178,678
Finished goods....................................... 69,003 66,096
------------- -------------
240,197 244,774
Less LIFO and other reserves......................... (45,972) (41,775)
------------- -------------
Total $ 194,225 $ 202,999
------------- -------------
------------- -------------
</TABLE>
RESTRUCTURING AND OTHER UNUSUAL EXPENSE
During the third quarter of fiscal 1999, the company recorded a net charge of
$.7 million for restructuring and other unusual expense. The company recorded a
restructuring charge of $1.9 million for asset write-downs and severance related
to management and sales force changes due to a reorganization of its Australian
manufacturing operations. Other unusual expense was reduced by $1.2 million
relating to the reversal for the unused portion of the $3.7 million one-time
consumer marketing programs accrued in the third quarter of fiscal 1998. The
company also expects to record an approximate $.8 million restructuring charge
in the fourth quarter of fiscal 1999 related to severance costs for the closure
of its Australian plant. This severance will be recorded in the fourth quarter
because the employees were notified of their termination in the fourth quarter
of fiscal 1999.
At October 31, 1998, the company had $10.7 million of restructuring and other
unusual expense in accrued liabilities. Since then, the company has utilized or
reversed $10.7 million of these reserves and accrued an additional $1.9 million
of restructuring charges, leaving $1.9 million remaining in accrued liabilities
for restructuring and other unusual expense at July 30, 1999. The company
expects most of these reserves to be utilized by the end of the first quarter of
fiscal 2000.
6
<PAGE>
COMPREHENSIVE INCOME
Comprehensive income (loss) is comprised of two components: net earnings (loss)
and other comprehensive income (loss). Other comprehensive income (loss) refers
to revenues, expenses, gains, and losses that under generally accepted
accounting principles are recorded as an element of stockholders' equity and are
excluded from net earnings. Toro's other comprehensive loss is comprised of
foreign currency translation adjustments from certain foreign subsidiaries.
The components of comprehensive income (loss) were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------- ------------------------------
<S> <C> <C> <C> <C>
(Dollars in thousands) July 30, July 31, July 30, July 31,
1999 1998 1999 1998
------------- -------------- -------------- ------------
Net earnings (loss)...................................$ 10,323 $ (2,553) $ 35,210 $ 16,439
Other comprehensive loss.............................. (1,623) (1,049) (1,220) (2,754)
------------- ------------- -------------- -----------
Comprehensive income (loss)...........................$ 8,700 $ (3,602) $ 33,990 $ 13,685
------------- ------------- -------------- -----------
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</TABLE>
EARNINGS PER SHARE
Reconciliation of basic and dilutive weighted average shares of common stock
outstanding is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------- ------------------------------
<S> <C> <C> <C> <C>
BASIC July 30, July 31, July 30, July 31,
(Shares in thousands) 1999 1998 1999 1998
------------- -------------- -------------- ------------
Weighted average number of shares of common
stock outstanding.................................... 12,825 12,854 12,792 12,845
Assumed issuance of contingent shares ...................... - - 169 -
------------- ------------- -------------- ------------
Weighted average number of shares of common stock
and assumed issuance of contingent shares............ 12,825 12,854 12,961 12,845
------------- ------------- -------------- ------------
------------- ------------- -------------- ------------
DILUTIVE
(Shares in thousands)
Weighted average number of shares of common stock
and assumed issuance of contingent shares............ 12,825 12,854 12,961 12,845
Assumed conversion of stock options and assumed
issuance of restricted shares........................ 419 - 274 457
------------- ------------- -------------- -----------
Weighted average number of shares of common stock,
assumed issuance of contingent shares, assumed
issuance of restricted shares, and assumed
conversion of options outstanding.................... 13,244 12,854 13,235 13,302
------------- ------------- -------------- -----------
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</TABLE>
7
<PAGE>
BUSINESS ACQUISITIONS
On July 30, 1999, the company entered into an agreement to purchase one of its
midwestern distributors. This company distributes Toro commercial and irrigation
products in one midwestern state.
During the third quarter of fiscal 1999, Toro acquired the technology and
manufacturing rights for battery-operated valves and remote, hand-held
controllers from a French manufacturer. The technology will be incorporated
into both the Toro and Irritrol-Registered trademark- Irrigation Systems
product lines.
On May 20, 1999, the company completed the purchase of its Minnesota-based
distributor. This company distributes Toro products in several midwestern
states.
NEW ACCOUNTING PRONOUNCEMENTS
During fiscal 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," and the Accounting Standards
Executive Committee issued Statement of Position (SOP) 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use."
SFAS 133 establishes new standards for recognizing all derivatives as either
assets or liabilities, and measuring those instruments at fair value. The
company plans to adopt the new standard beginning with the first quarter of
fiscal year 2001, as required. The company is in the process of evaluating
SFAS 133 and the impact on the company.
SOP 98-1 provides guidance on accounting for the costs of computer software
developed or obtained for internal use and does not require additional
disclosures. The company plans to adopt the SOP in the first quarter of fiscal
year 2000, as required. Costs incurred prior to the initial application of the
SOP will not be adjusted to conform to SOP 98-1. The adoption of SOP 98-1 is not
expected to have a material impact on the company's consolidated financial
statements.
During fiscal 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS 131 requires disclosure of selected
information about operating segments including segment income, revenues, and
asset data, as well as descriptive information about how operating segments are
determined and the products and services provided by the segments. The company
will be required to adopt SFAS 131 beginning with its 1999 fiscal year-end
annual report. The company is in the process of evaluating SFAS 131 and the
impact on the company's current disclosures.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD-LOOKING INFORMATION
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. In addition, forward-looking statements may be made orally
or in press releases, conferences, reports, or otherwise, in the future by or on
behalf of the company.
Statements that are not historical are forward-looking. When used by or on
behalf of the company, the words "expect", "anticipate", "believe", "intend",
and similar expressions generally identify forward-looking statements.
Forward-looking statements involve risks and uncertainties. These uncertainties
include factors that affect all businesses operating in a global market, as well
as matters specific to the company and the markets it serves. Particular risks
and uncertainties facing the company at the present include inflationary
pressures; whether the 1998 profit improvement plan will continue to be
successful; increased competition in the company's businesses from competitors
that have greater financial resources; soft markets in certain international
markets, including Asia, Latin America, and Europe; whether the restructuring of
the Australian operations will be successful at improving operating results; the
continuing relative strength of the dollar which increases the cost of the
company's products in foreign markets and ability to increase prices;
competitive pricing pressures; competitive implications and price transparencies
related to the euro conversion; changing buying patterns affecting the company's
consumer business, including but not limited to a trend away from purchases at
dealer outlets to price and value conscious purchases at hardware, home center,
and mass retailers; potential impact of the internet and e-commerce on the
company's business; changes in distributor ownership; the company's expansion
into selected home center markets and effects on other product lines; the
company's ability to integrate business acquisitions and to manage alliances
successfully; the ability to pursue strategic investments for future earnings
capability; successful implementation of strategies to use outside providers for
warehousing and transportation services; the company's ability to develop and
manufacture new and existing products profitably; market acceptance of existing
and new products; changes in distributors, dealers, home center, or mass
retailers' purchasing practices; the company's ability to manage costs and
capacity constraints at its manufacturing facilities; the company's ability to
obtain resources, including engines, from its suppliers on a timely basis in
order to meet consumer demands; the company's ability to maintain good relations
with its union employees; and the ability to retain and hire quality employees.
In addition, the company is subject to risks and uncertainties facing its
industry in general, including changes in business and political conditions, and
the economy in general in both foreign and domestic markets; weather conditions
affecting demand, including warm winters and wet spring and dry summer weather;
slower growth in the company's markets; financial market changes including
increases in interest rates and fluctuations in foreign exchange rates;
unanticipated problems or costs associated with the transition of European
currencies to the common euro currency; a slowing in housing starts or new golf
course starts; inability to raise prices of products due to market conditions;
threatened or real inflationary pressures; changes in market demographics;
actions of competitors; unanticipated problems or costs associated with
accommodation of the year 2000 in computer applications or products; the
inability of the company's suppliers, customers, creditors, government agencies,
public utility providers, and financial service organizations to implement
computer applications accommodating the year 2000; seasonal factors in the
company's industry; unforeseen litigation; government action, including budget
levels, regulation, and legislation, primarily legislation relating to the
environment, commerce, infrastructure spending, health, and safety; and
availability of raw materials.
The company wishes to caution readers not to place undo reliance on any
forward-looking statement and to recognize that the statements are not
predictions of actual future results. Actual results could differ materially
from those anticipated in the forward-looking statements and from historical
results, due to the risks and uncertainties described above, as well as others
not now anticipated. The foregoing statements are not exclusive and further
information concerning the company and its businesses, including factors that
potentially could materially affect the company's financial results, may emerge
from time to time. It is not possible for management to predict all risk factors
or to assess the impact of such risk factors on the company's business.
9
<PAGE>
RESULTS OF OPERATIONS
Third quarter net sales were $325.3 million compared to $291.0 million for
the third quarter of fiscal 1998, an increase of 11.8 percent. Net earnings were
$10.3 million compared to a net loss of $2.6 million for the same quarter in the
previous year, and diluted earnings per share for the third quarter of fiscal
1999 were $.78 compared to a loss per diluted share of $.20 for the third
quarter of fiscal 1998. Sales were slightly higher for consumer products due
mainly to the distribution of Toro-Registered trademark- brand lawn mowers
through certain home centers offset by slower sales of Lawn-Boy-Registered
trademark- walk power mowers and consumer riding products. Sales to professional
markets were strong due to the continued North American and European growth of
the golf business and strong demand in the landscape contractor market.
International sales were up due to increased sales to the European and Canadian
markets for golf equipment and irrigation products, offset somewhat by soft
consumer sales mainly for walk power mowers and riding products. The increase
in net earnings and dilutive earnings per share was due to the significant
increase in sales, a lower level of restructuring and other unusual expense,
and an improvement in gross margins primarily in the consumer division.
Year-to-date net sales were $1,009.2 million compared to $880.7 million last
year, an increase of 14.6 percent. Net earnings were $35.2 million compared
to $16.4 million last year, an increase of 114.6 percent, and dilutive earnings
per share for the year were $2.66 compared to $1.24 last year. Sales were strong
for consumer products due to a positive reaction to the introduction of the
new Toro Personal Pace-Registered trademark- walk power mower, initial
distribution of Toro-Registered trademark- brand lawn mowers through home
centers, and timing of snowthrower shipments. Sales to the professional markets
also did well due to the continued worldwide growth of the golf business, strong
demand in the landscape contractor market, and the addition of Drip In products
beginning in the second quarter of fiscal 1998. International sales also
increased over the prior year due to the reasons noted above for the quarter
plus the addition of Drip In in the agricultural irrigation market. The increase
in net earnings and dilutive earnings per share was due to the significant
increase in net sales as described, lower level of restructuring and other
unusual expenses, and an improvement in gross margins.
In summary, fiscal 1999 results have improved greatly from that of fiscal 1998
due to the continued growth in the company's professional businesses and the
recovery of Toro's consumer business. The company is experiencing the success of
the profit improvement plan put in place in fiscal 1998 that has repositioned
portions of the consumer business resulting in significantly improved operating
results. The professional businesses, and the markets they serve, continue to be
very strong. The company's stronger than expected performance in fiscal 1999 has
allowed Toro to pursue additional strategic investments that should position the
company for stronger future earnings capabilities.
The following table sets forth net sales by product line.
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------------
(Dollars in thousands) July 30, 1999 July 31, 1998 $ Change % Change
------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Consumer products...........................................$ 99,247 $ 97,691 $ 1,556 1.6%
Commercial products......................................... 127,973 111,725 16,248 14.5
Irrigation products......................................... 98,097 81,577 16,520 20.3
------------- ------------- --------------
Total *.................................................$ 325,317 $ 290,993 $ 34,324 11.8%
------------- ------------- --------------
------------- ------------- --------------
* Includes international sales of...........................$ 55,097 $ 51,661 $ 3,436 6.7%
Nine Months Ended
-----------------------------------------------------------------------
(Dollars in thousands) July 30, 1999 July 31, 1998 $ Change % Change
------------- ------------- -------------- --------------
Consumer products...........................................$ 356,972 $ 306,008 $ 50,964 16.7%
Commercial products......................................... 422,142 368,316 53,826 14.6
Irrigation products......................................... 230,072 206,414 23,658 11.5
------------- ------------- --------------
Total *.................................................$ 1,009,186 $ 880,738 $ 128,448 14.6%
------------- ------------- --------------
------------- ------------- --------------
* Includes international sales of...........................$ 198,983 $ 186,038 $ 12,945 7.0%
</TABLE>
10
<PAGE>
CONSUMER PRODUCT SALES
Third quarter net sales of worldwide consumer products were $99.2 million
compared to $97.7 million in the third quarter of fiscal 1998, an increase of
1.6 percent. Sales to home centers, a new distribution channel for the
Toro-Registered trademark- brand walk power mowers, contributed to the sales
increase. Do-it-yourself irrigation product sales were also up from the last
comparable quarter due to dry weather in key Sun Belt markets, better
availability of product, and more shelf space at select home centers. Offsetting
those increases were lower sales for Lawn-Boy-Registered trademark- walk power
mowers compared to the second and third quarter of fiscal 1998 when shipments
were heavier than normal due to production delays in fiscal 1998. Sales in
fiscal 1999 were also lower due to dry weather in certain key markets. Shipments
for most riding products in the third quarter of fiscal 1999 also decreased from
fiscal 1998 due to dry weather in certain key markets and continued strong
competition. International sales were down compared to the third quarter of
fiscal 1998 primarily due to a timing of sales in Australia for tractors that
are expected to ship in the fourth quarter of fiscal 1999. Additionally,
consumer sales continue to be soft in Canada due to dry weather conditions.
Overall, the consumer business recovery plan implemented in fiscal 1998 is
working well, resulting in significantly improved operating results. Year-to-
date net sales of worldwide consumer products were $357.0 million compared to
$306.0 million last year, an increase of 16.7 percent. Sales of Toro-Registered
trademark- brand walk power mowers were up significantly from last year due to
the continued positive reception of the new Toro Personal Pace-Registered
trademark- lawn mower and the addition of sales through 1,500 home center
outlets, a new distribution channel for the Toro-Registered trademark- brand
walk power mowers. Strong sales to Toro's traditional dealers for Toro
- -Registered trademark- walk power mowers were also significantly up from fiscal
1998. Shipments for riding products, primarily lawn tractors, increased slightly
for the period. Year-to-date sales of snowthrowers were higher than last year
due to the timing of shipments from the fourth quarter of fiscal 1998 to the
first quarter of fiscal 1999. Do-it-yourself irrigation product sales were also
up due to dry weather in key Sun Belt markets, better availability of product,
and more shelf space at select home centers. Sales of electric appliance
products, including trimmers and blower vacuums, also did well for the year due
to the warm fall weather that extended the selling season into the first quarter
of fiscal 1999 as well as sales to new mass retail outlets for electric trimmers
and blowers. Offsetting those increases were lower sales of Lawn-Boy-Registered
trademark- walk power mowers due to the dry weather conditions experienced in
certain key markets. International sales were down as noted above in the quarter
comparison, and Australian do-it-yourself irrigation sales declined due to wet
weather.
Field inventory levels at Toro's distributors and dealers were down for most
domestic consumer products, however, they were slightly higher for domestic
consumer riding products. Heavy snowfall in certain key markets during the
winter of 1998-1999 resulted in historically low levels of snowthrower field
inventories, and Toro's special one-time marketing programs introduced in the
fall of 1998 reduced field inventory levels of walk power mower products to
historically low levels. Management believes that the reduction of snowthrower
domestic field inventories positions Toro for higher snowthrower sales in the
fourth quarter of fiscal 1999 and the first quarter of fiscal 2000 compared to
the fourth quarter of fiscal 1998 and the first quarter of fiscal 1999.
COMMERCIAL PRODUCT SALES
Third quarter net sales of worldwide commercial products were $128.0 million
compared to $111.7 million in the third quarter of fiscal 1998, an increase
of 14.5 percent. The sales increase was largely a result of growth in the
landscape contractor market as well as acceptance of new landscape contractor
equipment products introduced last year. Sales for the Toro-Registered
trademark- Dingo-Registered trademark- Systems were up significantly from the
third quarter of fiscal 1998 due to the greater market acceptance of this
product introduced in fiscal 1998. Worldwide sales of both new and replacement
golf course equipment also increased due to the continued growth of that
market. Commercial product sales also did well for the quarter due to the
introduction of new products. In addition, international commercial sales were
up for the quarter due to strong demand for golf course equipment in Europe and
Canada as well as market acceptance of new products.
Year-to-date net sales of worldwide commercial products were $422.1 million
compared to $368.3 million last year, an increase of 14.6 percent. The nine-
month increase in sales reflects the same factors contributing to the third
quarter increase. In addition, strong retail sales at Toro's distributors and
dealers have also been strong for the year for commercial and landscape
contractor products, which has contributed to the growth.
11
<PAGE>
IRRIGATION PRODUCT SALES
Third quarter net sales of worldwide irrigation products were $98.1 million
compared to $81.6 million in the third quarter of fiscal 1998, an increase of
20.3 percent. Worldwide golf irrigation revenues increased over last year's
comparable quarter due to the continued growth in both new and replacement
systems. Irritrol-Registered trademark- Systems sales were also above the
last comparable quarter for fiscal 1998 due to drier weather this year. Toro
residential/commercial irrigation sales were significantly above third
quarter of fiscal 1998 due to better product availability, dry weather
conditions in key markets, and new marketing programs intended to improve
market share. Offsetting those increases were decreased sales of domestic
agricultural irrigation products due to pricing pressures from competitors.
International sales were up from the same quarter in fiscal 1998 due to
strong golf irrigation sales and strong sales of agricultural irrigation
product in Europe.
Year-to-date net sales of worldwide irrigation products were $230.1 million
compared to $206.4 million last year, an increase of 11.5 percent. As
mentioned above in the quarter comparison, strong golf irrigation revenues
contributed to the increase as did the addition of sales from Drip In, which
was acquired in the second quarter of fiscal 1998. Sales of
residential/commercial irrigation products also increased over last year due
to dry weather conditions and new marketing programs this year intended to
improve market share. International sales increased over last year due to the
same factors mentioned in the quarter comparison, offset somewhat by soft
Irritrol-Registered trademark- product sales in Australia due to wet weather
in the early part of the selling season.
GROSS PROFIT
Third quarter gross profit was $125.8 million compared to $101.3 million last
year, an increase of 24.2 percent. As a percent of net sales, gross profit for
the third quarter was 38.7 percent compared to 34.8 percent last year. The
increase in gross profit resulted primarily from higher margins for the consumer
product line due to price increases for certain products and improved
manufacturing processes at the company's El Paso facility. This increase was
slightly offset by a gross margin reversal resulting from an agreement to
purchase one of Toro's midwestern-based distributors.
Year-to-date gross profit was $366.6 million compared to $307.3 million last
year, an increase of 19.3 percent. As a percent of net sales, year-to-date gross
profit was 36.3 percent compared to 34.9 percent last year. The increase in
gross margins was due to the same contributing factors as in the quarter
comparison, in addition to the gross margin reversal from the purchase and
agreement to purchase two Toro midwestern-based distributors in fiscal 1999.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Third quarter selling, general, and administrative expenses (SG&A) were $103.1
million compared to $89.5 million last year, an increase of 15.2 percent. As a
percent of net sales, SG&A increased to 31.7 percent from 30.8 percent for the
same quarter in fiscal 1998. The dollar increase is mainly due to increases for
marketing expenses, warehousing costs, and warranty expenses due to higher sales
levels. The percentage increase in mainly due to increases for incentive
compensation expenses due to improved financial performance of the company in
the third quarter of fiscal 1999. Information systems costs were also higher due
to the continued implementation of an enterprise-wide software system.
Year-to-date SG&A expenses were $292.3 million compared to $256.4 million last
year, an increase of 14.0 percent. However, as a percent of net sales, SG&A
decreased slightly to 29.0 percent from 29.1 percent last year. The dollar
increase is mainly due to increases for marketing expenses, warehousing costs,
and warranty expenses due to higher sales levels. Incentive compensation
expenses were also higher due to improved financial performance of the company.
Information systems costs were higher due to the continued implementation of an
enterprise-wide software system.
12
<PAGE>
RESTRUCTURING AND OTHER UNUSUAL EXPENSES
Restructuring and other unusual expenses were $.7 million in the third quarter
of fiscal 1999 compared to $10.5 million in the third quarter of fiscal 1998.
The company recorded a restructuring charge of $1.9 million in the third quarter
of fiscal 1999 for asset write-downs and severance related to management and
sales force changes due to a reorganization of its Australian manufacturing
operations. Offsetting that increase was a reduction in other unusual expense of
a $1.2 million related to the reversal for the unused portion of the one-time
consumer marketing programs accrued in the third quarter of fiscal 1998. The
company also expects to record an approximate $.8 million restructuring charge
in the fourth quarter of fiscal 1999 related to severance costs for the closure
of its Australian plant. This severance will be recorded in the fourth quarter
because the employees were notified of their termination in the fourth quarter
of fiscal 1999.
By comparison, fiscal 1998 third quarter restructuring and other unusual expense
was $10.5 million. The restructuring charge consisted of $2.2 million for the
severance and asset write-down related to the closure of a manufacturing
facility, and $1.1 million for other restructuring severance costs. Other
unusual expense consisted of $3.5 million for the expected loss on the sale of
the recycling equipment division, and $3.7 million for special consumer
marketing programs. Those special marketing programs consisted of rebates and
co-op credits designed to reduce certain consumer field inventories to
historically low levels by providing incentives to increase retail sales in
preparation for changes in warehousing and transportation.
INTEREST EXPENSE
Third quarter interest expense was $6.8 million compared to $6.7 million last
year, a slight increase of $.1 million.
Year-to-date interest expense was $18.5 million compared to $19.4 million last
year, a slight decline of $.9 million due to lower borrowing levels compared to
last year as a result of improved asset management, primarily lower inventory
and higher accounts payable and accrued expenses.
OTHER INCOME, NET
Third quarter other income, net, was $1.7 million compared to $1.1 million last
year, an increase of $.6 million, due to currency gains in the third quarter of
fiscal 1999.
Year-to-date other income, net, was $2.6 million compared to $6.1 million last
year, a decrease of $3.5 million. The decrease was due to a favorable settlement
of a trade secret lawsuit in fiscal 1998, higher amounts of currency losses in
fiscal 1999, and recoveries of previously written off notes receivables in
fiscal 1998.
PROVISION FOR INCOME TAXES
The effective tax rate for the third quarter and fiscal 1999 year-to-date was
39.0 percent compared to 39.5 percent for the comparable quarter and year of
fiscal 1998. The decline in the tax rate is due to an increase in benefits
received from the company's foreign sales corporation.
FINANCIAL POSITION AS OF JULY 30, 1999
JULY 30, 1999 COMPARED TO JULY 31, 1998
Total assets at July 30, 1999 were $838.2 million compared to $833.4 million on
July 31, 1998, an increase of $4.8 million. Net accounts receivable increased by
$11.1 million. Increased sales primarily contributed to the increase in net
accounts receivable. Inventory decreased $8.8 million due to the sale of the
recycling and professional fertilizer businesses in the fourth quarter of fiscal
1998, lower levels of consumer inventory due to strong sales for the year, and
improved efforts at inventory management. Those decreases were somewhat offset
by the addition of inventory acquired from Toro's Minnesota-based distributor in
the third quarter of fiscal 1999. Net property, plant, and equipment declined
$10.2 million due to higher amounts of depreciation expense in comparison to
capital additions. Goodwill and other assets increased $15.5 million mainly as a
result of a contingent payment made by the company in the first quarter of
fiscal 1999, in connection with the company's acquisition of Exmark in fiscal
1998.
13
<PAGE>
FINANCIAL POSITION AS OF JULY 30, 1999 (CONTINUED)
Total current liabilities at July 30, 1999 were $351.3 million compared to
$350.8 million on July 31, 1998, a slight increase of $.5 million. Short-term
debt decreased by $42.7 million as a result of better asset management. Accounts
payable increased $8.6 million due to higher manufacturing volumes resulting in
higher inventory purchases compared to fiscal 1998. Accrued liabilities also
increased by $34.6 million as a result of the higher sales level that has
increased marketing and warranty accruals.
JULY 30, 1999 COMPARED TO OCTOBER 31, 1998
Total assets at July 30, 1999 were $838.2 million compared to $724.0 million at
October 31, 1998, an increase of $114.2 million. Net accounts receivable
increased $98.3 million from October 31, 1998 due to the normal seasonal
increase in accounts receivable. Inventory increased by $9.9 million from
October 31, 1999 due mainly to the acquisition of Toro's Minnesota-based
distributor. Goodwill and other assets increased $14.6 million mainly as a
result of the Exmark contingent payment.
Total current liabilities at July 30, 1999 were $351.3 million compared to
$258.2 million at October 31, 1998, an increase of $93.1 million. The majority
of this increase was the result of additional short-term debt of $84.4 million,
reflecting the company's strategy of utilizing short-term borrowing to fund the
company's normal seasonal working capital needs. Accounts payable decreased
$26.2 million due to the timing of payments. Accrued liabilities increased $34.8
million as a result of higher accruals for various seasonal sales and marketing
programs and higher warranty reserves.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities for the first nine months of fiscal 1999 was
primarily for the normal seasonal increase in accounts receivable, partially
offset by increases in accrued liabilities and net earnings.
The company's domestic and international working capital needs are funded
primarily with approximately $290 million of committed unsecured bank credit
lines. The company also has banker's acceptance financing agreements under which
an additional $40 million is available. The company's business is seasonal, with
peak borrowing under the working capital lines described above generally
occurring between February and May each year.
Management believes that the combination of funds available through its existing
financing arrangements, coupled with forecasted cash flows, will provide the
necessary capital resources for its anticipated working capital, capital
additions, acquisitions, and stock repurchases.
INFLATION
The company is subject to the effects of changing prices. However, the company
is not currently experiencing any material effects of rising costs. The company
attempts to deal with inflationary pressures through a combination of internal
cost reduction efforts and selected increases in selling prices of certain
products.
14
<PAGE>
YEAR 2000 COMPLIANCE
During the third quarter of fiscal 1999, Toro continued its company-wide program
to prepare the company's computer systems for year 2000 compliance. The year
2000 issue relates to computer systems that use the last two digits rather than
all four to define a year and whether such systems will properly and accurately
process information when the year changes to 2000. Incomplete or untimely
resolution of year 2000 issues by the company, by its important suppliers and
customers, by public utility providers, or by governmental entities could have a
material adverse impact on the company's business, operations, or financial
condition.
STATE OF READINESS - The company has completed its project to replace
core-business information systems with an Enterprise Resource Planning (ERP)
software package that is certified as year 2000 compliant by the vendor. The
package includes software to support the company's facilities and business units
with the exception of five domestic subsidiaries and business units. The
company's European subsidiaries are believed to be year 2000 compliant. The
company is in the process of testing these non-ERP systems and updating any
non-compliant systems, which should be completed in the fourth quarter of the
1999 calendar year.
Toro has assessed its products and, with the exception of six irrigation control
systems, believes them to be year 2000 compliant. Testing of these systems has
been completed and software remediations are available. In most cases, the
company believes that the software modification currently available should make
the units year 2000 compliant. In some cases, the company is recommending that
customers replace their older non-compliant systems with newer, functionally
enhanced compliant systems.
Toro's year 2000 issues list has over three hundred software and hardware items,
the majority of which are single-user, departmental or plant systems. The
company is in the testing phase for the following business-critical systems: ERP
and all non-ERP core-business information systems, and associated infrastructure
and support technologies. After delays experienced in the first quarter of
fiscal 1999, the company has obtained products claimed by their vendors to be
compliant. The company has also increased its resources for internal
programming, and is currently back on schedule in the testing phase, which is
expected to be completed by the fourth quarter of fiscal 1999. The company's new
compliant warranty, financing, and customer promotion systems are also scheduled
to be installed by the end of the fourth quarter of fiscal 1999. The company has
completed the installation and testing of new compliant versions of its payroll
and product data management systems.
Communications have been sent to all Toro customers informing them of the
company's efforts and asking them to ensure that their business operations will
not be adversely impacted by year 2000 issues. Surveys have also been sent to
all of the company's production suppliers requesting information on their year
2000 efforts. Based on the surveys returned, the company's customers and key
suppliers are either year 2000 compliant or are working on the issue with plans
to be year 2000 compliant before December 31, 1999.
COSTS - Year 2000 costs through July 30, 1999 were approximately $2.3 million
and have been expensed as incurred. These costs include contractor support and
ERP implementation for the company's recently acquired businesses. Costs
remaining that have been identified are estimated to be less than $1.0 million,
which includes expenses for contractor support, telephone system upgrades,
software modifications for irrigation systems, and business unit system
upgrades. The estimated cost of year 2000 adaptation is less than 15 percent of
the company's information systems budget for fiscal 1999.
RISKS - The company is continuing to test its core-business operating and
financial systems and remains uncertain of the risks the year 2000 will have on
its business operations. In addition, the company remains uncertain about
whether the company's business partners, including dealers, distributors, home
centers, mass retailers, banks, and suppliers will be year 2000 compliant. The
company is particularly concerned about international customers and suppliers
due to their late testing target dates. The company is addressing this issue by
working closely with certain international customers in connection with their
specific plans to attempt to be year 2000 compliant. The scope of Toro's year
2000 project does not include ensuring public utility and governmental agency's
readiness for the year 2000. Toro has little to no control over these
institutions, thereby introducing some level of risk in the company's ability to
continue normal operations at and for the weeks immediately after the turn of
the century.
15
<PAGE>
YEAR 2000 COMPLIANCE (CONTINUED)
Testing to validate assumptions continues and is expected to be completed by the
end of the fourth quarter of fiscal 1999. The company believes this timetable
should allow enough time to fix or replace any internal business-critical
problems discovered during the testing phase.
The most reasonably worst-case scenarios revolve around failures that may be
experienced by entities outside the control of the company such as local
electric utilities, telecommunication vendors, customers, suppliers, and
governmental services. The effects of these scenarios vary with the severity and
duration of any failure.
CONTINGENCY PLANS - The company's contingency plans will continue to evolve as
the testing and implementation phase of the business-critical systems and
technologies are completed. The company is in the stage of defining a Business
Resumption Plan, which will include documented manual processes for critical
business functions that could be invoked for any type of business interruption,
including year 2000 problems. A draft of these manual procedures is scheduled to
be updated and completed by the end of the calendar year 1999. A draft of
recovery procedures was completed in the third quarter of fiscal 1999 for the
worldwide headquarters located at Bloomington, Minnesota.
The company is also planning to perform complete, system-wide backups on
December 30 and 31, 1999. Key information system personnel will also be on-site
and on-call for the month of January 2000 to deal with any problems that may
occur.
EURO CURRENCY
Beginning in January 1999, the European Monetary Union (EMU) entered into a
three-year transition phase during which a common currency called the euro will
be introduced in participating countries. Initially, this new currency will be
used for financial transactions, and progressively, it will replace the old
national currencies that will be withdrawn by July 2002. The transition to the
euro currency will involve changing budgetary, accounting, contracts, and fiscal
systems in companies and public administrations, as well as simultaneous
handling of parallel currencies and conversion of legacy data. Uncertainty
exists as to the effects the conversion to euro currency will have on the
marketplace. One of the primary unknowns for the company is the potential
equalization of prices to customers among countries and the resulting
competitive impact on Toro distributor sales and Toro direct sales, and
financial support given to distributors in those countries. The euro will make
price differences on goods in the various countries transparent to the customer
and make comparisons much easier. The company recently formed a group to review
this issue and develop a strategy by late-1999. The company does not have
sufficient experience with the new currency to predict whether price
transparency will affect its operations, cash flows, or financial condition in
future periods.
The company continued its program to evaluate whether the company's computer
systems and programs will experience operational problems when the euro is fully
implemented. The company's European subsidiaries' financial systems have
completed initial testing and no problems were discovered in their ability to
function using the euro. These subsidiaries began disclosing the euro value on
each customer's invoice in January 1999. The company plans to continue testing
its computer systems in fiscal 1999 for additional euro functionality. The
company believes the risk to be minimal, as billing and banking functions are
already being performed in multiple currencies within these entities.
Based on its evaluation to date, management currently believes that, while the
company will incur internal and external costs to adjust to the euro, such costs
are not expected to have a material impact on operations, cash flows, or the
financial condition of the company and its subsidiaries, taken as a whole, in
future periods.
16
<PAGE>
Item 3. Quantitative and Qualitative Disclosures about Market Risk
FOREIGN CURRENCY
The following forward exchange contracts held by the company have maturity dates
in fiscal year 1999 and 2000. All items are non-trading and stated in U.S.
dollars. The average contracted rate, notional amount, and fair value impact at
July 30, 1999 were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------- ---------------- ----------------- ----------------
AVERAGE FAIR VALUE
DOLLARS IN THOUSANDS CONTRACTED NOTIONAL IMPACT
(EXCEPT AVERAGE CONTRACTED RATE) RATE AMOUNT GAIN (LOSS)
- ----------------------------------------------- ---------------- ----------------- ----------------
<S> <C> <C> <C>
Buy Australian dollar/Sell US dollar .6414 $ 4,223.9 $ 71.1
- ----------------------------------------------- ---------------- ----------------- ----------------
Buy US dollar/Sell Australian dollar .6464 13,122.3 (180.1)
- ----------------------------------------------- ---------------- ----------------- ----------------
Buy Belgium franc/Sell US dollar 37.8675 1,853.8 9.5
- ----------------------------------------------- ---------------- ----------------- ----------------
Buy US dollar/Sell Canadian dollar 1.4912 7,477.1 5.6
- ----------------------------------------------- ---------------- ----------------- ----------------
Buy German mark/Sell US dollar 1.8436 1,627.3 44.3
- ----------------------------------------------- ---------------- ----------------- ----------------
Buy Japanese Yen/Sell US dollar 114.8800 6,963.6 276.2
- ----------------------------------------------- ---------------- ----------------- ----------------
</TABLE>
DEBT FINANCING
The company is exposed to interest rate risk arising from transactions that are
entered into during the normal course of business. The company's short-term debt
borrowing rates are dependent upon the LIBOR rate plus an additional percentage
based on the company's current borrowing level. See the company's Annual Report
filed on Form 10-K for the fiscal year ended October 31, 1998 (Item 7A) for
additional information. There has been no material change in the information
contained in that report.
17
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3(i)(a) and 4(a) Certificate of Incorporation of Registrant
(incorporated by reference to Exhibit 4.2 to
Registrant's Registration Statement on Form S-3,
Registration No. 33-16125).
3(i)(b)and 4(b) Certificate of Amendment to Certificate of
Incorporation of Registrant dated December 9, 1986
(incorporated by reference to Exhibit 3 to
Registrant's Quarterly Report on Form 10-Q for the
quarter ended January 30, 1987, Commission File No.
1-8649).
3(i)(c) and 4(c) Certificate of Designation to Certificate of
Incorporation of Registrant dated May 28, 1998
(incorporated by reference to Exhibit (1)(A) to
Registrants' Current Report on Form 8-K dated
May 27, 1998).
3(ii) and 4(d) Bylaws of Registrant (incorporated by reference to
Exhibit 3(ii) and 4(d) to Registrant's Quarterly
Report on Form 10-Q for the quarter ended
April 30, 1999).
4(e) Specimen form of Common Stock certificate
(incorporated by reference to Exhibit 4(c) to
Registrant's Registration Statement on Form S-8,
Registration No. 2-94417).
4(f) Rights Agreement dated as of May 20, 1998, between
Registrant and Norwest Bank Minnesota, National
Association relating to rights to purchase Series B
Junior Participating Voting Preferred Stock, as
amended (incorporated by reference to Registrant's
Current Report on Form 8-K dated May 27, 1998,
Commission File No. 1-8649).
4(g) Indenture as dated as of January 31, 1997, between
Registrant and First National Trust Association, as
Trustee, relating to the Registrant's 7.125% Notes
due June 15, 2007 and its 7.80% Debentures due
June 15, 2027 (incorporated by reference to
Exhibit 4(a) to Registrant's Current Report on Form
8-K for June 24, 1997, Commission File No. 1-8649).
10(a) Form of Employment Agreement in effect for certain
officers of Registrant, as amended.*
10(b) The Toro Company Directors Stock Plan, as amended.*
10(c) The Toro Company Annual Management Incentive Plan
II for officers of Registrant, as amended.*
10(d) The Toro Company 1985 Incentive Stock Option Plan
(incorporated by reference to Exhibit 10(b) to
Registrant's Annual Report on Form 10-K for the
fiscal year ended July 31, 1993).*
10(e) The Toro Company 1989 Stock Option Plan, as
amended.*
10(f) The Toro Company 1993 Stock Option Plan, as
amended.*
18
<PAGE>
Item 6. Exhibits and Reports on Form 8-K (continued)
10(g) The Toro Company Performance Share Plan, as
amended.*
10(h) The Toro Company Supplemental Management Retirement
Plan, as amended.*
10(i) The Toro Company Supplemental Retirement Plan,
as amended.*
10(j) Chief Executive Officer Incentive Award Agreement,
as amended.*
10(k) The Toro Company Deferred Compensation Plan for
Officers (incorporated by reference to Exhibit
10(j) to Registrant's Quarterly Report on Form
10-Q for the quarter ended January 29, 1999).*
10(l) The Toro Company Deferred Compensation Plan for
Non- Employee Directors (incorporated by reference
to Exhibits 10(k) to Registrant's Quarterly Report
on Form 10-Q for the quarter ended
January 29, 1999).*
27 Supplemental Data Schedule; electronic filing only.
*Management contract or compensatory plan or arrangement required to be filed as
an exhibit to this Quarterly Report on Form 10-Q pursuant to Item 14(c).
(b) Reports on Form 8-K
None.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE TORO COMPANY
(Registrant)
By /s/ Stephen P. Wolfe
-----------------------
Stephen P. Wolfe
Vice President, Finance
Chief Financial Officer
(principal financial officer)
Date: September 13, 1999
<PAGE>
Exhibit 10(a)
THE TORO COMPANY
EMPLOYMENT AGREEMENT
AGREEMENT by and between The Toro Company, a Delaware Company (the
"Company"), and [FirstName] [LastName] (the "Executive"), dated as of the
_____ day of _____________, ____.
The Board of Directors of the Company (the "Board"), has determined that it
is in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined below) of
the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. CERTAIN DEFINITIONS. (a) The "Effective Date" shall mean the first
date during the Change of Control Period (as defined in Section 1(b)) on which a
Change of Control (as defined in Section 2) occurs. Anything in this Agreement
to the Contrary notwithstanding, if a Change of Control occurs and if the
Executive's employment with the Company is terminated prior to the date on which
the Change of Control occurs, and if it is reasonably demonstrated by the
Executive that such termination of employment (i) was at the request of a third
party who has taken steps reasonably calculated to effect a Change of Control or
(ii) otherwise arose in connection with or anticipation of a Change of Control,
then for all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing on the
date hereof and ending on the third anniversary of the date hereof; provided,
however, that commencing on the date one year after the date hereof, and on each
annual anniversary of such date hereof, and on each annual anniversary of such
date (such date and each annual anniversary thereof shall be hereinafter
referred to as the "Renewal Date"), unless previously terminated, the Change of
Control Period shall be automatically extended so as to terminate three years
from such Renewal Date, unless at least 60 days prior to the Renewal Date the
Company shall give notice to the Executive that the Change of Control Period
shall not be so extended.
2. CHANGE OF CONTROL. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a"Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 15%
<PAGE>
or more of either (i) the then-outstanding shares of common stock of the Company
(the "Outstanding Company Common Stock") or (ii) the combined voting power of
the then-outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company, or (iv)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation of the
Company or sale or other disposition of all or substantially all of the assets
of the Company or the acquisition by the Company of assets or stock of another
entity (a "Business Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 50% of,
respectively, the then-outstanding shares of common stock and the combined
voting power of the then-outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be, (ii) no
Person (excluding any corporation resulting from such Business Combination or
any employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 15% or more of, respectively, the then-outstanding shares of common
stock of the corporation resulting from such Business Combination, or the
combined voting power of the then-outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (iii) at least a majority of the members of the board
of directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
2
<PAGE>
(d) Approval by the shareholders of the Company of a complete liquidation
or dissolution of the Company.
3. EMPLOYMENT PERIOD. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company subject to the terms and conditions of this Agreement, for the
period commencing on the Effective Date and ending on the third anniversary of
such date (the "Employment Period").
4. TERMS OF EMPLOYMENT. (a) POSITION AND DUTIES. (i) During the
Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 120-day period
immediately preceding the Effective Date and (B) the Executive's services shall
be performed at the location where the Executive was employed immediately
preceding the Effective Date or any office or location less than 35 miles from
such location.
(ii) During the Employment Period, and excluding any periods of vacation
and sick leave to which the Executive is entitled, the Executive agrees to
devote reasonable attention and time during normal business hours to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions, and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) COMPENSATION. (i) BASE SALARY. During the Employment Period, the
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to twelve times the highest
monthly base salary paid or payable, including any base salary which has been
earned but deferred, to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately preceding the month
in which the Effective Date occurs. During the Employment Period, the Annual
Base Salary shall be reviewed no more than twelve months after the last salary
increase awarded to the Executive prior to the Effective Date and thereafter at
least annually. Any increase in Annual Base Salary shall not serve to limit or
reduce any other obligation to the Executive under this Agreement. Annual Base
Salary shall not be reduced after any such increase and the term Annual Base
Salary as utilized in this Agreement shall refer to Annual Base Salary as so
increased. As used in this Agreement, the term "affiliated companies" shall
include any company controlled by, controlling or under common control with the
Company.
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(ii) ANNUAL BONUS. In addition to Annual Base Salary, the Executive
shall be awarded, for each fiscal year ending during the Employment Period, an
annual bonus (the "Annual Bonus") in cash at least equal to the Executive's
highest bonus under the Company's [Annual Incentive Plans], or any comparable
bonus under any predecessor or successor plan, for the last three full fiscal
years prior to the Effective Date (annualized in the event that the Executive
was not employed by the Company for the whole of such fiscal year) (the "Recent
Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of
the third month of the fiscal year next following the fiscal year for which the
Annual Bonus is awarded, unless the Executive shall elect to defer the receipt
of such Annual Bonus.
(iii) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Employment
Period, the Executive shall be entitled to participate in all incentive, savings
and retirement plans, practices, policies and programs applicable generally to
other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with incentive opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction is
applicable), savings opportunities and retirement benefit opportunities, in each
case, less favorable, in the aggregate, than the most favorable of those
provided by the Company and its affiliated companies for the Executive under
such plans, practices, policies and programs as in effect at any time during the
120-day period immediately preceding the Effective Date or if more favorable to
the Executive, those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(iv) WELFARE BENEFIT PLANS. During the Employment Period, the Executive
and/or the Executive's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, employee life, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable generally to other peer
executives of the Company and its affiliated companies, but in no event shall
such plans, practices, policies and programs provide the Executive with benefits
which are less favorable, in the aggregate, than the most favorable of such
plans, practices, policies and programs in effect for the Executive at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(v) EXPENSES. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive in accordance with the most favorable policies, practices and
procedures of the Company and its affiliated companies in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer executives of the Company and its
affiliated companies.
(vi) FRINGE BENEFITS. During the Employment Period, the Executive shall
be entitled to fringe benefits, including, without limitation, tax and financial
planning services, payment of club dues, and, if applicable, use of an
automobile and payment of related expenses, in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect
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for the Executive at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives of the
Company and its affiliated companies.
(vii) OFFICE AND SUPPORT STAFF. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.
(viii) VACATION. During the Employment Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable plans, policies,
programs and practices of the Company and its affiliated companies as in effect
for the Executive at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives of the
Company and its affiliated companies.
5. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY. The Executive's
employment shall terminate automatically upon the Executive's death during the
Employment Period. If the Company determines in good faith that the Disability
of the Executive has occurred during the Employment Period (pursuant to the
definition of Disability set forth below), it may give to the Executive written
notice in accordance with Section 12(b) of this Agreement of its intention to
terminate the Executive's employment. In such event, the Executive's employment
with the Company shall terminate effective on the 30th day after receipt of such
notice by the Executive (the "Disability Effective Date"), provided that, within
the 30 days after such receipt, the Executive shall not have returned to
full-time performance of the Executive's duties. For purposes of this
Agreement, "Disability" shall mean the absence of the Executive from the
Executive's duties with the Company on a full-time basis for 180 consecutive
business days as a result of incapacity due to mental or physical illness which
is determined to be total and permanent by a physician selected by the Company
or its insurers and acceptable to the Executive or the Executive's legal
representative.
(b) CAUSE. The Company may terminate the Executive's employment during
the Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its
affiliates (other than any such failure resulting from the incapacity due
to physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or the Chief
Executive Officer of the Company which specifically identifies the manner
in which the Board or Chief Executive Officer believes that the Executive
has not substantially performed the Executive's duties, or
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(ii) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the
Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) GOOD REASON. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Executive of any duties inconsistent in
any respect with the Executive's position (including status, offices,
titles and reporting requirements), authority, duties or responsibilities
as contemplated by Section 4(a) of this Agreement, or any other action by
the Company which results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by
the Executive;
(ii) any failure by the Company to comply with any of the provisions
of Section 4(b) of this Agreement, other than an isolated, insubstantial
and inadvertent failure not occurring in bad faith and which is remedied by
the Company promptly after receipt of notice thereof given by the
Executive;
(iii) the Company's requiring the Executive to be based at any office
or location other than as provided in Section 4(a)(i)(B) hereof or the
Company's requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior to the
Effective Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section
11(c) of this Agreement.
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For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive. Anything in this Agreement
to the contrary notwithstanding, a termination by the Executive for any reason
during the 30-day period immediately following the first anniversary of the
Effective Date shall be deemed to be a termination for Good Reason for all
purposes of this Agreement.
(d) NOTICE OF TERMINATION. Any termination by the Company for Cause, or
by the Executive for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 12(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than thirty
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) DATE OF TERMINATION. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) GOOD REASON; OTHER
THAN FOR CAUSE, DEATH OR DISABILITY. If, during the Employment Period, the
Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
A. the sum of (1) the Executive's Annual Base Salary through the
Date of Termination to the extent not theretofore paid, (2) the
product of (x) the higher of (I) the Recent Annual Bonus and (II) the
Annual Bonus paid or payable, including any bonus or portion thereof
which has ben earned but deferred (and annualized for any fiscal year
consisting of less than twelve full months or during which the
Executive was employed for less than twelve full months), for the most
recently completed fiscal year during the Employment Period, if any
(such higher amount being referred to as the
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"Highest Annual Bonus") and (y) a fraction, the numerator of which is
the number of days in the current fiscal year through the Date of
Termination, and the denominator of which is 365 and (3) any
compensation previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued vacation pay, in
each case to the extent not theretofore paid (the sum of the amounts
described in clauses (1), (2), and (3) shall be hereinafter referred
to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) three and (2) the sum
of (x) the Executive's Annual Base Salary and (y) the Highest Annual
Bonus; and
C. an amount equal to the excess of (1) the actuarial equivalent
of the benefit under the Company's qualified defined benefit
retirement plan (the "Retirement Plan") (utilizing actuarial
assumptions no less favorable to the Executive than those in effect
under the Company's Retirement Plan immediately prior to the Effective
Date), and any excess or supplemental retirement plan in which the
Executive participates (together, the "SERP") which the Executive
would receive if the Executive's employment continued for three years
after the Date of Termination assuming for this purpose that all
accrued benefits are fully vested, and, assuming that the Executive's
compensation in each of the three years is that required by Section
4(b)(i) and Section 4(b)(ii), over (2) the actuarial equivalent of the
Executive's actual benefit (paid or payable), if any, under the
Retirement Plan and the SERP as of the Date of Termination;
(ii) for three years after the Executive's Date of Termination, or
such longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue benefits to the
Executive and/or the Executive's family at least equal to those which would
have been provided to them in accordance with the plans, programs,
practices and policies described in Section 4(b)(iv) of this Agreement if
the Executive's employment had not been terminated or, if more favorable to
the Executive, as in effect generally at any time thereafter with respect
to other peer executives of the Company and its affiliated companies and
their families, provided, however, that if the Executive becomes reemployed
with another employer and is eligible to receive medical or other welfare
benefits under another employer-provided plan, the medical and other
welfare benefits described herein shall be secondary to those provided
under such other plan during such applicable period of eligibility. For
purposes of determining eligibility (but not the time of commencement of
benefits) of the Executive for retiree benefits pursuant to such plans,
practices, programs and policies, the Executive shall be considered to have
remained employed until three years after the Date of Termination and to
have retired on the last day of such period;
(iii) the Company shall, at its sole expense as incurred, provide the
Executive with outplacement services the scope and provider of which shall
be selected by the Executive in his sole discretion; and
(iv) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or
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which the Executive is eligible to receive under any plan, program, policy
or practice or contract or agreement of the Company and its affiliated
companies (such other amounts and benefits shall be hereinafter referred to
as the "Other Benefits").
(b) DEATH. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, other than for payment of Accrued Obligations and the timely payment
or provision of Other Benefits. Accrued Obligations shall be paid to the
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
(c) DISABILITY. If the Executive's employment is terminated by reason of
the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term "Other Benefits" as utilized in this Section 6(c) shall
include, and the Executive shall be entitled after the Disability Effective Date
to receive, disability and other benefits at least equal to the most favorable
of those generally provided by the Company and its affiliated companies to
disabled executives and/or their families in accordance with such plans,
programs, practices and policies relating to disability, if any, as in effect
generally with respect to other peer executives and their families at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive and/or the Executive's family, as in effect at any
time thereafter generally with respect to other peer executives of the Company
and its affiliated companies and their families.
(d) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's employment
shall be terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the obligation
to pay to the Executive (x) his Annual Base Salary through the Date of
Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the
Employment Period, excluding a termination for Good Reason, this Agreement shall
terminate without further obligations to the Executive, other than for Accrued
Obligations and the timely payment or provision of Other Benefits. In such
case, all Accrued Obligations shall be paid to the Executive in a lump sum in
cash within 30 days of the Date of Termination.
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7. NONEXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify, nor, subject to Section 12(f), shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or program of or
any contract or agreement with the Company or any of its affiliated companies at
or subsequent to the Date of Termination shall be payable in accordance with
such plan, policy, practice or program or contract or agreement except as
explicitly modified by this Agreement.
8. FULL SETTLEMENT. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of performance thereof (including as a result
of any contest by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code
of 1986, as amended (the "Code").
9. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. (a) Anything in this
Agreement to the contrary notwithstanding and except as set forth below, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this
Section 9) (a "Payment") would be subject to the excise tax imposed by
Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any income taxes (and
any interest and penalties imposed with respect thereto) and Excise Tax
imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 9(a), if it shall be
determined that the Executive is entitled to a Gross-Up Payment, but that the
Executive, after taking into account the Payments and the Gross-Up Payment,
would not receive a net after-tax benefit of at least $10,000 (taking into
account both income taxes and any Excise Tax) as compared to the net
after-tax proceeds to the Executive resulting from an elimination of the
Gross-Up Payment and a reduction of the Payments, in the aggregate, to an
amount (the "Reduced Amount") such that the receipt of Payments would not
give rise to any Excise Tax, then
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no Gross-Up Payment shall be made to the Executive and the Payments, in the
aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 9(c), all determinations required
to be made under this Section 9, including whether and when a Gross-Up Payment
is required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by KPMG Peat Marwick
LLP or such other certified public accounting firm as may be designated by the
Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder).
All fees and expenses of the Accounting Firm shall be borne solely by the
Company. Any Gross-Up Payment, as determined pursuant to this Section 9, shall
be paid by the Company to the Executive within five days of the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm shall
be binding upon the Company and the Executive. As a result of the uncertainty
in the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts it remedies pursuant to
Section 9(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is required to be paid. The Executive
shall not pay such claim prior to the expiration of the 30-day period following
the date on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively
to contest such claim, and
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(iv) permit the Company to participate in any proceedings relating
to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 9(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or to contest
the claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such
advance; and further provided that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Executive with respect
to which such contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would be payable
hereunder and the Executive shall be entitled to settle or contest, as the case
may be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 9(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 9(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
10. CONFIDENTIAL INFORMATION. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the
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Company or as may otherwise be required by law or legal process, communicate or
divulge any such information, knowledge or data to anyone other than the Company
and those designated by it. In no event shall an asserted violation of the
provisions of this Section 10 constitute a basis for deferring or withholding
any amounts otherwise payable to the Executive under this Agreement.
11. SUCCESSORS. (a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. As used in
this Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
12. MISCELLANEOUS. (a) This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
IF TO THE EXECUTIVE: [FirstName] [LastName]
[Address1]
[City,] [State] [PostalCode]
IF TO THE COMPANY: The Toro Company
8111 Lyndale Avenue South
Bloomington, Minnesota 55420
Attention Mr. J. Lawrence McIntyre, General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communication shall be effective
when actually received by the addressee.
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(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state, local or foreign taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which case
the Executive shall have no further rights under this Agreement. From and after
the Effective Date this Agreement shall supersede any other agreement between
the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
THE TORO COMPANY
- --------------------------------- -----------------------------------
[FirstName] [LastName] Kendrick B. Melrose, Its CEO
<PAGE>
Exhibit 10(b)
THE TORO COMPANY
DIRECTORS STOCK PLAN
1. PURPOSE OF THE PLAN. The purpose of The Toro Company Directors Stock Plan
("Plan") is to enable The Toro Company (the "Company") to attract and
retain experienced and knowledgeable directors to serve on the Board of
Directors of the Company or its subsidiaries, and to further align their
interests with those of the stockholders of the Company by providing for or
increasing their stock ownership interests in the Company. It is intended
that the Plan be interpreted so that transactions under the Plan are exempt
under Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), to the extent applicable.
2. ELIGIBILITY. All members of the Company's Board of Directors who are not
current employees of the Company or any of its subsidiaries ("Nonemployee
Directors") are eligible to participate in the Plan.
3. PLAN AWARDS.
a. DIRECTORS SHARES. To carry out the purposes of the Plan, the Company
shall issue shares ("Directors Shares") of the Company's Common Stock,
$1.00 par value and related preferred share purchase rights (subject
to adjustment as provided in Section 4 hereof) (the "Common Stock"),
to each person who is then a Nonemployee Director, on the first day of
each fiscal year in an amount equal to $5,000 divided by the fair
market value of one share of Common Stock. The "fair market value of
one share of Common Stock" shall be the average of the closing prices
of the Common Stock on the New York Stock Exchange as reported in The
Wall Street Journal for each of the trading days in the three calendar
months immediately prior to the date of issue of the Directors Shares.
b. DIRECTORS OPTIONS.
i. ANNUAL GRANT. Subject to the terms and conditions of this Section
3.b., the Company shall grant a nonqualified option ("Directors
Options") to purchase 1,000 shares of the Common Stock, to each
person who is then a Nonemployee Director, on the first day of
each fiscal year at an exercise price per share equal to the fair
market value of one share of Common Stock on the date of grant
The "fair market value of one share of Common Stock" shall be the
closing price of the Common Stock on the New York Stock Exchange
on the first business day of the Company's fiscal year with
respect to which the grant is made, as reported in The Wall
Street Journal.
ii. OPTION TERMS.
(a) Directors Options shall be exercisable in whole or in part
commencing six months following the date of grant and shall
remain exercisable for a term of five years after the date
of grant.
(b) No Directors Option shall be assigned or transferred, except
by will or the laws of descent and distribution. An option
so transferred may be exercised after the death of the
individual to whom it is granted only by such individual's
legal representatives, heirs or legatees, not later than the
earlier of the date the option expires or one year after the
date of death of
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such individual, and only with respect to an option
exercisable at the time of death.
(c) During the lifetime of a Nonemployee Director, options held
by such individual may be exercised only by the Nonemployee
Director and only while serving as a member of the Board of
Directors of the Company and only if the Nonemployee
Director has been continuously so serving since the date
such options were granted; provided, however, that in the
event of disability of a Nonemployee Director, options may
be exercised by such individual not later than the earlier
of the date the option expires or one year after the date
such service as a member of the Board of Directors ceases by
reason of disability, but only with respect to an option
exercisable at the time such service ceases.
(d) Payment of the exercise price may be made in cash, in shares
of Common Stock valued at fair market value on the date of
exercise or in a combination of cash and Common Stock.
c. SHARE PRORATION. If, on any date on which Directors Shares are to be
issued pursuant to Section 3.a. or Directors Options are to be granted
pursuant to Section 3.b., the number of shares of Common Stock is
insufficient for the issuance of the entire number of shares to be
issued or the grant of the entire number of options as calculated in
accordance with Section 3.a. or Section 3.b., then the number of
shares to be issued to each Nonemployee Director entitled to receive
Directors Shares or Directors Options on such date shall be such
Nonemployee Director's proportionate share of such available number of
shares or options (rounded down to the greatest number of whole
shares), provided that if a sufficient number of shares of Common
Stock is available to issue all of the Directors Shares, then the
entire number of Directors Shares shall be issued first and the number
of shares to be subjected to options shall be prorated in accordance
with this section.
d. SUPPLEMENTAL BENEFIT. Directors Shares and Directors Options are a
supplemental benefit and are not a component of the annual retainer
and meeting fees paid to Nonemployee Directors. The value of Directors
Shares and Directors Options shall not be included in the calculation
by the Company of the amount of compensation upon which a Nonemployee
Director's retirement benefit is calculated for purposes of the
Company's Director Retirement Plan or any similar plan.
4. SHARES IN LIEU OF FEES. A Nonemployee Director shall have the right to
elect to receive shares of Common Stock in lieu of annual retainer and
meeting fees otherwise payable in cash. The election to receive Common
Stock shall be made prior to the first day of the calendar year in which
the fees are to be earned. Fees that are earned shall be reserved through
the year and shares shall be issued in December of that year. The number of
shares to be issued shall be determined by dividing the amount of the cash
that otherwise would have been paid by the market value of one share of
Common Stock on the date that the shares are issued.
5. STOCK SUBJECT TO PLAN. Subject to adjustment as provided in this paragraph
and subject to increase by amendment of the Plan, the total number of
shares of Common Stock that is reserved and available for issuance in
connection with the Plan shall be 65,000 shares. If any Directors Option
granted hereunder expires unexercised or terminates, the shares of Common
Stock reserved for issuance pursuant to such option shall, to the extent of
any such termination or to the extent the shares covered by an option are
not issued or used, again be available for option grants under the Plan.
Any shares issued by the Company in connection with the assumption or
substitution of outstanding option grants from any acquired corporation
shall not reduce the shares available for
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stock awards or option grants under the Plan. Appropriate adjustments
in the number of shares of the Common Stock that may be available for
option grants under the Plan and adjustments in the option price per
share of outstanding options may be made by the Committee in its
discretion to give effect to adjustments made in the number of shares
of Common Stock of the Company through any merger, consolidation,
recapitalization, reclassification, combination, stock dividend, stock
split or other similar change in the corporate structure of the Company
affecting the Common Stock, or a sale by the Company of all or part of
its assets or any distribution to stockholders other than a normal cash
dividend.
6. CHANGE OF CONTROL. In the event of a Change of Control of the Company as
hereinafter defined, all options shall fully vest, unless otherwise
limited by the Committee at the time of the option grant, and be
exercisable in their entirety immediately, and notwithstanding any other
provisions of the Plan, shall continue to be exercisable for three years
following the Change of Control, but not later than ten years after the
date of grant.
Change of Control means:
a. The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of beneficial ownership (within the meaning of Rule 13d-3
under the Exchange Act) of 15% or more of either (i) the
then-outstanding shares of Common Stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting
power of the then-outstanding voting securities of the Company
entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that
for purposes of this subsection a., the following acquisitions
shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company,
(iii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation
controlled by the Company, or (iv) any acquisition by any
corporation pursuant to a transaction that complies with clauses
(i), (ii) and (iii) of subsection c. of this Section 6; or
b. Individuals who, as of the date hereof, constitute the Board of
Directors of the Company (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to the
date hereof whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall
be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of
an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
c. Consummation of a reorganization, merger or consolidation of the
Company or sale or other disposition of all or substantially all of
the assets of the Company or the acquisition by the Company of
assets or stock of another entity (a "Business Combination"), in
each case, unless, following such Business Combination, (i) all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then-outstanding
shares of common stock and the combined voting power of the
then-outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction
owns the Company or all or substantially all of the Company's
assets either
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<PAGE>
directly or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to such
Business Combination of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (ii) no
Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 15% or more
of, respectively, the then-outstanding shares of common stock of
the corporation resulting from such Business Combination, or the
combined voting power of the then-outstanding voting securities of
such corporation except to the extent that such ownership existed
prior to the Business Combination and (iii) at least a majority of
the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board
at the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination; or
d. Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
7. ADMINISTRATION OF THE PLAN. The Plan shall be administered by a
committee composed of those members of the Board of Directors of the
Company who are also employees of the Company (the "Committee"). The
Committee shall have the authority to carry out all provisions of the
Plan; provided, however, that it shall have no discretion to determine
which Nonemployee Directors may receive Directors Shares or Directors
Options or to set the value of such Directors Shares or Directors
Options, other than to make the calculations required by Section 3.a.
and Section 3.b.
8. TERM OF PLAN. The Plan became effective on August 20, 1992 and shall be
perpetual, unless sooner terminated by action of the Board of Directors.
9. AMENDMENT. The effective date of any amendment to the Plan shall be the
date of its adoption by the Board of Directors. No amendment of the Plan
shall adversely affect in a material manner any right of any option
holder with respect to any option theretofore granted without such
option holder's written consent.
10. GOVERNING LAW. The Plan, options and 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.
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<PAGE>
Exhibit 10(c)
THE TORO COMPANY
ANNUAL MANAGEMENT INCENTIVE PLAN II
1. PLAN PURPOSE. The purpose of The Toro Company Annual Management Incentive
Plan II (the "Plan") is to enhance stockholder value of The Toro Company
(the "Company") by providing an annual incentive to reinforce achievement
of the Company's performance goals ("Performance Goals"); to link a
significant portion of a participating officer's annual compensation to the
achievement by the Company, and in certain cases, a division or individual,
of Performance Goals; to attract, motivate and retain officers on a
competitive basis by making awards based on annual achievement of
Performance Goals ("Annual Performance Awards"); and to encourage selected
officers to acquire and retain shares of the Common Stock, par value $1.00
per share, and related Preferred Share Purchase Rights of the Company
("Common Stock").
2. ELIGIBILITY AND PARTICIPATION. Within the first 90 days of each fiscal
year, or before the first 25% of a shorter performance period has elapsed,
the Compensation Committee (the "Committee") shall select as recipients of
Annual Performance Awards ("Plan Participants") those officers of the
Company who, through their position or performance, can have a significant,
positive impact on the Company's financial results. Plan Participants are
designated to participate in the Plan for one fiscal year, but may be
renominated and selected again. Newly-hired and newly-promoted officers may
be selected as Plan Participants after the first 90 days of a fiscal year
subject to the provisions of this paragraph and subparagraph 4.a. With
respect to persons subject to Section 16 of the Securities Exchange Act of
1934 ("Exchange Act"), transactions under the Plan are intended to comply
with all applicable conditions of Rule 16b-3 or its successor provisions
under the Exchange Act. To the extent any provision of the Plan or action
by the Committee fails to so comply, it shall be deemed null and void, to
the extent permitted by law and deemed advisable by the Committee.
3. AWARD AMOUNTS.
a. TARGET PAYOUT. The target amount that may be paid with respect to
an Annual Performance Award (the "Target Payout") shall be
determined by the Committee and shall be based on a percentage of
a Plan Participant's actual annual base salary at the time of
grant ("Participation Factor"), within the range established by
this subparagraph and subject to adjustment as provided in the
last sentence of this subparagraph. The Participation Factors,
which are intended to reflect a Plan Participant's level of
responsibility, are up to 60% for the Chairman and Chief
Executive Officer, up to 55% for the President and Chief
Operating Officer if one should be elected, up to 50% for other
elected officers and up to 45% for other officers. The Chief
Executive Officer may approve modifications to the foregoing
Participation Factors for any participant who is not a person
referred to in Section 162(m) of the Internal Revenue Code
of 1986, as amended, or the regulations thereunder
("Section 162(m)"), if such modification is based on level of
responsibility. The Committee may establish curves, matrices or
other measurements for prorating the amount of payouts for
achievement of Performance Goals at less than the Target Payout.
b. MAXIMUM PAYOUT. The Committee may also establish a maximum
potential payout amount (the "Maximum Payout") with respect to an
Annual Performance Award of up to 200% of the Target Payout in
the event Performance Goal targets are exceeded by an amount
established by the Committee at the time Performance Goals are
established. The Committee may establish curves, matrices or
other measurements for prorating the amount of payouts for
achievement of Performance Goals at greater than the Target
Payout but less than the Maximum Payout.
c. DIVISION PAYOUT. At the time an Annual Performance Award is made,
the Committee may establish supplemental division-specific
Performance Goals ("Supplemental Division Performance Goals") and
may provide that achievement of a Supplemental Division
Performance Goal at or above an established target level shall be
required in order to earn a Target Payout or Maximum Payout. The
Committee shall also have the discretion to reduce
<PAGE>
by an amount up to 20% the amount that would otherwise be paid
under the division payout formula to a division vice president or
general manager based on the Committee's evaluation of the
quality of division performance.
d. STRATEGIC PERFORMANCE MEASURE PAYOUT. At the time an Annual
Performance Award is made, the Committee may increase the Target
Payout and the Maximum Payout (as either may be prorated in
accordance with subparagraphs 3.a. and 3.b.) by up to 20% but to
not more than 200% of the Target Payout, for selected Plan
Participants ("Strategic Performance Participants"), to reflect
individual strategic performance measures ("SPM Performance
Goals") established at that time by the Committee. The Committee
shall have the discretion to reduce by an amount up to 20% the
amount that would otherwise be paid under the payout formula to a
Strategic Performance Participant based on the Committee's
evaluation of the individual's achievement of the SPM Performance
Goal.
e. SECTION 162(m) MAXIMUM. With respect to any Plan Participant who
is or may become a person referred to in Section 162(m), the
maximum dollar amount that may be paid under an Annual
Performance Award shall be set at the time the Committee grants
the award and establishes Performance Goals under the award.
4. PERFORMANCE GOALS.
a. ESTABLISHMENT. An award payment under an Annual Performance Award
shall be made to a Plan Participant only if the Company, a
division and/or the individual participant achieves Performance
Goals established by the Committee in writing not later than 90
days after the commencement of the fiscal year to which the
Performance Goal relates, provided that the outcome is
substantially uncertain at the time the Committee establishes the
Performance Goal; and provided further that in no event will a
Performance Goal be considered to be pre-established if it is
established after 25% of the period of service (as scheduled in
good faith at the time the Performance Goal is established) has
elapsed.
b. PERFORMANCE GOAL CRITERIA. Performance Goals to be established
under subparagraph 4.a. shall be based on earnings per share
(EPS), return on average net assets (ROANA), average net asset
dollar level, division profit adjustment, division controllable
profit contribution, division average asset dollars, return on
equity, revenue growth, earnings growth or economic value added.
Supplemental Division Performance Goals for division participants
that may be established under subparagraph 4.a. may be based on
any of the foregoing and/or on division specific operating
performance goals including revenue growth, sustained earnings,
product warranty experience, product recalls or inventory levels.
SPM Performance Goals that may be established under subparagraph
4.a. may be based on quantitative or qualitative factors, and may
include, but are not limited to, aggressive revenue growth,
sustaining earnings initiative, warranty experience, product
recalls, field inventory, or acquisition experience, customer
satisfaction (determined by such measurements as product quality,
warranty, on-time delivery, fill rate, after-market service or
customer satisfaction survey results), inventory reduction and
inventory turnover. Each Performance Goal is to be specifically
defined by the Committee on a Company, division or individual
basis and/or in comparison with peer group performance.
5. DISCRETION TO DECREASE AWARD PAYMENT. With respect to any Plan Participant
who is a person referred to in Section 162(m), the Committee shall have the
discretion to decrease an award payment under an Annual Performance Award,
but may not under any circumstances increase such amount.
6. MAXIMUM AWARD PAYMENT. Notwithstanding any other provision of this Plan,
the maximum dollar amount a Plan Participant may be paid under an Annual
Performance Award, whether in cash or Common Stock or Common Stock units,
with respect to any fiscal year is $1,500,000. The Committee may, in its
discretion, decrease this maximum, but may not, under any circumstances,
increase this maximum.
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7. PAYMENTS. Before any payment is made under the Plan, the Committee must
certify in writing, as reflected in the minutes, that the Performance Goals
established with respect to an Annual Performance Award have been achieved.
To the extent necessary with respect to any fiscal year, in order to avoid
any undue windfall or hardship due to external causes, the Committee may
make the determination as to whether a Performance Goal has been achieved
without regard to the effect on the Performance Goal measure, as it may
otherwise be presented in the financial statements, of any change in
accounting standards, any acquisition by the Company not planned for at the
time the Performance Goals are established, or any Board-approved
extraordinary or non-recurring event or item.
8. STOCK RETENTION PROVISIONS.
a. ELIGIBILITY FOR STOCK RETENTION AWARD. Subject to the terms and
conditions of this paragraph 8 (the "Stock Retention
Provisions"), at the time the Committee selects Plan
Participants, the Committee may grant to selected Plan
Participants ("Stock Participants") a right (a "Stock Retention
Award") to elect (i) to convert to shares of Common Stock or (ii)
to defer, through The Toro Company Deferred Compensation Plan for
Officers (the "Officer Deferred Plan"), into units having a value
based on shares of Common Stock, up to 50% of the amount of an
award payment under an Annual Performance Award ("Base Cash
Award") and to receive additional incentive compensation in the
form of one additional share or unit of Common Stock for every
two shares or units acquired upon conversion up to the limit of
50% of the Base Cash Award (the "Matching Shares" or "Matching
Units"). The shares or units acquired upon conversion of all or a
portion of the Base Cash Award shall be retained by the Company
(which shall be called the "Agent" for purposes of the Stock
Retention Provisions) during the vesting periods for the Matching
Shares or Units described in subparagraph 8.e. Shares of Common
Stock issued under the Stock Retention Provisions shall be called
"Retained Shares" and units of Common Stock deferred under the
Officer Deferred Plan shall be called "Retained Units" under this
paragraph 8.
b. NUMBER OF SHARES OR UNITS. The number of Retained Shares or
Retained Units to be issued or credited upon conversion of a Base
Cash Award under a Stock Retention Award election shall be equal
to the dollar amount of the portion of the Base Cash Award
subject to the election, divided by the fair market value of the
Common Stock on the date that the Committee makes the
certification required under paragraph 7 of this Plan. Fair
market value shall be the closing price of one share of Common
Stock, as reported in THE WALL STREET JOURNAL. Retained Shares
shall be issued in whole shares only and cash shall be paid for
fractional shares.
c. ELECTION TO EXERCISE STOCK RETENTION AWARD.
i. On or before the December 31 immediately preceding the end
of the fiscal year to which a Stock Retention Award relates,
a Stock Participant who wishes to convert a portion of a
Base Cash Award into deferred compensation Retained Units
shall notify the Company in writing that he or she has
elected to participate in the Stock Retention Provisions and
shall specify the percentage of the Base Cash Award to be
converted, except as otherwise provided in the Officer
Deferred Plan with respect to the year in which that plan is
first implemented or materially amended or the first year in
which a Stock Participant becomes eligible to participate in
the Stock Retention Provisions.
ii. On or before the September 15 immediately prior to the last
day of the fiscal year to which a Stock Retention Award
relates, a Stock Participant who has not elected to convert
the maximum permissible portion of the Base Cash Award into
Retained Units and who wishes to convert up to the maximum
permissible portion of the Base Cash Award into Retained
Shares shall notify the Company in writing that he or she
has elected to participate in the Stock Retention Provisions
and shall specify the percentage of the Base Cash Award to
be converted.
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iii. An election to participate is effective only for the fiscal
year to which the Stock Retention Award relates.
iv. A Stock Participant who terminates employment, dies, retires
at or after age 65, elects early retirement at or after age
55 or becomes permanently disabled and unable to work during
the fiscal year to which a Stock Retention Award relates
shall not be eligible to participate in the Stock Retention
Provisions for that fiscal year, and any Stock Retention
Award for that year and any election made by the Stock
Participant shall be canceled automatically as of the date
of any such event.
d. MATCHING SHARES OR UNITS. As soon as practical following the
conversion of a Base Cash Award to Retained Shares or Retained
Units, the Company shall issue one Matching Share or credit one
Matching Unit for each two Retained Shares or Units acquired (up
to the limit of 50% of the Base Cash Award) (the "Restricted
Shares" or "Restricted Units"). Restricted Shares shall be held
by the Agent for the Stock Participant's account. Restricted
Shares shall be issued in whole shares only and cash shall be
paid for fractional shares.
e. VESTING, DELIVERY AND DISTRIBUTION.
i. Vesting. Restricted Shares and Restricted Units held or
credited by the Company shall be forfeitable until they vest
and shall vest in increments of 25% of the total number of
such Restricted Shares or Units at the end of each of the
second, third, fourth and fifth years after the date such
Restricted Shares or Units are issued or credited, provided
that such Restricted Shares or Units shall vest only if the
Stock Participant's Retained Shares or Units have been left
on deposit with the Agent through the requisite two, three,
four and five year periods and all other requirements of the
Plan have been met, except as may otherwise be provided in
subparagraph 8.f.
ii. Delivery.
A. Retained Shares and Restricted Shares will be delivered
as soon as possible after the applicable vesting
requirements (including accelerated vesting under
subparagraph 8.f.) have been fulfilled. In the event
vesting requirements are not fulfilled, Retained Shares
will be returned to a Stock Participant as soon as
possible.
B. Retained Units and Restricted Units that have vested
will be distributed to a Stock Participant consistent
with a Stock Participant's distribution election
properly made in accordance with the provisions of the
Officer Deferred Plan.
iii. Retained Shares and Retained Units are fully vested at the
time of issuance or crediting.
f. VESTING AND CANCELLATION UNDER SPECIAL CONDITIONS.
i. Retirement or Disability. Notwithstanding the foregoing, all
Restricted Shares or Units held in a Stock Participant's
account shall vest in full if the participant retires on or
after age 65 or becomes permanently disabled and unable to
work while a Stock Participant under the Plan.
Notwithstanding the foregoing, if within one year after such
retirement the Stock Participant is employed or retained by
a company that competes with the business of the Company, or
such individual violates any confidentiality agreement with
the Company, the Company may demand return of the economic
value of the Restricted Shares or Units which vested early
under this subparagraph; provided, however, that this
provision shall not be applicable in the event of a Change
of Control.
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ii. Early Retirement. Restricted Units held in the account of a
Stock Participant who retires at or after age 55, but before
age 65, shall vest or be forfeited in accordance with the
provisions of the Officer Deferred Plan. A Stock Participant
who retires at or after age 55, but before age 65, may elect
to leave Retained Shares on deposit until the participant
reaches age 65 or until the applicable vesting requirements
of subparagraph 8.e. have been fulfilled, as the case may
be, and Restricted Shares shall vest upon the occurrence of
the earlier of such event. Notwithstanding the foregoing, if
within one year after such early retirement the Stock
Participant is employed or retained by a company that
competes with the business of the Company, or such
individual violates any confidentiality agreement with the
Company, the Company may demand return of the economic value
of the Restricted Shares which vested after the date of
early retirement under this subparagraph; provided, however,
that this provision shall not be applicable in the event of
a Change of Control.
iii. Early Withdrawal. In the event that a Stock Participant
elects to withdraw Retained Shares or Units from the account
prior to age 65, but before the applicable vesting
requirements have been fulfilled, Restricted Shares or Units
held in such participant's account that have not vested
shall not vest and shall be forfeited.
iv. Death. In the event of the death of a Stock Participant
before the applicable vesting requirements have been
fulfilled, the Restricted Shares or Units shall vest in
full.
v. Voluntary Resignation. In the event that a Stock Participant
resigns voluntarily, Restricted Shares or Units held in such
participant's account that have not yet vested shall not
vest and shall be forfeited, unless otherwise determined by
the Chairman of the Committee, in his or her discretion,
upon recommendation by the Chief Executive Officer of the
Company.
vi. Change of Control. All Restricted Shares and Restricted
Units shall vest if there is a Change of Control of the
Company.
Change of Control means:
(A) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 under the Exchange Act) of 15% or
more of either (A) the then-outstanding shares of Common
Stock of the Company (the "Outstanding Company Common
Stock") or (B) the combined voting power of the
then-outstanding voting securities of the Company entitled
to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however,
that for purposes of this subparagraph (A), the following
acquisitions shall not constitute a Change of Control:
(a) any acquisition directly from the Company, (b) any
acquisition by the Company, (c) any acquisition by any
employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled
by the Company, or (d) any acquisition by any
corporation pursuant to a transaction that complies with
clauses (a), (b) and (c) of subparagraph (C) of this
subparagraph 8.f.vi.; or
(B) Individuals who, as of the date hereof, constitute the
Board of Directors of the Company (the "Incumbent Board")
cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board,
but excluding,
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for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or
removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(C) Consummation of a reorganization, merger or
consolidation of the Company or sale or other disposition of
all or substantially all of the assets of the Company or the
acquisition by the Company of assets or stock of another
entity (a "Business Combination"), in each case, unless,
following such Business Combination, (a) all or
substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of,
respectively, the then-outstanding shares of common stock
and the combined voting power of the then-outstanding voting
securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting
from such Business Combination (including, without
limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of
the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of
the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (b) no Person
(excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust)
of the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or
indirectly, 15% or more of, respectively, the
then-outstanding shares of common stock of the corporation
resulting from such Business Combination, or the combined
voting power of the then-outstanding voting securities of
such corporation except to the extent that such ownership
existed prior to the Business Combination and (c) at least a
majority of the members of the board of directors of the
corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution
of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(D) Approval by the stockholders of the Company of a
complete liquidation or dissolution of the Company.
g. TEMPORARY WITHDRAWAL FOR OPTION EXERCISE. A Stock Participant may
temporarily withdraw all or a portion of Retained Shares held in
the participant's account, but not Restricted Shares or Retained
or Restricted Units, in order to exercise Company stock options,
provided that an equal number of shares of Common Stock is
promptly redeposited with the Agent after such exercise.
h. DIVIDENDS AND VOTING. Dividends on Retained and Restricted Shares
may at the election of the Stock Participant be paid to such
participant or reinvested under the Company's dividend
reinvestment plan as then in effect. Dividends on Retained and
Restricted Units shall be credited under the Officer Deferred
Plan, in additional units based on the fair market value of one
share of the Common Stock on the record date for payment of
dividends. A Stock Participant shall have the right to vote
Retained and Restricted Shares.
i. MAXIMUM SHARES SUBJECT TO STOCK RETENTION AWARDS. Subject to the
provisions of this subparagraph and paragraph 6 hereof, the
number of shares of Common Stock reserved and available for
issuance pursuant to Stock Retention Awards under the Plan is
100,000. Shares of Common Stock that may be issued hereunder may
be authorized but unissued shares, reacquired or treasury shares
or outstanding shares acquired in the market or from private
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<PAGE>
sources or a combination thereof. Appropriate adjustments in the
number of shares of Common Stock that may be available for such
purposes under the Plan may be made by the Committee in its
discretion to give effect to adjustments made in the number of
shares of Common Stock of the Company through any merger,
consolidation, recapitalization, reclassification, combination,
stock dividend, stock split or similar change in the corporate
structure of the Company affecting the Common Stock, or a sale by
the Company of all or part of its assets or any distribution to
stockholders other than a normal cash dividend.
9. NON-TRANSFERABILITY. Neither Annual Performance Awards, Stock Retention
Awards, Retained Shares, Restricted Shares, Retained Units, Restricted
Units nor any interest in any one of such awards or shares or units or
benefits may be anticipated, alienated, encumbered, sold, pledged,
assigned, transferred or subjected to any charge or legal process, other
than by will or the laws of descent and distribution, so long as the
Retained and Restricted Shares are held by the Agent or the Retained and
Restricted Units have not been distributed in accordance with the Officer
Deferred Plan, and any sale, pledge, assignment or other attempted transfer
shall be null and void.
10. ADMINISTRATION. The Committee shall have the authority to administer the
Plan; establish policies under the Plan; amend the Plan, subject to the
provisions of paragraph 12; interpret provisions of the Plan; select Plan
Participants and Stock Participants; establish Performance Goals; make
Annual Performance Awards and Stock Retention Awards; or terminate the
Plan, in its sole discretion. The Committee may delegate certain of these
activities and all decisions not required to be exercised by it under
Section 162(m) or Section 16 of the Exchange Act, as it solely determines.
All decisions of the Committee shall be final and binding upon all parties
including the Company, its stockholders, Plan Participants and Stock
Participants.
11. GOVERNING LAW. The Plan, awards granted under the Plan, agreements entered
into under the Plan, Retained or Restricted Shares and Retained or
Restricted Units 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.
12. PLAN AMENDMENT AND TERMINATION. The Committee may, in its sole discretion,
amend, suspend or terminate the Plan at any time, with or without advance
notice to Plan Participants, provided that no amendment to the Plan shall
be effective that would increase the maximum amount payable under paragraph
6 to a Plan Participant who is a person referred to in Section 162(m); that
would change the Performance Goal criteria applicable to a Plan Participant
who is a person referred to in Section 162(m) for payment of awards stated
under paragraph 4; or that would modify the requirements as to eligibility
for participation under paragraph 2, unless the stockholders of the Company
shall have approved such change in accordance with the requirements of
Section 162(m). No amendment, modification or termination of the Plan may
adversely affect in a material manner any right of any Plan Participant
with respect to any Performance Share Award theretofore granted without
such participant's written consent.
13. EFFECTIVE DATE OF THE PLAN AND AMENDMENTS. The Plan first became effective
on November 1, 1995. Any amendment to the Plan shall be effective on the
date established by the Committee, subject to stockholder approval, if
required under the provisions of paragraph 12.
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Exhibit 10(e)
THE TORO COMPANY
1989 STOCK OPTION PLAN
1. PURPOSE. The purpose of the 1989 Stock Option Plan (the "Plan") is to
advance the interests of The Toro Company (the "Company") and its
stockholders by providing an incentive to certain employees of the
Company and its subsidiaries and to certain other key individuals who
perform services for the Company and its subsidiaries, to contribute
significantly to the strategic and long-term performance objectives and
growth of the Company and its subsidiaries. This purpose is expected to
be achieved by granting options to acquire the Common Stock, $1.00 par
value, and related preferred share purchase rights of the Company (the
"Common Stock"). Subject to the provisions of the Plan, options may
contain such terms and conditions as shall be required so as to be either
nonqualified stock options ("nonqualified options") or incentive stock
options ("Incentive Stock Options") as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). Subject to such
limits as may be imposed by the Plan, nonqualified options or Incentive
Stock Options or both may be granted to an eligible individual.
2. EFFECTIVE DATE. The effective date of the Plan shall be August 8, 1989.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Compensation Committee (the "Committee") of the Board of Directors of the
Company (the "Board"), provided that members of the Committee shall be
Non-employee Directors as contemplated by Rule 16b-3 promulgated under
the Securities Exchange Act of 1934 (the "Exchange Act") or any
successor rule and shall qualify to administer the Plan as contemplated
by Section 162(m) of the Code and the regulations thereunder
("Section 162(m)"). A majority of the members of the Committee shall
constitute a quorum for any meeting of the Committee and the acts of a
majority of the members present at any meeting at which a quorum is
present or the acts unanimously approved in writing by all members of
the Committee shall be the acts of the Committee. The decision of the
Committee on any matter affecting the Plan and obligations arising
under the Plan or any option granted thereunder shall be deemed final
and binding upon all persons. No member of the Board or of the
Committee shall be liable for any action or determination taken or made
in good faith with respect to the Plan or any option granted thereunder.
Committee members shall be reimbursed for out-of-pocket expenses
reasonably incurred in the administration of the Plan.
Subject to the express provisions of the Plan, the Committee shall have
plenary authority, in its discretion, to interpret the Plan; to
prescribe, amend and rescind rules and regulations relating to the Plan;
to determine the exercise price of each option to purchase Common Stock,
the individuals to whom and the time or times at which options shall be
granted, the number of shares to be subject to each option, when an
option may be exercisable and the other terms and provisions (and
amendments thereto) of the respective option agreements (which need not
be identical); to determine whether a particular option is to be an
Incentive Stock Option and the terms and provisions thereof that shall be
required in the judgment of the Committee to provide therefor or to
conform to any change in any law or regulation
<PAGE>
applicable thereto, or to any other law or regulation that may hereafter
become effective to provide similar or related tax benefits to option
holders; and to make all other determinations deemed necessary or
advisable for the administration of the Plan.
4. COMMON STOCK SUBJECT TO THE PLAN. Subject to adjustment as provided in
this paragraph and subject to increase by amendment of the Plan, the
total number of shares of Common Stock that is reserved and available for
issuance pursuant to options granted under the Plan shall be 1,700,000
shares. If any option granted hereunder terminates, expires unexercised,
is exchanged for other options without the issuance of shares of Common
Stock or is exercised by the delivery or constructive delivery of shares
of Common Stock already owned by the option holder, the shares of Common
Stock reserved for issuance pursuant to such option shall, to the extent
of any such termination or to the extent shares covered by an option are
not issued or used, again be available for option grants under the Plan.
Any shares issued by the Company in connection with the assumption or
substitution of outstanding grants from any acquired corporation shall
not reduce the shares available for option grants under the Plan. Shares
of Common Stock that may be issued hereunder may be authorized but
unissued shares, reacquired or treasury shares, or outstanding shares
acquired in the market or from private sources, or a combination thereof.
Appropriate adjustments in the number of shares of the Common Stock that
may be available for option grants under the Plan and adjustments in the
option price per share of outstanding options may be made by the
Committee in its discretion to give effect to adjustments made in the
number of shares of Common Stock of the Company through any merger,
consolidation, recapitalization, reclassification, combination, stock
dividend, stock split or other similar change in the corporate structure
of the Company affecting the Common Stock, or a sale by the Company of
all or part of its assets or any distribution to stockholders other than
a normal cash dividend.
5. ELIGIBILITY. Options may be granted to any employee of the Company or any
subsidiary thereof who is regularly employed in an executive, managerial,
professional or technical position, and to any other individual who
performs services for the Company or any subsidiary and who contributes
significantly to the strategic and long-term performance objectives of
the Company and its subsidiaries. Options may be granted to directors of
the Company who are also employees of the Company. More than one option
may be granted to the same individual. No option may be granted to an
individual who owns, directly or indirectly, Common Stock or other
capital stock of the Company possessing more than 5% of the total
combined voting power or value of any class of capital stock of the
Company or a subsidiary immediately after such option is granted. Except
for the foregoing limitations, there is no minimum or maximum number of
shares of Common Stock with respect to which options may be granted to
any individual under the Plan. Individuals to whom options are granted
are at times referred to as "option holders".
6. DURATION OF THE PLAN. The Plan shall remain in effect until all shares
reserved for issuance pursuant to the Plan shall have been purchased
pursuant to options granted under the Plan, provided that options under
the Plan must be granted within ten years from the effective date of the
Plan.
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<PAGE>
7. GENERAL TERMS OF OPTIONS. Options shall be evidenced by stock option
agreements in such form and not inconsistent with the Plan as the
Committee shall approve from time to time, which agreements shall contain
in substance the following terms and conditions:
A. DATE OF GRANT. An option agreement shall specify the date of
grant, which shall be the date on which the Committee grants an
option or any later date which the Committee specifically
designates.
B. NUMBER OF SHARES OF COMMON STOCK. An option agreement shall
specify the number of shares of Common Stock to which it pertains.
Notwithstanding any other provision of the Plan, the maximum
number of shares that may be covered by any option grant during
any calendar year shall be 100,000 shares.
C. EXERCISE PRICE. The exercise price of all stock options will be
granted at fair market value, except for performance based stock
options, such as those granted in connection with the Continuous
Performance Award Plan, where the exercise price is an average and
on the date of grant could be higher or lower than fair market
value. Fair market value is generally determined to be the
closing price for the Common Stock on the New York Stock Exchange
as reported by The Wall Street Journal or other readily available
quotation of composite transactions.
D. TERM OF OPTIONS. The term of each option shall be fixed by the
Committee.
E. EXERCISABILITY AND TRANSFERABILITY.
(i) The Committee shall have the authority to determine whether
an option agreement shall specify periods after the date of
grant of an option during which the option or any portion
thereof may not yet be exercisable, including provisions
applicable to persons subject to Section 16 of the Exchange
Act.
(ii) During the lifetime of an option holder, options may be
exercised only by the option holder and only while an
employee of the Company or a parent or subsidiary of the
Company or otherwise performing services for the Company or
a parent or subsidiary and only if the option holder has
been continuously so employed or engaged since the date
such options were granted, except as the Committee may
otherwise determine and provide for in an option agreement
at the time of grant or, if the Committee does not so
provide, as follows:
(a) DISABILITY. In the event of disability of an
option holder, options may be exercised by
such individual or his or her guardian or
legal representative, not later than the
earlier of the date the option expires or one
year after the date such employment or
performance of services ceases by reason of
disability, but only with respect to an
option exercisable at
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<PAGE>
the time such employment or performance of
services ceases.
(b) DEATH. An option may be exercised after the
death of an option holder only by such
individual's legal representatives, heirs or
legatees, not later than the earlier of the
date the option expires or one year after the
date of death of such individual, and only
with respect to an option exercisable at the
time of death.
(c) RETIREMENT. A nonqualified option may be
exercised by an option holder after such
individual ceases to be an employee by reason
of retirement for up to four years after the
date of retirement but not later than the
date the option expires. "Retirement" shall
have the meaning established by the Committee
from time to time or, if no such meaning is
established, shall mean termination of
employment with the Company at an age and
with a number of years of service to the
Company which, when added together, equal at
least 65.
(d) OTHER TERMINATION OF EMPLOYMENT. An option
may be exercised by an option holder after
such individual ceases to be an employee (for
reasons other than disability, death or
retirement) for up to three months after the
date of termination of employment but not
later than the date the option expires.
(e) In the event a salary replacement option is
granted by the Committee and the option
holder is involuntarily terminated during the
option term or becomes disabled or dies, the
Committee shall have the right to grant to
the option holder or his personal
representative, as the case may be, the right
to request either (1) that the option be
cancelled and the option holder or his estate
be paid an amount equal to the compensation
the option holder has given up from the date
of grant to the date of such termination,
disability or death together with interest at
the prime rate less the then market gain on
that portion of the shares covered by the
option which is then vested; or (2) that the
stock option accelerates such that the option
be deemed to have vested at an appropriate
rate per month (as determined by the
Committee) from the date of grant to the last
date of the month in which the date of
termination, disability or death occurs, such
accelerated option to be then exercisable for
a period of three years following such date
but only with respect to an option
exercisable at the time such individual
ceases to be an employee.
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<PAGE>
(iii) Notwithstanding any provision of this paragraph 7.E, if
within one year after the termination of employment with or
performance of services for the Company, an option holder
is employed or retained by a company that competes with the
business of the Company or such individual violates any
confidentiality agreement with the Company, the Company may
cancel and rescind all options held by such individual and
demand return of the economic value of any option which was
realized or obtained (measured at the date of exercise) by
such individual at any time during the period beginning on
the date which is twelve months prior to the date of
termination provided, however, that this provision shall
not be applicable in the event of a Change of Control.
(iv) Absence on leave or any other interruption in the
performance of services by an option holder with the
Company shall, if approved by the Committee, not be deemed
a cessation or interruption of employment or services for
the purposes of the Plan.
(v) No option shall be assignable or transferable by the
individual to whom it is granted except that it may be
transferable by will or the laws of descent and
distribution.
(vi) In no event shall any option be exercisable at any time
after its expiration date unless extended by the Committee.
When an option is no longer exercisable, it shall be deemed
to have lapsed or terminated.
F. METHODS OF EXERCISE. Subject to the terms and conditions of the
Plan and the terms and conditions of the option agreement, an
option may be exercised in whole at any time or in part from time
to time, by delivery to the Company at its principal office of a
written notice of exercise specifying the number of shares with
respect to which the option is being exercised, accompanied by
payment in full of the exercise price for shares to be purchased
at that time. Payment may be made (i) in cash, (ii) in shares of
Common Stock valued at the fair market value of the Common Stock
on the date of exercise or (iii) in a combination of cash and
Common Stock. The Committee may also, in its sole discretion,
permit option holders to deliver a notice of exercise of options
and to simultaneously sell the shares of Common Stock thereby
acquired pursuant to a brokerage or similar arrangement approved
in advance by proper officers of the Company, using the proceeds
from such sale as payment of the exercise price, or may authorize
such other methods as it deems appropriate and as comply with
requirements of the Code and the Exchange Act.
No shares of Common Stock shall be issued until full payment
therefor has been made.
G. ACCELERATED OWNERSHIP FEATURE. An option may, in the discretion of
the Committee, include the right to acquire an accelerated
ownership nonqualified stock option ("AO Option"). An option which
provides for the grant of an AO Option shall entitle the option
holder, upon exercise of that option and payment of the
appropriate exercise price in shares of Common Stock that have
been owned by such option holder for not less than six months
prior to the date of exercise, to receive an AO Option. An AO
Option is an option to purchase, at fair market value
5
<PAGE>
at the date of grant of the AO Option, a number of shares of
Common Stock equal to the sum of the number of whole shares
delivered by the option holder in payment of the exercise price of
the original option and the number of whole shares, if any,
withheld by the Company as payment for withholding taxes. An AO
Option shall expire on the same date that the original option
would have expired had it not been exercised. All AO Options shall
be nonqualified options.
H. CHANGE OF CONTROL. In the event of a Change of Control of the
Company as hereinafter defined, whether or not approved by the
Board of Directors, all options shall fully vest, unless otherwise
limited by the Committee at the time of the option grant, and be
exercisable in their entirety immediately, and notwithstanding any
other provisions of the Plan, shall continue to be exercisable for
three years following the Change of Control, but not later than
ten years after the date of grant.
Change of Control means:
(i) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange
Act) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 under the Exchange Act) of 15% or
more of either (A) the then-outstanding shares of Common
Stock of the Company (the "Outstanding Company Common
Stock") or (B) the combined voting power of the
then-outstanding voting securities of the Company entitled
to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided,
however, that for purposes of this subparagraph (i), the
following acquisitions shall not constitute a Change of
Control: (A) any acquisition directly from the Company,
(B) any acquisition by the Company, (C) any acquisition by
any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by
the Company, or (D) any acquisition by any corporation
pursuant to a transaction that complies with clauses (A),
(B) and (C) of subparagraph (iii) of this subparagraph; or
(ii) Individuals who, as of the date hereof, constitute the
Board of Directors of the Company (the "Incumbent Board")
cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming
a director subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent
Board, but excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result of an
actual or threatened election contest with respect to the
election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board; or
(iii) Consummation of a reorganization, merger or consolidation
of the Company or sale or other disposition of all or
substantially all of the assets of the Company or the
acquisition by the Company of assets or stock of
6
<PAGE>
another entity (a "Business Combination"), in each case,
unless, following such Business Combination, (A) all or
substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of,
respectively, the then-outstanding shares of common stock
and the combined voting power of the then-outstanding
voting securities entitled to vote generally in the
election of directors, as the case may be, of the
corporation resulting from such Business Combination
(including, without limitation, a corporation which as a
result of such transaction owns the Company or all or
substantially all of the Company's assets either directly
or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to
such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the
case may be, (B) no Person (excluding any corporation
resulting from such Business Combination or any employee
benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 15% or more of,
respectively, the then-outstanding shares of common stock
of the corporation resulting from such Business
Combination, or the combined voting power of the
then-outstanding voting securities of such corporation
except to the extent that such ownership existed prior to
the Business Combination and (C) at least a majority of the
members of the board of directors of the corporation
resulting from such Business Combination were members of
the Incumbent Board at the time of the execution o the
initial agreement, or of the action of the Board, providing
for such Business Combination; or
(iv) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
I. REORGANIZATION. The Committee may, in its sole discretion, make
provisions in any option agreement for the protection of
outstanding options in the event of a merger, consolidation,
reorganization or liquidation of the Company or the acquisition of
stock or assets of the Company by another entity.
J. RIGHTS AS A STOCKHOLDER. An option holder shall have no rights as
a stockholder with respect to any Common Stock covered by an
option until exercise of such option and issuance of shares of
Common Stock. Except as otherwise expressly provided in the Plan,
no adjustments shall be made for dividends or other rights for
which the record date is prior to issuance of the Common Stock.
K. GENERAL RESTRICTION. Each option shall be subject to the
requirement that, if at any time the Board shall determine in its
discretion that the listing, registration or qualification of the
Common Stock subject to such option on any securities exchange or
under any state or federal law, or the consent or approval of any
7
<PAGE>
government regulatory body, is necessary or desirable as a
condition of, or in connection with, the granting of such option
or the issue or purchase of Common Stock thereunder, such option
may not be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the
Board.
L. FOREIGN NATIONALS. Without amending the Plan, awards may be
granted to individuals who are foreign nationals or are employed
or otherwise performing services for the Company or any subsidiary
outside the United States or both, on such terms and conditions
different from those specified in the Plan as may, in the judgment
of the Committee, be necessary or desirable to further the purpose
of the Plan.
8. INCENTIVE AND NONQUALIFIED OPTIONS. It is intended that certain options
granted under the Plan shall be Incentive Stock Options and shall meet
the applicable requirements of and contain or be deemed to contain all
provisions required under Section 422 of the Code or corresponding
provisions of subsequent revenue laws and regulations in effect at the
time such options are granted; that other options shall not meet such
requirements and shall be nonqualified stock options; and that any
ambiguities in construction shall be interpreted in order to effectuate
such intent. The Committee may grant one or more options of either type,
or of both types, to any one or more individuals either at different
times or concurrently. Such options shall be subject to the terms and
conditions set forth elsewhere in the Plan and to the following:
A. INCENTIVE STOCK OPTIONS. The term of any Incentive Stock Option
shall meet the requirements of Section 422 of the Code. Any
Incentive Stock Option shall be treated as "outstanding" until it
is exercised in full or expires by reason of lapse of time. To the
extent that the aggregate fair market value of Common Stock
(determined at the time of grant of the Incentive Stock Option in
accordance with paragraph 7.C of the Plan) with respect to which
Incentive Stock Options are exercisable for the first time by an
option holder during any calendar year (under all such plans of
the Company and its parent and subsidiary corporations) exceeds
$100,000 or such other limit as may be imposed by the Code, such
options to the extent they exceed such limit shall be treated as
options which are not Incentive Stock Options. In applying the
foregoing limitation, options shall be taken into account in the
order in which they were granted.
B. NONQUALIFIED OPTIONS. There is no limitation on the maximum amount
of nonqualified options which may be exercised in any year.
9. WITHHOLDING TAXES. The Company shall have the right to deduct from any
settlement made under the Plan, including the exercise of an option or
the sale of shares of Common Stock, any federal, state or local taxes of
any kind required by law to be withheld with respect to such payments or
to take such other action as may be necessary in the opinion of the
Company to satisfy all obligations for the payment of such taxes. If
Common Stock is withheld or surrendered to satisfy tax withholding, such
stock shall be valued at its fair market value as of the date such Common
Stock is withheld or surrendered.
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10. AMENDMENT OF THE PLAN. The Plan may be amended, suspended or discontinued
in whole or in part at any time and from time to time by the Board,
including an amendment to increase the number of shares of Common Stock
with respect to which options may be granted, provided however that no
amendment shall be effective unless and until the same is approved by
stockholders of the Company where the failure to obtain such approval
would adversely affect the availability of any exemption under Rule 16b-3
under the Exchange Act or successor rule and with other applicable law,
including the Code. No amendment of the Plan shall adversely affect in a
material manner any right of any option holder with respect to any option
theretofore granted without such option holder's written consent.
11. MISCELLANEOUS.
A. USE OF PROCEEDS. The proceeds derived from the sale of shares of
Common Stock pursuant to options granted under the Plan shall
constitute general funds of the Company.
B. PARENT AND SUBSIDIARY. As used herein, the terms "parent" and
"subsidiary" shall mean "parent corporation" and "subsidiary
corporation", respectively, as defined in Section 424 of the Code.
C. GOVERNING LAW. The Plan, options 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.
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Exhibit 10(f)
THE TORO COMPANY
1993 STOCK OPTION PLAN
1. PURPOSE. The purpose of the 1993 Stock Option Plan (the "Plan") is to
advance the interests of The Toro Company (the "Company") and its
stockholders by providing an incentive to certain employees of the Company
and its subsidiaries and to certain other key individuals who perform
services for the Company and its subsidiaries, to contribute significantly
to the strategic and long-term performance objectives and growth of the
Company and its subsidiaries. This purpose is expected to be achieved by
granting options to acquire the Common Stock, $1.00 par value, and related
preferred share purchase rights of the Company (the "Common Stock").
Subject to the provisions of the Plan, options may contain such terms and
conditions as shall be required so as to be either nonqualified stock
options ("nonqualified options") or incentive stock options ("Incentive
Stock Options") as defined in Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"). Subject to such limits as may be imposed by
the Plan, nonqualified options or Incentive Stock Options or both may be
granted to an eligible individual.
2. EFFECTIVE DATE. The effective date of the Plan shall be August 17, 1993.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Compensation Committee (the "Committee") of the Board of Directors of the
Company (the "Board"), provided that members of the Committee shall be
Non-employee Directors as contemplated by Rule 16b-3 promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act") or any successor rule
and shall qualify to administer the Plan as contemplated by Section 162(m)
of the Code and the regulations thereunder ("Section 162(m)"). A majority
of the members of the Committee shall constitute a quorum for any meeting
of the Committee and the acts of a majority of the members present at any
meeting at which a quorum is present or the acts unanimously approved in
writing by all members of the Committee shall be the acts of the Committee.
The decision of the Committee on any matter affecting the Plan and
obligations arising under the Plan or any option granted thereunder shall
be deemed final and binding upon all persons. No member of the Board or of
the Committee shall be liable for any action or determination taken or made
in good faith with respect to the Plan or any option granted thereunder.
Committee members shall be reimbursed for out-of-pocket expenses reasonably
incurred in the administration of the Plan.
Subject to the express provisions of the Plan, the Committee shall have
plenary authority, in its discretion, to interpret the Plan; to prescribe,
amend and rescind rules and regulations relating to the Plan; to determine
the exercise price of each option to purchase Common Stock, the individuals
to whom and the time or times at which options shall be granted, the number
of shares to be subject to each option, when an option may be exercisable
and the other terms and provisions (and amendments thereto) of the
respective option agreements (which need not be identical); to determine
whether a particular option is to be an Incentive Stock Option and the
terms and provisions thereof that shall be required in the judgment of the
Committee to provide therefor or to conform to any change in any law or
regulation
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applicable thereto, or to any other law or regulation that may hereafter
become effective to provide similar or related tax benefits to option
holders; and to make all other determinations deemed necessary or advisable
for the administration of the Plan.
4. COMMON STOCK SUBJECT TO THE PLAN. Subject to adjustment as provided in this
paragraph and subject to increase by amendment of the Plan, the total
number of shares of Common Stock that is reserved and available for
issuance pursuant to options granted under the Plan shall be 1,600,000
shares. If any option granted hereunder terminates, expires unexercised, is
exchanged for other options without the issuance of shares of Common Stock
or is exercised by the delivery or constructive delivery of shares of
Common Stock already owned by the option holder, the shares of Common Stock
reserved for issuance pursuant to such option shall, to the extent of any
such termination or to the extent shares covered by an option are not
issued or used, again be available for option grants under the Plan. Any
shares issued by the Company in connection with the assumption or
substitution of outstanding grants from any acquired corporation shall not
reduce the shares available for option grants under the Plan. Shares of
Common Stock that may be issued hereunder may be authorized but unissued
shares, reacquired or treasury shares, or outstanding shares acquired in
the market or from private sources, or a combination thereof. Appropriate
adjustments in the number of shares of the Common Stock that may be
available for option grants under the Plan and adjustments in the option
price per share of outstanding options may be made by the Committee in its
discretion to give effect to adjustments made in the number of shares of
Common Stock of the Company through any merger, consolidation,
recapitalization, reclassification, combination, stock dividend, stock
split or other similar change in the corporate structure of the Company
affecting the Common Stock, or a sale by the Company of all or part of its
assets or any distribution to stockholders other than a normal cash
dividend.
5. ELIGIBILITY. Options may be granted to any employee of the Company or any
subsidiary thereof who is regularly employed in an executive, managerial,
professional or technical position, and to any other individual who
performs services for the Company or any subsidiary and who contributes
significantly to the strategic and long-term performance objectives of the
Company and its subsidiaries. Options may be granted to directors of the
Company who are also employees of the Company. More than one option may be
granted to the same individual. No option may be granted to an individual
who owns, directly or indirectly, Common Stock or other capital stock of
the Company possessing more than 5% of the total combined voting power or
value of any class of capital stock of the Company or a subsidiary
immediately after such option is granted. Except for the foregoing
limitations, there is no minimum or maximum number of shares of Common
Stock with respect to which options may be granted to any individual under
the Plan. Individuals to whom options are granted are at times referred to
as "option holders".
6. DURATION OF THE PLAN. The Plan shall remain in effect until all shares
reserved for issuance pursuant to the Plan shall have been purchased
pursuant to options granted under the Plan, provided that options under the
Plan must be granted within ten years from the effective date of the Plan.
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7. GENERAL TERMS OF OPTIONS. Options shall be evidenced by stock option
agreements in such form and not inconsistent with the Plan as the Committee
shall approve from time to time, which agreements shall contain in
substance the following terms and conditions:
A. DATE OF GRANT. An option agreement shall specify the date of grant,
which shall be the date on which the Committee grants an option or any
later date which the Committee specifically designates.
B. NUMBER OF SHARES OF COMMON STOCK. An option agreement shall specify
the number of shares of Common Stock to which it pertains.
Notwithstanding any other provision of the Plan, the maximum number of
shares that may be covered by any option grant during any calendar
year shall be 100,000 shares.
C. EXERCISE PRICE. The exercise price of all stock options will be
granted at fair market value, except for performance based stock
options, such as those granted in connection with the Continuous
Performance Award Plan, where the exercise price is an average and on
the date of grant could be higher or lower than fair market value.
Fair market value is generally determined to be the closing price for
the Common Stock on the New York Stock Exchange as reported by The
Wall Street Journal or other readily available quotation of composite
transactions.
D. TERM OF OPTIONS. The term of each option shall be fixed by the
Committee.
E. EXERCISABILITY AND TRANSFERABILITY.
(i) The Committee shall have the authority to determine whether an
option agreement shall specify periods after the date of grant of
an option during which the option or any portion thereof may not
yet be exercisable, including provisions applicable to persons
subject to Section 16 of the Exchange Act.
(ii) During the lifetime of an option holder, options may be exercised
only by the option holder and only while an employee of the
Company or a parent or subsidiary of the Company or otherwise
performing services for the Company or a parent or subsidiary and
only if the option holder has been continuously so employed or
engaged since the date such options were granted, except as the
Committee may otherwise determine and provide for in an option
agreement at the time of grant or, if the Committee does not so
provide, as follows:
(a) DISABILITY. In the event of disability of an option
holder, options may be exercised by such individual or
his or her guardian or legal representative, not later
than the earlier of the date the option expires or one
year after the date such employment or performance of
services ceases by reason of disability, but only with
respect to an option exercisable at
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the time such employment or performance of services
ceases.
(b) DEATH. An option may be exercised after the death of an
option holder only by such individual's legal
representatives, heirs or legatees, not later than the
earlier of the date the option expires or one year
after the date of death of such individual, and only
with respect to an option exercisable at the time of
death.
(c) RETIREMENT. A nonqualified option may be exercised by
an option holder after such individual ceases to be an
employee by reason of retirement for up to four years
after the date of retirement but not later than the
date the option expires. "Retirement" shall have the
meaning established by the Committee from time to time
or, if no such meaning is established, shall mean
termination of employment with the Company at an age
and with a number of years of service to the Company
which, when added together, equal at least 65.
(d) OTHER TERMINATION OF EMPLOYMENT. An option may be
exercised by an option holder after such individual
ceases to be an employee (for reasons other than
disability, death or retirement) for up to three months
after the date of termination of employment but not
later than the date the option expires.
(e) In the event a salary replacement option is granted by
the Committee and the option holder is involuntarily
terminated during the option term or becomes disabled
or dies, the Committee shall have the right to grant to
the option holder or his personal representative, as
the case may be, the right to request either (1) that
the option be cancelled and the option holder or his
estate be paid an amount equal to the compensation the
option holder has given up from the date of grant to
the date of such termination, disability or death
together with interest at the prime rate less the then
market gain on that portion of the shares covered by
the option which is then vested; or (2) that the stock
option accelerates such that the option be deemed to
have vested at an appropriate rate per month (as
determined by the Committee) from the date of grant to
the last date of the month in which the date of
termination, disability or death occurs, such
accelerated option to be then exercisable for a period
of three years following such date but only with
respect to an option exercisable at the time such
individual ceases to be an employee.
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(iii) Notwithstanding any provision of this paragraph 7.E,
if within one year after the termination of employment
with or performance of services for the Company, an
option holder is employed or retained by a company that
competes with the business of the Company or such
individual violates any confidentiality agreement with
the Company, the Company may cancel and rescind all
options held by such individual and demand return of
the economic value of any option which was realized or
obtained (measured at the date of exercise) by such
individual at any time during the period beginning on
the date which is twelve months prior to the date of
termination provided, however, that this provision
shall not be applicable in the event of a Change of
Control..
(iv) Absence on leave or any other interruption in the
performance of services by an option holder with the
Company shall, if approved by the Committee, not be
deemed a cessation or interruption of employment or
services for the purposes of the Plan.
(v) No option shall be assignable or transferable by the
individual to whom it is granted except that it may be
transferable by will or the laws of descent and
distribution.
(vi) In no event shall any option be exercisable at any time
after its expiration date unless extended by the
Committee. When an option is no longer exercisable, it
shall be deemed to have lapsed or terminated.
F. METHODS OF EXERCISE. Subject to the terms and conditions of the Plan
and the terms and conditions of the option agreement, an option may be
exercised in whole at any time or in part from time to time, by
delivery to the Company at its principal office of a written notice of
exercise specifying the number of shares with respect to which the
option is being exercised, accompanied by payment in full of the
exercise price for shares to be purchased at that time. Payment may be
made (i) in cash, (ii) in shares of Common Stock valued at the fair
market value of the Common Stock on the date of exercise or (iii) in a
combination of cash and Common Stock. The Committee may also, in its
sole discretion, permit option holders to deliver a notice of exercise
of options and to simultaneously sell the shares of Common Stock
thereby acquired pursuant to a brokerage or similar arrangement
approved in advance by proper officers of the Company, using the
proceeds from such sale as payment of the exercise price, or may
authorize such other methods as it deems appropriate and as comply
with requirements of the Code and the Exchange Act.
No shares of Common Stock shall be issued until full payment therefor
has been made.
G. ACCELERATED OWNERSHIP FEATURE. An option may, in the discretion of the
Committee, include the right to acquire an accelerated ownership
nonqualified stock option ("AO Option"). An option which provides for
the grant of an AO Option shall entitle the option holder, upon
exercise of that option and payment of the appropriate exercise price
in shares of Common Stock that have been owned by such option holder
for not less than six months prior to the date of exercise, to receive
an AO Option. An AO Option is an option to purchase, at fair market
value
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at the date of grant of the AO Option, a number of shares of Common
Stock equal to the sum of the number of whole shares delivered by the
option holder in payment of the exercise price of the original option
and the number of whole shares, if any, withheld by the Company as
payment for withholding taxes. An AO Option shall expire on the same
date that the original option would have expired had it not been
exercised. All AO Options shall be nonqualified options.
H. CHANGE OF CONTROL. In the event of a Change of Control of the Company
as hereinafter defined, whether or not approved by the Board of
Directors, all options shall fully vest, unless otherwise limited by
the Committee at the time of the option grant, and be exercisable in
their entirety immediately, and notwithstanding any other provisions
of the Plan, shall continue to be exercisable for three years
following the Change of Control, but not later than ten years after
the date of grant.
Change of Control means:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act)
(a "Person") of beneficial ownership (within the meaning of
Rule 13d-3 under the Exchange Act) of 15% or more of either
(A) the then-outstanding shares of Common Stock of the Company
(the "Outstanding Company Common Stock") or (B) the combined
voting power of the then-outstanding voting securities of the
Company entitled to vote generally in the election of directors
(the "Outstanding Company Voting Securities"); provided,
however, that for purposes of this subparagraph (i), the
following acquisitions shall not constitute a Change of Control:
(A) any acquisition directly from the Company, (B) any
acquisition by the Company, (C) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company, or (D) any
acquisition by any corporation pursuant to a transaction that
complies with clauses (A), (B) and (C) of subparagraph (iii) of
this subparagraph; or
(ii) Individuals who, as of the date hereof, constitute the Board of
Directors of the Company (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of
the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result
of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
(iii) Consummation of a reorganization, merger or consolidation of the
Company or sale or other disposition of all or substantially all
of the assets of the Company or the acquisition by the Company of
assets or stock of
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<PAGE>
another entity (a "Business Combination"), in each case, unless,
following such Business Combination, (A) all or substantially all
of the individuals and entities who were the beneficial owners,
respectively, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly,
more than 50% of, respectively, the then-outstanding shares of
common stock and the combined voting power of the
then-outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction
owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (B) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit
plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns,
directly or indirectly, 15% or more of, respectively, the
then-outstanding shares of common stock of the corporation
resulting from such Business Combination, or the combined voting
power of the then-outstanding voting securities of such
corporation except to the extent that such ownership existed
prior to the Business Combination and (C) at least a majority of
the members of the board of directors of the corporation
resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such
Business Combination; or
(iv) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
I. REORGANIZATION. The Committee may, in its sole discretion, make
provisions in any option agreement for the protection of outstanding
options in the event of a merger, consolidation, reorganization or
liquidation of the Company or the acquisition of stock or assets of
the Company by another entity.
J. RIGHTS AS A STOCKHOLDER. An option holder shall have no rights as a
stockholder with respect to any Common Stock covered by an option
until exercise of such option and issuance of shares of Common Stock.
Except as otherwise expressly provided in the Plan, no adjustments
shall be made for dividends or other rights for which the record date
is prior to issuance of the Common Stock.
K. GENERAL RESTRICTION. Each option shall be subject to the requirement
that, if at any time the Board shall determine in its discretion that
the listing, registration or qualification of the Common Stock subject
to such option on any securities exchange or under any state or
federal law, or the consent or approval of any
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<PAGE>
government regulatory body, is necessary or desirable as a condition
of, or in connection with, the granting of such option or the issue or
purchase of Common Stock thereunder, such option may not be exercised
in whole or in part unless such listing, registration, qualification,
consent or approval shall have been effected or obtained free of any
conditions not acceptable to the Board.
L. FOREIGN NATIONALS. Without amending the Plan, awards may be granted to
individuals who are foreign nationals or are employed or otherwise
performing services for the Company or any subsidiary outside the
United States or both, on such terms and conditions different from
those specified in the Plan as may, in the judgment of the Committee,
be necessary or desirable to further the purpose of the Plan.
8. INCENTIVE AND NONQUALIFIED OPTIONS. It is intended that certain options
granted under the Plan shall be Incentive Stock Options and shall meet the
applicable requirements of and contain or be deemed to contain all
provisions required under Section 422 of the Code or corresponding
provisions of subsequent revenue laws and regulations in effect at the time
such options are granted; that other options shall not meet such
requirements and shall be nonqualified stock options; and that any
ambiguities in construction shall be interpreted in order to effectuate
such intent. The Committee may grant one or more options of either type, or
of both types, to any one or more individuals either at different times or
concurrently. Such options shall be subject to the terms and conditions set
forth elsewhere in the Plan and to the following:
A. INCENTIVE STOCK OPTIONS. The term of any Incentive Stock Option shall
meet the requirements of Section 422 of the Code. Any Incentive Stock
Option shall be treated as "outstanding" until it is exercised in full
or expires by reason of lapse of time. To the extent that the
aggregate fair market value of Common Stock (determined at the time of
grant of the Incentive Stock Option in accordance with paragraph 7.C
of the Plan) with respect to which Incentive Stock Options are
exercisable for the first time by an option holder during any calendar
year (under all such plans of the Company and its parent and
subsidiary corporations) exceeds $100,000 or such other limit as may
be imposed by the Code, such options to the extent they exceed such
limit shall be treated as options which are not Incentive Stock
Options. In applying the foregoing limitation, options shall be taken
into account in the order in which they were granted.
B. NONQUALIFIED OPTIONS. There is no limitation on the maximum amount of
nonqualified options which may be exercised in any year.
9. WITHHOLDING TAXES. The Company shall have the right to deduct from any
settlement made under the Plan, including the exercise of an option or the
sale of shares of Common Stock, any federal, state or local taxes of any
kind required by law to be withheld with respect to such payments or to
take such other action as may be necessary in the opinion of the Company to
satisfy all obligations for the payment of such taxes. If Common Stock is
withheld or surrendered to satisfy tax withholding, such stock shall be
valued at its fair market value as of the date such Common Stock is
withheld or surrendered.
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10. AMENDMENT OF THE PLAN. The Plan may be amended, suspended or discontinued
in whole or in part at any time and from time to time by the Board,
including an amendment to increase the number of shares of Common Stock
with respect to which options may be granted, provided however that no
amendment shall be effective unless and until the same is approved by
stockholders of the Company where the failure to obtain such approval would
adversely affect the availability of any exemption under Rule 16b-3 under
the Exchange Act or successor rule and with other applicable law, including
the Code. No amendment of the Plan shall adversely affect in a material
manner any right of any option holder with respect to any option
theretofore granted without such option holder's written consent.
11. MISCELLANEOUS.
A. USE OF PROCEEDS. The proceeds derived from the sale of shares of
Common Stock pursuant to options granted under the Plan shall
constitute general funds of the Company.
B. PARENT AND SUBSIDIARY. As used herein, the terms "parent" and
"subsidiary" shall mean "parent corporation" and "subsidiary
corporation", respectively, as defined in Section 424 of the Code.
C. GOVERNING LAW. The Plan, options 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.
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Exhibit 10(g)
THE TORO COMPANY
PERFORMANCE SHARE PLAN
1. PURPOSE. The purpose of the Toro Company Performance Company Performance
Share Plan (the "Plan") is to enhance long-term stockholder value of The
Toro Company (the "Company"), by reinforcing the incentives of key
executives to achieve long-term performance goals of the Company; to link a
significant portion of a participant's compensation to the achievement by
the Company of performance goals and to the value of the Company's Common
Stock, par value $1.00 per share, and related Preferred Share Purchase
Rights ("Common Stock"); and to attract and motivate executives and to
encourage their continued employment on a competitive basis. The purposes
of the Plan are to be achieved by the grant of Performance Share Awards.
2. ELIGIBILITY AND PARTICIPATION. Key employees of the Company who, through
their position or performance, can have a significant, positive impact on
the Company's financial results, shall be eligible to participate in the
Plan. The Compensation Committee (the "Committee") shall select recipients
of Performance Shares ("Plan Participants"). Newly-hired and newly-promoted
executives may be selected as Plan Participants subject to the provisions
of subparagraph 3.c.(ii), if applicable.
3. PERFORMANCE SHARE AWARDS.
a. PERFORMANCE SHARE DEFINED. A Performance Share is a right to receive
shares of Common Stock or Common Stock units, contingent on the
achievement of performance goals of the Company during a three period,
except that a shorter period may be established for new participants
and for awards granted at the time the Plan is adopted (the "Award
Term"). A Performance Share Award shall be subject to such conditions,
restrictions and contingencies as the Committee shall determine.
b. VESTING. Performance Shares shall be subject to forfeiture until
they vest and shall vest only after the conclusion of the Award
Term, and only if the Committee makes the certification required by
subparagraph 3.c.(iii), except as may otherwise be provided in
subparagraph 3.c.(iv).
c. SECTION 162(m) CONDITIONS. Performance Share Awards may be
designated as "performance-based compensation" as that term is used
in Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code").
(i) PERFORMANCE GOALS. The Performance Goal criteria ("Performance
Goals") that may be used by the Committee for Performance Shares
shall include one or more of the following, as selected by the
Committee: cumulative earnings, cumulative earnings per share,
profit after tax, net income, return on invested capital,
invested capital dollars, earnings per share, average net assets,
after-tax interest expense, return on average net assets, return
on equity, return on beginning equity, revenue growth and
earnings growth.
(ii) ESTABLISHMENT OF PERFORMANCE GOALS. Performance Share Awards
designated "performance-based compensation" shall be granted, and
Performance Goals shall be established, by the Committee in
writing not later than 90 days after the commencement of the
period of service to which the Performance Goal relates, or such
other period required under Section 162(m) of the Code, provided
that the outcome is substantially uncertain at the time the
Committee establishes the Performance Goal; and provided further
that in no event will a Performance Goal be considered to be
pre-established 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.
(iii)SECTION 162(m) MAXIMUM AWARD PAYMENT. With respect to a
Performance Share Award that is designated "performance-based
compensation" for purposes of Section 162(m), the maximum number
of shares that may be issued under the award shall be set at the
time the
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Committee grants the award and establishes Performance Goals
under the award. Notwithstanding any other provision of this
Plan, the maximum number of Performance Shares that may be
granted to a Plan Participant with respect to any Award Term is
100,000, subject to adjustment as provided in paragraph 4.
(iv) CERTIFICATION OF PAYMENT. Before any payment or delivery of
shares of Common Stock is made under the Plan to any Participant
who is a person referred to in Section 162(m), the Committee must
certify in writing, as reflected in the minutes, that the
Performance Goals established with respect to a Performance Share
Award have been achieved. To the extent necessary with respect to
any fiscal year, in order to avoid any undue windfall or hardship
due to external causes, the Committee may make the determination
as to whether a Performance Goal has been achieved without regard
to the effect on the Performance Goal measure, as it may
otherwise be presented in the financial statements, of any change
in accounting standards, any acquisition by the Company not
planned for at the time the Performance Goals are established or
any Board-approved extraordinary or non-recurring event or item.
With respect to any Plan Participant who is a person referred to
in Section 162(m), the Committee shall have the discretion to
decrease an award payment under a Performance Share Award, but
may not under any circumstances increase such amount.
d. DELIVERY. Certificates for shares of Common Stock in the number of
Performance Shares that vest under an award will be delivered as soon
as possible after the applicable vesting requirements (including
accelerated vesting under subparagraph 3.e.) have been fulfilled,
except that if a Plan Participant has properly elected to defer income
that may be attributable to an award under a Company deferred
compensation plan, Common Stock units will be credited to the Plan
Participant's account thereunder. In the event vesting requirements
are not fulfilled, Performance Shares shall be canceled and have no
value.
e. VESTING AND CANCELLATION UNDER SPECIAL CIRCUMSTANCES.
(i) RETIREMENT, DEATH OR DISABILITY. If a Plan Participant retires on
or after age 65 or dies or becomes permanently disabled and
unable to work, shares of Common Stock shall be delivered with
respect to the participant's Performance Share Award only if
otherwise earned and only 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). Such shares
shall be delivered only after the conclusion of the Award Term in
accordance with the provisions of subparagraphs 3.b., 3.c. and
3.d. of the Plan.
(ii) VOLUNTARY RESIGNATION AND EARLY RETIREMENT. In the event that a
Participant resigns voluntarily or retires before age 65,
Performance Shares in such participant's name that have not yet
vested shall not vest and shall be canceled.
(iii)CHANGE OF CONTROL. Notwithstanding the provisions of
subparagraphs 3.b. and 3.c., all Performance Shares that have not
yet vested shall vest and become immediately payable if there is
a change of control of the Company.
Change of Control means:
(A) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act)
(a "Person") of beneficial ownership (within the meaning of
Rule 13d-3 under the Exchange Act) of 15% or more of either
(a) the then-outstanding shares of Common Stock of the Company
(the "Outstanding Company Common Stock") or (b) the combined
voting power of the then-outstanding voting securities of the
Company entitled to vote generally in the election of directors
(the "Outstanding Company Voting Securities"); provided,
however, that for purposes of this subparagraph (A), the
following acquisitions shall not constitute a Change of
2
<PAGE>
Control: (a) any acquisition directly from the Company, (b) any
acquisition by the Company, (c) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company, or (d) any
acquisition by any corporation pursuant to a transaction that
complies with clauses (a), (b) and (c) of subparagraph (C) of
this subparagraph 3.e.(iii); or
(B) Individuals who, as of the date hereof, constitute the Board
of Directors of the Company (the "Incumbent Board") cease
for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual
or threatened election contest with respect to the election
or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(C) Consummation of a reorganization, merger or consolidation of
the Company or sale or other disposition of all or
substantially all of the assets of the Company or the
acquisition by the Company of assets or stock of another
entity (a "Business Combination"), in each case, unless,
following such Business Combination, (a) all or
substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of,
respectively, the then-outstanding shares of common stock
and the combined voting power of the then-outstanding voting
securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting
from such Business Combination (including, without
limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of
the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of
the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, (b) no Person
(excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust)
of the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or
indirectly, 15% or more of, respectively, the
then-outstanding shares of common stock of the corporation
resulting from such Business Combination, or the combined
voting power of the then-outstanding voting securities of
such corporation except to the extent that such ownership
existed prior to the Business Combination and (c) at least a
majority of the members of the board of directors of the
corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution
of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(D) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
f. DIVIDENDS AND VOTING. A Plan Participant shall have no rights as a
stockholder with respect to Performance Shares unless and until Common
Stock or Common Stock units are issued in settlement of the award.
Except as expressly provided in the Plan, no adjustments shall be made
for dividends or other rights for which the record date is prior to
issuance of the Common Stock or crediting of Common Stock units.
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g. NON-TRANSFERABILITY. Neither Performance Shares nor Performance Share
Awards nor any interest in any one of such awards or shares may be
anticipated, alienated, encumbered, sold, pledged, assigned,
transferred or subjected to any charge or legal process, other than by
will or the laws of descent and distribution, so long as the
Performance Shares have not vested and shares of Common Stock have not
been distributed in accordance with the Plan, and any sale, pledge,
assignment or other attempted transfer shall be null and void. A Plan
Participant may receive payment under a Performance Share Award only
while an employee of the Company and only if continuously employed
from the date the award was granted, except as may otherwise be
provided in subparagraph 3.e.
4. MAXIMUM SHARES SUBJECT TO PERFORMANCE SHARE AWARDS. Subject to the
provisions of subparagraph 4.a., the number of shares of Common Stock
reserved and available for issuance pursuant to Performance Share Awards
under the Plan is 500,000. Shares of Common Stock that may be issued
hereunder may be authorized but unissued shares, reacquired or treasury
shares or outstanding shares acquired in the market or from private sources
or a combination thereof.
a. ADJUSTMENTS. Appropriate adjustments in (i) the number or kind of
Performance Shares previously granted or (ii) the maximum number of
shares of Common Stock or number or kind of securities that may be
subject to Performance Share Awards or otherwise available for the
purposes of the Plan may be made by the Committee in its discretion to
give effect to adjustments made in the number of shares of Common
Stock of the Company or other security through any merger,
consolidation, recapitalization, reclassification, combination, stock
dividend, stock split or similar change in the corporate structure of
the Company affecting the Common Stock, or a sale by the Company of
all or part of its assets or any distribution to stockholders other
than a normal cash dividend.
5. ADMINISTRATION. The Plan shall be administered by the Committee. The
Committee shall have the authority to administer the Plan; establish
policies under the Plan; amend the Plan, subject to the provisions of
paragraph 8; interpret provisions of the Plan; select Plan Participants;
establish Performance Goals; make Performance Share Awards; or terminate
the Plan, in its sole discretion. The Committee may delegate administrative
duties and all decisions not required to be exercised by it under
Section 162(m) or Section 16 of the Exchange Act, as it solely determines,
including to Company officers. All decisions of the Committee shall be
final and binding upon all parties including the Company, its stockholders
and Plan Participants.
6. TAX WITHHOLDING. The Company shall have the right to deduct from any
settlement made under the Plan or to require the Participant to pay the
amount of any federal, state or local taxes of any kind required by law to
be withheld with respect to the grant, vesting, payment or settlement of an
award under this Plan, or to take such other action as may be necessary in
the opinion of the Company to satisfy all obligations for the payment of
such taxes. If Common Stock is withheld or surrendered to satisfy tax
withholding, such stock shall be valued at its fair market value as of the
date it is withheld or surrendered. The Company may also deduct from any
award settlement any other amounts due the Company by the Plan Participant.
7. GOVERNING LAW. The Plan, awards granted under the Plan, agreements entered
into under the Plan and Performance Shares 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. PLAN AMENDMENT AND TERMINATION. The Committee may, in its sole discretion,
amend, suspend or terminate the Plan at any time, with or without advance
notice to Plan Participants, provided that no amendment to the Plan shall
be effective that would increase the maximum number of Performance Shares
that may be granted under subparagraph 3.c.(iii) to a Participant who is a
person referred to in Section 162(m); that would change the Performance
Goal criteria applicable to a Participant who is a person referred to in
Section 162(m) for payment of awards as set forth in subparagraph 3.c.(i);
or that would modify the requirements as to eligibility for participation
under paragraph 2, unless the stockholders of the Company shall have
approved such change in accordance with the requirements of Section 162(m).
No amendment, modification or termination of the Plan may adversely affect
in a material manner any right of any Plan Participant with respect to any
Performance Share Award theretofore granted without such participant's
written consent.
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9. EFFECTIVE DATE OF THE PLAN AND AMENDMENTS. The Plan shall first become
effective on November 18, 1998, subject to stockholder approval. 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 8.
5
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THE TORO COMPANY
SUPPLEMENTAL MANAGEMENT RETIREMENT PLAN
JULY 27, 1998 RESTATEMENT
<PAGE>
CONTENTS
<TABLE>
<S> <C> <C>
I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II. ELIGIBILITY AND PARTICIPATION . . . . . . . . . . . . . . . . . . 4
III. SUPPLEMENTAL ACCOUNT. . . . . . . . . . . . . . . . . . . . . . . 4
3.1 Establishment of Account . . . . . . . . . . . . . . . . 4
3.2 Credits to Article III Account . . . . . . . . . . . . . 4
3.3 Earnings on Amounts Credited . . . . . . . . . . . . . . 5
3.4 Optional Earnings Credits. . . . . . . . . . . . . . . . 5
IV. SUPPLEMENTAL RETIREMENT BENEFIT . . . . . . . . . . . . . . . . . 6
4.1 Benefit Eligibility. . . . . . . . . . . . . . . . . . . 6
4.2 Calculation of the Benefit . . . . . . . . . . . . . . . 6
4.3 Effect of Plan Termination . . . . . . . . . . . . . . . 7
V. SUPPLEMENTAL SURVIVING SPOUSE BENEFIT . . . . . . . . . . . . . . 7
5.1 Eligibility for Surviving Spouse Benefit . . . . . . . . 7
5.2 Calculation of the Benefit . . . . . . . . . . . . . . . 8
5.3 Effect of Plan Termination . . . . . . . . . . . . . . . 8
VI. DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.1 Distribution of Article III Accounts . . . . . . . . . . 8
6.2 Election of Distribution Method - Article III Accounts . 8
6.3 Death Prior to Completion of Distributions . . . . . . . 9
6.4 Distribution of Article IV Accounts. . . . . . . . . . . 9
6.5 Election of Distribution Method - Article IV Benefits. . 10
6.6 Death Before Termination of Employment . . . . . . . . . 10
6.7 Distributions in Common Stock of the Company . . . . . . 10
6.8 Distributions for Certain Tax Purposes . . . . . . . . . 10
VII. ADMINISTRATION OF THE PLAN. . . . . . . . . . . . . . . . . . . . 11
7.1 Company Authority. . . . . . . . . . . . . . . . . . . . 11
7.2 Reliance . . . . . . . . . . . . . . . . . . . . . . . . 11
7.3 Benefit Statements . . . . . . . . . . . . . . . . . . . 11
7.4 Claims . . . . . . . . . . . . . . . . . . . . . . . . . 11
VIII. AMENDMENT OR TERMINATION. . . . . . . . . . . . . . . . . . . . . 13
IX. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . 14
9.1 The Trust. . . . . . . . . . . . . . . . . . . . . . . . 14
9.2 No Alienation. . . . . . . . . . . . . . . . . . . . . . 14
9.3 Unfunded Plan. . . . . . . . . . . . . . . . . . . . . . 14
9.4 No Guaranty. . . . . . . . . . . . . . . . . . . . . . . 15
9.5 No Right of Employment . . . . . . . . . . . . . . . . . 15
<PAGE>
9.6 Smaller Accounts . . . . . . . . . . . . . . . . . . . . 15
9.7 Incompetency . . . . . . . . . . . . . . . . . . . . . . 15
9.8 Corporate Changes. . . . . . . . . . . . . . . . . . . . 15
9.9 Addresses. . . . . . . . . . . . . . . . . . . . . . . . 16
9.10 Limitations on Liability . . . . . . . . . . . . . . . . 16
9.11 Unforseeable Emergencies . . . . . . . . . . . . . . . . 16
9.12 Disability . . . . . . . . . . . . . . . . . . . . . . . 16
9.13 Transfers to the Trust . . . . . . . . . . . . . . . . . 17
9.14 Inspection . . . . . . . . . . . . . . . . . . . . . . . 17
9.15 Governing Law. . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
II
<PAGE>
THE TORO COMPANY
SUPPLEMENTAL MANAGEMENT RETIREMENT PLAN
JULY 27, 1998 RESTATEMENT
The Toro Company hereby amends and restates its Supplemental Management
Retirement Plan originally effective as of August 1, 1989, as subsequently
amended and restated. This amendment and restatement is effective as of July
27, 1998. This Plan is maintained by Company for the purpose of providing
benefits for a select group of highly-compensated employees, in excess of the
limitations on benefits and contributions imposed by Sections 401(a)(17) and 415
of the Internal Revenue Code of 1986. This Plan is unfunded for purposes of
Title I of ERISA.
I. DEFINITIONS
When used in this Plan, the following terms have the meanings indicated
unless a different meaning is plainly required by the context.
"BENEFICIARY" means the person or persons selected by the Participant to
receive benefits under this Plan in the event of the Participant's death.
"CHANGE OF CONTROL" means:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of beneficial ownership (within the meaning of Rule
13d-3 under the Exchange Act) of 15% or more of either (A) the
then-outstanding shares of Common Stock of the Company (the
"Outstanding Company Common Stock") or (B) the combined voting
power of the then-outstanding voting securities of the Company
entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that
for purposes of this subsection (i), the following acquisitions
shall not constitute a Change of Control: (A) any acquisition
directly from the Company, (B) any acquisition by the Company, (C)
any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any corporation
controlled by the Company, or (D) any acquisition by any
corporation pursuant to a transaction that complies with clauses
(A), (B) and (C) of subsection (iii) of this definition; or
<PAGE>
(ii) Individuals who, as of the date hereof, constitute the Board of
Directors of the Company (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to the
date hereof whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result
of an actual or threatened election contest with respect to the
election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
(iii) Consummation of a reorganization, merger or consolidation of the
Company or sale or other disposition of all or substantially all
of the assets of the Company or the acquisition by the Company of
assets or stock of another entity (a "Business Combination"), in
each case, unless, following such Business Combination, (A) all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then-outstanding
shares of common stock and the combined voting power of the
then-outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without
limitation, a corporation which as a result of such transaction
owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately
prior to such Business Combination of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the
case may be, (B) no Person (excluding any corporation resulting
from such Business Combination or any employee benefit plan (or
related trust) of the Company or such corporation resulting from
such Business Combination) beneficially owns, directly or
indirectly, 15% or more of, respectively, the then-outstanding
shares of common stock of the corporation resulting from such
Business Combination, or the combined voting power of the
then-outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business
Combination and (C) at least a majority of the members of the
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<PAGE>
board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution o the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(iv) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the Compensation Committee of the Board of Directors of
the Company, or any successor committee.
"COMMON STOCK" means the Company's common stock, par value $1.00 per
share, and related preferred share purchase rights.
"COMPANY" means The Toro Company, a Delaware corporation.
"COMPENSATION" means all amounts received by a Participant from the
Company that are subject to federal income tax withholding: provided, that
(i) Compensation shall not include any amount received by an employee on account
of the grant or exercise of an option to purchase Common Stock of the Company,
and (ii) Compensation shall include an amount equal to any reductions in a
Participant's gross income as a result of salary reductions under Sections 125
or 401(k) or 402(a)(8) of the Code.
"DISTRIBUTION ELECTION FORM" means a form provided by the Company through
which a Participant makes the distribution elections provided for in Article VI.
"ELIGIBILITY SERVICE" means eligibility service as defined in the Profit
Sharing Plan.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ESOP" means The Toro Company Employee Stock Ownership Plan, as amended.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"PARTICIPANT" means any employee of the Company or a participating
Subsidiary who meets the conditions described in Article II of this Plan.
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<PAGE>
"PARTICIPATING SUBSIDIARY" means a Subsidiary of the Company to which
this Plan has been extended by action of the Board of Directors of the Company
or by action of the Committee, if the Board of Directors has authorized the
Committee to so act.
"PENSION PLAN" means The Toro Company Retirement Plan for Office and
Hourly Employees (the successor of The Toro Company Retirement Plan for Office
Employees), as amended, or any successor or replacement plan.
"PLAN" means this Supplemental Management Retirement Plan, as amended.
"PLAN YEAR" means the calendar year.
"PROFIT SHARING PLAN" means The Toro Company Investment and Savings Plan
(prior to August 1, 1995, The Toro Company Profit Sharing Plan for Office
Employees), as amended, or any successor or replacement plan.
"SECTION 16 INSIDER" means any Participant who is, with respect to the
Company, subject to Section 16 of the Exchange Act.
"SUBSIDIARY" means any corporation which is a component member of the
controlled group of corporations of which the Company is the common parent.
Controlled group shall be determined by reference to Section 1563 of the Code
but including any corporation described in Section 1563(b) (2) thereof.
"SURVIVING SPOUSE" means a person who is married to a Participant at the
date of the Participant's death and for at least one year prior thereto.
"TRUST" means the trust established or maintained by the Company which is
used in connection with this Plan to assist the Company in meeting its
obligations under the Plan.
"TRUSTEE" means the corporation or individual selected by the Company to
serve as trustee for the Trust.
The singular form of any word shall include the plural and the masculine
gender shall include the feminine where necessary for the proper interpretation
of this Plan.
4
<PAGE>
II. ELIGIBILITY AND PARTICIPATION
An employee who satisfies the conditions of Section 2.2 and whose
benefits under the ESOP, the Pension Plan or the Profit Sharing Plan are or will
be reduced because of the limitations on contributions and benefits imposed by
Sections 401(a) (17) or 415 of the Code shall be a Participant in the Plan.
Prior to August 1, 1994, a Participant in the Plan was required to be an
executive of the Company at the level of Vice President or above or an employee
receiving annual Compensation equal to or greater than $200,000. On and after
August 1, 1994, a Participant in the Plan must be an employee of the Company or
of a Participating Subsidiary receiving annual Compensation at a rate equal to
or greater than $150,000, as such amount may be adjusted from time to time by
the Secretary of the Treasury pursuant to Section 401(a)(17) of the Code.
Once an employee becomes a Participant, his or her account under the Plan
will remain in effect until distributed as provided herein, even if for any
subsequent Plan Year or portion thereof the employee is ineligible to be a
Participant, or ceases to be a Participant for any other reason.
III. SUPPLEMENTAL ACCOUNT
3.1 ESTABLISHMENT OF ACCOUNT
The Company shall establish and maintain an Article III account for each
Participant, and shall credit such account for each Plan Year with an amount
equal to the amount described in Section 3.2.
3.2 CREDITS TO ARTICLE III ACCOUNT
The amount credited to a Participant's Article III account for each Plan
Year or portion thereof during which the employee is a Participant shall equal
the difference between:
(a) the aggregate amount of contributions and forfeitures which
would have been allocated or reallocated to the Participant under the Profit
Sharing Plan, the ESOP and any other defined contribution plan (as defined in
Section 414(i) of the Code) maintained by the Company, based on the
Participant's Compensation, and without regard to the limitations imposed by
Sections 401(a)(l7) or 415 of the Code, and
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<PAGE>
(b) the aggregate amount of contributions and forfeitures
actually allocated or reallocated to the Participant under such qualified plans
plus any credits made under any nonqualified deferred compensation plan
maintained by the Company (other than this Plan) to replace amounts that would
have been credited under the qualified plans had the Participant not deferred
compensation under such nonqualified plans.
Amounts credited to a Participant's Article III account for any Plan Year
shall be credited as of the end of such Plan Year.
3.3 EARNINGS ON AMOUNTS CREDITED
Amounts credited to a Participant's Article III account shall be credited
with interest at a rate and in a manner determined by the Company to be
consistent with the average prime rate of interest charged by U. S. Bank,
National Association to its individual borrowers. Prior to a Change of Control
the method for determining the interest crediting rate may be changed at any
time, at the discretion of the Company. After a Change of Control, the Trustee
shall have authority to change the method for determining the interest crediting
rate. Interest shall be credited as of the end of each quarter.
3.4 OPTIONAL EARNINGS CREDITS
If a Participant's age and years of Eligibility Service with the Company
equals or exceeds sixty (60), the Participant may request the Trustee in
writing, on a form approved by the Committee, to invest a specified percentage
of his or her Article III account in one or more of the investment vehicles made
available by the Company under the Trust. A Participant may change his or her
election as of the first day of January and as of the first day of July, and
more frequently if permitted by the Company, by delivering an election form to
the Chief Financial Officer of the Company at least thirty days prior to the
effective date of the election. Prior to a Change of Control, the investment
vehicles made available to the Participants shall be selected by the Chief
Executive Officer of the Company or by such Officer's designee. After a Change
of Control, investment vehicles shall be selected by the Trustee. Any expense
incurred in connection with an investment option shall be charged on a pro rata
basis against the Participants' accounts. The investment vehicles made
available under the Trust shall include at least one vehicle that provides a
fixed rate of interest through investment in fixed income mutual funds or common
trust funds, U.S. Treasury bonds and notes, certificates of deposit, annuity
contracts, or other similar investments.
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<PAGE>
If the investment vehicles include a fund that invests exclusively or
primarily in the Company's Common Stock, Participants who are Section 16
Insiders may allocate amounts to or from such fund only in accordance with
Company policies on insider trading and in compliance with the rules for
"Discretionary Trading" as defined in Rule 16b-3 (or any successor provision)
under the Exchange Act. Distributions from a fund that invests exclusively or
primarily in the Company's Common Stock shall be made in Common Stock.
If the Committee approves an election made as provided in this Section,
the Participant's account will thereafter be credited with earnings or losses
based upon the earnings or losses attributable to the investments so elected;
and the Company shall not credit any portion of the account subject to such
election with interest, as described in Section 3.3.
IV. SUPPLEMENTAL RETIREMENT BENEFIT
4.1 BENEFIT ELIGIBILITY
A supplemental retirement benefit shall be payable to a Participant under
this Article IV commencing on the Participant's normal retirement date, as
defined in the Pension Plan. The amount of that benefit, which shall not be
less than zero, shall equal the difference between:
(a) the amount that the Participant would have been entitled to
receive under the Pension Plan and any other defined benefit plans (as defined
in Section 414(j) of the Code) maintained by the Company if such amount was
determined (for each Plan Year or portion thereof in which the individual was a
Participant) without regard to the limitations on benefits imposed by Sections
401(a)(17) or 415 of the Code on such plan or plans, reduced by the Defined
Contribution Plan Offset, as defined in the Pension Plan, but including as an
additional part of such Defined Contribution Plan Offset the sum of (i) amounts
credited to the Participant under Article III of this Plan (including interest
and other credits thereto) and (ii) amounts credited to the Participant under
any other nonqualified deferred compensation plan maintained by the Company to
replace amounts that would have been credited under such qualified plans had the
Participant not deferred compensation under such a nonqualified deferred
compensation plan, and
(b) the amount of the benefit actually payable to the
Participant under the Pension Plan and such other qualified defined benefit
plans.
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4.2 CALCULATION OF THE BENEFIT
(a) The amount described in Section 4.1 will be computed as of the
date of the Participant's retirement or termination of employment with the
Company, in the form of a straight life annuity payable monthly over the
lifetime of the Participant commencing on the Participant's normal retirement
date, as defined under the Pension Plan.
(b) If the benefit under Article IV is payable in any form
other than a straight life annuity over the lifetime of the Participant, or if
it commences at any time other than the Participant's normal retirement date as
defined in the Pension Plan, the amount of the benefit shall be the actuarial
equivalent of the benefit described in clause (a) of this Section.
(c) For purposes of clauses (a) and (b) of this Section, the
benefit calculation shall be made using the same actuarial methods and
assumptions as are used at the time to determine benefits under the Pension
Plan.
4.3 EFFECT OF PLAN TERMINATION
If the Pension Plan is terminated by the Company, the benefit payable to
a Participant under this Article IV, if any, shall be determined as of the
termination date of the Pension Plan and no other benefit shall be provided
under this Article IV.
V. SUPPLEMENTAL SURVIVING SPOUSE BENEFIT
5.1 ELIGIBILITY FOR SURVIVING SPOUSE BENEFIT
If a Participant dies prior to commencement of payment of his or her
benefit under the Pension Plan under circumstances in which a benefit is
payable to the Participant's Surviving Spouse under such plan, then a
supplemental benefit shall be payable to the Surviving Spouse under this Plan.
The benefit shall be an amount, not less than zero, equal to the difference
between:
(a) the monthly amount of the benefit under the Pension Plan
and any other qualified defined benefit plans maintained by the Company to which
the Surviving Spouse would have been entitled under such plan or plans if such
benefit were computed without regard to the limitations on benefits imposed by
Sections 401(a)(17) or 415 of the Code, reduced by the Defined Contribution Plan
Offset, as defined in the Pension Plan, but including as an additional part of
such Defined Contribution Plan Offset the sum of (i) amounts credited to the
Participant under Article III of this Plan (including interest and other credits
thereto) and (ii) amounts credited to the Participant under any other
nonqualified deferred compensation plan
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<PAGE>
maintained by the Company to replace amounts that would have been credited
under such qualified plans had the Participant not deferred compensation
under such a nonqualified deferred compensation plan, and
(b) the monthly amount of the benefit actually payable to the
Surviving Spouse under the Pension Plan and such other plan or plans.
5.2 CALCULATION OF THE BENEFIT
Subject to Section 9.6, a benefit payable under this Article V shall be
payable over the lifetime of the Surviving Spouse in monthly installments
commencing on the date for commencement of payment of the benefit payable to the
Surviving Spouse under the Pension Plan and terminating on the date of the last
payment of the benefit payable to the Surviving Spouse under the Pension Plan.
A Participant may elect on a Distribution Election Form to have the actuarial
equivalent of the benefit described herein paid in a lump sum. If the lump sum
option is elected, it shall be paid on the first day of the month following the
month in which the Participant dies, or as soon thereafter as is
administratively feasible. A Participant may change the form of payment in the
manner described in Section 6.2. The actuarial equivalent of the benefit
described in this Section 5.2 shall be determined using the actuarial methods
specified in the Pension Plan.
5.3 EFFECT OF PLAN TERMINATION
If the Pension Plan is terminated by the Company, the benefit payable to
a Surviving Spouse under this Article V, if any, shall be determined as of the
termination date of the Pension Plan and no other benefit shall be provided
under this Article V.
VI. DISTRIBUTIONS
6.1 DISTRIBUTION OF ARTICLE III ACCOUNTS
All amounts credited to a Participant's account in accordance with
Article III of this Plan, including gains or losses, shall be distributed to or
with respect to a Participant only upon termination of the Participant's
employment with the Company for any reason including death.
9
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6.2 ELECTION OF DISTRIBUTION METHOD - ARTICLE III ACCOUNTS
Each Participant shall elect on a Distribution Election Form the method
of distribution of his or her Article III account. The election shall become
effective upon its receipt by the Company. A Participant may change his or her
election at any time up to two years before the date of the Participant's
retirement from the Company. Any change shall become effective on January 1 of
the calendar year following the calendar year in which the change was received
by the Company. No change in election will be effective if made after the
Participant's employment with the Company is terminated for any reason. The
Committee may, in its sole discretion, reduce the payment period over which
payments would have been made pursuant to a Participant's election. If no
election has been made, the Company shall pay the amounts credited to a
Participant's Article III account in accordance with the election made by the
Participant under The Toro Company Supplemental Retirement Plan, or if no such
elections have been made or are in effect, then in a lump sum payment or, at the
discretion of the Company, through a single life annuity on the life of the
Participant.
6.3 DEATH PRIOR TO COMPLETION OF DISTRIBUTIONS
If a Participant dies before the full amount of his or her Article III
account has been distributed, any remaining amounts shall be distributed to the
Participant's Beneficiary by a method designated by the Participant in his or
her Distribution Election Form. If a Participant has not designated a
Beneficiary or method of distribution, or if no designated Beneficiary is living
on the date of distribution, such amounts shall be distributed to the
Participant's beneficiary under the Profit Sharing Plan in a lump sum
distribution as soon as administratively feasible following the Participant's
death.
6.4 DISTRIBUTION OF ARTICLE IV ACCOUNTS
All amounts credited to a Participant's account in accordance with
Article IV of the Plan, including gains and losses, shall be distributed to or
with respect to a Participant in accordance with this Section and the other
provisions of this Article.
Each Participant shall elect on a Distribution Election Form the method
of distribution of his or her Article IV benefit. The election shall become
effective upon its receipt by the Company. A Participant may change his or her
election at any time up to two years before the date of the Participant's
retirement from the Company. Any change shall become effective on January 1 of
the calendar year following the calendar year in which the change was received
by the Company. No change in election will be effective if elected after the
Participant's employment with the
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Company is terminated for any reason. The Committee may, in its sole
discretion, reduce the payment period over which payments would have been
made pursuant to a Participant's election. If no election has been made, the
Company shall pay the benefit described in Article IV in the form of a life
annuity over the life of the Participant.
If a Participant dies before termination of employment or retirement, no
benefit is payable under Article IV but a benefit may be payable under Article V
if and to the extent that the conditions of that Article are satisfied.
6.5 ELECTION OF DISTRIBUTION METHOD - ARTICLE IV BENEFITS
Each Participant shall elect on a Distribution Election Form the method
of distribution of his or her Article IV benefit. The election shall become
effective upon its receipt by the Company. A Participant may change his or her
election at any time up to two years before the date of the Participant's
retirement from the Company. Any change shall become effective on January 1 of
the calendar year following the calendar year in which the change was received
by the Company. No change in election will be effective if made after the
Participant's employment with the Company is terminated for any reason. The
Committee may, in its sole discretion, reduce the payment period over which
payments would have been made pursuant to a Participant's election. If no
election has been made, the Company shall pay the benefit described in Article
IV in the form of a life annuity over the life of the Participant.
6.6 DEATH BEFORE TERMINATION OF EMPLOYMENT
If a Participant dies before termination of employment or retirement from
the Company, no benefit is payable under Article IV but a benefit may be payable
under Article V if and to the extent that the conditions of that Article are
satisfied.
6.7 DISTRIBUTIONS IN COMMON STOCK OF THE COMPANY
Any distribution under the Plan in the form of Company Stock shall be
made in a lump sum if the Participant has elected a lump sum distribution or if
a lump sum distribution occurs for any other reason. If the Participant has
elected monthly distributions over one or more years, then distributions of
Company Stock shall be made annually, during the first calendar quarter of each
year over which monthly distributions are scheduled to be made.
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<PAGE>
6.8 DISTRIBUTIONS FOR CERTAIN TAX PURPOSES
If at any time a court or the Internal Revenue Service determines that
any amount in a Participant's account or in the Trust is includable in a
Participant's gross income and subject to tax, the Company shall make a lump sum
distribution to such Participant (but not in an amount greater than the value of
the Participant's account at the time of the distribution) of an amount equal to
the amount determined to be so includable, and shall debit the Participant's
account under the Plan by a like amount, plus the amount of any excise tax under
Section 4999 of the Code with respect to the amounts so includable.
VII. ADMINISTRATION OF THE PLAN
7.1 COMPANY AUTHORITY
The Plan shall be administered by the Company, which shall have the
authority, duty and power to interpret and construe the provisions of the Plan
in its sole discretion. The Company shall have the duty and responsibility of
maintaining records, making the requisite calculations and disbursing the
payments hereunder. The Company's interpretations, determinations, regulations
and calculations shall be final and binding on all persons and parties
concerned.
7.2 RELIANCE
The Company shall be entitled to rely conclusively upon all tables,
valuations, certificates, opinions and reports furnished by any actuary,
accountant, controller, counsel or other person employed or engaged by the
Company with respect to the Plan.
7.3 BENEFIT STATEMENTS
The Company shall furnish individual statements of accrued benefits to
each Participant, or current Beneficiary or Surviving Spouse at least annually,
in such form as determined by the Company
7.4 CLAIMS
The employee benefit plan procedures in this section are intended to
comply with Section 503 of ERISA and Section 2560.503-1 of the Department of
Labor Regulations and pertain to claims by Participants and Beneficiaries
("claimants") for Plan benefits, consideration of such claims, and review of
claim denials. For purposes of these procedures, a "claim" is a request for a
benefit by a Participant or Beneficiary
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<PAGE>
under the Plan. A claim is filed when the requirements of these procedures
have been met.
(a) If a claim is wholly or partially denied, notice of the
decision, meeting the requirements of subsection (b) of these procedures, shall
be furnished to the claimant within a reasonable period of time after receipt of
the claim by the Company. If notice of the denial of a claim is not furnished
in accordance with this subsection (a) within a reasonable period of time, the
claim shall be deemed denied and the claimant shall be permitted to proceed to
the review stage described in subsection (c) of these procedures. For purposes
of this subsection (a), the period of time for notification to the claimant will
not exceed 90 days after receipt of the claim by the Company, unless special
circumstances require an extension of time for processing the claim. If such an
extension of time for processing is required, written notice of the extension
shall be furnished to the claimant prior to the termination of the initial
90-day period. In no event shall such extension exceed a period of 90 days from
the end of such initial period. The extension notice shall indicate the special
circumstances requiring an extension of time and the date by which the Company
expects to render the final decision.
(b) The Company shall provide to every claimant who is denied a
claim for benefits written notice setting forth in a manner calculated to be
understood by the claimant:
(i) the specific reason or reasons for the denial;
(ii) specific reference to pertinent provisions of the Plan or
Agreement on which the denial is based;
(iii) a description of any additional material or information
necessary for the claimant to perfect the claim and an
explanation of why such material or information is
necessary; and
(iv) appropriate information as to the steps to be taken if the
Participant or Beneficiary wishes to submit his or her
claim for review.
(c) If a claim is denied in whole or in part and if the
claimant is dissatisfied with the disposition of the claim, the claimant or his
or her duly authorized representative shall have a reasonable opportunity to
appeal the denied claim to the Company or to a person designated by the Company,
and shall have a full and fair review of the claim and its denial. Under this
review procedure, a claimant or his or her duly authorized representative may:
13
<PAGE>
(i) request a review upon written application to the Company;
(ii) review pertinent documents; and
(iii) submit issues and comments in writing.
A claimant must file such a request for review of a denied claim within a
reasonable period of time, not to exceed 60 days, after receipt by the claimant
of written notification of denial of a claim.
(d) A decision by the Company shall be made promptly and shall
not ordinarily be made later than 60 days after the receipt by the Company of a
request for review, unless special circumstances (such as the need to hold a
hearing) require an extension of time for processing, in which case a decision
shall be rendered as soon as possible, but not later than 120 days after receipt
of a request for review. If an extension of time for review is required because
of special circumstances, written notice of the extension shall be furnished to
the claimant prior to the commencement of the extension. The decision on review
shall be in writing and shall include specific reasons for the decision, written
in a manner calculated to be understood by the claimant, as well as specific
references to the pertinent provisions of the Plan or Agreement on which the
decision is based. The decision on review shall be furnished to the claimant
within the period of time described in this subsection (d). If the decision on
review is not furnished within such time, the claim shall be deemed denied on
review.
VIII. AMENDMENT OR TERMINATION
The Company intends the Plan to be permanent but reserves the right to
amend or terminate the Plan at any time.
No amendment or termination of the Plan shall directly or indirectly
reduce the balance of any account described in Article III as of the effective
date of such amendment or termination. Upon termination of the Plan,
distribution of amounts credited to such account shall be made to the
Participant or his or her Beneficiary in accordance with Article VI. No
additional credits or contributions will be made to any account under the Plan
after termination of the Plan, but gains or losses will continue to be credited
to the Participant's account under the Plan until all benefits are distributed
to the Participants or their Beneficiaries.
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<PAGE>
No amendment or termination of the Plan shall directly or indirectly
deprive any current or former Participant or Surviving Spouse of all or any
portion of any benefit under Article IV or Article V of the Plan payment of
which has commenced prior to the effective date of such amendment or termination
or which would be payable if the Participant terminated employment for any
reason, including death, on such effective date.
IX. GENERAL PROVISIONS
9.1 THE TRUST
The Company has established a Trust which may be used to pay benefits
arising under this Plan and costs, charges and expenses relating thereto. To
the extent that the funds held in the Trust are insufficient to pay such
benefits, costs, charges and expenses, and except as provided in Section 3.5
relating to investment option elections, the Company shall pay them.
9.2 NO ALIENATION
Neither the benefits payable hereunder nor the right to receive future
benefits under the Plan may be anticipated, alienated, sold, transferred,
assigned, pledged, encumbered, or subjected to any charge or legal process; no
interest or right to receive a benefit may be taken, either voluntarily or
involuntarily, for the satisfaction of the debts of, or other obligations or
claims against, such person or entity, including claims for alimony, support,
separate maintenance and claims in bankruptcy proceedings.
9.3 UNFUNDED PLAN
The Plan at all times shall be considered entirely unfunded both for tax
purposes and for purposes of Title I of ERISA. Funds invested under this Plan,
including amounts held in the Trust, shall continue for all purposes to be part
of the general assets of the Company and available to the general creditors of
the Company in the event of the Company's bankruptcy (when the Company is
involved in a pending proceeding under the Federal Bankruptcy Code) or
insolvency (when the Company is unable to pay its debts as they mature). In the
event of the Company's bankruptcy or insolvency, the Company's Board of
Directors and chief executive officer are required to notify the Trustee and
each Participant in writing of such an occurrence within three business days
following the Company's becoming aware thereof. No Participant, Surviving
Spouse or any other person shall have any interest in any particular assets of
the Company by reason of the right to receive a benefit under the Plan and to
the extent the Participant, Surviving Spouse or any other person acquires a
right to receive benefits under this Plan, such right shall be no greater than
15
<PAGE>
the right of any general unsecured creditor of the Company. The Plan
constitutes a mere promise by the Company to make payments to the Participants,
Surviving Spouses, or Beneficiaries in the future.
9.4 NO GUARANTY
Nothing contained in the Plan shall constitute a guaranty by the Company
or any other person or entity that any funds in the Trust or the assets of the
Company will be sufficient to pay any benefit hereunder.
9.5 NO RIGHT OF EMPLOYMENT
No Participant or Surviving Spouse shall have any right to a benefit
under this Plan except in accordance with the terms of the Plan. Establishment
of the Plan shall not be construed to give any Participant the right to be
retained in the service of the Company.
9.6 SMALLER ACCOUNTS
If the value or actuarial value of any benefit payable to or on behalf of
the Participant under the Plan is $25,000 or less, the Company shall have the
discretion to pay such value or actuarial value to the Participant, Beneficiary,
or Surviving Spouse in a single lump sum in lieu of any further benefit payments
under the Plan.
9.7 INCOMPETENCY
If any person entitled to a benefit payment under the Plan is declared
incompetent and a conservator or other person legally charged with the care of
his or her person or his or her estate is appointed, any benefits under the Plan
to which such person is entitled shall be paid to such conservator or other
person. Except as provided above, when the Company determines that such person
is unable to manage his or her financial affairs, the Company may provide for
such payment or any part thereof to be made to any other person or institution
then contributing toward or providing for the care and maintenance of such
person. Any such payment shall be a payment for the account of such person and
a complete discharge of any liability of the Company and the Plan therefor.
9.8 CORPORATE CHANGES
The Plan shall not be automatically terminated by a transfer or sale of
assets of the Company or by the merger or consolidation of the Company into or
with any other corporation or other entity, but the Plan shall be continued
after such sale, merger or consolidation only if and to the extent that the
transferee, purchaser or successor
16
<PAGE>
entity agrees to continue the Plan. In the event that the Plan is not
continued by the transferee, purchaser or successor entity, then the Plan
shall terminate subject to the provisions of Article VIII.
9.9 ADDRESSES
Each Participant shall keep the Company informed of his or her current
address and the current address of his or her spouse or designated Beneficiary.
The Company shall not be obligated to search for any person. If the location of
a Participant is not made known to the Company within three (3) years after the
date on which payment of the Participant's benefits payable under this Plan may
first be made, payment may be made as though the Participant had died at the end
of the three-year period. If, within one additional year after such three-year
period has elapsed, or, within three (3) years after the actual death of a
Participant, the Company is unable to locate any Surviving Spouse or designated
Beneficiary of the Participant, then the Company shall have no further
obligation to pay any benefit hereunder to such Participant, Surviving Spouse or
designated Beneficiary and such benefits shall be irrevocably forfeited.
9.10 LIMITATIONS ON LIABILITY
Notwithstanding any of the preceding provisions of the Plan, neither the
Company nor any individual acting as an employee or agent of the Company shall
be liable to any Participant, former Participant, Surviving Spouse, or any other
person for any claim, loss, liability or expense incurred in connection with the
Plan, unless attributable to fraud or willful misconduct on the part of the
Company or any such employee or agent of the Company.
9.11 UNFORSEEABLE EMERGENCIES
In the event a Participant incurs an unforeseeable emergency, the
Participant may make a written request to the Committee for a hardship
withdrawal from his or her account established under Article III. An
unforeseeable emergency is a severe financial hardship to the Participant
resulting from a sudden and unexpected illness or accident of the Participant or
of a dependent (as defined in Section 152(a) of the Code) of the Participant,
loss of the Participant's property due to casualty, or other similar
extraordinary and unforeseeable circumstances arising as a result of events
beyond the control of the Participant. Withdrawals of amounts because of an
unforeseeable emergency are only permitted to the extent reasonably needed to
satisfy the emergency need. This provision shall be interpreted in a manner
consistent with Sections 1.457-2(h)(4) and 1.457-2(h)(5) of the Treasury
Regulations.
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9.12 DISABILITY
A Participant who becomes permanently disabled may make a written request
to the Committee for a withdrawal of the accrued benefits in his or her account
under Article IV. For purposes of this Section, a Participant becomes
"permanently disabled" if he or she qualifies for long-term disability benefits
under the Company's long-term disability plan. If the Participant does not
participate in such a plan or the Company does not offer such a plan, the
Committee in its sole discretion shall determine whether a Participant is
permanently disabled. Permanent disability does not include any period of
short-term disability under any Company plan providing for short-term disability
benefits. If a withdrawal of accrued benefits under this Section is approved by
the Committee, the maximum amount payable shall be determined as provided in
Section 4.2.
9.13 TRANSFERS TO THE TRUST
On the occurrence of a Change of Control or if a Participant elects to
direct the investment of amounts credited to his or her account pursuant to
Section 3.5, the Company shall transfer cash or property to the Trust in an
amount equal to the present value of all accumulated or accrued benefits then
payable to or on behalf of such Participant or Participants under this Plan,
plus any applicable fees. The Company may also transfer cash or property to the
Trust in an amount equal to the present value of all accumulated or accrued
benefits then payable under this Plan at any time in the sole discretion of the
Company. If a transfer of cash or property occurs, the amounts transferred with
respect to the benefits payable under Articles IV and V shall be, for each
Participant, Beneficiary or Surviving Spouse, the actuarial equivalent, as
determined by using the actuarial assumptions described in the Pension Plan, of
the benefits payable to or on behalf of each such individual under said Articles
IV and V. Thereafter, the Company shall, for each Plan Year, transfer cash or
property no later than thirty (30) days after the end of the Plan Year in which
the initial transfer occurs, and thereafter on each anniversary thereof, to the
Trust for the benefit of each affected individual in an amount equal to the
additional benefit accrued under the terms of this Plan during and in relation
to the most recent Plan Year then ended. In the event of a transfer, the
accounts of the Participants, established pursuant to Article III, shall be
credited with interest, or earnings and losses in accordance with Section 3.5.
9.14 INSPECTION
Each Participant shall receive a copy of the Plan, and the Company will
make available for inspection by any Participant or Beneficiary a copy of any
rules and regulations that are used by the Company in administering the Plan.
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9.15 GOVERNING LAW
To the extent that it is not governed by United States federal law, 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.
Dated as of this 13th day of May, 1999.
THE TORO COMPANY
By /s/ K. B. Melrose
Its Chairman & Chief Executive Officer
19
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THE TORO COMPANY
SUPPLEMENTAL RETIREMENT PLAN
JULY 27, 1998 RESTATEMENT
<PAGE>
CONTENTS
<TABLE>
<S> <C> <C>
I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
II. ELIGIBILITY AND PARTICIPATION . . . . . . . . . . . . . . . . . . . . 5
III. DEFERRED COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Deferral Election . . . . . . . . . . . . . . . . . . . . . 5
3.2 Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.3 Company Credits . . . . . . . . . . . . . . . . . . . . . . 6
3.4 Deferral of Certain 1995 Bonus Amounts. . . . . . . . . . . 6
IV. EARNINGS ON PARTICIPANT ACCOUNTS. . . . . . . . . . . . . . . . . . . 6
4.1 Earnings Credit . . . . . . . . . . . . . . . . . . . . . . 6
4.2 Optional Earnings Credit. . . . . . . . . . . . . . . . . . 7
4.3 No Interest in Assets . . . . . . . . . . . . . . . . . . . 7
V. DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 Distribution Elections. . . . . . . . . . . . . . . . . . . 8
5.2 Form of Election; Absence of a Valid Election . . . . . . . 8
5.3 Early Distributions . . . . . . . . . . . . . . . . . . . . 8
5.4 Unforeseeable Emergency . . . . . . . . . . . . . . . . . . 9
5.5 Accelerated Distributions . . . . . . . . . . . . . . . . . 9
5.6 Distributions for Certain Tax Purposes. . . . . . . . . . . 9
5.6 Timing of Distributions . . . . . . . . . . . . . . . . . . 9
5.7 Status as General Creditor; Unfunded Plan . . . . . . . . .10
VI. ADMINISTRATION OF THE PLAN. . . . . . . . . . . . . . . . . . . . . .10
6.1 Company's Authority . . . . . . . . . . . . . . . . . . . .10
6.2 Reliance. . . . . . . . . . . . . . . . . . . . . . . . . .10
6.3 Benefit Statements. . . . . . . . . . . . . . . . . . . . .10
6.4 Claims. . . . . . . . . . . . . . . . . . . . . . . . . . .11
VII. AMENDMENT OR TERMINATION. . . . . . . . . . . . . . . . . . . . . . .12
VIII. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . .13
8.1 Trust . . . . . . . . . . . . . . . . . . . . . . . . . . .13
8.2 No Alienation . . . . . . . . . . . . . . . . . . . . . . .13
8.3 Unfunded Plan . . . . . . . . . . . . . . . . . . . . . . .13
8.4 No Guaranty . . . . . . . . . . . . . . . . . . . . . . . .14
8.5 No Right of Employment. . . . . . . . . . . . . . . . . . .14
8.6 Incompetency. . . . . . . . . . . . . . . . . . . . . . . .14
8.7 Corporate Changes . . . . . . . . . . . . . . . . . . . . .14
8.8 Addresses . . . . . . . . . . . . . . . . . . . . . . . . .14
8.9 Limitations on Liability. . . . . . . . . . . . . . . . . .15
8.10 Transfers to the Trust. . . . . . . . . . . . . . . . . . .15
8.11 Inspection. . . . . . . . . . . . . . . . . . . . . . . . .15
8.13 Governing Law . . . . . . . . . . . . . . . . . . . . . . .16
</TABLE>
<PAGE>
THE TORO COMPANY
SUPPLEMENTAL RETIREMENT PLAN
JULY 27, 1998 RESTATEMENT
The Toro Company hereby amends and restates its Supplemental Retirement
Plan, most recently amended and restated effective as of January 1, 1996, which
has been maintained by The Toro Company primarily for the purpose of providing
deferred compensation for a select group of management or highly compensated
employees. This amendment and restatement is effective as of July 27, 1998.
I. DEFINITIONS
When used in this Plan document, the following terms have the meanings
indicated unless a different meaning is plainly required by the context.
"ASSISTANT SECRETARY" means the person serving as Assistant Corporate
Secretary of the Company.
"BENEFICIARY" means the person or persons selected by the Participant to
receive the benefits provided under this Plan in the event of the Participant's
death.
"CHANGE OF CONTROL" means:
(i) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange
Act) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 under the Exchange Act) of 15% or
more of either (A) the then-outstanding shares of Common
Stock of the Company (the "Outstanding Company Common
Stock") or (B) the combined voting power of the
then-outstanding voting securities of the Company entitled
to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided,
however, that for purposes of this subsection (i), the
following acquisitions shall not constitute a Change of
Control: (A) any acquisition directly from the Company, (B)
any acquisition by the Company, (C) any acquisition by any
employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by
the Company, or (D) any acquisition
<PAGE>
by any corporation pursuant to a transaction that complies
with clauses (A), (B) and (C) of subsection (iii) of this
definition; or
(ii) Individuals who, as of the date hereof, constitute the
Board of Directors of the Company (the "Incumbent Board")
cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming
a director subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent
Board, but excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result of an
actual or threatened election contest with respect to the
election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board; or
(iii) Consummation of a reorganization, merger or consolidation
of the Company or sale or other disposition of all or
substantially all of the assets of the Company or the
acquisition by the Company of assets or stock of another
entity (a "Business Combination"), in each case, unless,
following such Business Combination, (A) all or
substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of,
respectively, the then-outstanding shares of common stock
and the combined voting power of the then-outstanding
voting securities entitled to vote generally in the
election of directors, as the case may be, of the
corporation resulting from such Business Combination
(including, without limitation, a corporation which as a
result of such transaction owns the Company or all or
substantially all of the Company's assets either directly
or through one or more subsidiaries) in substantially the
same proportions as their ownership, immediately prior to
such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the
case may be, (B) no Person (excluding any corporation
resulting from such Business Combination or any employee
benefit plan (or related trust) of
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the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or
indirectly, 15% or more of, respectively, the
then-outstanding shares of common stock of the corporation
resulting from such Business Combination, or the combined
voting power of the then-outstanding voting securities of
such corporation except to the extent that such ownership
existed prior to the Business Combination and (C) at least
a majority of the members of the board of directors of the
corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution
of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(iv) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" means the Compensation Committee of the Board of Directors of
the Company, or any successor committee.
"COMMON STOCK" means the Company's common stock, par value $1.00 per
share, and related preferred share purchase rights.
"COMPANY" means The Toro Company, a Delaware corporation.
"COMPENSATION" means all amounts received by a Participant from the
Company that are subject to federal income tax withholding: provided, that
(i) Compensation shall not include any amount received by an employee on account
of the grant or exercise of an option to purchase Common Stock of the Company,
and (ii) Compensation shall include an amount equal to any reductions in a
Participant's gross income as a result of salary reductions under Sections 125
or 401(k) or 402(a)(8) of the Code.
"DIRECTOR" means the person serving as Director of Compensation and
Benefits of the Company.
"ELIGIBILITY SERVICE" means eligibility service as defined in the Profit
Sharing Plan.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"PARTICIPANT" means an eligible employee who has executed a Deferred
Compensation Agreement.
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"PLAN" means this Supplemental Retirement Plan, including any amendments
thereto.
"PLAN YEAR" means the calendar year.
"PROFIT SHARING PLAN" means The Toro Company Investment and Savings Plan
(the successor of the Profit Sharing Plan for Office Employees) or any successor
or replacement plan.
"SECTION 16 INSIDER" means a Participant who is, with respect to the
Company, subject to Section 16 of the Securities Exchange Act of 1934, as
amended.
"SUBSIDIARY" means any corporation that is a component member of the
controlled group of corporations of which the Company is the common parent.
Controlled group shall be determined by reference to Section 1563 of the Code
but including any corporation described in Section 1563(b)(2) thereof.
"TRUST" means the trust established or maintained by the Company that is
used in connection with this Plan to assist the Company in meeting its
obligations under the Plan.
"TRUSTEE" means the corporation or individual selected by the Company to
serve as Trustee for the Trust.
The singular form of any word shall include the plural and the masculine
gender shall include the feminine wherever necessary for the proper
interpretation of this Plan.
II. ELIGIBILITY AND PARTICIPATION
All management or highly compensated employees who are at the director
level or above with the Company, or with any Subsidiary of the Company to which
this Plan has been extended by the Board of Directors of the Company, are
eligible to become Participants.
An eligible employee will become a Participant upon submission of a
completed election form, in the form approved by the Committee, to the Director
or the Assistant Secretary.
Once an employee has become a Participant, his or her account under the
Plan will remain in effect until distributed as provided herein, even if for any
subsequent Plan Year or portion thereof the employee ceases to meet the
eligibility requirements of this Article II or ceases to be a Participant for
any other reason.
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III. DEFERRED COMPENSATION
3.1 DEFERRAL ELECTION
A Participant may elect to defer Compensation for a calendar year by
completing and submitting a deferral election on a form provided by the Company.
Such election must be submitted to the Director or the Assistant Secretary by
December 31 to be effective in the following year. An election shall remain in
effect until revoked or revised by the Participant by a written election
delivered to the Director or the Assistant Secretary. An election shall take
effect as of January 1 of the year following the year in which it is received.
A Participant shall not be eligible to defer Compensation for any
calendar year following the year in which he or she no longer satisfies the
eligibility requirements of this Plan, unless the Committee in its discretion
permits such a deferral.
3.2 ACCOUNTS
The Company shall establish and maintain an account for each Participant,
and shall credit such account with amounts deferred by the Participant pursuant
to Section 3.1 and the Participant's election.
3.3 COMPANY CREDITS
The Company shall credit a Participant's account as of December 31 each
year with an amount equal to the difference between (i) the amount that would
have been credited to the Participant's account under the Profit Sharing Plan
and the ESOP for the Plan Year had the Participant not made an election to defer
compensation for the year under Section 3.1 of this Plan and (ii) the amount
actually credited to the Participant's account under the Profit Sharing Plan and
the ESOP for the Plan Year. To prevent duplication of benefits, credits under
this Section 3.3 shall not be made with respect to any year or partial year in
which the Participant or any account of the Participant receives comparable
credits under the Supplemental Management Retirement Plan or any other Company
plan.
3.4 DEFERRAL OF CERTAIN 1995 BONUS AMOUNTS
Amounts credited to Participant accounts pursuant to this Section 3.4
prior to its amendment as of July 27, 1998, representing deferrals of bonuses
earned by Participants for the fiscal year ending October 31, 1995, shall
continue to be held pursuant to the terms and conditions of this Plan, together
with any other amounts credited to the Participant's account under the Plan.
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IV. EARNINGS ON PARTICIPANT ACCOUNTS
4.1 EARNINGS CREDIT
Amounts held in an account maintained for a Participant shall be credited
with interest at a rate and in a manner determined by the Committee to be
consistent with the average prime rate of interest charged by U. S. Bank,
National Association to its individual borrowers. Prior to a Change of Control
the method for determining the interest crediting rate may be changed at any
time, at the discretion of the Committee. After a Change of Control, the
Trustee shall have authority to change the method for determining the interest
crediting rate. Interest shall be credited as of the end of each quarter.
4.2 OPTIONAL EARNINGS CREDIT
If a Participant's age and years of Eligibility Service with the Company
equals or exceeds sixty (60), the Participant may request the Trustee in
writing, on a form approved by the Company, to invest a specified percentage of
his or her account in one or more of the investment vehicles available under the
Trust. A Participant may change his or her election as of the first day of
January and as of the first day of July, and more frequently if permitted by the
Committee, by delivering an election form to the Chief Financial Officer of the
Company at least thirty days prior to the effective date of the election. Prior
to a Change of Control, the investment vehicles made available to the
Participants shall be selected by the Chief Executive Officer of the Company or
by such Officer's designee. After a Change of Control, investment vehicles
shall be selected by the Trustee. Any expense incurred in connection with an
investment option shall be charged on a pro rata basis against the Participants'
accounts. The investment vehicles made available under the Trust shall include
at least one vehicle that provides a fixed rate of interest through investment
in fixed income mutual funds or common trust funds, U.S. Treasury bonds and
notes, certificates of deposit, annuity contracts, or such other similar
investments.
If the investment vehicles include a fund that invests exclusively or
primarily in the Company's Common Stock, Participants who are Section 16
Insiders may allocate amounts to or from such fund only in accordance with
Company policies on insider trading and in compliance with the rules for
"Discretionary Trading" as defined in Rule 16b-3 (or any successor provision)
under the Securities Exchange Act of 1934, as amended. Distributions from a
fund that invests exclusively or primarily in the Company's Common Stock shall
be made in Common Stock.
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If the Committee approves an election made pursuant to this Section, the
Participant's account will thereafter be credited with earnings or losses based
upon the earnings or losses attributable to the investments so elected; and the
Company shall not credit any portion of the account subject to such investment
election with interest, as described in Section 4.1.
4.3 NO INTEREST IN ASSETS
The Company may set aside or earmark funds or other assets to meet its
obligations under the Plan, but title to and ownership of such funds and assets
shall remain in the Company. Neither the Participant nor any beneficiary shall
have any ownership rights or any property interests in any of such funds or
other assets, or in any other assets of the Company, until they are distributed
in accordance with the Plan.
V. DISTRIBUTIONS
5.1 DISTRIBUTION ELECTIONS
Distributions under the Plan shall be made in accordance with the
Participant's election. Elections (both as to distributions and as to
deferrals) made prior to the July 27, 1998 Restatement of this Plan shall remain
in effect until changed by the Participant as provided in this Plan.
5.2 FORM OF ELECTION; ABSENCE OF A VALID ELECTION
Except as provided in Sections 5.3, 5.4, 5.5 and 5.6 hereof, the amount
of the Participant's deferred compensation account shall be distributed on the
Participant's retirement, resignation or termination from employment with the
Company, or on the disability or death of the Participant, whichever occurs
first. Distributions shall be made in accordance with the Participant's
distribution election most recently filed with the Director or Assistant
Secretary: provided, that any election filed two years or less before the date
of the Participant's retirement, resignation or termination of employment shall
be disregarded.
In the absence of a valid election, the Company shall pay the accrued
amount in forty (40) quarterly installments commencing after the Participant's
retirement, resignation or termination from employment with the Company, or on
the disability or death of the Participant, whichever occurs first.
Installments shall reflect earnings or losses on a monthly basis, and be paid on
an actuarially amortized and annually adjusted basis, or on a decreasing
fraction basis (1/40th, 1/39th, 1/38th, etc.), or on such other basis as elected
by the Company in its sole discretion, in order to provide
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reasonably level payments throughout the period. In the event of the
Participant's death before distribution is completed (or before any early
distribution under Section 5.3 hereof), the balance may be distributed in a
lump sum or on an installment basis as the Company may determine, either to
any designated beneficiary or to the estate or legal representative of the
Participant.
5.3 EARLY DISTRIBUTIONS
A Participant may irrevocably elect to receive a distribution of all or a
portion of the Participant's account prior to retirement, resignation or
termination of employment with the Company, but early distributions hereunder
shall not commence until after the Participant has attained age 55. The
election shall be made not later than two years prior to the Plan Year in which
the early distribution is to be made. Distributions under this Section shall be
paid in a lump sum. Any election under this Section is subject to Committee
approval.
5.4 UNFORESEEABLE EMERGENCY
A Participant who incurs an unforeseeable emergency may make a written
request to the Company for a hardship withdrawal from the Participant's account.
An unforeseeable emergency is a severe financial hardship to the Participant
resulting from a sudden and unexpected illness or accident of the Participant or
of a dependent (as defined in Section 152(a) of the Internal Revenue Code of
1986, as amended) of the Participant, loss of the Participant's property due to
casualty, or other similar extraordinary and unforeseeable circumstances arising
as a result or events beyond the control of the Participant. Withdrawals of
amounts because of an unforeseeable emergency are permitted to the extent
reasonably needed to satisfy the emergency need. This Section 5.3 shall be
interpreted in a manner consistent with Sections 1.457-2(h)(4) and 1.457(h)(5)
of the Treasury Regulations.
5.5 ACCELERATED DISTRIBUTIONS
Prior to a Change of Control, the Company shall have the right to make
distribution on an accelerated installment basis, including lump sum, or to
purchase an annuity contract for the Participant's benefit, in the event of
merger, reorganization, sale of assets, liquidation of the Company, or for such
other causes as the Company deems appropriate in its sole discretion. Any such
lump sum or annuity payment shall be the actuarial equivalent of the
distribution elected by the Participant, calculated using actuarial assumptions
consistent with those applied at the time under the Company's Retirement Plan
for Office and Hourly Employees, or any successor or replacement plan. Any
amounts remaining in the account during the period of any
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accelerated installment distribution shall continue to be credited with
earnings or losses as provided in the Plan.
5.6 DISTRIBUTIONS FOR CERTAIN TAX PURPOSES
If at any time a court or the Internal Revenue Service determines that
any amount in a Participant's account or in the Trust is includable in a
Participant's gross income and subject to tax, the Company shall make a lump sum
distribution to such Participant (but not in an amount greater than the value of
the Participant's account under the Plan at the time of such distribution) of an
amount equal to the amount determined to be so includable, and shall deduct a
like amount from the Participant's account under the Plan.
5.7 TIMING OF DISTRIBUTIONS
Except in the event of the Participant's death or disability, benefits
payable under this Plan shall be paid beginning in the first month of the
calendar year immediately following the calendar year in which the distributable
event occurs or, in the case of distributions pursuant to elections under
Section 5.3, in the first month of the year of distribution, as elected by the
Participant and approved by the Committee. In the event of a Participant's
death or disability, benefits shall be distributed beginning in the first month
following the month in which the Participant's death occurred or the
determination of disability is made.
5.8 STATUS AS GENERAL CREDITOR; UNFUNDED PLAN
To the extent that any person acquires the right to receive any
distribution under this Agreement, such rights shall be no greater than the
right of any unsecured general creditor of the Company. The Agreement shall at
all times be considered unfunded for tax purposes and for purposes of Title I of
the Employee Retirement Income Security Act of 1974, as amended. This Agreement
and all rights, interests, and benefits hereunder shall not be assigned,
transferred or pledged by the Participant and shall not be subject to execution,
attachment or similar process. Any attempted assignment, transfer, pledge, or
other disposition of this Agreement, or of any such rights, interests and
benefits, and any levy of attachment or similar process thereupon, shall be null
and void and without effect.
VI. ADMINISTRATION OF THE PLAN
6.1 COMPANY'S AUTHORITY
The Plan shall be administered by the Company, which shall have the
authority, duty and power to interpret and construe the provisions of the Plan
as it deems appropriate. The Company shall have the duty and responsibility of
maintaining records,
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making the requisite calculations and dispersing the payments hereunder. The
Company's interpretations, determinations, regulations and calculations shall
be final and binding on all persons and parties concerned.
6.2 RELIANCE
The Company shall be entitled to rely conclusively upon all tables,
valuations, certificates, opinions and reports furnished by any actuary,
accountant, controller, counsel or other person employed or engaged by the
Company with respect to the Plan.
6.3 BENEFIT STATEMENTS
The Company shall furnish individual statements of accrued benefits to
each Participant, or current Beneficiary, at least annually, in such form as
determined by the Company.
6.4 CLAIMS
The employee benefit plan procedures in this section are intended to
comply with Section 503 of ERISA, and Section 2560.503-1 of the Department of
Labor Regulations and pertain to claims by participants and beneficiaries
("claimants") for Plan benefits, consideration of such claims, and review of
claim denials. For purposes of these procedures, a "claim" is a request for a
benefit by a Participant or Beneficiary under the Plan or a Deferred
Compensation Agreement. A claim is filed when the requirements of these
procedures have been met.
(a) If a claim is wholly or partially denied, notice of the
decision, meeting the requirements of subsection (b) of these procedures, shall
be furnished to the claimant within a reasonable period of time after receipt of
the claim by the Company. If notice of the denial of a claim is not furnished
in accordance with this subsection (a) within a reasonable period of time, the
claim shall be deemed denied and the claimant shall be permitted to proceed to
the review stage described in subsection (c) of these procedures. For purposes
of this subsection (a), the period of time for notification to the claimant will
not exceed 90 days after receipt of the claim by the Company, unless special
circumstances require an extension of time for processing the claim. If such an
extension of time for processing is required, written notice of the extension
shall be furnished to the claimant prior to the termination of the initial
90-day period. In no event shall such extension exceed a period of 90 days from
the end of such initial period. The extension notice shall indicate the special
circumstances requiring an extension of time and the date by which the Company
expects to render the final decision.
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(b) The Company shall provide to every claimant who is denied a
claim for benefits written notice setting forth in a manner calculated to be
understood by the claimant:
(i) the specific reason or reasons for the denial;
(ii) specific reference to pertinent provisions of the Plan or
Agreement on which the denial is based;
(iii) a description of any additional material or information
necessary for the claimant to perfect the claim and an
explanation of why such material or information is
necessary; and
(iv) appropriate information as to the steps to be taken if the
Participant or Beneficiary wishes to submit his or her
claim for review.
(c) If a claim is denied in whole or in part and if the
claimant is dissatisfied with the disposition of the claim, the claimant or his
or her duly authorized representative shall have a reasonable opportunity to
appeal the denied claim to the Company or to a person designated by the Company,
and shall have a full and fair review of the claim and its denial. Under this
review procedure, a claimant or his or her duly authorized representative may:
(i) request a review upon written application to the Company;
(ii) review pertinent documents; and
(iii) submit issues and comments in writing.
A claimant must file such a request for review of a denied claim within a
reasonable period of time, not to exceed 60 days, after receipt by the claimant
of written notification of denial of a claim.
(d) A decision by the Company shall be made promptly and shall
not ordinarily be made later than 60 days after the receipt by the Company of a
request for review, unless special circumstances (such as the need to hold a
hearing) require an extension of time for processing, in which case a decision
shall be rendered as soon as possible, but not later than 120 days after receipt
of a request for review. If an extension of time for review is required because
of special circumstances, written notice of the extension shall be furnished to
the claimant prior to the commencement of the extension. The decision on review
shall be in writing and shall include specific reasons for the decision, written
in a manner calculated to be understood by the claimant, as well as specific
references to the pertinent provisions of the Plan or
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Agreement on which the decision is based. The decision on review shall be
furnished to the claimant within the period of time described in this
subsection (d). If the decision on review is not furnished within such time,
the claim shall be deemed denied on review.
VII. AMENDMENT OR TERMINATION
The Company intends the Plan to be permanent but reserves the right to
amend or terminate the Plan at any time.
No amendment or termination of the Plan shall directly or indirectly
reduce the balance of any account described in Article III as of the effective
date of such amendment or termination. The Company shall not credit the
accounts of any Participant with any further deferrals after termination of the
Plan, but gains or losses will continue to be credited to the Participant's
account under the Plan until all benefits are distributed to the Participants or
to their Beneficiaries.
VIII. GENERAL PROVISIONS
8.1 TRUST
The Company has established a Trust which may be used to pay benefits
arising under the Plan and costs, charges and expenses relating thereto. To the
extent that the funds held in the Trust are insufficient to pay such benefits,
costs, charges and expenses, and except as provided in Section 4.2 relating to
investment option elections, the Company shall pay them.
8.2 NO ALIENATION
Neither the benefits payable hereunder nor the right to receive future
benefits under the Plan may be anticipated, alienated, sold, transferred,
assigned, pledged, encumbered, or subjected to any charge or legal process; no
interest or right to receive a benefit may be taken, either voluntarily or
involuntarily, for the satisfaction of the debts of, or other obligations or
claims against, such person or entity, including claims for alimony, support,
separate maintenance and claims in bankruptcy proceedings.
8.3 UNFUNDED PLAN
The Plan shall at all times be considered entirely unfunded both for tax
purposes and for purposes of Title I of ERISA. Funds invested under this Plan,
including amounts held in the Trust, shall continue for all purposes to be part
of the general assets of the Company and available to the general creditors of
the Company in the event of the Company's bankruptcy (when the Company is
involved in a pending proceeding under the
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Federal Bankruptcy Code) or insolvency (when the Company is unable to pay its
debts as they mature). In the event of the Company's bankruptcy or
insolvency, the Company's Board of Directors and Chief Executive Officer
shall notify the Trustee in writing of such an occurrence within three
business days following the Company's becoming aware of such occurrence. No
Participant or any other person shall have any interests in any particular
assets of the Company by reason of the right to receive a benefit under the
Plan and to the extent the Participant or any other person acquires a right
to receive benefits under this Plan, such right shall be no greater than the
right of any general unsecured creditor of the Company. The Plan constitutes
a mere promise by the Company to make payments to the Participants in the
future.
8.4 NO GUARANTY
Nothing contained in the Plan shall constitute a guaranty by the Company
or any other person or entity that any funds in the Trust or the assets of the
Company will be sufficient to pay any benefit hereunder.
8.5 NO RIGHT OF EMPLOYMENT
No Participant shall have any right to a benefit under this Plan except
in accordance with the terms of the Plan. Establishment and continuance of the
Plan shall not be construed to give any Participant the right to be retained in
the service of the Company.
8.6 INCOMPETENCY
If any person entitled to a benefit payment under the Plan is declared
incompetent and a conservator or other person is legally charged with the care
of such person or of his or her estate is appointed, any benefits under the Plan
to which the person is entitled shall be paid to such conservator or other
person legally charged with the care of the person or his or her estate. Except
as provided above, when the Company determines that such person is unable to
manage his or her affairs, the Company may provide for such payment or any part
thereof to be made to any other person or institution then contributing toward
or providing for the care and maintenance of such person. Any such payment
shall be a payment for the account of such Person and a complete discharge of
any liability of the Company and the Plan therefore.
8.7 CORPORATE CHANGES
The Plan shall not be automatically terminated by a transfer or sale of
assets of the Company or by the merger or consolidation of the Company into or
with any other
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corporation or other entity, but the Plan shall continue after such sale,
merger or Consolidation only if and to the extent that the transferee,
purchaser or successor entity agrees to continue the Plan. In the event the
Plan is not continued by the transferee, purchaser or successor entity, then
the Plan shall terminate subject to the provisions of Article VII.
8.8 ADDRESSES
Each Participant shall keep the Company informed of his or her current
address and the current address of his or her spouse. The Company shall not be
obligated to search for any person. If the location of a Participant is not
made known to the Company within three (3) years after the date on which payment
of the Participant's benefits Payable under this Plan may first be made, payment
may be made as though the Participant had died at the end of the three-year
Period. If, within one additional year after such three year period has
elapsed, or, within three (3) years after the actual death of a Participant, the
Company is unable to locate any designated Beneficiary of the Participant, then
the Company shall have no further obligation to pay any benefit hereunder to
such Participant or designated Beneficiary and such benefits shall be
irrevocably forfeited.
8.9 LIMITATIONS ON LIABILITY
Notwithstanding any of the preceding provisions of the Plan, neither the
Company nor any individual acting as an employee or agent of the Company shall
be liable to any Participant, former Participant, or any other person for any
claim, loss, liability or expense incurred in connection with the Plan, unless
attributable to fraud or willful misconduct on the part of the Company or any
such employee or agent of the Company.
8.10 TRANSFERS TO THE TRUST
On the occurrence of a Change of Control or if a Participant elects to
direct the investment of amounts credited to his or her account pursuant to
Section 4.2, the Company shall transfer cash or property to the account or
accounts maintained in the name of each affected Participant or Participants for
this Plan under the Trust in an amount equal to the present value of all
accumulated or accrued benefits then payable to or on behalf of such Participant
or Participants under this Plan, plus any applicable fees. The Company may also
transfer cash or property to the accounts maintained for any Participant under
the Trust in an amount equal to the present value of all accumulated or accrued
benefits then payable under the Plan at any time in the sole discretion of the
Company. Thereafter, the Company may, and after a Change of Control it shall,
for each Plan Year, transfer cash or property no later than thirty (30) days
after the end of the Plan Year in which the initial transfer occurs, and
thereafter on each anniversary thereof, to such account or accounts maintained
for the affected Participant or Participants under the
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Trust an amount equal to the additional benefit accrued under the terms of
this Plan and the Deferred Compensation Agreements during and in relation to
the most recent Plan Year then ended. If a transfer occurs, the accounts of
the Participants shall be credited with interest, or earnings and losses in
accordance with Sections 4.1 and 4.2.
8.11 INSPECTION
Each Participant shall receive a copy of the Plan and the Company will
make available for inspection by any Participant or designated Beneficiary a
copy of any rules and regulations that are used by the Company in administering
the Plan.
8.13 GOVERNING LAW
To the extent that it is not governed by United States federal law, 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 conflict of laws.
Dated as of this 13th day of May 1999.
THE TORO COMPANY
By:/s/ Kendrick B. Melrose
--------------------------------------
Its Chairman, Chief Executive Officer
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Exhibit 10(j)
THE TORO COMPANY
CHIEF EXECUTIVE OFFICER INCENTIVE AWARD AGREEMENT
AGREEMENT ("Agreement") dated as of July 31, 1995, as amended July 31, 1997
and as amended and restated July 31, 1998, by and between The Toro Company, a
Delaware corporation (the "Company"), and Kendrick B. Melrose, its Chief
Executive Officer ("Mr. Melrose").
1. PURPOSE. The purpose of this Agreement is to implement The Toro Company
Chief Executive Officer Succession Plan (the "Plan") pursuant to which the
Company will grant to Mr. Melrose a Restricted Stock and Performance Unit award
and enter into a post-retirement and noncompetition agreement with Mr. Melrose,
subject to the terms and conditions of the Plan and to Mr. Melrose's acceptance
of the terms and conditions thereof.
2. GRANT OF AWARD.
a. GRANT OF RESTRICTED STOCK. The Company hereby grants to Mr. Melrose
the number of whole shares of Common Stock having an aggregate fair market value
of $500,000 on July 31, 1995 (the "Restricted Stock"), subject to forfeiture or
reduction of the number of shares in the event performance goals set forth in
Subsection 3.a.i(A) (the "Performance Goals") are not achieved and to the other
terms and conditions of the Plan; provided however that in the event the fair
market value of the Common Stock on the date of vesting of the Restricted Stock
is less than the fair market value on July 31, 1995, the Company shall make an
aggregate payment to Mr. Melrose of the difference between the fair market value
on the date of vesting of the Restricted Stock and the fair market value on July
31, 1995. Fair market value shall mean the closing price of the Common Stock on
the New York Stock Exchange as reported in THE WALL STREET JOURNAL.
b. GRANT OF PERFORMANCE UNITS AND ANNUITY PURCHASE. Subject to the terms
and conditions of the Plan and this Agreement, the Company hereby grants to Mr.
Melrose performance units equal to the number of whole shares of Common Stock
having an aggregate fair market value of $500,000 on July 31, 1995 (the
"Performance Units"), which Performance Units shall be subject to forfeiture or
reduction in the event the Performance Goals set forth in the Plan and in
Subsection 3.a.i(A) hereof are not achieved and to the other terms and
conditions of the Plan and this Agreement. Each Performance Unit shall have a
value equal to the fair market value of one share of Common Stock, from time to
time, provided however that the value shall not be less than the fair market
value of one share of Common Stock on July 31, 1995. Performance Units shall be
evidenced by this Agreement. An amount equal to the aggregate value of the
Performance Units remaining at the date of Mr. Melrose's retirement, after
forfeiture, if any, shall be utilized by the Company to purchase a retirement
annuity payable to Mr. Melrose until his 75th birthday, or to his estate or
beneficiaries, and for no other purpose, subject to the condition that Mr.
Melrose enter into and comply with the terms and conditions of a noncompetition
agreement, in accordance with Subsections 2.c. and 3.b. hereof.
<PAGE>
c. POST-RETIREMENT CONSULTING AND NONCOMPETITION AGREEMENT. Subject to
the terms and conditions of the Plan and this Agreement, the Company shall enter
into a post-retirement consulting and non-competition agreement with Mr.
Melrose, providing for the payment of an aggregate amount of up to $500,000,
which amount shall be adjusted not less than once annually to reflect increases
in the consumer price index and which may be utilized to pay expenses of office
and support services for Mr. Melrose for a period of five years following the
date of his retirement.
3. TERMS, CONDITIONS AND RESTRICTIONS.
a. RESTRICTED STOCK AND PERFORMANCE UNIT PERFORMANCE GOAL RESTRICTIONS.
The obligation of the Company to deliver certificates representing the
Restricted Stock granted hereunder and to utilize the aggregate value of the
Performance Units to purchase a retirement annuity shall be subject to the
terms, conditions and restrictions set forth in this Subsection 3.a.
i. VESTING OF RESTRICTED STOCK AND PERFORMANCE UNITS. Mr. Melrose's
right to receive the Restricted Stock and the value of the Performance Units
shall be subject to the vesting requirements set forth in this Subsection 3.a.i.
and to the achievement by Mr. Melrose of the Performance Goals set forth in
Subsection 3.a.i.(A) hereof not later than the last day of the period specified
to achieve such performance (the "Restricted Period"). Upon achievement of a
Performance Goal within an applicable Restricted Period, the restrictions shall
lapse with respect to the specified portion of Restricted Stock, which specified
portion shall vest and become nonforfeitable. Upon achievement of a Performance
Goal within an applicable Restricted Period, the restrictions shall lapse with
respect to the specified portion of Performance Units, which specified portion
shall vest and become nonforfeitable, subject to the further condition that Mr.
Melrose enter into and comply with the terms and conditions of a noncompetition
agreement in accordance with Subsections 2.c and 3.b. If Mr. Melrose does not
enter into a noncompetition agreement or does not comply with the terms and
conditions of such a noncompetition agreement, then Mr. Melrose shall forfeit
the value of the Performance Units or, if a retirement annuity has been acquired
by the Company, the retirement annuity.
(A) The following table sets forth the Performance Goals, the
schedule for achievement of each Performance Goal and the portion of Restricted
Stock and Performance Units in which rights vest upon such achievement.
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Performance Goal Restricted Period Portion of Portion of
to be Achieved (July 31, 1995 Shares of Re- Performance
through earlier of stricted Stock Units to
date shown or to Vest Upon Vest Upon
Goal Achievement) Achievement Achievement
Goal 1:
CEO and senior management
succession plan developed
and progress towards fulfill-
ment of the plan, approved
by Board of Directors October 31, 1999 15% 15%
Goal 2:
Potential CEO successor
identified with approval
of Board of Directors
and continued development
of senior management team October 31, 2000 15% 15%
Goal 3:
CEO successor who was
identified and developed
by Mr. Melrose is elected
as CEO by Board of
Directors October 31, 2003 70% 70%
</TABLE>
(B) Early Selection of Successor. Notwithstanding any other
provision of the Plan, in the event that the Board of Directors elects as
Mr. Melrose's successor the individual identified and developed by Mr. Melrose,
and such successor is in place as chief executive officer of the Company and
Mr. Melrose elects to retire prior to the last day of the final Restricted
Period, but no earlier than July 31, 1997, all Restricted Stock and
Performance Units shall vest in full and become nonforfeitable, subject to
the condition with respect to the Performance Units that Mr. Melrose enter
into and comply with the terms and conditions of a noncompetition agreement
in accordance with Subsection 3.b.
(C) The Special CEO Succession Subcommittee of the Compensation
Committee of the Board of Directors (the "Committee") shall be responsible for
certifying in writing to the Company that an applicable Performance Goal has
been met by Mr. Melrose prior to release and delivery of certificates
representing the shares of Restricted Stock or payment of the value of
Performance Units for the purchase of a retirement annuity to Mr. Melrose.
3
<PAGE>
ii. Limits on Transfer of Restricted Stock and Performance Units.
Shares of the Restricted Stock which have not vested in accordance with the
provisions of Subsection 3.a.i. hereof may not be sold, transferred, pledged,
assigned or otherwise encumbered. Performance Units may not be sold,
transferred, pledged, assigned or otherwise encumbered at any time and the value
of Performance Units may be utilized only for the purpose of purchasing the
retirement annuity referred to the Subsection 2.b. hereof.
iii. Termination, Death or Disability. In the event that the Board of
Directors terminates Mr. Melrose's employment other than for cause (as defined
in Subsection 3.c. hereof) and elects as Mr. Melrose's successor a chief
executive officer who was identified and developed by Mr. Melrose, or in the
event of the termination of Mr. Melrose's employment due to his death or
disability, then all shares of Restricted Stock and Performance Units shall
automatically vest in full, notwithstanding that Mr. Melrose does not enter into
a noncompetition agreement in accordance with Subsections 2.c. and 3.b., and
shall become nonforfeitable in the fiscal year following the year of the date of
such event, and on the first day that such vesting would not cause the
compensation to be deemed compensation with respect to the prior fiscal year.
(D) The terms of this Agreement are not intended to, and do not,
impose on Mr. Melrose a mandatory retirement date not otherwise applicable to
employees of the Company generally, and Mr. Melrose shall not be obligated to
retire as an officer of the Company in order to obtain the benefits of this
Agreement.
b. POST-RETIREMENT CONSULTING AND NONCOMPETITION AGREEMENT. The
Company's agreement to pay any amount in connection with post-retirement
consulting services to be provided by Mr. Melrose and its payment of the
value of Performance Units for the purchase of a retirement annuity payable
to Mr. Melrose pursuant to Subsection 2.b. shall be subject to and in
consideration of Mr. Melrose's execution of an agreement not to compete with
the Company by serving as an employee or member of the board of directors of
or consultant to Rainbird, Jacobson or John Deere, or any successor thereof
or similar competitor of the Company for a period of five years following the
date of Mr. Melrose's retirement as Chief Executive Officer. The Company's
agreement to pay any amount in connection with post-retirement consulting
services to be provided by Mr. Melrose shall be subject to his agreement to
provide consulting services to the Company for a period of five years
following the date of his retirement; provided however that Mr. Melrose may
elect to terminate the consulting agreement, but not the agreement not to
compete, in which event any balance of the $500,000 amount referred to in
Subsection 2.c. not then expended for Mr. Melrose's benefit shall be paid to
Mr. Melrose over the remainder of the five year period. Mr. Melrose shall not
have any right to receive payments pursuant to Subsection 2.c. or this
Subsection 3.b. until and unless he shall have executed an agreement not to
compete with the Company and delivered a fully executed copy thereof to the
Company, and otherwise complied with the then applicable terms and conditions
of the Plan, except as provided in Subsection 3.a.(C)iii.
c. TERMINATION OF EMPLOYMENT. Except as otherwise provided by
Subsection 3.a. hereof, if Mr. Melrose resigns his employment with the Company
or if his employment is
4
<PAGE>
terminated by the Board of Directors for cause during any Restricted Period, all
shares of Restricted Stock and all Performance Units then subject to
restrictions and all other rights under this Plan shall be forfeited by Mr.
Melrose and the Restricted Stock shall be reacquired by the Company. For
purposes of this Agreement, "Cause" shall mean:
(i) the willful and continued failure of Mr. Melrose to perform
substantially his duties with the Company or one of its affiliates (other
than any such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered
to Mr. Melrose by the Board of Directors of the Company which specifically
identifies the manner in which the Board of Directors believes that Mr.
Melrose has not substantially performed his duties, or
(ii) the willful engaging by Mr. Melrose in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of Mr.
Melrose, shall be considered "willful" unless it is done, or omitted to be done,
by Mr. Melrose in bad faith or without reasonable belief that Mr. Melrose's
action or omission was in the best interests of the Company. Any act, or failure
to act, based upon authority given pursuant to a resolution duly adopted by the
Board of Directors or upon the instructions of a senior officer of the Company
or based upon the advice of counsel for the Company shall be conclusively
presumed to be done, or omitted to be done, by Mr. Melrose in good faith and in
the best interests of the Company. The cessation of employment of Mr. Melrose
shall not be deemed to be for Cause unless and until there shall have been
delivered to Mr. Melrose a copy of a resolution duly adopted by the affirmative
vote of not less than three quarters of the entire membership of the Board at a
meeting of the Board of Directors called and held for such purpose (after
reasonable notice is provided to Mr. Melrose and Mr. Melrose is given an
opportunity, together with counsel, to be heard before the Board of Directors),
finding that, in the good faith opinion of the Board of Directors, Mr. Melrose
is guilty of the conduct described in Subsection 3.c.(i) or (ii) above, and
specifying the particulars thereof in detail.
d. STOCK CERTIFICATES.
i. ISSUANCE. The Company shall issue a stock certificate or
certificates representing the shares of Restricted Stock granted under the Plan.
Such certificates shall be registered in Mr. Melrose's name and shall bear an
appropriate legend referring to the terms, conditions and restrictions
applicable to the grant, substantially in the following form:
The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the Chief Executive Officer Succession Incentive Plan
and an agreement entered into between the registered owner and The
Toro Company. Copies of the plan and agreement are on file in the
offices of The Toro Company, 8111 Lyndale Avenue South, Bloomington,
Minnesota 55420.
5
<PAGE>
ii. ESCROW. Certificates representing the Restricted Stock shall be
physically held by the Company or its nominee during any Restricted Period, and
the Company may require, as a condition of the grant, that Mr. Melrose shall
have delivered a stock power, endorsed in blank, with respect to any shares of
the Restricted Stock. Upon the achievement of the Performance Goals with respect
to any shares of Restricted Stock, as certified to by the Committee, the Company
shall cause the certificate representing such shares of Restricted Stock to be
removed from escrow and delivered to the Company for reissuance and delivery of
Common Stock in the name of Mr. Melrose. If any shares of Restricted Stock are
to be forfeited, certificates representing such shares shall be delivered to the
Company for reissuance in its name or cancellation and Mr. Melrose shall have no
further interest in such stock.
iii. LAPSE OF RESTRICTIONS. When the Performance Goals set forth in
Subsection 3.a.i.(A) have been achieved with respect to any portion of the
shares of the Restricted Stock, the Company shall deliver to Mr. Melrose or his
legal representative, beneficiary or heir not later than 60 days thereafter a
certificate or certificates representing the Common Stock without the legend
referred to in Subsection 3.d.i. hereof. The number of shares of Common Stock to
be released shall be the same number as to which the Performance Goals have been
achieved in accordance with Subsection 3.a.i.(A).
e. RIGHTS AS STOCKHOLDER.
i. RIGHT TO VOTE AND DIVIDENDS. Except as provided in Section 2 and
this Section 3, Mr. Melrose shall have, with respect to the shares of Restricted
Stock, all of the rights of a stockholder of the Company, including the right to
vote the shares and the right to receive cash dividends with respect to the
shares.
ii. ADJUSTMENTS. In the event of any merger, reorganization,
consolidation, recapitalization, stock dividend, stock split or other change in
corporate structure affecting the Common Stock, the Committee shall make such
substitution or adjustment in the aggregate number of shares of Common Stock
reserved for issuance under the Plan or in the number of shares outstanding as
Restricted Stock or in the number of Performance Units, as may be determined to
be appropriate by the Committee, acting in its sole discretion, provided that
the number of shares or Performance Units shall always be a whole number.
f. CHANGE IN CONTROL. In the event of a Change of Control of the Company
as hereinafter defined, whether or not approved by the Board of Directors, all
shares of Restricted Stock shall immediately fully vest and be freely
transferable.
Change of Control means:
i. The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act)
of 15% or more of either (A) the
6
<PAGE>
then-outstanding shares of Common Stock of the Company (the "Outstanding Company
Common Stock") or (B) the combined voting power of the then-outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
for purposes of this subsection i., the following acquisitions shall not
constitute a Change of Control: (A) any acquisition directly from the Company,
(B) any acquisition by the Company, (C) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company, or (D) any acquisition by any corporation
pursuant to a transaction that complies with clauses (A), (B) and (C) of
subsection iii. of this Subsection 3.f.; or
ii. Individuals who, as of the date hereof, constitute the Board of
Directors of the Company (the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, was approved by a vote of
at least a majority of the directors then comprising the Incumbent Board shall
be considered as though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
iii. Consummation of a reorganization, merger or consolidation of the
Company or sale or other disposition of all or substantially all of the assets
of the Company or the acquisition by the Company of assets or stock of another
entity (a "Business Combination"), in each case, unless, following such Business
Combination, (A) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 50% of,
respectively, the then-outstanding shares of common stock and the combined
voting power of the then-outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be, (B) no
Person (excluding any corporation resulting from such Business Combination or
any employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, 15% or more of, respectively, the then-outstanding shares of common
stock of the corporation resulting from such Business Combination, or the
combined voting power of the then-outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (C) at least a majority of the members of the board of
directors of the corporation resulting from such Business
7
<PAGE>
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Board, providing for such
Business Combination; or
iv. Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
4. WITHHOLDING TAXES. The Company shall have the right to deduct from any
settlement made under the Plan any federal, state or local taxes of any kind,
including FICA and related taxes, required by law to be withheld with respect to
the vesting of rights to receive or payment of remuneration or to take such
other action as may be necessary in the opinion of the Company to satisfy all
obligations for the payment of such taxes. If Common Stock is withheld or
surrendered to satisfy tax withholding, such stock shall be valued at its fair
market value as of the date such Common Stock is withheld or surrendered or the
obligation to pay such taxes becomes fixed.
5. REGISTRATION RIGHTS. Mr. Melrose shall have the right to require that the
Company promptly take all necessary steps to register or qualify the Restricted
Stock, or Common Stock issued upon vesting of the Restricted Stock, under the
Securities Act of 1933, as amended, and the securities laws of such states as
Mr. Melrose may reasonably request. The Company shall keep effective and
maintain any registration, qualification, notification or approval for such
period as is reasonably necessary for Mr. Melrose to dispose of the Restricted
Stock or Common Stock and from time to time shall amend or supplement the
prospectus used in connection therewith to the extent necessary in order to
comply with applicable law. The Company shall bear all fees, costs and expenses
of such registration, qualification, notification or approval.
6. COMPLIANCE WITH RULE 16b-3 AND SECTION 162(m). The grants of Restricted
Stock and Performance Units made under this Agreement and the remuneration to be
paid to Mr. Melrose as a consequence of the grants are intended to comply with
all applicable conditions of Rule 16b-3 under the Securities Exchange Act of
1934 and to avoid the loss of the deduction referred to in paragraph (1) of
Section 162(m) of the Internal Revenue Code of 1986, as amended. Anything in the
Plan or this Agreement to the contrary notwithstanding, to the extent any
provision of the Plan or this Agreement or action by the Committee fails to so
comply or to avoid the loss of such deduction, it shall be deemed null and void
to the extent permitted by law and deemed advisable by the Committee.
7. EMPLOYMENT. Nothing in the Plan or this Agreement shall interfere with or
limit in any way the right of the Company to terminate Mr. Melrose's employment
at any time, with the Company or any subsidiary of the Company, or shall confer
upon Mr. Melrose any right to continue in the employ of the Company.
8
<PAGE>
8. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the Board
nor the submission of the Plan to stockholders for approval shall be construed
to limit the power of the Board or the Committee to adopt such other incentive
arrangements as either may deem desirable, including without limitation, the
award of stock and cash awards otherwise than under the Plan, or to set
compensation and retirement benefits and make such awards to Mr. Melrose as
either may deem desirable.
9. EXCLUSION FROM PENSION, PROFIT SHARING AND OTHER BENEFIT CALCULATIONS. By
acceptance of the award made by this Agreement, Mr. Melrose agrees that the
award or vesting of Restricted Stock and Performance Units constitute special
incentive compensation that is not taken into account as "salary" or
"compensation" or "bonus" in determining the amount of any payment under any
pension, retirement or profit sharing plan of the Company or any subsidiary. Mr.
Melrose agrees further that such award shall not be taken into account in
determining the amount of any life insurance coverage, short or long-term
disability coverage or any other pay-based benefit provided by the Company or
any subsidiary.
10. AMENDMENT. This Agreement may be amended, modified or terminated from time
to time, to reflect any amendments, modifications or the termination of the
Plan; provided however that no amendment may be adopted without the approval of
the stockholders of the Company if such amendment requires stockholder approval
pursuant to Rule 16b-3 or Section 162(m), and no amendment, modification or
termination may be adopted without the written agreement of Mr. Melrose if such
amendment, modification or termination would adversely affect his rights.
Subject to the foregoing and the requirements of Section 162(m), the Board may,
in accordance with the recommendation of the Committee and without further
action on the part of stockholders of the Company or the consent of Mr. Melrose,
amend the Plan to preserve the employer deduction under Section 162(m).
11. GOVERNING LAW. This 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.
12. SUCCESSORS. Except as otherwise provided in the Plan or this Agreement, the
Plan and this Agreement shall be binding upon and inure to the benefit of the
Company, its successors and assigns and Mr. Melrose, his beneficiaries, heirs,
executors, administrators and legal representatives.
9
<PAGE>
IN WITNESS WHEREOF, the Agreement has been executed and delivered by the
Company as of the date first above set forth.
THE TORO COMPANY
By: J. Lawrence McIntyre
Title: Vice President & Secretary
I hereby agree to the terms and conditions of this Restricted Stock and
Performance Unit Award grant made to me as of July 31, 1995, as amended July 31,
1997 and as amended and restated July 31, 1998 and as amended 5/13/99.
KENDRICK B. MELROSE
/s/ Kendrick B. Melrose
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND CONDENSED CONSOLIDATED
BALANCE SHEETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JUL-30-1999
<CASH> 1,915
<SECURITIES> 0
<RECEIVABLES> 339,748<F5>
<ALLOWANCES> 0<F4>
<INVENTORY> 194,225
<CURRENT-ASSETS> 583,394
<PP&E> 345,430
<DEPRECIATION> 222,631
<TOTAL-ASSETS> 838,209
<CURRENT-LIABILITIES> 351,272
<BONDS> 196,261<F1>
0
0
<COMMON> 12,658<F2>
<OTHER-SE> 272,337
<TOTAL-LIABILITY-AND-EQUITY> 838,209
<SALES> 1,009,186
<TOTAL-REVENUES> 1,009,186
<CGS> 642,549
<TOTAL-COSTS> 292,998
<OTHER-EXPENSES> (2,599)<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,517
<INCOME-PRETAX> 57,721
<INCOME-TAX> 22,511
<INCOME-CONTINUING> 35,210
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,210
<EPS-BASIC> 2.72
<EPS-DILUTED> 2.66
<FN>
<F1>Total long-term debt
<F2>Does not include additional paid-in-capital
<F3>Other income, net
<F4>Not included in quarterly financial information
<F5>Total net receivables
</FN>
</TABLE>
