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THE TORO COMPANY
PERFORMANCE SHARE PLAN
1. PURPOSE. The purpose of The Toro 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 year
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.(iv), 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, average net asset
turns, cumulative average net asset turns, return on equity, return
on beginning equity, revenue growth, earnings growth, economic value
added, fill rate, customer care and customer satisfaction scores.
(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 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
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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 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
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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.
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,
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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. In the event of a corporate transaction involving the
Company, the Common Stock or the Company's corporate or capital
structure, including but not limited to any stock dividend, stock split,
extraordinary cash dividend, recapitalization, reorganization, merger,
consolidation, reclassification, split-up, spin-off, combination or
exchange of shares, or a sale of the Company or of all or part of its
assets or any distribution to stockholders other than a normal cash
dividend, the Committee shall make such proportional adjustments as are
necessary to preserve the benefits or potential benefits of the
Performance Share Awards. Action by the Committee may include all or any
of adjustment in (i) the maximum number and kind of securities subject
to the Plan as set forth in this paragraph; (ii) the maximum number and
kind of securities that may be made subject to Performance Share Awards
for any individual as set forth in paragraph 3.c. (iii); (iii) the
number and kind of securities subject to any outstanding Award; and (iv)
any other adjustments that the Committee determines to be equitable.
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, excluding any conflicts or choice of law rule or principle that
might otherwise refer construction or interpretation of the Plan or an award
or agreement or Performance Shares to the substantive law of another
jurisdiction.
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
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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.
9. EFFECTIVE DATE OF THE PLAN AND AMENDMENTS. The Plan first became effective
on November 18, 1998. 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.
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