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 Xxxxxxxx X. Xxxxxxx, 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.
x. XXXXX 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.
x. XXXXX 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.
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.
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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%
(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
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payment of the value of Performance Units for the purchase of a retirement
annuity to Mr. Melrose.
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, Xxxxxxxx or Xxxx 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
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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 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
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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, 0000 Xxxxxxx Xxxxxx Xxxxx, Xxxxxxxxxxx,
Xxxxxxxxx 00000.
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
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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 threatened or actual 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. A Change of Control means the earliest to occur of
(i) a public announcement that a Person shall have acquired or obtained the
right to acquire Beneficial Ownership (within the meaning of Rule 13d-3 under
the Securities Exchange Act of 1934 (the "Exchange Act"), of 15% or more of the
outstanding shares of Common Stock of the Company, (ii) the commencement of, or
announcement of an intention to make, a tender offer or exchange offer, the
consummation of which would result in the Beneficial Ownership by a Person of
15% or more of the outstanding shares of Common Stock of the Company or (iii)
the occurrence of a tender offer, exchange offer, merger, consolidation, sale of
assets or earning power, or contested election or any combination thereof, that
causes or would cause the persons who were directors of the Company immediately
before such Change of Control to cease to constitute a majority of the Board of
Directors of the Company or any parent of or successor to the Company.
For purposes of this Subsection 3.f., Person means any individual,
corporation, partnership, trust, other entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Exchange Act) (excluding the Company, a
subsidiary of the Company, any employee benefit plans of the Company or any
subsidiary or any entity holding shares of Common Stock for or pursuant to the
terms of any such plan). For purposes of this Subsection 3.f., Beneficial
Ownership includes securities beneficially owned, directly or indirectly, by a
Person and such Person's affiliates and associates, as defined under Rule 12b-2
under the Exchange Act, and securities which such Person and its affiliates and
associates have the right to acquire or the right to vote, or by any other
Person with which such Person or any of such Person's affiliates or associates
has any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of shares of Common Stock, as more fully described
in The Toro Company Preferred Share Purchase Rights Plan dated as of May 20,
1998.
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.
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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. 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.
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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.
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. Xxxxxxxx XxXxxxxx
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.
XXXXXXXX X. XXXXXXX
/s/ Xxxxxxxx X. Xxxxxxx
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