PERFORMANCE STOCK UNIT AWARD GRANT AGREEMENT

     THIS PERFORMANCE STOCK UNIT AWARD GRANT AGREEMENT (the “Agreement”), by and
between TWIN DISC, INCORPORATED (the “Company”) and
_____________________________________ (the “Employee”) is dated as of the 27th
day of July, 2006, to memorialize an award of performance stock units of even
date herewith. 

     WHEREAS, the Company adopted a Stock Incentive Plan in 2004 (the “Plan”)
whereby the Compensation Committee of the Board of Directors (the “Committee”)
is authorized to grant awards of various types to certain key employees of the
Company; and WHEREAS the Company amended the Plan on January 20, 2006, to
authorize the award of performance stock units, which entitle an employee of the
Company receiving such an award to a cash payment equal to the value of the
common stock of the Company if the Company achieves a predetermined performance
objective; and

     WHEREAS, effective July 27, 2006, the Committee made an award of
performance stock units to the Employee as an inducement to achieve the below
described performance objective.

     NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements herein set forth, the parties hereto agree as follows:

 1. Performance Stock Unit Award Grant. Subject to the terms of the Plan, a copy
of which has been provided to the Employee and is incorporated herein by
reference, the Company has granted Employee a maximum award of _______
performance stock units effective July 27, 2006. Such performance stock units
entitle the Employee to receive a cash payment equal to the product of the
number of units awarded pursuant to the table below, multiplied by the fair
market value of the Company’s common stock as of June 30, 2009, if the Company
achieves the economic profit objective stated below (the “Performance
Objective”). The Committee shall

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certify whether and to what extent such Performance Objective is satisfied
before any payment pursuant to a performance stock unit is made.

     The Performance Objective is the Company’s net operating profit after taxes
(“NOPAT”) for the cumulative three fiscal year period ending June 30, 2009,
measured as a percentage of the Company’s capital charge for the cumulative
three fiscal year period ending June 30, 2009. If the Company achieves the
maximum Performance Objective as specified on the table below, the Employee will
earn the maximum number of performance stock units. If the Company achieves the
target Performance Objective as specified on the table below, the Employee will
receive the target number of performance stock units. If the Company achieves
the threshold Performance Objective stated below, the Employee will earn the
threshold number of performance stock units. No performance stock units will be
earned for performance below the 3-year cumulative economic profit threshold and
no additional performance stock units will be earned for performance exceeding
the 3-year cumulative economic profit maximum.

    Cumulative NOPAT as a percentage of    Number of Performance      cumulative
capital charge    Stock Units 

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Maximum    XX%    XXXX 

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Target    XX%    XXXX 

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Threshold    XX%    XXXX 

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In the event that the Company’s economic profit is between the achievement
levels set forth in the above table, the number of performance stock units
awarded shall be determined by interpolation.

  2.   Price Paid by Employee.  The price to be paid by the Employee for the
performance stock units granted shall be __No__ Dollars ($0.00) per share.

  3.   Voluntary Termination of Employment Prior to Retirement/Termination for
Cause.  If prior to attaining the Performance Objective an Employee voluntarily
terminates

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employment prior to the Employee becoming eligible for normal or early
retirement under the Company’s defined benefit pension plan covering the
Employee or the employment of an Employee is terminated for cause, the
performance stock units granted to such Employee shall be forfeited. The
Committee shall conclusively determine whether an Employee was terminated for
cause for purposes of this performance stock unit award.

     4. Death/Disability/Other Termination of Employment Other than Change of
Control of Company. If prior to attaining the Performance Objective an Employee
dies, becomes permanently disabled, voluntarily terminates employment after
becoming eligible for normal or early retirement under the Company’s defined
benefit pension plan covering the Employee, or is terminated for any reason
other than for cause or following a Change in Control of the Company as
described in Section 5 (each a “Qualifying Event”), the performance stock units
granted to such Employee shall be paid on a prorated basis if and when the
Performance Objective is achieved. Such prorated performance stock unit awards
shall be subject to the following terms and conditions:

(a)      The prorated award shall be determined by multiplying the cash payment
due pursuant to the vesting of the award by a fraction, the numerator of which
is the number of days from July 1, 2006, through the Employee’s last day of
employment, and the denominator or which is the number of days from July 1,
2006, through June 30, 2009.   (b)      Except as otherwise provided in Section
4(c), the payment of such prorated award shall be paid in the ordinary course
after the determination by the Committee that the Performance Objective has been
achieved (and no later than 2-1/2 months after June 30, 2009).   (c)      The
Committee has the authority in its sole discretion to immediately vest the
prorated portion of the performance stock units granted hereunder of an Employee
who experiences a Qualifying Event and to make a cash payment pursuant to such
prorated awards as if the maximum Performance Objective had been fully achieved.
In such event, the calculation of the cash payment due to the Employee shall be
based on the fair market value of the Company’s common stock as of the effective
date of such Employee’s termination of employment.  

 

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(d)      The Committee shall conclusively determine whether an Employee shall be
considered permanently disabled for purposes of this performance stock unit
award.  

     5. Change of Control. Notwithstanding Sections 3 and 4 above, if an event
constituting a Change in Control of the Company occurs and the Employee
thereafter terminates employment for any reason, then the performance stock
units granted hereunder shall immediately vest and a cash payment shall be made
as if the maximum Performance Objective had been fully achieved, regardless of
whether termination of employment is by the Employee, the Company or otherwise.
Such cash payment shall be equal to the number of performance stock units
granted to the Employee multiplied by the fair market value of the Company’s
common stock as of the effective date of such Change in Control. Employee’s
continued employment with the Company, for whatever duration, following a Change
in Control of the Company shall not constitute a waiver of the Employee’s rights
with respect to this Section 5.

For purposes of this Section 5, a “Change in Control of the Company” shall be
deemed to occur in any of the following circumstances:

(a)      if there occurs a change in control of a nature that would be required
to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") whether or not the Company is then subject to such reporting requirement;
  (b)      if any "person" (as defined in Sections 13(d) and 14(d) of the
Exchange Act) other than Michael Batten or any member of his family (the "Batten
Family"), is or becomes the “beneficial owner” (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing thirty percent (30%) or more of the combined voting power of the
Company's then outstanding securities;   (c)      if during any period of two
(2) consecutive years (not including any period prior to the execution of this
Agreement) there shall cease to be a majority of the Board comprised as follows:
individuals who at the beginning of such period constitute the Board and any new
director(s) whose election by the Board or nomination for election by the
Company's shareholders was approved by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors at the beginning of
the period or whose election or nomination for election was previously so
approved; or  

 

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(d)      if the shareholders of the Company approve a merger or consolidation of
the Company with any other corporation, other than a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) at least 80% of the combined voting power of the voting securities of
the Company or such surviving entity outstanding immediately after such merger
or consolidation, or the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all the Company's assets.  

     6. Awards Contingent Upon Shareholder Approval of Plan Amendments. All of
the performance stock units granted hereunder are contingent upon the approval
by the Company’s shareholders at the Company’s 2006 annual meeting of the
amendments to the Plan approved by the Board on January 20, 2006. Upon the
occurrence of said event, the grant of performance stock units awarded herein
shall be effective as of the date specified herein with no further action
required by the Committee. If such approval does not occur at the Company’s 2006
annual meeting of shareholders, the awards granted hereunder shall be null and
void.

     7. Employment Status. Neither this Agreement nor the Plan impose on the
Company any obligation to continue the employment of the Employee.

                                                                                                                                                                                
TWIN DISC, INCORPORATED

                                                                                                                                                                               
By: ____________________________________
                                                                                                                                                                                Its:   ____________________________________                                                                                                                                                                                                                                          

                                                                                                                                                                                EMPLOYEE:__________________________________________

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