Document:

Exhibit 10.1

 

Exhibit 10.1

THE TIMKEN COMPANY

Nonqualified Stock Option Agreement

          WHEREAS, [NAME] (the “Optionee”) is an employee of The Timken Company (the “Company”); and

          WHEREAS, the grant of stock options evidenced hereby was authorized by a resolution of the
Compensation Committee (the “Committee”) of the Board of Directors (the “Board”) of the Company
that was duly adopted on [DATE] (the “Date of Grant”), and the execution of a stock option
agreement in the form hereof was authorized by a resolution of the Committee duly adopted on
[DATE]; and

          WHEREAS, the option evidenced hereby is intended to be a nonqualified stock option and shall
not be treated as an “incentive stock option” within the meaning of that term under Section 422 of
the Internal Revenue Code of 1986;

          NOW, THEREFORE, pursuant to the Company’s Long-Term Incentive Plan (as Amended and Restated as
of February 6, 2004) (the “Plan”), the Company hereby grants to the Optionee (i) a nonqualified
stock option (the “Option”) to purchase [NUMBER] shares of the Company’s common stock without par
value (the “Common Shares”) at the exercise price of [OPTION PRICE] per Common Share (the “Option
Price”) which represents the Market Value per Share on the Date of Grant. The Company
agrees to cause certificates for any shares purchased hereunder to be delivered to the Optionee
upon payment of the Option Price in full, subject to the terms and conditions of the Plan and the
terms and conditions hereinafter set forth.

     1. Four-Year Vesting of Option. (a) Unless terminated as hereinafter provided,
the Option shall be exercisable to the extent of one-fourth (1/4th) of the Common Shares covered by
the Option after the Optionee shall have been in the continuous employ of the Company or a
subsidiary for one full year from the Date of Grant and to the extent of an additional one-fourth
(1/4th) thereof after each of the next three successive years thereafter during which the Optionee
shall have been in the continuous employ of the Company or a subsidiary. For the purposes of this
agreement: “subsidiary” shall mean a corporation, partnership, joint venture, unincorporated
association or other entity in which the Company has a direct or indirect ownership or other equity
interest; the continuous employment of the Optionee with the Company or a subsidiary shall not be
deemed to have been interrupted, and the Optionee shall not be deemed to have ceased to be an
employee of the Company or a subsidiary, by reason of the transfer of his employment among the
Company and its subsidiaries.

          (b) To the extent that the Option shall have become exercisable in accordance with the terms
of this agreement, it may be exercised in whole or in part from time to time thereafter.

 

 

     2. Accelerated Vesting of Option. Notwithstanding the provisions of Section 1(a)
hereof, the Option may become exercisable earlier than the time provided in such section if any of
the following circumstances apply:

          (a) Death, Disability or Retirement: The Option shall become immediately exercisable
in full if the Optionee should die or become permanently disabled while in the employ of the
Company or any subsidiary, or if the Optionee should retire with the Company’s consent.

          For purposes of this agreement, retirement “with the Company’s consent” shall mean: (i) the
retirement of the Optionee prior to age 62 under a retirement plan of the Company or a subsidiary,
if the Board or the Committee determines that his retirement is for the convenience of the Company
or a subsidiary, or (ii) the retirement of the Optionee at or after age 62 under a retirement plan
of the Company or a subsidiary. For purposes of this agreement, “permanently disabled” shall mean
that the Optionee has qualified for long-term disability benefits under a disability plan or
program of the Company or, in the absence of a disability plan or program of the Company, under a
government-sponsored disability program.

          (b) Change in Control: The Option shall become immediately exercisable in full upon
any change in control of the Company that shall occur while the Optionee is an employee of the
Company or a subsidiary. For the purposes of this agreement, the term “change in control” shall
mean the occurrence of any of the following events:

               (i) 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) (a “Person”) of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934) of 30% or more of
either: (A) the then-outstanding Common Shares or (B) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote generally in the election of
directors (“Voting Shares”); provided, however, that for purposes of this subsection (i), the
following acquisitions shall not constitute a change in control: (1) any acquisition directly from
the Company, (2) any acquisition by the Company, (3) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any subsidiary, or (4) any acquisition
by any Person pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection
(iii) of this Section 2(b); or

               (ii) Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”)
cease for any reason (other than death or disability) 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 (either by a specific vote
or by approval of the proxy statement of the Company in which such person is named as a nominee for
director, without objection to such nomination) 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 (within the
meaning of Rule 14a-11 of the Securities Exchange Act
of 1934) 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

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               (iii) Consummation of a reorganization, merger or consolidation or sale or other disposition
of all or substantially all of the assets of the Company (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 Common Shares and Voting Shares
immediately prior to such Business Combination beneficially own, directly or indirectly, more than
66-2/3% 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 entity resulting from such Business Combination (including, without
limitation, an entity 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 relative to each other as their ownership, immediately prior to
such Business Combination, of the Common Shares and Voting Shares of the Company, as the case may
be, (B) no Person (excluding any entity resulting from such Business Combination or any employee
benefit plan (or related trust) sponsored or maintained by the Company or such entity resulting
from such Business Combination) beneficially owns, directly or indirectly, 30% or more of,
respectively, the then-outstanding shares of common stock of the entity 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 shareholders of the Company of a complete liquidation or dissolution of
the Company.

          (c) Divestiture: The Option shall become immediately exercisable in full if the
Optionee’s employment with the Company or a subsidiary terminates as the result of a divestiture.
For the purposes of this agreement, the term “divestiture” shall mean a permanent disposition to a
Person other than the Company or any subsidiary of a plant or other facility or property at which
the Optionee performs a majority of Optionee’s services whether such disposition is effected by
means of a sale of assets, a sale of subsidiary stock or otherwise.

          (d) Layoff: If (i) the Optionee’s employment with the Company or a subsidiary
terminates as the result of a layoff and (ii) the Optionee is entitled to receive severance pay
pursuant to the terms of any severance pay plan of the Company in effect at the time of Optionee’s
termination of employment which provides for severance pay calculated by multiplying the Optionee’s
base compensation by a specified severance period, then the Option shall be exercisable with
respect to the total number of Common Shares that would have been exercisable under the provisions
of Section 1(a) hereof if the Optionee had remained in the employ of the Company through the end of
the severance period.

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          For purposes of this agreement, a “layoff” shall mean the involuntary termination by the
Company or any subsidiary of Optionee’s employment with the Company or any subsidiary due to (i) a
reduction in force leading to a permanent downsizing of the salaried workforce, (ii) a permanent
shutdown of the plant, department or subdivision in which Optionee works, or (iii) an elimination
of position.

     3. Termination of Option. The Option shall terminate automatically and without
further notice on the earliest of the following dates:

          (a) thirty days after the date upon which the Optionee ceases to be an employee of the Company
or a subsidiary, unless the cessation of his employment (i) is a result of his death, permanent
disability or retirement with the Company’s consent or (ii) follows a change in control; a
divestiture, or a layoff;

          (b) three years after the date upon which the Optionee ceases to be an employee of the Company
or subsidiary following (i) a change in control, (ii) a divestiture or (iii) a layoff;

          (c) five years after the date upon which the Optionee ceases to be an employee of the Company
or subsidiary (i) as a result of his death, (ii) as a result of his permanent disability or, (iii)
as a result of his retirement with the Company’s consent, unless he is also a director of the
Company who continues to serve as such following his retirement with the Company’s consent;

          (d) five years after the date upon which the Optionee ceases to be a director of the Company,
but not less than five years after the date upon which he ceases to be an employee of the Company
or a subsidiary, if (i) the cessation of his employment is a result of his retirement with the
Company’s consent and (ii) he continues to serve as a director of the Company following the
cessation of his employment; or

          (e) ten years after the Date of Grant.

     In the event that the Optionee shall intentionally commit an act that the Committee determines
to be materially adverse to the interests of the Company or a subsidiary, the Option shall
terminate at the time of that determination notwithstanding any other provision of this agreement.

     4. Payment of Option Price. The Option Price shall be payable (a) in cash in the form
of currency or check or other cash equivalent acceptable to the Company, (b) by transfer to the
Company of nonforfeitable, unrestricted Common Shares that have been owned by the Optionee for at
least six months prior to the date of exercise or (c) by any combination of the methods of payment
described in Sections 4(a) and 4(b) hereof. Nonforfeitable, unrestricted Common Shares that are
transferred by the Optionee in payment of all or any part of the Option Price shall be valued on
the basis of their Market Value per Share. Subject to the terms and conditions of Section 7
hereof, and subject to any deferral election the Optionee may have made pursuant to any plan or
program of the Company, the Company shall cause certificates for any shares purchased hereunder to
be delivered to the Optionee upon payment of the Option Price in full.

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     5. Compliance with Law. The Company shall make reasonable efforts to comply with all
applicable federal and state securities laws; provided, however, notwithstanding any other
provision of this agreement, the Option shall not be exercisable if the exercise thereof would
result in a violation of any such law. To the extent that the Ohio Securities Act shall be
applicable to the Option, the Option shall not be exercisable unless the Common Shares or other
securities covered by the Option are (a) exempt from registration thereunder, (b) the subject of a
transaction that is exempt from compliance therewith, (c) registered by description or
qualification thereunder or (d) the subject of a transaction that shall have been registered by
description thereunder.

     6. Transferability and Exercisability.

          (a) Except as provided in Section 6(b) below, the Option, including any interest therein,
shall not be transferable by the Optionee except by will or the laws of descent and distribution,
and the Option shall be exercisable during the lifetime of the Optionee only by him or, in the
event of his legal incapacity to do so, by his guardian or legal representative acting on behalf of
the Optionee in a fiduciary capacity under state law and court supervision.

          (b) Notwithstanding Section 6(a) above, the Option, may be transferable by the Optionee,
without payment of consideration therefor, to any family member of the Optionee (as defined in Form
S-8), or to one or more trusts established solely for the benefit of such members of the immediate
family or to partnerships in which the only partners are such members of the immediate family of
the Optionee; provided, however, that such transfer will not be effective until notice of such
transfer is delivered to the Company; and provided, further, however, that any such transferee is
subject to the same terms and conditions hereunder as the Optionee.

     7. Adjustments. The Committee shall make any adjustments in the Option Price and the
number or kind of shares of stock or other securities covered by the Option that the Committee may
determine to be equitably required to prevent any dilution or expansion of the Optionee’s rights
under this agreement that otherwise would result from any (a) stock dividend, stock split,
combination of shares, recapitalization or other change in the capital structure of the Company,
(b) merger, consolidation, separation, reorganization or partial or complete liquidation involving
the Company or (c) other transaction or event having an effect similar to any of those referred to
in Section 7(a) or 7(b) hereof. Furthermore, in the event that any transaction or event described
or referred to in the immediately preceding sentence shall occur, the Committee may provide in
substitution of any or all of the Optionee’s rights under this agreement such alternative
consideration as the Committee may determine in good faith to be equitable under the circumstances.

     8. Withholding Taxes. If the Company shall be required to withhold any federal,
state, local or foreign tax in connection with any exercise of the Option, the Optionee shall pay
the tax or make provisions that are satisfactory to the Company for the payment thereof. The
Optionee may elect to satisfy all or any part of any such withholding obligation by surrendering to
the Company a portion of the Common Shares that are issuable to the Optionee upon the exercise of
the Option. If such election is made, the shares so surrendered by the Optionee shall be credited
against any such withholding obligation at their Market Value per Share on the date

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of such surrender. In no event, however, shall the Company accept Common Shares for payment
of taxes in excess of required tax withholding rates, except that, unless otherwise determined by
the Committee at any time, the Optionee may surrender Common Shares owned for more than 6 months to
satisfy any tax obligations resulting from any such transaction.

     9. No Right to Future Awards or Continued Employment. This option award is a
voluntary, discretionary bonus being made on a one-time basis and it does not constitute a
commitment to make any future awards. This option award and any payments made hereunder will not
be considered salary or other compensation for purposes of any severance pay or similar allowance,
except as otherwise required by law. Nothing in this Agreement will give the Optionee any right to
continue employment with the Company or any subsidiary, as the case may be, or interfere in any way
with the right of the Company or a subsidiary to terminate the employment of the Optionee.

     10. Relation to Other Benefits. Any economic or other benefit to the Optionee under
this agreement or the Plan shall not be taken into account in determining any benefits to which the
Optionee may be entitled under any profit-sharing, retirement or other benefit or compensation plan
maintained by the Company or a subsidiary and shall not affect the amount of any life insurance
coverage available to any beneficiary under any life insurance plan covering employees of the
Company or a subsidiary.

     11. Amendments. Any amendment to the Plan shall be deemed to be an amendment to this
agreement to the extent that the amendment is applicable hereto; provided, however, that no
amendment shall adversely affect the rights of the Optionee with respect to the Option without the
Optionee’s consent.

     12. Severability. If any provision of this Agreement or the application of any
provision hereof to any person or circumstances is held invalid or unenforceable, the remainder of
this Agreement and the application of such provision in any other person or circumstances shall not
be affected, and the provisions so held to be invalid or unenforceable shall be reformed to the
extent (and only to the extent) necessary to make it enforceable and valid.

     13. Processing of Information. Information about the Optionee and the Optionee’s
participation in the Plan may be collected, recorded and held, used and disclosed for any purpose
related to the administration of the Plan. The Optionee understands that such processing of this
information may need to be carried out by the Company and its Subsidiaries and by third party
administrators whether such persons are located within the Optionee’s country or elsewhere,
including the United States of America. The Optionee consents to the processing of information
relating to the Optionee and the Optionee’s participation in the Plan in any one or more of the
ways referred to above.

     14. Governing Law. This agreement is made under, and shall be construed in accordance
with, the internal substantive laws of the State of Ohio.

     15. Relation to Plan. Capitalized terms used herein without definition shall have the
meanings assigned to them in the Plan.

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          This agreement is executed by the Company on this        day of                     .

	 	 	 	 	 
	 	 	THE TIMKEN COMPANY
	 
	 	 	 	 
	 

	 	By	 	 
	 

	 	 	 	 
	 

	 	 	 	William R. Burkhart
	 

	 	 	 	Sr. Vice President & General Counsel

          The undersigned Optionee hereby acknowledges receipt of an executed original of this agreement
and accepts the Option granted hereunder, subject to the terms and conditions of the Plan and the
terms and conditions hereinabove set forth.

	 	 	 
	 	 	 
	 

	 	 
	 

	 	Optionee

	 	 	 	 	 
	 

	 	Date:	 	 
	 

	 	 	 	 

7Exhibit 10.2

 

EXHIBIT 10.2

THE TIMKEN COMPANY

Restricted Shares Agreement

            WHEREAS,                                                         (“Grantee”) is an employee of The Timken Company (the
“Company”); and

            WHEREAS, the grant of restricted shares evidenced hereby was authorized by a resolution of the
Compensation Committee (the “Committee”) of the Board of Directors (the “Board”) of the Company
that was duly adopted on                     , and the execution of a restricted shares agreement in the form
hereof was authorized by a resolution of the Committee duly adopted on such date.

            NOW, THEREFORE, pursuant to The Timken Company Long-Term Incentive Plan (as Amended and
Restated as of February 6, 2004) (the “Plan”) and subject to the terms and conditions thereof and
the terms and conditions hereinafter set forth, the Company hereby grants to Grantee, effective
                        
(the “Date of Grant”), the right to receive                      shares of the Company’s common
stock without par value (the “Common Shares”).

	 	1.	 	Rights of Grantee. The Common Shares subject to this grant shall be
fully paid and nonassessable and shall be represented by a certificate or certificates
registered in Grantee’s name and endorsed with an appropriate legend referring to the
restrictions hereinafter set forth. Grantee shall have all the rights of a shareholder
with respect to such shares, including the right to vote the shares and receive all
dividends paid thereon, provided that such shares, and any additional shares that
Grantee may become entitled to receive by virtue of a share dividend, a merger or
reorganization in which the Company is the surviving corporation or any other change in
the capital structure of the Company, shall be subject to the restrictions hereinafter
set forth.
	 
	 	2.	 	Restrictions on Transfer of Common Shares. The Common Shares subject
to this grant may not be assigned, exchanged, pledged, sold, transferred or otherwise
disposed of by Grantee, except to the Company, until the Common Shares have become
nonforfeitable in accordance with Sections 3 and 4 hereof; provided,
however, that Grantee’s rights with respect to such Common Shares may be
transferred by will or pursuant to the laws of descent and distribution. Any purported
transfer in violation of the provisions of this Section 2 shall be null and void, and
the purported transferee shall obtain no rights with respect to such shares.
	 
	 	3.	 	Four-Year Vesting of Common Shares. Subject to the terms and
conditions of Sections 4 and 5 hereof, Grantee’s right to receive the Common Shares
covered by this agreement shall become nonforfeitable to the extent of one-quarter
(1/4) of the Common Shares covered by this agreement after Grantee shall have been in

 

 

the continuous employ of the Company or a subsidiary for one full year from the Date
of Grant and to the extent of an additional one-quarter (1/4) thereof after each of
the next three successive years thereafter during which Grantee shall have been in
the continuous employ of the Company or a subsidiary. For purposes of this
agreement, “subsidiary” shall mean a corporation, partnership, joint venture,
unincorporated association or other entity in which the Company has a direct or
indirect ownership or other equity interest. For purposes of this agreement, the
continuous employment of Grantee with the Company or a subsidiary shall not be
deemed to have been interrupted, and Grantee shall not be deemed to have ceased to
be an employee of the Company or a subsidiary, by reason of the transfer of his
employment among the Company and its subsidiaries.

	 	4.	 	Accelerated Vesting of Common Shares. Notwithstanding the provisions
of Section 3 hereof, Grantee’s right to receive the Common Shares covered by this
agreement may become nonforfeitable earlier than the time provided in such section if
any of the following circumstances apply:

	 	(a)	 	Death, Disability or Retirement: Grantee’s right to
receive the Common Shares covered by this agreement shall become nonforfeitable
if Grantee should die or become permanently disabled while in the employ of the
Company or any subsidiary, or if Grantee should retire with the Company’s
consent. For purposes of this agreement, retirement “with the Company’s
consent” shall mean: (i) the retirement of Grantee prior to age 62 under a
retirement plan of the Company or a subsidiary, if the Board or the Committee
determines that his retirement is for the convenience of the Company or a
subsidiary, or (ii) the retirement of Grantee at or after age 62 under a
retirement plan of the Company or a subsidiary. For purposes of this
agreement, “permanently disabled” shall mean that Grantee has qualified for
long-term disability benefits under a disability plan or program of the Company
or, in the absence of a disability plan or program of the Company, under a
government-sponsored disability program.
	 
	 	(b)	 	Change in Control: Grantee’s right to receive the
Common Shares covered by this agreement shall become nonforfeitable upon any
change in control of the Company that shall occur while Grantee is an employee
of the Company or a subsidiary. For the purposes of this agreement, the term
“change in control” shall mean the occurrence of any of the following events:

	 	(i)	 	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) (a “Person”) of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Securities
Exchange Act of 1934) of 30% or more of either: (A) the
then-outstanding Common Shares or (B) the combined voting power of the
then-outstanding voting securities of the Company entitled to vote

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generally in the election of directors (“Voting Shares”); provided,
however, that for purposes of this subsection (i), the following
acquisitions shall not constitute a change in control: (1) any
acquisition directly from the Company, (2) any acquisition by the
Company, (3) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any subsidiary, or
(4) any acquisition by any Person pursuant to a transaction which
complies with clauses (A), (B) and (C) of subsection (i) of this
Section 4(b); or

	 	(ii)	 	Individuals who, as of the date hereof,
constitute the Board (the “Incumbent Board”) cease for any reason
(other than death or disability) 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
(either by a specific vote or by approval of the proxy statement of the
Company in which such person is named as a nominee for director,
without objection to such nomination) 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 (within
the meaning of Rule 14a-11 of the Securities Exchange Act of 1934) 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 or sale or other disposition of all or substantially all
of the assets of the Company (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 Common Shares and Voting Shares immediately prior
to such Business Combination beneficially own, directly or indirectly,
more than 66-2/3% 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 entity resulting from such
Business Combination (including, without limitation, an entity 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 relative to each
other as their ownership, immediately prior to such Business
Combination, of

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the Common Shares and Voting Shares of the Company, as the case may
be, (B) no Person (excluding any entity resulting from such Business
Combination or any employee benefit plan (or related trust) sponsored
or maintained by the Company or such entity resulting from such
Business Combination) beneficially owns, directly or indirectly, 30%
or more of, respectively, the then-outstanding shares of common stock
of the entity 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 shareholders of the Company of
a complete liquidation or dissolution of the Company.

	 	(c)	 	Divestiture: Grantee’s right to receive the Common
Shares covered by this agreement shall become nonforfeitable if Grantee’s
employment with the Company or a subsidiary terminates as the result of a
divestiture. For the purposes of this agreement, the term “divestiture” shall
mean a permanent disposition to a Person other than the Company or any
subsidiary of a plant or other facility or property at which Grantee performs a
majority of Grantee’s services whether such disposition is effected by means of
a sale of assets, a sale of subsidiary stock or otherwise.
	 
	 	(d)	 	Layoff: If (i) Grantee’s employment with the Company
or a subsidiary terminates as the result of a layoff and (ii) Grantee is
entitled to receive severance pay pursuant to the terms of any severance pay
plan of the Company in effect at the time of Grantee’s termination of
employment which provides for severance pay calculated by multiplying Grantee’s
base compensation by a specified severance period, then the Common Shares shall
become nonforfeitable with respect to the total number of Common Shares that
would have been exercisable under the provisions of Section 3 hereof if Grantee
had remained in the employ of the Company through the end of the severance
period.

            For purposes of this agreement, a “layoff” shall mean the involuntary
termination by the Company or any subsidiary of Grantee’s employment with the
Company or any subsidiary due to (i) a reduction in force leading to a permanent
downsizing of the salaried workforce, (ii) a permanent shutdown of the plant,
department or subdivision in which Grantee works, or (iii) an elimination of
position.

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	 	5.	 	Forfeiture of Awards. Grantee’s right to receive the Common Shares
covered by this agreement that are then forfeitable shall be forfeited automatically
and without further notice on the date that Grantee ceases to be an employee of the
Company or a subsidiary prior to the fourth anniversary of the Date of Grant for any
reason other than as described in Section 4. In the event that Grantee shall
intentionally commit an act that the Committee determines to be materially adverse to
the interests of the Company or a subsidiary, Grantee’s right to receive the Common
Shares covered by this agreement shall be forfeited at the time of that determination
notwithstanding any other provision of this agreement.
	 
	 	6.	 	Retention of Certificates. During the period in which the restrictions
on transfer and risk of forfeiture provided in Sections 2 and 5 above are in effect,
the certificates representing the Common Shares covered by this grant shall be retained
by the Company, together with the accompanying stock power signed by Grantee and
endorsed in blank.
	 
	 	7.	 	Compliance with Law. The Company shall make reasonable efforts to
comply with all applicable federal and state securities laws; provided, however,
notwithstanding any other provision of this agreement, the Company shall not be
obligated to issue any of the Common Shares covered by this agreement if the issuance
thereof would result in violation of any such law. To the extent that the Ohio
Securities Act shall be applicable to this agreement, the Company shall not be
obligated to issue any of the Common Shares or other securities covered by this
agreement unless such Common Shares are (a) exempt from registration thereunder, (b)
the subject of a transaction that is exempt from compliance therewith, (c) registered
by description or qualification thereunder or (d) the subject of a transaction that
shall have been registered by description thereunder.
	 
	 	8.	 	Adjustments. The Committee shall make any adjustments in the number or
kind of shares of stock or other securities covered by this agreement that the
Committee may determine to be equitably required to prevent any dilution or expansion
of Grantee’s rights under this agreement that otherwise would result from any (a) stock
dividend, stock split, combination of shares, recapitalization or other change in the
capital structure of the Company, (b) merger, consolidation, separation, reorganization
or partial or complete liquidation involving the Company or (c) other transaction or
event having an effect similar to any of those referred to in Section 8(a) or 8(b)
hereof. Furthermore, in the event that any transaction or event described or referred
to in the immediately preceding sentence shall occur, the Committee may provide in
substitution of any or all of Grantee’s rights under this agreement such alternative
consideration as the Committee may determine in good faith to be equitable under the
circumstances.
	 
	 	9.	 	Withholding Taxes. To the extent that the Company is required to
withhold federal, state, local or foreign taxes in connection with any delivery of
Common Shares to the Grantee, and the amounts available to the Company for such
withholding are insufficient, it shall be a condition to the receipt of such delivery

5

 

that the Grantee make arrangements satisfactory to the Company for payment of the
balance of such taxes required to be withheld. The Grantee may elect that all or
any part of such withholding requirement be satisfied by retention by the Company of
a portion of the Common Shares delivered to the Grantee. If such election is made,
the shares so retained shall be credited against such withholding requirement at the
Market Price per Common Share on the date of such delivery. In no event, however,
shall the Company accept Common Shares for payment of taxes in excess of required
tax withholding rates, except that, unless otherwise determined by the Committee at
any time, the Grantee may surrender Common Shares owned for more than 6 months to
satisfy any tax obligations resulting from any such transaction.

	 	10.	 	Right to Terminate Employment. No provision of this agreement shall
limit in any way whatsoever any right that the Company or a subsidiary may otherwise
have to terminate the employment of Grantee at any time.
	 
	 	11.	 	Relation to Other Benefits. Any economic or other benefit to Grantee
under this agreement or the Plan shall not be taken into account in determining any
benefits to which Grantee may be entitled under any profit-sharing, retirement or other
benefit or compensation plan maintained by the Company or a subsidiary and shall not
affect the amount of any life insurance coverage available to any beneficiary under any
life insurance plan covering employees of the Company or a subsidiary.
	 
	 	12.	 	Amendments. Any amendment to the Plan shall be deemed to be an
amendment to this agreement to the extent that the amendment is applicable hereto;
provided, however, that no amendment shall adversely affect the rights of Grantee with
respect to the Common Shares or other securities covered by this agreement without
Grantee’s consent.
	 
	 	13.	 	Severability. In the event that one or more of the provisions of this
agreement shall be invalidated for any reason by a court of competent jurisdiction, any
provision so invalidated shall be deemed to be separable from the other provisions
hereof, and the remaining provisions hereof shall continue to be valid and fully
enforceable.
	 
	 	14.	 	Governing Law. This agreement is made under, and shall be construed in
accordance with, the internal substantive laws of the State of Ohio.

[SIGNATURES ON FOLLOWING PAGE]

6

 

     This agreement is executed by the Company on this         day of                         ,        .

	 	 	 	 	 
	 	The Timken Company

 	 
	 	By  	 	 
	 	 	William R. Burkhart 	 
	 	 	Sr. Vice President and General Counsel 	 
	 

     The undersigned Grantee hereby acknowledges receipt of an executed original of this agreement
and accepts the right to receive the Common Shares or other securities covered hereby, subject to
the terms and conditions of the Plan and the terms and conditions herein above set forth.

      

Grantee

			
	Date:	 	
 

7

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