Document:

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                                                                   Exhibit 4(c)
                                                                   ------------
                                   THE HOURLY

                            PENSION INVESTMENT PLAN
                            -----------------------

         The Timken Company Pension Plus Stock Plan for Certain Hourly
Employees in Ohio was effective January 1, 1990, and thereafter amended
November 26, 1991, and November 4, 1992. It was then further amended, restated,
and renamed The Ohio Hourly Pension Investment Plan, effective January 1, 1994.
Additional amendments were made effective January 1, 1994.

         The Timken Company Pension Plus Stock Plan for Certain Hourly
Employees in North and South Carolina was effective January 1, 1990, and
thereafter amended November 26, 1991, and November 4, 1992. It was then further
amended, restated, and renamed The Carolina Pension Investment Plan, effective
January 1, 1993. The Plan was further amended effective January 1, 1994.
Additional amendments were made effective January 1, 1994.

         The Latrobe Steel Company Pension Plus Stock Plan for Certain Hourly
Employees of Various Divisions was effective July 1, 1990, and thereafter
amended January 1, 1992, and August 14, 1992. It was then further amended,
restated, and renamed The Koncor Investment Pension Plan, effective January 1,
1994. Additional amendments were made effective January 1, 1994.

         The provisions of the January 1, 1994, amendments and restatements
relating to the qualification of the Plans were generally effective January 1,
1990 (July 1, 1990, for Employees covered by the Koncor Investment Pension
Plan), except as otherwise specified herein, or to the extent later effective
dates were provided by the Tax Reform Act of 1986, the Omnibus Budget
Reconciliation Act of 1986, the Omnibus Budget Reconciliation Act of 1987, the
Technical and Miscellaneous Revenue Act of 1988, the Omnibus Budget
Reconciliation Act of 1989, the Unemployment Compensation Amendments of 1992,
and the Omnibus Budget Reconciliation Act of 1993. Further, to the extent the
Plans were operated in accordance with the provisions of these amendments and
restatements as of an effective date earlier than that required by law, such
date was the Effective Date. All other provisions of these amendments and
restatements solely relating to the administration and operation of the Plans,
excluding all provisions that relate to and affect the qualification of the
Plans in form, were generally effective January 1, 1994.

         Effective March 31, 1995, the Koncor Investment Pension Plan and the
Carolina Pension Investment Plan were merged into The Ohio Hourly Pension
Investment Plan and that Plan was renamed The Hourly Pension Investment Plan.
Additional amendments were made effective April 1, 1995, January 1, 1996,
November 13, 1996, and

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January 1, 1997. Additional amendments were made effective January 1, 1998.
Additional amendments were made effective January 1, 1998, and October 27,
1998.

         This amendment and restatement shall be effective as of December 31,
1999.

         ARTICLE I. - DEFINITIONS

         The following terms, when used herein, shall have the meanings herein
stated:

         1. "ACCOUNT," the account maintained for a Participant to record his
share of the contributions to the Plan and adjustments relating thereto. Each
Participant's Account shall have four (4) subaccounts, one (1) each for Wage
Reduction Contributions, Company Matching Contributions, Base Contributions and
Rollover Contributions.

         2. "ACCRUED BENEFIT," the balance of a Participant's Account held
under the Trust.

         3. "ADMINISTRATIVE DELEGATE", one or more persons or institutions to
whom the Company has delegated certain administrative functions pursuant to a
written administrative agreement.

         4. "BENEFICIAL INTEREST," the proportionate allocation of assets held
by the Plan in the name of the Trust on behalf of each Participant, which
allocation is determined each business day for each Participant by the ratio of
total contributions to the Plan made on the Participant's behalf compared to
the total contributions to the Plan made on behalf of all Participants.

         5. "BENEFICIAL LOAN INTEREST," the market value of the assets
representing the Participant's Beneficial Interest in Pre-tax Contributions to
the Trust (including Base Contributions and Rollover Contributions) whether
made by the Company or by a Participant, in the custody of the Trustee as of
any Valuation Date, determined for Timken stock by the market price for such
common stock, as reported by the New York Stock Exchange, on any Valuation Date
and for other investment options by the market value on the most recent
Valuation Date immediately preceding the date of the loan.

         6. "BENEFICIARY," the person last designated by a Participant to
receive any benefits as provided herein. This designation shall be in writing
on a form supplied by the Plan Administrator and filed with the Plan
Administrator prior to the Participant's death. Beneficiaries designated under
the Plan prior to April 1, 1995, will remain as Beneficiaries until changed by
Participants.

         7. "BENEFIT STARTING DATE," the first day of the first period for
which a benefit is payable.

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         8. "BREAK IN SERVICE," any Plan Year during which an employee has not
completed more than 500 Hours of Service. A break in service shall not be
deemed to have occurred:

         (a)      during the first twelve (12) calendar months of an Employee's
                  service merely because of the failure to complete 500 Hours
                  of Service during any one Plan Year occurring in part during
                  such 12 month period, if the Employee completes 1,000 Hours
                  of Service during such 12 month period;

         (b)      during any period of excused absence, if the Employee returns
                  to the service of the Company within the time permitted
                  pursuant to the leave of absence;

         (c)      during absence for military service in the Armed Forces of
                  the United States, providing the Employee returns to work
                  within the time permitted by law for reinstatement of
                  veterans, as then in force; or

         (d)      during a Plan Year because an Employee fails to complete more
                  than 500 hours of service solely because of his or her
                  retirement or death during such Plan Year.

         9.  "CODE," The Internal Revenue Code of 1986, as amended, or any
successor Internal Revenue Code.

         10. "COMPANY," The Timken Company and/or Latrobe Steel Company, as
well as all members of a controlled group of corporations or commonly
controlled trades or businesses (as defined in Section 414(b) and (c) of the
Code, as modified by Section 415(h) of the Code) or affiliated service groups
(as defined in Section 414(m) of the Code) of which the Company is a part,
(with such entities being sometimes referred to as "Controlled Group
Member(s)", and any successors thereof, provided that such successors remain
Controlled Group Members.

         11. "CONTINUOUS SERVICE," an Employee's employment with the Company
measured from the date his employment commences until the time of his
retirement or death or until he incurs a Break in Service.

         12. "EMPLOYEE," a person who is compensated on an hourly basis and
employed by the Company at its facilities in Bucyrus, Ohio, in North or South
Carolina, in Koncor Industries Division or as a brickmason at one of its Ohio
plants, but excluding any employee (a) who is in a collective bargaining unit
which has a deferred compensation plan other than this Plan which has been the
subject of collective bargaining or (b) who is a part-time employee. A
part-time employee is one who has less than 1,000 Hours of Service in a year. A
leased employee shall not be considered an Employee, except for purposes of the
coverage tests under Section 410(b)(1) of the Code.

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A leased employee is any person who is not an employee of the Company and who
provides services to the Company if (a) such services are provided pursuant to
an agreement between the Company and any leasing organization, (b) such person
has performed such services for the Company on a substantially full-time basis
for a period of at least one year, and (c) such services are performed under
primary direction or control by the Company. Further provided, that any person
determined to be a common-law employee shall not be considered an Employee if
the person: (a) has signed an individual employment agreement or a personal
services agreement with the Company, or (b) is compensated through a third
person and not through the Company's payroll. An employee who is a non-resident
alien and who receives no earned income from the Company, which constitutes
income from sources within the United States, shall not be considered an
Employee. A person shall become an Employee on the day he first completes an
Hour of Service for the Company. The following also shall not be considered an
Employee: (i) any individual who is classified by the Company as a salaried
employee; or (ii) any individual who is not classified by the Company as an
employee for federal income tax withholding purposes (whether or not such
classification is ultimately determined to be correct as a matter of law),
including any individual who is classified by the Company as a leased worker or
an independent contractor.

         13. "ERISA," Public Law No. 93-406, the Employment Retirement Income
Security Act of 1974, as amended from time to time.

         14. "FIDUCIARIES," the Company, the Plan Administrator and the
Trustee, but only with respect to the specific responsibilities of each for
Plan and Trust administration.

         15. "HIGHLY COMPENSATED EMPLOYEE", effective January 1, 1997, any
Employee who:

              (a)    was at any time during the current Plan Year or the
                     preceding Plan Year a five percent (5%) owner of the
                     Company's outstanding common stock, or

              (b)    received compensation during the preceding Plan Year from
                     the Company in excess of $80,000 (or, if greater, the
                     dollar limitation in effect under Section 414(q)(1)(B) of
                     the Internal Revenue Code) and, if the Company so elects,
                     was in the top-paid group (the top twenty percent (20%) of
                     employees ranked on the basis of compensation received
                     during the year, but excluding any Employee described in
                     Section 414(q)(5) and Q & A 9(b) of Section 1.414(q)-1T of
                     the Treasury Regulations) of employees for such year.
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       For purposes of this definition, compensation is compensation within
the meaning of Section 415(c)(3) of the Code, including elective or wage
reduction contributions to a cafeteria plan, cash or deferred arrangement or
tax-sheltered annuity.

       A former Employee shall be considered a Highly Compensated Employee, if
he separates from service (or was deemed to do so) prior to the year for which
the determination is made, performed no service for the Company during such
determination year, and was a Highly Compensated Employee for either the year
in which he separated from service or any determination year ending on or after
his 55th birthday.

       16. "HOUR OF SERVICE," each hour (a) for which an Employee is paid or
entitled to payment for the performance of duties for the Company or for which
he is paid, or entitled to payment, by the Company on account of a period of
time during which no duties are performed (irrespective of whether the
employment relationship has terminated) due to vacation, holiday, illness,
incapacity (including disability), layoff, jury duty, military duty or leave of
absence or (b) for which back pay, irrespective of mitigation of damages, is
either awarded or agreed to by the Company, which hours shall be credited to
the Employee for the computation period or periods to which the back pay award
or agreement pertains rather than for the period or periods in which the award
or agreement is paid or due. Hours of Service shall include hours which an
Employee would have been scheduled to work during a period with respect to
which the Employee is properly receiving sickness and accident benefits or
workers' compensation benefits whether paid by the Company, an insurance
carrier under a contract with the Company, or a state worker's compensation
fund, but shall not include any period to which is attributable severance pay
or unemployment compensation and any period for which a payment is made solely
to reimburse the Employee for medical or medically-related expenses. An
Employee is not required to be credited on account of a period during which no
duties are performed with a number of Hours of Service which is greater than
the number of hours regularly scheduled for the performance of duties during
such period. Hours shall be calculated and credited pursuant to Section
2530.200b-2 of the Department of Labor Regulations which are hereby
incorporated by reference.

       In the case of an Employee who is absent from work for any period by
reason of:

              (a)    the pregnancy of the Employee,

              (b)    the birth of a child of the Employee,

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              (c)    the placement of a child with the Employee in connection
                     with the adoption of a child by such Employee, or

              (d)    caring for such child for a period beginning immediately
                     following such birth or placement,

the Plan shall treat as Hours of Service, solely for purposes of determining
whether a one year Break in Service has occurred, Hours of Service which
otherwise would normally have been credited to such Employee but for such
absence, or in any case in which the Plan is unable to determine the Hours of
Service, eight Hours of Service per day of such absence; provided, that the
total number of hours treated as Hours of Service by reason of any such
pregnancy or placement shall not exceed 501 hours. These hours shall be treated
as Hours of Service only in the Plan Year in which the absence from work
begins, if an Employee would be prevented from incurring a one year Break in
Service in such Plan Year solely because periods of absence are treated as
Hours of Service or in any other case, the immediately following Plan Year.

       Hours of Service will be credited for employment with other members of
an affiliated service group (under Section 414(m) of the Code), a controlled
group of corporations (under Section 414(b) of the Code) or a group of trades
or businesses under common control (under Section 414(c) of the Code) of which
the Company is a member, and any other entity required to be aggregated with
the Company pursuant to Section 414(o) of the Code and the regulations
thereunder.

       17. "INCOME," the net gain or loss of the Trust from investments, as
reflected by interest received and accrued, dividends received, realized and
unrealized gains and losses on securities, other investment transactions and
expenses paid from the Trust. In determining the income of the Trust for any
period, assets shall be valued on the basis of their current market value.

       18. "LATROBE", Latrobe Steel Company, a fully-owned subsidiary of the
Company, and any successor.

       19. "NORMAL RETIREMENT AGE," the later of the time a Participant attains
sixty-five (65) years of age or the fifth anniversary of the time participation
commenced.

       20. "NORMAL RETIREMENT DATE," the first day of the first calendar month
following a Participant's attainment of Normal Retirement Age.

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       21. "PARTICIPANT," any Employee of the Company who meets the
requirements of Article II hereof.

       22. "PLAN," The Hourly Pension Investment Plan as herein set forth and
as it may be amended and restated from time to time.

       23. "PLAN ADMINISTRATOR," The Timken Company or any individuals or
entities designated by it to administer the Plan.

       24. "PLAN YEAR," The 1998 Plan Year shall begin January 1, 1998, and end
December 30, 1998. Thereafter, the Plan Year shall be a 12-month period, which
includes all pay periods for which payment is made, beginning December 31 of a
calendar year and ending December 30 of the following calendar year.

       25. "POOLED INVESTMENT ACCOUNT", an account established pursuant to an
administrative services agreement between the Company and the Trustee.

       26. "PRE-TAX CONTRIBUTIONS TO THE TRUST," the portion of the Trust
representing (a) Wage Reduction Contributions and Company Matching
Contributions made after January 1, 1994, for Employees of the Company's
Bucyrus, Ohio facility, brickmason Employees at its Ohio plants and Employees
of the Company's Koncor Industries Division, and income thereon; (b) Wage
Reduction Contributions and Company Matching Contributions made after January
1, 1993, for Employees of the Company's North and South Carolina facilities,
and income thereon; (c) contributions from the Company made prior to January 1,
1994, for Employees of the Company's Bucyrus, Ohio facility, brickmason
Employees at its Ohio plants and Employees of the Company's Koncor Industries
Division, and income thereon, except that contributions for Employees of the
Company's New Philadelphia plant shall not be included and shall be transferred
to The Timken Company-Latrobe Steel Company Savings and Investment Pension Plan
Trust; (d) contributions from the Company made prior to January 1, 1993, for
Employees of the Company's North and South Carolina facilities, and income
thereon; (e) Base Contributions from the Company made after December 31, 1993,
for Employees of the Company's Bucyrus, Ohio facilities, brickmason Employees
at its Ohio plants and Employees of the Company's Koncor Industries Division,
and income thereon; (f) Base Contributions from the Company made after December
31, 1992, for Employees of the Company's North and South Carolina facilities,
and income thereon; and (g) Rollover Contributions to the Trust made pursuant
to Article III, Section 4.

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       27. "ROLLOVER CONTRIBUTION", All or part of a distribution a Participant
receives from a qualified trust described in Section 401(a) of the Code and
exempt from taxation under Section 501(a) of the Code, from an annuity plan
described in Section 403(a) of the Code, or from an individual retirement
account or an individual retirement annuity described in Section 408 of the
Code, including any earnings on such distribution, but not including any
portion of such distribution attributable to post-tax contributions, which is
contributed to the Trust.

       28. "TIMKEN," The Timken Company and any successor thereof.

       29. "TRUST," the trust established in connection with the Plan which
holds and invests the Pre-tax Contributions, which are to be distributed
hereunder to eligible Participants.

       30. "TRUSTEE," that individual or institution appointed by the Company
to be the Trustee of the contributions to the Trust as provided herein, or
their successors.

       31. "VALUATION DATE," any day that the New York Stock Exchange is open
for business and any other date chosen by the Company to make additional
valuations of the Trust Fund as necessary.

       32. "WAGES," amounts paid by the Company to a Participant for personal
services for hours worked that are paid, including wage reduction contributions
to a cafeteria plan, incentive pay and cost of living adjustments, but
excluding jury duty, witness pay and similar compensation. Wages includes
payments under certain bonus plans at specified Company plants, including
Performance Reward Pay, to the extent outlined in the compensation document
attached to this Plan as Exhibit A. For purposes of this Plan, and in
accordance with Section 401(a)(17) of the Code, Wages cannot exceed $160,000
(as adjusted) for a Plan Year.

       33. "YEAR OF SERVICE," a twelve month period during which the employee
has not less than 1,000 Hours of Service. The initial twelve month period shall
be computed with reference to the day on which the Employee's employment
commenced. Subsequent twelve consecutive month periods shall be the Plan Year,
commencing with the Plan Year which includes the anniversary of the day on
which employment commenced. In the case of an Employee who does not complete
1,000 Hours of Service during the twelve month period beginning on the day his
employment commenced, such computation shall be made by reference to the first
day of the following Plan Year which includes the anniversary of the day on
which employment commenced.

       34. Masculine pronouns wherever used in the Plan shall include feminine
or neuter pronouns, and the singular shall include the plural wherever
appropriate.

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       ARTICLE II. - PARTICIPATION

       1. All Employees who are active Employees of the Company and who have
satisfied the eligibility terms for participation as of March 31, 1995, shall
be entitled to participate in the Plan as of March 31, 1995. The participation
of any Employee eligible thereafter to become a Participant shall commence
following completion of one calendar month of work (three calendar months of
work for Employees of the Company's North and South Carolina facilities and
Koncor Industries Division). A month of work is measured from the first day
that the Employee performs services for the Company until the corresponding day
of the next calendar month. Eligibility shall be determined and certified by
the Company.

       2. Except as provided in Article II, Section 5, eligible Employees
electing to participate in this Plan for the first time or following a rehire
to active employment with the Company shall file a written election to do so,
which election will be effective with the first available pay period. Any other
election to participate or reparticipate may be accomplished by utilizing the
interactive voice response system, which election will be effective with the
first available pay period.

       3. An Employee's election to participate in this Plan shall designate
the amount of wage reduction elected by the Employee to be contributed to this
Plan, as provided in Article III below. Such election shall become effective
with the first available pay period.

       4. An Employee's election to participate in this Plan shall continue in
effect until the Employee utilizes the interactive voice response system to
terminate his participation or until such Employee ceases to be eligible to
participate in this Plan.

       5. An Employee does not need to file a written election to participate
in the Company's Base Contribution.

       6. If a Participant is reinstated by the Company, he shall recommence
participation in the Plan on the first day he is credited with an Hour of
Service for the Company.

       ARTICLE III. - WAGE REDUCTION CONTRIBUTIONS AND ROLLOVER CONTRIBUTIONS

       1. At anytime, in accordance with Article II above, a Participant may
elect to have his wages reduced and the subsequent reduction contributed to
this Plan, in an amount equal to any whole percent between one percent (1%) and
fifteen percent (15%) of his Wages to be deducted from his Wages payable for
each pay period; provided, however, that the percent reduction selected cannot
result in more than a $10,000 Wage Reduction Contribution on

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behalf of a Participant in a Plan Year (or, if greater, the dollar limitation
in effect under Section 402(g)(1) of the Code).

       2. A Participant's election as to the rate of his Wage Reduction
Contributions to this Plan will remain in effect until the Participant changes
his election, ceases to be eligible to participate, or utilizes the interactive
voice response system or through a customer service representative to terminate
his participation in this Plan.

       3. A Participant may change his election as to the rate of Wage
Reduction Contributions to this Plan by utilizing the interactive voice
response system or through a customer service representative on any day. Such
election shall become effective as of the first available pay period. Any
change made will be effective for all succeeding pay periods, unless changed
again by the same procedure.

       4. A Participant after filing with the Company or the Administrative
Delegate the form prescribed by the Plan Administrator, may make a cash
contribution to the Trust in the form of a Rollover Contribution. Before
completing the Rollover Contribution, the Participant shall furnish
satisfactory evidence to the Plan Administrator that the proposed Rollover
Contribution satisfies the requirements of Section 408(d)(3) of the Code.

       ARTICLE IV. - COMPANY MATCHING CONTRIBUTIONS

       1. The Company will contribute to each Participant's Account in this
Plan an amount equal to:

              (a)    the Participant's Wage Reduction Contributions up to the
                     first five percent of the Participant's Wages multiplied
                     by twenty percent (20%), for Employees of the Company's
                     Bucyrus facility and brickmason Employees at its Ohio
                     plants;

              (b)    the Participant's Wage Reduction Contributions up to the
                     first five percent (5%) of the Participant's Wages
                     multiplied by eighty percent (80%), and the Participant's
                     Wage Reduction Contributions in excess of the first five
                     percent (5%) up to the next three percent (3%) of the
                     Participant's Wages multiplied by twenty percent (20%) for
                     Employees of the Company's North and South Carolina
                     facilities; and

              (c)    the Participant's Wage Reduction Contributions up to the
                     first five percent (5%) of the Participant's Wages
                     multiplied by eighty percent (80%), for Employees of the
                     Company's Koncor Industries Division.

These percentages may be changed from time to time by the Company.

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       2. The Company will contribute to each Participant's Account in this
Plan a Base Contribution for each calendar quarter. For purposes of eligibility
for a Base Contribution, the calendar quarters shall begin on January 1, April
1, July 1, and October 1 of each year. For an Employee to be eligible for a
Base Contribution, he must be actively employed by the Company and eligible to
participate at the beginning of the calendar quarter for which the contribution
is to be made. The contribution will be one percent (1%) of a Participant's
Wages for each calendar quarter in the Plan Year. For purposes of determining a
Participant's wages, the calendar quarters shall begin on December 31, April 1,
July 1, and October 1 of each year.

       3. In no event shall the annual addition to a Participant's Account
under this Plan and any other qualified defined contribution plan maintained by
the Company exceed the lesser of $30,000 (or, if greater, one-fourth of the
dollar limitation in effect under Section 415(b)(1)(A) of the Code) or 25
percent of the Participant's total compensation from the Company. For purposes
of this Article IV, Section 3 and the subsequent sections in this Article IV,
compensation is all amounts received by a Participant from the Company during a
Calendar Year for the performance of personal services, to the extent that such
amounts are includable in taxable income. In no event shall the amount of Wage
Reduction Contributions to a Participant's account exceed $10,000 for any Plan
Year (or, if greater, the dollar limitation in effect under Section 402(g)(1)
of the Code).

       The annual addition shall be the sum of the following amounts credited
to a Participant's Account for the limitation year:

              (a)    Company Matching Contributions,

              (b)    Wage Reduction Contributions,

              (c)    Post Tax Employee Contributions and forfeitures, and

              (d)    amounts allocated, after March 31, 1984, to an individual
                     medical account, as defined in Section 415(c)(2) of the
                     Code, which is a part of a pension or annuity plan
                     maintained by the Company. Amounts derived from
                     contributions paid or accrued after December 31, 1985, in
                     taxable years ending after such date, which are
                     attributable to post-retirement medical benefits,
                     allocated to the separate account of a key employee, as
                     defined in Section 419A(d)(3) of the Code, under a welfare
                     benefit fund, as defined in Section 419(e) of the Code,
                     maintained by the Company are also treated as annual
                     additions to a defined contribution plan.

<PAGE>   12

       For this purpose, any excess amount applied in the limitation year to
reduce Company contributions will be considered annual additions for such
limitation year.

       In the event a corrective distribution is needed, following the end of
the calendar year, the Plan shall distribute such corrective distribution not
later than the first April 15 following the close of the calendar year. The
income (or loss) allocable to any excess Wage Reduction Contribution shall be
distributed as part of any corrective distribution.

       4. If the annual addition limitation for any Participant would be
exceeded by the amounts contributed to this Plan and any other defined
contribution plans maintained by the Company, the Company contributions to the
Participant's Account made under this Plan shall be reduced as necessary, in
the following order: Company Matching Contributions, Wage Reduction
Contributions and Base Contributions.

       5. (a) If the Participant is or was formerly a participant in a defined
benefit plan maintained by the Company, the sum of the defined benefit plan
fraction and the defined contribution plan fraction for any Plan Year may not
exceed 1.0.

          (b)       The defined benefit plan fraction is a fraction, the
                    numerator of which is the sum of the Participant's
                    projected annual benefits under all defined benefit plans
                    (whether or not terminated) maintained by the Company, and
                    the denominator of which is the lesser of (a) 1.25 times
                    the dollar limitation of Section 415(b)(1)(A) of the Code
                    in effect for the limitation year, or (b) 1.4 times the
                    Participant's average compensation for the three
                    consecutive years that produce the highest average,
                    including any adjustments under Section 415(b) of the Code.

          (c)       Notwithstanding the above, if the Participant were a
                    participant as of the first day of the first limitation
                    year beginning after December 31, 1986, in one or more
                    defined benefit plans maintained by the Company which were
                    in existence on May 6, 1986, the denominator of this
                    fraction will not be less than 125 percent of the sum of
                    the annual benefits under such plans which the Participant
                    had accrued as of the close of the last limitation year
                    beginning before January 1, 1987, disregarding any change
                    in the terms and conditions of the plan after May 5, 1986.
                    The preceding sentence applies only if the

<PAGE>   13

                    defined benefit plans individually and in the aggregate
                    satisfied the requirements of Section 415 of the Code for
                    all limitation years beginning before January 1, 1987.

          (d)       The defined contribution plan fraction is a fraction, the
                    numerator of which is the sum of the annual additions to
                    the Participant's account under all defined contribution
                    plans maintained by the Company (whether or not terminated)
                    for the current and all prior limitation years, and the
                    annual additions attributable to all welfare benefit funds,
                    as defined in Section 419(e) of the Code, and individual
                    medical accounts, as defined in Section 415(1)(2) of the
                    Code, and the denominator of which is the sum of the lesser
                    of the following amounts determined for such year and for
                    each prior Year of Service with the Company: (a) 1.25 times
                    the dollar limitation in effect under Section 415(c)(1)(A)
                    of the Code for such year, or (b) 1.4 times the amount
                    which may be taken into account under Section 415(c)(1)(B)
                    of the Code.

          (e)       The maximum aggregate amount in any limitation year is the
                    lesser of 125 percent of the dollar limitation determined
                    under Sections 415(b) and (d) of the Code in effect under
                    Section 415(c)(1)(A) of the Code or 35 percent of the
                    Participant's compensation for such year.

          (f)       If the Participant were a Participant as of the end of the
                    first day of the first limitation year beginning after
                    December 31, 1986, in one or more defined contribution
                    plans maintained by the Company which were in existence on
                    May 6, 1986, the numerator of this fraction will be
                    adjusted if the sum of this fraction and the defined
                    benefit fraction would otherwise exceed 1.0 under the terms
                    of this Plan. Under the adjustment, an amount equal to the
                    product of (1) the excess of the sum of the fractions over
                    1.0 times (2) the denominator of this fraction, will be
                    permanently subtracted from the numerator of this fraction.
                    The adjustment is calculated using the fractions as they
                    would be computed as of the last limitation year beginning
                    before January 1, 1987, and disregarding any changes in the
                    terms and conditions of the Plan made after May 5, 1986,
                    but using the Section 415 limitation applicable to the
                    first limitation year beginning on or after January 1,
                    1987.

<PAGE>   14

          (g)       The annual addition for any limitation year beginning
                    before January 1, 1987, shall not be recomputed to treat
                    all Post Tax Employee Contributions as annual additions.

          (h)       The benefits limitation set forth in Article IV, Section
                    5(a)-(f) above will no longer be effective for limitation
                    years (which are the Plan Years) commencing on or after
                    January 1, 2000. Beginning with the first Plan Year
                    commencing on or after January 1, 2000, the benefit payable
                    to any current or former Participant who has commenced
                    benefits under the Plan prior to that date in a form other
                    than a lump-sum payment and who still has an accrued
                    benefit under the Plan (other than a benefit resulting
                    solely from the repeal of the limitations of Article IV,
                    Section 5(a)-(f) will be increased to a benefit that is no
                    greater than the benefit that would have been permitted for
                    that year under Section 415(b) of the Code for the
                    Participant had not Article IV, Section 5(a)-(f) above
                    limited the benefit at the time of commencement. In the
                    case of a benefit that is payable as a lump-sum payment,
                    the benefit payable with the first Plan Year commencing on
                    or after January 1, 2000, may be increased by an amount
                    that is actuarially equivalent to the amount of increase
                    that could have been provided had the benefit been paid in
                    the form of a straight-life annuity. In no event shall
                    benefits attributable to years commencing before January 1,
                    2000, reflect benefit increases that could not be paid for
                    those years because of the limitations of Article IV,
                    Section 5(a)-(f).

         6. For Plan Years commencing before January 1, 2000, if the sum of the
defined contribution plan fraction and the defined benefit plan fraction, as
described in Article IV, Section 5, for a Participant exceeds 1.0, the
Participant's benefit under the defined benefit plan shall be reduced
accordingly.

         7. If, as a result of the allocations of any forfeitures or errors in
estimating a Participant's compensation, the annual addition to a Participant's
Account exceeds the permissible amount, the excess will be disposed of as
follows:

            (a)     If the Participant is covered by the Plan at the end of the
                    limitation year, the excess amount in the Participant's
                    Account will be used to reduce Company contributions
                    (including any allocation of forfeitures) for such
                    Participant in the next Plan Year and each succeeding Plan
                    Year if necessary.

<PAGE>   15

              (b)    If the Participant is not covered by the Plan at the end
                     of a Plan Year, the excess amount will be held unallocated
                     in a suspense account. The suspense account will be
                     applied to reduce Company Matching Contributions for all
                     remaining Participants in the next limitation year, and
                     each succeeding year if necessary.

              (c)    If a suspense account is in existence at any time during
                     the Plan Year pursuant to this Section, it will not
                     participate in the allocation of the Trust investment gain
                     and losses. If a suspense account is in existence at any
                     time during a particular Plan Year, all amounts in the
                     suspense account must be allocated and reallocated to
                     Participants' Accounts before any Company contributions
                     may be made to the Plan for that limitation year. Excess
                     amounts may not be distributed to Participants or former
                     Participants.

              (d)    Any underpayments of Company contributions will be
                     corrected by the Company. For purposes of this Article IV,
                     Section 7, excess amounts attributable to a specific type
                     of contribution (Wage Reduction Contributions, Company
                     Matching Contributions or Base Contributions) may be
                     utilized to reduce only a comparable contribution in the
                     following year.

         8. The Accrued Benefit for each Participant in the Plan who has
accrued benefits as of December 31, 1993, who has at least one Hour of Service
with the Company in a Plan Year beginning after that date and whose Accrued
Benefits were determined taking into account compensation that exceeded the
annual compensation limit for any year, may be changed as set forth in this
Section.

         A Participant's Accrued Benefit under the Plan shall be equal to the
greater of

                  (a)      the Participant's Accrued Benefit as of December 31,
                           1993, and his accrued benefit determined under the
                           formula and limitations applicable to benefit
                           accruals in the current plan year as applied to
                           Years of Service after December 31, 1993, or

                  (b)      the Participant's Accrued Benefit determined under
                           the formula and limitations applicable to benefit
                           accruals in the current Plan Year as applied to the
                           Participant's total Years of Service for the Company
                           before and after December 31, 1993.

         ARTICLE V. - INTERESTS NON-FORFEITABLE

<PAGE>   16

Participants shall have an immediate fully vested and nonforfeitable right to
Wage Reduction Contributions, Company Matching Contributions, Base
Contributions and Rollover Contributions properly credited to their respective
subaccounts and the income attributable thereto.

         ARTICLE VI. - OPERATION OF THE TRUST

         1. Except as provided in Sections 2 and 3 below, the Trust shall
invest 100% of its funds in The Timken Company Common Stock Fund. The Company
may, for administrative purposes, establish unit values for one or more
investment funds (including Timken Company Common Stock) and maintain the
Accounts setting forth each Participant's interest in such investment fund (or
portion thereof) in terms of such units, all in accordance with fair, equitable
and administratively practicable rules and procedures as the Company shall
design and adopt. Such rules and procedures shall be set forth in a Pooled
Investment Service Agreement between the Company and the Trustee, which
Agreement shall be incorporated by reference and made a part of this Plan. In
the event that unit accounting is established for any investment fund (or
portion thereof) the value of a Participant's Account at any time shall be an
amount equal to the then value of a unit in such investment fund (or any
portion thereof) multiplied by the number of units then credited to the
Participant.

         2. Participants will be able to diversify the investment of their
Beneficial Interest. A Participant may choose to invest his Wage Reduction
Contributions and his Rollover Contributions in Timken stock, or in other
investment options offered by the Company. At the time the Participant enrolls
or re-enrolls in the Plan, he may elect what percentage, if any, of his Wage
Reduction Contributions and his Rollover Contributions, in increments of five
percent (5%), he wishes to place in each investment option.

         A Participant can request fund transfers on any business day of his
prior Wage Reduction Contributions and his Rollover Contributions from one
investment option to another by utilizing the interactive voice response system
or through a customer service representative. The Participant may elect what
percentage, if any, of those assets in the Participant's Account eligible for
transfer will be withdrawn in five percent (5%) increments from existing
investment options. The Participant may then elect what percentage of the
assets so withdrawn will be transferred to other investment options in five
percent (5%) increments. In order to effectuate a transfer into or out of the
fund holding Timken Stock, shares of Timken Stock may be (a) bought and/or sold
on the open market at the market price of the stock on any Valuation Date, or
(b) effective November 13, 1996, bought from and/or sold to the Company at the
average of the high and low market price on the Valuation Date the request is
received by the

<PAGE>   17

Company, if cash is not available. Company Matching Contributions and Base
Contributions can be transferred to another investment option only under the
circumstances described in Paragraphs 3 and 4 below.

         3. Participants who are active Employees and who have attained age 55
or who have 30 Years of Service will be permitted to transfer all past Company
Matching Contributions, Wage Reduction Contributions, Base Contributions and
Rollover Contributions to the Trust to any investment option offered by the
Company. A Participant meeting the age and service requirements can request
investment transfers as described in Paragraph 2 above.

         4. Participants who retired from the Company who have elected to
retain their distribution in the Plan pursuant to Article VII, Section 6 hereof
will be permitted to transfer all past Company Matching Contributions, Wage
Reduction Contributions, Base Contributions and Rollover Contributions to any
investment option offered by the Company, according to the procedures described
in Paragraph 2 above.

         5. The Trustee shall, following the end of each Valuation Date, value
all assets of the Trust Fund, allocate net gains or losses, and process
additions to and withdrawals from Account balances in the following manner:

                  a.       The Trustee shall first compute the fair market
                           value of securities and/or the other assets
                           comprising each investment fund designated by the
                           Company for direction of investment by the
                           Participants of this Plan. Each Account balance
                           shall be adjusted each business day by applying the
                           closing market price of the investment fund on the
                           current business day to the share/unit balance of
                           the investment fund as of the close of business on
                           the current business day.

                  b.       The Trustee shall then account for any requests for
                           additions or withdrawals made to or from a specific
                           designated investment fund by any Participant,
                           including allocations of contributions. In
                           completing the valuation procedure described above,
                           such adjustments in the amounts credited to such
                           Accounts shall be made on the business day to which
                           the investment activity relates. Contributions
                           received by the Trustee pursuant to this Plan shall
                           not be taken into account until the Valuation Date
                           coinciding with or next following the date such
                           contribution was both actually paid to the Trustee
                           and allocated among the Accounts of Participants.

<PAGE>   18

                  c.       Notwithstanding Subsections a and b above, in the
                           event a Pooled Investment Fund is created as an
                           investment option in this Plan, valuation of the
                           Pooled Investment Fund and allocation of earnings of
                           the Pooled Investment Fund shall be governed by the
                           Administrative Services Agreement for such Pooled
                           Investment Fund. The provisions of any such
                           Administrative Services Agreement shall be
                           incorporated by reference and made a part of this
                           Plan.

         It is intended that this Section operate to distribute among the
Participant's Accounts in the Trust Fund, all income of the Trust Fund and
changes in the value of the assets of the Trust Fund.

         6. As soon as possible following the end of each calendar quarter,
each Participant shall receive a statement showing the details of the
Participant's Beneficial Interest in the Trust.

         7. Investment fees attributable to a Participant's choice of a
particular investment option may be charged against the Participant's Account
balance in that investment option.

         ARTICLE VII. - DISTRIBUTIONS FROM THE TRUST

         1. Effective January 1, 1997, the shares and cash held in the Trust
for the benefit of a Participant shall be distributed to the Participant at the
Participant's request upon retirement at or after Normal Retirement Age, upon
attainment of age 70-1/2, upon a Break in Service with the Company or to the
Participant's Beneficiary upon the death of the Participant, except as
hereinafter provided. Following a Participant's attainment of his Normal
Retirement Age, the Company shall give him notice in accordance with applicable
law that Plan payments are being suspended during any month after his Normal
Retirement Age and before he retires during which he completes 40 or more Hours
of Service (within the meaning of clause (i) of Article I, Section 16.) A
Participant shall be entitled to receive Plan benefits after his Normal
Retirement Age and before he retires during any month in which he completes
fewer than 40 such Hours of Service.

         2. A Participant's Beneficiary shall be his or her spouse or, if the
Participant has no spouse or the Participant's spouse consents (in the manner
described in this Paragraph) to the designation of another person or persons,
such other person or persons as is designated by the Participant as his or her
Beneficiary. The Account balance shall be adjusted for gains and losses
occurring after the Participant's death in accordance with usual Plan
procedures for adjusting Account balances for other types of distributions.

<PAGE>   19

         A Participant may elect at any time to waive the surviving spouse as
Beneficiary and may revoke any such election at any time. Such an election
shall not take effect unless the spouse of the Participant consents in writing
to such election, such election designates a Beneficiary (or a form of
benefits) which may not be changed without spousal consent (or the consent of
the spouse expressly permits designations by the Participant without any
requirement of further consent by the spouse) and the spouse's consent
acknowledges the effect of such election and is witnessed by a Plan
representative or a notary public, or it is established to the satisfaction of
the Plan Administrator that the consent required may not be obtained because
there is no spouse, because the spouse cannot be located, or because of such
other circumstances as the Secretary of the Treasury may by regulations
prescribe. Any consent by a spouse (or establishment that the consent of a
spouse may not be obtained) shall be effective only with respect to such
spouse.

         In order to elect to waive his spouse as Beneficiary, a Participant
also must affirmatively elect that the payment of his benefits not be in the
form of a life annuity, and with respect to such Participant, this Plan may not
be a transferee of a defined benefit plan or an individual account plan subject
to the funding standards of the Internal Revenue Code or any other plan
required to provide a mandatory qualified joint and survivor annuity provision.

         If a Participant has no spouse, if the spouse has consented in the
manner described above to not being the designated Beneficiary, if the spouse
cannot be located, or because of other circumstances prescribed by the
Secretary of the Treasury, the Participant may, by written notice delivered to
the Plan Administrator, designate or change the designation of a Beneficiary to
whom payments of benefits may be paid in the event of his death. In the absence
of such notice, such benefits shall, to the extent permitted by law, be paid at
the discretion of the Company to the deceased Participant's surviving spouse,
child or children, parent or parents, and/or the executor or administrator of
his estate.

         3. A Participant or Beneficiary entitled to a distribution from the
Trust shall receive certificates for the full shares of Timken stock held for
his or her benefit and cash for any fractional interests in shares and
investments in other investment options. Timken stock shall be valued by using
the closing price of such stock on any Valuation Date. Other investment options
shall be valued by using the market value on the most recent Valuation Date
immediately preceding the date of distribution.

         4. Such distributions shall be made in a lump sum as soon as possible
following completion of a distribution request form after the Participant
retires, the Participant's death occurs, a Break in Service occurs or a

<PAGE>   20

hardship withdrawal is processed. Notwithstanding the foregoing, unless the
Participant otherwise elects, distribution to a Participant will be made no
later than the sixtieth (60th) day after the close of the Plan Year in which
the Break in Service occurs. No distribution can be made from the Plan without
the written consent of the Participant and the Participant's spouse, if any, or
in cases where the Participant is dead, the Participant's surviving spouse or
Beneficiary (if the surviving spouse is not the beneficiary).

         For distributions made from the Plan, the appropriate tax withholdings
will be made, unless the Participant instructs the Plan Administrator, pursuant
to procedures to be implemented by the Plan Administrator, to roll over
directly his eligible rollover distribution to an eligible retirement plan. A
direct rollover is a payment by the Plan to the eligible retirement plan
specified by the Participant. An eligible rollover distribution is any
distribution of all or any portion of the balance to the credit of the
Participant, except that an eligible rollover distribution does not include (a)
any distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the Participant or the joint lives (or joint life expectancies)
of the Participant and the Participant's designated beneficiary, or for a
specified period of ten (10) years or more; (b) any distribution to the extent
such distribution is required under Section 401(a)(9) of the Internal Revenue
Code; and (c) the portion of any distribution that is not includable in gross
income (determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities). An eligible retirement plan
is an individual retirement account described in Section 408(a) of the Internal
Revenue Code, an individual retirement annuity described in Section 408(b) of
the Internal Revenue Code, an annuity plan described in Section 403(a) of the
Internal Revenue Code, or a qualified trust described in Section 401(a) of the
Internal Revenue Code, that accepts the Participant's eligible rollover
distribution. However, in the case of an eligible rollover distribution to the
surviving spouse, an eligible retirement plan is an individual retirement
account or individual retirement annuity. For purposes of this provision, a
Participant includes an Employee or former Employee, a Participant's surviving
spouse and a Participant's spouse or former spouse who is the alternate payee
under a qualified domestic relations order, as defined in Section 414(p) of the
Internal Revenue Code.

         Participants and Beneficiaries will also have the option to receive a
distribution in installments. The Participant or Beneficiary may elect the
frequency of the distribution which may be monthly, quarterly or annually over
a period not to exceed the recipient's life expectancy. A Participant must have
a minimum Account balance of
<PAGE>   21

$1,000 to elect installment distribution. After installment payments begin,
when the Account balance becomes $1,000 or less, the entire balance will be
distributed in a lump sum payment.

         If distribution of benefits has commenced before the Participant's
death, the remaining benefits will be distributed at least as rapidly as under
the method of distribution being used as of the date of the Participant's
death. If the Participant dies before the distribution of benefits has
commenced, the remaining portion of the Participant's interest that is not
payable to a Beneficiary designated by the Participant shall be distributed
within five (5) years after the Participant's death; provided, that the
five-year rule shall not apply to any portion of the Participant's interest
payable to a Beneficiary designated by the Participant, if the remaining
interest will be distributed over the life of such Beneficiary (or over a
period of time not greater than said Beneficiary's life expectancy), commencing
not later than one year after the Participant's death (or, if the designated
Beneficiary is the Participant's surviving spouse, commencing not later than
the date on which the Participant would have attained age 70-1/2).

         5. Unless the Participant otherwise elects, the payment of benefits to
a Participant shall begin not later than the sixtieth (60th) day after the
latest of the close of the Plan Year in which (a) the Participant attains age
sixty-five (65), (b) the Participant completes ten (10) years of Continuous
Service, or (c) the Participant terminates his service with the Company. The
election to postpone the payment of benefits beyond the time specified above
shall be made by submitting to the Company a written statement, signed by the
Participant, which describes the benefit and the date on which the payment of
such benefit shall commence. Such an election may not be made if the exercise
of such election will cause the benefits payable under this Plan in the event
of the death of the Participant to be more than incidental.

         Effective January 1, 1997, in no event shall payment of such benefits
be deferred beyond April 1 of the calendar year following the calendar year in
which a Participant who is a five percent (5%) owner (as defined in Section 416
of the Code) attains age 70-1/2. For a Participant who is not a five percent
(5%) owner, the payment of benefits shall not be deferred beyond April 1 of the
calendar year following the earlier of the calendar year in which the
Participant attains age 70-1/2 or the calendar year in which the Participant
retires.

         If distributions are required to be made under this Article VII,
Section 5, they shall be made in a lump sum payment or in installment payments,
if the Participant so elects. The requirements of this Article VII, Section 5
shall apply to any distribution of a Participant's interest and will take
precedence over any inconsistent provisions of this Plan. All distributions
required under this Article VII, Section 5 shall be determined and made in
accordance with
<PAGE>   22

the proposed regulations under Section 401(a)(9) of the Code, including the
minimum distribution incidental benefit requirement of Section 1.401(a)(9)-2 of
the proposed regulations. The amount to be distributed each year, beginning
with distributions for the first distribution calendar year shall not be less
than the quotient obtained by dividing the Participant's benefit by the lesser
of (a) the applicable life expectancy or (b) if the Participant's spouse is not
the designated beneficiary, the applicable divisor determined from the table
set forth in Q & A-4 of Section 1.401(a)(9)-2 of the Proposed Regulations.
Distributions after the death of the Participant shall be distributed using the
applicable life expectancy set forth above as the relevant divisor without
regard to proposed regulations Section 1.401(a)(9)-2.

         The minimum distribution required for the Participant's first
distribution calendar year must be made on or before the Participant's required
beginning date. The minimum distribution for other calendar years, including
the minimum distribution for the distribution calendar year in which the
Participant's required beginning date occurs, must be made on or before
December 31 of that distribution calendar year.

         If distribution of benefits has commenced prior to the Participant's
death, the remaining interest under the Plan will be distributed at least as
rapidly as under the method of distribution being used as of the date of the
Participant's death. If distribution of benefits hereunder has not commenced at
the time of the Participant's death, any portion of the Participant's interest
in the Plan that is not payable to a Beneficiary designated by the Participant
over a period not exceeding the Participant's life expectancy will be
distributed within five years after the Participant's death and any portion of
the Participant's interest that is payable to a Beneficiary designated by the
Participant will be distributed either (i) within five years after the
Participant's death, or (ii) over the life of the Beneficiary over a period
certain not extending beyond the life expectancy of the Beneficiary, commencing
not later than the end of the calendar year following the calendar year in
which the Participant died (or, if the designated Beneficiary is the
Participant's surviving spouse, commencing on or before the later of (a)
December 31 of the calendar year immediately following the calendar year in
which the Participant died and (b) December 31 of the calendar year in which
the Participant would have attained age 70-1/2).

         6. A Participant otherwise entitled to a distribution from the Plan
may elect to retain said distribution in the Plan until such time as the
Participant shall direct the Company to make said distribution, provided that
such distribution must be made not later than the time specified in Article
VII, Section 5 above. Upon written notice (or

<PAGE>   23

by any other method approved by the Company) from the Participant, such
distribution shall be made as soon as possible after the notice is received.

         7. The assets of the Trust to be distributed to a Participant or
Beneficiary shall include any shares (or cash in lieu of fractional shares)
attributable to dividends payable to shareholders of record as of the end of
the quarter with respect to which the calculation is being made.

         8. Partial or total distributions of the Participant's Wage Reduction
Contributions and/or Rollover Contributions may also be made to a Participant,
upon application to the Company, in cases of hardship. If a Participant elects
a withdrawal prior to the date he retires, becomes disabled or terminates his
service with the Company, such withdrawal will require the consent of the
Trustee and such consent shall be given only if, under uniform rules and
regulations and in conformance with procedures established by the Company, the
Trustee determines that the purpose of the withdrawal is to meet immediate and
heavy financial needs of the Participant, the amount of the withdrawal does not
exceed such financial need, and the amount of the withdrawal is not reasonably
available from the resources of the Participant. If the Participant is married,
a distribution in excess of $5,000 cannot be distributed without the written
consent of the Participant's spouse.

         The determination of whether a Participant has an immediate and heavy
financial need will be made on the basis of all relevant facts and
circumstances. Financial needs which will be deemed immediate and heavy
financial need are the purchase of a primary residence (excluding mortgage
payments) of the Participant, payment of post-secondary educational tuition for
a year for the Participant or his dependents, health care expenses incurred by
a Participant or his dependents, and the need to prevent the eviction of the
Participant from his principal residence or foreclosure on the mortgage of a
Participant's principal residence.

         The determination of whether a distribution is necessary to satisfy an
immediate and heavy financial need shall be made on the basis of all relevant
facts and circumstances. A distribution will be deemed to satisfy an immediate
and heavy financial need if it is not in excess of the amount of the immediate
and heavy financial need of the Participant (grossed up to reflect the income
taxes that will be assessed on the distribution), the Participant has obtained
all distributions (other than hardship distributions) and all available
nontaxable loans under all plans maintained by the Company, the Participant
agrees that all Wage Reduction Contributions and all other Participant
contributions to all plans maintained by the Company will be suspended until
twelve (12) months after receipt of the hardship distribution, and the
Participant agrees that any Wage Reduction Contributions made in the taxable
year

<PAGE>   24

following the taxable year of the hardship distribution shall not exceed the
maximum limit under Section 402(g) of the Code less the amount of the
Participant's Wage Reduction Contributions for the taxable year of the hardship
distribution.

         Such election may be made at any time, but not more frequently than
once every twelve months. All withdrawal elections shall be made by a
Participant on written forms supplied by the Trustee for that purpose. Such
distributions shall be processed immediately following completion of the
application procedures.

         9. The Company may transfer a Participant's Account under the Plan to
another qualified defined contribution plan maintained by a Controlled Group
Member, when the Participant transfers employment from an employee group
covered by the Plan to an employee group not so covered, provided that the
other plan accepts such transfers. Accounts so transferred shall be subject to
such rights, restrictions, and features (including vesting provisions)
applicable to assets in similar accounts contributed to and held under the
other plan. The Plan Administrator may establish such nondiscriminatory
restrictions and rules applicable to such transfers as it may determine to be
necessary or desirable to maintain the qualified status of the Plan (and any
other plan sponsored by it or by a Controlled Group Member) under the Code;
including, without limitation, rules insuring that such transfers comply with
Sections 411(a) and 411(d)(6) of the Code and the regulations thereunder. In no
event shall any amount be transferred to the Trust from a defined benefit
pension plan or a money purchase pension plan.

         When a Participant transfers employment from an employee group not
covered by the Plan to an employee group covered by the Plan and has otherwise
satisfied the eligibility requirements of the Plan, the Company may transfer
the Participant's account balance under another qualified defined contribution
plan maintained by a Controlled Group Member which authorizes such transfers to
the Plan. Transferred accounts shall be subject to such rights, restrictions
and features (including vesting provisions) applicable to assets in similar
Accounts contributed to and held under the Plan. The Plan Administrator may
establish such nondiscriminatory restrictions and rules applicable to such
transfers from the Plan and transfers to the Plan as it may determine to be
necessary or desirable to maintain the qualified status of the Plan and any
other plan sponsored by it or by a Controlled Group Member under the Code;
including, without limitation, rules insuring that such transfers comply with
Section 411(a) and 411(d)(6) of the Code and the regulations thereunder.

         10. If overpayments or underpayments of benefits under the Plan have
been made to a Participant or beneficiary, the amount of benefits will be
appropriately adjusted, provided that the correction of any

<PAGE>   25

underpayments shall not result in the payment of interest to a Participant or
beneficiary on any such underpaid amounts.

         ARTICLE VIII. - EQUITY DETERMINATION

         1. The Company may amend or revoke the Wage Reduction Contribution
election of any Participant at any time, if the Company determines that such
revocation or amendment is necessary to insure that the annual addition to a
Participant's Account for any Plan Year will not exceed the limitations of
Article IV, Section 3 or to insure that the discrimination tests of Section
401(k) of the Code are met for such Plan Year. The discrimination tests shall
be (a) that the Employees eligible to benefit under this Plan shall satisfy the
nondiscrimination provisions of Section 410(b)(1) of the Code and (b) that the
actual deferral percentage for Highly Compensated Employees (as defined in
Article I, Section 15) for such Plan Year bears a relationship to the actual
deferral percentage for all other eligible Employees for the preceding Plan
Year which meets either of the following tests:

                  (a)      the actual deferral percentage for the group of
                           Highly Compensated Employees is not more than the
                           actual deferral percentage of all other eligible
                           Employees multiplied by 1.25, or

                  (b)      the excess of the actual deferral percentage for the
                           group of Highly Compensated Employees over that of
                           all other eligible Employees is not more than two
                           (2) percentage points, and the actual deferral
                           percentage for the group of Highly Compensated
                           Employees is not more than the actual deferral
                           percentage of all other eligible Employees
                           multiplied by two (2).

         For purposes of this Section, the actual deferral percentage for a
specified group of Employees for a Plan Year shall be the average of the ratios
(calculated separately for each Employee in such group) of:

                  (a)      the amount of Wage Reduction Contributions actually
                           paid to the Trust on behalf of each such Employee
                           for such Plan Year, as well as any Company Matching
                           Contributions and any Base Contributions treated by
                           the Company as elective contributions, to

                  (b)      the Employee's compensation (as defined in Section
                           414(s) of the Code) for such Plan Year.

         For purposes of determining whether the Plan satisfies the actual
deferral percentage test, all Wage Reduction Contributions, as well as any
Company Matching Contributions and any Base Contributions treated by

<PAGE>   26

the Company as elective contributions that are made under two or more plans
that are aggregated for purpose of satisfying Sections 401(a)(4) and 410(b) of
the Code (other than Section 410(b)(2)(A)(ii) of the Code), are to be treated
as made under a single plan. If two or more plans are permissively aggregated
for purpose of satisfying Section 401(k) of the Code, the aggregated plans must
also satisfy Sections 401(a)(4) and 410(b) of the Code as though they were a
single plan. In calculating the actual deferral percentage, the actual deferral
ratio of a Highly Compensated Employee will be determined by treating all plans
subject to Section 401(k) of the Code under which the Highly Compensated
Employee is eligible (other than those that may not be permissively aggregated)
as a single plan.

         The Plan will take into account the actual deferral ratios of all
eligible Employees for purposes of the actual deferral percentages. For this
purpose, an eligible Employee is any Employee who is directly or indirectly
eligible to make Wage Reduction Contributions and includes any Employee who is
unable to make Wage Reduction Contributions because the Employee has not
contributed to another plan, any Employee whose right to make Wage Reduction
Contributions has been suspended because of a distribution, a loan, or an
election not to participate and any Employee who cannot make Wage Reduction
Contributions because the limitations imposed by Article IV, Sections 3 and 5,
prevent the Employee from receiving additional annual additions. In the case of
an eligible Employee who makes no Wage Reduction Contributions, the actual
deferral ratio that is to be included in determining the actual deferral
percentage is zero.

         For purposes of the actual deferral percentage test and the
determination of excess contributions in Article VIII, Section 3, compensation
shall be all amounts received by a Participant from the Company during a Plan
Year for the performance of personal services, to the extent that such amounts
are includable in income.

         2. The Company may amend or revoke the Wage Reduction Contribution
election of any Participant at any time, if the Company determines that such
revocation or amendment is necessary to insure that the discrimination tests of
Section 401(m) of the Code are met for such Plan Year. The discrimination tests
shall be that the actual contribution percentage for Highly Compensated
Employees (as defined in Article I, Section 15) for such Plan Year bears a
relationship to the actual contribution percentage for all other eligible
Employees for the preceding Plan Year which meets either of the following
tests:
<PAGE>   27

                  (a)      the actual contribution percentage for the group of
                           Highly Compensated Employees is not more than the
                           actual contribution percentage of all other eligible
                           Employees multiplied by 1.25, or

                  (b)      the excess of the actual contribution percentage for
                           the group of Highly Compensated Employees over that
                           of all other eligible Employees is not more than two
                           (2) percentage points, and the actual contribution
                           percentage for the group of Highly Compensated
                           Employees is not more than the actual contribution
                           percentage of all other eligible Employees
                           multiplied by two (2).

         For purposes of this Section, the actual contribution percentage for a
specified group of Employees for a Plan Year shall be the average of the ratios
(calculated separately for each Employee in such group) of:

         (a)      the amount of Company Matching Contributions actually paid to
                  the Trust on behalf of each such Employee for such Plan Year,
                  as well as any wage reduction contributions and any Base
                  Contributions, that are treated by the Company as matching
                  contributions to the Plan, to

         (b)      the Employee's compensation (as defined in Section 414(s) of
                  the Code) for such Plan Year.

         For purposes of determining whether the Plan satisfies the actual
contribution percentage test of Section 401(m) of the Code, all Matching
Contributions that are made under two or more plans that are aggregated for
purpose of Sections 401(a)(4) and 410(b) of the Code (other than Section
410(b)(2)(A)(ii) of the Code), are to be treated as made under a single plan.
If two or more plans are permissively aggregated for purposes of satisfying
Section 410(m) of the Code, the aggregated plans must also satisfy Sections
401(a)(4) and 410(b) of the Code as though they were a single plan. In
calculating the actual contribution percentage, the actual contribution ratio
of a Highly Compensated Employee will be determined by treating all plans
subject to Section 401(m) of the Code under which the Highly Compensated
Employee is eligible (other than those that may not be permissively aggregated)
as a single plan.

         The Plan will take into account the actual contribution ratios of all
eligible Employees for purposes of the actual contribution percentages. For
this purpose, an eligible Employee is any Employee who is directly or
indirectly eligible to receive an allocation of Matching Contributions includes
any Employee who would be a
<PAGE>   28

Participant entitled to receive Matching Contributions but for his failure to
make Wage Reduction Contributions, any Employee whose right to receive Matching
Contributions has been suspended because of an election (other than certain
one-time elections) not to participate and any Employee who cannot receive a
Matching Contribution because the limitations imposed by Article IV, Sections 3
and 5, prevent the Employee from receiving additional annual additions. In the
case of an eligible Employee who receives no Matching Contributions, the actual
contribution ratio that is to be included in determining the actual
contribution percentage is zero.

         For purposes of the actual contribution percentage test and the
determination of excess aggregate contributions in Article VIII, Section 4,
compensation shall be all amounts received by a Participant from the Company
during a Plan Year for the Performance of personal services, to the extent that
such amounts are includable in income.

         3. Effective January 1, 1997, in the event that the Plan should fail
to meet the test set forth in Article VIII, Section l, the amount of excess
contributions for a Highly Compensated Employee for a Plan Year is to be
determined by the following leveling method, under which the dollar amount of
contributions by and on behalf of the Highly Compensated Employee with the
highest dollar amount of such contributions is reduced to the extent required
to:

         (a)      enable the arrangement to satisfy the actual deferral
                  percentage test, or

         (b)      cause such Highly Compensated Employee's dollar amount of
                  such contributions to equal
                  the dollar amount of a Highly Compensated Employee with the
                  next highest dollar amount of such contributions.

         This process must be repeated until the Plan satisfies the actual
deferral percentage test. For each Highly Compensated Employee, the amount of
excess contributions is equal to the total Wage Reduction Contribution, plus
Company Matching Contributions and Base Contributions treated as elective
contributions, on behalf of the Participant.

         Excess contributions (and income allocable thereto) are distributed in
accordance with this Article VIII, Section 3, only if such excess contributions
(and allocable income) are designated by the Company as a distribution of
excess contributions (and income) and are distributed to the appropriate Highly
Compensated Employees after the close of the Plan Year in which the excess
contributions occurred and within twelve months after the close of such Plan
Year.

<PAGE>   29

         A corrective distribution of excess contributions (and income) is
includable in gross income of the Participant on the earliest dates any Wage
Reduction Contributions by the Participant during the Plan Year would have been
received by the Participant had he originally elected to receive the amounts in
cash, or, if distributed more than two and a half months after the Plan Year
for which such contributions were made, in the taxable year of the Participant
in which distributed.

         The amount of excess contributions to be distributed under this
Article VIII, Section 3 with respect to a Participant for a Plan Year shall be
reduced by any excess Wage Reduction Contribution elections under Article IV,
Section 3 previously distributed to such Participant for the Participant's
taxable year ending with or within such Plan Year. The amount of excess Wage
Reduction Contribution elections that may be distributed under Article IV,
Section 3 with respect to a Participant for a calendar year shall be reduced by
any excess contributions previously distributed with respect to such
Participant for the Plan Year beginning with or within such calendar year. In
the event of a reduction under this paragraph, the amount of excess
contributions includable in the gross income of the Participant and the amount
of excess contributions reported by the Company as includable in the gross
income of the Participant shall be reduced by the amount of the reduction under
this paragraph.

         4. Effective January 1, 1997, in the event that the Plan should fail
to meet the test set forth in Article VIII, Section 2, the amount of excess
aggregate contributions for a Highly Compensated Employee for a Plan Year is to
be determined by the following leveling method under which the dollar amount of
contributions by and on behalf of the Highly Compensated Employee with the
highest dollar amount of such contributions is reduced to the extent required
to:

                  (a)      enable the Plan to satisfy the actual contribution
                           percentage test, or

                  (b)      cause such Highly Compensated Employee's dollar
                           amount of such contributions to equal the dollar
                           amount of the Highly Compensated Employee with the
                           next highest dollar amount of such contributions.

         This process must be repeated until the Plan satisfies the actual
contribution percentage test. The amount of excess aggregate contributions with
respect to an Employee for a Plan Year shall be determined only after first
determining the excess contributions that are treated as Employee contributions
for the Plan Year due to recharacterization. For each Highly Compensated
Employee, the amount of excess aggregate contributions is equal

<PAGE>   30

to the total Matching Contributions plus Wage Reduction Contributions and Base
Contributions treated as Matching Contributions, on behalf of the Participant.

         Excess aggregate contributions (and income allocable thereto) are
distributed in accordance with this Article VIII, Section 4 only if such excess
aggregate contributions (and allocable income) are designated by the Company as
a distribution of excess aggregate contributions (and income) and are
distributed to the appropriate Highly Compensated Employees after the close of
the Plan Year in which the excess aggregate contributions occurred and within
twelve months after the close of the following Plan Year.

         A corrective distribution of excess aggregate contributions (and
income) is includable in gross income for the taxable year of the Participant
ending with or within the Plan Year for which the excess aggregate
contributions were made or, if distributed more than two and a half months
after the Plan Year for which such excess aggregate contributions were made, in
the taxable year of the Participant in which distributed.

         5. If a multiple use of the alternative limitations described in
Article VIII, Sections 1 and 2 occurs with respect to the Plan, such multiple
use shall be prevented as to any Highly Compensated Employee according to the
provisions of Section 1.401(m)-2(b) of the Treasury Regulations. Such multiple
use shall be corrected by reducing the dollar amount of contributions by and on
behalf of all Highly Compensated Employees. The amount of the reduction to the
dollar amount of such contributions of all Highly Compensated Employees shall
be calculated in the manner described in Article VIII, Section 4. The required
reduction shall be treated as an excess aggregate contribution under the Plan.

         ARTICLE IX. - LOANS FROM THE TRUST

         1. A Participant or alternate payee who has succeeded to the interest
of a Participant, may obtain a loan from the Trust upon proper application to
the Trust pursuant to procedures established by the Company. For purposes of
this Article IX, the term "Participant" shall include an alternate payee
described in the preceding sentence. The nature and amount of the loan must
conform to the following rules and limits:

                  (a)      The Participant may borrow only from Pre-tax
                           Contributions (including Base Contributions and
                           Rollover Contributions) to the Trust in the custody
                           of the Trustee.

                  (b)      The minimum loan amount is $1,000.

                  (c)      The maximum loan amount is 50 percent of the
                           Participant's Beneficial Loan Interest, provided,
                           that no loan may be greater than $50,000, reduced by
                           the excess (if any) of (1)

<PAGE>   31

                           the highest outstanding loan balance from the Plan
                           during the one year period ending on the day before
                           the date on which such loan is made over (2) the
                           outstanding loan balance from the Plan on the date
                           on which such loan is made. The Trustee will accept
                           only the Participant's accrued benefit as collateral
                           for loans.

                  (d)      The term of the loan cannot exceed 5 years, except
                           that the term of a loan made for the purpose of
                           purchasing a primary residence cannot exceed 30
                           years, provided that the term of a loan made for any
                           purpose can not extend beyond the Participant's
                           attainment of age 70-1/2.

                  (e)      A Participant may have only one loan from this Plan
                           in effect at any one time and may apply for only one
                           loan within each twelve month period.

                  (f)      The Company will establish the rate of interest to
                           be charged on all loan balances. This rate of
                           interest will be one percent (1%) in excess of the
                           prime rate as published in the Wall Street Journal
                           the first business day of the month in which the
                           loan is granted.

                  (g)      The loan shall be repaid by the Participant, if the
                           Participant is an active Employee, through payroll
                           deduction as established by the loan agreement. If
                           the borrower is not an active Employee, the borrower
                           and the Company shall agree to a repayment schedule
                           which shall be incorporated in the loan agreement.

                  (h)      The loan may be repaid in full at a date earlier
                           than provided in the loan agreement with no penalty.

                  (i)      Interest paid by the Participant in excess of the
                           loan fees, if any, will be credited directly to the
                           Participant's account.

                  (j)      Any loan fees charged will be paid by the
                           Participant from funds other than those in the
                           Trust.

                  (k)      The loan amount will be taken on a pro-rata basis
                           from the Beneficial Loan Interest in all investment
                           options at the time of the loan and on a pro-rata
                           basis from Company and Participant contributions at
                           the time of the loan. Repayments will be redeposited
                           into the Participant's current investment options
                           and contributions using the current ratio, except
                           for amounts which must be reinvested in Timken
                           Company Stock.

<PAGE>   32

                  (l)      If a Participant or Beneficiary does not repay a
                           loan which he or she may have from the Plan, the
                           Trustee will declare such loan to be in default when
                           the loan is in arrears of repayment for more than 90
                           days. The Trustee may take steps to preserve Plan
                           assets, if necessary, in the event of such default.
                           Once default has been established, the amount
                           o(pound)the loan in default (unpaid principal and
                           the interest accrued thereon) shall be treated as a
                           distribution from the Plan in the Plan Year in which
                           the default occurs. The amount of the default will
                           not constitute part of subsequent distributions from
                           the Trust.

                  (m)      The proceeds of the loan cannot be applied toward
                           the purchase of any securities.

                  (n)      Loan repayments will be suspended under this Plan as
                           permitted under Section 414(u) of the Code.

         2. Loans may be applied for on any business day and will be processed
immediately. Loan application shall be made through the interactive voice
response system except that any loan whose term extends beyond five (5) years
must be on a written application form available from and returned to the
Trustee.

         3. The rules and limits for this loan provision may be changed from
time to time to comply with the Code and with regulations issued thereunder.

         ARTICLE X. - VOTING OF SHARES HELD BY THE TRUSTEE

         Each Participant, each Beneficiary who has succeeded to the interest
of a Participant and each alternate payee ("Eligible Participants and
Beneficiaries") in this Plan shall have the authority to direct the exercise of
voting rights as to whole shares of Timken stock held for the benefit of the
Eligible Participant or Beneficiary as of the most current Valuation Date
available preceding the record date for the shareholders' meeting. The Trustee
shall furnish Timken's Annual Report, Notice of Annual Meeting, Proxy
Statement, Proxy Card and other shareholder information to each Eligible
Participant and Beneficiary and shall solicit each Eligible Participant's and
Beneficiary's vote; the Company reserves the option to retain the Trustee to
perform these services. All other shares of Timken stock held in the Trust,
including shares not voted by Eligible Participants or Beneficiaries or not yet
allocated to Eligible Participants or Beneficiaries, are to be voted by the
Trustee in the same ratio for the election of Directors and for or against each
issue as the applicable votes directed by Eligible Participants and
Beneficiaries with respect to whole shares of Timken stock.

         ARTICLE XI. - MERGER, CONSOLIDATION OR TRANSFER

<PAGE>   33

         In case of any merger or consolidation with, or transfer of assets or
liabilities to, any other plan, the benefits which would be paid to each
Participant in this Plan (if this Plan terminated immediately after the merger,
consolidation, or transfer) shall be equal to or greater than the benefit each
Participant would have been entitled to receive immediately before the merger,
consolidation, or transfer (if this Plan had then terminated).

         ARTICLE XII. - CONDITIONS TO THE EFFECTIVENESS AND CONTINUANCE OF THIS
PLAN

         1. The Company will not be required to make any contributions to the
Trust required to be established under this Plan or to place any part of the
Plan into operation, unless and until it shall have received from the Internal
Revenue Service a currently effective ruling or rulings, satisfactory to the
Company, that such Trust is a qualified Trust under Sections 401(a), 401(k) and
401(m) of the Code, and exempt from Federal Income Tax under Section 501(a) of
the Code. Continued contributions to the Trust and operation of the Plan shall
be conditioned upon retaining such favorable ruling or rulings from the
Internal Revenue Service.

         2. The Company will not be required to make any contributions to the
Trust required to be established under this Plan or to place any part of the
Plan into operation, unless and until it shall have received from the United
States Department of Labor a currently effective ruling or rulings,
satisfactory to the Company that no part of the Company's contributions to such
Trust shall be included in the regular rate of pay of any Employee. Continued
contributions to the Trust and operation of the Plan shall be conditioned upon
retaining such favorable ruling or rulings.

         3. In the event the Plan fails to qualify initially under the
applicable provisions of the Code, the Company's contributions shall be
returned to the Company. Contributions to the Trust by the Company are
conditioned on their deductibility under Section 404(a) of the Code. If any
deduction is disallowed for all or part of such contributions, the
contributions for which the deduction is disallowed shall, upon proper notice
to the Trustee, be returned to the Company.

         ARTICLE XIII. - AMENDMENT OR TERMINATION OF PLAN

         1. The Company expects to continue this Plan indefinitely, but
reserves the right to terminate the Plan or to amend the Plan in any other
respect and in any manner that it may deem advisable. The Board of Directors of
Timken has authorized and instructed its Senior Vice-President - Human
Resources, Purchasing and Communications (or any other officer or delegate of
an officer, except the Administrative Delegate) to amend or terminate the Plan.
Any such amendment shall be in writing. Upon delivery of written notice from
Timken to the
<PAGE>   34

Trustee, the Plan and Trust Agreement shall be deemed to have been terminated
or amended in the manner set forth therein, and all Participants and all
persons claiming any interest hereunder shall be bound thereby; provided that
no termination or amendment:

                  (a)      shall have the effect of vesting in the Company any
                           interest in any property held subject to the terms
                           of the Plan;

                  (b)      shall cause or permit any property held subject to
                           the terms of the Plan to be diverted to purposes
                           other than the exclusive benefit of Participants and
                           their Beneficiaries, including contributions to the
                           Plan which are intended to bridge any differences
                           between the price at which Company stock is bought
                           and/or sold on the open market and the price at
                           which it is credited to a Participant's account;

                  (c)      shall reduce the interest of a Participant in the
                           Trust property as of that time or his or her right
                           to enjoy such interest without the written consent
                           of the Participant;

                  (d)      shall increase the duties or liabilities of the
                           Trustee without its written consent.

         2. Without terminating this Plan, the Company may, at its sole
discretion, at any time prior to the end of a Plan Year, reduce or suspend its
contributions to this Plan.

         3. In the event of termination or partial termination of the Plan or a
complete discontinuance of contributions, the Participants, retired
Participants, former Participants and Beneficiaries of deceased Participants,
and alternate payees shall have a fully vested interest in the amounts credited
to their respective Accounts at the time of such termination, partial
termination or discontinuance.

         4. Upon the termination of the Plan and Trust, after proportional
adjustment of the Accounts to reflect losses or profits and reallocations to
the date of termination, each Participant, retired Participant, former
Participant and Beneficiary of a deceased Participant, and alternate payees
shall be entitled to receive any amounts then credited to his Account in the
Trust. Distribution of such amounts shall be made upon the Participant's
attainment of age 59-1/2, or if earlier, the termination of his employment with
the Company.

         5. In the event that amendments to this Plan are necessary or
desirable for the purpose of (a) obtaining a favorable ruling by the Internal
Revenue Service concerning the qualification of or any matter arising under
this Plan, (b) clarifying any ambiguity, correcting any apparent error, or
supplying any omission from the provisions of this Plan, or (c) facilitating or
improving the administration of this Plan, such amendments may be

<PAGE>   35

made by the Company; provided that no such amendment shall adversely affect any
of the rights of Participants or prospective Participants in this Plan, nor
impose additional obligations on the Company, or relieve the Company of any
obligations prescribed hereby.

         6. The Board of Directors of Timken may delegate its duties and
responsibilities with respect to the Plan to such officer or officers (or their
designees, except the Administrative Delegate) as the Board of Directors may
determine and may allocate to and among any one or more of such officers such
duties and responsibilities, including the power to amend the Plan in any
manner or suspend or modify the level of Company contributions to the Plan.

         ARTICLE XIV. - NONALIENATION OF PARTICIPANTS' INTERESTS

         1. No right to the monies contributed by a Participant or the Company
under this Plan, nor in any shares held by the Trustee, nor any dividends
thereon, shall be subject in any manner to alienation, assignment, encumbrance,
pledge, sale or transfer of any kind prior to being distributed to the
Participant as provided in the Plan. However, the Trustee is granted in the
Trust Agreement the authority to recover any Trustee fees and expenses as
agreed to by the Company and the Trustee. If at any time prior thereto a
Participant shall attempt to alienate, assign, encumber, pledge, sell or
otherwise transfer his right to any shares or monies held by the Trustee, such
attempted alienation, assignment, encumbrance, pledge, sale or transfer shall
be of no effect. To the extent permitted by law, the interest of a Participant
shall also be protected from involuntary attachment, garnishment or levy. In
the event of an attempted attachment, garnishment or levy of the Participant's
interest in the Trust, the Participant will be promptly notified; but the
Trustee shall have no obligation to resist such action. In no event shall any
person be entitled to the distribution of shares or the payment of monies held
by the Trustee prior to the time when distribution is to be made to the
Participant as provided in the Plan.

         2. Section 1 of this Article XIV shall not apply if the attachment or
garnishment of the Participant's interest in the Trust is to be made pursuant
to a qualified domestic relations order, as determined under the procedures of
this Plan. A domestic relations order is a judgment, decree or order that
relates to the provision of child support, alimony payments or marital property
rights to a spouse, former spouse, child or other dependent of a Participant
and is made pursuant to a state domestic relations law. A domestic relations
order is qualified if it creates or recognizes the existence of an alternate
payee's right to, or assigns to an alternate payee the right to, receive all or
a portion of the benefits payable to a Participant under the Plan, specifies
(a) the name and last known

<PAGE>   36

mailing address of the Participant and of each alternate payee covered under
the order, (b) the amount or percentage of the Participant's benefits to be
paid to any alternate payee, or the manner in which such amount or percentage
is to be determined, (c) the number of payments or the period to which the
order applies, and (d) each plan to which the order relates. Such order cannot
require the Plan to provide any type or form of benefits, or any option, not
otherwise provided under the Plan; it cannot require the Plan to provide
increased benefits (determined on the basis of actuarial value), and it cannot
require the payment of benefits to an alternate payee which are required to be
paid to another alternate payee under another order previously determined to be
a qualified domestic relations order.

         3. Each alternate payee under a qualified domestic relations order
shall have the right from time to time to file with the Company a written
request regarding the time and manner of payment of the alternate payee's
interest in the Plan pursuant to such qualified domestic relations order.
Provided such qualified domestic relations order complies with the Code, such
request shall be considered by the Company and shall be acted upon in
accordance with the terms of such qualified domestic relations order. The
options available to an alternate payee shall be those set forth in Article
VII, Section 4, unless otherwise modified by the qualified domestic relations
order, provided that said qualified domestic relations order cannot enlarge the
options available under Article VII, Section 4. If an alternate payee so
desires, distribution of an alternate payee's interest in the Trust may be
distributed to such alternate payee, as soon as such qualified domestic
relations order is approved by the Company and by the court.

         ARTICLE XV. - TENDER OFFERS

         1. In the event a tender offer (as determined by the Board of
Directors of the Company) for shares of common stock of Timken is commenced,
then, notwithstanding any other provision of the Plan or the Trust Agreement,
each Participant, each Beneficiary who has succeeded to the interest of a
Participant and each alternate payee ("Affected Participants and
Beneficiaries") shall, in accordance with the following provisions of this
Article, have the right to decide if Timken Company common stock credited to
his or her account shall be tendered.

         2. In the event of a tender offer described in Section 1 of this
Article, the Company shall cause to be sent to each Affected Participant and
Beneficiary who at any time during the effective period of the tender offer has
any Timken stock credited to his account all information pertinent to such
tender offer, including all the terms and conditions thereof, together with
written material pursuant to which the Affected Participant and Beneficiary may
direct the Trustee to tender or sell pursuant to the tender offer all or part
of the Timken stock credited to his Account. Affected Participants and
Beneficiaries also shall have the right, to the extent the terms of the tender
offer
<PAGE>   37

so permit, to direct the withdrawal of such shares from the tender. The Trustee
shall tender or sell only those shares of Timken stock as to which valid and
timely directions to tender or sell are received and not validly and timely
revoked, and all other shares of Timken stock held under the Plan shall
continue to be held by the Trustee. If, in the course of a tender offer
described in Section 1 of this Article, an issue shall arise on which Affected
Participants and Beneficiaries are required to have an opportunity to alter
their circumstances, Timken shall solicit the directions of such Affected
Participants and Beneficiaries with respect to each such issue and act in
response to such direction. The Trustee shall adopt a deadline, after which
directions to tender (or to withdraw from tender) Timken stock will not be
accepted, sufficiently in advance of any applicable deadline under the terms of
the tender offer to allow the Trustee to implement directions received from
Affected Participants and Beneficiaries.

         3. To the extent that a tender offer described in Section 1 of this
Article is for cash, proceeds from the sale of any shares of Timken stock
pursuant to such offer shall be held by the Trustee in an interest bearing
account or in short-term government bonds acquired by the Trustee upon the
receipt of any such cash proceeds. To the extent that a tender offer described
in Section 1 of this Article is for property other than cash, property received
by the Trustee from the sale of any shares of Timken stock pursuant to such
offer shall be held by the Trustee in a general investment fund established by
the Trustee upon the receipt of any such property.

         4. Any decision by an Affected Participant or Beneficiary to tender
(or not tender) or to sell (or not sell), and any other direction by an
Affected Participant or Beneficiary, pursuant to this Article shall constitute
an exercise of control by such Affected Participant or Beneficiary over the
assets allocated to his or her account within the meaning of section 404(c) of
ERISA.

         ARTICLE XVI. - TOP-HEAVY PROVISIONS

         1.       DEFINITIONS. For the purposes of this Article XVI, the
                  following definitions shall apply:

                  (a)      "Key Employee" means an Employee or former Employee
                           who at any time during the Plan Year containing the
                           Determination Date or during the four preceding Plan
                           Years is:

                           (1)      an officer of the Company having an annual
                                    compensation greater than 50 percent of the
                                    amount in effect under Section 415(b)(1)(A)
                                    of the Code for any such Plan Year;

                           (2)      an owner (or considered the owner within
                                    the meaning of Section 318 of the Code) of
                                    one of the largest interests in the
                                    Company, if such individual's annual

<PAGE>   38

                                    compensation exceeds 100% of the limitation
                                    in effect under Section 415(c)(1)(A) of the
                                    Code;

                           (3)      a five percent (5%) owner of the Company;
                                    or

                           (4)      a one percent (1%) owner of the Company who
                                    has an annual compensation above
                                    $150,000.

         For purposes of determining the number of officers taken into account
         under clause (1) above, Employees described in Section 414(q)(8) of
         the Code will be excluded. For purposes of clause (2) above, if two
         Employees have the same interest in the Company or any affiliated or
         subsidiary Company, the Employee having greater annual compensation
         from the Company or any affiliated or subsidiary Company shall be
         treated as having a larger interest. For purposes of this subsection,
         annual compensation is all amounts received by a Participant from the
         Company during a Plan Year for the performance of personal services,
         including amounts deferred under Wage Reduction Agreements. "Key
         Employee" shall also include such Employee's beneficiary in the event
         of his death.

                  The definition of Key Employee shall be interpreted in
         accordance with Section 416(i) of the Code and the rules and
         regulations promulgated thereunder. Any employee who does not meet the
         requirement of this definition shall be considered a non-key employee.

         (b) "Determination Date" means the last day of the preceding Plan
Year.

         2. Top-Heavy Determination. This Plan shall be top-heavy for any Plan
Year if, as of the Determination Date, the aggregate of the Accounts of Key
Employees under the Plan exceeds 60 percent of the aggregate of the Accounts of
all Employees under the Plan. For purposes of this determination, the following
rules shall apply:

         (a)      Employees shall include former Employees, Beneficiaries and
                  former Beneficiaries who have a benefit greater than zero on
                  the Determination Date.

         (b)      The amount of the account of any Employee shall be increased
                  by the aggregate distributions made with respect to such
                  Employee within the 5-year period ending on the Determination
                  Date.

<PAGE>   39

         (c)      The Account of any Employee who is not a Key Employee as of
                  the Determination Date but who was a Key Employee during any
                  prior Plan Year shall be disregarded.

         (d)      If an Employee has not performed services for the Company at
                  any time during the five (5) year period ending on the
                  Determination Date, any accrued benefit for such Employee
                  (and account of such Employee) shall not be taken into
                  account.

         (e)      If the Company maintains other plans which are qualified
                  under Section 401 of the Code, the top-heavy determination
                  described above shall be made by aggregating the Accounts
                  under this Plan with the accounts or the present values of
                  the cumulative accrued benefits under (1) any such other plan
                  (including plans terminated in the past 5 years) in which a
                  Key Employee is a participant and (2) any such other plan
                  (including plans terminated in the past 5 years) which
                  enables a plan in which a Key Employee is a Participant to
                  meet the requirements of Section 401(a)(4) or Section 410 of
                  the Code. The Company may also aggregate any such other plans
                  not required to be aggregated, provided the resulting group
                  of plans, taken as a whole, continue to meet the requirements
                  of Sections 401(a)(4) and 410 of the Code.

         (f)      The Accrued Benefit of any Employee (other than a Key
                  Employee) shall be determined by the method used for accrual
                  purposes for all plans of the Company.

         (g)      The top-heavy determination under this Paragraph shall be
                  made in accordance with Section 416 of the Code and the rules
                  and regulations promulgated thereunder.

         3. TOP-HEAVY REQUIREMENTS: If the Plan is deemed to be top heavy under
Paragraph 2 then, notwithstanding any other provision of the Plan to the
contrary, the following shall apply with respect to each Plan Year in which the
Plan is top-heavy:

         (a)      Minimum Contributions: The Company contributions for each
                  Participant who is not a Key Employee shall not be less than
                  three percent (3%) of such Participant's compensation or the
                  largest percentage of the Company contributions, as a
                  percentage of a Key Employee's compensation allocated on
                  behalf of any Key Employee for that year, provided if the
                  highest rate allocated to a Key Employee is less than three
                  percent (3%), amounts contributed as a result of Wage
                  Reduction Agreements must be included in

<PAGE>   40

                  determining the contributions made on behalf of Key
                  Employees. For purposes of this Subsection and in accordance
                  with Section 401(a)(17) of the Code, compensation cannot
                  exceed $150,000 (as adjusted) for a Plan Year. This minimum
                  allocation shall be made even though, under other Plan
                  provisions, the Participant would not otherwise be entitled
                  to receive an allocation, or would have received a lesser
                  allocation for the year because of (1) the Participant's
                  failure to complete 1,000 Hours of Service or (2) the
                  Participant's failure to make mandatory Employee
                  contributions to the Plan, provided, however, this provision
                  shall not apply to any Participant who was not an Employee on
                  the last day of the Plan Year. Company contributions
                  allocated under any other defined contribution plan of the
                  Company, in which any Key Employee participates or which
                  enables another defined contribution plan to meet the
                  requirements of Section 401(a)(4) or 410 of the Code, shall
                  be considered contributions and forfeitures allocated under
                  this Plan. In the case of any non-key employee Participant
                  who is also a Participant in any defined benefit plan of the
                  Company, the foregoing provisions of this section shall be
                  applied, but with five percent (5%) substituted for three
                  percent (3%).

         (b)      Adjusted Code Section 415 Limitations. For Plan Years
                  commencing before January 1, 2000, in order to reduce the
                  overall limitations on combined plan contributions and
                  benefits under Section 415 of the Code, the number 1.00 shall
                  be substituted for 1.25 in the definitions of defined
                  contribution fraction and defined benefit fraction in Article
                  IV, Section 5 of the Plan. The foregoing sentence shall not
                  apply if (1) the top-heavy ratio is 90% or less and (2) each
                  non-Key Employee receives an additional minimum contribution
                  or benefit under a Plan of the Company. In the case of a
                  non-Key Employee participating only in a defined benefit
                  plan, the additional minimum benefit for each Year of Service
                  counted is one percentage point, up to a maximum of ten
                  percentage points, of the Employee's average compensation for
                  the five consecutive years when the Employee had the highest
                  aggregate compensation from the Company. In the case of a

<PAGE>   41

                  non-Key Employee participating only in this or another
                  defined contribution plan, the additional minimum
                  contribution is one percent of the Employee's compensation.
                  In the case of a non-Key Employee participating both in a
                  defined benefit plan and this or another defined contribution
                  plan, there is no additional minimum benefit, but the
                  additional minimum contribution shall be two and one-half
                  percent (2-1/2%) of the Employee's compensation.

         (c)      Plan Compensation: For any Plan Year in which the Plan is a
                  top-heavy plan, annual compensation taken into account under
                  the Plan shall not exceed $150,000. Annual compensation is
                  all amounts received by a Participant from the Company during
                  a Plan Year for the performance of personal services, to the
                  extent that such amounts are includable in gross income.

         ARTICLE XVII. - PLAN ADMINISTRATION

         1. Timken shall be the Plan Administrator and have responsibility for
the administration of this Plan, including power to construe this Plan, to
determine all questions that shall arise hereunder, including particularly
questions on eligibility and participation of Employees and allocations of
Company contributions to Participants' Accounts and all matters necessary for
it properly to discharge its duties, powers and obligations and to apply its
established policies concerning the employment status of Participants. The
decision of Timken made in good faith upon any manner within the scope of its
authority shall be final, but Timken at all times in carrying out its decisions
shall act in a uniform and nondiscriminatory manner and may from time to time
set down uniform rules of interpretation and administration, which rules may be
modified from time to time in the light of its experience.

         2. Timken will make all determinations as to the right of any persons
to benefits under the Plan. Any denial by Timken of a claim for benefits under
the Plan by a Participant or beneficiary will be stated in writing by Timken
and delivered or mailed to the Participant or Beneficiary. Such notice will set
forth the specific reasons for the denial and the plan provision on which the
denial is based. If additional information is needed to perfect a claim, a
Participant or Beneficiary shall be so informed. In addition, Timken will
provide an opportunity to any Participant or Beneficiary whose claim for
benefits has been denied an opportunity for review of the denial. As part of
the review, the Participant or Beneficiary will be permitted to (a) view all
Plan documents and other papers which affect the claim, (b) argue the denial of
benefits in writing and (c) have a representative if he or she so desires.
Timken shall conduct a full and fair review of such claim and of the facts and
circumstances surrounding such denial. The

<PAGE>   42

decision of Timken shall be made by a committee consisting of at least three
(3) employees of the Company familiar with the legal, human resource and
financial issues relative to the operation and administration of the Plan.

         3. Timken may from time to time authorize and instruct certain of its
Employees to perform any and all acts, deeds and other matters required to be
performed by Timken under the Plan and the Trust Agreement. Timken has so
authorized and instructed that its Senior Vice-President - Human Resources,
Purchasing and Communications or any other officer or the delegate of an
officer (except the Administrative Delegate) may sign any and all documents on
behalf of the Plan.

         4. Timken may, from time to time, retain the services of one or more
persons or firms designated as an Investment Manager for the management of
(including the power to acquire and dispose of) all or any part of the Trust,
provided that each of such persons or firms is registered as an investment
advisor under the Investment Advisors Act of 1940, is a bank (as defined in
that Act), or an insurance company qualified to perform, manage, acquire or
dispose of trust assets under the laws of more than one State of the United
States. Each such Investment Manager shall acknowledge in writing that it is a
fiduciary with respect to the assets of the Trust under its authority and
management. Timken may by similar notice modify or terminate such designation
and authority from time to time. So long as and to the extent that any
designation is in effect, the Trustee shall invest and reinvest that portion of
the Trust assigned to an Investment Manager in accordance with the instructions
received from such Investment Manager, and, with respect to such portion of the
Trust managed by such Investment Manager, shall follow any instructions
received by it from such Investment Manager. The Trustee shall be under no duty
to review the investments made or held in any portion of the Trust over which
an Investment Manager has been given investment authority nor shall it be under
any obligation to invest or otherwise manage any assets of the Trust which are
subject to the management of such Investment Manager or Managers. Such assets
shall expressly be held by such Investment Manager as custodian of such assets.

         5. Timken shall also have the authority and discretion to engage an
Administrative Delegate who shall perform, without discretionary authority or
control, administrative functions within the framework of policies,
interpretations, rules, practices, and procedures developed by Timken. Any
action made or taken by the Administrative delegate may be appealed by an
affected Employee or Beneficiary to Timken in accordance with the claims review
procedures provided in Section 2 of this Article. Any decisions which call for
interpretations of Plan
<PAGE>   43

provisions not previously made by Timken shall only be made by Timken. The
Administrative Delegate shall not be considered a fiduciary with respect to the
services it provides.

         ARTICLE XVIII. - VETERANS' RIGHTS

         1. A Participant who is reemployed by the Company pursuant to the
provisions of the Uniformed Services Employment and Reemployment Rights Act of
1994 shall be treated as not having incurred a Break in Service with the
Company by reason of such Participant's period or periods of service in the
armed forces of the United States. Each period served by a Participant in the
armed forces shall, upon reemployment, be deemed to constitute service with the
Company for purposes of determining the nonforfeitability of benefits and the
accrual of benefits under the Plan.

         2. Effective December 12, 1994, the Company upon reemploying a
Participant with respect to a period of service with the armed forces shall
allocate the amount of any Company contribution, including a Base Contribution,
for the participant in the same manner and to the same extent the allocation
occurs for other Participants during the period of service. For purposes of
determining the amount of any such allocation, earnings shall not be included.

         3. A Participant so reemployed shall be entitled to Accrued Benefits
that are contingent on the making of, or derived from Wage Reduction
Contributions only to the extent such Participant makes payment to the Plan
with respect to such Wage Reduction Contributions. No such payment may exceed
the amount the Participant would have been permitted to contribute had the
Participant remained continuously employed by the Company through the period of
service in the armed forces. Any payment of Wage Reduction Contributions to the
Plan shall be made during the period beginning with the date of reemployment
and whose duration is three times the period of the Participant's service in
the armed forces, not to exceed a maximum duration of five years.

         4. For purposes of computing the Company's Matching Contributions,
Wage Reduction Contributions and Base Contributions under Sections 2 and 3
above, the Participant's Wages during the period of service in the armed forces
shall be computed at the rate the Participant would have received, but for the
period of service in the armed forces, or, in the case that the determination
of such rate is not reasonably certain, on the basis of the Participant's
average Wages from the Company during the twelve month period immediately
preceding such period of service in the armed forces, or if shorter, the period
of employment immediately preceding such period of service in the armed forces.

<PAGE>   44

         5. Notwithstanding any provision of this Plan to the contrary,
contributions, benefits and service credit with respect to qualified military
service will be provided in accordance with Section 414(u) of the Code.

         EXECUTED by The Timken Company at Canton, Ohio on December 29, 1999,
effective December 31, 1999, except as otherwise specifically provided.

                                  THE TIMKEN COMPANY

                                  By:   STEPHEN A. PERRY
                                        -----------------
                                        Title:   Senior Vice President - Human
                                        Resources, Purchasing and Communications

<PAGE>   45

                                   EXHIBIT A

         I. Effective January 1, 1998, for purposes of the definition of "Gross
Earnings" in Section A, Paragraph 6 hereof, any payments made as quarterly
bonus payments from the following compensation plans shall be excluded as
"Gross Earnings":

                  Ashland Gainshare Plan up to a predetermined level as defined
                  in the Gainshare Plan document.
                  Sandy Creek Gainshare Plan

Any payments made as quarterly bonus payments from the following compensation
plans shall be included as "Gross Earnings":

                  New Philadelphia Gainshare Plan.

II. Effective January 1, 1998, for purposes of the definition of "Wages" in
Section A, Paragraph 32 hereof, any payments made under the Performance Reward
Pay Plan shall be included to the following extent:

                  A.       33% of payments made in 1997 for the 1996
                           performance year are included.

                  B.       67% of payments made in 1998 for the 1997
                           performance year are included.

                  C.       100% of payments made in 1999 for the 1998
                           performance year and any payments made in years
                           thereafter are included.<PAGE>   1

                                                                    Exhibit 4(c)

                   THE TIMKEN COMPANY LONG-TERM INCENTIVE PLAN
                (AS AMENDED AND RESTATED AS OF DECEMBER 16, 1999)
<PAGE>   2

                   THE TIMKEN COMPANY LONG-TERM INCENTIVE PLAN
                (AS AMENDED AND RESTATED AS OF DECEMBER 16, 1999)

                                Table of Contents

                                                                            PAGE
                                                                            ----

1.  Purpose                                                                    1

2.  Definitions                                                                1

3.  Shares Available under the Plan                                            5

4.  Option Rights                                                              6

5.  Appreciation Rights                                                        8

6.  Restricted Shares                                                         10

7.  Deferred Shares                                                           12

8.  Performance Shares and Performance Units                                  13

9.  Automatic Awards to Nonemployee Directors                                 14

10. Transferability                                                           15

11. Adjustments                                                               15

12. Fractional Shares                                                         16

13. Withholding Taxes                                                         16

14. Participation by Employees of a Less-Than-80-Percent Subsidiary           16

15. Certain Terminations of Employment, Hardship and Other
    Special Circumstances                                                     17

16. Foreign Employees                                                         17

17. Administration of the Plan                                                18

18. Amendments and Other Matters                                              18
<PAGE>   3

                            LONG-TERM INCENTIVE PLAN
                (AS AMENDED AND RESTATED AS OF DECEMBER 16, 1999)

            1. PURPOSE. The purpose of this Plan is to attract and retain
directors, officers and key employees for The Timken Company, an Ohio
corporation (the "Corporation"), and its Subsidiaries and to provide such
persons with incentives and rewards for superior performance.

            2. DEFINITIONS. As used in this Plan,

               "APPRECIATION RIGHT" means a right granted pursuant to Section 5
               of this Plan, including a Free-standing Appreciation Right and a
               Tandem Appreciation Right.

               "EVIDENCE OF AWARD" means an agreement, certificate, resolution
               or other type or form of writing or other evidence approved by
               the Committee which sets forth the terms and conditions of Option
               Rights, Appreciation Rights, Restricted Shares, Deferred Shares,
               Performance Shares, Performance Units or awards to Nonemployee
               Directors. An Evidence of Award may be in any electronic medium,
               may be limited to a notation on the books and records of the
               Company and, with the approval of the Committee, need not be
               signed by a representative of the Company or a Participant.

               "BASE PRICE" means the price to be used as the basis for
               determining the Spread upon the exercise of a Free-standing
               Appreciation Right.

               "BOARD" means the Board of Directors of the Corporation.

               "CODE" means the Internal Revenue Code of 1986, as amended from
               time to time.

               "COMMITTEE" means the committee described in Section 17(a) of
               this Plan.

               "COMMON SHARES" means (i) shares of the common stock of the
               Corporation without par value and (ii) any security into which
               Common Shares may be converted by reason of any transaction or
               event of the type referred to in Section 11 of this Plan.

               "DATE OF GRANT" means the date specified by the Committee on
               which a grant of Option Rights or Appreciation Rights or
               Performance Shares or Performance Units or a grant or sale of
               Restricted Shares or Deferred Shares shall become effective,
               which shall not be earlier than the date on which the Committee
               takes action with respect thereto, including the date on which an
               automatic grant of Common Shares to a Nonemployee Director
               becomes effective pursuant to Section 9 of this Plan.

               "DEFERRAL PERIOD" means the period of time during which Deferred
               Shares are subject to deferral limitations under Section 7 of
               this Plan.

               "DEFERRED SHARES" means an award pursuant to Section 7 of this
               Plan of the right to receive Common Shares at the end of a
               specified Deferral Period.

               "FREE-STANDING APPRECIATION RIGHT" means an Appreciation Right
               granted pursuant to Section 5 of this Plan that is not granted in
               tandem with an Option Right or similar right.

                                       8
<PAGE>   4

               "INCENTIVE STOCK OPTIONS" means Option Rights that are intended
               to qualify as "incentive stock options" under Section 422 of the
               Code or any successor provision.

               "LESS-THAN-80-PERCENT SUBSIDIARY" means a Subsidiary with respect
               to which the Corporation directly or indirectly owns or controls
               less than 80 percent of the total combined voting or other
               decision-making power.

               "MANAGEMENT OBJECTIVES" means the achievement of a performance
               objective or objectives established pursuant to this Plan for
               Participants who have received grants of Performance Shares or
               Performance Units or, when so determined by the Committee, Option
               Rights, Appreciation Rights, Restricted Shares and dividend
               equivalents. Management Objectives may be described in terms of
               Corporation-wide objectives or objectives that are related to the
               performance of the individual Participant or of the Subsidiary,
               division, department or function within the Corporation or
               Subsidiary in which the Participant is employed. The Management
               Objectives applicable to any award to a Participant who is, or is
               determined by the Committee to be likely to become, a "covered
               employee" within the meaning of Section 162(m) of the Code (or
               any successor provision) shall be limited to specified levels of,
               growth in or peer company performance in: cash flow, cost of
               capital, debt reduction, earnings before interest and taxes,
               earnings per share, economic value added, free cash flow,
               inventory management, net income, productivity improvement,
               profit after tax, reduction of fixed costs, return on assets,
               return on equity, return on invested capital, sales and/or
               shareholder return. Management Objectives may be stated as a
               combination of the preceding factors.

               Except in the case of such a covered employee, if the Committee
               determines that a change in the business, operations, corporate
               structure or capital structure of the Corporation, or the manner
               in which it conducts its business, or other events or
               circumstances render the Management Objectives unsuitable, the
               Committee may modify such Management Objectives or the related
               minimum acceptable level of achievement, in whole or in part, as
               the Committee deems appropriate and equitable.

               "MARKET VALUE PER SHARE" means the fair market value of the
               Common Shares as determined by the Committee from time to time.

               "NONEMPLOYEE DIRECTOR" means a member of the Board who is not an
               employee of the Corporation or any Subsidiary.

               "OPTIONEE" means the person so designated in an agreement
               evidencing an outstanding Option Right.

               "OPTION PRICE" means the purchase price payable upon the exercise
               of an Option Right.

               "OPTION RIGHT" means the right to purchase Common Shares upon
               exercise of an option granted pursuant to Section 4 of this Plan.

               "PARTICIPANT" means a person who is selected by the Committee to
               receive benefits under this Plan and who is at that time an
               officer, including without limitation an officer who may also be
               a member of the Board, or other key employee of the Corporation
               or any Subsidiary or who has agreed to commence serving in any
               such capacity, and shall also include each Nonemployee Director
               who receives an award pursuant to Section 9 of this Plan.

                                       9
<PAGE>   5

               "PERFORMANCE PERIOD" means, in respect of a Performance Share or
               Performance Unit, a period of time established pursuant to
               Section 8 of this Plan within which the Management Objectives
               relating thereto are to be achieved.

               "PERFORMANCE SHARE" means a bookkeeping entry that records the
               equivalent of one Common Share awarded pursuant to Section 8 of
               this Plan.

               "PERFORMANCE UNIT" means a bookkeeping entry that records a unit
               equivalent to $100.00 awarded pursuant to Section 8 of this Plan.

               "RELOAD OPTION RIGHTS" means additional Option Rights granted
               automatically to an Optionee upon the exercise of Option Rights
               pursuant to Section 4(f) of this Plan.

               "RESTRICTED SHARES" mean Common Shares granted or sold pursuant
               to Section 6 of this Plan as to which neither the substantial
               risk of forfeiture nor the restrictions on transfer referred to
               in Section 6 hereof has expired.

               "RULE 16b-3" means Rule 16b-3 of the Securities and Exchange
               Commission (or any successor rule to the same effect), as in
               effect from time to time.

               "SPREAD" means, in the case of a Free-standing Appreciation
               Right, the amount by which the Market Value per Share on the date
               when any such right is exercised exceeds the Base Price specified
               in such right or, in the case of a Tandem Appreciation Right, the
               amount by which the Market Value per Share on the date when any
               such right is exercised exceeds the Option Price specified in the
               related Option Right.

               "SUBSIDIARY" means a corporation, partnership, joint venture,
               unincorporated association or other entity in which the
               Corporation has a direct or indirect ownership or other equity
               interest; provided, however, for purposes of determining whether
               any person may be a Participant for purposes of any grant of
               Incentive Stock Options, "Subsidiary" means any corporation in
               which the Corporation owns or controls directly or indirectly
               more than 50 percent of the total combined voting power
               represented by all classes of stock issued by such corporation at
               the time of such grant.

               "TANDEM APPRECIATION RIGHT" means an Appreciation Right granted
               pursuant to Section 5 of this Plan that is granted in tandem with
               an Option Right or any similar right granted under any other plan
               of the Corporation.

            3. SHARES AVAILABLE UNDER THE PLAN. (a) Subject to adjustment as
provided in Section 11 of this Plan, the number of Common Shares issued or
transferred (i) upon the exercise of Option Rights or Appreciation Rights, (ii)
as Restricted Shares and released from all substantial risks of forfeiture,
(iii) as Deferred Shares, (iv) in payment of Performance Shares or Performance
Units that have been earned, (v) as automatic awards to Nonemployee Directors or
(vi) in payment of dividend equivalents paid with respect to awards made under
this Plan, shall not in the aggregate exceed 8,800,000 (2,800,000 of which were
approved in 1992 (as adjusted to reflect the 1997 stock split), 3,000,000 of
which were approved in 1995 (as adjusted to reflect the 1997 stock split) and
3,000,000 of which are being added as of this Amendment and Restatement) Common
Shares, which may be Common Shares of original issuance or Common Shares held in
treasury or a combination thereof; PROVIDED, HOWEVER, that the number of
Restricted Shares and Deferred Shares shall not (after taking any forfeitures
into account and excluding all awards of Restricted Shares to Non-Employee
Directors pursuant to Section 9 of this Plan) exceed 500,000, subject to
adjustment as provided in Section 11 of this Plan.

               (b) Upon the full or partial payment of any Option Price by the
transfer to the Corporation of Common Shares or upon satisfaction of tax
withholding provisions in connection with any such exercise or any other payment
made or benefit realized under this Plan by the transfer or relinquishment of
Common

                                       10
<PAGE>   6

Shares, there shall be deemed to have been issued or transferred under this plan
only the net number of Common Shares actually issued or transferred by the
Corporation.

               (c) Notwithstanding anything in this Plan to the contrary, the
aggregate number of Common Shares actually issued or transferred by the
Corporation upon the exercise of Incentive Stock Options shall not exceed the
total number of Common Shares first specified above in Section 3(a), subject to
adjustment as provided in Section 11 of this Plan.

               (d) The number of Performance Units that may be granted and paid
out under this Plan shall not in the aggregate exceed 150,000.

               (e) Upon payment in cash of the benefit provided by any award
granted under this Plan, any Common Shares that were covered by that award shall
again be available for issuance or transfer hereunder.

               (f) Notwithstanding any other provision of this Plan to the
contrary, no Participant shall be granted Option Rights for more than 1,000,000
Common Shares during any period of five consecutive calendar years subject to
adjustment as provided in Section 11 of this Plan.

               (g) Notwithstanding any other provision of this Plan to the
contrary, in no event shall any Participant in any period of one calendar year
receive awards of Performance Shares and Performance Units having an aggregate
value as of their respective Dates of Grant in excess of $2,000,000.

           4.  OPTION RIGHTS. The Committee may from time to time authorize
grants to Participants of options to purchase Common Shares upon such terms and
conditions as the Committee may determine in accordance with the following
provisions:

           (a) Each grant shall specify the number of Common Shares to which it
               pertains, subject to the limitations set forth in Section 3 of
               this Plan.

           (b) Each grant shall specify an Option Price per Common Share, which
               shall be equal to or greater than the Market Value per Share on
               the Date of Grant.

           (c) Each grant shall specify the form of consideration to be paid in
               satisfaction of the Option Price and the manner of payment of
               such consideration, which may include (i) cash in the form of
               currency or check or other cash equivalent acceptable to the
               Corporation, (ii) nonforfeitable, unrestricted Common Shares,
               which are already owned by the Optionee and have a value at the
               time of exercise that is equal to the Option Price, (iii) any
               other legal consideration that the Committee may deem
               appropriate, including without limitation any form of
               consideration authorized under Section 4(d) below, on such basis
               as the Committee may determine in accordance with this Plan and
               (iv) any combination of the foregoing.

           (d) Any grant may provide that payment of the Option Price may also
               be made in whole or in part in the form of Restricted Shares or
               other Common Shares that are subject to risk of forfeiture or
               restrictions on transfer. Unless otherwise determined by the
               Committee whenever any Option Price is paid in whole or in part
               by means of any of the forms of consideration specified in this
               Section 4(d), the Common Shares received by the Optionee upon the
               exercise of the Option Rights shall be subject to the same risks
               of forfeiture or restrictions on transfer as those that applied
               to the consideration surrendered by the Optionee; provided,
               however, that such risks of forfeiture and restrictions on
               transfer shall apply only to the same number of Common Shares
               received by the

                                       11
<PAGE>   7

               Optionee as applied to the forfeitable or restricted Common
               Shares surrendered by the Optionee.

           (e) Any grant may provide for deferred payment of the Option Price
               from the proceeds of sale through a bank or broker on the date of
               exercise of some or all of the Common Shares to which the
               exercise relates.

           (f) Any grant may provide for the automatic grant to the Optionee of
               Reload Option Rights upon the exercise of Option Rights,
               including Reload Option Rights, for Common Shares or any other
               noncash consideration authorized under Sections 4(d) and (e)
               above.

           (g) Successive grants may be made to the same Participant regardless
               of whether any Option Rights previously granted to such
               Participant remain unexercised.

           (h) Each grant shall specify the period or periods of continuous
               employment of the Optionee by the Corporation or any Subsidiary
               that are necessary before the Option Rights or installments
               thereof shall become exercisable, and any grant may provide for
               the earlier exercisability of such rights in the event of
               retirement, death or disability of the Participant or a change in
               control of the Corporation or other similar transaction or event.

           (i) Any grant of Option Rights may specify Management Objectives that
               must be achieved as a condition to the exercise of such rights.

           (j) Option Rights granted under this Plan may be (i) options that are
               intended to qualify under particular provisions of the Code,
               including without limitation Incentive Stock Options, (ii)
               options that are not intended to so qualify or (iii) combinations
               of the foregoing.

           (k) On or after the Date of Grant of any Option Rights other than
               Incentive Stock Options, the Committee may provide for the
               payment to the Optionee of dividend equivalents thereon in cash
               or Common Shares on a current, deferred or contingent basis. In
               the case of an Optionee who is, or is determined by the Committee
               to be likely to become, a "covered employee" within the meaning
               of Section 162(m) of the Code (or any successor provision), the
               payment will be contingent on the achievement of Management
               Objectives for a specified period. The payment of dividend
               equivalents also may be subject to additional conditions. In no
               event shall any such Optionee in any period of one calendar year
               earn dividend equivalents with a value in excess of $750,000.

           (l) Except as provided in Section 15 hereof, no Option Right granted
               under this Plan may be exercised more than 10 years from the Date
               of Grant.

           (m) Each grant shall be evidenced by an Evidence of Award, which
               shall contain such terms and provisions as the Committee may
               determine consistent with this Plan.

           5.  APPRECIATION RIGHTS. The Committee may also authorize grants to
Participants of Appreciation Rights. An Appreciation Right shall be a right of
the Participant to receive from the Corporation an amount, which shall be
determined by the Committee and shall be expressed as a percentage (not
exceeding 100 percent) of the Spread at the time of the exercise of such right.
Any grant of Appreciation Rights under this Plan shall be upon such terms and
conditions as the Committee may determine in accordance with the following
provisions:

           (a) Any grant may specify that the amount payable upon the exercise
               of an Appreciation Right may be paid by the Corporation in cash,
               Common Shares or any combination thereof and may (i) either grant
               to the Participant or reserve to the Committee the right to

                                       12
<PAGE>   8

               elect among those alternatives or (ii) preclude the right of the
               Participant to receive and the Corporation to issue Common Shares
               or other equity securities in lieu of cash; PROVIDED, HOWEVER,
               that no form of consideration or manner of payment that would
               cause Rule 16b-3 to cease to apply to this Plan shall be
               permitted.

           (b) Any grant may specify that the amount payable upon the exercise
               of an Appreciation Right shall not exceed a maximum specified by
               the Committee on the Date of Grant.

           (c) Any grant may specify (i) a waiting period or periods before
               Appreciation Rights shall become exercisable and (ii) permissible
               dates or periods on or during which Appreciation Rights shall be
               exercisable.

           (d) Any grant may specify that an Appreciation Right may be exercised
               only in the event of retirement, death or disability of the
               Participant or a change in control of the Corporation or other
               similar transaction or event.

           (e) Any grant may provide for the payment to the Participant of
               dividend equivalents thereon in cash or Common Shares on a
               current, deferred or contingent basis.

           (f) Each grant shall be evidenced by an Evidence of Award, which
               shall describe the subject Appreciation Rights, identify any
               related Option Rights, state that the Appreciation Rights are
               subject to all of the terms and conditions of this Plan and
               contain such other terms and provisions as the Committee may
               determine consistent with this Plan.

           (g) Any grant of Appreciation Rights may specify Management
               Objectives that must be achieved as a condition of the exercise
               of such rights.

           (h) Regarding Tandem Appreciation Rights only: Each grant shall
               provide that a Tandem Appreciation Right may be exercised only
               (i) at a time when the related Option Right (or any similar right
               granted under any other plan of the Corporation) is also
               exercisable and the Spread is positive and (ii) by surrender of
               the related Option Right (or such other right) for cancellation.

           (i) Regarding Free-standing Appreciation Rights only:

               (i)   Each grant shall specify in respect of each Free-standing
                     Appreciation Right a Base Price per Common Share, which
                     shall be equal to or greater than the Market Value per
                     Share on the Date of Grant;

               (ii)  Successive grants may be made to the same Participant
                     regardless of whether any Free-standing Appreciation Rights
                     previously granted to such Participant remain unexercised;

               (iii) Each grant shall specify the period or periods of
                     continuous employment of the Participant by the Corporation
                     or any Subsidiary that are necessary before the
                     Free-standing Appreciation Rights or installments thereof
                     shall become exercisable, and any grant may provide for the
                     earlier exercise of such rights in the event of retirement,
                     death or disability of the Participant or a change in
                     control of the Corporation or other similar transaction or
                     event; and

               (iv)  No Free-standing Appreciation Right granted under this Plan
                     may be exercised more than 10 years from the Date of Grant.

                                       13
<PAGE>   9

           6.  RESTRICTED SHARES. The Committee may also authorize grants or
sales to Participants of Restricted Shares upon such terms and conditions as the
Committee may determine in accordance with the following provisions:

           (a) Each grant or sale shall constitute an immediate transfer of the
               ownership of Common Shares to the Participant in consideration of
               the performance of services, entitling such Participant to
               dividend, voting and other ownership rights, subject to the
               substantial risk of forfeiture and restrictions on transfer
               hereinafter referred to.

           (b) Each grant or sale may be made without additional consideration
               from the Participant or in consideration of a payment by the
               Participant that is less than the Market Value per Share on the
               Date of Grant.

           (c) Each grant or sale shall provide that the Restricted Shares
               covered thereby shall be subject to a "substantial risk of
               forfeiture" within the meaning of Section 83 of the Code for a
               period of at least three years to be determined by the Committee
               on the Date of Grant, and any grant or sale may provide for the
               earlier termination of such period in the event of retirement,
               death or disability of the Participant or a change in control of
               the Corporation or other similar transaction or event; PROVIDED,
               HOWEVER, that the Committee may authorize the grant or
               sale of Restricted Shares that are subject to such a risk of
               forfeiture for periods of less than three years in amounts that,
               when taken together with any Deferred Shares granted or sold on
               such terms pursuant to Section 7(c) of this Plan (after taking
               any forfeitures into account and excluding all awards of
               Restricted Shares to Non-Employee Directors pursuant to Section 9
               of this Plan), in the aggregate do not exceed three percent of
               the number of Common Shares specified in Section 3 above as being
               added to this Amendment and Restatement.

           (d) Each grant or sale shall provide that, during the period for
               which such substantial risk of forfeiture is to continue, the
               transferability of the Restricted Shares shall be prohibited or
               restricted in the manner and to the extent prescribed by the
               Committee on the Date of Grant. Such restrictions may include
               without limitation rights of repurchase or first refusal in the
               Corporation or provisions subjecting the Restricted Shares to a
               continuing substantial risk of forfeiture in the hands of any
               transferee.

           (e) Any grant of Restricted Shares may specify Management Objectives
               which, if achieved, will result in termination or early
               termination of the restrictions applicable to such shares and
               each such grant shall specify in respect of such specified
               Management Objectives, a minimum acceptable level of achievement
               and shall set forth a formula for determining the number of
               Restricted Shares on which restrictions will terminate if
               performance is at or above the minimum level, but falls short of
               full achievement of the specified Management Objectives.

           (f) Any grant or sale may require that any or all dividends or other
               distributions paid on the Restricted Shares during the period of
               such restrictions be automatically sequestered. Such distribution
               may be reinvested on an immediate or deferred basis in additional
               Common Shares, which may be subject to the same restrictions as
               the underlying award or such other restrictions as the Committee
               may determine.

           (g) Each grant or sale shall be evidenced by an Evidence of Award,
               which shall contain such terms and provisions as the Committee
               may determine consistent with this Plan. Unless otherwise
               directed by the Committee, all certificates representing
               Restricted Shares, together with a stock power that shall be
               endorsed in blank by the Participant with respect to such shares,
               shall be held in custody by the Corporation until all
               restrictions thereon lapse.

                                       14
<PAGE>   10

           7.  DEFERRED SHARES. The Committee may also authorize grants or sales
of Deferred Shares to Participants upon such terms and conditions as the
Committee may determine in accordance with the following provisions:

           (a) Each grant or sale shall constitute the agreement by the
               Corporation to issue or transfer Common Shares to the Participant
               in the future in consideration of the performance of services,
               subject to the fulfillment during the Deferral Period of such
               conditions as the Committee may specify.

           (b) Each grant or sale may be made without additional consideration
               from the Participant or in consideration of a payment by the
               Participant that is less than the Market Value per Share on the
               Date of Grant.

           (c) Each grant or sale shall provide that the Deferred Shares covered
               thereby shall be subject to a Deferral Period of at least three
               years, which shall be fixed by the Committee on the Date of
               Grant, and any grant or sale may provide for the earlier
               termination of such period in the event of retirement, death or
               disability of the Participant or a change in control of the
               Corporation or other similar transaction or event; PROVIDED,
               HOWEVER, that the Committee may authorize the grant or sale of
               Shares that are subject to Deferral Periods of less than three
               years in amounts that, when taken together with any Restricted
               Shares granted or sold on such terms pursuant to Section 6(c) of
               this Plan (and after taking any forfeitures into account and
               excluding all awards of Restricted Shares to Non-Employee
               Directors pursuant to Section 9 of this Plan), in the aggregate
               do not exceed three percent of the number of Common Shares
               specified in Section 3 above as being added to this Amendment and
               Restatement.

           (d) During the Deferral Period, the Participant shall not have any
               right to transfer any rights under the subject award, shall not
               have any rights of ownership in the Deferred Shares and shall not
               have any right to vote such shares, but the Committee may on or
               after the Date of Grant authorize the payment of dividend
               equivalents on such shares in cash or additional Common Shares on
               a current, deferred or contingent basis.

           (e) Each grant or sale shall be evidenced by an Evidence of Award,
               which shall contain such terms and provisions as the Committee
               may determine consistent with this Plan.

           8.  PERFORMANCE SHARES AND PERFORMANCE UNITS. The Committee may also
authorize grants to Participants of Performance Shares and Performance Units,
which shall become payable to the Participant upon the achievement of specified
Management Objectives, upon such terms and conditions as the Committee may
determine in accordance with the following provisions:

           (a) Each grant shall specify the number of Performance Shares or
               Performance Units to which it pertains, subject to the
               limitations in Section 3, which may be subject to adjustment to
               reflect changes in compensation or other factors.

           (b) The Performance Period with respect to each Performance Share or
               Performance Unit shall be determined by the Committee on the Date
               of Grant and may be subject to earlier termination in the event
               of retirement, death or disability of the Participant or a change
               in control of the Corporation or other similar transaction or
               event.

           (c) Each grant shall specify the Management Objectives that are to be
               achieved by the Participant and each grant shall specify in
               respect of the specified Management Objectives a minimum
               acceptable level of achievement below which no payment will be
               made and shall set forth a formula for determining the amount of
               any payment to be made

                                       15
<PAGE>   11

               if performance is at or above the minimum acceptable level but
               falls short of full achievement of the specified Management
               Objectives.

           (d) Each grant shall specify the time and manner of payment of
               Performance Shares or Performance Units that shall have been
               earned, and any grant may specify that any such amount may be
               paid by the Corporation in cash, Common Shares or any combination
               thereof and may either grant to the Participant or reserve to the
               Committee the right to elect among those alternatives.

           (e) Any grant of Performance Shares may specify that the amount
               payable with respect thereto may not exceed a maximum specified
               by the Committee on the Date of Grant. Any grant of Performance
               Units may specify that the amount payable, or the number of
               Common Shares issued, with respect thereto may not exceed
               maximums specified by the Committee on the Date of Grant.

           (f) Any grant may provide for the payment to the Participant of
               dividend equivalents thereon in cash or in additional Common
               Shares on a current, deferred or contingent basis.

           (g) Each grant of Performance Shares or Performance Units shall be
               evidenced by an Evidence of Award, which shall contain such terms
               and provisions as the Committee may determine consistent with
               this Plan.

           9.  AUTOMATIC AWARDS TO NONEMPLOYEE DIRECTORS. Common Shares,
Restricted Shares and Option Rights shall be automatically granted to
Nonemployee Directors as follows:

           (a) 2,000 Restricted Shares shall be granted to each person upon his
               first election or appointment to the Board as a Nonemployee
               Director. Such Restricted Shares shall become transferable and
               nonforfeitable at the rate of 20 percent per year.

           (b) 500 Common Shares shall be granted to each Nonemployee Director
               immediately following each annual meeting of shareholders for so
               long as he continues to be a Nonemployee Director. Such Common
               Shares shall be subject only to a restriction on transfer for a
               period of six months immediately following the Date of Grant
               thereof and shall bear a legend to the effect.

           (c) An Option Right to purchase 2,000 Common Shares shall be granted
               to each Nonemployee Director immediately following each annual
               meeting of shareholders for so long as he continues to be a
               Nonemployee Director. The purchase price per Common Share for
               which each such Option Right is exercisable shall be a price
               equal to the average of the reported high and low prices on the
               first trading day after any such meeting as quoted on the New
               York Stock Exchange.

           Each grant of Restricted Shares shall be evidenced by an Evidence of
     Award consisting of an award agreement in substantially the form of Exhibit
     A hereto and shall be subject to all of the terms and conditions set forth
     therein.

           Each Option to purchase Common Shares shall be evidenced by an
     Evidence of Award consisting of an award agreement in substantially the
     form of Exhibit B hereto and shall be subject to all of the terms and
     conditions set forth therein.

           10. TRANSFERABILITY. (a) No Option Right or other derivative
security (as that term is used in Rule 16b-3) awarded under this Plan shall be
transferable by a Participant other than by will or the laws of descent and
distribution. Option Rights and Appreciation Rights shall be exercisable during
a Participant's lifetime only by the Participant or, in the event of the
Participant's legal incapacity, by his guardian or legal representative acting
in a

                                       16
<PAGE>   12

fiduciary capacity on behalf of the Participant under state law and court
supervision. Notwithstanding the foregoing, the Committee, in its sole
discretion, may provide for transferability of particular awards under this
Plan.

               (b) Any award made under this Plan may provide that all or any
part of the Common Shares that are (i) to be issued or transferred by the
Corporation upon the exercise of Option Rights or Appreciation Rights or upon
the termination of the Deferral Period applicable to Deferred Shares, or in
payment of Performance Shares or Performance Units or (ii) no longer subject to
the substantial risk of forfeiture and restrictions on transfer referred to in
Section 6 of this Plan, shall be subject to further restrictions upon transfer.

           11. ADJUSTMENTS. The Committee may make or provide for such
adjustments in the (a) number of Common Shares covered by outstanding Option
Rights, Appreciation Rights, Deferred Shares and Performance Shares granted
hereunder, (b) prices per share applicable to such Option Rights and
Appreciation Rights, and (c) kind of shares (including shares of another issuer)
covered thereby, as the Committee in its sole discretion may in good faith
determine to be equitably required in order to prevent dilution or enlargement
of the rights of Participants that otherwise would result from (x) any stock
dividend, stock split, combination of shares, recapitalization or other change
in the capital structure of the Corporation, (y) any merger, consolidation,
spin-off, spin-out, split-off, split-up, reorganization, partial or complete
liquidation or other distribution of assets, issuance of rights or warrants to
purchase securities or (z) any other corporate transaction or event having an
effect similar to any of the foregoing. In the event of any such transaction or
event, the Committee may provide in substitution for any or all outstanding
awards under this Plan such alternative consideration as it may in good faith
determine to be equitable under the circumstances and may require in connection
therewith the surrender of all awards so replaced. Moreover, the Committee may
on or after the Date of Grant provide in the agreement evidencing any award
under this Plan that the holder of the award may elect to receive an equivalent
award in respect of securities of the surviving entity of any merger,
consolidation or other transaction or event having a similar effect, or the
Committee may provide that the holder will automatically be entitled to receive
such an equivalent award. The Committee may also make or provide for such
adjustments in the number of shares specified in Section 3, and in the number of
Common Shares, Restricted Shares and Option Rights to be granted automatically
pursuant to Section 8, of this Plan as the Committee in its sole discretion may
in good faith determine to be appropriate in order to reflect any transaction or
event described in this Section 11.

           12. FRACTIONAL SHARES. The Corporation shall not be required to issue
any fractional Common Shares pursuant to this Plan. The Committee may provide
for the elimination of fractions or for the settlement thereof in cash.

           13. WITHHOLDING TAXES. To the extent that the Corporation is required
to withhold federal, state, local or foreign taxes in connection with any
payment made or benefit realized by a Participant or other person under this
Plan, and the amounts available to the Corporation for such withholding are
insufficient, it shall be a condition to the receipt of such payment or the
realization of such benefit that the Participant or such other person make
arrangements satisfactory to the Corporation for payment of the balance of such
taxes required to be withheld. At the discretion of the Committee, such
arrangements may include relinquishment of a portion of such benefit.

           14. PARTICIPATION BY EMPLOYEES OF A LESS-THAN-80-PERCENT SUBSIDIARY.
As a condition to the effectiveness of any grant or award to be made hereunder
to a Participant who is an employee of a Less-Than-80-Percent Subsidiary,
regardless whether such Participant is also employed by the Corporation or
another Subsidiary, the Committee may require the Less-Than-80-Percent
Subsidiary to agree to transfer to the Participant (as, if and when provided for
under this Plan and any applicable agreement entered into between the
Participant and the Less-Than-80-Percent Subsidiary pursuant to this Plan) the
Common Shares that would otherwise be delivered by the Corporation upon receipt
by the Less-Than-80-Percent Subsidiary of any consideration then otherwise
payable by the Participant to the Corporation. Any such award may be evidenced
by an agreement between the Participant and the Less-Than-80-Percent Subsidiary,
in lieu of the Corporation, on terms consistent with this Plan and approved by
the Committee and the Less-Than-80-Percent Subsidiary. All Common Shares so
delivered by or to a Less-Than-80-Percent Subsidiary will be treated as if they
had been delivered by or to the Corporation for purposes of Section 3 of this
Plan, and all references to the Corporation in this Plan shall be deemed to
refer to the

                                       17
<PAGE>   13

Less-Than-80-Percent Subsidiary except with respect to the definitions of the
Board and the Committee and in other cases where the context otherwise requires.

           15. CERTAIN TERMINATIONS OF EMPLOYMENT, HARDSHIP AND OTHER SPECIAL
CIRCUMSTANCES. Notwithstanding any other provision of this Plan to the contrary,
in the event of termination of employment by reason of death, disability, normal
retirement, early retirement with the consent of the Corporation, termination of
employment to enter public service with the consent of the Corporation or leave
of absence approved by the Corporation, or in the event of hardship or other
special circumstances, of a Participant who holds an Option Right or
Appreciation Right that is or is not immediately and fully exercisable, any
Restricted Shares as to which the substantial risk of forfeiture or the
prohibition or restriction on transfer has not lapsed, any Deferred Shares as to
which the Deferral Period is not complete, any Performance Shares or Performance
Units that have not been fully earned, or any Common Shares that are subject to
any transfer restriction pursuant to Section 10(b) of this Plan, the Committee
may in its sole discretion take any action that it deems to be equitable under
the circumstances or in the best interests of the Corporation, including,
without limitation, accelerating the date when any such Option Right becomes
exercisable, extending the term of any such Option Right past the 10-year period
provided for in Section 4(l) hereof, or waiving or modifying any other
limitation or requirement with respect to any award under this Plan.

           16. FOREIGN EMPLOYEES. In order to facilitate the making of any grant
or combination of grants under this Plan, the Committee may provide for such
special terms for awards to Participants who are foreign nationals, or who are
employed by the Corporation or any Subsidiary outside of the United States of
America, as the Committee may consider necessary or appropriate to accommodate
differences in local law, tax policy or custom. Moreover, the Committee may
approve such supplements to, or amendments, restatements or alternative versions
of, this Plan as it may consider necessary or appropriate for such purposes
without thereby affecting the terms of this Plan as in effect for any other
purpose, and the Secretary or other appropriate officer of the Corporation may
certify any such document as having been approved and adopted in the same manner
as this Plan. No such special terms, supplements, amendments or restatements
shall include any provisions that are inconsistent with the terms of this Plan
as then in effect unless this Plan could have been amended to eliminate such
inconsistency without further approval by the shareholders of the Corporation.

           17. ADMINISTRATION OF THE PLAN. (a) This Plan shall be administered
by the Compensation Committee of the Board, as constituted from time to time.
The Committee shall be composed of not less than three members of the Board,
each of whom shall be a "nonemployee director" within the meaning of Rule 16b-3
and an "outside director" within the meaning of Section 162(m) of the Code. A
majority of the Committee shall constitute a quorum, and the acts of the members
of the Committee who are present at any meeting thereof at which a quorum is
present, or acts unanimously approved by the members of the Committee in
writing, shall be the acts of the Committee.

               (b) The interpretation and construction by the Committee of any
provision of this Plan or of any agreement, notification or document evidencing
the grant of Option Rights, Appreciation Rights, Restricted Shares or Deferred
Shares, Performance Shares and Performance Units and any determination by the
Committee pursuant to any provision of this Plan or any such agreement,
notification or document, shall be final and conclusive. No member of the
Committee shall be liable for any such action taken or determination made in
good faith.

           18. AMENDMENTS AND OTHER MATTERS. (a) This Plan may be amended from
time to time by the Committee; provided, however, that any amendment that must
be approved by the shareholders of the Corporation in order to comply with
applicable law or the rules of the New York Stock Exchange or, if the Common
Shares are not traded on the New York Stock Exchange, the principal national
securities exchange upon which the Common Shares are traded or quoted, shall not
be effective unless and until such approval has been obtained. Presentation of
this Plan or any amendment hereof for shareholder approval shall not be
construed to limit the Corporation's authority to offer similar or dissimilar
benefits under other plans or otherwise with or without shareholder approval.
Without limiting the generality of the foregoing, the Committee may amend this
Plan to eliminate provisions which are no longer necessary as a result of
changes in tax or securities laws or regulations, or in the interpretation
thereof.

                                       18
<PAGE>   14

               (b) The Committee also may permit Participants to elect to defer
the issuance of Common Shares or the settlement of awards in cash under the Plan
pursuant to such rules, procedures or programs as it may establish for purposes
of this Plan. The Committee also may provide that deferred settlements include
the payment or crediting of interest on the deferral amounts, or the payment or
crediting of dividend equivalents where the deferral amounts are denominated in
Common Shares.

               (c) The Committee may condition the grant of any award or
combination of awards under the Plan on the surrender or deferral by the
Participant of his or her right to receive a cash bonus or other compensation
otherwise payable by the Corporation or any Subsidiary to the Participant.

               (d) This Plan shall not confer upon any Participant any right
with respect to continuance of employment or other service with the Corporation
or any Subsidiary and shall not interfere in any way with any right that the
Corporation or any Subsidiary would otherwise have to terminate any
Participant's employment or other service at any time.

               (e) To the extent that any provision of this Plan would prevent
any Option Right that was intended to qualify under particular provisions of the
Code from so qualifying, such provision of this Plan shall be null and void with
respect to such Option Right; provided, however, that such provision shall
remain in effect with respect to other Option Rights, and there shall be no
further effect on any provision of this Plan.

                                       19
<PAGE>   15

                                    EXHIBIT A

                               THE TIMKEN COMPANY

                         RESTRICTED SHARE AGREEMENT FOR
                              NONEMPLOYEE DIRECTORS

 ..............................., Grantee:

            The Timken Company (the "Company") pursuant to its Long-term
Incentive Plan (the "Plan") has this day granted to you, the above-named
grantee, a total of ( ) Common Shares of the Company ("Common Shares") subject
to the following terms, conditions, limitations and restrictions:

            1. The Common Shares subject to this grant shall be fully paid and
nonassessable and shall be represented by a certificate or certificates
registered in your name and endorsed with an appropriate legend referring to the
restrictions hereinafter set forth. You 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 you 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. The Common Shares subject to this grant may not be assigned,
exchanged, pledged, sold, transferred or otherwise disposed of by you, except to
the Company, and shall be subject to forfeiture as herein provided until five
years have elapsed from the date of this grant, except that (a) 20 percent of
such shares shall become freely transferable and nonforfeitable at the end of
each year from and after the date of this grant and (b) your rights with respect
to such 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
paragraph shall be null and void, and the purported transferee shall obtain no
rights with respect to such shares.

            3. All of the Common Shares subject to this grant that are then
forfeitable shall be forfeited by you if your service as a member of the Board
of Directors of the Company (a "Director") is terminated before the fifth
anniversary of the date of this grant; provided, however, if your service as a
Director of the Company is terminated before the fifth anniversary of the date
of this grant as a result of your death or disability, or owing to your removal
as a Director without cause, a portion of the shares covered by this grant that
then remain forfeitable shall become freely transferable and nonforfeitable as
follows: that number of shares shall become freely transferable and
nonforfeitable which bears the same ratio to the total number of shares subject
to this grant that then remain forfeitable and would have become forfeitable at
the next anniversary date as the number of full months from the date of this
grant (or, if such service is terminated after the first anniversary of the date
of this grant, then from the date of the latest anniversary) to the date of
termination of such service bears to 12, and the balance of the shares subject
to this grant shall be forfeited to the Company.

            4. During the period in which the restrictions on transfer and risk
of forfeiture provided in paragraphs 2 and 3 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
you and endorsed in blank.

            5. Upon any change in control of the Company, the restrictions on
transfer and risk of forfeiture provided in paragraphs 2 and 3 above shall lapse
and terminate with respect to all of the Common Shares that are subject to this
grant to which such restriction and risk then remain applicable. For purposes of
this grant, the term "change in control" shall mean the occurrence of any of the
following events:
<PAGE>   16

            (a) all or substantially all of the assets of the Company are sold
                or transferred to another corporation or entity, or the Company
                is merged, consolidated or reorganized into or with another
                corporation or entity, with the result that upon conclusion of
                the transaction less than 51% of the outstanding securities
                entitled to vote generally in the election of Directors or other
                capital interests of the acquiring corporation or entity are
                owned, directly or indirectly, by the shareholders of the
                Company generally prior to the transaction; or

            (b) there is a report filed on Schedule 13D or Schedule 14D-1 (or
                any successor schedule, form or report), each as promulgated
                pursuant to the Securities Exchange Act of 1934 (the "Exchange
                Act"), disclosing that any person (as the term "person" is used
                in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has
                become the beneficial owner (as the term "beneficial owner") is
                defined under Rule 13d-3 or any successor rule or regulation
                promulgated under the Exchange Act) of securities representing
                30% or more of the combined voting power of the then-outstanding
                voting securities of the Company; or

            (c) the Company shall file a report or proxy statement with the
                Securities and Exchange Commission pursuant to the Exchange Act
                disclosing in response to Item 1 of Form 8-K thereunder or Item
                5(f) of Schedule 14A thereunder (or any successor schedule, form
                or report or item therein) that a change in control of the
                Company has or may have occurred or will or may occur in the
                future pursuant to any then-existing contract or transaction; or

            (d) the individuals who, at the beginning of any period of two
                consecutive calendar years, constituted the Directors of the
                Company cease for any reason to constitute at least a majority
                thereof unless the nomination for election by the Company's
                shareholders of each new Director of the Company was approved by
                a vote of at least two-thirds of the Directors of the Company
                still in office who were Directors of the Company at the
                beginning of such period.

             6. This grant of restricted Common Shares is made pursuant to the
Plan, a copy of which is attached hereto. This grant is subject to all of the
terms and provisions of the Plan, including without limitation the provision
making this grant subject to the approval of the shareholders of the Company,
which are incorporated herein by reference.

              Dated this ____ day of ______________________, 199_.

                                             THE TIMKEN COMPANY

                                             By:___________________________
                                                    Name:
                                                    Title:

Accepted and agreed to: _________________

Dated:_____________________
<PAGE>   17

                                    EXHIBIT B

                               THE TIMKEN COMPANY

                     NONQUALIFIED STOCK OPTION AGREEMENT FOR
                              NONEMPLOYEE DIRECTORS

            WHEREAS, ____________ (the "Optionee") is a non-employee Director (a
"Nonemployee Director") of The Timken Company (the "Company").

            NOW, THEREFORE, pursuant to the Company's Long-term Incentive Plan
(as Amended and Restated as of December 20, 1995) (the "Plan") and subject to
the terms and conditions thereof and the terms and conditions hereinafter set
forth, the Company hereby grants to _____________________ (the "Optionee"),
effective as of the date of the Annual Meeting of Shareholders of the Company
last written below (the "Date of Grant") a nonqualified stock option (the
"Option") to purchase 2,000 shares of the Company's common stock without par
value (the "Common Shares") at the exercise price of _____________________
($________) per Common Share (the "Exercise Price").

            1. VESTING OF OPTION. (a) Unless terminated as hereinafter provided,
the Option shall be exercisable with respect to all of the Common Shares covered
by the Option after the Optionee continuously serves as a Nonemployee Director
of the Company for a period of one (1) year following the Date of Grant.

               (b) Notwithstanding the provisions of Section 1(a) hereof, the
Option shall become immediately exercisable in full upon any change in control
of the Company that shall occur while the Optionee is a Nonemployee Director of
the Company. For the purposes of this agreement, the term "change in control"
shall mean the occurrence of any of the following events:

               (i) all or substantially all of the assets of the Company are
     sold or transferred to another corporation or entity, or the Company is
     merged, consolidated or reorganized into or with another corporation or
     entity, with the result that upon conclusion of the transaction less than
     51 percent of the outstanding securities entitled to vote generally in the
     election of directors or other capital interests of the acquiring
     corporation or entity is owned, directly or indirectly, by the shareholders
     of the Company generally prior to the transaction; or

               (ii) there is a report filed on Schedule 13D or Schedule 14D-1
     (or any successor schedule, form or report thereto), as promulgated
     pursuant to the Securities Exchange Act of 1934 (the "Exchange Act"),
     disclosing that any person (as the term "person" is used in Section
     13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the beneficial
     owner (as the term "beneficial owner" is defined under Rule 13d-3 or any
     successor rule or regulation thereto under the Exchange Act) of securities
     representing 30 percent or more of the combined voting power of the
     then-outstanding voting securities of the Company; or

               (iii) the Company shall file a report or proxy statement with the
     Securities and Exchange Commission (the "SEC") pursuant to the Exchange Act
     disclosing in response to Item 1 of Form 8-K thereunder or Item 5(f) of
     Schedule 14A thereunder (or any successor schedule, form, report or item
     thereto) that a change in control of the Company has or may have occurred,
     or will or may occur in the future, pursuant to any then-existing contract
     or transaction; or

               (iv) the individuals who constituted the Board at the beginning
     of any period of two consecutive calendar years cease for any reason to
     constitute at least a majority thereof unless the nomination for election
     by the Company's shareholders of each new member of the Board was approved
     by
<PAGE>   18

     a vote of at least two-thirds of the members of the Board still in office
     who were members of the Board at the beginning of any such period.

In the event that any person described in Section 1(b)(ii) hereof files an
amendment to any report referred to in Section 1(b)(ii) hereof that shows the
beneficial ownership described in Section 1(b)(ii) hereof to have decreased to
less than 30 percent, or in the event that any anticipated change in control
referred to in Section 1(b)(iii) hereof does not occur following the filing with
the SEC of any report or proxy statement described in Section 1(b)(iii) hereof
because any contract or transaction referred to in Section 1(b)(iii) hereof is
canceled or abandoned, the Committee may nullify the effect of Section 1(b)(ii)
or 1(b)(iii) hereof, as the case may be, and reinstate the provisions of Section
1(a) hereof by giving notice thereof to the Optionee; PROVIDED, HOWEVER, that
any such action by the Committee shall not prejudice any exercise of the Option
that may have occurred prior to the nullification and reinstatement. The
provisions of Section 1(b)(ii) hereof shall again become automatically effective
following any such nullification of the provisions thereof and reinstatement of
the provisions of Section 1(a) hereof in the event that any person described in
Section 1(b)(ii) hereof files a further amendment to any report referred to in
Section 1(b)(ii) hereof that shows the beneficial ownership described in Section
1(b)(ii) hereof to have again increased to 30 percent or more.

               (c) Notwithstanding the provisions of Section 1(a) hereof, the
Option shall become immediately exercisable in full if the Optionee should die
or become permanently disabled (within the meaning of the Company's long-term
disability plan) while serving as a Nonemployee Director of the Company.

               (d) 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. TERMINATION OF OPTION. The Option shall terminate automatically
and without further notice on the earliest of the following dates:

               (a) one year after the date upon which the Optionee ceases to be
a Nonemployee Director of the Company, unless the cessation of his service (i)
is a result of his disability or (ii) follows a change in control;

               (b) five years after the date upon which the Optionee ceases to
be a Nonemployee Director of the Company or subsidiary (i) as a result of his
disability or (ii) following a change in control, unless the cessation of his
service as a Nonemployee Director of the Company following a change in control
is a result of his death;

               (c) one year after the date of the Optionee's death; or

               (d) ten years after the Date of Grant.

            For the purposes of this agreement "disability" shall mean that the
Optionee would qualify for disability benefits under the Company's Long-Term
Disability Program or any successor disability plan or program of the Company.

            3. PAYMENT OF EXERCISE PRICE. The Exercise 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 3(a) and 3(b) hereof. Nonforfeitable, unrestricted Common
Shares that are transferred by the Optionee in payment of all or any part of the
Exercise Price shall be valued on the basis of their fair market value as
determined by the Committee from time to time. Subject to the terms and
conditions of Section 4 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 Exercise Price in full.

                  4. 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
<PAGE>   19

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.

            5. TRANSFERABILITY AND EXERCISABILITY.

               (a) Except as provided in Section 5(b) below, the Option
including any interest in thereof, 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 5(a) above, the Option or any
interest in thereof, may be transferable by the Optionee, without payment of
consideration therefor, to any one or more members of the immediate family of
Optionee (as defined in Rule 16a-1(e) under the Exchange Act), 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.

            6. ADJUSTMENTS. The Committee shall make any adjustments in the
Exercise 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 6(a) or 6(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.

            7. 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.

            8. 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.

            9. GOVERNING LAW. This agreement is made under, and shall be
construed in accordance with, the laws of the State of Ohio.
<PAGE>   20

              Dated this ____ day of ______________________, 199_.

                                            THE TIMKEN COMPANY

                                            By:___________________________
                                                 Name:
                                                 Title:

Accepted and agreed to: _________________

Dated:_____________________

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