Document:

Exhibit 10.3

 

Exhibit 10.3

THE TIMKEN COMPANY

Performance Unit Agreement

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

          WHEREAS, the grant of Performance Units, each with a cash value of $100.00, was authorized by
a resolution of the Compensation Committee (the “Committee”) of the Board of Directors of the
Company (the “Board”) that was duly adopted on [DATE] (the “Date of Grant”), and the execution of a
Performance Unit agreement in the form hereof was authorized by a resolution of the Committee duly
adopted on [DATE];

          NOW, THEREFORE, pursuant to the Company’s Long-Term Incentive Plan (As Amended and Restated as
of February 6, 2004) (the “Plan”) and subject to the terms and conditions thereof and the terms and
conditions hereinafter set forth, the Company hereby grants to Grantee as of the Date of Grant
<<puaward>> Performance Units (the “Target Performance Units”). Subject to the
attainment of the performance goals set forth in Section 1 hereof, this grant enables Grantee to
earn as Performance Units from [50% to 150%] of the Target Performance Units to be paid out to
Grantee pursuant to Section 4 hereof.

			
	1.	 	     Earning of Target Performance Units. (a) Grantee’s right to receive payment for any
Performance Units shall be determined (i) on the basis of the Company’s Return on Equity for
the period from January 1, 2006 through December 31, 2008 (the “Performance Period”) and (ii)
on the basis of the Company’s Sales Growth for the Performance Period as follows:

	 	(i)	 	The applicable percentage of the Target Performance Units which
shall be earned by Grantee shall be determined by the Performance Matrix
approved by the Committee on the Date of Grant.

 

 

	 	(ii)	 	For purposes of this Agreement, “Return on Equity” shall mean
cumulative net income divided by three, divided by the average quarterly total
shareholders equity excluding the minimum pension liability in comprehensive
income for the three-year period, as adjusted pursuant to Section 1(b).
	 
	 	(iii)	 	For purposes of this Agreement, “Sales Growth” shall mean the
three-year compounded annualized growth in sales over the performance period,
determined using year-end total net sales for year three of the performance
period and year-end total net sales for the year-end prior to the start of the
performance period, as adjusted pursuant to Section 1(b).
	 
	 	(iv)	 	In the event that the Company’s Return on Equity or Sales
Growth is between the ranges set forth on the Performance Matrix, the Committee
shall interpolate the applicable percentage of the Target Performance Units
which shall be earned by Grantee.

	 	(b)	 	     If the Committee determines that a change in the business, operations,
corporate structure or capital structure of the Corporation, the manner in which it
conducts business or other events or circumstances render the Management Objectives to
be 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; provided, however, that no such action may result in the
loss of the otherwise available exemption of the award under Section 162(m) of the
Code.

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	 	(c)	 	     All determinations involving the performance goals set forth in this Section 1
shall be calculated based on Generally Accepted Accounting Principles in effect at the
time the goals are established without regard to any change in accounting standards
that may be required by the Financial Accounting Standards Board after the goals are
established.
	 
	 	(d)	 	     Subject to Sections 1(a), (b), and (c), Grantee shall have a right to receive
payment for the Target Performance Units if Grantee is in the continuous employ of the
Company or a subsidiary from the Date of Grant through the last day of the Performance
Period. For purposes of this agreement, Grantee’s continuous employment with the
Company or a subsidiary shall not be deemed to have been interrupted, and Grantee shall
not be deemed to have ceased to be an employee of the Company or a subsidiary, by
reason of transfer of employment among the Company and its subsidiaries.

			
	2.	 	     Pro Rata Earning of Target Performance Units. Notwithstanding Section 1(d) hereof
and subject to the payment provisions of Section 4(b) hereof, Grantee shall be entitled to
receive payment of a prorated portion of the Performance Units based on the number of whole
months that Grantee was employed by the Company or any subsidiary during the Performance
Period on the date Grantee ceases to be an employee of the Company or any subsidiary prior to
the last day of the Performance Period as the result of one of the following circumstances:

	 	(a)	 	     Death, Disability or Retirement: Grantee dies or becomes permanently
disabled while in the employ of the Company or any subsidiary, or Grantee retires with
the Company’s consent. For purposes of this agreement, retirement “with

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

	 	(b)	 	     Change in Control: A change in control of the Company occurs while
Grantee is an employee of the Company or a subsidiary. For the purposes of this
agreement, the term “change in control” shall mean the occurrence of any of the
following events:

	 	(i)	 	The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934)
(a “Person”) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act of 1934) of 30% or more of
either: (A) the then-outstanding Common Shares or (B) the combined voting
power of the then-outstanding voting securities of the Company entitled to vote
generally in the election of directors (“Voting Shares”); provided, however,
that for purposes of this subsection (i), the following acquisitions shall not
constitute a change in control: (1) any acquisition directly from the Company,
(2) any acquisition by the Company, (3) any

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acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any Subsidiary, or (4) any acquisition by any
Person pursuant to a transaction which complies with clauses (A), (B) and
(C) of subsection (i) of this Section 2(b); or

	 	(ii)	 	Individuals who, as of the date hereof, constitute the Board
(the “Incumbent Board”) cease for any reason (other than death or disability)
to constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company’s shareholders, was approved by a vote
of at least a majority of the directors then comprising the Incumbent Board
(either by a specific vote or by approval of the proxy statement of the Company
in which such person is named as a nominee for director, without objection to
such nomination) shall be considered as though such individual were a member of
the Incumbent Board, but excluding for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual or threatened
election contest (within the meaning of Rule 14a-11 of the Securities Exchange
Act of 1934) with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
	 
	 	(iii)	 	Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a “Business Combination”), in each case, unless, following such
Business

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Combination, (A) all or substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Common Shares and
Voting Shares immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 66-2/3% of, respectively, the
then-outstanding shares of common stock and the combined voting power of the
then-outstanding voting securities entitled to vote generally in the
election of directors, as the case may be, of the entity resulting from such
Business Combination (including, without limitation, an entity which as a
result of such transaction owns the Company or all or substantially all of
the Company’s assets either directly or through one or more subsidiaries) in
substantially the same proportions relative to each other as their
ownership, immediately prior to such Business Combination, of the Common
Shares and Voting Shares of the Company, as the case may be, (B) no Person
(excluding any entity resulting from such Business Combination or any
employee benefit plan (or related trust) sponsored or maintained by the
Company or such entity resulting from such Business Combination)
beneficially owns, directly or indirectly, 30% or more of, respectively, the
then-outstanding shares of common stock of the entity resulting from such
Business Combination, or the combined voting power of the then-outstanding
voting securities of such corporation except to the extent that such
ownership existed prior to the Business Combination, and (C) at least a
majority of the members of the board of directors of the corporation
resulting from such Business

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Combination were members of the Incumbent Board at the time of the execution
of the initial agreement, or of the action of the Board, providing for such
Business Combination; or

	 	(iv)	 	Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.

	 	(c)	 	     Divestiture: Grantee’s employment with the Company or a subsidiary
terminates as the result of a divestiture. For the purposes of this agreement, the
term “divestiture” shall mean a permanent disposition to a Person other than the
Company or any subsidiary of a plant or other facility or property at which Grantee
performs a majority of Grantee’s services whether such disposition is effected by means
of a sale of assets, a sale of subsidiary stock or otherwise.
	 
	 	(d)	 	     Layoff: Grantee’s employment with the Company or a subsidiary
terminates as the result of a layoff. For purposes of this agreement, a “layoff” shall
mean the involuntary termination by the Company or any subsidiary of Grantee’s
employment with the Company or any subsidiary due to (i) a reduction in force leading
to a permanent downsizing of the salaried workforce, (ii) a permanent shutdown of the
plant, department or subdivision in which Grantee works, or (iii) an elimination of
position.

			
	3.	 	     Forfeiture of Award. Except to the extent Grantee has earned the right to receive
payment for Performance Units pursuant to Sections 1 or 2 hereof, Grantee’s right to receive
payment for the Performance Units shall be forfeited automatically and without further notice
on the date that Grantee ceases to be an employee of the Company or a Subsidiary prior to the
last day of the Performance Period.

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	4.	 	     Payment of Performance Units. (a) Performance Units earned as provided in Section 1
hereof shall be payable to Grantee in cash or Common Shares (as determined by the Committee)
as soon as practicable after they are earned in accordance with Section 1 hereof, but in no
event later than two and one-half (2 1/2) months after the close of the last fiscal year of
the Company to which the award relates.

	 	(b)	 	     The prorated portion of Performance Units earned as provided in Section 2
hereof shall be payable to Grantee in cash or Common Shares (as determined by the
Committee) as soon as practicable after the last day of the Performance Period, but in
no event later than two and one-half (2 1/2) months after the close of the last fiscal
year of the Company to which the award relates.

			
	5.	 	     Transferability. Grantee’s right to receive the Performance Units shall not be
transferable nor assignable by Grantee other than by will or by the laws of descent and
distribution.

			
	6.	 	     No Employment Contract. Nothing contained in this Agreement shall confer upon
Grantee any right with respect to continuance of employment by the Company or any Subsidiary,
nor limit or affect in any manner the right of the Company or any Subsidiary to terminate the
employment or adjust the compensation of Grantee.

			
	7.	 	     Taxes and Withholding. If the Performance Units are paid in cash, such payment shall
be less any applicable federal, state, local or foreign taxes. To the extent that the Company
shall be required to withhold any federal, state, local or foreign taxes in connection with
the payment of the Performance Units in Common Shares, and the amounts available to the
Company for such withholding are insufficient, it shall be a

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condition to the payment of the Performance Units that Grantee shall pay such taxes or make
provisions that are satisfactory to the Company for the payment thereof.

			
	8.	 	     Compliance with Section 409A of the Code. To the extent applicable, it is intended
that this Agreement and the Plan comply with the provisions of Section 409A of the Code. This
Agreement and the Plan shall be administered in a manner consistent with this intent, and any
provision that would cause the Agreement or the Plan to fail to satisfy Section 409A of the
Code shall have no force and effect until amended to comply with Section 409A of the Code
(which amendment may be retroactive to the extent permitted by Section 409A of the Code and
may be made by the Company without the consent of the Grantee).

			
	9.	 	     Compliance with Law. The Company shall make reasonable efforts to comply with all
applicable laws; provided, however, that notwithstanding any other provision
of this Agreement, the Performance Units shall not be paid if the payment thereof would result
in a violation of any such law.

			
	10.	 	     Amendments. Any amendment to the Plan shall be deemed to be an amendment to this
Agreement to the extent that the amendment is applicable hereto; provided,
however, that no amendment shall adversely affect the rights of Grantee under this
Agreement without Grantee’s consent.

			
	11.	 	     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.

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	12.	 	     Relation to Plan. This Agreement is subject to the terms and conditions of the Plan.
In the event of any inconsistency between the provisions of this Agreement and the Plan, the
Plan shall govern. Capitalized terms used herein without definition shall have the meanings
assigned to them in the Plan. The Committee acting pursuant to the Plan, as constituted from
time to time, shall, except as expressly provided otherwise herein or in the plan, have the
right to determine any questions which arise in connection with the grant of Performance
Units.

			
	13.	 	     Successors and Assigns. Without limiting Section 5 hereof, the provisions of this
Agreement shall inure to the benefit of, and be binding upon, the successors, administrators,
heirs, legal representatives and assigns of Grantee, and the successors and assigns of the
Company.

			
	14.	 	     Governing Law. The interpretation, performance, and enforcement of this Agreement
shall be governed by the laws of the State of Ohio, without giving effect to the principles of
conflict of laws thereof.

			
	15.	 	     Notices. Any notice to the Company provided for herein shall be in writing to the
Company and any notice to Grantee shall be addressed to Grantee at his or her address on file
with the Company. Except as otherwise provided herein, any written notice shall be deemed to
be duly given if and when delivered personally or deposited in the United States mail, first
class certified or registered mail, postage and fees prepaid, return receipt requested, and
addressed as aforesaid. Any party may change the address to which notices are to be given
hereunder by written notice to the other party as herein specified (provided that for this
purpose any mailed notice shall be deemed given on the third business day following deposit of
the same in the United States mail).

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          IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its behalf by its
duly authorized officer and Grantee has also executed this Agreement in duplicate, as of the day
and year first above written.

	 	 	 
	 

	 	THE TIMKEN COMPANY
	 
	 	 
	 
	 	 
	 

	 	 
	 

	 	William R. Burkhart
	 

	 	Sr. Vice President and General Counsel

          The undersigned Grantee hereby acknowledges receipt of an executed original of this Agreement.

	 	 	 
	 

	 	 
	 

	 	Grantee

	 	 	 	 	 
	 

	 	 Date:	 	 
	 

	 	 	 	 

11Exhibit 10.4

 

Exhibit 10.4

THE TIMKEN COMPANY

Deferred Shares Agreement

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

     WHEREAS, the grant of deferred shares evidenced hereby was authorized by a resolution of the
Compensation Committee (the “Committee”) of the Board of Directors (the “Board”) of the Company
that was duly adopted on February 6, 2006 (the “Date of Grant”), and the execution of a deferred
shares agreement in the form hereof was authorized by a resolution of the Committee duly adopted on
February 6, 2006.

     NOW, THEREFORE, pursuant to the Company’s Long-Term Incentive Plan (as Amended and Restated as
of February 6, 2004) (the “Plan”) and subject to the terms and conditions thereof and the terms and
conditions hereinafter set forth, the Company hereby grants to the Grantee the right to receive (i)
25,000 shares of the Company’s common stock without par value (the “Common Shares”) and (ii)
dividend equivalents payable in cash on a deferred basis (the “Deferred Cash Dividends”) with
respect to the Common Shares covered by this agreement.

			
	1.	 	Four-Year Vesting of Awards. Subject to the terms and conditions of Sections 2 and 3
hereof, the Grantee’s right to receive the Common Shares covered by this agreement and any
Deferred Cash Dividends accumulated with respect thereto shall become nonforfeitable on the
fourth anniversary of the Date of Grant if the Grantee has been in the continuous employ of
the Company or a subsidiary from the Date of Grant until such date. For purposes of this
agreement, “subsidiary” shall mean a corporation, partnership, joint venture, unincorporated
association or other entity in which the Company has a direct or indirect ownership or other
equity interest. For purposes of this agreement, the Grantee’s continuous employment with the
Company or a subsidiary shall not be deemed to have been interrupted, and the Grantee shall
not be deemed to have ceased to be an employee of the Company or a subsidiary, by reason of
transfer of employment among the Company and its subsidiaries.

			
	2.	 	Accelerated Vesting of Awards.

Notwithstanding the provisions of Section 1 hereof, the Grantee’s right to receive the
Common Shares covered by this agreement and any Deferred Cash Dividends then accumulated
with respect thereto may become nonforfeitable earlier than the time provided in such
section if any of the following circumstances apply:

	 	(a)	 	Death, Disability or Retirement: The Grantee’s right to receive the
Common Shares covered by this agreement and any Deferred Cash Dividends then
accumulated with respect thereto shall become nonforfeitable if the Grantee should die
or become permanently disabled while in the employ of the Company or any subsidiary, or
if the Grantee should retire with the Company’s consent.

 

 

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

	 	(b)	 	Change in Control: The Grantee’s right to receive the Common Shares
covered by this agreement and any Deferred Cash Dividends then accumulated with respect
thereto shall become nonforfeitable upon any change in control of the Company that
shall occur while the Grantee is an employee of the Company or a subsidiary. For the
purposes of this agreement, the term “change in control” shall mean the occurrence of
any of the following events:

	 	(i)	 	The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934)
(a “Person”) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act of 1934) of 30% or more of
either: (A) the then-outstanding Common Shares or (B) the combined voting
power of the then-outstanding voting securities of the Company entitled to vote
generally in the election of directors (“Voting Shares”); provided, however,
that for purposes of this subsection (i), the following acquisitions shall not
constitute a change in control: (1) any acquisition directly from the Company,
(2) any acquisition by the Company, (3) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or any
subsidiary, or (4) any acquisition by any Person pursuant to a transaction
which complies with clauses (A), (B) and (C) of subsection (i) of this Section
2(b); or
	 
	 	(ii)	 	Individuals who, as of the date hereof, constitute the Board
(the “Incumbent Board”) cease for any reason (other than death or disability)
to constitute at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company’s shareholders, was approved by a vote
of at least a majority of the directors then comprising the Incumbent Board
(either by a specific vote or by approval of the proxy statement of the Company
in which such person is named as a nominee for director, without objection to
such nomination) shall be considered as though such individual were a member of
the Incumbent Board, but excluding for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual or threatened
election contest (within the meaning of Rule 14a-11 of the Securities Exchange
Act of 1934) with respect to the election or removal of directors or other
actual or

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	 	 	 	threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
	 	 	 	 
	 	(iii)	 	Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a “Business Combination”), in each case, unless, following such
Business Combination, (A) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Common Shares and
Voting Shares immediately prior to such Business Combination beneficially own,
directly or indirectly, more than 66-2/3% of, respectively, the
then-outstanding shares of common stock and the combined voting power of the
then-outstanding voting securities entitled to vote generally in the election
of directors, as the case may be, of the entity resulting from such Business
Combination (including, without limitation, an entity which as a result of such
transaction owns the Company or all or substantially all of the Company’s
assets either directly or through one or more subsidiaries) in substantially
the same proportions relative to each other as their ownership, immediately
prior to such Business Combination, of the Common Shares and Voting Shares of
the Company, as the case may be, (B) no Person (excluding any entity resulting
from such Business Combination or any employee benefit plan (or related trust)
sponsored or maintained by the Company or such entity resulting from such
Business Combination) beneficially owns, directly or indirectly, 30% or more
of, respectively, the then-outstanding shares of common stock of the entity
resulting from such Business Combination, or the combined voting power of the
then-outstanding voting securities of such corporation except to the extent
that such ownership existed prior to the Business Combination, and (C) at least
a majority of the members of the board of directors of the corporation
resulting from such Business Combination were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or
	 
	 	(iv)	 	Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.

	 	(c)	 	Divestiture: The Grantee’s right to receive the Common Shares covered
by this agreement and any Deferred Cash Dividends then accumulated with respect thereto
shall become nonforfeitable if the Grantee’s employment with the Company or a
subsidiary terminates as the result of a divestiture. For the purposes of this
agreement, the term “divestiture” shall mean a permanent disposition to a Person other
than the Company or any subsidiary of a plant or other facility or property at which
the Grantee performs a majority of Grantee’s services whether such disposition is
effected by means of a sale of assets, a sale of subsidiary stock or otherwise.

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

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

			
	3.	 	Forfeiture of Awards. The Grantee’s right to receive the Common Shares covered by
this agreement and any Deferred Cash Dividends accumulated with respect thereto shall be
forfeited automatically and without further notice on the date that the Grantee ceases to be
an employee of the Company or a subsidiary prior to the fourth anniversary of the Date of
Grant for any reason other than as described in Section 2 hereof. In the event that the
Grantee shall intentionally commit an act that the Committee determines to be materially
adverse to the interests of the Company or a subsidiary, the Grantee’s right to receive the
Common Shares covered by this agreement and any Deferred Cash Dividends accumulated with
respect thereto shall be forfeited at the time of that determination notwithstanding any other
provision of this agreement.

			
	4.	 	Crediting of Deferred Cash Dividends. With respect to each of the Common Shares
covered by this agreement, the Grantee shall be credited on the records of the Company with
Deferred Cash Dividends in an amount equal to the amount per share of any cash dividends
declared by the Board on the outstanding Common Shares during the period beginning on the Date
of Grant and ending on the date upon which the Grantee’s right to receive the Common Shares
covered by this agreement pursuant to Section 1 hereof or Section 2 hereof, as the case may
be, becomes nonforfeitable. The Deferred Cash Dividends shall accumulate without interest.

			
	5.	 	Payment of Awards. Subject to the terms and conditions of Section 6 hereof, the
Common Shares covered by this agreement shall be issuable, and any Deferred Cash Dividends
accumulated with respect thereto shall be payable, to the Grantee at the time when they become
nonforfeitable in accordance with Section 1 or 2 hereof.

			
	6.	 	Compliance with Law. The Company shall make reasonable efforts to comply with all
applicable federal and state securities laws; provided, however,
notwithstanding any other provision of this agreement, the Company shall not be obligated to
issue any of the

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		 	Common Shares covered by this agreement or pay any Deferred Cash Dividends accumulated with
respect thereto if the issuance or payment thereof would result in violation of any such
law. To the extent that the Ohio Securities Act shall be applicable to this agreement, the
Company shall not be obligated to issue any of the Common Shares or other securities covered
by this agreement or pay any Deferred Cash Dividends accumulated with respect thereto unless
such Common Shares and Deferred Cash Dividends 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.

			
	7.	 	Transferability. Neither the Grantee’s right to receive the Common Shares covered by
this agreement nor his right to receive any Deferred Cash Dividends shall be transferable by
the Grantee except by will or the laws of descent and distribution. Any purported transfer in
violation of this Section 7 shall be null and void, and the purported transferee shall obtain
no rights with respect to such Shares.

			
	8.	 	Compliance with Section 409A of the Code. To the extent applicable, it is intended
that this Agreement and the Plan comply with the provisions of Section 409A of the Code. This
Agreement and the Plan shall be administered in a manner consistent with this intent, and any
provision that would cause the Agreement or the Plan to fail to satisfy Section 409A of the
Code shall have no force and effect until amended to comply with Section 409A of the Code
(which amendment may be retroactive to the extent permitted by Section 409A of the Code and
may be made by the Company without the consent of the Grantee).

			
	9.	 	Adjustments. The Committee shall make any adjustments
in the number or kind of shares of stock or other securities covered by this agreement that the Committee may determine
to be equitably required to prevent any dilution or expansion of the Grantee’s rights under
this agreement that otherwise would result from any (a) stock dividend, stock split,
combination of shares, recapitalization or other change in the capital structure of the
Company, (b) merger, consolidation, separation, reorganization or partial or complete
liquidation involving the Company or (c) other transaction or event having an effect similar
to any of those referred to in Section 9(a) or 9(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 Grantee’s rights under
this agreement such alternative consideration as the Committee may determine in good faith to
be equitable under the circumstances.

			
	10.	 	Withholding Taxes. To the extent that the Company is required to withhold federal,
state, local or foreign taxes in connection with any delivery of Common Shares to the Grantee,
and the amounts available to the Company for such withholding are insufficient, it shall be a
condition to the receipt of such delivery that the Grantee make arrangements satisfactory to
the Company for payment of the balance of such taxes required to be withheld. The Grantee may
elect that all or any part of such withholding requirement be satisfied by retention by the
Company of a portion of the Common Shares delivered to the

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		 	Grantee. If such election is made, the shares so retained shall be credited against such
withholding requirement at the closing price per Common Share on the date of such delivery.

			
	11.	 	No Right to Future Awards or Employment. This award is a voluntary, discretionary
bonus being made on a one-time basis and it does not constitute a commitment to make any
future awards. This award and any payments made hereunder will not be considered salary or
other compensation for purposes of any severance pay or similar allowance, except as otherwise
required by law. No provision of this agreement shall limit in any way whatsoever any right
that the Company or a subsidiary may otherwise have to terminate the Grantee’s employment at
any time.

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

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

			
	14.	 	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 Grantee with
respect to either the Common Shares or other securities covered by this agreement or the
Deferred Cash Dividends without the Grantee’s consent.

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

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

6

 

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

	 	 	 	 	 
	 	The Timken Company

 

 	 
	 	By:  	 	 
	 	 	Scott A. Scherff 	 
	 	 	Corporate Secretary & Asst. General

Counsel 	 
	 

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

	 	 	 	 	 
	 
	 	 	 	 
	 	 	 
	 	 	Michael C. Arnold

	 
	 	 	 	 
	 
	 	 	 	 
	 

	 	Date:	 	 
	 

	 	 	 	 

7

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