THE TIMKEN COMPANY
Nonqualified Stock Option Agreement
WHEREAS, ________ ________ (the "Optionee") is an
employee of The Timken Company (the "Company");
WHEREAS, the execution of a stock option agreement in
the form hereof has been 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
April 16, 1996 (the "Date of Grant"), and is incorporated herein
by this reference; and
WHEREAS, the option granted hereby is intended to be a
nonqualified stock option and shall not be treated as an
"incentive stock option" within the meaning of that term under
Section 422 of the Internal Revenue Code of 1986;
NOW, THEREFORE, pursuant to the Company's Long-term
Incentive Plan (as Amended and Restated as of 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 (i) a nonqualified stock option
(the "Option") to purchase ________ shares of the Company's
common stock without par value (the "Common Shares") at the
exercise price of forty-four and one-eighth dollars ($44.125) per
Common Share (the "Exercise Price") and (ii) the right to receive
dividend equivalents payable in Common Shares on a deferred basis
(the "Deferred Dividend Shares") or, at the discretion of the
Committee, in cash, with respect to the Common Shares covered by
any unexercised portion of the Option.
1. Vesting of Option. (a) Unless terminated as
hereinafter provided, the Option shall be exercisable to the
extent of one-fourth (1/4th) of the Common Shares covered by the
Option after the Optionee shall have been in the continuous
employ of the Company or a subsidiary for one full year from the
Date of Grant and to the extent of an additional one-fourth
(1/4th) thereof after each of the next three successive years
thereafter during which the Optionee shall have been in the
continuous employ of the Company or a subsidiary. For the
purposes of this agreement: "subsidiary" shall mean a
corporation, partnership, joint venture, unincorporated
association or other entity in which the Company has a direct or
indirect ownership or other equity interest; the continuous
employment of the Optionee with the Company or a subsidiary shall
not be deemed to have been interrupted, and the Optionee shall
not be deemed to have ceased to be an employee of the Company or
a subsidiary, by reason of the transfer of his employment among
the Company and its subsidiaries.
(b) 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 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) 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
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 cancelled 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 in the employee of the Company or any subsidiary, or if the
Optionee should retire under a retirement plan of the Company or
any subsidiary (i) at or after age 62 or (ii) at an earlier age
with the consent 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) thirty days after the date upon which the
Optionee ceases to be an employee of the Company or a subsidiary,
unless the cessation of his employment (i) is a result of his
death, disability or retirement with the Company's consent or
(ii) follows a change in control;
(b) five years after the date upon which the
Optionee ceases to be an employee of the Company or a subsidiary
(i) as a result of his disability, (ii) as a result of his
retirement with the Company's consent, unless he is also a
director of the Company who continues to serve as such following
his retirement with the Company's consent, or (iii) following a
change in control, unless the cessation of his employment
following a change in control is a result of his death;
(c) one year after the date upon which the
Optionee ceases to be a director of the Company, but not less
than five years after the date upon which he ceases to be an
employee of the Company or a subsidiary, if (i) the cessation of
his employment is a result of his retirement with the Company's
consent and (ii) he continues to serve as a director of the
Company following the cessation of his employment;
(d) one year after the date of the Optionee's
death regardless of whether he ceases to be an employee of the
Company or a subsidiary prior to his death (i) as a result of his
disability or retirement with the Company's consent or (ii)
following a change in control; or
(e) ten years after the Date of Grant.
For the purposes of this agreement: "retirement with the
Company's consent" shall mean the retirement of the Optionee
prior to age 62, if the Board or the Committee determines that
his retirement is for the convenience of the Company or a
subsidiary, or the retirement of the Optionee at or after age 62
under a retirement plan of the Company or a subsidiary;
"disability" shall mean that the Optionee has qualified for
disability benefits under the Company's Long-term Disability
Program or any successor disability plan or program of the
Company.
In the event that the Optionee shall intentionally commit an
act that the Committee determines to be materially adverse to the
interests of the Company or a subsidiary, the Option shall
terminate at the time of that determination notwithstanding any
other provision of this agreement.
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.
4. Crediting of Deferred Dividend Shares. Each
Deferred Dividend Share represents the right of the Optionee to
receive one Common Share if and when the Deferred Dividend Share
becomes nonforfeitable in accordance with Section 5(a) hereof.
Upon the determination by the Committee of the number of Deferred
Dividend Shares to be credited in accordance with this Section 4,
Deferred Dividend Shares shall be credited annually to the
Optionee as of December 31 of each year that the Option remains
in effect and any portion thereof remains unexercised. The
number of Deferred Dividend Shares to be credited to the Optionee
for any calendar year shall be determined as follows: (a) the
total amount per share of cash dividends that were paid on the
outstanding Common Shares during the calendar year shall be
multiplied by the total number of Common Shares then covered by
both exercisable and unexercisable portions of the Option,
including any Deferred Dividend Shares that shall have been
previously credited to the Optionee hereunder and remain subject
to forfeiture pursuant to Section 5(a) hereof; (b) the product of
the arithmetical operation described in Section 4(a) hereof shall
then be divided by the average closing price of the Common
Shares, as reported on the New York Stock Exchange or other
national market on which the Common Shares are then principally
traded, for the 10 trading dates immediately preceding December
31; (c) the quotient of the arithmetical operation described in
Section 4(b) hereof shall be the number of Deferred Dividend
Shares that shall be credited to the Optionee for the calendar
year; provided, however, that no Deferred Dividend Shares shall
be credited to the Optionee for any calendar year in which the
total net income per share of the outstanding Common Shares is
not at least 250 percent of the total amount of cash dividends
per share that were paid on the outstanding Common Shares during
that calendar year, and no Deferred Dividend Shares shall be
credited to the Optionee following the cessation of his
employment with the Company or a subsidiary, regardless of the
circumstances under which the cessation of his employment
occurred and notwithstanding that the term of the Option or any
Deferred Dividend Share remains in effect.
5. Vesting and Issuance of Deferred Dividend Shares.
(a) A Deferred Dividend Share shall become nonforfeitable upon
the earlier to occur of (i) the expiration of a period of four
years from the date as of which it is credited to the Optionee on
the records of the Company, if the Optionee shall have remained
in the continuous employ of the Company or a subsidiary during
that period, or (ii) the termination of the Optionee's employment
with the Company or a subsidiary following a change in control or
as a result of his death, disability or retirement with the
Company's consent. If the Optionee ceases to be an employee of
the Company or a subsidiary under any circumstances other than
those described in Section 5(a)(ii) hereof, any Deferred Dividend
Shares that shall have been previously credited to the Optionee
hereunder and remain subject to forfeiture at the time of the
cessation of his employment shall thereupon be forfeited
automatically and without further notice unless otherwise
determined by the Committee.
(b) Subject to the terms and conditions of Section 6
hereof, and subject to any deferral election the Optionee may
have made pursuant to any plan or program of the Company,
Deferred Dividend Shares shall be issuable to the Optionee at the
time when they become nonforfeitable in accordance with Section
5(a) 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 Option shall not be
exercisable and the Company shall not be obligated to issue any
Common Shares in payment of Deferred Dividend Shares if the
exercise or issuance 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 and
the Company shall not be obligated to issue any Common Shares in
payment of Deferred Dividend Shares unless the Common Shares or
other securities covered by the Option or to be issued in payment
of Deferred Dividend Shares are (a) exempt from registration
thereunder, (b) the subject of a transaction that is exempt from
compliance therewith, (c) registered by description or
qualification thereunder or (d) the subject of a transaction that
shall have been registered by description thereunder.
7. Transferability and Exercisability. Neither the
Option nor any Deferred Dividend Shares, including any interest
in either thereof, shall 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.
8. 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 or to
be issued in payment of Deferred Dividend Shares 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 8(a) or 8(b) hereof. Furthermore, in the event that any
transaction or event described or referred to in the immediately
preceding sentence shall occur, the Committee may provide in
substitution of any or all of the Optionee's rights under this
agreement such alternative consideration as the Committee may
determine in good faith to be equitable under the circumstances.
9. Withholding Taxes. If the Company shall be
required to withhold any federal, state, local or foreign tax in
connection with any exercise of the Option or payment of Deferred
Dividend Shares, the Optionee shall pay the tax or make
provisions that are satisfactory to the Company for the payment
thereof.
10. Right to Terminate Employment. No provision of
this agreement shall limit in any way whatsoever any right that
the Company or a subsidiary may otherwise have to terminate the
employment of the Optionee at any time.
11. Relation to Other Benefits. Any economic or other
benefit to the Optionee under this agreement or the Plan shall
not be taken into account in determining any benefits to which
the Optionee may be entitled under any profit-sharing, retirement
or other benefit or compensation plan maintained by the Company
or a subsidiary and shall not affect the amount of any life
insurance coverage available to any beneficiary under any life
insurance plan covering employees of the Company or a subsidiary.
12. Amendments. Any amendment to the Plan shall be
deemed to be an amendment to this agreement to the extent that
the amendment is applicable hereto; provided, however, that no
amendment shall adversely affect the rights of the Optionee with
respect to the Option or the Deferred Dividend Shares without the
Optionee's consent.
13. Severability. In the event that one or more of
the provisions of this agreement shall be invalidated for any
reason by a court of competent jurisdiction, any provision so
invalidated shall be deemed to be separable from the other
provisions hereof, and the remaining provisions hereof shall
continue to be valid and fully enforceable.
14. Governing Law. This agreement is made under, and
shall be construed in accordance with, the laws of the State of
Ohio.
This agreement is executed by the Company on this 16th
day of April, 1996.
THE TIMKEN COMPANY
By________________________
Stephen A. Perry
Vice President
Human Resources & Logistics
The undersigned Optionee hereby acknowledges receipt of
an executed original of this agreement and accepts the Option
granted hereunder and the right to receive Deferred Dividend
Shares with respect to the Common Shares covered thereby, subject
to the terms and conditions of the Plan and the terms and
conditions hereinabove set forth.
Optionee
Date:____________________________