-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NarGE4oDg2jgl3+X7nJ3EC8Swd3p75P5HTi+UtdDMPCbOLY3A9ySQmHjPwJwraM2 o4cUP+aWmZGVkT8YWqhkog== 0000098362-00-000019.txt : 20000515 0000098362-00-000019.hdr.sgml : 20000515 ACCESSION NUMBER: 0000098362-00-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TIMKEN CO CENTRAL INDEX KEY: 0000098362 STANDARD INDUSTRIAL CLASSIFICATION: BALL & ROLLER BEARINGS [3562] IRS NUMBER: 340577130 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-01169 FILM NUMBER: 627390 BUSINESS ADDRESS: STREET 1: 1835 DUEBER AVE SW CITY: CANTON STATE: OH ZIP: 44706 BUSINESS PHONE: 3304383000 FORMER COMPANY: FORMER CONFORMED NAME: TIMKEN ROLLER BEARING CO DATE OF NAME CHANGE: 19710304 10-Q 1 1. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10Q [X]Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2000. Commission File No. 1-1169 THE TIMKEN COMPANY Exact name of registrant as specified in its charter Ohio 34-0577130 State or other jurisdiction of I.R.S. Employer incorporation or organization Identification No. 1835 Dueber Avenue, S.W., Canton, Ohio 44706-2798 Address of principal executive offices Zip Code (330) 438-3000 Registrant's telephone number, including area code Not Applicable Former name, former address and former fiscal year if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES X NO ___ ___ Common shares outstanding at March 31, 2000, 60,964,527. PART I. FINANCIAL INFORMATION 2. THE TIMKEN COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited) Mar. 31 Dec. 31 2000 1999 ASSETS ---------- ---------- Current Assets (Thousands of dollars) Cash and cash equivalents........................... $ 9,620 $ 7,906 Accounts receivable, less allowances, (2000-$9,792; 1999-$9,497).......................... 394,033 339,326 Deferred income taxes............................... 39,901 39,706 Inventories (Note 2) ............................... 478,387 446,588 ---------- ---------- Total Current Assets...................... 921,941 833,526 Property, Plant and Equipment....................... 2,893,828 2,912,733 Less allowances for depreciation................... 1,544,049 1,531,259 ---------- ---------- 1,349,779 1,381,474 Costs in excess of net assets of acquired business, less amortization, (2000-$36,570; 1999-$34,879)..... 156,270 153,847 Other assets........................................ 64,292 72,471 ---------- ---------- Total Assets.................................. $2,492,282 $2,441,318 ========== ========== LIABILITIES Current Liabilities Accounts payable and other liabilities.............. $ 241,101 $ 236,602 Short-term debt and commercial paper................ 141,288 122,547 Accrued expenses.................................... 205,823 198,512 ---------- ---------- Total Current Liabilities................. 588,212 557,661 Noncurrent Liabilities Long-term debt (Note 3) ............................ 326,302 327,343 Accrued pension cost................................ 101,456 76,005 Accrued postretirement benefits cost................ 395,531 394,084 Deferred income taxes............................... 5,453 6,147 Other noncurrent liabilities........................ 32,643 34,097 ---------- ---------- Total Noncurrent Liabilities.............. 861,385 837,676 Shareholders' Equity (Note 4) Common stock........................................ 269,708 273,199 Earnings invested in the business................... 841,954 836,916 Accumulated other comprehensive income.............. (68,977) (64,134) ---------- ---------- Total Shareholders' Equity................ 1,042,685 1,045,981 Total Liabilities and Shareholders' Equity.... $2,492,282 $2,441,318 ========== ========== PART I. FINANCIAL INFORMATION Continued 3. THE TIMKEN COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended Mar. 31 Mar. 31 2000 1999 ---------- ---------- (Thousands of dollars, except per share data) Net sales......................................... $ 685,791 $ 625,370 Cost of products sold............................. 540,826 498,811 ---------- ---------- Gross Profit................................... 144,965 126,559 Selling, administrative and general expenses...... 94,145 89,330 Impairment and restructuring charges (Note 5)..... 14,759 -0- ---------- ---------- Operating Income............................... 36,061 37,229 Interest expense.................................. (7,222) (6,656) Interest income................................... 549 427 Other income (expense)............................ (2,655) (3,415) ---------- ---------- Income Before Income Taxes..................... 26,733 27,585 Provision for income taxes (Note 6)............... 10,693 11,006 ---------- ---------- Net Income..................................... $ 16,040 $ 16,579 ========== ========== Earnings Per Share * .......................... $0.26 $0.27 Earnings Per Share - assuming dilution **..... $0.26 $0.27 Dividends Per Share............................ $0.18 $0.18 ========== ========== * Average shares outstanding..................... 61,099,962 61,859,612 ** Average shares outstanding - assuming dilution. 61,237,143 62,018,468 PART I. FINANCIAL INFORMATION Continued 4. THE TIMKEN COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended Cash Provided (Used) Mar. 31 Mar. 31 2000 1999 ------- ------- OPERATING ACTIVITIES (Thousands of dollars) Net Income............................................. $16,040 $16,579 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization......................... 38,221 36,597 Provision (credit) for deferred income taxes.......... 85 (5,724) Stock issued in lieu of cash to employee benefit plans 300 2,972 Impairment and restructuring charges.................. 14,759 -0- Changes in operating assets and liabilities: Accounts receivable.................................. (57,277) (21,820) Inventories.......................................... (34,968) (2,807) Other assets......................................... 1,011 (10,196) Accounts payable and accrued expenses................ 37,694 37,210 Foreign currency translation......................... (167) 2,623 ------- ------- Net Cash Provided by Operating Activities........... 15,698 55,434 INVESTING ACTIVITIES Purchases of property, plant and equipment - net...... (20,061) (46,599) Acquisitions.......................................... -0- (27,923) ------- ------- Net Cash Used by Investing Activities............... (20,061) (74,522) FINANCING ACTIVITIES Cash dividends paid to shareholders................... (11,002) (11,138) Purchase of Treasury Shares........................... (3,791) (339) Payments on long-term debt............................ (964) (78) Proceeds from issuance of long-term debt.............. 27 1,819 Short-term debt activity - net........................ 22,190 39,763 ------- ------- Net Cash Provided by Financing Activities........... 6,460 30,027 Effect of exchange rate changes on cash................ (383) (247) Increase in Cash and Cash Equivalents.................. 1,714 10,692 Cash and Cash Equivalents at Beginning of Period....... 7,906 320 ------- ------- Cash and Cash Equivalents at End of Period............. $ 9,620 $11,012 ======= ======= PART I. NOTES TO FINANCIAL STATEMENTS (Unaudited) 5. Note 1 -- Basis of Presentation The accompanying consolidated condensed financial statements (unaudited) for the Timken Company (the "company") have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) and disclosures considered necessary for a fair presentation have been included. For further information, refer to the consolidated financial statements and footnotes included in the company's annual report on Form 10-K for the year ended December 31, 1999. 3/31/00 12/31/99 Note 2 -- Inventories -------- --------- (Thousands of dollars) Finished products $176,276 $172,682 Work-in-process and raw materials 247,418 235,251 Manufacturing supplies 54,693 38,655 -------- -------- $478,387 $446,588 ======== ======== Note 3 -- Long-term Debt 3/31/00 12/31/99 -------- --------- (Thousands of dollars) State of Ohio Pollution Control Revenue Refunding Bonds, maturing on July 1, 2003. The variable interest rate is tied to the bank's tax exempt weekly interest rate. The rate at March 31, 2000 is 3.95%. $17,000 $17,000 State of Ohio Water Development Revenue Refunding Bond, maturing on May 1, 2007. The variable interest rate is tied to the bank's tax exempt weekly interest rate. The rate at March 31, 2000 is 3.90%. 8,000 8,000 State of Ohio Air Quality and Water Development Revenue Refunding Bonds, maturing on June 1, 2001. The variable interest rate is tied to the bank's tax exempt weekly interest rate. The rate at March 31, 2000 is 3.90%. 21,700 21,700 State of Ohio Water Development Authority Solid Waste Revenue Bonds, maturing on July 2, 2032. The variable interest rate is tied to the bank's tax exempt weekly interest rate. The rate at March 31, 2000 is 3.95%. 24,000 24,000 Fixed Rate Medium-Term Notes, Series A, due at various dates through May, 2028 with interest rates ranging from 6.20% to 7.76%. 252,000 252,000 Other 8,974 9,957 -------- -------- 331,674 332,657 Less: Current Maturities 5,372 5,314 -------- -------- $326,302 $327,343 ======== ======== PART I. NOTES TO FINANCIAL STATEMENTS (Unaudited) Continued 6. Note 4 -- Shareholders' Equity 3/31/00 12/31/99 -------- -------- Class I and Class II serial preferred stock (Thousands of dollars) without par value: Authorized -- 10,000,000 shares each class Issued - none $ 0 $ 0 Common Stock without par value: Authorized -- 200,000,000 shares Issued (including shares in treasury) 2000 - 63,082,626 shares 1999 - 63,082,626 shares Stated Capital 53,064 53,064 Other paid-in capital 258,587 258,287 Less cost of Common Stock in treasury 2000 - 1,963,008 shares 1999 - 1,886,537 shares 41,943 38,152 -------- -------- $269,708 $273,199 ======== ======== An analysis of the change in capital and earnings invested in the business is as follows: Common Stock Earnings Accumulated Other Invested Other Stated Paid-In in the Comprehensive Treasury Capital Capital Business Income Stock Total ------- -------- -------- ---------- -------- ---------- (Thousands of dollars) Balance December 31, 1999 $53,064 $258,287 $836,916 ($64,134) ($38,152) $1,045,981 Net Income 16,040 16,040 Foreign currency translation adjustment (4,843) (4,843) ---------- Total comprehensive income 11,197 Dividends - $.18 per share (11,002) (11,002) Stock Options, employee benefit and dividend reinvestment plans: 300 (3,791) (3,491) Treasury - (issued)/acquired 231,561 shares -0- ------- -------- -------- ---------- -------- ---------- Balance March 31, 2000 $53,064 $258,587 $841,954 ($68,977) ($41,943) $1,042,685 ======= ======== ======== ========== ======== ========== The total comprehensive income for the three months ended March 31, 1999 was $3,030,000.
PART I. NOTES TO FINANCIAL STATEMENTS (Unaudited) 7. Continued Note 5 -- Impairment and Restructuring Charges In March 2000, the company announced an acceleration of its global restucturing to position itself for profitable growth, streamline operations, reduce costs and improve European profitability. This restructuring is expected to save the company approximately $35 million annually before taxes by the end of 2001. Implementation, employee severance and non-cash impairment charges of $55 million before taxes are expected to be recorded over the next one to two years. Of this amount, approximately $35 million is anticipated as impairment and restructuring charges, and the remaining $20 million will be classified as either cost of products sold or selling, administrative and general expense. In the first quarter 2000, the company recorded impairment and restructuring charges of $14.8 million before taxes which was related to the global restructuring acceleration. The charges reflected costs associated with abandoned acquisition, affiliation and divestiture efforts as well as the consolidation of certain operations in the company's worldwide steel operations. In addition, approximately $1.7 million of the charges relates to the severance costs associated with the termination of 78 positions in the company's European distribution network. No payments have been made through the end of the first quarter. Key elements of the charges by industry are as follows (in thousands of dollars): Bearing Steel Total Restructuring: -------- --------- --------- Separation costs - operations $ 1,661 $ -0- $ 1,661 Exit costs 34 -0- 34 -------- --------- --------- $ 1,695 $ -0- $ 1,695 Impaired assets: Property, plant and equipment -0- 8,880 8,880 Abandoned acquisitions 214 3,970 4,184 -------- --------- --------- $ 214 $ 12,850 $ 13,064 -------- --------- --------- $ 1,909 $ 12,850 $ 14,759 ======== ========= ========= Note 6 -- Income Tax Provision Three Months Ended Mar. 31 Mar. 31 2000 1999 -------- -------- U.S. (Thousands of dollars) Federal $ 6,931 $ 9,106 State & Local 505 1,035 Foreign 3,257 865 ------- ------- $10,693 $11,006 ======= ======= Taxes provided exceed the U.S. statutory rate primarily due to state and local taxes and losses without current tax benefits. PART I. NOTES TO FINANCIAL STATEMENTS (Unaudited) 8. Continued Note 7 -- Segment Information (Thousands of Dollars) Three Months Ended Mar. 31 Mar. 31 Bearings 2000 1999 -------- -------- Net sales to external customers $470,374 $438,717 Depreciation and amortization 21,287 20,486 Earnings before interest and taxes 32,133 23,249 Interest expense (5,534) (5,080) Interest income 612 448 Steel Net sales to external customers 215,418 186,653 Intersegment sales 55,582 55,378 Depreciation and amortization 16,934 16,111 Earnings before interest and taxes 2,791 11,029 Interest expense (2,662) (2,316) Interest income 911 719 Profit Before Taxes Total EBIT for reportable segments 34,924 34,278 Interest expense (7,222) (6,656) Interest income 549 427 Intersegment adjustments (1,518) (464) Income before income taxes 26,733 27,585 9. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations - --------------------- The Timken Company reported net sales of $685.8 million for the first quarter of 2000, up 9.7% from $625.4 million in 1999's first quarter. Net income declined 3.2% to $16 million compared to $16.6 million in the first quarter of 1999. In this first quarter of 2000, the company incurred total pretax charges of $16.8 million related to the company's global restructuring announced in March. Excluding these charges, net income for the first quarter of 2000 was $26.1 million. Sales and net income, excluding these charges, were at their highest levels since the second quarter of 1998. The increase in sales volume resulted in part from investments the company made during the last few years in facilities to produce a new range of products, which are beginning to reach the market. In addition, international markets improved, especially industrial markets that were weakened by the Asian financial crisis. The U.S. and European automotive industries also remained strong. Gross profit was approximately $145 million (21.1% of net sales) in the first quarter of 2000, compared to $126.6 million (20.2% of net sales) in 1999's first quarter. Continued strength in the automotive industry, increased demand for industrial products worldwide and improvement in international markets contributed to the increase. Selling, administrative and general expenses were $94.1 million (13.7% of net sales) in the first quarter of 2000, compared to $89.3 million (14.3% of net sales) in 1999. The amount reserved for performance-based pay was higher in the first quarter 2000 due to the company's increased level of earnings. Also contributing to the dollar increase was the inclusion of Timken India in consolidated results for the first quarter of 2000 as well as continued funding of growth initiatives and reorganization costs. In March 2000, the company announced an acceleration of its global restructuring to position itself for profitable growth, streamline operations, reduce costs and improve European profitability. This restructuring is expected to save the company approximately $35 million annually before taxes by the end of 2001 and will result in the elimination of 600 positions worldwide. Implementation, employee severance and non-cash impairment charges of $55 million before taxes are expected to be recorded over the next one to two years. The restructuring was undertaken in order to accelerate the drive to improve competitiveness and further position the company for profitable worldwide growth. It will, in conjunction with the reorganization initiated late in 1999, support the company's transformation to a global business. It is an extension of actions begun during the second half of 1998 and during 1999 that included rationalization of plants and businesses to reduce asset intensity and assure world competitiveness. The Western European restructuring will refocus the company's bearing manufacturing facility in Duston, England to specialize and fuel 10. Management's Discussion and Analysis of Financial Condition and Results of Operations growth in advanced automotive bearings, roller production and formed products, reflecting current strong automotive demand. In addition, the company will shift manufacturing to facilities in Poland and Romania in order to achieve high quality and productivity at lower costs. The company will also consolidate the European distribution operations as well as reduce production costs in European steel operations and redefine the company's operations in Asia. The domestic restructuring includes the write-off of certain assets, primarily in the company's steel business as well as the reorientation of facilities and business systems around the global segments. As a part of the restructuring, additional streamlining of the management structure, which results from the reorganization into global units, will be undertaken. The management streamlining is expected to reduce administrative costs by about $15 million annually before taxes, one half of which will be reinvested in growth initiatives in new products, strengthening customer engineering and project management, and creating more focused, entrepreneurial business entities. The new management structure is expected to facilitate the company's ability to bring new products and services to the market faster and more effectively. The first quarter 2000 special charges of $16.8 million were related to the global restructuring acceleration. Included in these special charges was an impairment charge of approximately $13.1 million, the majority of which occurred in the company's steel business. The impairment charge reflected costs associated with abandoned acquisition, affiliation and divestiture efforts as well as consolidation of certain operations in the company's worldwide steel operations. The company also recorded charges of approximately $1.7 million related to its efforts to consolidate the distribution effort in Europe. The majority of this charge relates to severance costs associated with the termination of 78 positions in the European distribution network. Finally, the company recorded $2.0 million of consulting costs, classified as selling, administrative and general expenses, related to the company's realignment of businesses into global units. "Other income (expense)" reflects lower expense in the first quarter of 2000 due primarily to higher foreign currency exchange losses recorded in the first quarter of 1999. Bearings Bearings' net sales were $470.4 million in the first quarter of 2000, up 7.2% compared to $438.7 million one year ago. Recovering North American industrial demand, modest strengthening in Asia and Europe and continued strong demand in North American automotive industry all combined to drive Bearings' net sales to a record level in this first quarter of 2000. North American automotive sales were up 11% compared to the first quarter of 1999 due primarily to higher sales in the light and heavy truck segments. Sales in Latin America were higher by 28% and sales in Asia Pacific increased by 19%. North American industrial bearing 11. Management's Discussion and Analysis of Financial Condition and Results of Operations sales, including original equipment and aftermarket, were up by 6%, ending the downward trend the company experienced over the past four quarters. Improved international economic conditions contributed to higher construction, mining, and farm equipment production. Aerospace sales declined by 10%. Railroad sales also declined by 25%. First quarter sales in Europe were higher by 6% compared to a year ago. Bearings' earnings before interest and income taxes (EBIT) for the first quarter was $32.1 million, compared to $23.2 million in the first quarter of 1999. This was the highest EBIT since the second quarter of 1998. Excluding Bearing's portion of the impairment and restructuring charge, Bearings' EBIT was $35.6 million, up 53% from 1999's first quarter. Contributing to this increase was improved plant performance resulting from higher manufacturing volumes and on-going efforts to reduce manufacturing costs. Bearings' restructuring activities in England and Western Europe are expected to reduce costs and improve European profitability in the future. Bearings' selling and administrative expenses in the first quarter of 2000 were higher than the year-ago quarter due in part to the addition of Timken India Limited, in which the company acquired a majority interest in March 1999. Continued funding of growth initiatives, an increase in the amount reserved for performance-based compensation plans and reorganization costs also added to first quarter costs. Steel Steel's net sales, including intersegment sales, were $271 million in the first quarter of 2000, an increase of 12% over the $242 million recorded a year earlier. Sales in the first quarter of 2000 were the strongest since the second quarter of 1998. Shipments were higher in all segments except aerospace. As a result, the company increased prices in the first quarter and announced further price increases effective for the second quarter. Sales to oil country and service center customers grew faster than anticipated as a result of higher demand caused by a reduction in customer inventories. Oil country sales increased by about 200% compared to the year-ago quarter while service center sales increased by more than 90%. Industrial sales increased by about 10%. Sales to external bearing customers were up by about 15%. For automotive customers, first quarter sales of precision steel components were higher by 19%; however, alloy steel automotive sales were relatively flat compared to a year ago. Aerospace sales declined by 12% compared to 1999's first quarter. Demand for steel products appears strong as the industries the company serves are improving and the Asian crisis is passing. Steel's EBIT was $2.8 million in the first quarter of 2000 compared to $11 million in 1999's first quarter. First quarter 2000 included impairment and restructuring charges related primarily to asset impairment and costs associated with abandonment of acquisition, affiliation and divestiture efforts. Excluding Steel's portion of the 12. Management's Discussion and Analysis of Financial Condition and Results of Operations impairment and restructuring charge, Steel's EBIT was $16.1 million, up 46% from 1999's first quarter. Higher sales volume, price increases and savings generated by cost reductions implemented in the first quarter more than offset higher scrap and alloy prices. Financial Condition - ------------------- Total assets as shown on the Consolidated Condensed Balance Sheets increased by $51 million from December 31, 1999. Inventory balances at the end of the first quarter were higher by $31.8 million compared to year-end 1999 levels. The number of days' supply in inventory increased by four days to 112 days at March 31, 2000, compared to 108 days at December 31, 1999. Bearings' inventory increased by about three days; Steel's inventory increased by about five days. Accounts receivable increased by almost $55 million reflecting the higher level of sales. The number of days' sales in receivables at March 31, 2000, decreased by 1 day compared to December 31, 1999. As shown on the Consolidated Condensed Statement of Cash Flows, the increase in inventories required $35 million of cash during the first three months of 2000. The increase in accounts receivable used $57.3 million of cash. Cash was provided as a result of a $37.7 million increase in accounts payable and accrued expenses due primarily to higher reserves for pension liabilities as well as amounts reserved for performance-based pay during this first quarter of 2000. Purchases of property, plant and equipment-net used $20.1 million of cash in the first three months of 2000, compared to $46.6 million for the same period in 1999, reflecting lower capital spending. Company investments continue to support activities consistent with the company's strategies to achieve industry leadership, improve the core businesses, and increase growth and profitability The 31% debt-to-total-capital ratio at March 31, 2000 was slightly higher than the 30.1% at year-end 1999. Debt increased by $16.5 million during the first three months of 2000 to $466.4 million at March 31, 2000. In addition to capital expenditures, cash was used to pay dividends to shareholders, to fund working capital and to buy back shares of common stock as authorized under the company's 1998 common stock purchase plan. Short-term borrowing and issuance of medium-term notes will meet future cash needs that exceed cash generated from operations. Total shareholders' equity decreased by $3.3 million since December 31, 1999 due to payment of $11 million in dividends and the buyback of shares of the company's common stock. The $16 million increase in equity from the first quarter's net income was also offset by a $4.8 million foreign currency translation adjustment. 13. Management's Discussion and Analysis of Financial Condition and Results of Operations Other Information - ----------------- The industry's antidumping duty orders covering imports of tapered roller bearings from Japan, China, Hungary and Romania are currently in the process of being reviewed by U.S. government agencies to determine whether dumping and injury to the domestic industry are likely to continue or recur if the orders were to be revoked. These reviews commenced in April 1999, and should conclude by the end of the second quarter 2000. The company is actively participating in the proceedings. If the U.S. government determines that dumping and injury are likely to continue or recur, the antidumping duty finding and orders will continue in place for another five years. If, however, a determination is made that injury to the domestic industry is unlikely to continue or recur with respect to any of the four countries covered, the finding or order will be revoked with respect to that country. If, following the revocation of such an order, injurious dumping does continue or recur, contrary to the finding of the government, the improved conditions of trade of tapered roller bearings in the U.S., which resulted from the existing orders, would deteriorate. If injurious dumping does occur, such dumping could have a material adverse effect on the company's business, financial condition or results of operations. Assets and liabilities of subsidiaries, other than Timken Romania which is considered to operate in a highly inflationary economy, are translated at the rate of exchange in effect on the balance sheet date; income and expenses are translated at the average rates of exchange prevailing during the quarter. Related translation adjustments are reflected as a separate component of accumulated other comprehensive income. Foreign currency gains and losses resulting from transactions and the translation of financial statements of Timken Romania are included in the results of operations. Foreign currency exchange losses included in the company's operating results for the first quarter of 2000 totaled $0.5 million compared to $6.5 million in the first quarter of 1999. The January 1999 devaluation of the Brazilian Real contributed to 1999's foreign currency losses; however, the company's operations in France and the United Kingdom recorded the most significant translation losses. Also, in the first quarter of 2000 the company recorded a foreign currency translation adjustment of $4.8 million, which reduced other comprehensive income, compared to a reduction of $13.5 million in the year-ago period. In January 2000, the company announced that distribution facilities would be moved from existing warehousing and shipping facilities in Germany, England, France and Italy to a central warehouse in Strasbourg, France, which will be operated by an external service provider. This initiative is expected to reduce employment at the facilities by approximately 78 positions. Also in January 2000, members of the United Steelworkers of America, which represents the company's workers in the Canton, Columbus and 14. Management's Discussion and Analysis of Financial Condition and Results of Operations Wooster facilities, ratified a new five-year agreement. This new contract will extend through September 26, 2005, and is the third consecutive early agreement reached by the company. In the third quarter of 1999, the company announced it would explore strategic alternatives for its specialty steel subsidiary, Timken Latrobe Steel. In February 2000, the company determined it would retain Timken Latrobe Steel as a separate business within the company's Steel business. During the first quarter of 2000, the company purchased 237,300 shares of its common stock to be held in treasury as authorized under the company's 1998 common stock purchase plan. To date, 2.9 million shares of the 4 million shares authorized have been purchased pursuant to the plan. The authorization to purchase shares under the 1998 plan expires December 31, 2001. On April 18, 2000, the board of directors declared a quarterly cash dividend of 18 cents per share payable June 5, 2000, to shareholders of record at the close of business on May 19, 2000. This is the 312th consecutive dividend paid on the common stock of the company. Also on April 18, 2000, the shareholders of the company elected Mrs. Jacqueline F. Woods to the board of directors for a three-year term expiring at the 2003 annual meeting. Mrs. Woods, 52, has served as president of Ameritech Ohio, a subsidiary of SBC Communications Inc., since 1993. In addition, Stanley C. Gault, John M. Timken, Jr. and W. R. Timken, Jr. were re-elected as directors for three-year terms to expire at the 2003 annual meeting. In April 2000, Rail Bearing Service, a subsidiary of the company, announced a consolidation of their Knoxville, Tennessee facilities. The three reconditioning locations and office have been consolidated into one newly constructed facility. The statements set forth in this document that are not historical in nature are forward-looking statements. The company cautions readers that actual results may differ materially from those projected or implied in forward-looking statements made by or on behalf of the company due to a variety of important factors, such as: a) changes in world economic conditions. This includes, but is not limited to, the potential instability of governments and legal systems in countries in which the company conducts business and significant changes in currency valuations. b) the effects of changes in customer demand on sales, product mix, and prices. This includes the effects of customer strikes, the impact of changes in industrial business cycles, whether conditions of fair trade continue in the U.S. market, and the possible revocation in the U.S. of the anti-dumping duty orders on tapered roller bearings, on which a decision is to be reached by the U.S. government by the end of June 2000. 15. Management's Discussion and Analysis of Financial Condition and Results of Operations c) competitive factors, including changes in market penetration, the introduction of new products by existing and new competitors, and new technology that may impact the way the company's products are sold or distributed. d) changes in operating costs. This includes the effect of changes in the company's manufacturing processes; changes in costs associated with varying levels of operations; changes resulting from inventory management and cost reduction initiatives and different levels of customer demands; the effects of unplanned work stoppages; changes in the cost of labor and benefits; and the cost and availability of raw materials and energy. e) the success of the company's operating plans, including its ability to achieve the benefits from its ongoing continuous improvement and rationalization programs; its ability to integrate acquisitions into company operations; the ability of recently acquired companies to achieve satisfactory operating results; its ability to maintain appropriate relations with unions that represent company associates in certain locations in order to avoid disruptions of business and its ability to successfully implement its new organizational structure. f) unanticipated litigation, claims or assessments. This includes, but is not limited to, claims or problems related to product warranty and environmental issues. g) changes in worldwide financial markets to the extent they affect the company's ability or costs to raise capital, have an impact on the overall performance of the company's pension fund investments and/or cause changes in the economy which affect customer demand. 16. Part II. OTHER INFORMATION Item 1. Legal Proceedings Not applicable. Item 2. Changes in Securities Not applicable. Item 3. Defaults Upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders (1) The Board of Directors recommended the four individuals set forth below be elected Directors in Class III at the 2000 Annual Meeting of Shareholders of The Timken Company held on April 18, 2000, to serve a term of three years expiring at the Annual Meeting in 2003 (or until their respective successors elected and qualified). The first three individuals had been previously elected as Directors by the shareholders and were re-elected at the 2000 meeting. Affirmative Withheld Stanley C. Gault 55,322,161 1,575,240 John M. Timken, Jr. 54,611,517 2,285,884 W. R. Timken, Jr. 55,352,468 1,544,933 Jacqueline F. Woods 55,024,184 1,873,217 (2) Shareholders approved The Timken Company Long-Term Incentive Plan As Amended And Restated As Of December 16, 1999. Affirmative Negative Abstain 49,975,536 5,920,575 1,001,290 Item 5. Other Information Not applicable. Item 6. Exhibits and Reports on Form 8-K (a). Exhibits 10 The Timken Company Long-Term Incentive Plan As Amended And Restated As Of December 16, 1999, and approved by share- holders April 18, 2000 was filed as Appendix A to Proxy Statement dated February 23, 2000, and is incorporated herein by reference. 10.1 The Timken Company Director Deferred Compensation Plan effective as of February 4, 2000. 17. 10.2 The form of The Timken Company Nonqualified Stock Option Agreement for nontransferable options as adopted on April 18, 2000. 10.3 The form of The Timken Company Nonqualified Stock Option Agreement for transferable options as adopted on April 18, 2000. 10.4 The form of The Timken Company Nonqualified Stock Option Agreement for special award options as adopted on April 18, 2000. 10.5 The form of The Timken Company Deferred Shares Agreement as adopted on April 18, 2000. 10.6 Amendment to Employee Excess Benefits Agreement 11 Computation of Per Share Earnings 12 Computation of Ratio of Earnings to Fixed Charges Item 6. Exhibits and Reports on Form 8-K cont. 27 Financial Data Schedule The company did not file any reports on Form 8-K during the three months ended March 31, 2000. 18. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. The Timken Company _______________________________ Date May 12, 2000 BY /s/ W. R. Timken, Jr. ________________________ _______________________________ W. R. Timken, Jr., Director and Chairman; Chief Executive Officer Date May 12, 2000 BY /s/ G. E. Little ________________________ _______________________________ G. E. Little Senior Vice President - Finance EX-10.1 2 EXHIBIT 10.1 THE TIMKEN COMPANY DIRECTOR DEFERRED COMPENSATION PLAN The Timken Company hereby establishes, effective as of February 4, 2000, the Director Deferred Compensation Plan for the Company. Such Plan provides Directors with the opportunity to defer Compensation payable in cash, Common Shares or Restricted Shares in accordance with the provisions of this Plan. ARTICLE I DEFINITIONS For the purposes hereof, the following words and phrases shall have the meanings indicated. 1. "Account" shall mean a bookkeeping account in which Compensation which is deferred by a Participant shall be recorded and to which dividends, distributions, gains, losses and earnings may be credited in accordance with the Plan. 2. "Beneficiary" or "Beneficiaries" shall mean the person or persons designated by a Participant in accordance with the Plan to receive payment of the remaining balance of the Participant's Account in the event of the death of the Participant prior to receipt of the entire amount credited to the Participant's Account. 3. "Board" shall mean the Board of Directors of the Company. 4. "Code" shall mean the Internal Revenue Code of 1986, as amended. 5. "Change in Control" shall mean that: (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 of 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. 6. "Committee" shall mean the Compensation Committee of the Board or such other Committee as may be authorized by the Board to administer the Plan. 7. "Common Shares" shall mean shares of common stock without par value of the Company or any security into which such Common Shares may be changed by reason of any transaction or event of the type referred to in Section 9 of Article II of the Plan. 8. "Company" shall mean The Timken Company and its successors, including, without limitation, the surviving corporation resulting from any merger or consolidation of The Timken Company with any other corporation or corporations. 9. "Compensation" shall mean (i) cash compensation earned as a Director, including retainer and committee fees, and (ii) incentive compensation payable in the form of Common Shares or Restricted Shares pursuant to the Long-Term Incentive Plan or any similar plan approved by the Committee for purposes of this Plan. 10. "Director" shall mean any member of the Board. 11. "Election Agreement" shall mean an agreement in substantially the form attached hereto as Exhibit A, as modified from time to time by the Company. 12. "Insolvent" shall mean that the Company has become subject to a pending voluntary or involuntary proceeding under the United States Bankruptcy Code or has become unable to pay its debts as they mature. 13. "Long-Term Incentive Plan" shall mean The Timken Company Long-Term Incentive Plan, as amended from time to time, or any similar long-term incentive plan. 14. "Participant" shall mean any Director who has at any time elected to defer the receipt of Compensation in accordance with the Plan. 15. "Plan" shall mean this deferred compensation plan, which shall be known as the Director Deferred Compensation Plan for The Timken Company. 16. "Restricted Shares" shall mean Common Shares granted pursuant to Section 9 of the Long-Term Incentive Plan as to which neither the substantial risk of forfeiture nor the restrictions on transfer has expired. 17. "Year" shall mean a calendar year. ARTICLE II ELECTION TO DEFER 1. Eligibility. A Director may elect to defer receipt of all or a specified part of his or her Compensation for any Year in accordance with Section 2 of this Article. A Director's entitlement to defer shall cease with respect to the Year following the Year in which he or she ceases to be a Director. 2. Election to Defer. A Director who desires to defer all or part of his or her Compensation pursuant to this Plan must complete and deliver an Election Agreement to the Director of Compensation and Benefits or the Corporate Secretary of the Company prior to the beginning of the first year of service for which such Compensation is payable; provided, however, that in the first year in which an individual becomes a Director, the individual may deliver an Election Agreement to the Director of Compensation and Benefits or Corporate Secretary of the Company, with respect to Compensation for services to be earned subsequent to filing of such Election Agreement within 30 days after the individual becomes a Director; and provided further that, with respect to Compensation for services to be earned in 2000, the individual may deliver an Election Agreement to the Director of Compensation and Benefits or Corporate Secretary of the Company on or prior to February 29, 2000, with respect to Compensation for services to be earned in 2000 subsequent to the filing of such Election Agreement. A Director who timely delivers an Election Agreement to the Director of Compensation and Benefits or Corporate Secretary of the Company shall be a Participant. An Election Agreement that is timely delivered shall be effective for the succeeding Year, and except as otherwise specified by a Director in his or her Election Agreement, the Election Agreement shall continue to be effective from Year to Year until revoked or modified by written notice to the Director of Compensation and Benefits or Corporate Secretary of the Company or until terminated automatically upon either the termination of the Plan or the Company becoming Insolvent. In order to be effective to revoke or modify an election to defer Compensation payable in any particular Year, a revocation or modification must be delivered prior to the beginning of the Year of service for which such Compensation is payable. 3. Amount Deferred; Period of Deferral. A Participant shall designate on the Election Agreement the percentage or the dollar amount of his or her Compensation that is to be deferred. A Participant may specify in the Election Agreement that different percentages or dollar amounts shall apply to different compensation plans or different forms of payment, i.e., cash, Common Shares or Restricted Shares. The applicable percentage(s) or dollar amount(s) of Compensation shall be deferred until the earlier to occur of (i) the date the Participant ceases to be a Director by death, retirement or otherwise or (ii) the date specified by the Participant in the Election Agreement, including a date determined by reference to the date the Participant ceases to be a Director by death, retirement or otherwise. 4. Accounts. (i) Cash Compensation that a Participant elects to defer shall be treated as if it were set aside in an Account on the date the Compensation would otherwise have been paid to the Participant. A Participant's Account shall be credited with gains, losses and earnings based on hypothetical investment directions made by the Participant, in accordance with investment deferral crediting options and procedures adopted by the Committee from time to time. The investment deferred crediting options shall include (x) a hypothetical Common Shares fund and (y) a hypothetical cash fund. To the extent a Participant chooses the hypothetical Common Share fund, the deferred cash Compensation shall be deemed to be invested in that number of whole and fractional Common Shares determined by dividing the amount of cash Compensation to be deferred by the fair market value per share of such Common Shares on the date such cash Compensation would otherwise be paid. A Participant's Account shall be credited from time to time with additional cash amounts equal to dividends or other distributions paid on the number of Common Shares reflected in the Account. Any additional cash amounts shall be credited with gains, losses and earnings based on hypothetical investment directions made by the Participant, including deemed investment in the hypothetical Common Shares fund. To the extent a Participant chooses the hypothetical cash fund, such amounts, unless otherwise determined by the Committee, shall be credited with interest computed quarterly on the lowest balance in the Account during such quarter at the prime rate in effect according to The Wall Street Journal on the last day of such quarter plus 1%. A Participant may change such hypothetical investment directions pursuant to such procedures adopted by the Committee from time to time. The Company specifically retains the right in its sole discretion to change the investment deferral crediting options and procedures from time to time. By electing to defer any amount pursuant to the Plan, each Participant shall thereby acknowledge and agree that the Company is not and shall not be required to make any investment in connection with the Plan, nor is it required to follow the Participant's hypothetical investment directions in any actual investment it may make or acquire in connection with the Plan or in determining the amount of any actual or contingent liability or obligation of the Company thereunder or relating thereto. Any amounts credited to a Participant's Account with respect to which a Participant does not provide investment direction shall be credited with earnings in an amount determined by the Committee in its sole discretion or, if an amount is not so determined, such amounts shall be credited to the hypothetical cash fund until further ordered by the Committee or the Board of Directors. A Participant's Account shall be adjusted as of each business day, except that interest, if any, for a calendar quarter shall be credited on the first day of the following quarter. (ii) Compensation payable in the form of Common Shares that a Participant elects to defer shall be reflected in a separate Account, which shall be credited with the number of Common Shares that would otherwise have been issued or transferred and delivered to the Participant. Such Account shall be credited from time to time with amounts equal to dividends or other distributions paid on the number of Common Shares reflected in such Account, and such Account shall be credited with gains, losses and earnings on cash amounts credited to such Account from time to time in the manner provided in Subsection (i) above with respect to cash Compensation. (iii) To the extent a Participant elects deferral with respect to Restricted Shares, the Participant agrees to forego his award of Restricted Shares and instead a separate Account for the Participant will be credited with the number of Common Shares that would otherwise have been covered by the foregone award of Restricted Shares. The number of Common Shares credited to the Participant's Account shall become vested and nonforfeitable on the same date that the corresponding Restricted Shares would have become vested. A Participant shall elect a payment date for the number of Common Shares credited to his Account that is no earlier than the later of (x) date on which the number of Common Shares credited to his Account shall become vested and (y) three years from the date of the award. Such Account shall be credited from time to time with amounts equal to dividends or other distributions paid on the number of Common Shares reflected in such Account, and such Account shall be credited with gains, losses and earnings on cash amounts credited to such Account from time to time in the manner provided in Subsection (i) above with respect to cash Compensation. 5. Payment of Accounts. The amounts in Participants' Accounts shall be paid as provided in this Section 5. (i) The amount of a Participant's Account attributable to deferral of cash Compensation (including any amount that is deemed to be invested in a hypothetical Common Shares fund) shall be paid to the Participant in cash in a lump sum or in a number of approximately equal quarterly installments (based on initial value), not to exceed 40, as designated by the Participant in the Election Agreement. The amount of such Account remaining unpaid shall continue to be credited with gains, losses and earnings, as provided in Section 4 of this Article. The lump sum payment or the first quarterly installment, as the case may be, shall be made as soon as practicable following the end of the period of deferral as specified in Section 3 of this Article. (ii) The number of Common Shares in a Participant's Account attributable to deferral of Compensation payable in the form of Common Shares or Restricted Shares shall be issued or transferred to the Participant in Common Shares in one installment or in a number of approximately equal quarterly installments, not to exceed 40, as designated by the Participant in the Election Agreement. The one installment or first quarterly installment, as the case may be, shall be made as soon as practicable following the end of the period of deferral as specified in Section 3 of this Article. All amounts credited to such Account in respect of dividends, distributions and gains, losses and earnings thereon as provided in Subsections (ii) or (iii) of Section 4 of this Article shall likewise be paid to the Participant at the same time the shares causing the dividend, distribution or interest are transferred to the Participant. 6. Death of a Participant. In the event of the death of a Participant, the amount of the Participant's Account or Accounts shall be paid to the Beneficiary or Beneficiaries designated in a writing substantially in the form attached hereto as Exhibit B (the "Beneficiary Designation"), in accordance with the Participant's Election Agreement and Section 5 of this Article. A Participant's Beneficiary Designation may be changed at any time prior to his or her death by the execution and delivery of a new Beneficiary Designation. The Beneficiary Designation on file with the Company that bears the latest date at the time of the Participant's death shall govern. In the absence of a Beneficiary Designation or the failure of any Beneficiary to survive the Participant, the amount of the Participant's Account or Accounts shall be paid to the Participant's estate in a lump sum 90 days after the appointment of an executor or administrator. In the event of the death of the Beneficiary or Beneficiaries after the death of a Participant, the remaining amount of the Account or Accounts shall be paid in a lump sum to the estate of the last Beneficiary to receive payments 90 days after the appointment of an executor or administrator. 7. Small Payments. Notwithstanding the foregoing, if installment payments elected by a Participant would result in a payment with a value of less than $500, or if the total Account has a value of less than $5,000, the entire amount of the Participant's Account or Accounts may at the discretion of the Company be paid in a lump sum to the Participant or Beneficiary in accordance with Section 6 of this Article. 8. Acceleration. Notwithstanding the provisions of the foregoing: (i) if a Change in Control occurs, the amount of each Participant's Account or Accounts shall immediately be paid to the Participant in full; (ii) in the event of an unforeseeable emergency, as defined in section 1.457-2(h)(4) and (5) of the Income Tax Regulations, that is caused by an event beyond the control of the Participant or Beneficiary and that would result in severe financial hardship to the individual if acceleration were not permitted, the Committee may in its sole discretion accelerate the payment to the Participant or Beneficiary of the amount of his or her Account or Accounts, but only up to the amount necessary to meet the emergency. 9. Adjustments. The Committee may make or provide for such adjustments in the numbers of Common Shares credited to Participants' Accounts, and in the kind of shares so credited, as the Committee in its sole discretion, exercised in good faith, may determine is equitably required to prevent dilution or enlargement of the rights of Participants that otherwise would result from (i) any stock dividend, stock split, combination of shares, recapitalization or other change in the capital structure of the Company, or (ii) any merger, consolidation, spin-off, split-off, spin-out, split-up, reorganization, partial or complete liquidation or other distribution of assets, issuance of rights or warrants to purchase securities, or (iii) any other corporate transaction or event having an effect similar to any of the foregoing. Moreover, in the event of any such transaction or event, the Committee, in its discretion, may provide in substitution for any or all Common Shares deliverable under this Plan such alternative consideration as it, in good faith, may determine to be equitable in the circumstances. 10. Fractional Shares. The Company 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 of fractions in cash. ARTICLE III ADMINISTRATION The Company, through the Committee, shall be responsible for the general administration of the Plan and for carrying out the provisions hereof. The Committee shall have all such powers as may be necessary to carry out the provisions of the Plan, including the power to (i) determine all questions relating to eligibility for participation in the Plan and the amount in the Account or Accounts of any Participant and all questions pertaining to claims for benefits and procedures for claim review, (ii) resolve all other questions arising under the Plan, including any questions of construction, and (iii) take such further action as the Company shall deem advisable in the administration of the Plan. The actions taken and the decisions made by the Committee hereunder shall be final and binding upon all interested parties. ARTICLE IV AMENDMENT AND TERMINATION The Company reserves the right to amend or terminate the Plan at any time by action of the Board; provided, however, that no such action shall adversely affect any Participant or Beneficiary who has an Account, or result in the acceleration of payment of the amount of any Account (except as otherwise permitted under the Plan), without the consent of the Participant or Beneficiary. ARTICLE V MISCELLANEOUS 1. Non-alienation of Deferred Compensation. Except as permitted by this Plan, no right or interest under this Plan of any Participant or Beneficiary shall, without the written consent of the Company, be (i) assignable or transferable in any manner, (ii) subject to alienation, anticipation, sale, pledge, encumbrance, attachment, garnishment or other legal process or (iii) in any manner liable for or subject to the debts or liabilities of the Participant or Beneficiary. 2. Interest of Director. The obligation of the Company under the Plan to make payment of amounts reflected in an Account merely constitutes the unsecured promise of the Company to make payments from its general assets or in the form of its Common Shares, as the case may be, as provided herein, and no Participant or Beneficiary shall have any interest in, or a lien or prior claim upon, any property of the Company. It is the intention of the Company that the Plan be unfunded for tax purposes and for purposes of Title I of ERISA. The Company may create a trust to hold funds, Common Shares or other securities to be used in payment of its obligations under the Plan, and may fund such trust; provided, however, that any funds contained therein shall remain liable for the claims of the Company's general creditors. 3. Claims of Other Persons. The provisions of the Plan shall in no event be construed as giving any other person, firm or corporation any legal or equitable right as against the Company or the officers, employees or Directors of the Company, except any such rights as are specifically provided for in the Plan or are hereafter created in accordance with the terms and provisions of the Plan. 4. Severability. The invalidity and unenforceability of any particular provision of the Plan shall not affect any other provision hereof, and the Plan shall be construed in all respects as if such invalid or unenforceable provision were omitted herefrom. 5. Governing Law. Except to the extent preempted by federal law, the provisions of the Plan shall be governed and construed in accordance with the laws of the State of Ohio. 6. Relationship to Other Plans. This Plan is intended to serve the purposes of and to be consistent with the Long-Term Incentive Plan and any similar plan approved by the Committee for purposes of this Plan. The issuance or transfer of Common Shares pursuant to this Plan shall be subject in all respects to the terms and conditions of the Long-Term Incentive Plan and any other such plan. Without limiting the generality of the foregoing, Common Shares credited to the Accounts of Participants pursuant to this Plan as a result of the deferral of Compensation payable in Common Shares or Restricted Shares shall be taken into account for purposes of Section 3 of the Long-Term Incentive Plan (Shares Available Under the Plan) and for purposes of the corresponding provisions of any other such plan. EXHIBIT A (Continuing Directors) THE TIMKEN COMPANY DIRECTOR DEFERRED COMPENSATION PLAN ELECTION AGREEMENT I, ______________________, hereby elect to participate in the Director Deferred Compensation Plan for The Timken Company (the "Plan") with respect to the Compensation that I may receive beginning April 1, 2000. I hereby elect to defer payment of the Compensation which I otherwise would be entitled to receive as follows: Deferral of Cash Deferral of Common Shares 1. Percentage or dollar amount 1. Percentage or dollar amount of Board retainer and Committee value of Common Shares payable fees, if any, payable (a) in as a result of the annual 2000 only [ ] or (b) in 2000 automatic award (a) in 2000 and in later years [ ] (check only [ ] or (b) in 2000 and in one): later years [ ] (check one): 25% [ ] 100% [ ] 25% [ ] 100% [ ] 50% [ ] ___% [ ] 50% [ ] ___% [ ] $___ [ ] __shares [ ] $___ [ ] 2. Percentage of deferred 2. Percentage of dividend amount to be invested in Common equivalents to be invested in Shares fund and/or cash fund Common Shares fund and/or cash (total of percentages must fund (total of percentages must equal 100%): equal 100%): a. Common Shares fund ____% a. Common Shares fund ____% b. Cash fund ____% b. Cash fund ____% 3. To the extent of any 3. Please make payment of the election to Common Shares fund, above specified Compensation percentage of dividend together with all accrued equivalents to be invested in amounts reflected in my Account Common Shares fund and/or cash as follows: fund (total of percentages must equal 100%): a. Pay in lump sum [ ] b. Pay in __ approximately a. Common Shares fund _____% equal quarterly installments b. Cash fund _____% (based on inital value) [ ] 4. Please make payment of the 4. Please defer my receipt of above specified cash Common Shares together with the Compensation together with all cash credited to my Account accrued amounts reflected in my equal to dividends or other Account as follows: distributions paid on the number of shares reflected in a. Pay in lump sum [ ] such Account, together with all b. Pay in ___ approximately accrued amounts, as follows: equal quarterly installments (based on initial value) [ ] a. Defer until the date I cease 5. Please defer payment or to be a Director [ ] make payment of first b. Defer until _____[ ] installment as follows: (specify date or number of years following termination as a. Defer until the date I member of the Board) cease to be a Director [ ] b. Defer until _________ [ ] (specify date or number of years following termination as member of the Board) I acknowledge that I have reviewed the Plan and understand that my participation will be subject to the terms and conditions contained in the Plan. Capitalized terms used, but not otherwise defined, in this Election Agreement shall have the respective meanings assigned to them in the Plan. I understand that (i) this Election Agreement shall continue to be effective from Year to Year except as specified above and except as otherwise provided in the Plan and (ii) in order to be effective to revoke or modify this Election Agreement with respect to Compensation otherwise payable in a particular Year, a revocation or modification must be delivered to the Director of Compensation and Benefits or Corporate Secretary of the Company prior to the beginning of the first Year of service for which such Compensation is payable. I acknowledge that I have been advised to consult with my own financial, tax, estate planning and legal advisors before making this election to defer in order to determine the tax effects and other implications of my participation in the Plan. Dated this _____day of _________, 2000. ____________________________ _________________________________ (Signature) (Print or type name) EXHIBIT A (New Directors) THE TIMKEN COMPANY DIRECTOR DEFERRED COMPENSATION PLAN ELECTION AGREEMENT I, _______________________________, hereby elect to participate in the Director Deferred Compensation Plan for The Timken Company (the "Plan") with respect to the Compensation that I may receive beginning April 1, 2000. I hereby elect to defer payment of the Compensation which I otherwise would be entitled to receive as follows: Deferral of Cash Deferral of Common Deferral of Shares Restricted Shares 1. Percentage or dollar amount of 1. Percentage or 1. Percentage or Board retainer and dollar amount value dollar amount value Committee fees, if of Common Shares of Restricted any, payable (a) in payable as a result Shares, if any, 2000 only [ ] or of the annual payable as a result (b) in 2000 and in automatic award (a) of the one-time later years [ ] in 2000 only [ ] or award received upon (check one): (b) in 2000 and in election to the later years [ ] Board: 25% [ ] 100% [ ] (check one): 25% [ ] 100% [ ] 50% [ ] ___% [ ] 25% [ ] 100% [ ] 50% [ ] ___% [ ] 50% [ ] ___% [ ] $___% [ ] ___ shares [ ] $[ ] ___ shares [ ] $[ ] 2. Percentage of deferred amount to 2. Percentage of be invested in 2. Percentage of dividend equivalents Common Shares fund dividend equivalents to be invested in and/or cash fund to be invested in Common Shares fund (total of Common Shares fund and/or cash fund percentages must and/or cash fund (total of equal 100%): (total of percentages percentages must must equal 100%) equal 100%) a. Common Shares fund ____% a. Common Shares a. Common Shares b. Cash fund fund ____% fund ____% ____% b. Cash fund ____% b. Cash fund ____% 3. To the extent 3. Please make of any election to 3. Please make payment of the above Common Shares fund,payment of the above specified percentage of specified Compensation dividend Compensation together together with all equivalents to be with all accrued accrued amounts invested in Common amounts reflected in reflected in my Shares fund and/or my Account as Account as follows: cash fund (total offollows: percentages must a. Pay in lump sum equal 100%): a. Pay in lump sum [ ] [ ] b. Pay in __ a. Common Shares b. Pay in __ approximately fund ____% approximately equal quarterly equal quarterly installments b. Cash fund ____% installments (based on (based on initial initial value) 4. Please make value) [ ] [ ] payment of the above specified 4. Please defer my 4. Please defer my cash Compensation receipt of Common receipt of Common Together with all Shares together with Shares together with accrued amounts the cash credited to the cash credited to reflected in my my Account equal to my Account equal to Account as follows: dividends or other dividends or other distributions paid on distributions paid a. Pay in lump the number of shares on the number of sum [ ] reflected in such shares reflected in b. Pay in __ Account, together such Account, approximately with all accrued together with all equal amounts, as follows: accrued amounts, as quarterly follows (payment installments a. Defer until the date may be no (based on date I cease to earlier than the initial value) be a Director [ ]later of (x) the [ ] b. Defer until date the Restricted ______ [ ] Shares otherwise 5. Please defer (specify would have become payment or make date or number of vested or (y) three payment of first years following years from the date installment as termination as of the award): follows: member of the Board) [ ] a. Defer until the a. Defer until date I cease to the date I be a Director cease to be a [ ] Director [ ] b. Defer until b. Defer until _____ [ ] _________ [ ] (specify date (specify date or number of or number of years following years termination as following member of the termination as Board) [ ] member of the Board) I acknowledge that I have reviewed the Plan and understand that my participation will be subject to the terms and conditions contained in the Plan. Capitalized terms used, but not otherwise defined, in this Election Agreement shall have the respective meanings assigned to them in the Plan. I understand that (i) this Election Agreement shall continue to be effective from Year to Year except as specified above and except as otherwise provided in the Plan and (ii) in order to be effective to revoke or modify this Election Agreement with respect to Compensation otherwise payable in a particular Year, a revocation or modification must be delivered to the Director of Compensation and Benefits or Corporate Secretary of the Company prior to the beginning of the first Year of service for which such Compensation is payable. I acknowledge that I have been advised to consult with my own financial, tax, estate planning and legal advisors before making this election to defer in order to determine the tax effects and other implications of my participation in the Plan. Dated this ________day of ____________, 2000. ______________________________ _______________________________ (Signature) (Print or type name) EXHIBIT B DIRECTOR DEFERRED COMPENSATION PLAN THE TIMKEN COMPANY BENEFICIARY DESIGNATIONS In accordance with the terms and conditions of the Director Deferred Compensation Plan of The Timken Company (the "Plan"), I hereby designate the person(s) indicated below as my beneficiary(ies) to receive the amounts payable under said Plan. Name Address Social Sec. Nos. of Beneficiary(ies) ___________ Relationship(s) ____________________ Date(s) of Birth ___________________ In the event that the above-named beneficiary(ies) predecease(s) me, I hereby designate the following person as beneficiary(ies); Name Address Social Sec. Nos. of Beneficiary(ies) ___________ Relationship(s) ____________________ Date(s) of Birth ___________________ I hereby expressly revoke all prior designations of beneficiary(ies), reserve the right to change the beneficiary(ies) herein designated and agree that the rights of said beneficiary(ies) shall be subject to the terms of the Plan. In the event that there is no beneficiary living at the time of my death, I understand that the amounts payable under the Plan will be paid to my estate. ____________________ Date (Signature) (Print or type name) EX-10.2 3 CL: 488891v4 EXHIBIT 10.2 THE TIMKEN COMPANY Nonqualified Stock Option Agreement WHEREAS, <> <> (the "Optionee") is an employee of The Timken Company (the "Company"); and WHEREAS, the grant of stock options evidenced hereby was authorized by a resolution of the Compensation Committee (the "Committee") of the Board of Directors (the "Board") of the Company that was duly adopted on April 18, 2000 (the "Date of Grant"), and the execution of a stock option agreement in the form hereof was authorized by a resolution of the Committee duly adopted on April 18, 2000; and WHEREAS, the option evidenced hereby is intended to be a nonqualified stock option and shall not be treated as an "incentive stock option" within the meaning of that term under Section 422 of the Internal Revenue Code of 1986; NOW, THEREFORE, pursuant to the Company's Long-term Incentive Plan (as Amended and Restated as of December 16, 1999) (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 fifteen and seven-eighths dollars ($15.875) per Common Share (the "Exercise Price") and (ii) the right to receive dividend equivalents payable in Common Shares on a deferred basis or, at the discretion of the Committee, in cash, with respect to the Common Shares covered by any unexercised portion of the Option (the "Deferred Dividend Shares"). 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) 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: 2 (1) any acquisition directly from the Company, (2) any acquisition by the Company, (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary, or (4) any acquisition by any Person pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this Section 1(b); or (ii) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason (other than death or disability) to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be considered as though such individual were a member of the Incumbent Board, but excluding for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest (within the meaning of Rule 14a-11 of the Securities Exchange Act of 1934) with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Common Shares and Voting Shares immediately prior to such Business Combination beneficially own, directly or indirectly, more than 66-2/3% of, respectively, the then-outstanding 3 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) 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 while in the employ of the Company or any subsidiary, or if the Optionee should retire with the Company's consent. 4 For purposes of this agreement, retirement "with the Company's consent" shall mean: (i) the retirement of the Optionee prior to age 62 under a retirement plan of the Company or a subsidiary, if the Board or the Committee determines that his retirement is for the convenience of the Company or a subsidiary, or (ii) the retirement of the Optionee at or after age 62 under a retirement plan of the Company or a subsidiary. For purposes of this agreement, "permanently disabled" shall mean that the Optionee has qualified for 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. (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, permanent 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 subsidiary (i) as a result of his permanent 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) five years after the date upon which the Optionee ceases to be a director of the Company, but not less than five years after the date upon which he ceases to be an employee of the Company or a subsidiary, if (i) the cessation of his 5 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 permanent disability or retirement with the Company's consent or (ii) following a change in control; or (e) ten years after the Date of Grant. In the event that the Optionee shall intentionally commit an act that the Committee determines to be materially adverse to the interests of the Company or a subsidiary, the Option shall terminate at the time of that determination notwithstanding any other provision of this agreement. 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 6 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. Crediting of Deferred Dividend Shares. Each Deferred Dividend Share represents the right of the Optionee to receive one Common Share or the cash equivalent of 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 6 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 7 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, permanent 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. Deferred Dividend Shares shall be issuable in Common Shares or the cash equivalent of such Common Shares, as determined in the sole discretion of the Committee at the time of such issuance (which determination may include providing the Optionee the right to elect to receive either Common Shares or the cash equivalent of such Common Shares); provided, however, that in the event of the Optionee's death, permanent disability or retirement with the Company's consent, the Deferred Dividend Shares issuable to the Optionee shall be issued in Common Shares or the cash equivalent of such Common Shares, at the Optionee's election. In the absence of any such election or determination by the Committee, the Deferred Dividend Shares shall be paid in Common Shares. 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 8 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 9 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. The Optionee may elect to satisfy all or any part of any such withholding obligation by surrendering to the Company a portion of the Common Shares that are issuable to the Optionee upon the exercise of the Option or payment of Deferred Dividend Shares. If such election is made, the shares so surrendered by the Optionee shall be credited against any such withholding obligation at their fair market value (as determined by the Committee from time to time) on the date of such surrender. 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 10 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 18th day of April, 2000. THE TIMKEN COMPANY By ___________________________ Stephen A. Perry Senior Vice President Human Resources, Purchasing & Communications 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: _________________________ 11 EX-10.3 4 EXHIBIT 10.3 TRANSFERABLE THE TIMKEN COMPANY Nonqualified Stock Option Agreement WHEREAS, <> <> (the "Optionee") is an employee of The Timken Company (the "Company"); WHEREAS, the grant of stock options evidenced hereby was authorized by a resolution of the Compensation Committee (the "Committee") of the Board of Directors (the "Board") of the Company that was duly adopted on April 18, 2000 (the "Date of Grant"), and the execution of a stock option agreement in the form hereof was authorized by a resolution of the Committee duly adopted on April 18, 2000; and WHEREAS, the option evidenced hereby is intended to be a nonqualified stock option and shall not be treated as an "incentive stock option" within the meaning of that term under Section 422 of the Internal Revenue Code of 1986; NOW, THEREFORE, pursuant to the Company's Long-term Incentive Plan (as Amended and Restated as of December 16, 1999) (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 fifteen and seven-eighths dollars ($15.875) per Common Share (the "Exercise Price") and (ii) the right to receive dividend equivalents payable in Common Shares on a deferred basis or, at the discretion of the Committee, in cash, with respect to the Common Shares covered by any unexercised portion of the Option (the "Deferred Dividend Shares"). 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) 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: 2 (1) any acquisition directly from the Company, (2) any acquisition by the Company, (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary, or (4) any acquisition by any Person pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this Section 1(b); or (ii) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason (other than death or disability) to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be considered as though such individual were a member of the Incumbent Board, but excluding for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest (within the meaning of Rule 14a-11 of the Securities Exchange Act of 1934) with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Common Shares and Voting Shares immediately prior to such Business Combination beneficially own, directly or indirectly, more than 66-2/3% of, respectively, the then-outstanding 3 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) 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 while in the employ of the Company or any subsidiary, or if the Optionee should retire with the Company's consent. 4 For the purposes of this agreement, retirement "with the Company's consent" shall mean: (i) the retirement of the Optionee prior to age 62 under a retirement plan of the Company or a subsidiary, if the Board or the Committee determines that his retirement is for the convenience of the Company or a subsidiary, or (ii) the retirement of the Optionee at or after age 62 under a retirement plan of the Company or a subsidiary. For purposes of this agreement, "permanently disabled" shall mean that the Optionee has qualified for 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. (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, permanent 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 subsidiary (i) as a result of his permanent 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) five years after the date upon which the Optionee ceases to be a director of the Company, but not less than five years after the date upon which he ceases to be an employee of the Company or a subsidiary, if (i) the cessation of his employment is a result of his 5 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 permanent disability or retirement with the Company's consent or (ii) following a change in control; or (e) ten years after the Date of Grant. In the event that the Optionee shall intentionally commit an act that the Committee determines to be materially adverse to the interests of the Company or a subsidiary, the Option shall terminate at the time of that determination notwithstanding any other provision of this agreement. 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 6 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. Crediting of Deferred Dividend Shares. Each Deferred Dividend Share represents the right of the Optionee to receive one Common Share or the cash equivalent of 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 6 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 7 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, permanent 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. Deferred Dividend Shares shall be issuable in Common Shares or the cash equivalent of such Common Shares, as determined in the sole discretion of the Committee at the time of such issuance (which determination may include providing the Optionee the right to elect to receive either Common Shares or the cash equivalent of such Common Shares); provided, however, that in the event of the Optionee's death, permanent disability or retirement with the Company's consent, the Deferred Dividend Shares issuable to the Optionee shall be issued in Common Shares or the cash equivalent of such Common Shares, at the Optionee's election. In the absence of any such election or determination by the Committee, the Deferred Dividend Shares shall be paid in Common Shares. 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 8 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. (a) Except as provided in Section 7(b) below, 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. (b) Notwithstanding Section 7(a) above, the Option, any Deferred Dividend Shares, or any interest in either 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. 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 9 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. The Optionee may elect to satisfy all or any part of any such withholding obligation by surrendering to the Company a portion of the Common Shares that are issuable to the Optionee upon the exercise of the Option or payment of Deferred Dividend Shares. If such election is made, the shares so surrendered by the Optionee shall be credited against any such withholding obligation at their fair market value (as determined by the Committee from time to time) on the date of such surrender. 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 10 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 18th day of April, 2000. THE TIMKEN COMPANY By ___________________________ Stephen A. Perry Senior Vice President Human Resources, Purchasing & Communications 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: __________________________ 11 EX-10.4 5 EXHIBIT 10.4 THE TIMKEN COMPANY Nonqualified Stock Option Agreement WHEREAS, <> <> (the "Optionee") is an employee of The Timken Company (the "Company"); WHEREAS, the grant of stock options evidenced hereby was authorized by a resolution of the Compensation Committee (the "Committee") of the Board of Directors (the "Board") of the Company that was duly adopted on April 18, 2000 (the "Date of Grant"), and the execution of a stock option agreement in the form hereof was authorized by a resolution of the Committee duly adopted on April 18, 2000; and WHEREAS, the option evidenced hereby is intended to be a nonqualified stock option and shall not be treated as an "incentive stock option" within the meaning of that term under Section 422 of the Internal Revenue Code of 1986; NOW, THEREFORE, pursuant to the Company's Long-term Incentive Plan (as Amended and Restated as of December 16, 1999) (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 fifteen and seven-eighths dollars ($15.875) per Common Share (the "Exercise Price"). 1. Vesting of Option. (a) Provided the Optionee remains in the continuous employ of the Company or a subsidiary and unless terminated as hereinafter provided, the Option shall become exercisable in full with respect to all of the Common Shares covered by the Option if and when the closing price of a Common Share equals or exceeds thirty-five dollars ($35.00) per share on any trading day. The closing price of a Common Share shall be determined in accordance with The Wall Street Journal, Midwest Edition. 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, (i) by reason of the transfer of his employment among the Company and its subsidiaries or (ii) while he is serving as a director of the Company. (b) To the extent that the Option shall have become exercisable in accordance with the terms of this agreement, it may be exercised in whole or in part from time to time thereafter. 2. Termination of Option. (a) The Option shall terminate automatically and without further notice on the earliest of the following dates: (i) 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 (A) is a result of his death, permanent disability (as defined below) or retirement with the Company's consent (as defined below) or (B) follows a change in control (as defined below); (ii) five years after the date upon which the Optionee ceases to be an employee of the Company or subsidiary (A) as a result of his permanent disability, (B) as a result of his retirement with the Company's consent, unless he is also a director of the Company who 2 continues to serve as such following his retirement with the Company's consent, or (C) following a change in control, unless the cessation of his employment following a change in control is a result of his death; (iii) five years after the date upon which the Optionee ceases to be a director of the Company, but not less than five years after the date upon which he ceases to be an employee of the Company or a subsidiary, if (A) the cessation of his employment is a result of his retirement with the Company's consent and (B) he continues to serve as a director of the Company following the cessation of his employment; (iv) 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 (A) as a result of his permanent disability or retirement with the Company's consent or (B) following a change in control; or (v) ten years after the Date of Grant. In the event that the Optionee shall intentionally commit an act that the Committee determines to be materially adverse to the interests of the Company or a subsidiary, the Option shall terminate at the time of that determination notwithstanding any other provision of this agreement. (b) For purposes of this agreement, "permanently disabled" shall mean that the Optionee has qualified for 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. 3 (c) For purposes of this agreement, retirement "with the Company's consent" shall mean: (A) the retirement of the Optionee prior to age 62 under a retirement plan of the Company or a subsidiary, if the Board or the Committee determines that his retirement is for the convenience of the Company or a subsidiary, or (B) the retirement of the Optionee at or after age 62 under a retirement plan of the Company or a subsidiary. (d) For the purposes of this agreement, the term "change in control" shall mean the occurrence of any of the following events: (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934) of 30% or more of either: (A) the then-outstanding Common Shares or (B) the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors ("Voting Shares"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a change in control: (1) any acquisition directly from the Company, (2) any acquisition by the Company, (3) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary, or (4) any acquisition by any Person pursuant to a transaction which complies with clauses (A), (B) and (C) of subsection (iii) of this Section 2(d); 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 4 approved by a vote of at least a majority of the directors then comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be considered as though such individual were a member of the Incumbent Board, but excluding for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest (within the meaning of Rule 14a-11 of the Securities Exchange Act of 1934) with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Common Shares and Voting Shares immediately prior to such Business Combination beneficially own, directly or indirectly, more than 66-2/3% of, respectively, the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions relative to each other as their ownership, immediately prior to such Business Combination, of 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) 5 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. 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. 6 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 agreement, the Option shall not be exercisable 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 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 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. 7 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. Withholding Taxes. If the Company shall be required to withhold any federal, state, local or foreign tax in connection with any exercise of the Option, the Optionee shall pay the tax or make provisions that are satisfactory to the Company for the payment thereof. The Optionee may elect to satisfy all or any part of any such withholding obligation by surrendering to the Company a portion of the Common Shares that are issuable to the Optionee upon the exercise of the Option. If such election is made, the shares so surrendered by the Optionee shall be credited against any such withholding obligation at their fair market value (as determined by the Committee from time to time) on the date of such surrender. 8 8. 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. 9. 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. 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 the Optionee with respect to the Option without the Optionee'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. 12. Governing Law. This agreement is made under, and shall be construed in accordance with, the laws of the State of Ohio. 9 This agreement is executed by the Company on this 18th day of April, 2000. THE TIMKEN COMPANY By ___________________________ Stephen A. Perry Senior Vice President Human Resources, Purchasing & Communications The undersigned Optionee hereby acknowledges receipt of an executed original of this agreement and accepts the Option granted hereunder, subject to the terms and conditions of the Plan and the terms and conditions hereinabove set forth. ________________________________ Optionee Date: _________________________ 10 EX-10.5 6 EXHIBIT 10.5 THE TIMKEN COMPANY Deferred Shares Agreement WHEREAS, <> <> (the "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 April 18, 2000 (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 April 18, 2000. NOW, THEREFORE, pursuant to the Company's Long-term Incentive Plan (as Amended and Restated as of December 16, 1999) (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) "Shares" 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. Vesting of Awards. (a) Subject to the terms and conditions of Sections 1(b) and 2 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 fifth anniversary of the Date of Grant. (b) Notwithstanding the provisions of Section 1(a) hereof, 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 1(b); or (ii) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason (other than death or disability) to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be considered as though such individual were a member of the Incumbent Board, but excluding for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest (within the meaning of Rule 14a-11 of the Securities Exchange Act of 1934) with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Common Shares and Voting Shares immediately prior to such Business Combination beneficially own, directly or indirectly, more than 66-2/3% of, respectively, the then-outstanding shares of common stock and the combined voting power of the then-outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions relative to each other as their ownership, immediately prior to such Business Combination, of 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 2 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. 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. 2.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 fifth anniversary of the Date of Grant for any reason other than his death or disability. In the event that the Grantee ceases to be an employee of the Company as a result of his death or disability prior to the fifth anniversary of the Date of Grant, the Grantee's right to receive both the Common Shares covered by this agreement and any Deferred Cash Dividends then accumulated with respect thereto shall become nonforfeitable on the date of cessation of his employment with respect to a prorated portion of each based on the number of whole months that the Grantee shall have been employed by the Company or a subsidiary from the Date of Grant to the date of cessation of his employment. 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. For the purposes of this agreement, "disability" shall mean that the Grantee has qualified for disability benefits under the Company's Long-term Disability Program or any successor disability plan or program of the Company. 3.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 Optionee's right to receive the Common Shares covered by this agreement pursuant to Section 1 hereof or a prorated portion thereof pursuant to Section 2 hereof, as the case may be, becomes nonforfeitable. The Deferred Cash Dividends shall accumulate without interest. 3 4.Payment of Awards. Subject to the terms and conditions of Section 5 hereof, the Common Shares covered by this agreement or any prorated portion thereof 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. 5.Compliance with Law. The Company shall make reasonable efforts to comply with all applicable federal and state securities laws; provided, however, notwithstanding any other provision of this agreement, the Company shall not be obligated to issue any of the 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. 6.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. 7.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 7(a) or 7(b) hereof. Furthermore, in the event that any transaction or event described or referred to in the immediately preceding sentence shall occur, the Committee may provide in substitution of any or all of the Grantee's rights under this agreement such alternative consideration as the Committee may determine in good faith to be equitable under the circumstances. 8.Withholding Taxes. If the Company shall be required to withhold any federal, state, local or foreign tax in connection with any issuance of the Common Shares or other securities covered by this agreement or the payment of any Deferred Cash Dividends, the Grantee shall pay the tax or make provisions that are satisfactory to the Company for the payment thereof. 4 9.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 Grantee at any time. 10.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. 11.Amendments. Any amendment to the Plan shall be deemed to be an amendment to this agreement to the extent that the amendment is applicable hereto; provided, however, that no amendment shall adversely affect the rights of the 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. 12.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. 13.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 ____ day of _________, ____. The Timken Company By ___________________________________ Stephen A. Perry Senior Vice President - Human Resources, Purchasing & Communications 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. _________________________________ Grantee Date:___________________________ 5 EX-10.6 7 EXHIBIT 10.6 AMENDMENT TO EMPLOYEE EXCESS BENEFITS AGREEMENT This Amendment made this ____ day of _____ 2000 by and between _______________________ ("Employee") and THE TIMKEN COMPANY ("Timken"), an Ohio corporation having it principal offices at Canton, Ohio. WHEREAS, Employee has been employed by Timken since ____ and is currently serving as __________________________________________________ in a capable and efficient manner; and WHEREAS, Timken is amending the 1984 Retirement Plan for Salaried Employees to change the way in which earnings are calculated for participants, as of March 31, 2000; and WHEREAS, Employee and Timken had entered into an Employee Excess Benefits Agreement on _____________. NOW, therefore, the parties amend the employee Excess Benefits Agreement as follows: ____ If Employee is an elected officer of Timken and retires at age 62 (or at Timken's discretion retires earlier or later than age 62 but not later than age 65), he shall be entitled to have his benefits hereunder calculated under the 1.75% formula in the Retirement Plans, unreduced for benefit commencement on or after age 62. For purposes of calculating his benefit under the 1.75% formula, Employee's average yearly earnings shall mean his average yearly total earnings received from Timken for the four twelve-month periods, whether or not consecutive, during which he was a participant which give the highest average during the 10-year period immediately preceding his retirement date. Except as it is hereby amended, the Employee Excess Benefits Agreement executed _____________ shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Agreement in duplicate this ____ day of ______, 2000. ________________________________ ("Employee") THE TIMKEN COMPANY By: _____________________________ Stephen A. Perry, Senior Vice President--Human Resources, Purchasing & Communications EX-11 8 Exhibit 11 - COMPUTATION OF PER SHARE EARNINGS (Thousands of dollars, except per share data)
Three Months Ended March 31 2000 1999 ------------ ------------ BASIC Average shares outstanding 61,099,962 61,859,612 Net income $16,040 $16,579 Per share amount $0.26 $0.27 ===== ===== DILUTED Average shares outstanding 61,099,962 61,859,612 Effect of dilutive securities based on the treasury stock method using the average market price if higher than the exercise price 137,181 158,856 ---------- ---------- 61,237,143 62,018,468 Net income $16,040 $16,579 Per share amount $0.26 $0.27
===== ===== EX-12 9 EXHIBIT 12 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES Three Months Ended Mar. 31 Mar. 31 2000 1999 -------- -------- (Thousands of Dollars) Income before income taxes, extraordinary item and cumulative effect of accounting changes $26,733 $27,585 Amortization of capitalized interest 608 608 Interest expense 7,222 6,656 Interest portion of rental expense 598 529 -------- -------- Earnings $35,161 $35,378 ======== ======== Interest $ 7,586 $ 7,530 Interest portion of rental expense 598 529 -------- -------- Fixed Charges $ 8,184 $ 8,059 ======== ======== Ratio of Earnings to Fixed Charges 4.30 4.39 ======== ======== EX-27 10
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED BALANCE SHEET AND PROFIT & LOSS FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-2000 MAR-31-2000 9,620 0 403,825 9,792 478,387 921,941 2,893,828 1,544,049 2,492,282 588,212 326,302 0 0 269,708 772,977 2,492,282 685,791 685,791 540,826 540,826 0 0 7,222 26,733 10,693 16,040 0 0 0 16,040 0.26 0.26
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