<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCHEDULE 14A
(RULE 14A)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/X/ Preliminary Proxy Statement / / CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14A-6(E)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
TIMKEN
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TIMKEN
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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<PAGE> 2
PRELIMINARY COPY
Draft
1-31-96 TIMKEN
- --------------------------------------------------------------------------------
Notice of
1996
Annual Meeting of Shareholders
and
Proxy Statement
- --------------------------------------------------------------------------------
THE TIMKEN COMPANY
Canton, Ohio, U.S.A.
<PAGE> 3
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
Chairman's Letter.................................................................................... 1
Notice of Annual Meeting............................................................................. 3
Proxy Statement...................................................................................... 4
Election of Directors......................................................................... 4
Election of Class II Directors (Item No. 1)................................................ 4
Information Concerning Nominees and Continuing Directors................................... 5
Beneficial Stock Ownership................................................................. 8
Executive Compensation..................................................................... 10
Approval of The Timken Company Long-Term Incentive Plan,
as Amended and Restated (Item No. 2) ...................................................... 20
Adoption of an Amendment to the Amended Articles of Incorporation
to Increase the Number of Authorized Shares (Item No. 3) .................................. 29
Auditors...................................................................................... 30
General....................................................................................... 30
Appendix A........................................................................................... 31
Appendix B........................................................................................... 47
</TABLE>
<PAGE> 4
TIMKEN
- --------------------------------------------------------------------------------
W.R. Timken, Jr.
Chairman - Board of Directors WORLDWIDE LEADER IN BEARINGS AND STEEL
March 6, 1996
Dear Shareholder:
The 1996 Annual Meeting of The Timken Company will be held on Tuesday, April 16,
1996, at ten o'clock in the morning at the Corporate Office of the Company in
Canton, Ohio.
This year, you are being asked to act upon three matters recommended by your
Board of Directors. Details of these matters are contained in the accompanying
Notice of Annual Meeting and Proxy Statement.
Please read the enclosed information carefully before completing and returning
the enclosed proxy card. Returning your proxy card as soon as possible will
assure your representation at the meeting, whether or not you plan to attend.
I appreciate the strong support of our shareholders over the years and look
forward to a similar vote of support at the 1996 Annual Meeting.
Sincerely,
By:/s/W. R. Timken,Jr.
--------------------
W. R. Timken, Jr.
1835 Dueber Avenue, S.W.
THE TIMKEN COMPANY Canton, OH 44706-0927 U.S.A. Telephone (216)438-3000
<PAGE> 5
-2-
<PAGE> 6
THE TIMKEN COMPANY
CANTON, OHIO
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
------------------------------------------
The Annual Meeting of Shareholders of The Timken Company will be held on
Tuesday, April 16, 1996, at 10:00 A.M., at 1835 Dueber Avenue, S.W., Canton,
Ohio, for the following purposes:
1. To elect four Directors to serve in Class II for a term of three years.
2. To approve The Timken Company Long Term Incentive Plan, as amended and
restated.
3. To adopt an amendment to Article Fourth of the Company's Amended
Articles of Incorporation to increase authorized Common Stock from
100,000,000 shares without par value to 200,000,000 shares without par
value.
4. To transact such other business as may properly come before the meeting.
Holders of Common Stock of record at the close of business on February 16, 1996,
are the shareholders entitled to notice of and to vote at the meeting.
PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD, WHETHER OR NOT YOU EXPECT
TO ATTEND THE MEETING. For your convenience, a self addressed envelope is
enclosed requiring no postage if mailed in the United States.
LARRY R. BROWN
Vice President and General Counsel
March 6, 1996
YOUR VOTE IS IMPORTANT. PLEASE RETURN YOUR PROXY CARD.
-3-
<PAGE> 7
THE TIMKEN COMPANY
--------------------
PROXY STATEMENT
The enclosed proxy is solicited by the Board of Directors in connection with
the Annual Meeting of Shareholders to be held April 16, 1996, for the purpose of
considering and acting upon the matters specified in the foregoing Notice.
Financial and other reports will be submitted to the meeting, but it is not
intended that any action will be taken on these reports. The Board of Directors
is not aware that matters other than those specified in the foregoing Notice
will be brought before the meeting for action. However, if any such matters
should be brought before the meeting, the persons appointed as proxies may vote
or act upon such matters according to their judgment.
MAILING ADDRESS; MAILING AND NOTIFICATION DATES
The mailing address of the corporate offices of the Company is 1835 Dueber
Avenue, S.W., Canton, Ohio 44706-2798. The approximate date on which this Proxy
Statement and form of proxy will be first sent or given to shareholders is March
8, 1996. In the event that proxy soliciting material for the 1997 Annual Meeting
is sent to shareholders on approximately the same date in 1997, the Company must
be notified no later than November 8, 1996, of any shareholder proposals to be
presented at the 1997 Annual Meeting, if such proposals are to be set forth in
the 1997 proxy soliciting material.
ELECTION OF DIRECTORS
---------------------
The Company presently has twelve Directors who, pursuant to the Amended
Regulations of the Company, are divided into three classes with four Directors
in each Class. At the Board of Directors' meeting held on June 4, 1996, the
Board passed a resolution increasing the number of Directors from eleven to
twelve effective as of that meeting date. The increase of one Director was
apportioned to Class I. Pursuant to the Amended Regulations of the Company,
Martin D. Walker then was elected by the Directors then in office to serve as a
Director in Class I, with his term to expire at the 1998 Annual Meeting. At the
1996 Annual Meeting, four Directors will be elected to serve in Class II for a
three year term to expire at the 1999 Annual Meeting. Under Ohio law and the
Company's Amended Regulations, candidates for Directors receiving the greatest
number of votes shall be elected.
If any nominee becomes unable, for any reason, to serve as a Director, or
should a vacancy occur before the election (which events are not anticipated),
the Directors then in office may substitute another person as a nominee or may
reduce the number of nominees to such extent as they shall deem advisable.
ITEM NO. 1
----------
ELECTION OF CLASS II DIRECTORS
The Board of Directors, by resolution at its February 2, 1996 meeting,
nominated the four individuals set forth below to be elected Directors in Class
II at the 1996 Annual Meeting to serve for a term of three years expiring at the
Annual Meeting in 1999 (or until their respective successors are elected and
qualified). All of the nominees, except for Mr. Precourt and Dr. LaForce have
been previously elected as a Director by the shareholders. Dr. LaForce was
elected by the Directors then in office in February,1994 to fill the vacancy
created by Richard A. Gulling's resignation from the Board at that time. Each of
the nominees listed below has consented to serve as a Director if elected.
Unless otherwise indicated on any proxy, the persons named as proxies on the
enclosed proxy form intend to vote the shares the form represents for the
election of the nominees named below.
-4-
<PAGE> 8
The following table, based in part on information received from the
respective nominees and in part from the records of the Company, sets forth
information regarding each nominee as of January 25, 1996.
<TABLE>
<CAPTION>
AGE; PRINCIPAL POSITION OR OFFICE; DIRECTOR
BUSINESS EXPERIENCE FOR LAST 5 YEARS; CONTINUOUSLY
NAME OF NOMINEE DIRECTORSHIPS OF PUBLICLY HELD COMPANIES SINCE
- --------------- ---------------------------------------- -----
<S> <C> <C>
J. Clayburn La Force, Jr. 67, Dean Emeritus and Professor Emeritus, 1994
The John E. Anderson Graduate
School of Management, University
of California, Los Angeles.
Previous positions: Acting Dean,
Hong Kong University of Science
and Technology;
Dean, John E. Anderson Graduate School
of Management.
Director of: Eli Lilly and Company;
Rockwell International Corporation;
Jacobs Engineering Group, Inc.;
The BlackRock Funds; Imperial Credit
Industries, Inc.; Payden & Rygel
Investment Trust; Provident Investment
Counsel Mutual Funds.
Robert W. Mahoney 59, Chairman of the Board, President and 1992
Chief Executive Officer of Diebold,
Incorporated, a company specializing in the
automation of self-service transactions,
security products, software and service for
its products.
Previous position: President and Chief
Executive Officer of Diebold, Incorporated.
Director of: Diebold, Incorporated; Sherwin-
Williams Co.
Jay A. Precourt 58, Vice Chairman and Chief -----
Executive Officer of Tejas Gas
Corporation, intrastate gatherer,
transporter and marketer of natural gas.
Director of: Tejas Gas Corporation;
Dresser Industries, Inc.; Founders Funds, Inc.
Joseph F. Toot, Jr. 60, President and Chief Executive Officer. 1968
Previous position: President.
Director of: Rockwell International
Corporation.
</TABLE>
-5-
<PAGE> 9
CONTINUING DIRECTORS
The remaining eight Directors, named below, will continue to serve in their
respective classes until their term expires. The following table, based in part
on information received from the respective Directors and in part from the
records of the Company, sets forth information regarding each continuing
Director as of January 25, 1996.
<TABLE>
<CAPTION>
AGE; PRINCIPAL POSITION OR OFFICE; DIRECTOR
BUSINESS EXPERIENCE FOR LAST FIVE YEARS; TERM CONTINUOUSLY
NAME OF DIRECTOR DIRECTORSHIPS OF PUBLICLY HELD COMPANIES EXPIRES SINCE
- ---------------- ---------------------------------------- ------- -----
<S> <C> <C> <C>
Robert Anderson 75, Chairman Emeritus and Former Chairman April, 1998 1988
of the Board and Chief Executive Officer of
Rockwell International Corporation, a
multi-industry company applying advanced technology
to a wide range of products in its aerospace,
electronics, automotive, and graphics businesses.
Director of: Optical Data Systems, Inc.
Stanley C. Gault 70, Chairman of the Board of The Goodyear April, 1997 1988
Tire and Rubber Company, manufacturer and
distributor of tires, chemicals, polymers, plastic
film and other rubber products. Previous positions:
Chairman of the Board and Chief Executive Officer
of The Goodyear Tire and Rubber Company; Chairman
of the Board and Chief Executive Officer of
Rubbermaid Incorporated, manufacturer and
distributor of rubber and plastic products for
consumer and institutional markets. Director of:
Avon Products, Inc.; International Paper Company;
PPG Industries, Inc.; Rubbermaid Incorporated; The
Goodyear Tire and Rubber Company.
John M. Timken, Jr. 44, Private Investor. April, 1997 1986
Ward J. Timken 53, Vice President. April, 1998 1971
Previous position: Director - Human
Resource Development.
W. R. Timken, Jr. 57, Chairman - Board of Directors. April, 1997 1965
Director of: Diebold, Incorporated;
The Louisiana Land & Exploration
Company; Trinova Corporation.
</TABLE>
-6-
<PAGE> 10
<TABLE>
<CAPTION>
AGE; PRINCIPAL POSITION OR OFFICE; DIRECTOR
BUSINESS EXPERIENCE FOR LAST FIVE YEARS; TERM CONTINUOUSLY
NAME OF DIRECTOR DIRECTORSHIPS OF PUBLICLY HELD COMPANIES EXPIRES SINCE
- ---------------- ---------------------------------------- ------- -----
<S> <C> <C> <C>
Martin D. Walker 63, Chairman and Chief Executive April, 1998 1995
Officer of M. A. Hanna Company,
an international specialty chemicals
company, whose primary businesses
are plastics and rubber compounding,
color and additive concentrates and
distribution of plastic resins and
engineered shapes.
Director of: M. A. Hanna Company;
Comerica Inc.; The Reynolds and
Reynolds Company; Textron Inc.
Charles H. West 61, Executive Vice President and April, 1998 1984
President - Steel.
Previous position: Executive Vice
President - Steel.
Alton W. Whitehouse 68, Retired Chairman and Chief April, 1997 1986
Executive Officer of The Standard
Oil Company, principally producer
of domestic oil and natural gas.
Director of: Cleveland Cliffs, Inc.
</TABLE>
W. R. Timken, Jr. and Ward J. Timken are brothers and are cousins of John
M. Timken, Jr. The Board of Directors has an Audit Committee and a Compensation
Committee; it does not have a Nominating Committee since the Board as a whole
performs that function. Messrs. Robert W. Mahoney (Chairman), J. Clayburn La
Force, Jr., John M. Timken, Jr. and Martin D. Walker are the members of the
Audit Committee, which generally monitors the audit of the Company's financial
statements conducted by the auditors of the Company. Messrs. Robert Anderson,
Stanley C. Gault and Alton W. Whitehouse (Chairman) are the members of the
Compensation Committee, which establishes compensation for the Company's
Officers and determines incentive and performance awards. During 1995, there
were seven meetings of the Board of Directors, three meetings of its Audit
Committee and four meetings of its Compensation Committee. All nominees for
Director and all continuing Directors attended 75 percent or more of the
meetings of the Board and its Committees which they were eligible to attend
except Martin D. Walker who was absent from one committee meeting and one Board
meeting since his election in June due to a commitment made known to the Company
before his election to the Board.
Each Director who served in 1995, who is not currently an employee of the
Company, was paid at the annual rate of $25,000 for services as a Director. Each
Director serving at the time of the Annual Meeting of Shareholders on April 18,
1995, who is not currently an employee of the Company, received a grant of 200
shares of Common Stock under The Timken Company Long Term Incentive Plan
following the meeting, and such Directors will continue to receive annual grants
of 200 shares of Common Stock under the Plan following the Annual Meeting of
Shareholders each year for so long as they continue to serve as nonemployee
Directors. Upon election to the Board, a new nonemployee Director receives a
grant of 1,000 restricted shares under The Timken Company Long Term Incentive
Plan. Members of the Audit Committee and the Compensation Committee received
additional compensation at the rate of $10,000 per year for the Committee
Chairmen and $5,000 per year for each regular Committee member. Any Director may
elect to defer the receipt of all or a certain specified portion of these fees
based upon an Optional Deferment of Directors' Fees Plan. Under this Plan,
amounts deferred by a Director earn interest and are payable to the Director in
a lump sum on the date previously elected by him or in installment payments
beginning when the Director ceases to be a Director. Directors who are employees
of the Company receive no separate fees as Directors of the Company.
-7-
<PAGE> 11
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table shows, as of January 25, 1996, the beneficial ownership of
Common Stock of the Company by each continuing Director and nominee for election
as a Director, by the Chief Executive Officer (who is also a Director) and the
four other most highly compensated Executive Officers during 1995 (two of whom
are also Directors), and by all continuing Directors, nominees for Director and
Officers as a group. Beneficial ownership of Common Stock has been determined
for this purpose in accordance with Rule 13d-3 under the Securities Exchange Act
of 1934 and is based on the sole or shared power to vote or direct the voting or
to dispose or direct the disposition of Common Stock. Beneficial ownership as
determined in this manner does not necessarily bear on the economic incidents of
ownership of Common Stock.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP OF COMMON STOCK
-----------------------------------------------------------
SOLE VOTING
OR SHARED VOTING
INVESTMENT OR INVESTMENT AGGREGATE PERCENT OF
NAME POWER POWER AMOUNT CLASS
---------------------------- ------------------ -------------------- -------------------- -------------
<S> <C> <C> <C> <C>
Robert Anderson 1,600 1,000 2,600 *
Stanley C. Gault 8,600 ---- 8,600 *
Donald L. Hart 46,235(1) ---- 46,235(1) *
J. Clayburn La Force, Jr. 1,468 ---- 1,468 *
Robert L. Leibensperger 51,907(1) ---- 51,907(1) *
Robert W. Mahoney 1,738 ---- 1,738 *
Jay A. Precourt 1,000 ---- 1,000 *
John M. Timken, Jr. 164,236 149,914(2) 314,150(2) [1.0]
Ward J. Timken 176,521 3,393,201(2) 3,569,722(2) [11.4]
W. R. Timken, Jr. 112,890 3,891,227(2) 4,004,117(2) [12.8]
Joseph F. Toot, Jr. 192,046(1) 100 192,146(1) *
Martin D. Walker 2,014 ---- 2,014 *
Charles H. West 100,798(1) 309 101,107(1) *
Alton W. Whitehouse 4,600 ---- 4,600 *
All Directors, Nominees 1,028,903(1) 3,937,883 4,966,786(1) [15.6]
for Director and Officers
as a Group(3)
</TABLE>
-8-
<PAGE> 12
*Percent of class is less than 1%.
(1) Includes shares which the individual or group named in the table
has the right to acquire, on or before March 25, 1996, through
the exercise of stock options pursuant to the 1985 Incentive
Plan and the Long Term Incentive Plan, as follows: Donald L.
Hart - 29,225; Robert L. Leibensperger - 38,873;
Joseph F. Toot, Jr. - 161,475; Charles H. West - 68,400; all
Directors, Nominees and Officers as a Group - 400,466. Such
shares have been treated as outstanding for the purpose of
calculating the percentage of the class beneficially owned by
such individual or group, but not for the purpose of calculating
the percentage of the class owned by any other person.
(2) Includes shares for which another individual named in the table
is also deemed to be the beneficial owner, as follows: John M.
Timken, Jr. - 122,406; Ward J. Timken - 3,375,590; W. R. Timken,
Jr. - 3,497,996.
(3) The number of shares beneficially owned by all Directors,
nominees for Directors and Officers as a group has been
calculated to eliminate duplication of beneficial ownership.
Members of the Timken family, including Messrs. John M. Timken, Jr., Ward
J. Timken and W. R. Timken, Jr., have in the aggregate sole or shared voting
power with respect to at least an aggregate of 5,788,639 shares [(18.5%)]
of Common Stock. The members of the Timken family identified in the table
are not deemed to be the beneficial owners of all such shares. The Timken
Foundation of Canton, 236 Third Street, S.W., Canton, Ohio 44702, holds
2,623,972 of these shares, representing [8.4%] of the outstanding Common
Stock. Messrs. Ward J. Timken, W. R. Timken, Jr. and Don D. Dickes are
trustees of the Foundation and share the voting and investment power.
One Form 4 for W. R. Timken, Jr. was inadvertently filed late. It concerned
four transactions made by trusts for which he is a trusteee.
One Form 4 for Ward J. Timken was inadvertently filed late. It concerned
three transactions made by trusts for which he is a trustee.
Participants in the Company's Savings and Investment Pension Plan have
voting power over an aggregate of 2,842,685 shares [(9.1%)] of Common Stock of
the Company.
A filing with the Securities and Exchange Commission dated February 10,
1995, by Brinson Partners, Inc., 209 South LaSalle, Chicago, Illinois 60604,
indicates that this entity and its affiliated companies have or share voting
or investment power over [2,070,000 shares (6.6%)] of the Company's outstanding
Common Stock.
A filing with the Securities and Exchange Commission dated September 7,
1995, by FMR Corp., 82 Devonshire Street, Boston, Massachusetts 02109, indicates
that this entity and its affiliated companies have or share voting or investment
power over 3,485,435 shares (11.2%) of the Company's outstanding Common Stock.
Included in these shares are the holdings of Fidelity Blue Chip Growth Fund, 82
Devonshire Street, Boston, Massachusetts 02109, of 1,842,800 shares (5.9%) of
the Company's outstanding Common Stock.
-9-
<PAGE> 13
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
--------------------------
The following table sets forth information concerning 1993, 1994 and 1995
compensation for the Company's Chief Executive Officer and the four other most
highly compensated Executive Officers who were Executive Officers during 1995.
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION
----------------------------
------------------------------------
AWARDS
------------------------------------
(A) (B)
RESTRICTED SECURITIES ALL OTHER
NAME AND STOCK UNDERLYING COMP
PRINCIPAL POSITION YEAR SALARY BONUS AWARD(S) OPTIONS ($)
($) ($) ($) (#)
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Joseph F. Toot, Jr. 1995 626,826 421,000 254,856 28,000 45,670
President and 1994 596,223 366,000 196,000 25,000 27,082
Chief Executive Officer 1993 536,625 0 0 20,000 44,236
- ----------------------------------------------------------------------------------------------------------------------
W. R. Timken, Jr. 1995 560,577 376,000 71,197 28,000 40,829
Chairman - Board of 1994 534,200 327,000 56,550 25,000 24,265
Directors 1993 480,625 0 0 20,000 41,706
- ----------------------------------------------------------------------------------------------------------------------
Charles H. West 1995 377,115 220,000 108,028 10,000 26,087
Executive Vice President 1994 362,843 190,000 88,300 12,000 16,483
and President - Steel 1993 317,019 0 0 10,000 34,317
- ----------------------------------------------------------------------------------------------------------------------
Robert L. Leibensperger (C) 1995 344,936 204,000 68,523 12,000 21,387
Executive Vice President 1994 244,630 120,000 56,300 6,400 11,117
and President - Bearings 1993 218,072 0 0 5,700 9,847
- ----------------------------------------------------------------------------------------------------------------------
Donald L. Hart (D) 1995 275,192 154,000 51,352 7,000 18,639
Vice President - Bearings - 1994 270,562 130,000 44,200 6,400 12,286
North and South America 1993 222,335 0 0 5,700 10,038
- ----------------------------------------------------------------------------------------------------------------------
(A) The amounts shown are dividend equivalents earned as described in footnote A of the Option Grants in Last
Fiscal Year Table. Dividend equivalents are not traditional restricted stock but deferred shares with no
voting rights or statutory dividend rights. The deferred shares are subject to forfeiture until issued to the
optionee, which occurs 4 years after grant, provided the optionee remains in the continuous employ of the
Company or a subsidiary. In addition, they may vest earlier in the event of retirement, disability or death.
The dollar value of the deferred shares earned is equal to the total amount per share of cash dividends paid on
outstanding Common Shares during the calendar year 1995 multiplied by the number of Common Shares subject to
outstanding options plus unvested deferred shares. In 1995, the total cash dividend paid on outstanding Common
Shares was $1.11 per share. The numbers of deferred shares earned in 1995 were as follows: Mr. Toot: 6,646
shares; Mr. Timken: 1,856 shares; Mr. West: 2,817 shares; Mr. Leibensperger: 1,787 shares and Mr. Hart: 1,339 shares.
(B) The amounts shown in this column have been derived as follows:
Mr. Toot:
1995 - $7,392 annual Company contribution to the Savings and Investment Pension Plan (SIP Plan).
1995 - $38,278 annual Company contribution to the Post Tax Savings and Investment Pension Plan (Post Tax SIP
Plan).
Mr. Timken:
1995 - $7,392 annual Company contribution to the SIP Plan.
1995 - $33,437 annual Company contribution to the Post Tax SIP Plan.
</TABLE>
-10-
<PAGE> 14
Mr. West:
---------
1995 - $7,392 annual Company contribution to the SIP Plan.
1995 - $18,695 annual Company contribution to the Post Tax SIP Plan.
Mr. Leibensperger:
------------------
1995 - $7,392 annual Company contribution to the SIP Plan.
1995 - $13,995 annual Company contribution to the Post Tax SIP Plan.
Mr. Hart:
---------
1995 - $7,392 annual Company contribution to the SIP Plan.
1995 - $11,247 annual Company contribution to the Post Tax SIP Plan.
(C) Mr. Leibensperger was elected to the position of Executive Vice President
and President-Bearings on April 18, 1995.
(D) Mr. Hart retired from the Company effective January 31, 1996 after 39
years of service. For information about changes in the terms of options
made in connection with Mr. Hart's retirement, refer to footnote (C) of
the Aggregated Option Exercises In Last Fiscal Year and Fiscal Year-End
Option Values table.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning stock option
grants made to the individuals named in the Summary Compensation Table during
1995 pursuant to The Timken Company Long-Term Incentive Plan approved by
shareholders on April 21, 1992.
<TABLE>
<CAPTION>
GRANT DATE
INDIVIDUAL GRANTS VALUE
- -------------------------------------------------------------------------------------------------------------------
PERCENT
(A) OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO EXERCISE (B)
UNDERLYING EMPLOYEES OR BASE GRANT DATE
OPTIONS IN FISCAL PRICE EXPIRATION PRESENT VALUE
NAME GRANTED YEAR ($/SHARE) DATE ($)
---- ------- ---- --------- ---- ---
<S> <C> <C> <C> <C> <C>
Joseph F. Toot, Jr. 28,000 9.9% $37.375 April 18, 2005 $276,360
W. R. Timken, Jr. 28,000 9.9% $37.375 April 18, 2005 276,360
Charles H. West 10,000 3.5% $37.375 April 18, 2005 98,700
Robert L. Leibensperger 12,000 4.3% $37.375 April 18, 2005 118,440
Donald L. Hart 7,000 2.5% $37.375 April 18, 2005 53,410
(A) Options granted in 1995 are exercisable starting 12 months after the date granted, with 25% of the options
covered thereby becoming exercisable at that time and with an additional 25% becoming exercisable on each
successive anniversary date. The options granted in 1995 provide for the crediting to the optionee of dividend
equivalents in the form of Company Common Stock or cash, but only when total net income per share of the
outstanding Common Stock is at least 200 percent of the total amount of cash dividends paid per share during the
calendar year. The agreements pertaining to these options also provide that such options will become
exercisable in full in the event of a change in control, as defined in such agreements, of the Company. If,
following a change in control, the optionee's employment is terminated, all dividend equivalents are also vested.
For additional information about dividend equivalents, refer to Footnote A
of the Summary Compensation Table.
For additional information about options held by Mr. Hart at the time of
his retirement, refer to footnote (C) of the Aggregated Option Exercises In
Last Fiscal Year And Fiscal Year-End Option Values table.
</TABLE>
-11-
<PAGE> 15
(B) The rules on executive compensation disclosure issued by the Securities
and Exchange Commission authorize the use of variations of the
Black-Scholes option pricing model in valuing executive stock options. The
Company used this model to estimate grant date present value. In applying
this model, basic assumptions were made concerning variables such as
interest rates, stock price volatility and future dividend yield, which are
difficult to predict. In addition, the initial option value was reduced to
reflect vesting restrictions. This adjustment was accomplished by
discounting the initial Black-Scholes option value to reflect estimates of
annual executive turnover and the average vesting period. There is, of
course, no assurance that the value actually realized by an executive will
be at or near the estimated value, for the actual value, if any, an
executive may realize will depend on the excess of the stock price over the
exercise price on the date the option is exercised. The Company does not
advocate or necessarily agree that the Black-Scholes model, even when
coupled with discounting for vesting restrictions, can properly determine
the value of an option.
The following assumptions were used in establishing the Black-Scholes value
for Messrs. Toot, Timken, West and Leibensperger: (a) an option term of 10
years; (b) an interest rate of 7.13%, which is the interest rate for a
10-year treasury bond on April 18, 1995; (c) volatility of .2262 calculated
using the quarter ending stock price for 5 years prior to the grant date;
and (d) dividend yield of 3.49%, the average amount paid annually, over the
5 years prior to grant date. For Messrs. Toot, Timken, West, Leibensperger
and Hart, the following assumptions were used to discount the initial
Black-Scholes values for vesting restrictions: (a) discount factor of 3%
per year, the estimated annual turnover for executives, and (b) an average
vesting period of 2.5 years.
The Black-Scholes assumptions were modified for Mr. Hart due to his age.
Mr. Hart's options were expected to expire in 5.1 years as opposed to
10 years, and the interest rate was reduced to 6.74% from 7.13%.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to unexercised
stock option grants for the individuals named in the Summary Compensation Table
under The 1985 Incentive Plan of The Timken Company or The Timken Company
Long-Term Incentive Plan.
<TABLE>
<CAPTION>
(A) (B)
Shares Number of Securities Value of Unexercised
Acquired Value Underlying Unexercised ---------------------------------
On Exercise Realized Options at Fiscal Year-End In-The-Money Options
At Fiscal Year-End
(#) ($) (#) ($)
---------------------------- ---------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joseph F. Toot, Jr. 0 $ 0 161,475 62,525 $1,041,109 $218,953
W. R. Timken, Jr. 22,025 183,017 0 62,525 0 218,953
Charles H. West 3,500 28,219 68,400 26,400 419,200 100,000
Robert L. Leibensperger 8,177 124,757 38,873 21,250 222,987 63,450
Donald L. Hart (C) 6,200 49,212 29,225 15,775 148,165 54,621
(A) The value realized on the exercise of options is based on the difference
between the exercise price and the fair market value of the Company's
Common Stock on the date of exercise.
(B) Based on the difference between the exercise price and the closing stock
price on the New York Stock Exchange at year end.
(C) In connection with Mr. Hart's retirement effective January 31, 1996, the
Compensation Committee at its December meeting changed the terms of his
options so that they became exercisable on January 29, 1996 with respect to
the 15,775 shares shown as unexercisable at fiscal year-end. In addition,
these options were amended so as to remain exercisable until the earlier of
(i) the last day of the five year period following Mr. Hart's retirement or
(ii) the expiration of the 10-year option term.
</TABLE>
-12-
<PAGE> 16
PENSION PLAN TABLE
The following table shows the estimated annual retirement benefits for
Executive Officers in the earnings and years of service combinations
indicated. Amounts shown in the table are developed assuming retirement at
age 62 and Final Average Earnings equal to Remuneration in 1995.
<TABLE>
<CAPTION>
YEARS OF SERVICE (A) (B)
------------------------
REMUNERATION (C) 30 35 40
---------------- -- -- --
<S> <C> <C> <C>
$ 300,000 $165,375 $192,938 $220,500
400,000 220,500 257,250 294,000
500,000 275,625 321,563 367,500
600,000 330,750 385,875 441,000
700,000 385,875 450,188 514,500
800,000 441,000 514,500 588,000
900,000 496,125 578,813 661,500
1,000,000 551,250 643,125 735,000
1,100,000 606,375 707,438 808,500
1,200,000 661,500 771,750 882,000
1,300,000 716,625 836,063 955,500
(A) Amounts in this section of the table have been developed in accordance with the provisions of the retirement
plan and individual agreements based upon a straight life annuity, not under any of the various survivor options
and before adjustment for Social Security benefits (officers' benefits are subject to Social Security offsets).
These amounts have been determined without regard to the maximum benefit limitations for defined benefit plans
and the limitations on compensation imposed by the Internal Revenue Code of 1986, as amended. The Board of
Directors has authorized a supplemental retirement plan and individual agreements that direct the payment out of
general funds of the Company of any benefits calculated under the provisions of the applicable retirement plan
that may exceed these limits.
(B) The credited years of service as of December 31, 1995, for the individuals listed in the Summary Compensation
Table are 33 for Mr. Toot, 33 for Mr. Timken, 41 for Mr. West, 35 for Mr. Leibensperger and 39 for Mr. Hart.
There is no incremental benefit level for years of service in excess of 40.
(C) Plan benefits are based upon average earnings, including any cash bonus
plan awards for the highest five consecutive years of the ten years
preceding retirement ("Final Average Earnings"). For the years prior to
1994, only fifty percent of any cash bonus plan award is included in the
calculation of average earnings.
</TABLE>
-13-
<PAGE> 17
CHANGE IN CONTROL SEVERANCE AGREEMENTS
The Company is a party to Severance Agreements with 12 of its officers
and 1 officer of a subsidiary (including all of those individuals named in the
Summary Compensation Table). Under these Agreements, an individual to whom
certain events occur, such as a reduction in responsibilities or termination of
employment, following a change in control (as defined in the Agreements), will
be entitled to receive payment in an amount, grossed up for any excise taxes
payable by the individual, equal to three times the individual's annual salary
and average Management Performance Plan award based upon the past three years'
payments plus a lump sum of amounts owing under the Company's supplemental
retirement plan (assuming the individual continued to work until three years
after the change in control). The individual would also receive certain benefits
under the SIP Plan. The amounts payable under these Severance Agreements are
secured by a trust arrangement.
CHANGE IN CONTROL SEVERANCE PAY PLAN
The Company has implemented a Severance Pay Plan covering approximately
ninety key associates (other than those that are party to Severance Agreements).
Under the Severance Pay Plan, an individual whose employment is terminated
following a change in control (as defined in the Plan) may be entitled to
receive payment in an amount equal to 150% to 200% of the individual's annual
base salary (depending upon length of service), grossed up for any excise taxes
payable by the individual, and may also have certain benefits continued for a
period of six months. The Company has created a trust arrangement to provide
funds for the enforcement of the Severance Pay Plan.
-14-
<PAGE> 18
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") of the Board of Directors is
composed of Robert Anderson, Stanley C. Gault and Alton W. Whitehouse, Chairman.
No member of the Committee is a former or current officer or employee of the
Company or of any of its subsidiaries.
COMPENSATION PHILOSOPHY
- -----------------------
The Company's compensation philosophy focuses on both short and
long-term incentive programs that, when added to base salary, provide a total
compensation package that will enable the Company to attract and retain superior
quality executive officers. This approach is intended to enhance Company
performance and shareholder value by tying in closely the financial interests of
executive officers and senior managers with those of shareholders. Specifically,
the Committee's philosophy includes these three primary ingredients:
* Provide sufficient opportunity in total direct compensation that
enables the Company to attract, retain and motivate superior quality
executive management.
* Establish base salaries for executive management based upon market data
from a related group of companies.
* Link the financial interests of executive management with those of
shareholders, with short and long-term incentive plans tied to
corporate, business unit and individual performance.
The Company, with the Committee's guidance and approval, has developed
a compensation program based on this philosophy for executive officers,
including the Chief Executive Officer and the other named executive officers.
This program has three components: base salary, performance bonus and long-term
incentives. Base salaries, on average, are administered at the market median.
The Company relies on its performance bonus and long-term incentive awards, tied
directly to individual, business unit and corporate performance, to provide
total direct compensation at the desired level. The Committee determines
specific compensation actions for the Chief Executive Officer and considers and
acts upon recommendations made by the Chief Executive Officer regarding
compensation of other executive officers and key associates.
In 1995, the Company conducted a review of total direct compensation
paid by companies having, in general, net sales from $1-4 billion dollars and
which are comparable for compensation purposes. Total direct compensation
includes base salary, performance bonus and long-term incentives. The Company
compared total direct compensation opportunity provided to executive officers to
median total direct compensation for the selected companies as reported in the
1995 Towers Perrin and Management Compensation Services ("Project 777")
executive compensation surveys. Following completion of this analysis and
development of proposed base salary ranges, an independent compensation
consultant reviewed the findings and met with the Committee regarding the
proposed salary ranges. The Compensation Committee approved management's
recommendation for revised base salary ranges for some executive officer
positions.
The Compensation Committee has addressed the impact of section 162(m)
of the Internal Revenue Code by approving a policy whereby an executive officer
may enter into an agreement to defer any compensation that exceeds the $1
million limit and by recommending changes to The Timken Company Long-Term
Incentive Plan allowing certain grants under the plan to qualify as
performance-based compensation. The policy to defer compensation was adopted in
November 1994 and went into effect beginning with the year 1995. Amounts of
compensation that will be deferred will be credited with interest quarterly at
the prime rate in effect on the last day of the calendar quarter plus 1%. The
Committee believes that this policy will benefit the Company by preserving the
tax deduction for executive compensation while maintaining the ability to use
appropriate discretion in determining annual levels of compensation. Messrs.
Toot and Timken have signed individual agreements to defer any compensation that
exceeds the $1 million limit as defined in section 162(m) of the Internal
Revenue Code. No amounts have been deferred in prior years. There will be a
deferral for Mr. Toot in regard to his 1995 compensation. The committee will
continue to monitor the executive compensation program as it is affected by
current and future tax laws.
-15-
<PAGE> 19
BASE SALARY
- -----------
Base salary ranges are developed to reflect the varying levels of
responsibility of the Chief Executive Officer and other executive officers. The
current salary ranges are based on external surveys and in consultation with an
independent compensation consultant. Base salary ranges generally are equivalent
to amounts paid to senior managers with comparable responsibilities for the
companies studied. Periodically, the Committee reviews the recommendations of
the Chief Executive Officer and the Vice President - Human Resources & Logistics
and approves, with any modifications it deems appropriate, individual base
salary amounts for executive officers based on individual performance and
position in the salary range.
The companies included in the surveys used to develop base salary
ranges are not the same companies used in the peer group index appearing in the
performance graph. For compensation purposes, the Company uses surveys of
companies of similar size and industry because this is the employment market in
which it competes. The performance graph, on the other hand, employs a peer
index blending the Dow Jones Steel Index and seven bearing companies that are
direct competitors of the Company's Bearing Business. Of the seven bearing
companies, five are foreign companies. The reason for selecting the companies in
the peer index had no relationship to compensation comparisons, where the
Company seeks to look at other companies of similar size and industry that are
more representative of the employment market for executive management whether or
not they are in the bearing or steel business.
Effective January 1, 1995 the salaries of executive officers were
adjusted by 1.9% to offset a reduction of one week in the executive's vacation
allowance.
PERFORMANCE BONUS
- -----------------
The Company's Management Performance Plan provides cash bonuses to be
paid to executive officers and senior managers based principally on the
achievement of specific operating performance goals established annually by the
Committee and thereafter approved by the Board.
Management recommends performance goals to the Committee based upon
business plans approved by management and reviewed with the Board of Directors.
In 1995, the Management Performance Plan provided for target bonus
opportunities for executive officers that ranged from 35 to 55 percent of base
salary, though amounts could vary above and below that range depending upon
company and business unit performance (including financial and non-financial
measures) and individual accomplishment. Bonus opportunities for the Chairman of
the Board and the Chief Executive Officer were based upon the attainment of
corporate goals and individual performance, with bonus opportunities for the
other executive officers based on a combination of corporate, business unit and
individual performance. The Company requires a minimum level of earnings to fund
any bonuses.
The Plan's primary performance measurement is Return on Invested
Capital defined as Earnings Before Interest and Taxes as a percentage of
Beginning Invested Capital (EBIT/BIC). This measure is closely correlated with
the creation of shareholder value and is the major measure from which the bonus
pool is derived. In addition, in 1995 specific goals were established for four
additional key measures all aligned with the creation of shareholder and
customer value. The measures were net cash flow, Accelerated Continuous
Improvement implementation, improved relationship with and performance for
customers, and elimination of bureaucracy that impedes the progress for
satisfying customers and shareholders.
Improvements were made in all areas during 1995. Corporate and Business
unit EBIT/BIC exceeded 1994 levels. To determine individual bonus payments,
accomplishments of specific EBIT/BIC targets at the corporate and business unit
levels were considered. In addition, discretionary adjustments were made by the
Committee for achievements in the other key areas mentioned above. Finally, the
bonus amounts were adjusted to reflect individual performance of the
participants. This resulted in cash bonus payments for the executive officers
that ranged from 39% to 67% of base salary in effect on November 1, 1995. This
included an additional payment to all participants equal to 10% of their
respective bonus under the Management Performance Plan in recognition of
significant improvements in the performance of the Company over 1994.
-16-
<PAGE> 20
At its December meeting, the Board approved the goals set by the
Committee for the Management Performance Plan for 1996. In addition to corporate
and business unit EBIT/BIC goals, three key areas of emphasis have been selected
for 1996. These are: (1) achieve Accelerated Continuous Improvement savings and
performance improvement goals, (2) achieve free cash flow target - Consolidated:
$200 million, and (3) achieve continuous improvement commitments. Target bonus
opportunity for executive officers in 1996 will range from 35 to 60 percent of
base salary. The target may be adjusted for achievement of the specific EBIT/BIC
goals and discretionary adjustments may be made by the Committee for the
achievement of the other key performance targets.
LONG-TERM INCENTIVES
- --------------------
The Committee recommended and the shareholders approved the
Company's Long-Term Incentive Plan at the Annual Meeting on April 21, 1992. The
number of shares that may be issued or transferred under the Plan may not exceed
in the aggregate 1,400,000 shares of Common Stock. Although awards under the
Plan can be made in the form of non-qualified stock options, incentive stock
options, appreciation rights, restricted shares and deferred shares, the
Committee has chosen to grant primarily non-qualified stock options. The option
price per common share must be equal to or greater than the market value per
share on the date of the grant. For grants to executive officers and the Chief
Executive Officer, the Committee has granted non-qualified stock options with an
option price at market value on the date of grant. The use of non-qualified
stock options enables executive officers and other participants to gain value if
the Company's shareholders gain value. Moreover, this Plan provides a mechanism
for incentives to participants even in years when no payout is made under the
Management Performance Plan. Under the Long-Term Incentive Plan, no incentive
stock options or appreciation rights have been granted to any Plan participant
and no deferred shares or restricted shares have been granted to executive
officers with the exception of an executive officer who received a grant of
deferred shares when he was rehired by the Company in March, 1993, after holding
an executive position in state government.
The Board of Directors is recommending to shareholders the approval of
an amended and restated Long Term Incentive Plan effective April 16, 1996. To
keep the company's plan current, it is necessary to implement changes in the
following areas: qualification of compensation paid to executives that is
subject to section 162(m) of the Internal Revenue Code; addition of language
permitting grants of performance shares and units; addition of limitations on
the number of restricted and deferred shares that can be granted; establishment
of a minimum vesting period on restricted and deferred shares; addition of
transferability provision; and addition of 1,500,000 shares to the plan.
Awards under the Long-Term Incentive Plan are considered annually. On
April 18, 1995, the Committee approved a grant of non-qualified stock options
for the executive officers and other key associates. The initial dollar value
for each participant's grant was determined by multiplying the midpoint of their
salary range by a position level multiple that ranged from .20 to 1.0. The
position level multiples were derived from data on similar-sized companies as
reported in the Towers Perrin Long-Term Incentive Survey compiled in 1994. The
number of stock options to grant was calculated by dividing each participant's
pay by the present value of the Company's stock options including dividend
credits. The present value of the option was based on achieving a 10% growth in
stock price and a 5% growth in dividend yield per year and was adjusted to
reflect vesting restrictions. After this initial determination, management
reviewed and revised as necessary the size of the proposed grant based on
individual performance. The Chief Executive Officer and the Vice President Human
Resources and Logistics presented the recommended grants to the Committee. The
Committee reviewed and approved the long-term incentive grants considering the
formula, individual performance and the number of shares allocated to the Plan.
-17-
<PAGE> 21
To drive the achievement of higher levels of earnings, the Long-Term
Incentive Plan has a dividend feature that provides additional compensation only
when the Company achieves a specified level of earnings. This feature entitles
each participant in the Company's long-term incentive plan to receive dividend
equivalents payable in common shares on a deferred basis (called Deferred
Dividend Shares). Dividend equivalents are earned annually if net income per
share for the year exceeds 200 percent of the total amount of cash dividends per
share during the year. The dividend equivalent is calculated by multiplying the
cash dividend per share paid during the year earned times the number of
unexercised stock options plus any unvested Deferred Dividend Shares held by
each participant. The product is divided by the average closing price of the
Company's Common Stock as reported on the New York Stock Exchange for the 10
days preceding December 31 to establish the number of Deferred Dividend Shares
that are credited to each participant. The Deferred Dividend Shares vest 4 years
from the date of grant if the associate is still in the employ of the company,
though they vest immediately upon retirement, disability or death. The total
number of Deferred Dividend Shares granted for 1995 was 39,342.
Share ownership requirements have been established for executive
officers and other key executives. These guidelines recommend a specific level
of ownership ranging from one to three times salary be achieved within five
years (seven years can be used for some exceptional circumstances) of the
effective date of the guidelines.
CHIEF EXECUTIVE OFFICER COMPENSATION
- ------------------------------------
The Chief Executive Officer's compensation is based upon the same
factors previously discussed with regard to the executive officer compensation
philosophy. The components making up his compensation include base salary,
performance bonus and long-term incentives. The base salary range for the Chief
Executive Officer is determined using survey data in the same manner as for
other executive officers. Effective January 1, 1995, the vacation allowance for
executives was reduced by 1 week and a corresponding increase was made to base
salary of 1.9%. Mr. Toot's prior base salary increase was on October 1, 1994 in
the amount of 6.1%.
The Chief Executive Officer's compensation is related to the Company's
performance through the Management Performance Plan and the Long-Term Incentive
Plan. The methodology used to calculate Mr. Toot's compensation under either
plan is the same as for other executive officers.
Under Mr. Toot's leadership, the Company continues to show significant
improvements in its operating results. Sales reached a record level of $2.2
billion. After-tax earnings of $112.4 million were also at record levels. For
1995, the Company's return on invested capital, as measured by EBIT/BIC, was
12.7% compared to 9.1% in 1994. Earnings per share were $3.60 in 1995, a 63%
increase over the $2.21 per share in 1994. These results were the highest the
company has achieved during the past 10 years.
Mr. Toot has effectively led the Company's efforts to provide ever
greater levels of customer service. Emphasis has been placed on programs to
improve quality, improve customer service and reduce costs. The acquisition of
Rail Bearing Service, Inc. (RBS), expansions of existing facilities and the
development of new products will enable the company to meet a wider range of
customer requirements.
The Company's overall performance, as well as its performance in the
key measurement of shareholder value, EBIT/BIC, and its performance in regard
to increased earnings, cash flow, Accelerated Continuous Improvement
implementation, improved relationship with and performance for customers, and
the elimination of bureaucracy that impedes the progress for satisfying
customers and shareholders, resulted in a performance bonus of $421,000 for
Mr. Toot.
On April 18, 1995, Mr. Toot, along with the other executive officers,
received non-qualified stock options pursuant to the provisions of the Timken
Company Long-Term Incentive Plan. Mr. Toot received non-qualified stock options
for 28,000 shares as a result of the 1995 grant. The Company's earnings
performance in 1995 of $3.60 per share, exceeded 200 percent of the cash
dividends on the Company's Common Stock of $1.11 per share. As a result, on
December 31, 1995, Mr. Toot, along with the other executive officers, was
credited with Deferred Dividend Shares representing 6,646 shares which will vest
on December 31, 1999.
-18-
<PAGE> 22
At its December meeting, the Committee conducted an evaluation of the
Chief Executive Officer's performance. The Committee is pleased with Mr. Toot's
leadership and his ability to foster an environment of continuous improvement as
evidenced in the operating results described above. Furthermore, the Company's
five year cumulative total return of 113% continues to lead other steel and
bearing companies as reported in the peer index and for the past three years has
exceeded or closely matched the returns represented by the S&P 500 Index. Total
shareholder return for 1995 was 11.5%. The Committee believes that under Mr.
Toot's direction the Company will continue to be a leader in the tapered roller
bearing and specialty alloy steels markets.
Compensation Committee
Alton W. Whitehouse, Chairman
Robert Anderson
Stanley C. Gault
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
AMONG TIMKEN COMPANY, S&P 500 & PEER INDEX**
[GRAPHIC OMITTED]
Assumes $100 invested on January 1, 1991, in Timken Company Common Stock, S&P
500 Index and Peer Index.
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
TIMKEN COMPANY $116.86 $135.37 $177.27 $191.28 $213.36
S&P 500 130.67 140.67 154.75 156.77 215.50
70% BEARING/30% STEEL 100.33 99.55 126.91 147.90 140.32
</TABLE>
*Total returns assumes reinvestment of dividends.
**Fiscal year ending December 31.
The line graph compares the cumulative, total shareholder returns over five
years for The Timken Company, the S&P 500 Stock Index, and a peer index that
proportionately reflects The Timken Company's two businesses. The Dow Jones
Steel Index comprises 30% of the peer index and the remaining 70% is a self
constructed bearing index that consists of seven companies. These seven
companies are Brenco, FAG, Kaydon, Koyo, NSK, NTN, and SKF. The five
international bearing companies in the index are traded in Germany, Japan and
Sweden. The total returns for these markets equivalent to the S&P 500 Index were
$187.30, $94.83 and $327.67, respectively, with a $100 investment over five
years.
-19-
<PAGE> 23
APPROVAL OF THE TIMKEN COMPANY LONG-TERM INCENTIVE PLAN,
AS AMENDED AND RESTATED
ITEM NO. 2
GENERAL
The Company desires to continue its policy of advancing the interests
and long-term success of the Company by encouraging stock ownership among key
employees and, correspondingly, increasing their personal involvement with the
future of the Company. The Timken Company Long-Term Incentive Plan (the
"Original Plan"), which was initially approved by shareholders at the Company's
1992 annual meeting of shareholders has afforded the Company's Board of
Directors and its Compensation Committee (the "Committee") the ability to design
compensatory awards that are responsive to the Company's needs. In order to
enhance the Company's ability to attract and retain officers and key employees,
the Board of Directors adopted The Timken Company Long-Term Incentive Plan, as
Amended and Restated (the "Amended Plan") on December 20, 1995, and recommended
the Amended Plan be submitted to the Company's shareholders for approval at the
1996 Annual Meeting.
The principal reasons for amending and restating the Original Plan are
to increase the number of shares available and to afford the Committee
additional flexibility to structure performance-based incentives. Although the
Committee has, with limited exceptions, used the Original Plan to grant only
nonqualified stock options to its officers and to grant non-qualified stock
options and deferred shares to other key employees, the Company believes this
additional flexibility is desirable. Changes were also made so that certain
awards can qualify as performance-based compensation for purposes of Section
162(m) of the Internal Revenue Code (the "Code"). That section, which became law
in 1993 generally disallows a tax deduction for certain compensation over $1
million paid, or otherwise taxable, to persons named in the Summary Compensation
Table and employed by the Company at the end of the applicable year. Qualifying
performance-based compensation is not subject to the deduction limit if certain
requirements are met. In addition to these changes, several other changes were
made to improve the Original Plan. The Amended Plan does not make any changes in
the provisions granting awards to Non-Employee Directors.
A summary of the proposed changes is set forth below, followed by a
summary description of the entire Amended Plan. The full text of the Amended
Plan (presented in a manner designed to reflect the changes from the Original
Plan) is annexed to this Proxy Statement as Appendix A, and the following
summaries are qualified in their entirety by reference to Appendix A.
SUMMARY OF CHANGES
AVAILABLE SHARES. The Amended Plan increases the number of shares of
Common Stock available by 1,500,000 shares. The Original Plan authorized the
issuance of an aggregate of 1,400,000 shares of Common Stock. At February 16,
1996, [1,038,549] of these shares had been issued under the Original Plan,
[953,308] shares were subject to outstanding grants and [394,101] shares
were available for future awards.
In response to changes in Securities and Exchange Commission regulatory
requirements, the Amended Plan provides for a change in the provisions for
counting share usage. The Amended Plan provides that upon the full or partial
payment of any option price by the transfer to the Company of shares of Common
Stock or upon satisfaction of tax withholding obligations in connection with any
such exercise or the lapsing of restrictions on any Restricted Shares or any
other payment made or benefit realized under the Amended Plan by the transfer or
relinquishment of shares of Common Stock, only the net number of shares of
Common Stock actually issued or transferred by the Company will be charged
against the maximum share limitation for the Amended Plan. In addition, the
Amended Plan deletes the provisions of the Original Plan providing that
Restricted Shares and Deferred Shares could not be recounted after dividends or
dividend equivalent were paid thereon.
-20-
<PAGE> 24
PERFORMANCE AWARDS. The Original Plan did not specifically provide for
the award of Performance Shares or Performance Units. Provisions for awards of
this type have been added to the Amended Plan. In order to earn compensation
under these awards, participants must attain specified Management Objectives (as
described in more detail below) within a specified performance period. In
addition, the Committee may determine that specified Management Objectives must
be achieved as a condition to the exercise of Option Rights or Appreciation
Rights or the termination or early termination of restrictions on Restricted
Shares.
COMPLIANCE WITH SECTION 162(M) OF THE CODE. The Original Plan was
adopted before the existence of Section 162(m) of the Code, and therefore was
not specifically designed to meet its requirements. Certain limits and other
requirements are included in the Amended Plan in order that awards of Option
Rights, Performance Shares, Performance Rights and dividend equivalents
thereunder may qualify as performance-based compensation for the purpose of
Section 162(m). Under the Amended Plan, no participant may be granted Option
Rights for more than 500,000 shares during any five consecutive calendar years
and no participant may receive awards of Performance Shares and Performance
Units having an aggregate value as of their respective dates of grant in excess
of $750,000. In addition, no optionee in any period of one calendar year may
earn a dividend equivalent with a value in excess of $750,000.
Another requirement of Section 162(m) is that the employee stock plan
and the performance measures which must be attained to earn compensation under
performance-based awards must be disclosed to and approved by shareholders. As
described in detail below, for employees who are, or are determined by the
Committee to be likely to become, "covered employees" within the meaning of
Section 162(m) of the Code, the Amended Plan sets forth the performance measures
which must be attained in the case of Performance Shares and Performance Units
and dividend credits. If the requisite approval is not obtained, the changes
provided for in the Amended Plan will not be made.
OTHER CHANGES. The Amended Plan includes a number of other changes. For
example, it gives the Committee authority to award transferable Option Rights in
certain situations. In addition to the Section 162(m) limits, the Amended Plan
provides a new limit of 250,000 on the number of Restricted Shares and Deferred
Shares issued under the Amended Plan. The Amended Plan also requires that grants
of Restricted Shares and Deferred Shares provide for restriction and deferral
periods of at least three years with certain exceptions more fully described in
the Summary of the Amended Plan below. The Original Plan did not contain any
such limit or three-year minimum periods. The Amended Plan also deletes the
provisions of the Original Plan affording the Compensation Committee the
authority to "re-price" stock options.
SUMMARY OF THE AMENDED PLAN
AMENDED PLAN LIMITS. The maximum number of shares of Common Stock that
may be issued or transferred (i) upon the exercise of Option Rights or
Appreciation Rights, (ii) as Restricted Shares and released from substantial
risk of forfeiture, (iii) as Deferred Shares, (iv) in payment of Performance
Shares or Performance Units that have been earned, (v) as automatic awards to
Nonemployee Directors, or (vi) in payment of dividend equivalents paid with
respect to awards made under the Amended Plan, may not in the aggregate exceed
2,900,000 shares of Common Stock, which may be shares of original issuance or
treasury shares or a combination thereof. This figure is composed of 1,400,000
covered by the Original Plan, plus 1,500,000 added by the Amended Plan. The
number of Restricted Shares and Deferred Shares cannot (after taking any
forfeitures into account and excluding automatic awards to Nonemployee
Directors) exceed 250,000. These limits are subject to adjustments as provided
in the Amended Plan for stock splits, stock dividends, recapitalizations and
other similar events.
Upon the payment of any option price by the transfer to the Company of
Common Stock or upon related satisfaction of tax withholding obligations or any
other payment made or benefit realized under the Amended Plan by the transfer or
relinquishment of Common Stock, there shall be deemed to have been issued or
transferred only the net number of shares actually issued or transferred by the
Company. However, the number of shares actually issued or transferred by the
Company upon the exercise of Incentive Stock Options shall not exceed 2,900,000,
subject to adjustment as provided for in the Amended Plan. Upon the payment in
cash of a benefit provided by any award under the Amended Plan, any shares of
Common Stock that were covered by such award shall again be available for
issuance or transfer under the Amended Plan.
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<PAGE> 25
The number of Performance Units granted and paid out under the Amended
Plan may not in the aggregate exceed 150,000. No participant may be granted
Option Rights for more than 500,000 shares of Common Stock during any five
consecutive calendar years, subject to adjustment pursuant to the Amended Plan.
No participant may receive in any one calendar year awards of Performance Shares
and Performance Units having an aggregate value as of their respective dates of
grant in excess of $750,000.
OPTION RIGHTS. Option Rights provide the right to purchase shares of
the Company's Common Stock at a price not less than its fair market value on the
date of the grant. The option price is payable in cash, nonforfeitable,
unrestricted Common Stock already owned by the optionee, any other legal
consideration that the Committee deems appropriate, or any combination of these
methods. Any grant of Option Rights may provide for the deferred payment of the
option price on the sale of some or all of the shares obtained from the
exercise. In addition, the Committee can specify at the time of the grant that
Common Stock will not be accepted in payment of the option price until such
Common Stock has been owned by the optionee for a specified period of time.
However, the Amended Plan does not require any such holding period and would
permit immediate sequential exchanges of shares of Common Stock at the time of
exercise of Option Rights. Any grant may provide for the automatic grant of
additional Option Rights to an optionee upon the exercise of Option Rights using
Common Stock as payment.
Option Rights granted under the Amended Plan may be Option Rights that
are intended to qualify as incentive stock options ("ISO's") within the meaning
of Section 422 of the Code or Option Rights that are not intended to so qualify
or combinations thereof. Except in the case of grants of ISO's, the Committee
may provide for the payment to the optionee of dividend equivalents in the form
of cash or Common Stock paid on a current, deferred or contingent basis or may
provide that the equivalents be credited against the option price. In the case
of an optionee who is, or who is determined by the Committee to be likely to
become a "covered employee" within the meaning of Section 162(m) of the Code,
the payment of dividend equivalents will be contingent on the achievement of a
specified level of earnings per share for a year relative to the total amount of
cash dividends per share that were paid on the outstanding Common Stock during
that year. The payment of dividend equivalents also may be subject to additional
conditions. In no event may any optionee in any one calendar year period earn
dividend equivalents with a value of more than $750,000.
No Option Rights may be exercised more than ten years from the date of
grant. Each grant must specify the period of continuous employment that is
necessary before the Option Rights become exercisable and may provide for the
earlier exercisability of the Option Rights in the event of retirement, death or
disability of the participant or a change in control of the Company. Any grant
of Option Rights may specify Management Objectives (as described below) that
must be achieved as a condition to exercise such rights.
APPRECIATION RIGHTS. Appreciation Rights represent the right to receive
from the Company an amount, determined by the Committee and expressed as a
percentage not exceeding 100 percent, of the difference between the base price
established for such Rights and the market value of the Common Stock on the date
the rights are exercised. Appreciation Rights can be tandem (i.e., granted with
Option Rights to provide an alternative to exercise of the Option Rights) or
free-standing. Tandem Appreciation Rights may only be exercised at a time when
the related Option Right is exercisable and the spread is positive, and requires
that the related Option Right be surrendered for cancellation. Free-standing
Appreciation Rights must have a base price per Right that is not less than the
fair market value of the Common Stock on the date of grant, must specify the
period of continuous employment that is necessary before such Appreciation
Rights become exercisable (except that they may provide for the earlier exercise
of the Appreciation Rights in the event of retirement, death or disability of
the participant or a change in control of the Company) and may not be
exercisable more than ten years from the date of grant. Any grant of
Appreciation Rights may specify that the amount payable by the Company on
exercise of an Appreciation Right may be paid in cash, in Common Stock or in any
combination thereof, and may either grant to the recipient or retain in the
Committee the right to elect among those alternatives. Any grant of Appreciation
Rights may provide with respect to any grant of Appreciation Rights for the
payment of dividend equivalents in the form of cash or Common Stock paid on a
current, deferred or contingent basis. Any grant of Appreciation Rights may
specify Management Objectives that must be achieved as a condition to exercise
such rights.
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<PAGE> 26
RESTRICTED SHARES. Restricted Shares constitute an immediate transfer
of ownership to the recipient in consideration of the performance of services.
The participant has dividend and voting rights on such shares. Restricted Shares
must be subject to a "substantial risk of forfeiture" of the shares, within the
meaning of Section 83 of the Code for a period of at least three years to be
determined by the Committee on the date of the grant. In order to enforce these
forfeiture provisions, the transferability of Restricted Shares will be
prohibited or restricted in the manner prescribed by the Committee on the date
of grant for the period during which such forfeiture provisions are to continue.
The Committee may provide for the earlier termination of the forfeiture
provisions in the event of retirement, death or disability of the participant or
a change in control of the Company. However, the Committee may authorize the
grant or sale of Restricted Shares that are subject to such risk of forfeiture
for less than three years, in amounts that, when taken together with any
Deferred Shares granted or sold as described below (after taking any forfeitures
into account and excluding all automatic awards of Restricted Shares to
Nonemployee Directors) in the aggregate do not exceed 3% of the 1,500,000 shares
being added to the Amended Plan as of the amendment and restatement.
Any grant of Restricted Shares may specify Management Objectives which,
if achieved, will result in termination or early termination of the restrictions
applicable to such shares. Any such grant must also specify in respect of such
specified Management Objectives, a minimum acceptable level of achievement and
must set forth a formula for determining the number of Restricted Shares on
which restrictions will terminate if performance is at or above the minimum
level, but below full achievement of the specified Management Objectives.
DEFERRED SHARES. Deferred Shares constitute an agreement to issue
shares to the recipient in the future in consideration of the performance of
services, but subject to the fulfillment of such conditions as the Committee may
specify. The participant has no right to transfer any rights under his or her
award and no right to vote the Deferred Shares. The Committee may authorize the
payment of dividend equivalents on the Deferred Shares, in cash or Common Stock,
on a current, deferred or contingent basis. The Committee must fix a deferral
period of at least three years at the time of grant, and may provide for the
earlier termination of the deferral period in the event of retirement, death or
disability of the participant or a change in control of the Company. However,
the Committee may authorize the grant or sale of Deferred Shares that are
subject to Deferral Periods of less than three years, in amounts that, when
taken together with any Restricted Shares granted or sold on such terms as
described above (after taking any forfeitures into account and excluding all
automatic awards of Restricted Shares to Nonemployee Directors), in the
aggregate do not exceed 3% of the 1,500,000 shares being added to the Amended
Plan as of the amendment and restatement.
PERFORMANCE SHARES AND PERFORMANCE UNITS. A Performance Share is the
equivalent of one share of Common Stock and a Performance Unit is equivalent of
$100.00. The participant will be given one or more Management Objectives to meet
within a specified period (the "Performance Period"). The specified Performance
Period may be subject to earlier termination in the event of retirement, death
or disability of the participant or a change in control of the Company. A
minimum level of acceptable achievement will also be established by the
Committee. If by the end of the Performance Period, the participant has achieved
the specified Management Objectives, the participant will be deemed to have
fully earned the Performance Shares or Performance Units. If the participant has
not achieved the Management Objectives, but has attained or exceeded the
predetermined minimum level of acceptable achievement, the participant will be
deemed to have partly earned the Performance Shares or Performance Units in
accordance with a predetermined formula. To the extent earned, the Performance
Shares or Performance Units will be paid to the participant at the time and in
the manner determined by the Committee in cash, Common Stock or any combination
thereof. The grant may provide for the payment of dividend equivalents thereon
in cash or in Common Stock on a current, defined or contingent basis.
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<PAGE> 27
MANAGEMENT OBJECTIVES. The Amended Plan requires that the Committee
establish "Management Objectives" for purposes of Performance Shares and
Performance Units. When so determined by the Committee, Option Rights,
Appreciation Rights, Restricted Shares and dividend credits may also specify
Management Objectives. Management Objectives may be described in terms of either
Company-wide objectives or objectives that are related to the performance of the
individual participant or subsidiary, division, department or function within
the Company or a subsidiary in which the participant is employed. Management
Objectives applicable to any award to a participant who is, or is determined by
the Committee likely to become, a "covered employee" within the meaning of
162(m)(3) of the Code shall be limited to specified levels of or growth in (i)
return on invested capital, (ii) earnings per share, (iii) return on assets,
(iv) return on equity, (v) shareholder return, (vi) sales growth, and/or (vii)
productivity improvement. Except in the case of such a covered employee, if the
Committee determines that a change in the business, operations, corporate
structure or capital structure of the Company, or the manner in which it
conducts its business, or other events or circumstances render the Management
Objectives unsuitable, the Committee may modify such Management Objectives, in
whole or in part, as the Committee deems appropriate and equitable.
AUTOMATIC GRANTS OF SHARES TO NONEMPLOYEE DIRECTORS. Nonemployee
Directors receive automatic one-time grants of Restricted Shares and automatic
annual grants of shares of Common Stock that are not subject to any risk of
forfeiture. The number of shares and types of awards to be granted to specified
categories of nonemployee Directors are set forth in the Amended Plan.
Nonemployee Directors (other than those who have retired from the Company within
the ten years preceding their election or appointment to the Board) will receive
1,000 Restricted Shares upon their first election or appointment. These
Restricted Shares will vest at the rate of 20 percent per year with vesting
being prorated for partial years of service as a Director in the event of death
or disability, subject to acceleration in the event of a change in control of
the Company. A Restricted Share Agreement for nonemployee Directors containing
all of the terms and conditions of the grants of Restricted Shares is included
in the Appendix as Exhibit A to the Amended Plan.
Each nonemployee Director who is a retired employee of the Company will
receive 200 shares of Common Stock immediately after the annual meeting at which
such nonemployee Director is first elected or the first annual meeting following
such nonemployee Director's appointment or termination of employment. These
shares of Common Stock will be nonforfeitable, but will not be transferable for
a period of six months from the date of grant.
In addition to the initial grants of Restricted Shares or shares of
Common Stock to nonemployee Directors described above, each nonemployee Director
(whether or not he is a former employee of the Company) will automatically
receive annual grants of 200 shares of Common Stock immediately after each
subsequent annual meeting so long as he or she continues to be a nonemployee
Director. These shares will also be nonforfeitable and nontransferable for a
period of six months.
ADMINISTRATION
The Compensation Committee of the Board of Directors, as appointed
immediately after the 1992 Annual Meeting (and as thereafter constituted from
time to time), will administer and interpret the Amended Plan. The Committee
will be composed of not less than three directors, each of whom must be a
"disinterested person" within the meaning of Rule 16b-3 and an "outside
director" within the meaning of Section 162(m) of the Code.
ELIGIBILITY
Officers and key employees of the Company and its subsidiaries, as
determined by the Committee, may be selected to receive benefits under the
Amended Plan. In addition, nonemployee Directors of the Company will be eligible
for non-discretionary grants of Restricted Shares and Common Stock as described
above under the heading "Automatic Grants of Shares to Nonemployee Directors."
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<PAGE> 28
TRANSFERABILITY
The Committee, in its sole discretion, may provide for transferability
of particular awards under the Amended Plan so long as such provision will not
disqualify the exemption for other awards under Rule 16b-3 of the Securities and
Exchange Commission. In all other cases, Option Rights and other derivative
securities awarded under the Amended Plan will not be transferable by a
participant other than by will or the laws of descent and distribution. Any
award made under the Amended Plan may provide that any Common Stock issued or
transferred as a result of the award will be subject to further restrictions
upon transfer.
ADJUSTMENTS
The number of shares covered by outstanding Option Rights, Appreciation
Rights, Deferred Shares and Performance Shares and the prices per share
applicable thereto, are subject to adjustment in certain situations as provided
in Section 11 of the Amended Plan.
AMENDMENTS AND MISCELLANEOUS
The Amended Plan may be amended by the Committee so long as the
amendments do not increase the maximum number of shares specified in Section
3(a) of the Amended Plan (except as expressly authorized by the Amended Plan),
increase the number of Performance Units specified in Section 3(b) of the
Amended Plan, change certain provisions relating to the automatic grants to
nonemployee Directors, or cause Rule 16b-3 to become inapplicable to the Amended
Plan. In no event may the provisions of the Amended Plan relating to the
automatic awards to Nonemployee Directors be amended except to comport with
changes in the Code or the Employee Retirement Income Security Act or rules
thereunder unless permitted by Rule 16b-3. However, the Committee may amend the
Amended Plan to eliminate provisions which are no longer necessary as a result
of changes in tax or securities laws and regulations, or in the interpretation
of such laws and regulations.
Where the Committee has established conditions to the exercisability or
retention of certain awards, Section 15 of the Amended Plan allows the Committee
to take action in its sole discretion subsequently to equitably adjust such
conditions in certain circumstances, including in the case of death, disability
or retirement.
The Committee may permit participants to elect to defer the issuance of
Common Stock or the settlement of awards in cash under the Amended Plan. The
Committee may also provide that deferral settlements include for payment or
crediting of interest on the deferred amounts or the payment or crediting of
dividend equivalents where the deferral amounts are denominated in shares of
Common Stock.
AMENDED PLAN BENEFITS
It is not possible to determine specific amounts that may be awarded in
the future under the Amended Plan. However, as indicated in the table below, the
Committee has made awards to certain executive officers named in the Summary
Compensation Table and certain other key employees during the year 1995. Also,
certain awards were automatically made during the year to non-employee
Directors.
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<PAGE> 29
<TABLE>
<CAPTION>
NEW PLAN BENEFITS
THE TIMKEN COMPANY LONG TERM INCENTIVE PLAN
(A)
STOCK (B)
OPTIONS OTHER AWARDS
-----------------------------------------------------
NUMBER DOLLAR NUMBER
NAME AND POSITION OF SHARES VALUE ($) OF SHARES
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Joseph F. Toot Jr. 28,000 $ 254,856 6,646
President and Chief Executive Officer
W. R. Timken, Jr. 28,000 $ 71,197 1,856
Chairman - Board of Directors
Charles H. West 10,000 $ 108,029 2,817
Executive Vice President and President - Steel
Robert L. Leibensperger 12,000 $ 68,523 1,787
Executive Vice President and President - Bearings
Donald L. Hart 7,000 $ 51,352 1,339
Vice President -Bearings- North and South America
Executive Group 116,500 $ 765,384 19,958
Non-Executive Director Group 0 $ 89,700 (C) 2,400 (C)
Non-Executive Officer Employee Group 165,400 $ 743,219 19,384
$ 302,738 (D) 8,100 (D)
(A) The figures shown reflect stock options awarded under the Plan as described
in the Summary Compensation Table and the Options Grants in Last Fiscal
Year table.
(B) Except as otherwise noted, the figures shown reflect dividend equivalents
earned under the Plan as described in footnote (B) of the Summary
Compensation Table and footnote (A) of the Option Grants in Last Fiscal
Year table.
(C) The figures shown reflect automatic awards of Common Stock to Non-employee
Directors as described under "Director Compensation."
(D) The figures reflect the awards of deferred shares under the Plan to
selected employees who are not eligible to receive stock options due to job
level or legal restrictions outside the U.S. This type of award grants the
employee the right to receive Common Stock and any deferred cash dividends
accumulated with respect thereto in the future upon completion of a
specified period of employment.
</TABLE>
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<PAGE> 30
FEDERAL INCOME TAX CONSEQUENCES
The following is a brief summary of certain of the Federal income tax
consequences of certain transactions under the Amended Plan based on Federal
income tax laws in effect on January 1, 1996. This summary is not intended to be
complete and does not describe state or local tax consequences.
TAX CONSEQUENCES TO PARTICIPANTS
NON-QUALIFIED STOCK OPTIONS. In general, (i) no income will be
recognized by an optionee at the time a non-qualified Option Right is granted;
(ii) at the time of exercise of a non-qualified Option Right, ordinary income
will be recognized by the optionee in an amount equal to the difference between
the option price paid for the shares and the fair market value of the shares, if
unrestricted, on the date of exercise; and (iii) at the time of sale of shares
acquired pursuant to the exercise of a non-qualified Option Right, appreciation
(or depreciation) in value of the shares after the date of exercise will be
treated as either short-term or long-term capital gain (or loss) depending on
how long the shares have been held.
INCENTIVE STOCK OPTIONS. No income generally will be recognized by an
optionee upon the grant or exercise of an ISO. If shares of Common Stock are
issued to the optionee pursuant to the exercise of an ISO, and if no
disqualifying disposition of such shares is made by such optionee within two
years after the date of grant or within one year after the transfer of such
shares to the optionee, then upon sale of such shares, any amount realized in
excess of the option price will be taxed to the optionee as a long-term capital
gain and any loss sustained will be a long-term capital loss.
If shares of Common stock acquired upon the exercise of an ISO are
disposed of prior to the expiration of either holding period described above,
the optionee generally will recognize ordinary income in the year of disposition
in an amount equal to the excess (if any) of the fair market value of such
shares at the time of exercise (or, if less, the amount realized on the
disposition of such shares if a sale or exchange) over the option price paid for
such shares. Any further gain (or loss) realized by the participant generally
will be taxed as short-term or long-term capital gain (or loss) depending on the
holding period.
APPRECIATION RIGHTS. No income will be recognized by a participant in
connection with the grant of a tandem Appreciation Right or a free-standing
Appreciation Right. When the Appreciation Right is exercised, the participant
normally will be required to include as taxable ordinary income in the year of
exercise an amount equal to the amount of cash received and the fair market
value of any unrestricted shares of Common Stock received on the exercise.
RESTRICTED SHARES. The recipient of Restricted Shares generally will be
subject to tax at ordinary income rates on the fair market value of the
Restricted Shares (reduced by any amount paid by the participant for such
Restricted Shares) at such time as the shares are no longer subject to
forfeiture or restrictions on transfer for purposes of Section 83 of the Code
("Restrictions"). However, a recipient who so elects under Section 83(b) of the
Code within 30 days of the date of transfer of the shares will have taxable
ordinary income on the date of transfer of the shares equal to the excess of the
fair market value of such shares (determined without regard to the Restrictions)
over the purchase price, if any, of such Restricted Shares. If a Section 83(b)
election has not been made, any dividends received with respect to Restricted
Shares that are subject to the Restrictions generally will be treated as
compensation that is taxable as ordinary income to the participant.
DEFERRED SHARES. No income generally will be recognized upon the award
of Deferred Shares. The recipient of a Deferred Share award generally will be
subject to tax at ordinary income rates on the fair market value of unrestricted
shares of Common Stock on the date that such shares are transferred to the
participant under the award (reduced by any amount paid by the participant for
such Deferred Shares), and the capital gains/loss holding period for such shares
will also commence on such date.
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<PAGE> 31
PERFORMANCE SHARES AND PERFORMANCE UNITS. No income generally will be
recognized upon the grant of Performance Shares or Performance Units. Upon
payment of respect of the earn-out of Performance Shares or Performance Units,
the recipient generally will be required to include as taxable ordinary income
in the year of receipt an amount equal to the amount of cash received and the
fair market value of any nonrestricted shares of Common Stock received.
SPECIAL RULES APPLICABLE TO OFFICERS AND DIRECTORS. In limited
circumstances where the sale of stock received as a result of a grant or award
could subject an officer or director to suit under Section 16(b) of the Exchange
Act, the tax consequences to the officer or director may differ from the tax
consequences described above. In these circumstances, unless a special election
under Section 83(b) of the Code has been made, the principal difference (in
cases where the officer or director would otherwise be currently taxed upon his
receipt of the stock) usually will be to postpone valuation and taxation of the
stock received so long as the sale of the stock received could subject the
officer or director to suit under Section 16(b) of the Securities and Exchange
Act of 1934, but no longer than six months.
TAX CONSEQUENCES TO THE COMPANY OR SUBSIDIARY
To the extent that a participant recognizes ordinary income in the
circumstances described above, the Company or subsidiary for which the
participant performs services will be entitled to a corresponding deduction
provided that, among other things, the income meets the test of reasonableness,
is an ordinary and necessary business expense, is not an "excess parachute
payment" within the meaning of Section 280G of the Code and is not disallowed by
the $1 million limitation on certain executive compensation.
VOTE REQUIRED TO APPROVE THE AMENDED PLAN
A favorable vote of the majority of votes cast on the matter is
necessary for approval of the Amended Plan. In addition, the affirmative vote of
a majority of Common Shares of the Company present, or represented, and entitled
to vote on the matter at the Annual Meeting is necessary for purposes of Rule
16b-3 under the Exchange Act. Abstentions and broker non-votes will not be
counted for determining whether the Amended Plan is passed. However, for
purposes of Rule 16b-3, abstentions will be considered entitled to vote on the
matter and broker non-votes will not.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL
OF THE TIMKEN COMPANY LONG-TERM INCENTIVE PLAN, AS AMENDED AND RESTATED.
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<PAGE> 32
PROPOSED AMENDMENT TO THE AMENDED ARTICLES OF INCORPORATION TO
INCREASE THE AUTHORIZED NUMBER OF SHARES OF COMMON STOCK
ITEM NO. 3
The Company's Board of Directors has adopted resolutions recommending
that the shareholders adopt an amendment (the "Amendment") to Article Fourth of
the Company's Amended Articles of Incorporation in order to increase the
authorized number of shares of the Company's Common Stock from 100,000,000 to
200,000,000, increasing the overall authorized number of shares from 120,000,000
to 220,000,000, including both Common Stock and Serial Preferred Stock. The text
of the relevant portion of Article Fourth of the Amended Articles of
Incorporation, as proposed to be amended, is set forth in Appendix B to this
proxy statement. Other than those changes proposed to be made as indicated on
Appendix B, the Company's Amended Articles of Incorporation will remain
identical in all respects.
The Company is presently authorized to issue 100,000,000 shares of
Common Stock, of which [31,354,307] shares were issued and outstanding at the
close of business on February 16, 1996, and an additional [4,444] were held in
the Company's treasury. A total of [33,079,756] shares of Common Stock are
reserved for issuance: (a) in connection with the Company's employee plans and
Dividend Reinvestment Plan; and (b) pursuant to the terms of the Company's
Rights Agreement, dated December 8, 1986, as amended and restated as of
February 1, 1991 (the "Rights Plan"). Because of these reserved shares, the
Company has a limited number of authorized, unissued and unreserved shares of
Common Stock available for issuance from time to time.
The Company presently has no plans to issue substantial numbers of
additional shares of Common Stock. Nonetheless, the Board of Directors believes
it is desirable to have authorized, unissued and unreserved shares of Common
Stock available for financings, acquisitions, stock dividends, stock splits and
other corporate purposes. The presence of an adequate supply of authorized,
unissued and unreserved shares of Common Stock provides flexibility by allowing
shares to be issued without further action by the shareholders, unless such
action is required in a specific case by applicable law or the rules of any
exchange on which the Company's securities may then be listed. The Company's
only present plans or agreements for the issuance or sale of additional shares
of Common Stock are as discussed above in connection with the Rights Plan and
the Company's employee plans and Dividend Reinvestment Plan.
To the extent that any additional shares of Common Stock may be issued
other than on a pro rata basis to current shareholders, the present ownership
position of current shareholders may be diluted. Holders of Common Stock have no
preemptive rights to purchase shares of the Company that are offered for sale.
Holders of Common Stock have no rights of appraisal or similar rights of
dissenting shareholders with respect to the proposed increase in the authorized
number of shares of Common Stock.
The proposal to increase the amount of authorized Common Stock could be
viewed to have an anti-takeover effect. Authorized but unissued and unreserved
shares of Common Stock could be used by the Board of Directors to make more
difficult a change in control of the Company. In certain circumstances, such
shares could be used to dilute the stock ownership of a person or entity seeking
to obtain control of the Company. These shares could also be sold in a private
placement to a purchaser or purchasers who might oppose a change in control of
the Company. The Company is not aware of any pending or proposed effort to
affect the control of the Company or to change management. Furthermore, neither
management of the Company nor the Board of Directors views the proposed
Amendment in this perspective, and the Company currently has no intention of
issuing shares of Common Stock for such purposes.
VOTE REQUIRED
The approval of the Amendment will require the affirmative vote of the
holders of a majority of the issued and outstanding shares of Common Stock.
Abstentions and broker non-votes will not be counted as a vote in favor of the
proposal for determining whether the Amendment is approved.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ADOPTION OF
THE PROPOSED AMENDMENT.
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<PAGE> 33
AUDITORS
The independent accounting firm of Ernst & Young LLP has acted as the
Company's auditor for many years and has been selected as the auditor for the
current year. Representatives of that firm are expected to be present at the
Annual Meeting and will have an opportunity to make a statement, if they so
desire, and will be available to respond to appropriate questions.
GENERAL
On the record date of February 16, 1996, there were outstanding [31,354,307]
shares of Common Stock, each entitled to one vote upon all matters presented to
the meeting.
The enclosed proxy is solicited by the Board of Directors, and the entire
cost of solicitation will be paid by the Company. In addition to solicitation by
mail, Officers and regular employees of the Company, without extra remuneration,
may solicit the return of proxies by telephone, telegraph or personal contact.
Brokerage houses, nominees, fiduciaries and other custodians will be requested
to forward soliciting material to the beneficial owners of shares held of record
by them and will be reimbursed for their expenses. The Company has retained
Georgeson & Co. to assist in the solicitation of proxies for a fee not to exceed
$9,500, plus reasonable out-of-pocket expenses.
Shares represented by properly executed proxies will be voted at the meeting
in accordance with the shareholders' instructions. In the absence of specific
instructions, the shares will be voted for the election of Directors as
indicated under Item No. 1 and FOR Items 2 and 3.
You may, without affecting any vote previously taken, revoke your proxy by a
later proxy received by the Company, or by giving notice to the Company either
in writing or at the meeting.
First Chicago Trust Company of New York will be responsible for tabulating
the results of shareholder voting. First Chicago will submit a total vote only,
keeping all individual votes confidential. Representatives of First Chicago will
serve as inspectors of election for the Annual Meeting. Under Ohio law and the
Company's Amended Articles of Incorporation and Amended Regulations, properly
executed proxies marked "abstain" will be counted for purposes of determining
whether a quorum has been achieved at the Annual Meeting but proxies
representing shares held in "street name" by brokers that are not voted will not
be counted for quorum purposes. Such abstentions and "broker non-votes" will not
be counted in the election of Directors.
AFTER APRIL 1, 1996, THE COMPANY WILL FURNISH TO EACH SHAREHOLDER, UPON
WRITTEN REQUEST AND WITHOUT CHARGE, A COPY OF THE COMPANY'S ANNUAL REPORT ON
FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1995, INCLUDING FINANCIAL STATEMENTS
AND SCHEDULES THERETO, FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
REQUESTS SHOULD BE ADDRESSED TO SCOTT A. SCHERFF, DIRECTOR - LEGAL SERVICES AND
ASSISTANT SECRETARY, THE TIMKEN COMPANY, 1835 DUEBER AVENUE, S.W. - GNE-01,
CANTON, OHIO 44706-2798.
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<PAGE> 34
APPENDIX A
THE TIMKEN COMPANY LONG-TERM INCENTIVE PLAN
(AS AMENDED AND RESTATED AS OF DECEMBER 20, 1995)
<TABLE>
<CAPTION>
Table of Contents
<S> <C> <C>
PAGE
1. Purpose................................................................................................ 1
2. Definitions............................................................................................ 1
3. Shares Available under the Plan........................................................................ 4
4. Option Rights.......................................................................................... 6
5. Appreciation Rights.................................................................................... 8
6. Restricted Shares...................................................................................... 10
7. Deferred Shares........................................................................................ 12
8. Performance Shares and Performance Units............................................................... 13
9. Automatic Awards to Nonemployee Directors.............................................................. 14
10. Transferability........................................................................................ 15
11. Adjustments............................................................................................ 16
12. Fractional Shares...................................................................................... 17
13. Withholding Taxes...................................................................................... 17
14. Participation by Employees of a Less-Than-80-..........................................................
Percent Subsidiary..................................................................................... 17
15. Certain Terminations of Employment, Hardship and ....................................................
Approved Leaves of Absence............................................................................. 17
16. Foreign Employees...................................................................................... 18
17. Administration of the Plan............................................................................. 18
18. Amendments and Other Matters........................................................................... 19
</TABLE>
EXHIBIT A - RESTRICTED SHARE AGREEMENT FOR NONEMPLOYEE DIRECTORS
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<PAGE> 35
THE TIMKEN COMPANY LONG-TERM INCENTIVE PLAN
(AS AMENDED AND RESTATED AS OF DECEMBER 20, 1995)
1. PURPOSE. The purpose of this Plan is to attract and retain
directors, officers and key employees for The Timken Company, an Ohio
corporation (the "Corporation"), and its Subsidiaries and to provide such
persons with incentives and rewards for superior performance.
2. DEFINITIONS. As used in this Plan,
"APPRECIATION RIGHT" means a right granted pursuant
to Section 5 of this Plan, including a Free-standing
Appreciation Right and a Tandem Appreciation Right.
"BASE PRICE" means the price to be used as the basis
for determining the Spread upon the exercise of a
Free-standing Appreciation Right.
"BOARD" means the Board of Directors of the
Corporation.
"CODE" means the Internal Revenue Code of 1986, as
amended from time to time.
"COMMITTEE" means the committee described in Section
17(a) of this Plan.
"COMMON SHARES" means (i) shares of the common stock
of the Corporation without par value and (ii) any
security into which Common Shares may be converted by
reason of any transaction or event of the type
referred to in Section 11 of this Plan.
"DATE OF GRANT" means the date specified by the
Committee on which a grant of Option Rights or
Appreciation Rights or Performance Shares or
Performance Units or a grant or sale of Restricted
Shares or Deferred Shares shall become effective,
which shall not be earlier than the date on which the
Committee takes action with respect thereto,
including the date on which an automatic grant of
Common Shares or Restricted Shares to a Nonemployee
Director becomes effective pursuant to Section 9 of
this Plan.
"DEFERRAL PERIOD" means the period of time during
which Deferred Shares are subject to deferral
limitations under Section 7 of this Plan.
"DEFERRED SHARES" means an award pursuant to Section
7 of this Plan of the right to receive Common Shares
at the end of a specified Deferral Period.
"FREE-STANDING APPRECIATION RIGHT" means an
Appreciation Right granted pursuant to Section 5 of
this Plan that is not granted in tandem with an
Option Right or similar right.
"INCENTIVE STOCK OPTIONS" means Option Rights that
are intended to qualify as "incentive stock options"
under Section 422 of the Code or any successor
provision.
"LESS-THAN-80-PERCENT SUBSIDIARY" means a Subsidiary
with respect to which the Corporation directly or
indirectly owns or controls less than 80 percent of
the total combined voting or other decision-making
power.
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<PAGE> 36
"MANAGEMENT OBJECTIVES" means the achievement of a
performance objective or objectives established
pursuant to this Plan for Participants who have
received grants of Performance Shares or Performance
Units or, when so determined by the Committee, Option
Rights, Appreciation Rights, Restricted Shares and
dividend credits. Management Objectives may be
described in terms of Corporation-wide objectives or
objectives that are related to the performance of the
individual Participant or of the Subsidiary,
division, department or function within the
Corporation or Subsidiary in which the Participant is
employed. The Management Objectives applicable to any
award to a Participant who is, or is determined by
the Committee to be likely to become, a "covered
employee" within the meaning of Section 162(m) of the
Code (or any successor provision) shall be limited to
specified levels of or growth in:
(i) return on invested capital;
(ii) earnings per share;
(iii) return on assets;
(iv) return on equity;
(v) shareholder return;
(vi) sales growth; and/or
(vii) productivity improvement.
Except in the case of such a covered employee, if the
Committee determines that a change in the business,
operations, corporate structure or capital structure
of the Corporation, or the manner in which it
conducts its business, or other events or
circumstances render the Management Objectives
unsuitable, the Committee may modify such Management
Objectives or the related minimum acceptable level of
achievement, in whole or in part, as the Committee
deems appropriate and equitable.
"MARKET VALUE PER SHARE" means the fair market value
of the Common Shares as determined by the Committee
from time to time.
"NONEMPLOYEE DIRECTOR" means a member of the Board
who is not an employee of the Corporation or any
Subsidiary.
"OPTIONEE" means the person so designated in an
agreement evidencing an outstanding Option Right.
"OPTION PRICE" means the purchase price payable upon
the exercise of an Option Right.
"OPTION RIGHT" means the right to purchase Common
Shares upon exercise of an option granted pursuant to
Section 4 of this Plan.
"PARTICIPANT" means a person who is selected by the
Committee to receive benefits under this Plan and
who is at that time an officer, including
without limitation an officer who may also be a
member of the Board, or other key employee of the
Corporation or any Subsidiary or who has agreed
to commence serving in any such capacity, and shall
also include each Nonemployee Director who receives
an award pursuant to Section 9 of this Plan.
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<PAGE> 37
"PERFORMANCE PERIOD" means, in respect of a
Performance Share or Performance Unit, a period of
time established pursuant to Section 8 of this Plan
within which the Management Objectives relating
thereto are to be achieved.
"PERFORMANCE SHARE" means a bookkeeping entry that
records the equivalent of one Common Share awarded
pursuant to Section 8 of this Plan.
"PERFORMANCE UNIT" means a bookkeeping entry that
records a unit equivalent to $100.00 awarded pursuant
to Section 8 of this Plan.
"RELOAD OPTION RIGHTS" means additional Option Rights
granted automatically to an Optionee upon the
exercise of Option Rights pursuant to Section 4(f) of
this Plan.
"RESTRICTED SHARES" mean Common Shares granted or
sold pursuant to Section 6 or Section 9 of this
Plan as to which neither the substantial risk of
forfeiture nor the restrictions on transfer referred
to in Section 6 hereof has expired.
"RULE 16B-3" means Rule 16b-3 of the Securities and
Exchange Commission (or any successor rule to the
same effect), as in effect from time to time.
"SPREAD" means, in the case of a Free-standing
Appreciation Right, the amount by which the Market
Value per Share on the date when any such right is
exercised exceeds the Base Price specified in such
right or, in the case of a Tandem Appreciation Right,
the amount by which the Market Value per Share on the
date when any such right is exercised exceeds the
Option Price specified in the related Option Right.
"SUBSIDIARY" means a corporation, partnership, joint
venture, unincorporated association or other entity
in which the Corporation has a direct or indirect
ownership or other equity interest; provided,
however, for purposes of determining whether any
person may be a Participant for purposes of any grant
of Incentive Stock Options, "Subsidiary" means any
corporation in which the Corporation owns or controls
directly or indirectly more than 50 percent of the
total combined voting power represented by all
classes of stock issued by such corporation at the
time of such grant.
"TANDEM APPRECIATION RIGHT" means an Appreciation
Right granted pursuant to Section 5 of this Plan that
is granted in tandem with an Option Right or any
similar right granted under any other plan of the
Corporation.
3. SHARES AVAILABLE UNDER THE PLAN. (a) Subject to adjustment
as provided in Section 11 of this Plan, the number of Common Shares issued or
transferred (i) upon the exercise of Option Rights or Appreciation Rights,
(ii) as Restricted Shares, and released from all substantial risks of
forfeiture, (iii) as Deferred Shares, (iv) in payment of Performance Shares
or Performance Units that have been earned, (v) as automatic awards to
Nonemployee Directors or (vi) in payment of dividend equivalents paid with
respect to awards made under this Plan, shall not in the aggregate exceed
2,900,000 (1,400,000 which were approved in 1992 and 1,500,000 of
which are being added as of this Amendment and Restatement) Common Shares,
which may be Common Shares of original issuance or Common Shares held in
treasury or a combination thereof; provided, however, that the number of
Restricted Shares and Deferred Shares shall not (after taking any forfeitures
into account and excluding all awards of Restricted Shares to Non-Employee
Directors pursuant to Section 9 of this Plan) exceed 250,000, subject to
adjustment as provided in Section 11 of this Plan.
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<PAGE> 38
(b) Upon the full or partial payment of any
Option Price by the transfer to the Corporation of Common Shares or upon
satisfaction of tax withholding provisions in connection with any such exercise
or any other payment made or benefit realized under this Plan by the transfer
or relinquishment of Common Shares, there shall be deemed to have been issued
or transferred under this plan only the net number of Common Shares actually
issued or transferred by the Corporation.
(c) Notwithstanding anything in this Plan to
the contrary, the aggregate number of Common Shares actually issued or
transferred by the Corporation upon the exercise of Incentive Stock Options
shall not exceed the total number of Common Shares first specified above in
Section 3(a), subject to adjustment as provided in Section 11 of this Plan.
(d) The number of Performance Units that may
be granted and paid out under this Plan shall not in the aggregate exceed
150,000.
(e) Upon payment in cash of the benefit
provided by any award granted under this Plan, any Common Shares that were
covered by that award shall again be available for issuance or transfer
hereunder.
(f) Notwithstanding any other provision of
this Plan to the contrary, no Participant shall be granted Option Rights for
more than 500,000 Common Shares during any period of five consecutive calendar
years subject to adjustment as provided in Section 11 of this Plan
(g) Notwithstanding any other provision of
this Plan to the contrary, in no event shall any Participant in any period of
one calendar year receive awards of Performance Shares and Performance Units
having an aggregate value as of their respective Dates of Grant in excess of
$750,000.
4. OPTION RIGHTS. The Committee may from time to time
authorize grants to Participants of options to purchase Common Shares upon
such terms and conditions as the Committee may determine in accordance with
the following provisions:
(a) Each grant shall specify the number of Common Shares
to which it pertains, subject to the limitations set
forth in Section 3 of this Plan.
(b) Each grant shall specify an Option Price per Common
Share, which shall be equal to or greater than the
Market Value per Share on the Date of Grant.
(c) Each grant shall specify the form of
consideration to be paid in satisfaction of the
and the manner of payment of such consideration,
which may include (i) cash in the form of currency
or check or other cash equivalent acceptable to
the Corporation, (ii) nonforfeitable, unrestricted
Common Shares, which are already owned by the
Optionee and have a value at the time of exercise
that is equal to the Option Price, (iii) any other
legal consideration that the Committee may deem
appropriate, including without limitation any form
of consideration authorized under Section 4(d)
below, on such basis as the Committee may determine
in accordance with this Plan and (iv) any
combination of the foregoing.
(d) Any grant may provide that payment of the
Option Price may also be made in whole or in part in
the form of Restricted Shares or other Common Shares
that are subject to risk of forfeiture or
restrictions on transfer. Unless otherwise
determined by the Committee whenever any Option
Price is paid in whole or in part by means of any
of the forms of consideration specified in this
Section 4(d), the Common Shares received by the
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<PAGE> 39
Optionee upon the exercise of the Option Rights
shall be subject to the same risks of forfeiture or
restrictions on transfer as those that applied to the
consideration surrendered by the Optionee; provided,
however, that such risks of forfeiture and
restrictions on transfer shall apply only to the same
number of Common Shares received by the Optionee as
applied to the forfeitable or restricted Common
Shares surrendered by the Optionee.
(e) Any grant may provide for deferred payment of the
Option Price from the proceeds of sale through a bank
or broker on the date of exercise of some or all of
the Common Shares to which the exercise relates.
(f) Any grant may provide for the automatic grant to
the Optionee of Reload Option Rights upon
the exercise of Option Rights, including Reload
Option Rights, for Common Shares or any other noncash
consideration authorized under Sections 4(d) and
(e) above.
(g) Successive grants may be made to the same Participant
regardless of whether any Option Rights previously
granted to such Participant remain unexercised.
(h) Each grant shall specify the period or periods of
continuous employment of the Optionee by the
Corporation or any Subsidiary that are necessary
before the Option Rights or installments thereof
shall become exercisable, and any grant may provide
for the earlier exercisability of such rights in the
event of retirement, death or disability of the
Participant or a change in control of the Corporation
or other similar transaction or event.
(i) Any grant of Option Rights may specify Management
Objectives that must be achieved as a condition to
the exercise of such rights.
(j) Option Rights granted under this Plan may be (i)
options that are intended to qualify under particular
provisions of the Code, including without limitation
Incentive Stock Options, (ii) options that are not
intended to so qualify or (iii) combinations of the
foregoing.
(k) On or after the Date of Grant of any Option Rights
other than Incentive Stock Options, the Committee
may provide for the payment to the Optionee
of dividend equivalents thereon in cash or Common
Shares on a current, deferred or contingent basis.
In the case of an Optionee who is, or is determined
by the Committee to be likely to become, a "covered
employee" within the meaning of Section 162(m) of
the Code (or any successor provision), the payment
will be contingent on the achievement of a specified
level of earnings per share for a year relative to
the total amount of cash dividends per share that
were paid on the outstanding Common Shares during
that year. The payment of dividend equivalents also
may be subject to additional conditions. In no
event shall any such Optionee in any period of one
calendar year earn dividend equivalents with a value
in excess of $750,000.
(l) No Option Right granted under this Plan may be
exercised more than 10 years from the Date
of Grant
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<PAGE> 40
(m) Each grant shall be evidenced by an agreement, which
shall be executed on behalf of the Corporation by any
officer thereof and delivered to and accepted by the
Optionee and shall contain such terms and provisions
as the Committee may determine consistent with this
Plan.
5. APPRECIATION RIGHTS. The Committee may also authorize
grants to Participants of Appreciation Rights. An Appreciation Right shall be a
right of the Participant to receive from the Corporation an amount, which shall
be determined by the Committee and shall be expressed as a percentage (not
exceeding 100 percent) of the Spread at the time of the exercise of such right.
Any grant of Appreciation Rights under this Plan shall be upon such terms and
conditions as the Committee may determine in accordance with the following
provisions:
(a) Any grant may specify that the amount payable upon
the exercise of an Appreciation Right may be paid by
the Corporation in cash, Common Shares or any
combination thereof and may (i) either grant to the
Participant or reserve to the Committee the right to
elect among those alternatives or (ii) preclude the
right of the Participant to receive and the
Corporation to issue Common Shares or other equity
securities in lieu of cash; provided, however, that
no form of consideration or manner of payment that
would cause Rule 16b-3 to cease to apply to this Plan
shall be permitted.
(b) Any grant may specify that the amount payable upon
the exercise of an Appreciation Right shall not
exceed a maximum specified by the Committee on the
Date of Grant.
(c) Any grant may specify (i) a waiting period or periods
before Appreciation Rights shall become exercisable
and (ii) permissible dates or periods on or during
which Appreciation Rights shall be exercisable.
(d) Any grant may specify that an Appreciation Right may
be exercised only in the event of retirement, death
or disability of the Participant or a change in
control of the Corporation or other similar
transaction or event.
(e) Any grant may provide for the payment to the
Participant of dividend equivalents
thereon in cash or Common Shares on a current,
deferred or contingent basis.
(f) Each grant shall be evidenced by an agreement, which
shall be executed on behalf of the Corporation by any
officer thereof and delivered to and accepted by the
Optionee and shall describe the subject Appreciation
Rights, identify any related Option Rights, state
that the Appreciation Rights are subject to all of
the terms and conditions of this Plan and contain
such other terms and provisions as the Committee may
determine consistent with this Plan.
(g) Any grant of Appreciation Rights may specify
Management Objectives that must be achieved as a
condition of the exercise of such rights.
(h) Regarding Tandem Appreciation Rights only: Each grant
shall provide that a Tandem Appreciation Right may be
exercised only (i) at a time when the related Option
Right (or any similar right granted under any other
plan of the Corporation) is also exercisable and the
Spread is positive and (ii) by surrender of the
related Option Right (or such other right) for
cancellation.
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<PAGE> 41
(i) Regarding Free-standing Appreciation Rights only:
(i) Each grant shall specify in respect of each
Free-standing Appreciation Right a Base
Price per Common Share, which shall be equal
to or greater than the Market Value per
Share on the Date of Grant;
(ii) Successive grants may be made to the same
Participant regardless of whether any
Free-standing Appreciation Rights previously
granted to such Participant remain
unexercised;
(iii) Each grant shall specify the period or
periods of continuous employment of the
Participant by the Corporation or any
Subsidiary that are necessary before the
Free-standing Appreciation Rights or
installments thereof shall become
exercisable, and any grant may provide for
the earlier exercise of such rights in the
event of retirement, death or disability of
the Participant or a change in control of
the Corporation or other similar transaction
or event; and
(iv) No Free-standing Appreciation Right granted
under this Plan may be exercised more than
10 years from the Date of Grant.
6. RESTRICTED SHARES. The Committee may also authorize
grants or sales to Participants of Restricted Shares upon such terms and
conditions as the Committee may determine in accordance with the following
provisions:
(a) Each grant or sale shall constitute an immediate
transfer of the ownership of Common Shares to the
Participant in consideration of the performance of
services, entitling such Participant to dividend,
voting and other ownership rights, subject to the
substantial risk of forfeiture and restrictions on
transfer hereinafter referred to.
(b) Each grant or sale may be made without additional
consideration from the Participant or in
consideration of a payment by the Participant that is
less than the Market Value per Share on the Date of
Grant.
(c) Each grant or sale shall provide that the Restricted
Shares covered thereby shall be subject to a
"substantial risk of forfeiture" within the meaning
of Section 83 of the Code for a period of at least
three years to be determined by the Committee on the
Date of Grant, and any grant or sale may provide
for the earlier termination of such period in the
event of retirement, death or disability of the
Participant or a change in control of the Corporation
or other similar transaction or event; provided,
however, that the Committee may authorize the grant
or sale of Restricted Shares that are subject to such
a risk of forfeiture for periods of less than three
years in amounts that, when taken together with any
Deferred Shares granted or sold on such terms
pursuant to Section 7(c) of this Plan (after taking
any forfeitures into account and excluding all awards
of Restricted Shares to Non-Employee Directors
pursuant to Section 9 of this Plan), in the aggregate
do not exceed three percent of the number of Common
Shares specified in Section 3 above as being added to
this Amendment and Restatement.
(d) Each grant or sale shall provide that, during the
period for which such substantial risk of forfeiture
is to continue, the transferability of the Restricted
Shares shall be prohibited or restricted in the
manner and to the extent prescribed by the Committee
on the Date of Grant. Such restrictions may include
without limitation rights of repurchase or first
refusal in the Corporation or provisions subjecting
the Restricted Shares to a continuing substantial
risk of forfeiture in the hands of any transferee.
<PAGE> 42
(e) Any grant of Restricted Shares may specify Management
Objectives which, if achieved, will result in
termination or early termination of the restrictions
applicable to such shares and each such grant shall
specify in respect of such specified Management
Objectives, a minimum acceptable level of achievement
and shall set forth a formula for determining the
number of Restricted Shares on which restrictions
will terminate if performance is at or above the
minimum level, but falls short of full achievement of
the specified Management Objectives.
(f) Any grant or sale may require that any or all
dividends or other distributions paid on the
Restricted Shares during the period of such
restrictions be automatically sequestered. Such
distribution may be reinvested on an immediate or
deferred basis in additional Common Shares, which may
be subject to the same restrictions as the underlying
award or such other restrictions as the Committee may
determine.
(g) Each grant or sale shall be evidenced by an
agreement, which shall be executed on behalf of the
Corporation by any officer thereof and delivered to
and accepted by the Participant and shall contain
such terms and provisions as the Committee may
determine consistent with this Plan. Unless otherwise
directed by the Committee, all certificates
representing Restricted Shares, together with a stock
power that shall be endorsed in blank by the
Participant with respect to such shares, shall be
held in custody by the Corporation until all
restrictions thereon lapse.
7. DEFERRED SHARES. The Committee may also authorize
grants or sales of Deferred Shares to Participants upon such terms and
conditions as the Committee may determine in accordance with the following
provisions:
(a) Each grant or sale shall constitute the agreement by
the Corporation to issue or transfer Common Shares to
the Participant in the future in consideration of the
performance of services, subject to the fulfillment
during the Deferral Period of such conditions as the
Committee may specify.
(b) Each grant or sale may be made without additional
consideration from the Participant or in
consideration of a payment by the Participant that is
less than the Market Value per Share on the Date of
Grant.
(c) Each grant or sale shall provide that the Deferred
Shares covered thereby shall be subject to a Deferral
Period of at least three years, which shall be fixed
by the Committee on the Date of Grant, and any grant
or sale may provide for the earlier termination of
such period in the event of retirement, death or
disability of the Participant or a change in control
of the Corporation or other similar transaction or
event; provided, however, that the Committee may
authorize the grant or sale of Shares that are
subject to Deferral Periods of less than three years
in amounts that, when taken together with any
Restricted Shares granted or sold on such terms
pursuant to Section 6(c) of this Plan (and after
taking any forfeitures into account and excluding all
awards of Restricted Shares to Non-Employee Directors
pursuant to Section 9 of this Plan), in the aggregate
do not exceed three percent of the number of Common
Shares specified in Section 3 above as being added
to this Amendment and Restatement.
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<PAGE> 43
(d) During the Deferral Period, the Participant shall not
have any right to transfer any rights under the
subject award, shall not have any rights of ownership
in the Deferred Shares and shall not have any right
to vote such shares, but the Committee may on or
after the Date of Grant authorize the payment of
dividend equivalents on such shares in cash or
additional Common Shares on a current, deferred or
contingent basis.
(e) Each grant or sale shall be evidenced by an
agreement, which shall be executed on behalf of the
Corporation by any officer thereof and delivered to
and accepted by the Participant and shall contain
such terms and provisions as the Committee may
determine consistent with this Plan.
8. PERFORMANCE SHARES AND PERFORMANCE UNITS. The Committee
may also authorize grants to Participants of Performance Shares and Performance
Units, which shall become payable to the Participant upon the achievement of
specified Management Objectives, upon such terms and conditions as the Committee
may determine in accordance with the following provisions:
(a) Each grant shall specify the number of Performance
Shares or Performance Units to which it pertains,
subject to the limitations in Section 3, which may be
subject to adjustment to reflect changes in
compensation or other factors.
(b) The Performance Period with respect to each
Performance Share or Performance Unit shall be
determined by the Committee on the Date of Grant and
may be subject to earlier termination in the event of
retirement, death or disability of the Participant or
a change in control of the Corporation or other
similar transaction or event.
(c) Each grant shall specify the Management Objectives
that are to be achieved by the Participant and each
grant shall specify in respect of the specified
Management Objectives a minimum acceptable level of
achievement below which no payment will be made and
shall set forth a formula for determining the amount
of any payment to be made if performance is at or
above the minimum acceptable level but falls short of
full achievement of the specified Management
Objectives.
(d) Each grant shall specify the time and manner of
payment of Performance Shares or Performance Units
that shall have been earned, and any grant may
specify that any such amount may be paid by the
Corporation in cash, Common Shares or any combination
thereof and may either grant to the Participant or
reserve to the Committee the right to elect among
those alternatives.
(e) Any grant of Performance Shares may specify that the
amount payable with respect thereto may not exceed a
maximum specified by the Committee on the Date of
Grant. Any grant of Performance Units may specify
that the amount payable, or the number of Common
Shares issued, with respect thereto may not exceed
maximums specified by the Committee on the Date of
Grant.
(f) Any grant may provide for the payment to the
Participant of dividend equivalents thereon in cash
or in additional Common Shares on a current, deferred
or contingent basis.
(g) Each grant of Performance Shares or Performance Units
shall be evidenced by an agreement, which shall be
executed on behalf of the Corporation by any officer
thereof and delivered to and accepted by the
Participant and shall contain such terms and
provisions as the Committee may determine consistent
with this Plan.
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<PAGE> 44
9. AUTOMATIC AWARDS TO NONEMPLOYEE DIRECTORS. Common
Shares and Restricted Shares shall be automatically granted to Nonemployee
Directors as follows:
(a) Immediately following the 1992 annual meeting of
shareholders, 1,000 Restricted Shares shall be
granted to each Nonemployee Director who was not an
employee of the Corporation or any Subsidiary at the
time of his first election or appointment to the
Board. Such Restricted Shares shall become
transferable and nonforfeitable at the rate of 20
percent per year. In addition, 200 Common Shares
shall be granted to each such person immediately
following each annual meeting of shareholders
thereafter for so long as he continues to be a
Nonemployee Director. Such Common Shares shall be
subject only to a restriction on transfer for a
period of six months immediately following the Date
of Grant thereof and shall bear a legend to the
effect.
(b) Immediately following his first election or
appointment to the Board, 1,000 Restricted Shares
shall be granted to each person who is elected or
appointed as a Nonemployee Director after the 1992
annual meeting of shareholders; provided, however,
that a person so elected or appointed to the Board
who retired from employment with the Company or a
Subsidiary within the ten years preceding such
election or appointment shall receive a grant of only
200 Common Shares immediately after the annual
meeting of shareholders at which he is first elected
or the first annual meeting of shareholders following
his appointment, which shall be subject only to a
restriction on transfer for a period of six months
immediately following the Date of Grant thereof and
shall bear a legend to that effect. In addition, 200
Common Shares shall be granted to each such person
immediately following each annual meeting of
shareholders thereafter for so long as he continues
to be a Nonemployee Director. Such Common Shares
shall be subject only to a restriction on transfer
for a period of six months immediately following the
Date of Grant thereof and shall bear a legend to
that effect.
(c) immediately following the 1993 annual meeting of
shareholders, 200 Common Shares shall be granted
to each Nonemployee Director who was an employee of
the Corporation or a Subsidiary at the time of his
first election or appointment to the Board, and 200
additional Common Shares shall be granted to each
such person immediately following each annual meeting
of shareholders thereafter for so long as he
continues to be a Nonemployee Director. Such Common
Shares shall be subject only to a restriction on
transfer for a period of six months immediately
following the Date of Grant thereof and shall bear a
legend to that effect.
(d) Each person who at any time after the 1993 annual
meeting of shareholders is both an employee of the
Corporation or any subsidiary and a member of the
Board and then ceases to be an employee, but
continues to be a member of the Board, shall be
granted 200 Common Shares immediately after each
annual meeting of shareholders following such
cessation of employment for so long as he continues
to be a Nonemployee Director. Such Common Shares
shall be subject only to a restriction on transfer
for a period of six months immediately following the
Date of Grant thereof and shall bear a legend to that
effect.
Each grant of Restricted Shares shall be evidenced by an
agreement in substantially the form of Exhibit A hereto and shall be subject to
all of the terms and conditions set forth therein. All grants of Common Shares
and Restricted Shares shall become null and void if this Plan is not approved on
or before December 31, 1992, by the affirmative vote of the holders of a
majority of the Common Shares present or represented and entitled to vote at a
meeting duly held in accordance with the laws of the State of Ohio.
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<PAGE> 45
10. TRANSFERABILITY. (a) No Option Right or other
derivative security (as that term is used in Rule 16b-3) awarded under this Plan
shall be transferable by a Participant other than by will or the laws of descent
and distribution. Option Rights and Appreciation Rights shall be exercisable
during a Participant's lifetime only by the Participant or, in the event of the
Participant's legal incapacity, by his guardian or legal representative acting
in a fiduciary capacity on behalf of the Participant under state law and court
supervision. Notwithstanding the foregoing, the Committee, in its sole
discretion, may provide for transferability of particular awards under this Plan
so long as such provisions will not disqualify the exemption for other awards
under Rule 16b-3.
(b) Any award made under this Plan may provide
that all or any part of the Common Shares that are (i) to be issued or
transferred by the Corporation upon the exercise of Option Rights or
Appreciation Rights or upon the termination of the Deferral Period applicable
to Deferred Shares, or in payment of Performance Shares or Performance Units
or (ii) no longer subject to the substantial risk of forfeiture and
restrictions on transfer referred to in Section 6 of this Plan, shall be
subject to further restrictions upon transfer.
11. ADJUSTMENTS. The Committee may make or provide for
such adjustments in the (a) number of Common Shares covered by outstanding
Option Rights, Appreciation Rights, Deferred Shares and Performance Shares
granted hereunder, (b) prices per share applicable to such Option Rights and
Appreciation Rights, and (c) kind of shares (including shares of another issuer)
covered thereby, as the Committee in its sole discretion may in good faith
determine to be equitably required in order to prevent dilution or enlargement
of the rights of Participants that otherwise would result from (x) any
stock dividend, stock split, combination of shares, recapitalization or other
change in the capital structure of the Corporation, (y) any merger,
consolidation, spin-off, spin-out, split-off, split-up, reorganization, partial
or complete liquidation or other distribution of assets, issuance of rights or
warrants to purchase securities or (z) any other corporate transaction or event
having an effect similar to any of the foregoing. In the event of any such
transaction or event, the Committee may provide in substitution for any or all
outstanding awards under this Plan such alternative consideration as it may in
good faith determine to be equitable under the circumstances and may require in
connection therewith the surrender of all awards so replaced. Moreover, the
Committee may on or after the Date of Grant provide in the agreement evidencing
any award under this Plan that the holder of the award may elect to receive an
equivalent award in respect of securities of the surviving entity of any merger,
consolidation or other transaction or event having a similar effect, or the
Committee may provide that the holder will automatically be entitled to receive
such an equivalent award. The Committee may also make or provide for such
adjustments in the number of shares specified in Section 3, and in the number of
Common Shares and Restricted Shares to be granted automatically pursuant to
Section 8, of this Plan as the Committee in its sole discretion may in good
faith determine to be appropriate in order to reflect any transaction or event
described in this Section 11.
12. FRACTIONAL SHARES. The Corporation shall not be
required to issue any fractional Common Shares pursuant to this Plan. The
Committee may provide for the elimination of fractions or for the settlement
thereof in cash.
13. WITHHOLDING TAXES. To the extent that the Corporation
is required to withhold federal, state, local or foreign taxes in connection
with any payment made or benefit realized by a Participant or other person under
this Plan, and the amounts available to the Corporation for such withholding are
insufficient, it shall be a condition to the receipt of such payment or the
realization of such benefit that the Participant or such other person make
arrangements satisfactory to the Corporation for payment of the balance of such
taxes required to be withheld. At the discretion of the Committee, such
arrangements may include relinquishment of a portion of such benefit. The
Corporation and any Participant or such other person may also make similar
arrangements with respect to the payment of any taxes with respect to which
withholding is not required.
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<PAGE> 46
14. PARTICIPATION BY EMPLOYEES OF A LESS-THAN-80- PERCENT
SUBSIDIARY. As a condition to the effectiveness of any grant or award to be made
hereunder to a Participant who is an employee of a Less-Than-80-Percent
Subsidiary, regardless whether such Participant is also employed by the
Corporation or another Subsidiary, the Committee may require the
Less-Than-80-Percent Subsidiary to agree to transfer to the Participant (as, if
and when provided for under this Plan and any applicable agreement entered into
between the Participant and the Less-Than-80-Percent Subsidiary pursuant to this
Plan) the Common Shares that would otherwise be delivered by the Corporation
upon receipt by the Less-Than-80-Percent Subsidiary of any consideration then
otherwise payable by the Participant to the Corporation. Any such award may be
evidenced by an agreement between the Participant and the Less-Than-80-Percent
Subsidiary, in lieu of the Corporation, on terms consistent with this Plan and
approved by the Committee and the Less-Than-80-Percent Subsidiary. All Common
Shares so delivered by or to a Less-Than-80-Percent Subsidiary will be treated
as if they had been delivered by or to the Corporation for purposes of Section 3
of this Plan, and all references to the Corporation in this Plan shall be deemed
to refer to the Less-Than-80-Percent Subsidiary except with respect to the
definitions of the Board and the Committee and in other cases where the context
otherwise requires.
15. CERTAIN TERMINATIONS OF EMPLOYMENT, HARDSHIP AND
APPROVED LEAVES OF ABSENCE. Notwithstanding any other provision of this Plan to
the contrary, in the event of termination of employment by reason of death,
disability, normal retirement, early retirement with the consent of the
Corporation, termination of employment to enter public service with the consent
of the Corporation or leave of absence approved by the Corporation, or in the
event of hardship or other special circumstances, of a Participant who holds an
Option Right or Appreciation Right that is not immediately and fully
exercisable, any Restricted Shares as to which the substantial risk of
forfeiture or the prohibition or restriction on transfer has not lapsed, any
Deferred Shares as to which the Deferral Period is not complete, any Performance
Shares or Performance Units that have not been fully earned, or any Common
Shares that are subject to any transfer restriction pursuant to Section
10(b) of this Plan, the Committee may in its sole discretion take any action
that it deems to be equitable under the circumstances or in the best interests
of the Corporation, including without limitation waiving or modifying any
limitation or requirement with respect to any award under this Plan.
16. FOREIGN EMPLOYEES. In order to facilitate the making of
any grant or combination of grants under this Plan, the Committee may provide
for such special terms for awards to Participants who are foreign nationals, or
who are employed by the Corporation or any Subsidiary outside of the United
States of America, as the Committee may consider necessary or appropriate to
accommodate differences in local law, tax policy or custom. Moreover, the
Committee may approve such supplements to, or amendments, restatements or
alternative versions of, this Plan as it may consider necessary or appropriate
for such purposes without thereby affecting the terms of this Plan as in effect
for any other purpose, and the Secretary or other appropriate officer of the
Corporation may certify any such document as having been approved and adopted
in the same manner as this Plan. No such special terms, supplements, amendments
or restatements alternative versions shall include any provisions that are
inconsistent with the terms of this Plan, as then in effect, unless this Plan
could have been amended to eliminate such inconsistency without further
approval by the shareholders of the Corporation.
17. ADMINISTRATION OF THE PLAN. (a) This Plan shall be
administered by the Compensation Committee of the Board, as appointed
immediately after the 1992 annual meeting of shareholders and as thereafter
constituted from time to time. The Committee shall be composed of not less than
three members of the Board, each of whom shall be a "disinterested person"
within the meaning of Rule 16b-3 and an "outside director" within the meaning of
Section 162(m) of the Code. A majority of the Committee shall constitute a
quorum, and the acts of the members of the Committee who are present at any
meeting thereof at which a quorum is present, or acts unanimously approved by
the members of the Committee in writing, shall be the acts of the Committee.
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<PAGE> 47
(b) The interpretation and construction by the Committee of
any provision of this Plan or of any agreement, notification or document
evidencing the grant of Option Rights, Appreciation Rights, Restricted Shares or
Deferred Shares, Performance Shares and Performance Units and any determination
by the Committee pursuant to any provision of this Plan or any such agreement,
notification or document, shall be final and conclusive. No member of the
Committee shall be liable for any such action taken or determination made in
good faith.
18. AMENDMENTS AND OTHER MATTERS. (a) This Plan may be
amended from time to time by the Committee, but except as expressly authorized
by this Plan no such amendment shall increase the maximum number of shares
specified in Section 3(a) of this Plan, increase the number of Performance
Units specified in Section 3(b) of this Plan, change the provisions of
Section 9 of this Plan that specify the number of Common Shares or Restricted
Shares to be granted automatically to Nonemployee Directors or that specify the
timing of such awards, or cause Rule 16b-3 to become inapplicable to this Plan,
without the further approval of the shareholders of the Corporation. In no
event may the provisions of Section 9 of this Plan be amended more than once
every six months except to comport with changes in the Code or the Employee
Retirement Income Security Act or the rules thereunder unless permitted by
Rule 16b-3. Without limiting the generality of the foregoing, the Committee may
amend this Plan to eliminate provisions which are no longer necessary as a
result of changes in tax or securities laws or regulations, or in the
interpretation thereof.
(b) The Committee also may permit Participants to elect to
defer the issuance of Common Shares or the settlement of awards in cash under
the Plan pursuant to such rules, procedures or programs as it may establish for
purposes of this Plan. The Committee also may provide that deferred settlements
include the payment or crediting of interest on the deferral amounts, or the
payment or crediting of dividend equivalents where the deferral amounts are
denominated in Common Shares.
(c) This Plan shall not confer upon any Participant any right
with respect to continuance of employment or other service with the Corporation
or any Subsidiary and shall not interfere in any way with any right that the
Corporation or any Subsidiary would otherwise have to terminate any
Participant's employment or other service at any time.
(d) (i) To the extent that any provision of this Plan would
prevent any Option Right that was intended to qualify under particular
provisions of the Code from so qualifying, such provision of this Plan shall be
null and void with respect to such Option Right; provided, however, that such
provision shall remain in effect with respect to other Option Rights, and there
shall be no further effect on any provision of this Plan.
(ii) Any award that may be made pursuant to an
amendment to this Plan that shall have been adopted without the approval of
the shareholders of the Corporation shall be null and void if it is
subsequently determined that such approval was required in order for
Rule 16b-3 to remain applicable to this Plan.
(e) This Plan is intended to comply with and be subject to
Rule 16b-3 as in effect prior to May 1, 1991. The Committee may at any time
elect that this Plan shall be subject to Rule 16b-3 as in effect after
May 1, 1991.
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<PAGE> 48
EXHIBIT A
THE TIMKEN COMPANY
RESTRICTED SHARE AGREEMENT FOR
NONEMPLOYEE DIRECTORS
_______________________, Grantee:
The Timken Company (the "Company") pursuant to its Long-term Incentive
Plan (the "Plan") has this day granted to you, the above-named grantee, a total
of ( ) Common Shares of the Company ("Common Shares") subject to the following
terms, conditions, limitations and restrictions:
1. The Common Shares subject to this grant shall be fully paid and
nonassessable and shall be represented by a certificate or certificates
registered in your name and endorsed with an appropriate legend referring to the
restrictions hereinafter set forth. You shall have all the rights of a
shareholder with respect to such shares, including the right to vote the shares
and receive all dividends paid thereon, provided that such shares, and any
additional shares that you may become entitled to receive by virtue of a share
dividend, a merger or reorganization in which the Company is the surviving
corporation or any other change in the capital structure of the Company, shall
be subject to the restrictions hereinafter set forth.
2. The Common Shares subject to this grant may not be assigned,
exchanged, pledged, sold, transferred or otherwise disposed of by you, except to
the Company, and shall be subject to forfeiture as herein provided until five
years have elapsed from the date of this grant, except that (a) 20 percent of
such shares shall become freely transferable and nonforfeitable at the end of
each year from and after the date of this grant and (b) your rights with respect
to such shares may be transferred by will or pursuant to the laws of descent and
distribution. Any purported transfer in violation of the provisions of this
paragraph shall be null and void, and the purported transferee shall obtain no
rights with respect to such shares.
3. All of the Common Shares subject to this grant that are then
forfeitable shall be forfeited by you if your service as a member of the Board
of Directors of the Company (a "Director") is terminated before the fifth
anniversary of the date of this grant; provided, however, if your service as a
Director of the Company is terminated before the fifth anniversary of the date
of this grant as a result of your death or disability, or owing to your removal
as a Director without cause, a portion of the shares covered by this grant that
then remain forfeitable shall become freely transferable and nonforfeitable as
follows: that number of shares shall become freely transferable and
nonforfeitable which bears the same ratio to the total number of shares subject
to this grant that then remain forfeitable and would have become forfeitable at
the next anniversary date as the number of full months from the date of this
grant (or, if such service is terminated after the first anniversary of the date
of this grant, then from the date of the latest anniversary) to the date of
termination of such service bears to 12, and the balance of the shares subject
to this grant shall be forfeited to the Company.
4. During the period in which the restrictions on transfer and risk of
forfeiture provided in paragraphs 2 and 3 above are in effect, the certificates
representing the Common Shares covered by this grant shall be retained by the
Company, together with the accompanying stock power signed by you and endorsed
in blank.
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<PAGE> 49
5. Upon any change in control of the Company, the restrictions on
transfer and risk of forfeiture provided in paragraphs 2 and 3 above shall lapse
and terminate with respect to all of the Common Shares that are subject to this
grant to which such restriction and risk then remain applicable. For purposes of
this grant, the term "change in control" shall mean the occurrence of any of the
following events:
(a) all or substantially all of the assets of the Company
are sold or transferred to another corporation or
entity, or the Company is merged, consolidated or
reorganized into or with another corporation or
entity, with the result that upon conclusion of the
transaction less than 51% of the outstanding
securities entitled to vote generally in the election
of Directors or other capital interests of the
acquiring corporation or entity are owned, directly
or indirectly, by the shareholders of the Company
generally prior to the transaction; or
(b) there is a report filed on Schedule 13D or Schedule
14D-1 (or any successor schedule, form or report),
each as promulgated pursuant to the Securities
Exchange Act of 1934 (the "Exchange Act"), disclosing
that any person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the Exchange
Act) has become the beneficial owner (as the term
"beneficial owner") is defined under Rule 13d-3 or
any successor rule or regulation promulgated under
the Exchange Act) of securities representing 30% or
more of the combined voting power of the
then-outstanding voting securities of the Company; or
(c) the Company shall file a report or proxy statement
with the Securities and Exchange Commission pursuant
to the Exchange Act disclosing in response to Item 1
of Form 8-K thereunder or Item 5(f) of Schedule 14A
thereunder (or any successor schedule, form or report
or item therein) that a change in control of the
Company has or may have occurred or will or may occur
in the future pursuant to any then-existing contract
or transaction; or
(d) the individuals who, at the beginning of any period
of two consecutive calendar years, constituted the
Directors of the Company cease for any reason to
constitute at least a majority thereof unless the
nomination for election by the Company's shareholders
of each new Director of the Company was approved by a
vote of at least two-thirds of the Directors of the
Company still in office who were Directors of the
Company at the beginning of such period.
6. This grant of restricted Common Shares is made pursuant to the
Plan, a copy of which is attached hereto. This grant is subject to all of the
terms and provisions of the Plan, including without limitation the provision
making this grant subject to the approval of the shareholders of the Company,
which are incorporated herein by reference.
Dated this ____ day of ______________________, 199_.
THE TIMKEN COMPANY
By:___________________________
Name:
Title:
Accepted and agreed to: _________________
Dated:_____________________
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<PAGE> 50
APPENDIX B
FOURTH: The authorized number of shares of the Corporation is
220,000,000 shares, consisting of 10,000,000 shares of Class I
Serial Preferred Stock without par value (the "Class I Serial Preferred Stock"),
10,000,000 shares of Class II Serial Preferred Stock without par value (the
"Class II Serial Preferred Stock"), and 200,000,000 shares of
Common Stock without par value (the "Common Stock").
[THE REMAINDER OF ARTICLE FOURTH IS UNCHANGED.]
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<PAGE> 51
Please mark your
/ X / votes as in this
example.
The shares represented by this proxy will be voted as recommended by the Board
of Directors unless otherwise specified.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
The Board of Directors recommends a vote "FOR" these items.
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR WITHHELD FOR AGAINST ABSTAIN
1. Election of 2. Approve
Directors. / / / / Amended / / / / / /
(see reverse) Long-Term
Incentive Plan
FOR AGAINST ABSTAIN
3. Adopt an
Amendment / / / / / /
to increase
Authorized
Common Stock.
For, except vote withheld from the following nominee(s):
____________________________________________________________
- ----------------------------------------------------------------------------------------------------------
NOTE: Please sign exactly as name or names
appear hereon. Joint owners should each
sign. When signing as attorney,
executor, administrator, trustee
or guardian, please give full title
as such.
_______________________________________________
Signature(s) of Shareholders(s) Date
_______________________________________________
Signature if held jointly Date
- ------------------------------------------------------------------------------------------------------------------------------------
FOLD AND DETACH HERE
</TABLE>
THE TIMKEN COMPANY
Canton, Ohio
__________________
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
__________________________________________
The Annual Meeting of Shareholders of The Timken Company will be held on
Tuesday, April 16, 1996, at 10:00 A.M., at 1835 Dueber Avenue, S.W.,
Canton, Ohio, for the following purposes:
1. To elect four Directors to serve in Class II for a term of
three years.
2. To approve The Timken Company Long-Term Incentive Plan, as
amended and restated.
3. To adopt an amendment to Article Fourth of the Company's Amended
Articles of Incorporation to increase authorized Common Stock
from 100,000,000 shares without par value to 200,000,000
shares without par value.
4. To transact such other business as may properly come before the
meeting.
Holders of Common Stock of record at the close of business on February
16, 1996, are the shareholders entitled to notice of and to vote at the
meeting.
PLEASE SIGN, DATE AND RETURN THE PROXY CARD ABOVE, WHETHER OR NOT YOU
EXPECT TO ATTEND THE MEETING. For your convenience, a self-addressed
envelope is enclosed requiring no postage if mailed in the United States.
If you have any questions about the voting procedure, please contact
Lynn Hill at (330) 471-3376.
LARRY R. BROWN
Vice President and General Counsel
March 6, 1996
YOUR VOTE IS IMPORTANT. PLEASE RETURN YOUR PROXY CARD.
<PAGE> 52
THE TIMKEN COMPANY
Proxy Solicited on Behalf of the Board of Directors
The undersigned instructs American Express Trust Company to appoint
W. R. Timken, Jr., Joseph F. Toot, Jr., and Larry R. Brown, and each of
P them, as true and lawful proxies, with full power of substitution, to
vote and act for the undersigned at the Annual Meeting of shareholders
of THE TIMKEN COMPANY to be held at 1835 Dueber Avenue, S.W., Canton,
R Ohio, on April 16, 1996, at 10:00 A.M., and at any adjournment
thereof, as fully as the undersigned could vote and act if personally
present on the matters set forth on the reverse hereof, and, in their
O discretion on such other matters as may properly come before the
meeting.
X ITEM 1. ELECTION OF DIRECTORS. Elect J. Clayburn LaForce, Jr.,
Robert W. Mahoney, Jay A. Precourt and Joseph F. Toot, Jr. in Class II
for a term expiring at the 1999 Annual Meeting.
Y
ITEM 2. APPROVE THE TIMKEN COMPANY LONG-TERM INCENTIVE PLAN, AS
AMENDED AND RESTATED.
ITEM 3. ADOPT AN AMENDMENT TO INCREASE AUTHORIZED COMMON STOCK FROM
100,000,000 TO 200,000,000 SHARES.
PLEASE SIGN AND DATE THIS PROXY CARD ON THE REVERSE SIDE FOR THE
TIMKEN COMPANY CAROLINA PENSION INVESTMENT PLAN AND MAIL IN THE
ENCLOSED ENVELOPE.
------------
SEE REVERSE
SIDE
------------
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
TIMKEN
ANNUAL MEETING
OF PARKING: Shareholders attending the
SHAREHOLDERS meeting may park in the visitor lot
April 16, 1996 behind the Corporate Office building.
10:00 a.m.
NOTE: If your shares are held in street
Corporate Auditorium (C1G) name, please bring a letter with you
The Timken Company from your broker stating as such to the
1835 Dueber Avenue, S.W. annual meeting.
Canton, Ohio 44706-2798
Telephone: (330) 438-3000
[Map inserted here ]
Major routes to The Timken Company
Corporate Auditorium and Visitor's Parking
[Map inserted here]
