EXHIBIT 10.2
EMPLOYEE EXCESS BENEFITS AGREEMENT
THIS AGREEMENT, made this ____ day of _______, 200_, by and between
__________________ (the "Employee"), and THE TIMKEN COMPANY ("Timken"), an Ohio
corporation having its principal offices at Canton, Ohio.
WHEREAS, Employee has been employed by Timken since __________ and is
currently serving as _________________ in a capable and efficient manner; and
WHEREAS, Timken desires to retain the services of Employee and to provide
additional retirement compensation (hereinafter referred to as "Excess
Benefits") to Employee for his services; and
WHEREAS, Employee is willing to continue in the employ of Timken until his
retirement, provided that Timken will pay Excess Benefits to Employee upon
Employee's retirement and/or to Employee's Spouse or Employee's Beneficiary upon
Employee's death.
NOW, THEREFORE, the parties covenant and agree as follows:
1. Timken shall provide the following Excess Benefits:
(a) If Employee retires (whether at normal retirement age or early
retirement age, each as determined under the Retirement Plans (as defined
below)), Timken shall pay to Employee an amount equal to the difference between
(i) the monthly pension Employee would be entitled to receive under the
1984 Retirement Plan for Salaried Employees of The Timken Company
and the Retirement Plan for Salaried Employees of The Timken
Company (hereinafter the "Retirement Plans") were it not for the
limitations imposed by the Employee Retirement Income Security Act
of 1974, as amended, and Sections 401 and 415 of the Internal
Revenue Code of 1986, as amended (hereinafter collectively referred
to as "the Code Limitations"), and
(ii) the monthly pension he will actually receive under the Retirement
Plans.
Monthly payments shall be made until the Employee's death.
(b) If a married Employee dies prior to retirement, Timken shall pay to
Employee's Spouse an amount equal to the difference between the
monthly pension Employee's Spouse would be entitled to receive under the
Retirement Plans, were it not for the Code Limitations, and the monthly
pension Employee's Spouse will actually receive under the Retirement
Plans. Monthly payments shall be made until the Spouse's death.
(c) If a married Employee who was receiving the normal form of pension
benefit (as defined in the Retirement Plans) dies after retirement
(whether at normal retirement age or early retirement age), Timken shall
pay to Employee's Spouse an amount equal to the difference between the
monthly pension Employee's Spouse would be entitled to under the
Retirement Plans, were it not for the Code Limitations, and the monthly
payment Employee's Spouse will actually receive under the Retirement
Plans. Monthly payments shall be made until the Spouse's death.
(d) If an Employee, who was receiving an optional form of pension benefit
(as defined in the Retirement Plans), dies after retirement (whether at
normal retirement age or early retirement age), and if the terms of the
optional form of pension benefit provide for a benefit for a designated
beneficiary, Timken shall pay to Employee's Beneficiary an amount equal
to the difference between the monthly pension the Employee's Beneficiary
would be entitled to under the Retirement Plans, were it not for the
Code Limitations, and the monthly pension the Employee's Beneficiary
will actually receive under the Retirement Plans. Monthly payments
shall be made until such time as the payments would otherwise cease
under the terms of the optional form of pension benefit.
(e) If Employee has been an elected officer of Timken for five or more years
and Employee retires on or after attaining age 62 or alternatively, on
or after attaining age 55 and completing 15 years of Continuous Service
(as defined in the 1984 Retirement Plan for Salaried Employees of The
Timken Company), Employee shall be entitled to a monthly benefit under
this Agreement equal to the sum of (i) and (ii), as reduced by (iii),
as follows:
(i) an amount equal to:
(A) 60% of one-twelfth of Final Average Earnings (as defined in the
Retirement Plans without consideration of the pay limitation
under Internal Revenue Code Section 401(a)(17) and based on a
five non-consecutive year average) reduced by
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(B) the monthly annuity value, at retirement, of the account balance
the employee would have accumulated under the Savings and
Investment Pension (SIP) Plan and any other qualified defined
contribution plans sponsored by Timken and the Post-Tax Savings
Plan (the "Savings Plans") but excluding amounts contributed by
the Employee, such account balance being determined in the
manner set forth in the next to last paragraph of this
Section 1(e),
multiplied by the following ratio:
Years of Continuous Service after December 31, 2003
----------------------------------------------------
All Years of Continuous Service
(ii) 1.75% of Final Average Earnings (as defined in the Retirement
Plans without consideration of the pay limitation under Internal
Revenue Code Section 401(a)(17) and based on a five non-
consecutive year average) reduced by 1.25% of Employee's yearly
primary Social Security amount, as estimated by the Company based
on the provisions of the Social Security Act, payable at normal
retirement date, the result multiplied by years of Continuous
Service completed prior to January 1, 2004 (to a maximum of 40)
with the product multiplied by 1.05.
(iii) the benefit of the Employee shall be reduced by the total of (A)
and (B) as follows:
(A) the monthly payment from the Retirement Plans before any
adjustments for optional forms of benefits are made but after
any adjustment for early commencement, and
(B) the monthly payment under paragraph (a) above before any
adjustments for optional forms of benefits are made but after
any adjustment for early commencement.
In the event the benefits described in item (iii) above are not payable
immediately because the Employee has not met the service requirements
in the Retirement Plans, for purposes of this section, the benefits will
be reduced for early commencement in the same manner as if the Employee
met the service requirement for immediate commencement.
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For purposes of Section 1(e)(i)(B), the account balances related to the
Savings Plans will be determined by (I) assuming the Employee received
in an account held for Employee under the Savings Plans the maximum
amount of matching contributions for each year he was an employee and
eligible to participate in the Savings Plans and (II) using the actual
contributions made by Timken for all other purposes to the Savings
Plans. Interest will be credited to such account at a rate of eight
percent (8%) per annum beginning at the end of the year to which the
contributions are attributable. The monthly annuity will be that which
could be purchased with the account balance at retirement from an
insurance company which at the time of purchase has the highest rating
by A. M. Best assuming that the annuity is purchased with assets from a
qualified retirement plan, is based on group rates, is on a no
commission basis and is payable for the Employee's lifetime, with no
continuation after the Employee's death.
Notwithstanding the foregoing provisions of this subsection (e), if
Employee elects to commence receiving the benefit payable under this
subsection (e) prior to attaining age 62, such benefit (before the
reductions described in item (i)(B) and item (iii) are made) shall be
reduced by 4% for each year by which the commencement date of the
benefit precedes age 62.
(f) If a married Employee is eligible for a benefit under Section 1(e)
(without taking into account the age requirements), his surviving spouse
shall be entitled to a monthly benefit after the death of Employee as
follows:
(i) If a married Employee dies after the Employee has started to
receive the benefit provided for under Section 1(e), the Employee's
surviving spouse shall be entitled to receive an immediate monthly
benefit equal to 50% of the amount the Employee was receiving
pursuant to Section 1(e).
(ii) If a married Employee dies prior to age 62 or prior to age 55 if
the Employee had completed at least 15 years of Continuous Service,
the Employee's Surviving Spouse shall be entitled to a monthly
benefit equal to 50% of the amount the Employee would have received
pursuant to Section 1(e) if (A) the Employee had survived and
remained an Employee until the date on which the Employee would
have reached age 62, or if the Employee had completed 15 years of
Continuous Service prior to death, age 55 and (B) the Employee had
elected to retire and begin receiving the benefit under
Section 1(e) at age 62, or age 55 if applicable. For purposes of
determining the benefit under this paragraph (ii), the Employee's
Final Average Earnings and years of Continuous Service shall be
determined as of the Employee's date of death. The surviving
spouse may begin the benefit payments pursuant to this paragraph
(ii) on the date the Employee
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would have reached age 62 or, if the Employee had completed at
least 15 years of Continuous Service prior to death, age 55.
(iii) If a married Employee dies after reaching age 62 or after reaching
age 55 if the Employee had completed at least 15 years of
Continuous Service but prior to the Employee receiving the first
payment of the benefit under Section 1(e), the Employee's Surviving
Spouse shall be entitled to receive an immediate monthly benefit
equal to 50% of the amount the Employee would have received if the
Employee had retired and received the first payment of the benefit
under Section 1(e) on the day before the Employee's death.
(iv) Monthly payments to a surviving spouse pursuant to this
Section 1(f) shall be made until the spouse's death.
2. (a) If Employee voluntarily terminates employment with Timken prior to
retirement and prior to completing five years of service as an elected
officer of Timken, or if Timken discharges Employee, or requests that he
resign his employment, prior to the date the Employee completes five
years of service as an elected officer of Timken, or if Employee's
employment with Timken terminates for Cause, no Excess Benefits shall
become due and payable to Employee and this Agreement shall be
considered terminated. If Employee's employment with Timken terminates
other than for Cause prior to his retirement and after he has completed
five years of service as an elected officer of Timken, he shall be
eligible to receive the benefit set forth in Section 1(e) above (but no
other benefits hereunder) beginning at age 62.
(b) For purposes of this Section 2, a termination shall be deemed to have
been for "Cause" only if based on the fact that the Employee has done
any of the following acts and such is materially harmful to Timken:
(i) An intentional act of fraud, embezzlement or theft in connection
with the Employee's duties with Timken and resulting or intended
to result directly or indirectly in substantial personal gain to
Employee at the expense of Timken;
(ii) Intentional wrongful disclosure of secret processes or confidential
information of Timken or any of its subsidiaries; or
(iii) Intentional wrongful engagement in any Competitive Activity which
would constitute a material breach of the Employee's duty of
loyalty to Timken.
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For purposes of this Section 2, the term "Competitive Activity"
shall mean Employee's participation, without the written consent of
an officer of Timken, in the management of any business enterprise
if such enterprise engages in substantial and direct competition
with Timken and such enterprise's sales of any product or service
competitive with any product or service of Timken amounted to 25%
of such enterprise's net sales for its most recently completed
fiscal year and if Timken's net sales of said product or service
amounted to 25% of Timken's net sales for its most recently
completed fiscal year. "Competitive Activity" shall not include
(A) the mere ownership of securities in any enterprise and exercise
of rights appurtenant thereto or (B) participation in the
management of any enterprise or business operation thereof other
than in connection with the competitive operation of such
enterprise.
For purposes of this Section 2(b), no act, or failure to act, on
the part of the Employee shall be deemed "intentional" unless done,
or omitted to be done, by the Employee not in good faith and
without reasonable belief that his action or omission was in or not
opposed to the best interest of Timken. Notwithstanding the
foregoing, the Employee shall not be deemed to have been terminated
for "Cause" hereunder unless and until there shall have been
delivered to the Employee a copy of a resolution duly adopted by
the affirmative vote of not less than three-quarters of the
Directors then in office at a meeting of the Directors called and
held for such purpose (after reasonable notice to the Employee and
an opportunity for the Employee, together with his counsel, to be
heard before the Directors), finding that, in the good faith
opinion of the Directors, the Employee had committed an act set
forth in paragraph (b) of this Section and specifying the
particulars thereof in detail. Nothing herein shall limit the
right of the Employee or his beneficiaries to contest the validity
or propriety of any such determination.
3. Any references to Employee's Spouse and Employee's Beneficiary herein shall
mean Employee's Spouse and Employee's Beneficiary at the time of Employee's
death or retirement, whichever is applicable, under the Retirement Plans or
Savings Plans if the Employee is not a participant in the Retirement Plans,
provided that if a qualified domestic relations order provides that a former
spouse of Employee is to be considered Employee's Spouse for purposes of
pension benefits, Timken shall consider such former spouse of Employee to be
Employee's Spouse for purposes of this Agreement.
4. This Agreement shall be binding upon and shall inure to the benefit of Timken
and Employee and their respective successors and assigns; provided, however,
that, except as set forth herein, no rights to any benefit under this
Agreement shall, without the written consent of Timken, be transferable or
assignable by Employee or any other person, or be subject to alienation,
encumbrance, garnishment, attachment, execution or levy of any kind,
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voluntary or involuntary. Any such attempted assignment or transfer shall
terminate this Agreement and Timken shall have no further liability
hereunder.
5. Timken is hereby designated as the Named Fiduciary of this Agreement, in
accordance with the Employee Retirement Income Security Act of 1974 (ERISA).
The Named Fiduciary shall have the authority to control and manage the
operation and administration of this Agreement and is hereby designated as
the Agreement Administrator.
6. The obligations of Timken hereunder constitute an unsecured promise of Timken
to make payment of the amounts provided for in this Agreement. No property
of Timken is or shall be, by reason of this Agreement, held in trust for
Employee, or any other person, and neither Employee nor any other person
shall have, by reason of this Agreement, any rights, title or interest of any
kind in or to any property of Timken.
Notwithstanding the foregoing paragraph, upon the earlier to occur of (i) a
Change of Control that involves a transaction that was not approved by the
Board of Directors, and was not recommended to Timken's shareholders by the
Board of Directors, (ii) a declaration by the Board of Directors that the
trusts under the Employee Excess Benefits Agreements should be funded in
connection with a Change of Control that involves a transaction that was
approved by the Board of Directors, or was recommended to shareholders by
the Board of Directors, or (iii) a declaration by the Board of Directors that
a Change of Control is imminent, Timken shall promptly, to the extent it has
not previously done so, and in any event within five business days fund a
trust established for the sole purpose of the payment of the amounts payable
under this Agreement. The amount to be contributed by Timken prior to the
Change of Control shall be calculated, using the actuarial assumptions set
forth in Exhibit A, by Xxxxxx Xxxxx & Company or another independent actuary
appointed by Timken. Upon a Change of Control, the rights of Employee under
this Agreement shall be fully vested and shall be forfeited only if Employee
voluntarily terminates his employment prior to completing five years of
service as an elected officer of Timken and prior to retirement.
For purposes of this Agreement, "Change of Control" shall mean the occurrence
of any of the following events:
(a) The sale or transfer of all or substantially all of the assets of
Timken; or the merger, consolidation or reorganization of Timken with or
into another corporation or entity with the result that upon the
completion 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 surviving corporation or entity are
owned, directly or indirectly, by the pre-transaction shareholders of
Timken;
(b) A Schedule 13D or 14D-1F report (or any successor schedule, form or
report promulgated pursuant to the Securities Exchange Act of 1934 (the
"Exchange Act")), is filed with the United States Securities and
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Exchange Commission (the "SEC") disclosing that any person (including a
person as defined in Sections 13(d)(3) or 14(d)(2) of the Exchange Act)
has become the beneficial owner (as defined in SEC Rule 13d-3) of
securities representing 30% or more of the combined voting power of the
outstanding shares of Timken;
(c) Timken files a report or proxy statement with the SEC that includes a
disclosure, including, but not limited to, a disclosure in Item 1 of
Form 8-K or Item 6(e) of Schedule 14A, that a change of control of
Timken has or may have occurred or will or may occur in the future
pursuant to any existing contract or transaction; and
(d) The individuals who at the beginning of any two consecutive calendar
year period constituted the Board of Directors cease for any reason to
constitute a majority of the Board of Directors; provided, however, this
subsection (d) shall not apply if the nomination of each new Director
elected during such two-year period was approved by the vote of at least
two-thirds of the Directors of Timken still in office who were Directors
of Timken on the first day of such two-year period.
7. In the event that, in its discretion, Timken purchases an insurance policy or
policies insuring the life of Employee to allow Timken to recover in whole or
in part, the cost of providing the benefits under this Agreement, neither
Employee nor any beneficiary shall have any right whatsoever therein; Timken
shall be the sole owner and beneficiary of such insurance policy or policies
and shall possess and may exercise all incidents of ownership therein.
8. It shall be the duty of Employee or Employee's Spouse or Beneficiary, as
applicable, to submit an application for benefits under this Agreement to
Timken. The application must be in writing and, if made by Employee's Spouse
or Beneficiary, must include a copy of the death certificate.
9. All questions of interpretation, construction or application arising under
this Agreement shall be decided by the Board of Directors of Timken and its
decision shall be final and conclusive upon all parties. Timken shall make
all determinations as to rights to benefits under this Agreement. Any
decision by Timken denying a claim for benefits under this Agreement shall be
stated in writing and delivered or mailed to Employee, Employee's Spouse or
Employee's Beneficiary. Such decision shall (i) be made and issued in
accordance with the claims regulations issued by the Department of Labor,
(ii) set forth the specific reasons for the denial of the claim, and (iii)
state that the decision may be appealed by Employee.
10. Nothing contained in this Agreement shall be construed to be a contract of
employment nor as conferring upon Employee the right to continue in the
employ of Timken in any capacity. It is expressly understood by the parties
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hereto that this Agreement relates exclusively to Excess Benefits and is not
intended to be an employment contract.
11. This Agreement may not be amended, altered or modified, except by a written
instrument signed by the parties hereto. If Timken and Employee previously
entered into an Employee Excess Benefits Agreement, this Agreement shall
supersede the provisions of the prior agreement and the Employee shall be
entitled to benefits solely under this Agreement.
12. Following retirement Employee shall comply with the Restriction on
Competition in Section 9 of the Amended and Restated Supplemental Pension
Plan of The Timken Company. If Employee engages in activity prohibited by
this Section, then in addition to all other remedies available to Timken,
Timken shall be released from any obligation under this Agreement to pay
benefits to Employee or Employee's Spouse or Beneficiary under this
Agreement.
13. The failure at any time to require performance of any provision expressed
herein shall in no way affect the right thereafter to enforce such
provision; nor shall the waiver of any breach of any provision expressed
herein be taken or held to be a waiver of any succeeding breach of any such
provision or as a waiver of a provision itself.
In the event that any provision or term of this Agreement is finally
determined by any judicial, quasi-judicial or administrative body to be void
or not enforceable for any reason, it is the agreed upon intent of the
parties hereto that all other provisions or terms of the Agreement shall
remain in full force and effect and that the Agreement shall be enforceable
as if such void or unenforceable provision or term had never been included
herein.
14. Every designation, election, revocation or notice authorized or required
hereunder shall be deemed delivered to Timken: (a) on the date it is
personally delivered to Timken offices at 0000 Xxxxxx Xxxxxx, X.X., Xxxxxx,
XX 00000-0000 or (b) three business days after it is sent by registered or
certified mail, postage prepaid, addressed to Timken at the offices
indicated above. Every designation, election, revocation or notice
authorized or required hereunder which is to be delivered to Employee or a
beneficiary shall be deemed delivered to the Employee or beneficiary:
(a) on the date it is personally delivered to such individual (either
physically or through interactive electronic communication), or (b) three
business days after it is sent by registered or certified mail, postage
prepaid, addressed to such individual at the last address shown for him on
Timken records. Any notice required hereunder may be waived by the person
entitled thereto.
15. In the event Employee or the Employee's Spouse or Beneficiary is declared
incompetent and a guardian, conservator or other person is appointed and
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legally charged with the care of the person or the person's estate, the
payments under this Agreement to which Employee or Employee's Spouse or
Beneficiary is entitled shall be paid to such guardian, conservator or other
person legally charged with the care of the person or the estate. Except as
provided hereinabove, when Timken, in its sole discretion, determines that
Employee or Employee's Spouse or Beneficiary is unable to manage his
financial affairs, Timken may make distribution(s) of the amounts payable to
Employee or Employee's Spouse or Beneficiary to any one or more of the
spouse, lineal ascendants or descendants or other closest living relatives
of Employee or Employee's Spouse or Beneficiary who demonstrate to the
satisfaction of Timken the propriety of making such distribution(s). Any
payment so made shall be in complete discharge of any liability under this
Agreement for such payment. Timken shall not be required to see to the
application of any such distribution made under this Section 15.
16. This Agreement shall be subject to and construed under the laws of the State
of Ohio.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on this
21st day of April, 2004.
THE TIMKEN COMPANY
________________________ By:________________________
Employee Xxxxxxx X. Xxxxxxxx
Its: Senior Vice President & General Counsel
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EXHIBIT A
The amount to be contributed to a trust fund pursuant to Section 6 of this
Agreement to insure the performance of Timken's obligations under this
Agreement in the event of a Change of Control shall be calculated using:
(1) The UP-1984 Mortality Table, and
(2) percent of the interest rate(s) which would be used (as of the
beginning of the calendar year in which the date of the contribution
to the trust fund occurs) by the Pension Benefit Guaranty Corporation
for purposes of determining the present value of a lump sum
distribution on plan termination.
