CUMMINS ENGINE COMPANY, INC.
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SCHEDULE 10(h)
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KEY EXECUTIVE COMPENSATION PROTECTION PLAN
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The purpose of this Plan is to assist Cummins Engine Company, Inc.
("Cummins") in retaining the services of its key executives and to
permit those key executives to concentrate on performing their duties
and to enable them to give advice on any takeover proposal without
undue concern regarding its potential impact on their personal
financial security and future.
The Cummins Board of Directors (the "Board") believes it is in the
best interests of Cummins and its stockholders that the Board be able
to rely upon each key executive continuing in his position and to be
available for advice by providing him with appropriate termination
protection to reduce the likelihood of his leaving Cummins to avoid a
sudden discharge in the event of a takeover.
1. Key Executives. "Participants" in this Plan shall consist of
those officers and other employees of Cummins and its subsidiaries
who are from time to time designated as key executives to
participate in this Plan by the Board. A Participant whom the Board
determines is no longer a key executive for purposes of this Plan
shall cease to be a Participant in this Plan when so notified of
such determination, except that no such determination shall be made,
and if made shall have no effect, (i) within two years after a
Change of Control (as hereinafter defined) or (ii) during any period
when Cummins has knowledge that a third person has taken steps
reasonably calculated to effect a Change of Control until, in the
opinion of the Board, such person has abandoned or terminated its
efforts to effect a Change of Control.
2. Change of Control. For purposes of this Plan, a "Change of
Control" shall be deemed to have taken place if there has been a
change in control of a nature that would be required to be reported
in response to Item 5(f) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934; provided
that, notwithstanding the foregoing, a Change of Control shall in
any event be deemed to have occurred if (i) any person is or becomes
the beneficial owner, directly or indirectly, of 25 percent or more
of the common stock of Cummins or (ii) during any period of 24
consecutive months, individuals who at the beginning of such period
constituted the Board cease for any reason to constitute at least a
majority of the Board unless the election of each new director, or
his or her nomination for election by the Cummins stockholders, was
approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of such period.
3. Termination. "Termination" shall mean (i) any voluntary or
involuntary termination by Cummins of the employment of any
Participant with Cummins for any reason other than death, disability
or Cause (as defined below), or (ii) voluntary or involuntary
termination by any Participant of his employment with Cummins for
any reason whatsoever, in the Participant's sole discretion, other
than a termination by Cummins for Cause, and in either case such
termination shall have occurred before the second anniversary of the
date of any Change of Control. The term "Cause" means fraud,
misappropriation or intentional material damage to the property or
business of Cummins or commission of a felony.
4. Termination Payments. In the event of the Termination of any
Participant, Cummins shall pay to such Participant and provide him
with the following:
(a) For a period of one year following the date of his
Termination, Cummins shall continue to pay such Participant his
salary on a monthly basis at the annual rate in effect immediately
prior to the date of his Termination or the effective date of the
Change of Control, whichever is higher, plus four quarterly bonus
payments in the amount of the Participant's Target Bonus payments
as calculated under, and payable at the times contemplated in,
Cummins' Target Bonus Plan in effect prior to the Change of Control
and adjusted as provided in the next two sentences. In making the
calculations under the Target Bonus Plan, the Participant's "Base
Salary" shall be the annual rate in effect immediately prior to the
date of his termination or the effective date of the Change of
Control, whichever is higher, the Participant's "Target Bonus
Percentage" shall be the percentage in effect for such Participant
immediately prior to the date of his Termination or the effective
date of the Change of Control, whichever is higher, and the
applicable "Bonus Factor" in each case shall be 1.0 without regard
to actual performance during the measurement period. To the extent
Participants in this Plan are also participants in Cummins Five
Year Performance Plan or its Restricted Unit Plan, such persons
shall be entitled to all benefits hereunder and thereunder in the
event of a Change of Control, provided, however, that any employee
participating in Cummins' Restricted Unit Plan shall have his
payments under this Plan reduced by any payments received by him
under the takeover provisions of the Restricted Unit Plan.
(b) For a period of one year following the date of his
Termination, such Participant shall continue to be treated as an
employee under the provisions of any Cummins stock option or other
incentive compensation arrangement existing on the effective date
of the Change of Control. In addition, such Participant shall
continue to be entitled to all benefits and service credits for
benefits under all pension, life insurance, medical, dental,
disability, financial advisory and other employee benefit plans,
programs and arrangements of Cummins as if he were still employed
during such period.
(c) If, despite the provisions of paragraph 4(b), benefits or
service credits under any employee benefit plan shall not be
payable or provided under any such plan to such Participant, or his
dependents, beneficiaries and estate, because he is no longer a
Cummins employee, Cummins itself shall, to the extent necessary,
pay or provide for payment of such benefits to such Participant,
his dependents, beneficiaries and estate.
(d) If, despite the provisions of paragraph 4(b) benefits or the
right to accrue further benefits under any stock option or other
long-term incentive compensation arrangement existing on the
effective date of the Change of Control shall not be provided under
any such arrangement to such Participant, or his dependents,
beneficiaries and estate, because he is no longer a Cummins
employee, Cummins shall, to the extent necessary, provide, pay or
provide for payment of such benefits to such Participant, his
dependents, beneficiaries and estate.
5. Severance Allowance. In the event of the Termination of any
Participant, he may elect, within 60 days after the date of such
Termination, to be paid a lump-sum severance allowance in lieu of
all termination payments provided in paragraph 4, in an amount which
is equal to the sum of the following:
(a) an amount equal to salary payments for 12 calendar months at
the monthly rate in effect immediately prior to the date of his
Termination or the effective date of the Change in Control,
whichever is higher; and
(b) an amount equal to four quarterly bonus payments in the amount
of the Participant's Target Bonus payments calculated in accordance
with the provisions of paragraph 4(a) above. To the extent
Participants in this Plan are also participants in Cummins' Five
Year Performance Plan or its Restricted Unit Plan, such persons
shall be entitled to all benefits hereunder and thereunder in the
event of a Change of Control, provided, however, that any employee
participating in Cummins' Restricted Unit Plan shall have his
payments under this plan reduced by any payments received by him
under the takeover provisions of the Restricted Unit Plan.
In the event that a Participant makes an election pursuant to this
paragraph 5 to receive a lump-sum severance allowance of the
aggregate amount determined pursuant to paragraphs (a) and (b),
then, in addition to such amount, he shall receive (i) in addition
to the benefits provided under any pension benefit plan and
supplemental pension plan maintained by Cummins, the pension
benefits he would have accrued under such pension benefit plan and
supplemental pension plan if he had remained in the employ of
Cummins for 12 calendar months after the date of his Termination,
which benefits will be paid concurrently with, and in addition to,
the benefits provided under such pension benefit plan and
supplemental pension plan, (ii) the right to receive and exercise
stock options and stock appreciation rights and to receive
restricted stock and grants thereof and performance awards and
similar incentive compensation benefits to which he would have been
entitled under all such plans maintained by Cummins if he had
remained in its employ for 12 calendar months after the date of his
Termination and (iii) the employee benefits (including, but not
limited to, coverage under any life insurance, medical, dental,
disability and financial advisory arrangements or programs) to
which he would have been entitled under all employee benefit plans,
programs or arrangements maintained by Cummins if he had remained
in its employ for 12 calendar months after the date of his
Termination, or the value of the amounts described in such clauses
(i), (ii) and (iii). The amount of the payments described in the
preceding sentence shall be determined and such payments shall be
distributed as soon as it is reasonably possible.
6. Legal Fees and Expenses. Cummins shall pay all legal fees and
expenses which any Participant may incur as a result of Cummins'
contesting the validity or enforceability of such Participant's
interpretation of this Plan.
7. Amendment or Termination of this Plan. The Board shall have
power at any time, in its discretion, to amend or terminate this
Plan in whole or in part, provided, however, that no amendment or
termination shall deprive any Participant of any rights or benefits
to which he is or may become entitled under this Plan by reason of
any Change of Control.
8. Withholding. Cummins may deduct from any amounts payable under
this Plan any taxes required by law to be withheld with respect to
such payments.
9. Reliance by Participants. All the foregoing severance and
benefit arrangements shall be communicated to each Participant in
this Plan and shall be generally described in filings with the
Securities and Exchange Commission and to the stockholders of
Cummins, all to the extent deemed necessary or desirable by Cummins,
in order that each Participant shall be deemed to have continued his
employment with Cummins hereafter in good faith reliance upon this
Plan.