CUMMINS ENGINE COMPANY, INC.
____________________________
EXHIBIT 10(v)
_____________
SENIOR EXECUTIVE THREE YEAR PERFORMANCE PLAN
____________________________________________
1. Objectives.
___________
The objectives of the Plan are to: (i) serve as a balance against
the short-term compensation provided by base salary and bonus
payments of the Company, (ii) emphasize the medium-term
performance of the Company as compared to its industry
competitors, (iii) strengthen the relationship between Company
management and shareholder interest, and (iv) encourage
participants to remain with the Company through important business
cycles.
The size of grants under the Plan are intended to reflect the
degrees of influence participating executive officers have in
their functional positions on the medium-term (three year)
performance of the Company. The calculation of payments from the
Plan is intended to reflect the Company's performance against
certain performance measures designated by the Compensation
Committee.
2. Definitions.
____________
(a) "Award Cycle" means the three-year period upon which a
particular year's payout is calculated. A new Award Cycle
commences with the beginning of each of the Company's fiscal
years. Payments, if any, under the Plan to Participants
during a fiscal year are based upon the Company's performance
during the most recently completed Award Cycle.
(b) "Change of Control" means the occurrence of any of the
following: (i) there shall be consummated (A) any
consolidation or merger of the Company in which the Company
is not the continuing or surviving corporation or pursuant to
which shares of the Company's Common Stock would be converted
in whole or in part into cash, other securities or other
property, other than a merger of the Company in which the
holders of the Company's Common Stock immediately prior to
the merger have substantially the same proportionate
ownership on common stock of the surviving corporation
immediately after the merger, or (B) any sale, lease,
exchange or transfer (in one transaction or series of related
transactions) of all or substantially all the assets of the
Company, or (ii) the stockholders of the Company shall
approve any plan or proposal for the liquidation or
dissolution of the Company, or (iii) any "person" (as such
term is used in Sections 13(d) (3) and 14(d) (2) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act")), other than the Company or subsidiary thereof or any
employee benefit plan sponsored by the Company or a
subsidiary thereof or a corporation owned, directly or
indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of
stock of the Company, shall become the beneficial owners
(within the meaning of Rule 13d-3 under the Exchange Act) of
securities of the Company representing 25% or more of the
combined voting power of the Company's then outstanding
securities ordinarily (and apart from rights accruing in
special circumstances) having the right to vote in the
election of directors ("Voting Shares"), as a result of a
tender or exchange offer, open market purchases, privately
negotiated purchases or otherwise, or (iv) at any time during
a period of two (2) consecutive years, individuals who at the
beginning of such period constituted the Board of Directors
of the Company shall cease for any reason to constitute a
least a majority thereof, unless the election or the
nomination for election by the Company's stockholders of each
new director during such two-year period was approved by a
vote of at least two-thirds (2/3) of the directors then still
in office who were directors at the beginning of such two-
year period, or (v) any other event shall occur that would be
required to be reported in response to Item 6(e) (or any
successor provision) of Schedule 14A or Regulation 14A
promulgated under the Exchange Act.
(c) "Committee" means the Compensation Committee of the Board of
Directors of the Company.
(d) "Company" means Cummins Engine Company, Inc.
(e) "Participants" means the Company's Chief Executive Officer and
other executive officers designated annually by the Committee
to participate in the Plan for the ensuing Award Cycle.
(f) "Payout Factor" means the percentage determined by the
Committee and applied to a Target Award to determine the
amount of an award to be paid as described in Section 4 of
the Plan.
(g) "Peer Group" means the group of companies selected by the
Committee whose primary industry is similar to that of
the Company's. As of the effective date of the Plan, the
Peer Group consists of the following companies: (i) Arvin
Industries, Inc., (ii) Caterpillar, Inc., (iii) Dana
Corporation, (iv) Deere & Company, (v) Dresser Industries,
Inc., (vi) Eaton Corporation, (vii) Ford Motor Company,
(viii) General Motors Corporation, (ix) Ingersoll-Rand
Company, (x) Navistar International Corporation, and (xi)
Paccar, Inc.
(h) "Performance Measures" means the Company's return on equity,
return on sales, net income, sales growth, return on assets,
total shareholder return, or any combination thereof.
(i) "Plan" means the Senior Executive Three Year Performance Plan
described herein.
(j) "Target Award" means the amount of targeted compensation
described in Section 3 of the Plan.
3. Target Award.
_____________
The Committee shall assign each Participant a Target Award for
each Award Cycle, in its discretion, based upon, but not limited
to, the scope and breadth of the Participant's position, ability
to effect the Company's medium-term financial performance, and his
or her working relationships within the Company. The Target Award
for an Award cycle shall be expressed in terms of a threshold,
target, and maximum dollar amount.
The Target Award for each Award Cycle shall be assigned and
communicated to each Participant as soon as practicable
thereafter, but in no event later than the 270th day of the Award
Cycle. Target Awards may be changed during the course of an Award
Cycle based on the Committee's reevaluation of the criteria
described in the preceding paragraph, provided however, a Target
Award shall not be increased following commencement of the Award
Cycle.
4. Payout Schedule.
________________
On or before the 270th day of each Award Cycle, the Committee
shall establish the Performance Measures to be used in determining
a Payout Factor applicable to the Award Cycle. The Committee may
determine the Payout Factor based upon the attainment of one or
more different Performance Measures, provided the measures, when
established, are stated as alternatives to one another.
Under the Payout Factor schedule, the targeted dollar amount
("Targeted Amount") of a Target Award will be earned by a
Participant if the Company's performance against the Performance
Measures equals the median of the performance of the Peer Group
during the same period against the same measures. The threshold
dollar amount will be earned if performance is fifty percent (50%)
and the maximum dollar amount will be earned if performance is two
hundred percent (200%) of the median performance of the Peer
Group. The maximum dollar amount that may be paid by the Plan to
a Participant with respect to any Award Cycle is $2,000,000.
5. Change in Accounting Standards.
_______________________________
For purposes of determining the Payout Factor, the Company's
actual performance under the Performance Measures will exclude
extraordinary charges and credits which result from a change in
accounting standards of the Company.
6. Plan Payments.
______________
Any payout under the Plan will be made as soon as practicable
following audits of the Company's financial statements applicable
to all fiscal years of the Award Cycle and written certification
by the Committee of attainment of the applicable Performance
Measures and corresponding Payout Factor. Payments under the Plan
may be deferred pursuant to the Company's Deferred Compensation
Plan.
7. Administration.
_______________
The Plan shall be administered by the Compensation Committee. No
member of the Committee shall be eligible for a Target Award while
serving on the Committee. The Committee shall have authority to
interpret the Plan and to establish, amend and rescind rules and
regulations for the administration of the Plan, and all such
interpretations, rules and regulations shall be conclusive and
binding on all persons. Notwithstanding any other provision of
the Plan to the contrary, the Committee may impose such conditions
on participation in, awards under and payments from the Plan as it
deems appropriate.
8. Termination of Employment.
__________________________
If a Participant's employment with the Company terminates during
the first year of an Award Cycle, other than by reason of
retirement, death or disability, the Participant will not receive
any payout for that Award Cycle. If a Participant's employment so
terminates during the second or third years of an Award Cycle, the
Committee, in its discretion, shall determine whether the
Participant will receive a proportionate payout of any payment
with respect to the Award Cycle based on the period of employment
during the cycle.
If a Participant retires, dies or becomes disabled during an Award
Cycle, the Participant or such Participant's estate, as the case
may be, shall receive a proportionate share of any payment with
respect to the Award Cycle based on the period of employment
during the cycle, regardless of the length of time of such
employment.
9. Change of Control.
__________________
Notwithstanding any other provision herein to the contrary, in the
event of a Change of Control, an amount shall be immediately
payable from the Plan to each Participant equal to the Targeted
Amount times a fraction, the numerator of which is the number of
days in the Award Cycle preceding the Change of Control and the
denominator of which is 1095.
10. Effective Date.
_______________
The Plan shall be effective for the Award Cycle beginning January
1, 1995, subject to its approval by the Company's shareholders.
11. Amendment and Termination.
__________________________
The Board of Directors of the Company may at any time amend,
modify, alter or terminate this Plan.
12. Governing Law.
_____________
This Plan and all determinations made and actions taken pursuant
hereto, shall be governed by the Laws of the State of Indiana and
construed accordingly.