EXHIBIT 10(t)
CUMMINS ENGINE COMPANY, INC.
SENIOR EXECUTIVE THREE YEAR PERFORMANCE PLAN
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(As Amended February 11, 1997)
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 interests, 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 of common stock of the surviving
corporation immediately after the merger or (B) any sale, lease,
exchange or transfer (in one transaction or a 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 a
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 percent 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 at 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. 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 affect 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 or, in
the discretion of the Committee, as a threshold, target and
maximum number of award units ("Award Units") with each Award
Unit having a cash value equal to the average of closing prices
of the Company's common stock on the New York Stock Exchange
during the 180 days preceding the payout date as described in
Section 6 or Section 9 of the Plan.
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 that
Award Cycle. Target Awards may be changed during the course of
an Award Cycle based on the Committee's re-evaluation 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 or
number of Award Units (collectively, "the 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 or number of
Award Units will be earned if performance is fifty percent (50%)
and the maximum dollar amount or number of Award Units will be
earned if performance is two hundred percent (200%) of the median
performance of the Peer Group. The maximum dollar amount or
value of Award Units that may be paid by the Plan 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 (the Target Award
assuming a 1.0 Payout Factor). The full Targeted Amount shall be
paid notwithstanding the fact that only a portion of the Award
Cycle may have elapsed prior to the Change of Control.
10. Effective Date. The Plan shall be effective for the Award
Cycle beginning January 1, 1996, 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.