<PAGE>
SCHEDULE 14A
(RULE 14A-101)
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:
[X] Preliminary proxy statement
[_] Definitive proxy statement
[_] Definitive additional materials
[_] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
CUMMINS ENGINE COMPANY, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CUMMINS ENGINE COMPANY, INC., 500 JACKSON ST., COLUMBUS, IN 47201 (812) 377-
3269
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of filing fee (Check the appropriate box):
[X] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[_] $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 transactions applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
(4) Proposed maximum aggregate value of transaction:
[_] 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:
----------------
<PAGE>
CUMMINS ENGINE COMPANY, INC.
500 JACKSON STREET, BOX 3005, COLUMBUS, INDIANA 47202-3005
PROXY STATEMENT
This proxy statement is being furnished in connection with the solicitation
by the Board of Directors of Cummins Engine Company, Inc. (the "Company") of
proxies to be voted at the Annual Meeting of Shareholders to be held on
Tuesday, April 5, 1994, and at any adjournment thereof (the "Annual Meeting").
This proxy statement, together with the enclosed proxy, is first being mailed
to the shareholders of the Company on or about March 3, 1994.
Holders of the Corporation's Common Stock of record at the close of business
on February 18, 1994 are entitled to vote at the Annual Meeting. On that date
there were issued and outstanding 41,554,492 shares of Common Stock, each of
which is entitled to one vote.
Each share of Common Stock represented by a properly executed proxy will be
voted at the Annual Meeting in accordance with the instructions indicated on
that proxy, unless such proxy has been previously revoked. If no instructions
are indicated on a signed proxy, the shares represented by such proxy will be
voted as recommended by the Board of Directors.
A shareholder may revoke the proxy at any time before it is voted by
delivering to the Secretary of the Company written notice of such revocation.
This notice must include the number of shares for which the proxy had been
given and the name of the shareholder of such shares as it appears on the stock
certificate(s) evidencing ownership of such shares. In addition, any
shareholder who has executed a proxy but is present at the Annual Meeting will
be entitled to cast its vote in person instead of by proxy, thereby cancelling
the previously executed proxy.
1
<PAGE>
PRINCIPAL SECURITY OWNERSHIP
The following table identifies those shareholders known to the Company to be
the beneficial owners of more than five percent of the Common Stock of the
Company and shows as to each such shareholder as of February 25, 1994 (i) the
number of shares beneficially owned by such shareholder(s) and the nature of
such beneficial ownership and (ii) the percentage of the entire class of Common
Stock so beneficially owned:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT
OWNERSHIP OF CLASS
----------------- --------
<S> <C> <C>
Ford Motor Company 3,200,000(1) 7.7%
The American Road
Dearborn, MI 48121
Tenneco Inc. General Employee Benefit Trust 3,200,000(2) 7.7%
c/o Bankers Trust Company
3000 Two Houston Center
909 Fannin, Suite 3000
Houston, TX 77010
Cummins Engine Company, Inc. 2,325,189 5.6%
and Affiliates Employee
Stock Ownership Trust
c/o The Northern Trust Company
50 South LaSalle Street
Chicago, IL 60675
</TABLE>
- ---------
(1) These shares were issued to Ford Motor Company pursuant to an Investment
Agreement between the Company and Ford (the "Ford Investment Agreement").
In addition, Ford has an option to acquire an additional 2,961,404 shares
pursuant to a Stock Option Agreement between the Company and Ford (the
"Ford Option Agreement") which, if exercised, would result in Ford having
beneficial ownership of 14.8% of the Company's outstanding Common Stock.
Following exercise of the option, Ford is permitted to increase its
beneficial ownership of the Company's outstanding Common Stock to 20% by
purchasing shares in the open market. See "Other Agreements and
Transactions With Directors, Officers and Certain Shareholders."
(2) These shares were originally issued to Tenneco Inc. pursuant to an
Investment Agreement between the Company and Tenneco (the "Tenneco
Investment Agreement"). On December 29, 1993, the shares were transferred
by Tenneco to the master trust for retirement plans of Tenneco and its
subsidiaries. See "Other Agreements and Transactions With Directors,
Officers and Certain Shareholders."
ELECTION OF DIRECTORS
(ITEM 1)
It is intended that votes will be cast pursuant to the accompanying proxy for
the election of the fourteen nominees listed below, all of whom are presently
directors of the Company. All directors will serve for the ensuing year and
until their respective successors are elected and qualified. A shareholder may
withhold authority from such shareholder's proxy to vote for the election of
any or all of the nominees listed below.
The Board of Directors has no reason to believe that any of the nominees will
be unable to serve if elected. If, for any reason, one or more of such persons
should be unable to serve, it is intended that votes will be cast for a
substitute nominee or nominees designated by the Board of Directors unless the
Board of Directors decides to reduce the number of directors.
2
<PAGE>
Messrs. Donaldson and Mead have been nominated to serve as directors of the
Company pursuant to the terms of the Ford Investment Agreement and Tenneco
Investment Agreement, respectively. See "Other Agreements and Transactions With
Directors, Officers and Certain Shareholders" below.
The names of the nominees for directors, together with certain information
regarding them, are set forth below. Biographical sketches of these nominees,
which include their business experience during the past five years and
directorships of other corporations, are provided on pages 25 through 31 of
this proxy statement.
<TABLE>
<CAPTION>
AMOUNT AND
FIRST YEAR NATURE OF BENEFICIAL PERCENT
ELECTED A OWNERSHIP AS OF OF
NAME AND OCCUPATION AGE DIRECTOR(1) FEBRUARY 28, 1994(2) CLASS
------------------- --- ----------- -------------------- -------
<S> <C> <C> <C> <C>
Harold Brown..................... 66 1985 400(3) *
Counselor, Center for Strategic
& International Studies; Part-
ner, Warburg, Pincus & Co.,
venture banking firm
Robert J. Darnall................ 55 1989 1,000 *
Chairman, President and Chief
Executive Officer, Inland Steel
Industries, Inc., steel manu-
facturing and materials distri-
bution
James D. Donaldson............... 51 1993 0(4) *
Vice President, Ford Motor Com-
pany, automotive manufacturer
Walter Y. Elisha................. 61 1991 1,000 *
Chairman and Chief Executive Of-
ficer, Springs Industries,
Inc., manufacturer of home fur-
nishings, industrial and spe-
cialty fabrics
Hanna H. Gray.................... 63 1977 200 *
President Emeritus and Professor
of History, University of Chi-
cago
James A. Henderson............... 59 1974 65,843(5) *
President and Chief Operating
Officer of Cummins
Dana G. Mead..................... 58 1993 0(6) *
President and Chief Operating
Officer, Tenneco Inc., a diver-
sified industrial corporation
J. Irwin Miller.................. 84 1934 669,028(7) 1.6%
Chairman of the Executive Com-
mittee of Cummins
William I. Miller................ 37 1989 35,361(8) *
Chairman, Irwin Financial Corpo-
ration, financial services com-
pany
Donald S. Perkins................ 66 1974 4,000 *
Former Chairman, Jewel Compa-
nies, Inc., diversified retail-
ing
William D. Ruckelshaus........... 61 1974 1,000 *
Chairman of the Board and Chief
Executive Officer of Browning-
Ferris Industries, Inc., waste
management services company
Henry B. Schacht................. 59 1969 95,799(9) *
Chairman of the Board and Chief
Executive Officer of Cummins
Franklin A. Thomas............... 59 1973 641 *
President, The Ford Foundation
J. Lawrence Wilson............... 58 1990 2,000 *
Chairman and Chief Executive Of-
ficer, Rohm and Haas Company,
chemicals and plastics manufac-
turing
</TABLE>
3
<PAGE>
- ---------
*Less than 1%.
(1) Except for Mr. Ruckelshaus, each Director has served continuously since the
year indicated. Mr. Ruckelshaus served on the Board of Directors from 1974
until 1983 when he returned to Federal Government service and was reelected
to the Board of Directors in 1985.
(2) Except as indicated, the voting and investment powers of the shares listed
are held solely by the reported owner.
(3) These shares are owned by a trust, of which Mr. Brown is a co-trustee,
settlor and beneficiary.
(4) See note (1) to the Principal Security Ownership table regarding Ford Motor
Company's beneficial ownership of the Company's Common Stock.
(5) Includes 5,000 shares which Mr. Henderson has the right to acquire within
the next 60 days through the exercise of stock options. Also included are
400 shares held by Mr. Henderson's wife who has sole voting and investment
powers thereof. Does not include 25,000 shares earned but deferred for
later distribution under the Company's Performance Share Plan.
(6) See note (2) to the Principal Security Ownership table regarding beneficial
ownership by the Tenneco Inc. General Employee Benefit Trust of the
Company's Common Stock. Mr. Mead is a member of the Investment Committee of
the Tenneco Inc. General Employee Benefit Trust.
(7) Includes 642,486 shares beneficially owned by Mr. Miller with sole voting
and investment powers and 26,542 shares beneficially owned by Mr. Miller's
wife, Xenia S. Miller, with sole voting and investment powers.
(8) Includes 21,768 shares beneficially owned by Mr. Miller with sole voting
and investment powers and 13,593 shares beneficially owned by Mr. Miller's
children. Mr. W. I. Miller is Mr. J. I. Miller's son.
(9) Includes 5,000 shares which Mr. Schacht has the right to acquire within the
next 60 days through the exercise of stock options. Does not include 30,000
shares earned but deferred for later distribution under the Company's
Performance Share Plan.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors held seven meetings during 1993. Except for Mr. Mead,
all of the directors attended 75% or more meetings of the Board and Committees
on which they served.
The Board of Directors has established seven standing committees. The
functions performed by certain of these committees and the members of the Board
of Directors currently serving on these committees are as follows:
Audit Committee. The members of the Audit Committee are D. S. Perkins
(Chairman), H. H. Gray, W. D. Ruckelshaus and J. L. Wilson. The Committee
reviews the accounting and auditing principles and procedures of the Company.
The Audit Committee reviews the scope, timing, and fees for the annual audit
and the results of audit examinations performed by the internal auditors and
independent public accountants, including their recommendations to improve the
system of accounting and internal controls. The Audit Committee met four times
during 1993.
Compensation Committee. The members of the Compensation Committee are H. H.
Gray (Chairman), H. Brown, D. S. Perkins, W. D. Ruckelshaus and F. A. Thomas.
The Compensation Committee administers and determines eligibility for and makes
awards under the Company's stock option and other stock incentive plans. The
Committee also reviews and evaluates the
4
<PAGE>
Company's executive compensation standards and practices, including salaries,
bonus distributions, deferred compensation practices and participation in stock
purchase plans. The Compensation Committee met five times in 1993.
Nominating Committee. The members of the Nominating Committee are F. A.
Thomas (Chairman), H. H. Gray and D. S. Perkins. The Nominating Committee
reviews the membership of the Board of Directors and makes recommendations to
the Board as to its membership. This Committee will consider shareholders'
recommendations of nominees for election to the Board of Directors. Shareholder
recommendations, including biographical information as to the proposed
candidate and a statement from the shareholder as to the qualifications and
willingness of such person to serve on the Company's Board of Directors, must
be submitted in writing to the Secretary of the Company in accordance with the
procedures established in the Company's By-Laws. The Nominating Committee did
not meet during 1993.
Executive Committee. The members of the Executive Committee are J. I. Miller
(Chairman), J. A. Henderson, W. I. Miller and H. B. Schacht. The Executive
Committee is authorized to exercise the powers of the Board of Directors in the
management and direction of the business and affairs of the Company during the
intervals between meetings of the Board of Directors. The Executive Committee
met two times during 1993.
Other Committees. In addition to the Committees described above, the Board of
Directors has established the following committees: Pension Committee (F. A.
Thomas, Chairman, R. J. Darnall, D. G. Mead and W. I. Miller); Proxy Committee
(J. I. Miller, Chairman and F. A. Thomas); and Technology Committee (H. Brown,
Chairman; J. D. Donaldson, W. Y. Elisha and J. I. Miller).
Each director who is not an officer of the Company receives an annual fee of
$33,000, $27,000 of which is paid in cash and $6,000 of which is proposed to be
paid each year in the form of restricted stock as described below. Each non-
officer director also receives $1,000 for each special meeting of the Board of
Directors attended. Committee chairmen (other than the Nominating, Executive or
Proxy Committee) receive an additional annual fee of $9,000. Non-chair members
of the Audit, Executive, Compensation, Pension and Technology Committees
receive an additional $6,000 fee for each such Committee membership. Committee
members also receive $1,000 for attending a Committee meeting (other than a
meeting of the Executive Committee) that is not held in connection with a
regular or special meeting of the Board of Directors.
In July, 1993, $6,000 in grants of restricted stock were made to each non-
officer director, subject to shareholder authorization and approval of the
proposed Restricted Stock Plan for Non-Employee Directors, described on pages
21 and 22 of this Proxy Statement, providing for $6,000 of the director's
annual fee be paid in the form of restricted stock. These shares are restricted
for a period of six months from the date of grant. In the event the proposed
plan is not approved, an additional $6,000 in cash will be paid to each such
director.
As part of the Company's overall support of charitable and educational
institutions and as an aid in attracting and retaining qualified directors, the
Company has established the Cummins Engine Company Charitable Bequest Program
in which all directors participate. Upon the death of a director, the Company
will donate ten equal annual installments of $100,000 to one or more qualifying
institutions designated by such director, subject to certain vesting
requirements based upon years of service as a director. The Company has
purchased life insurance policies on each director, the proceeds of which fund
donations under the program. Directors will not receive any financial benefit
from the program since all charitable deductions accrue solely to the Company.
5
<PAGE>
Nominee Harold Brown has a consulting arrangement with the Company pursuant
to which he provides consulting services in connection with the Company's
research and development activities and related technology issues. During 1993,
the Company paid Dr. Brown $50,000 for these services. In addition, the Company
has established a Science and Technology Advisory Council on which Dr. Brown
serves as Chairman. The Council advises senior management and the Board of
Directors on the direction and implication of developments in science,
technology and environmental issues that may have applicability to the
Company's current and future business goals and objectives. For his services on
the Council, Dr. Brown is paid an annual retainer of $17,000, including $7,000
for serving as Chairman, and an additional fee of $3,000 for each day of
meetings attended during the year.
The Company has a deferred compensation plan for non-employee directors,
pursuant to which such directors may elect to defer receipt of all or any
portion of their compensation while they serve as a director of the Company.
Upon ceasing to be a director, the deferred compensation, plus accrued
interest, is paid to the director or the director's beneficiary in a lump sum
or in annual installments, not to exceed ten, as specified by the director.
Upon a change of control of the Company (as defined in the plan), such deferred
compensation and interest is paid in cash to the director in one lump sum.
The Company also maintains a retirement plan for non-employee directors who
have no vested rights under any other pension plan sponsored by the Company and
who have served as a director for 5 or more years. Under the plan, annual
payments equal to the amount of fees (excluding Committee fees) paid or payable
for the final year of service are made to a former director each year for the
lesser of 20 years or the number of years served as a director. Upon a change
of control of the Company (as defined in the plan), the actuarial present value
of accrued but unpaid benefits will be distributed in one lump sum.
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT
The Compensation Committee Report is organized as follows:
. Role of the Compensation Committee
. Objectives and Principles
. Compensation Program Elements
. Compensation of the Chief Executive Officer
ROLE OF COMPENSATION COMMITTEE
The Compensation Committee is made up of five members of the Board of
Directors of the Company, who are not current or former employees of the
corporation. The Committee has oversight responsibility for the Company's
executive compensation programs. The Committee reviews the general compensation
philosophy of the Company, the elements of the compensation program, the
specifics of each element, the goals and measurements used in the program, and
the results of the compensation program compared to the philosophy to determine
if the compensation program is performing as expected.
6
<PAGE>
In addition, the Committee reviews the individual levels and awards for each
of the five most highly paid officers and takes appropriate action. In its
review, the Committee has direct access to advice from professional executive
compensation consultants. The Committee also reviews its actions with the full
Board of Directors.
OBJECTIVES AND PRINCIPLES OF EXECUTIVE COMPENSATION
Cummins' executive compensation is designed to attract, motivate and retain
the personnel required to achieve the Company's performance goals in the
competitive global business environment. The program is designed to reflect the
individual's contribution and the performance of the Company. The program
attempts to strike an appropriate balance between short-term and long-term
performance.
The Company is committed to the concept of pay for sustained financial
performance. We evaluate performance over several periods of time. While the
specific elements of executive compensation vary from time to time, the
Compensation Committee focuses on this central principle of pay for performance
in reviewing the compensation program, any proposed changes and the specific
awards.
The Committee follows several principles, in addition to pay for performance,
in designing and implementing compensation programs for its officers.
. Programs should provide competitive compensation opportunity; the concept
of opportunity is important in our program. We believe the executive
should have the opportunity to do well if the Company does well, but that
total compensation should vary in relation to the Company's performance.
. An individual's compensation should be at the median of the range when
compared to the compensation of individuals in U.S. industrial companies
with sales volumes similar to Cummins, when Cummins' financial
performance is at the median of those companies.
. There should be a balance between short-term and long-term elements of
compensation.
. The more senior a person's position, the more the compensation should be
"at risk", i.e., dependent on the performance of the Company.
. Stock should be an important part of the program in order to link the
management's compensation with shareholders' expectations; the greater
the level of responsibility of the person, the more the compensation
should be stock-based.
. The system should be as simple and as easily understood as possible.
. Payouts should not accumulate, causing large one-time payments.
In addition to these principles, we have the following observations:
. No single program accomplishes these aims consistently; a mix of programs
is best.
. There is no single best comparator of performance with other companies; a
mix of comparators should be used.
. In this complex area, relative simplicity seems the best that can be
achieved.
. There is no perfect program; change should be expected from time to time
as the outcome of the Committee's periodic reviews.
7
<PAGE>
Recently enacted legislation limits the corporate tax deduction to one
million dollars for compensation paid to any one of the executive officers
shown in the proxy each year, unless the compensation meets certain
requirements. The Committee intends to design the Company's compensation
program to maximize tax deductibility, while retaining flexibility and the
ability to attract, retain and motivate executives to achieve our business
objectives.
COMPENSATION PROGRAM ELEMENTS
The Company's executive compensation program consists of four elements: Base
salary, Short-Term Bonus, Medium-Term compensation and Long-Term compensation.
Each is designed to accomplish a somewhat different objective. In total, they
are designed to fulfill the Company's basic goals of linking pay to financial
performance and paying competitively. All officers participate in each element
of the program.
We use survey data provided by our compensation consultants to determine
competitive levels of pay. These surveys include over 340 U.S. industrial
corporations (including ten of the eleven companies that comprise the "Peer
Group" companies used in the Shareholder Return Performance Presentation on
page 13 of this proxy statement). Each element of pay described below is
intended to provide compensation for each position at the median of the amounts
companies of similar size in the survey would pay the same position.
1. Base Salary.
Base Salary is reviewed annually. It is the only fixed portion of the
executive's compensation. Base Salary is normally set at the median of the
range of the salaries of individuals with similar positions in companies of
similar size to the Company.
2. Short-Term Bonus.
This element is designed to link executive pay to the short-term performance
of the Company. The payout is made quarterly, with the payout factor calculated
on a formula established by the Committee annually. Each person is assigned a
participation rate that is a percent of salary. The quarterly bonus is then
determined by the following formula:
(Annual Base Salary) times (participation percentage assigned to each job)
times (Payout Factor) times (1/4).
Participation rates are based on the same survey data as base salaries and
are set at the median of the range for like positions in similarly sized
companies.
The Payout Factor formula for the quarterly bonus is set to yield a 1.0
Payout Factor for Company financial performance that is at the median of the
Fortune 500 industrial companies measured over recent history. Return on equity
is the measure used to compare performance to the survey companies. Return on
equity levels are converted to equivalent Return on Sales levels for use in the
Payout Factor formula.
In determining the Return on Sales level equivalent to the market median
Return on Equity to establish the 1.0 Payout Factor point for the Short-Term
Bonus Plan for 1993, we used a full corporate tax rate (not taking credit for
tax loss carryforwards) and a hypothetical equity higher
8
<PAGE>
than our actual level of equity (approximately the Company's equity before the
extraordinary charge in 1992 for the new accounting rules regarding retiree
medical and other post-employment benefits).
When the Company's performance is less than the median, the quarterly bonus
pays less than 1.0--and does not pay at all if the Company is not profitable.
When the Company's performance exceeds the median, the quarterly Payout Factor
is greater than 1.0 and compensation is greater than the median of those
companies included in our surveys. The Payout Factor formula that determines
executive pay is the same scale used to determine the quarterly bonus for many
other Cummins employees at all levels in many locations.
3. Medium Term: Three Year Performance Plan
The Three Year Performance Plan measures Cummins' performance versus the Peer
Group companies over a rolling three-year cycle. During the first year of each
three-year Award Cycle, a Target Award is granted to each participant,
expressed as a dollar amount.
The Committee establishes performance guidelines to determine the portion of
the granted amount to be paid for each three-year Award Cycle. A new Award
Cycle begins each year, hence payout opportunity is annual. The first payout
opportunity will be in 1995.
The performance guideline for the first Award Cycle is based on Return on
Equity. The Committee established a scale of multiples of the Target Award to
be paid for various Company performance levels over the Award Cycle. The plan
pays the full granted amount if Cummins' Return on Equity is equal to the
median of the Peer Group companies over the three-year cycle. A portion or
multiple of the granted amount is paid if three-year performance is less or
greater than the median of these companies, based on a scale established by the
Committee. The maximum that can be paid is two times the Target Award for
performance that is twice the median of the Peer Companies.
4. Long Term: The 1992 Cummins Stock Incentive Plan.
In December of 1992 and 1993 restricted stock and stock options were granted
to officers under the 1992 Cummins Stock Incentive Plan. Restrictions on the
restricted stock will lapse on one-third of each grant annually, beginning two
years and one month from the date of each grant. The stock options expire ten
years from grant, but cannot be exercised for the first two years.
Grant amounts under the Medium-Term and Long-Term plan elements are set to
provide total compensation opportunity at the median of that provided by
similarly-sized U.S. industrial companies in our survey base, when combined
with Base Salary and Short-Term Bonus. The Committee reviews the proportion of
total compensation that is dependent on Company performance in determining the
allocation of the compensation opportunity among each of the Medium-Term and
Long-Term plan elements for each position. More senior positions have a larger
proportion of total compensation opportunity dependent on Company performance
than do less senior positions.
9
<PAGE>
1992 CHANGES TO THE MEDIUM-TERM AND LONG-TERM ELEMENTS
The Medium-Term and Long-Term plans were adopted in 1992, following a review
of the executive compensation program by the Committee. They replaced plans
which were expiring or required modifications. Tables elsewhere in this proxy
include the final payouts under the expiring and replaced plans. Therefore, we
will describe the old plans briefly:
. Five Year Performance Plan (1980-1994 Medium Term plan)
The Five Year Performance Plan compared the Company's return on equity to the
return on equity of our Peer Group companies (the same companies used for the
Three Year Performance Plan) over a five-year cycle, and produced an annual
payout opportunity.
The last payout opportunity under the Five Year Performance Plan will be in
1994. No payouts were made from 1988 through 1993. The Five Year Performance
Plan has been replaced by the Three Year Performance Plan.
. Stock Unit Appreciation Plan (1990-1993 Medium Term plan)
In 1990, we adopted the Stock Unit Appreciation Plan as an additional medium-
term plan. Units were granted to participants which provided cash payouts based
on stock price appreciation from the day of grant. There were specific holding
period requirements and specific termination dates on the grants. No grants
were made in 1992 or 1993. No additional grants will be made under this plan.
The plan will be terminated. The Company's Chief Executive Officer and other
Executive Officers have exercised all of their grants under the plan.
. Performance Share Plan (1987-1994 Long Term plan)
Under this Plan grants of restricted stock were made in 1987, subject to
approval by shareholders, which was obtained in 1988. These grants were to
provide compensation commensurate with the long-term performance of the Company
over the years 1987-1994.
A double restriction applied to the shares. For the individual to earn the
shares, the Company had to earn a certain profit-after-tax level, approved each
year by the Committee and the Board; only a set percentage of the originally
granted amount could be earned each year. Once earned, a second set of deferral
restrictions defined the actual distribution of shares to the individual.
This plan rewards the long-term value created for Cummins shareholders
because the compensation each participant receives is determined by the growth
in value of Cummins' common stock over the seven-year period from grant in 1987
to final distribution in February, 1995.
The original grant amounts were set to provide compensation to the
participants at the median of that provided by similarly sized U.S. industrial
companies over the seven-year term of the plan, when combined with the other
elements of our executive compensation program.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The compensation of the Company's Chief Executive Officer over the past few
years provides an illustration of the pay for performance linkage of the
Company's executive compensation program.
10
<PAGE>
The Company has gone through a period of repositioning and restructuring
which lasted from 1985 through 1988. This was followed immediately by a severe
recession in many of the Company's most important markets. While this period
was critical to the future success of the Company, earnings were minimal during
these years and the stock price fluctuated widely.
As the following table shows, the compensation of the CEO varied widely
during this period, as it should have according to our principles:
CHAIRMAN AND CEO COMPENSATION
1987-1993
<TABLE>
<CAPTION>
SHORT-TERM MEDIUM-TERM LONG-TERM
----------------- ------------------- ----------------------
5 YEAR
PERF. STOCK UNIT RESTRICTED PERFORMANCE
BASE BONUS PLAN APPR. PLAN UNIT PLAN SHARE PLAN
-------- -------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
'87............... $450,000 $ 35,437 $171,915 -- (Deferred) --
'88............... 450,000 0 130,050 -- $1,197,750 --
'89............... 438,750 74,250 109,350 -- 262,469 --
'90............... 435,000 6,750 0 -- --
'91............... 450,000 0 0 0 --
'92............... 530,000 232,800 0 308,172 $1,861,355
'93............... 600,000 450,000 0 571,359 2,358,079
</TABLE>
The Base Salary of the Chairman and Chief Executive Officer was held
essentially constant from 1986 to the beginning of 1992 reflecting the lack of
profitability during those years; Short-Term Bonuses were modest; payouts under
both the Medium-Term and Long-Term Plans went to zero after the payouts were
completed from awards earned in the profitable 1983, 1984 and 1985 years.
As the Company moved back to break-even in 1991, to operating profitability
in 1992, and to financial performance greater than the median of the Survey
Group and Peer Group in 1993, and as the Company's stock price moved up
sharply, payouts began again in each of the variable elements of pay in 1992,
and increased in 1993.
Beginning in 1992, the Committee increased the Base Salary of the Chairman
and Chief Executive Officer towards the market median level. In 1993, the CEO's
Base Salary was increased to the market median.
Approximately one-third of the CEO's annualized Total Compensation
opportunity is fixed Base Salary. Two-thirds of the total is based on Company
performance, assuming median financial performance. When the Company's
performance is better than the median, the variable compensation elements pay
more and comprise a larger portion of the total. When the Company's performance
is less than median, the variable elements pay less and comprise a smaller
proportion of the total.
The Base Salary and Short-Term Bonus Participation Rate of the CEO are set at
the median of our survey companies specifically as described under the Base
Salary and Short-Term Bonus sections appearing earlier in this report.
The Company exceeded market median financial performance, and the Short-Term
Bonus payouts reflect this performance.
11
<PAGE>
Performance Shares were earned by the Chairman and Chief Executive Officer
and other participants based on the Company's profit performance compared with
its annual operating plan. Based on 1993 financial results, approximately 25.5%
of the original grant of shares were earned, representing the final portion of
the grant made in 1987. Based on the payout schedule established at grant, one-
sixth of the CEO's earned total grant will be deferred and distributed in
February, 1995.
In December, 1993 the CEO received grants of Restricted Stock and Stock
Options under the Long-Term 1992 Stock Incentive Plan, as well as a Target
Award (payable in 1995) under the Medium-Term Three Year Performance Plan. This
was the second set of grants under this Plan. The Committee intends to make
grants annually.
In determining grant amounts for the CEO, as explained earlier, the Committee
set the total of the four elements of the Executive Compensation Program--Base
Salary, Short-Term Bonus, Medium-Term Plans, and the Long-Term Plan--to provide
annualized compensation opportunity to the CEO equal to the median of the range
of total compensation opportunity provided for CEOs by the survey companies
described earlier in this report.
An additional factor the Committee considers in setting grant amounts is the
performance of the CEO, based on a review of how well long-term and short-term
business objectives are being achieved.
We hope this general discussion and the following tables and graphs help you
understand the Company's executive compensation philosophy and program.
Hanna H. Gray, Chairman
Harold Brown
Donald S. Perkins
William D. Ruckelshaus
Franklin A. Thomas
12
<PAGE>
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
The following graph compares the cumulative total shareholder return on the
Common Stock of the Company for the last five fiscal years with the cumulative
total return on the S&P 500 Index and an index of peer companies selected by
the Company. The comparisons in this table are required by the Securities and
Exchange Commission and are not intended to forecast or be indicative of
possible future performance of the Company's stock.
<TABLE>
[GRAPH APPEARS HERE]
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG CUMMINS ENGINE, S&P 500 INDEX AND PEER GROUP
<CAPTION>
Measurement Period CUMMINS S&P
(Fiscal Year Covered) ENGINE 500 INDEX Peer Group
- ------------------- ---------- --------- ----------
<S> <C> <C> <C>
Measurement Pt-
12/31/88 $100 $100 $100
FYE 12/31/89 $ 81.93 $131.68 $103.49
FYE 12/31/90 $ 63.40 $127.58 $ 82.24
FYE 12/31/91 $ 93.95 $166.47 $ 84.43
FYE 12/31/92 $135.49 $179.20 $107.95
FYE 12/31/93 $187.55 $197.26 $169.01
</TABLE>
- ---------
*Arvin Industries, Inc., Caterpillar, Inc., Dana Corporation, Deere & Company,
Dresser Industries, Inc., Eaton Corporation, Ford Motor Company, General
Motors Corporation, Ingersoll-Rand Company, Navistar International
Corporation and Paccar, Inc.
COMPENSATION TABLES AND OTHER INFORMATION
The summary compensation table on the following page includes individual
compensation information on the Company's Chairman and Chief Executive Officer
and the four other most highly compensated executive officers, for service
rendered in all capacities during 1993, 1992 and 1991. The dollar value of
perquisites and other personal benefits for each of the named executive
officers was less than the established reporting threshold and is not included
in the table.
13
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------- -----------------------------------------------------
AWARDS PAYOUTS
----------------------------- ----------
NAME AND (1) STOCK (4) (5)
PRINCIPAL RESTRICTED STOCK OPTIONS/SARS LTIP ALL OTHER
POSITION YEAR SALARY BONUS AWARDS (#) PAYOUTS COMPENSATION
--------- ---- -------- -------- ---------------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
H. B.
Schacht
Chairman
of the
Board and 1993 $600,000 $450,000 $319,338 14,900(2) $1,586,820 $33,918
Chief Ex-
ecutive Of-
ficer 1992 $530,000 $232,800 $285,950 8,500(2) $2,358,079 $35,637
1991 $450,000 $ 0 $ 0 9,600(3) $1,861,355 $36,691
J. A. Hen-
derson
President 1993 $554,000 $415,500 $303,100 14,200(2) $1,322,244 $31,999
Chief Op-
erating Of-
ficer 1992 $471,250 $207,060 $240,800 7,200(2) $1,965,107 $32,769
1991 $400,000 $ 0 $ 0 8,100(3) $1,551,159 $33,908
T. M. Solso
Executive
Vice Presi-
dent-- 1993 $352,500 $242,344 $175,906 7,000(2) $ 732,566 $21,140
Operations 1992 $337,917 $135,117 $150,500 4,000(2) $ 684,575 $21,464
1991 $280,000 $ 0 $ 0 0 $ 467,950 $19,748
P. B. Ham-
ilton
Vice Pres-
ident and 1993 $307,500 $172,969 $ 94,719 3,750(2) $ 466,612 $20,532
Chief Fi-
nancial Of-
ficer 1992 $290,000 $ 95,175 $ 75,250 2,000(2) $ 449,543 $20,790
1991 $270,000 $ 0 $ 0 0 $ 304,347 $19,170
F. J.
Loughrey
Group Vice
President-- 1993 $253,500 $142,594 $ 94,719 3,750(2) $ 373,332 $15,437
Worldwide
Operations 1992 $231,000 $ 75,983 $ 75,250 2,000(2) $ 359,618 $15,361
1991 $217,917 $ 0 $ 0 0 $ 243,465 $13,580
</TABLE>
- ----
(1) Pursuant to the Corporation's 1992 Stock Incentive Plan, a total of 40,250
shares of Restricted Stock were granted in 1993, having a total value at
date of grant of $2,178,500. Shares are restricted for two years and one
month subsequent to grant, then are vested in 1/3 annual increments in
years 3 through 5 subsequent to grant, if the participant remains an
employee of the Company. Dividends will be paid on these shares. As of
year-end 1993, the total number of shares of Restricted Stock and the
value thereof held by each executive officer was as follows: H. B.
Schacht, 9,700 shares, $514,100; J. A. Henderson, 8,800 shares, $466,400;
T. M. Solso, 5,250 shares, $278,250; P. B. Hamilton, 2,750 shares,
$145,750; F. J. Loughrey, 2,750 shares, $145,750.
(2) Stock Options awarded pursuant to the Corporation's 1992 Incentive Stock
Plan. Stock Options may not be exercised for two years subsequent to grant
and expire ten years from grant.
(3) Units granted under the Stock Unit Appreciation Plan in 1991. When
awarded, each unit has a basis equal to the average of closing prices of
the Company's Common Stock on the NYSE for the 30 consecutive trading days
preceding the award. Upon exercise, a participant receives a cash payment
for each unit equal to the difference between the grant basis and the
average of such closing prices for the 30 consecutive trading days
preceding the date of exercise.
(4) Represents shares distributed under the Company's Performance Share Plan.
The Performance Share Plan was adopted in 1987 under which executive
officers and other key employees were awarded Share Rights to be converted
into shares of the Company's Common Stock by December 31, 2006, or earlier
as financial performance goals established by the Compensation Committee
are achieved. The Plan was intended to cover the seven year period 1988
through 1994. There were no distributions of Share Rights for Plan Year
1988, Plan Year 1989, or Plan Year 1990. The distribution for Plan Year
1991 was made in February 1992; the 1992 distribution was made in February
1993; the 1993 distribution was made in February 1994. No payments were
made under the Company's Five Year Performance Plan for these periods.
(5) Includes the allocable portion of the Company's matching contributions to
the Retirement and Savings Plan and its predecessor plans for each
executive officer in each of the years 1993, 1992, and 1991 as follows; H.
B. Schacht ($0, $458, and $381); J. A. Henderson ($618, $252, and $381);
T. M. Solso ($2,505, $2,575, and $2,413); P. B. Hamilton ($2,505, $2,506,
and $2,413); and F. J. Loughrey ($2,503, $2,214, and $2,173). All other
amounts represent payments related to the split dollar life insurance
portion of the Company's Supplemental Life Insurance and Deferred Income
Program.
14
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
Set forth below is information as of February 28, 1994, regarding the
beneficial ownership of Common Stock of the Company by its Chief Executive
Officer, each of its four other most highly compensated executive officers for
1993 and the directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT
OWNERSHIP OF CLASS
----------------- --------
<S> <C> <C>
Henry B. Schacht
Chairman and Chief Executive Officer 95,799(1) *
James A. Henderson
President and Chief Operating Officer 65,843(2) *
Theodore M. Solso
Executive Vice President-Operations 23,233(3) *
Peter B. Hamilton
Vice President and Chief Financial Officer 23,541(4) *
F. Joseph Loughrey
Group Vice President-Worldwide Operations 12,361(5) *
All directors and executive officers as a
group, a total of 25 persons 661,879(6) 1.6%
</TABLE>
- ---------
*Less than 1%
(1) See footnote (9) to the director nominee listing on page 3.
(2) See footnote (5) to the director nominee listing on page 3.
(3) Includes 4,854 shares held by Mr. Solso's wife as sole trustee of a family
trust for which Mr. Solso disclaims beneficial ownership. Does not include
8,750 shares earned but deferred for later distribution under the Company's
Performance Share Plan.
(4) Does not include 5,000 shares earned but deferred for later distribution
under the Company's Performance Share Plan.
(5) Does not include 4,002 shares earned but deferred for later distribution
under the Company's Performance Share Plan.
(6) Includes 33,800 shares which the officers have the right to acquire within
the next 60 days through the exercise of stock options. The officers and
directors hold sole voting and investment powers for 635,337 shares and
have 26,542 shares for which they have no voting or investment powers, but
for which they have not disclaimed beneficial ownership.
15
<PAGE>
The following table discloses, for each of the named executive officers,
information regarding individual grants of stock options and stock appreciation
rights made during 1993, and their potential realizable values.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
ASSUMED ANNUAL
RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS FOR OPTION TERMS
---------------------------------------------- -------------------
% OF TOTAL
OPTIONS/SARS
(1) GRANTED TO EXERCISE
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR ($/SHARE) DATE 5% ($) 10% ($)
---- ------------ ------------ --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
H. B. Schacht........... 14,900 7.1% $52.5625 12/13/03 $485,572 $1,245,258
J. A. Henderson......... 14,200 6.8% $52.5625 12/13/03 $462,760 $1,186,756
T. M. Solso............. 7,000 3.3% $52.5625 12/13/03 $228,121 $ 585,021
P. B. Hamilton.......... 3,750 1.8% $52.5625 12/13/03 $122,208 $ 313,404
F. J. Loughrey.......... 3,750 1.8% $52.5625 12/13/03 $122,208 $ 313,404
</TABLE>
- ---------
(1) Stock Options granted on 12/13/93 under the Company's 1992 Stock Incentive
Plan. These options may not be exercised for two years following, and
expire ten years following, their date of grant.
Stock option and stock appreciation right exercise activity during 1993, on
an aggregated basis for each of the named executives, is contained in the
following table. Also disclosed is the number and value of options and
appreciation rights, on an aggregated basis, held by each named executive as of
December 31, 1993. Certain previously awarded cash-only appreciation units have
been treated as SARs for purposes of the table.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR, AND FY-END OPTION/SAR
VALUE
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
NUMBER OF IN-THE-MONEY OPTIONS/SARS
NUMBER OF UNEXERCISED AT
SECURITIES OPTIONS/SARS AT FY-END
UNDERLYING VALUE FY-END (#) ($)
OPTIONS/SARS REALIZED ------------------------- -------------------------
NAME EXERCISED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
H. B. Schacht........... 19,200(1) $571,359 5,000 31,900(2) $157,025 $335,349
J. A. Henderson......... 12,200(1) $463,683 5,000 28,600(2) $157,025 $287,909
T. M. Solso............. 6,500 $509,438 0 15,000(2) $ 0 $137,845
P. B. Hamilton.......... 4,250 $361,250 0 7,750(2) $ 0 $ 69,813
F. J. Loughrey.......... 6,860 $319,848 0 7,750(2) $ 0 $ 69,813
</TABLE>
- ---------
(1) Units granted under the Stock Unit Appreciation Plan. See footnote 3 to
Summary Compensation Table.
(2) Stock Options granted under the 1992 Stock Incentive Plan.
16
<PAGE>
Estimated benefits payable to each named executive pursuant to long-term
incentive plan rights awarded during 1993 are disclosed in the following table.
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR/SAR VALUE
<TABLE>
<CAPTION>
NUMBER OF ESTIMATED FUTURE PAYOUTS
SHARES, UNITS UNDER NON-STOCK BASED PLANS
OR OTHER PERIOD UNTIL ---------------------------
NAME RIGHTS(1) PAYOUT THRESHOLD TARGET MAXIMUM
---- ------------- ------------ --------- -------- --------
<S> <C> <C> <C> <C> <C>
H. B. Schacht............ 0 -- $78,750 $315,000 $630,000
J. A. Henderson.......... 0 -- $75,000 $300,000 $600,000
T. M. Solso.............. 0 -- $40,000 $160,000 $320,000
P. B. Hamilton........... 0 -- $18,750 $ 75,000 $150,000
F. J. Loughrey........... 0 -- $18,750 $ 75,000 $150,000
</TABLE>
- ---------
(1) No shares, units or other rights were awarded in the last fiscal year. The
Company has made targeted dollar awards under its Three Year Performance
Plan with payouts tied to Company performance over a rolling three-year
cycle, as determined by the Compensation Committee of the Board of
Directors. The Committee establishes performance measures as guidelines.
For the 1993-1995 award cycle (payable in 1996) the performance guidelines
are tied to achieving certain levels of return on equity (ROE) compared to
the Peer Group companies. The Target Award will be earned if the Company's
ROE is equal to the median ROE of the Peer Group companies. The Threshold
Payment will be earned if Company's ROE is 50% of the Peer Group companies'
median. The Maximum Payment is earned if Company's ROE is 200% of the Peer
Group companies' median ROE.
PENSION PLAN TABLE
The following table sets forth the estimated non-contributory annual benefits
upon normal retirement in 1993 under the Company's Retirement Plan (including
the Excess Benefit Retirement Plan) for specified compensation and years of
service classifications. The amounts shown are computed on the basis of an
ordinary life annuity and are not subject to deductions for Social Security
benefits or other amounts.
<TABLE>
<CAPTION>
ESTIMATED ANNUAL BENEFIT UPON RETIREMENT
YEARS OF SERVICE
ANNUAL -------------------------------------------------------------------------------
SALARY 15 20 25 30 35
-------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000 $22,680 $ 30,240 $ 37,800 $ 45,350 $ 52,920
$150,000 $27,375 $ 36,500 $ 45,625 $ 54,750 $ 63,875
$175,000 $32,055 $ 42,740 $ 53,425 $ 64,110 $ 74,795
$200,000 $36,750 $ 49,000 $ 61,250 $ 73,500 $ 85,750
$225,000 $41,430 $ 55,240 $ 69,050 $ 82,860 $ 96,670
$250,000 $46,125 $ 61,500 $ 76,875 $ 92,250 $107,625
$300,000 $55,500 $ 74,000 $ 92,500 $111,000 $129,500
$350,000 $64,875 $ 86,500 $108,125 $129,750 $151,375
$400,000 $74,250 $ 99,000 $123,750 $148,500 $173,250
$450,000 $83,625 $111,500 $139,375 $167,250 $195,125
$500,000 $93,000 $124,000 $155,000 $186,000 $217,000
</TABLE>
17
<PAGE>
Compensation for purposes of the Retirement Plan is the highest average base
salary for any consecutive five-year period prior to retirement. Covered
compensation is disclosed under the "Salary" column of the Summary Compensation
Table on page 14. The average base salary and full years of service as of
December 31, 1993 for the Company's Chief Executive Officer and the four other
most highly compensated executive officers are as follows: H. B. Schacht,
$510,000, 31 years; J. A. Henderson, $461,600, 29 years; T. M. Solso, $303,000,
22 years; P. B. Hamilton, $279,000, 10 years; F. J. Loughrey, $219,400, 20
years.
Pursuant to the Company's 1977 and 1986 Stock Option Plans and its Key
Employee Stock Investment Plan, certain officers have exercised options and
purchased shares of the Common Stock of the Company on an installment basis.
The interest rate on these loans is the minimum annual rate permitted under the
Internal Revenue Code without imputation of income. The following table shows,
as to those executive officers and directors of the Company who were indebted
to the Company in excess of $60,000 since January 1, 1993, the largest
aggregate amount owed for such purchases and loans at any time since January 1,
1992, and the amount owed as of January 31, 1994:
<TABLE>
<CAPTION>
AMOUNT OF
LARGEST INDEBTEDNESS
AMOUNT OF AS OF
INDEBTEDNESS JANUARY 31, 1994
------------ ----------------
<S> <C> <C>
Mark E. Chesnut............................. $ 91,375 $ 0
Robert L. Fealy............................. 71,500 71,500
James A. Henderson.......................... 262,094 262,094
Henry B. Schacht............................ 226,875 226,875
</TABLE>
The Company has a policy of purchasing from employees of the Company shares
of Common Stock of the Company that have been acquired under the Key Employee
Stock Investment Plan and the 1977 and 1986 Stock Options Plans. The purchase
price for such shares is the closing price quoted on the New York Stock
Exchange Composite Tape on the date of purchase. During 1993, Peter B. Hamilton
sold 4,750 and F. J. Loughrey sold 6,860 shares to the Company pursuant to this
policy.
CHANGE OF CONTROL ARRANGEMENTS
The Company will provide benefits to certain executives in the event of a
change of control of the Company. Such employees would be entitled to one
year's salary plus four quarterly bonus payments. The Company will also provide
for the full vesting of certain insurance and retirement benefits and the
continuation in effect for a one-year severance period of certain other
employee benefits. In addition, the Company's retirement plans will allocate
any actuarial surplus assets to fund increased pension benefits, stock options
previously granted will become fully exercisable, the value of Performance
Share Plan rights deferred or yet to be earned will be distributed in cash, and
certain long-term incentive plan awards will be paid in cash based on the
completed portions of award cycles then in progress. The value of supplemental
and excess retirement annuity benefits will also be paid in cash.
Benefits for and rights of the Company's Chief Executive Officer and the four
other most highly compensated executive officers would be effected under these
provisions. A change of control for these purposes is defined in each of the
various plans and programs providing these benefits.
18
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Harold Brown has a consulting arrangement with the Company pursuant to which
he provides consulting services in connection with the Company's research and
development activities and related technology issues. During 1993, the Company
paid Dr. Brown $50,000 for these services. In addition, the Company has
established a Science and Technology Advisory Council on which Dr. Brown serves
as Chairman. The Council advises senior management and the Board of Directors
on the direction and implication of developments in science, technology and
environmental issues that may have applicability to the Company's current and
future business goals and objectives. For his services on the Council, Dr.
Brown is paid an annual retainer of $17,000, including $7,000 for serving as
Chairman, and an additional fee of $3,000 for each day of meetings attended
during the year.
OTHER TRANSACTIONS AND AGREEMENTS WITH DIRECTORS, OFFICERS AND CERTAIN
SHAREHOLDERS
Investment Agreements With Certain Shareholders
On July 16, 1990, the Company entered into (i) the Ford Investment Agreement,
pursuant to which, among other things, in consideration of $100,000,000
received from Ford, Ford was issued one share of a newly created series of the
Company's Preference Stock, designated Convertible Preference Stock, Series F
(the "Series F Preference Stock"), which Series F Preference Stock was
convertible into 1,600,000 shares of the Company's Common Stock and (ii) the
Tenneco Investment Agreement, pursuant to which, among other things, in
consideration of $100,000,000 received from Tenneco, Tenneco was issued one
share of a newly created series of the Company's Preference Stock, designated
Convertible Preference Stock, Series T (the "Series T Preference Stock"), which
Series T Preference Stock was convertible into 1,600,000 shares of Common
Stock. On September 12, 1990, the shares of Series F and T Preference Stock
were converted into 1,600,000 shares of Common Stock each for Ford and Tenneco,
respectively.
On July 16, 1990, the Company entered into the Ford Stock Option Agreement
pursuant to which, among other things, for a six year period Ford has an option
(the "Option") to purchase 2,961,404 shares of Common Stock, subject to
adjustment for various actions that Ford or the Company may or may not take, at
a price per share equal to the higher of (x) $62.50 per share and (y) 120% of
the market price at the time of exercise of the Option thereunder. The option
price and number of shares subject to the Option may be adjusted to reflect
certain changes in the Company's capitalization and other purchases of voting
securities by Ford. The impact of these provisions may be to adjust the
exercise price and amount of voting securities Ford would be permitted to
acquire pursuant to the Option.
On December 29, 1993, pursuant to a Consent and Amendment to the Tenneco
Investment Agreement, the Company consented to Tenneco's transfer of all of its
shares of the Company's Common Stock to the Tenneco Inc. General Employee
Benefit Trust (the "GEBT"). Under the Consent and Amendment, all of Tenneco's
rights and obligations under the Tenneco Investment Agreement were assigned to
and assumed by the GEBT.
Each of Ford and the GEBT, pursuant to their respective rights under the
Investment Agreements, is entitled to designate one person (reasonably
satisfactory to the Company) for election to the Board. Ford is presently
entitled to designate at least one such person, and may in
19
<PAGE>
the future be entitled to designate more, depending upon and in proportion to
its percentage ownership in the Company. In the event Ford owns at least 20% of
the Company's outstanding voting securities, it is entitled to designate a
minimum of two directors. The GEBT's right to designate a person for election
to the Board will be exercised by an investment manager pursuant to a direction
from the Investment Committee of the GEBT, provided that the investment manager
may decline to nominate the person who the Investment Committee directs it to
designate if such manager determines that its fiduciary duties under the
Employee Retirement Income Security Act of 1974 requires it to do so. Neither
Ford nor the GEBT will be entitled to designate any persons for election to the
Board if its respective percentage ownership of the voting power of the
Company's voting securities drops to below 10% as a result of the transfer of
voting securities. Messrs. Donaldson and Mead have been nominated to serve as
directors of the Company pursuant to the Ford and Tenneco Investment
Agreements, respectively. See director nominee table on page 3.
The term of each Investment Agreement is until the earliest of (i) the later
of six years and the first date on which the respective Investor ceases to
beneficially own voting securities representing at least 5% of the total voting
power of all then outstanding voting securities, and (ii) ten years; provided,
however, that certain provisions of the respective Investment Agreements will
explicitly survive their stated terms. Among the provisions which survive
termination of the agreement are the registration rights and share transfer
restrictions set forth in the Investment Agreement.
Other Transactions and Arrangements
Ford Motor Company and its affiliates purchase diesel engines, diesel engine
parts and related products from the Company and the Company purchases gasoline
engines and parts from Ford. During 1993, Ford paid the Company approximately
$343,300,000 and the Company paid Ford approximately $4,000,000 in connection
with such transactions. Purchases of product on open account were made on terms
generally available to unaffiliated third parties at prices determined through
arms-length negotiation based upon market conditions and other factors. The
terms of sale for midrange engines to Ford and the pricing for these products
are governed by the Company's midrange engine supply agreement with Ford.
Case Corporation and other subsidiaries of Tenneco Inc., purchase heavy-duty
and midrange diesel engines, components, service parts and related products and
services from the Company and its affiliates and the Company purchases engine
parts and components from Case. In 1993, Case and other Tenneco subsidiaries
paid the Company approximately $38,600,000 for such purchases. In addition, a
subsidiary of Case and a subsidiary of the Company are partners in a joint
venture which manufactures midrange diesel engines for Case and the Company.
Pursuant to the partnership agreements, Case pays the Company for technical
support and engine order management services, and the Company pays Case for
utilizing Case's surplus joint venture manufacturing capacity. During 1993,
Case paid the Company approximately $4,100,000 and the Company paid Case
approximately $2,700,000 pursuant to such agreements. Purchases from Cummins
were made on terms generally available to unaffiliated third parties at prices
determined through arms-length negotiation based upon market conditions and
other factors. Case's purchases from the Case-Cummins joint venture, and the
prices paid for such purchases, are governed by the terms of the joint venture
agreements.
20
<PAGE>
During 1993, the Company had agreements with Irwin Management Company, Inc.,
a company owned or controlled by Mr. J. I. Miller, whereby the Company leased
office space from and shared the expense of dining room and food services with
such company. The net amount paid by the Company was $ . The Company
believes such amount is competitive with the amount that it would have paid to
unrelated third parties for comparable services and products.
SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
(ITEM 2)
The Board of Directors has voted to appoint Arthur Andersen & Co. as the firm
of independent public accountants to audit the accounts of the Company for the
year 1994. Arthur Andersen & Co. has acted as independent public accountants
for the Company since 1952. Although the selection and appointment of
independent public accountants is not required to be submitted to a vote of the
shareholders, the Board of Directors has decided, as in the past, to ask the
Company's shareholders to ratify the appointment. A representative of Arthur
Andersen & Co. will be present, will have the opportunity to make a statement
and will be available to answer appropriate questions at the Annual Meeting of
Shareholders.
The proposal to ratify the appointment of Arthur Andersen & Co. as the firm
of independent public accountants to audit the accounts of the Company for the
year 1994 will be adopted if the number of votes cast in favor of ratification
exceeds the number of votes cast against ratification. If the shareholders do
not ratify the selection of Arthur Andersen & Co., the selection of independent
public accountants will be determined by the Audit Committee and the Board of
Directors after careful consideration of all information submitted by
shareholders.
The Board of Directors recommends that shareholders vote FOR this Proposal.
RESTRICTED STOCK PLAN FOR NON-EMPLOYEE DIRECTORS
ITEM 3
The Company's Board of Directors has authorized payment of $6,000 of each
non-employee director's annual retainer fee in Common Stock rather than in
cash, and has adopted the Restricted Stock Plan for Non-Employee Directors (the
"Plan") for this purpose, subject to shareholder approval at this meeting. The
Board of Directors believes that it is in the Company's best interest for
directors to have an economic stake in the Company's long-term performance and
that the Plan will help achieve this objective. In addition, the Plan is
intended to be part of a competitive director compensation program, ensuring
that the company will continue to attract and retain highly qualified
independent directors.
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<PAGE>
PRINCIPAL FEATURES OF THE PLAN
The Plan is attached as Appendix A to this proxy statement. The following
summary of the principal features of the Plan does not purport to be complete
and is subject to, and is qualified in its entirety, by reference to the
pertinent provisions thereof.
Only directors who are not employees of the Company are eligible to
participate in the Plan. A director will not be ineligible as a result of an
agreement with the Company to provide occasional services as an independent
consultant.
Eligible directors will receive payment of a portion of their annual retainer
fees in shares of the Company's Common Stock. The number of shares awarded each
year will equal $6,000 divided by the average of the closing prices of Common
Stock on the New York Stock Exchange during the twenty (20) day period
immediately preceding the date of the award. Except for the initial award, the
awards will be made on the day of the Company's Annual Meeting of Shareholders
each year. In July, 1993, the Company made initial awards under the Plan,
subject to approval of the Plan by the shareholders. A director may vote and
receive dividends on the shares, but may not transfer shares awarded for a
period of six (6) months thereafter.
For purposes of the Plan, the Company will use shares authorized for issuance
under its 1992 Stock Incentive Plan, approved by shareholders at the Annual
Meeting of Shareholders in April, 1993. No additional shares are authorized for
issuance under this Plan and this Plan will terminate on December 31, 2002, the
same date as the Stock Incentive Plan.
The Board of Directors will administer and interpret the Plan and may
prescribe, amend and rescind rules and regulations, and make all other
determinations deemed necessary or advisable for its administration.
The Board of Directors may amend, modify, alter or terminate the Plan, except
that the Board may not, without shareholder approval, amend the Plan to
increase the number of shares available for awards, modify the class of
directors eligible to participate, or materially increase the benefits accruing
to such directors.
An award of restricted shares to a director will not generate taxable income
at the time of award unless the director elects otherwise. At the time any
restrictions applicable to the restricted stock award lapse, the director will
recognize ordinary income and the Company will be entitled to a corresponding
deduction for the fair market value of the shares awarded. Dividends paid to a
director on the shares during the six-month restricted period will be ordinary
non-employee compensation income to a director and deductible as such by the
Company.
On February , 1994, the closing price of the Company's Common Stock, as
reported on the New York Stock Exchange Composite Tape, was per share.
The Board of Directors recommends a vote FOR approval of the Restricted Stock
Plan for Non-Employee Directors. This Item will be approved if the number of
votes cast in favor of the Item exceeds the number of votes cast against the
Item. Abstentions and shares not voted by brokers will not be counted.
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<PAGE>
AMENDMENT TO THE RESTATED ARTICLES OF INCORPORATION
(ITEM 4)
On November 11, 1993, additional shares of Common Stock were distributed to
shareholders of record on October 25, 1993 pursuant to a two-for-one common
stock split in the form of a stock dividend. As a result of this increase in
the number of shares of Common Stock issued and outstanding and for other
reasons, on February 8, 1994 the Board of Directors determined that it would be
desirable to authorize additional shares of the Company's Common Stock.
Accordingly, the Board of Directors has proposed to amend Section 4.1 of
Article IV of the Restated Articles of Incorporation, as amended, subject to
the approval of the shareholders, the effect of which will be to authorize a
total of 150,000,000 shares of Common Stock, par value $2.50 per share.
The present text of Section 4.1 of Article IV of the Restated Articles of
Incorporation, as amended, is as follows:
"The total number of shares which the Corporation has authority to issue
shall be 52,000,000 shares, consisting of 50,000,000 shares of common stock
("Common Stock"), 1,000,000 shares of preference stock ("Preference Stock")
and 1,000,000 shares of preferred stock ("Preferred Stock"). The shares of
Common Stock have a par value of $2.50 per share. The shares of Preference
and Preferred Stock do not have any par or stated value, except that,
solely for the purpose of any statute or regulation imposing any tax or fee
based upon the capitalization of the Corporation, each of the Corporation's
shares of Preference Stock and Preferred Stock shall be deemed to have a
par value of $1.00 per share."
The text of this section as proposed to be amended is as follows:
"The total number of shares which the Corporation has authority to issue
shall be 152,000,000 shares, consisting of 150,000,000 shares of common
stock ("Common Stock"), 1,000,000 shares of preference stock ("Preference
Stock") and 1,000,000 shares of preferred stock ("Preferred Stock"). The
shares of Common Stock have a par value of $2.50 per share. The shares of
Preference and Preferred Stock do not have any par or stated value, except
that, solely for the purpose of any statute or regulation imposing any tax
or fee based upon the capitalization of the Corporation, each of the
Corporation's shares of Preference Stock and Preferred Stock shall be
deemed to have a par value of $1.00 per share."
The Board of Directors believes that the proposed increase in the number of
shares of Common Stock is in the best interests of the Company and its
shareholders. An increase in the number of authorized shares will give the
Board of Directors the authority to issue shares to implement transactions
which are, in the best judgment of the Board, advantageous to the Company and
its shareholders. As of February , 1994, there were shares of
Common Stock outstanding and shares issued and held by the Company as
treasury shares, aggregating shares issued. The number of shares of
Preference and Preferred Stock issued and outstanding was and
, respectively.
The proposed amendment is not intended to have an anti-takeover effect.
Shareholders should note, however, that additional shares of Common Stock could
be issued to make attempts to gain control of the Company or the Board of
Directors more difficult or time-consuming. Although the Board currently has no
intention of doing so, additional shares of Common Stock could be
23
<PAGE>
issued to a holder or holders that would vote in accordance with the
recommendations of the Company's management with respect to any shareholder
proposal, including any proposal to effect a merger or other extraordinary
transaction involving the Company. Shares of Common Stock could also be issued
by the Board to dilute the percentage of Common Stock owned by a significant
shareholder and increase the cost of the shares necessary to acquire control of
the Board or to meet the voting requirements imposed by Indiana law with
respect to a merger or other business combination involving the Company.
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock of the Company is necessary to amend the Amended Articles of
Incorporation, as amended. The Board of Directors recommends that shareholders
vote FOR the approval of the proposed amendment.
OTHER BUSINESS
The Board of Directors does not know of any business to be presented for
action at the meeting other than that set forth in Items 1-4 of the Notice of
Annual Meeting of Shareholders. However, if other business properly comes
before the Meeting, the persons named in the enclosed proxy will vote the
returned proxies as the Board of Directors recommends.
OTHER INFORMATION
1994 SHAREHOLDER PROPOSALS
Proposals intended to be presented by shareholders of the Company at the 1995
Annual Meeting of Shareholders must be submitted to and received by the
Secretary of the Corporation for inclusion in the Company's proxy statement and
form of proxy for that Meeting not later than November 3, 1994.
EXPENSES OF SOLICITATION
The cost of this proxy solicitation will be borne by the Company. Morrow &
Co., 345 Hudson Street, New York, New York 10013, has been retained to assist
in the solicitation of proxies and will receive a fee not to exceed $6,500 plus
expenses. Proxies may also be solicited by directors, officers and employees of
the Company at no additional cost. Banks, brokerage houses and other
institutions, nominees or fiduciaries will be requested to forward the proxy
materials to the beneficial owners of the Common Stock and will be reimbursed
for their reasonable expenses incurred in forwarding such matters.
March 3, 1994
24
<PAGE>
NOMINEES FOR BOARD OF DIRECTORS
Mr. Schacht was elected Chairman of the Board and
Chief Executive Officer of the Corporation in 1977
after serving as President since 1969, and as
President and Chief Executive Officer since 1973. Mr.
Schacht joined Cummins as Vice President-- Finance in
1964, and served in various executive positions. He
earned a B.S. in Industrial Administration from Yale
in 1956 and, after serving in the U. S. Navy, an
M.B.A. from Harvard in 1962. Mr. Schacht was with
Irwin Management Company before joining Cummins. He
is a Director of CBS, Inc., American Telephone and
Telegraph Company and The Chase Manhattan
Corporation; a Trustee of The Yale Corporation,
Committee for Economic Development and The Ford
Foundation; and a member of Council on Foreign
Relations, Inc. and The Business Council.
Mr. Henderson was elected President of the
Corporation in 1977 and remains Chief Operating
Officer. He received a Bachelor of Arts degree from
Princeton University in 1956, served in the U.S. Navy
and received an M.B.A. from Harvard in 1963. He
joined the Corporation in 1964 as Assistant to the
Chairman and in 1965 was elected Vice President--
Management Development. After serving as Vice
President--Personnel and Vice President-- Operations,
Mr. Henderson was elected Executive Vice President in
1971. He was elected to serve also as Chief Operating
officer in 1975. He serves as a Director of Inland
Steel Industries, Inc., American Information
Technologies Corporation, Landmark Communications,
Inc., and Rohm and Haas Company. He is also President
of the Board of Trustees, The Culver Educational
Foundation.
HENRY B. SCHACHT
JAMES A.
HENDERSON
25
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Dr. Brown received an A.B. in 1945, an A.M. in 1946
and a Ph. D. in Physics in 1949, all from Columbia
University. From 1947 to 1952, he taught and held
research positions at Columbia, the Stevens Institute
of Technology and the University of California at
Berkeley. He then was associated with Livermore
Laboratory at the University of California, becoming
Director in 1960. Dr. Brown was Director of Defense
Research and Engineering from 1961 until 1965, when
he was named Secretary of the Air Force, a position
he held until 1969 when he became President of the
California Institute of Technology. From January,
1977 until January, 1981, he served as Secretary of
Defense. From 1981 until 1984, he was Distinguished
Visiting Professor and from 1984 until June, 1992,
Chairman of the Foreign Policy Institute at The Johns
Hopkins University. He is currently Counselor at the
Center for Strategic and International Studies and a
partner in the venture banking firm of Warburg,
Pincus & Co. Dr. Brown is a member of the National
Academy of Sciences, the National Academy of
Engineering and the American Physical Society. He is
a Director of AMAX, Inc., CBS, Inc., International
Business Machines Corporation, Mattel, Inc. and
Philip Morris Companies, Inc., a Director of the
Council on Foreign Relations and a Trustee of the
Rockefeller Foundation, the Beckman Foundation, the
California Institute of Technology and the Rand
Corporation.
HAROLD BROWN
Mr. Darnall is a graduate of DePauw University, B.A.
in Mathematics in 1960; Columbia University, B.S. in
Civil Engineering in 1962; and the University of
Chicago, M.B.A. in 1973. He joined the Inland Steel
Company, predecessor of Inland Steel Industries, in
1962. Darnall advanced through a number of positions
at the company's Indiana Harbor Works steel plant,
becoming General Manager in 1979. He was elected Vice
President, Engineering and Corporate Planning, in
1981, and Executive Vice President in 1982, at which
time he was also elected to Inland's Board of
Directors. In 1984, he was elected President of
Inland Steel Company and Chief Operating Officer of
its Integrated Steel business segment. He became
President and Chief Operating Officer of Inland Steel
Industries, Inc. in 1986, and was named Chairman,
President and Chief Executive Officer in 1992. He
serves as a Director of Household International, Inc.
and as a Trustee or Director of DePauw University,
The University of Chicago, the Glenwood School for
Boys, and Junior Achievement of Chicago.
ROBERT J. DARNALL
26
<PAGE>
Mr. Donaldson received an M.A. from Glasgow
University, Scotland, in 1964. He is a Ford Motor
Company vice president and is general manager of Ford
Truck Operations. Prior to joining Ford Truck
Operations in late 1991, Mr. Donaldson was the chief
operating officer of Autolatina, the largest private
company in South America and the holding company that
oversees Ford and Volkswagen Operations in Brazil and
Argentina. Mr. Donaldson joined Ford of Britain in
1964 and, after the formation of Ford of Europe in
1967, held a variety of management positions in
product planning, sales and marketing. He became vice
president of Car Product Planning for Ford of Europe
in 1976. In 1977, he was assigned to North America as
the director of Ford's international product and
business strategy office. In 1980, Mr. Donaldson was
first assigned to Ford's North American Automotive
Operations as executive director of powertrain and
chassis operations, and subsequently held executive
director positions in Car Product Development and
Marketing prior to his assignment in South America in
1988. He is a member of the United States Society of
Automotive Engineers, Inc., Trustee of the United
States Marketing Science Institute and a member of
the British Institute of Management.
JAMES D.
DONALDSON
Mr. Elisha is a graduate of Wabash College and the
Harvard Business School. He is Chairman of the Board
and Chief Executive Officer of Springs Industries,
Inc. He has been a Director of Springs Industries,
Inc. since 1980 and served as President and Chief
Operating Officer from 1980 to 1981. Mr. Elisha has
served as Springs Industries, Inc.'s Chief Executive
Officer since 1981 and has been Chairman of its Board
since 1983. Mr. Elisha also serves on the Board of
Directors for AT&T and Palmetto Seed Capital
Corporation. Mr. Elisha is a trustee of the Brookings
Institution and of the Committee for Economic
Development, a member of The Business Roundtable, the
Business Council, a member of the Board of Directors
of the Associates of the Harvard Business School, and
the President's Advisory Committee for Trade Policy
and Negotiations.
WALTER Y. ELISHA
27
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Mrs. Gray was graduated with a B.A. from Bryn Mawr
College in 1950 and a Ph. D. from Harvard in 1957.
During 1950-51 she was a Fulbright scholar at Oxford.
She was an Instructor at Bryn Mawr in 1953-54 and was
on the Harvard faculty from 1955-60. She became an
Assistant Professor at the University of Chicago in
1961, was promoted to Associate Professor in 1964 and
in 1972 was appointed Dean and Professor of History
at Northwestern University. Mrs. Gray was Provost and
Professor of History at Yale from 1974 to 1978 and
was acting President from 1977-78. She served as
President of the University of Chicago from 1978-
1993. She became President Emeritus of the University
of Chicago in 1993 and is now the Harry Pratt Judson
Distinguished Service Professor of History. Mrs. Gray
is a Fellow of the American Academy of Arts and
Sciences and a Trustee of numerous educational
institutions. She is also a Director of J.P. Morgan
and Company and Morgan Guaranty Trust Company,
Atlantic Richfield Company, and American Information
Technologies Corporation.
HANNA H. GRAY
Mr. Mead received a bachelor of science in
engineering from the U.S. Military Academy, West
Point, and a Ph.D. in political science and economics
from Massachusetts Institute of Technology. Following
a distinguished military career in regular Army units
in West Germany and Vietnam, and faculty and
administrative positions at the U.S. Military
Academy, he retired in 1978 having achieved the rank
of Colonel. In addition, from 1970 to 1974, Mr. Mead
served first as associate and then as deputy director
of the Domestic Council in the administration of
former President Nixon. He was also a White House
Fellow from 1970 to 1971. Since 1978, Mr. Mead held
various management and senior executive positions at
International Paper Co., where he was an executive
vice president and a director prior to joining
Tenneco in 1992. In addition to his role as Tenneco's
President, Chief Operating Officer and a member of
its board of directors, he is also Chairman and Chief
Executive Officer of Case Corporation, a Tenneco
subsidiary that manufactures and markets agricultural
and construction equipment. Mr. Mead serves on the
board of National Westminster Bancorp and Baker
Hughes Incorporated. He is a member of the
President's Commission on White House Fellowships, a
Trustee-At-Large for the Association of Graduates,
U.S. Military Academy, West Point, a member of the
Board of Visitors of the Duke University School of
the Environment and is a member of the Massachusetts
Institute of Technology Corporation Political Science
Visiting Committee.
DANA G. MEAD
28
<PAGE>
Mr. Miller joined Cummins in 1934 as Vice President
and General Manager after receiving a B.A. from Yale
University and an M. A. from Oxford University. He
was named Executive Vice President of the Corporation
in 1944, was President from 1947 to 1951 and was
Chairman of the Board from 1951 to 1977. He is a
Director of Irwin Financial Corporation, Columbus,
Indiana, and of the Irwin Management Company, Inc. He
is a member of The Business Council. He is also a
member of the American Academy of Arts and Sciences,
and of the American Philosophical Society.
Mr. Miller received a B.A. from Yale University in
1978 and an M.B.A. degree from Stanford University in
1981. He was an associate in the venture capital firm
of E.M. Warburg Pincus & Company of New York City
from 1981 to 1983. He was President of Irwin
Management Company, a family investment management
company, from 1984 to 1990. Since September, 1990, he
has been Chairman of Irwin Financial Corporation, a
publicly traded diversified financial services
company, of which he has been a Director since 1985.
Mr. Miller continues to serve as Chairman of the
Board and a Director of Irwin Management Company and
as Chairman of the Board of Tipton Lakes Company (a
real estate development firm). Mr. Miller is a
Director of the New Perspective Fund, Inc. and a
Trustee of the EuroPacific Growth Fund (both are
mutual funds). Mr. Miller also is a Trustee of The
Taft School, Watertown, CT, American Public Radio,
Minneapolis, MN, and Christian Theological Seminary,
Indianapolis, IN.
J. IRWIN MILLER
WILLIAM I. MILLER
Mr. Perkins is a graduate of Yale, B.A. in 1949, and
Harvard, M.B.A. in 1951. He joined Jewel Companies,
Inc., in 1953 and was elected President in 1965,
Chairman of the Board in 1970, Chairman of the
Executive Committee in 1980, retiring in 1983. Mr.
Perkins is also a Director of American Telephone and
Telegraph Company, Aon Corporation, K-Mart, Illinois
Power Company, Inland Steel Industries, Inc., LaSalle
Street Fund, Springs Industries, Inc., and Time
Warner, Inc. He is a Vice Chairman of Northwestern
University, Chairman of the Hospital Research and
Evaluation Trust and was the Founding Chairman of the
Civic Committee of the Commercial Club of Chicago.
DONALD S. PERKINS
29
<PAGE>
Mr. Ruckelshaus received a B.A. from Princeton in
1957 and an LL. B. from Harvard in 1960 after serving
in the U.S. Army. He was Deputy Attorney General and
Chief Counsel in the Indiana Attorney General's
Office from 1960-65. He was elected to the Indiana
House of Representatives, where he served as Majority
Leader in the 1967 session. Mr. Ruckelshaus first
served in the Federal government from January, 1969
to October, 1973, as Assistant Attorney General, as
Administrator of the Environmental Protection Agency,
Acting Director of the F.B.I. and Deputy Attorney
General. He returned as Administrator of the
Environmental Protection Agency from 1983 through
January, 1985. He practiced law in Washington, D.C.,
from 1973 until joining Weyerhaeuser in 1976 as
Senior Vice President. He was a partner in the law
firm of Perkins Coie, with offices in Seattle,
Portland, Anchorage and Washington, D.C. from 1985 to
1988. Mr. Ruckelshaus is currently Chairman of the
Board and Chief Executive Officer of Browning-Ferris
Industries, Inc. Mr. Ruckelshaus is a Director of
Monsanto, Inc., Nordstrom, Inc., Texas Commerce
Bankshares, Inc. and Weyerhaeuser Company.
WILLIAM D.
RUCKELSHAUS
Mr. Thomas received a B.A. from Columbia University
in 1956 and an LL. B. in 1963. From 1956 to 1960, he
was a navigator with the U.S. Air Force. Mr. Thomas
served as attorney for the Federal Housing Finance
Agency (1963-64), Assistant U.S. Attorney for the
Southern District of New York (1964) and a Deputy
Police Commissioner for New York City (1965-67). Mr.
Thomas was President and Chief Executive Officer of
the Bedford Stuyvesant Restoration Corporation from
1967 to 1977. He was an attorney and consultant
engaged in private practice from 1977 to 1979. Mr.
Thomas is President and Chief Executive Officer of
The Ford Foundation. He is also a Director of
American Telephone and Telegraph Company, CBS, Inc.,
Citicorp/ Citibank, N.A., and Aluminum Company of
America and serves as a Trustee for The Ford
Foundation.
FRANKLIN A.
THOMAS
30
<PAGE>
Mr. Wilson received a bachelor's degree in mechanical
engineering from Vanderbilt University in 1958 and an
M.B.A. in Finance from Harvard University in 1963. He
served as an officer in the U. S. Navy from 1958 to
1961. Mr. Wilson has been Chairman and Chief
Executive Officer of Rohm and Haas Company since
1988. Mr. Wilson joined Rohm and Haas Company in 1965
as an operations research analyst. He has since held
positions as President of a medical products
subsidiary, Director of the European region,
Treasurer and Chief Financial Officer, Business
Director for the Industrial Chemicals Group, Group
Vice President in charge of the company's
Administrative and Finance Division and the Corporate
Business Department, and Vice Chairman. Mr. Wilson
has been a Director of Rohm and Haas Company since
1977. Mr. Wilson is a member of the board of
Vanderbilt University, the Vanguard Group of
Investment Companies, and the Culver Educational
Foundation. He serves as Chairman of the Board of the
Philadelphia High School Academies, Inc.
J. LAWRENCE
WILSON
31
<PAGE>
APPENDIX A
RESTRICTED STOCK PLAN
FOR NON-EMPLOYEE DIRECTORS
1. Purpose. This Restricted Stock Plan for Non-Employee Directors (the
"Plan") is intended to attract and retain the services of experienced and
knowledgeable independent directors of Cummins Engine Company, Inc. (the
"Company") for the benefit of the Company and its stockholders and to provide
additional incentive for such directors to continue to work for the best
interests of the Company and its stockholders.
2. Stock Available for Awards. No additional shares of the Company's common
stock ("Common Stock") shall be reserved for issuance under the Plan. Instead,
the number of shares available under the Plan shall be integrated with the
number available for awards pursuant to the Company's 1992 Stock Incentive Plan
(the "SIP"). Awards made under this Plan shall reduce the number of shares of
Common Stock available for awards under the SIP.
3. Administration. The Plan shall be administered by the Board of Directors
of the Company (the "Board"). Subject to the express provisions of the Plan,
the Board shall have plenary authority to interpret the Plan, to prescribe,
amend and rescind rules and regulations relating to it, to determine the terms
and provisions of the restrictions on Common Stock awards (which shall comply
with and be subject to the terms and conditions of the Plan) and to make all
other determinations necessary or advisable for the administration of the Plan.
The Board's determinations of the matters referred to in this Paragraph 3 shall
be conclusive.
4. Participation in the Plan. Persons who are now or shall become incumbent
directors of the Company who are not at the respective times employees of the
Company or any subsidiary of the Company shall be eligible to participate in
the Plan (an "Eligible Director"). A director of the Company shall not be
deemed to be an employee of the Company solely by reason of the existence of a
consulting contract or arrangement between such director and the Company or any
subsidiary thereof pursuant to which the director agrees to provide consulting
services as an independent consultant on a regular or occasional basis for a
stated consideration.
5. Awards. Each Eligible Director shall automatically receive, in payment of
a portion of his or her annual Board retainer fee, an annual award of Common
Stock, restricted as to transfer for a period of six (6) months following the
date of the award or issuance of applicable share certificate(s), if later. The
number of shares in each such annual award shall be equal to $6,000 divided by
the average of the closing prices of Common Stock as reported on the composite
tape of the new York Stock Exchange for the twenty (20) consecutive trading
days immediately preceding the date of the award. An initial automatic award to
each Eligible Director shall be effective as of July 13, 1993, subject to
stockholder approval of the Plan. Following the initial award, each Eligible
Director shall automatically receive the award on the date of each Annual
Meeting of Shareholders of the Company. The Company reserves the right to
legend the share certificates for an appropriate period of time and to take
other actions designed to assure compliance with applicable securities laws.
6. Changes in Present Common Stock. In the event of any merger,
consolidation, reorganization, recapitalization, stock dividend, stock split or
other change in the corporate structure or capitalization affecting the
Company's present Common Stock, appropriate
32
<PAGE>
adjustment shall be made by the Board in the number and kind of shares which
are or may be awarded hereunder.
7. Effective Date and Duration of the Plan. Awards shall be made under the
Plan, subject to its authorization and adoption by the stockholders of the
Company, upon its adoption by the Board of Directors, but no share certificates
shall be issued under the Plan until the Plan shall have been adopted and
approved at the Annual Meeting of shareholders of the Company next following
adoption of the Plan by the Board. If so adopted by stockholders, this Plan
shall become effective as of July 13, 1993. The Plan shall terminate on
December 31, 2002 (unless earlier discontinued by the Board) but such
termination shall not affect the rights of the holder of any Common Stock
subject to restriction on such date of termination.
8. Amendment of the Plan. The Board may suspend or discontinue the Plan or
revise or amend it in any respect whatsoever; provided, however, that without
approval of the stockholders, no revision or amendment shall change the number
of shares subject to the Plan (except as provided in Section 6), change the
definition of the class of directors eligible to receive awards, or materially
increase the benefits accruing to participants under the Plan.
9. Governing Law. This Plan and all determinations made and actions taken
pursuant hereto, to the extent not otherwise governed by securities laws of the
United States, shall be governed by the laws of the State of Indiana and
construed accordingly.
33
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CUMMINS ENGINE COMPANY, INC.
BOX 3005 (CUMMINS LOGO)
COLUMBUS, INDIANA
47202-3005
March 3, 1994
Dear Fellow Employee:
As a shareholder of Cummins stock, you are receiving today the Annual Report
to Shareholders, Proxy Statement and Proxy Card. In addition to other Cummins
shares you may own, you are a shareholder of Cummins stock through your
participation in the Cummins Employee Stock Ownership Plan ("ESOP") or Cummins
Stock Fund ("CSF") portions of the Cummins Retirement and Savings Plan or both.
Each year, shareholders have an opportunity to elect Cummins' Board of
Directors and to vote on other business matters described in the Proxy
Statement. The ESOP and CSF Trustees are the only shareholders of record for
your benefit plan shares and will vote on the proposals in the Proxy based on
your Proxy Card vote. All shares held in the ESOP that are not voted or have not
been credited to employee accounts will be voted by the Trustee on each proposal
in the same proportion as all shares voted on that proposal by ESOP
participants. Please complete and return your Proxy Card in the enclosed
envelope as soon as possible. Be sure to mark the box on the face of the Proxy
Card to designate it as a Trustee instruction.
If you own additional shares of Cummins Stock, you should not receive a
separate packet of materials for those shares unless they are held in a
brokerage or custodial account on your behalf. With that exception, voting of
all your shares is intended to be accommodated on one Proxy Card.
ESOP participants who retired or otherwise ceased employment during the fourth
quarter of 1993 will be receiving a distribution of shares of stock and cash for
partial shares or cash in lieu of all shares if so elected, in the next several
weeks. Until such distribution, all former employees are considered plan
participants and should complete and return the enclosed Proxy Card if they
desire to vote their plan shares.
Should you have questions about the shareholder materials, please contact
Steve Zeller (812-377-3609).
Sincerely,
B.S.Pitts/jdm Vice President - Human Resources
PHONE: 812-377-5000
<PAGE>
GRAPHICS APPENDIX
1. Page 13 of the Proxy Statement contains a graph comparing the cumulative
total shareholder return on the Common Stock of the Company for the last five
fiscal years with the cumulative total return on the S&P 500 Index and an index
of peer companies selected by the Company.
2. Pages 25 through 31 of the Proxy Statement contain photographs of each of
the 14 nominee directors of the Company for the ensuing year.
3. The last page of the Proxy Statement contains a map of the City of
Columbus, Indiana indicating major streets, roads and highways, and
highlighting the location of the Company's Annual Meeting of Shareholders.
<PAGE>
CUMMINS ENGINE COMPANY, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
P THE COMPANY FOR ANNUAL MEETING APRIL 5, 1994
R
O
X
Y
The undersigned hereby constitutes and appoints J. Irwin Miller and
Franklin A. Thomas, and each of them, true and lawful agents with full
power of substitution in each, to vote as proxy of the undersigned at
the Annual Meeting of the shareholders of Cummins Engine Company, Inc.
to be held at the Columbus East High School Auditorium, 230 South Marr
Road, Columbus, Indiana on April 5, 1994, and at any adjournments
thereof, on all matters coming before said meeting.
BENEFIT TRUST PARTICIPANTS ONLY: By marking this box, the undersigned
hereby instructs the respective Trustees of the Company's Employee
Stock Ownership Trust and Cummins Stock Fund portion of the Company's
Retirement and Savings Plan to vote at said meeting the number of shares
of common stock of the Company held on the undersigned's behalf in said
Benefit Trusts ("Plan Shares") in the manner designated on this Proxy.
Election of Directors, Nominees:
Harold Brown, Robert J. Darnall, James D. Donaldson, Walter Y. Elisha,
Hanna H. Gray, James A. Henderson, Dana G. Mead, J. Irwin Miller,
William I. Miller, Donald S. Perkins, William D. Ruckelshaus, Henry B.
Schacht, Franklin A. Thomas, J. Lawrence Wilson.
YOU ARE ENCOURAGED TO SPECIFY YOUR CHOICES BY MARKING THE
APPROPRIATE BOXES ON THE REVERSE SIDE. EXCEPT FOR PLAN
SHARES, YOU NEED NOT MARK ANY ITEM BOXES IF YOU WISH TO VOTE
SHARES IN ACCORDANCE WITH THE BOARD OF DIRECTORS'
RECOMMENDATIONS. THE PROXY COMMITTEE CANNOT VOTE YOUR SHARES
UNLESS YOU SIGN AND RETURN THIS CARD.
SEE REVERSE
SIDE
PLEASE 3111
MARK YOUR
VOTES AS
IN THIS
X EXAMPLE.
---
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR ITEMS 1, 2, 3 AND 4, BUT PLAN SHARES WILL BE VOTED
IN ACCORDANCE WITH THE PROVISIONS OF THE BENEFIT TRUSTS.
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, 3 AND 4.
- --------------------------------------------------------------------------------
1. Election 2. Proposal 3. Proposal
of to to
Directors. ratifyArthur approve
(see Andersen& Restricted
everse) Co. as Stock
independent Plan for
accountants. Non-
Employee
Directors
4. Proposal
to amend
Restated
Articles
of
Incorporation
----------------------------------
For, except vote withheld from the following nominee(s):
-------------------
TO WITHHOLD AUTHORITY TO VOTE FOR AN The signer hereby
INDIVIDUAL DIRECTOR NOMINEE, MARK ITEM 1 revokes all proxies
BOX "FOR" AND LIST NOMINEE'S NAME FOR heretofore given by the
WHICH AUTHORITY IS WITHHELD; OTHERWISE, signer to vote at said
MARK "FOR" TO VOTE FOR ALL NOMINEES OR meeting or any
"WITHHELD" TO WITHHOLD AUTHORITY TO VOTE adjournments thereof.
FOR ALL NOMINEES.
- --------------------------------------------- NOTE: Please sign exactly as
name appears hereon. Joint
owners should each sign. When
signing as attorney,
executor, administrator,
trustee or guardian, please
give full title as such.
--------------------------------
SIGNATURE DATE
--------------------------------
SIGNATURE DATE
FOR
WITHHELD
FOR
AGAINST
ABSTAIN
FOR
AGAINST
ABSTAIN
