CUMMINS ENGINE CO INC, DEF 14A, 1995-03-06

CUMMINS ENGINE CO INC
DEF 14A, 1995-03-06
ENGINES & TURBINES

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<PAGE>
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:

[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[x] Definitive Proxy Statement

[_] Definitive Additional Materials

[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12

CUMMINS ENGINE COMPANY, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

CUMMINS ENGINE COMPANY, INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)

Payment of Filing Fee (Check the appropriate box):

[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.

[_] $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:

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(2) Aggregate number of securities to which transaction applies:

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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):

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(4) Proposed maximum aggregate value of transaction:

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(5) Total fee paid:

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[_] Fee paid previously with preliminary materials.

[_] 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:

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(2) Form, Schedule or Registration Statement No.:

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(3) Filing Party:

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(4) Date Filed:

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Notes:

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CUMMINS ENGINE COMPANY, INC.
500 JACKSON STREET, BOX 3005, COLUMBUS, INDIANA 47202-3005

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

To the Shareholders of
Cummins Engine Company, Inc.

Notice is hereby given that the Annual Meeting of the Shareholders of Cummins
Engine Company, Inc. will be held at the Columbus East High School Auditorium,
230 South Marr Road, Columbus, Indiana, on Tuesday, April 4, 1995, at 10:30
a.m., local time, for the following purposes:

1. to elect fifteen directors of the Company for the ensuing year;

2. to ratify the appointment of Arthur Andersen LLP as auditors for the
year 1995;

3. to approve the Senior Executive Bonus Plan;

4. to approve the Senior Executive Three Year Performance Plan;

5. to transact any other business that may properly come before the meeting
or any adjournment thereof.

Only shareholders of Common Stock of the Company of record at the close of
business on February 17, 1995, are entitled to notice of and to vote at the
meeting.

Shareholders of Common Stock who do not expect to be present in person at the
meeting are urged to complete, sign and date the enclosed proxy and return it
promptly to the undersigned in the envelope provided.

The proxy may be revoked by the shareholder giving it at any time before the
voting. Any shareholders entitled to vote at the meeting who attend the meeting
will be entitled to cast their votes in person.

Mark R. Gerstle,
Secretary

March 6, 1995
<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" or
"Cummins") of proxies to be voted at the Annual Meeting of Shareholders to be
held on Tuesday, April 4, 1995, 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 6, 1995.

Holders of the Company's Common Stock of record at the close of business on
February 17, 1995 are entitled to vote at the Annual Meeting. On that date
there were issued and outstanding 41,098,780 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.

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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 28, 1995 (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) 7.79%
The American Road
Dearborn, MI 48121
Tenneco Inc. General Employee Benefit Trust 3,200,000(2) 7.79%
c/o Bankers Trust Company
3000 Two Houston Center
909 Fannin, Suite 3000
Houston, TX 77010
The Capital Group Companies, Inc. 2,406,300(3) 5.85%
333 South Hope Street
Los Angeles, California 90071
Cummins Engine Company, Inc. 2,298,430 5.59%
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 14.99% 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. Woodbridge Capital Management, Inc., 100 Renaissance Center,
Detroit, MI 48243 is the investment manager of the master trust account
holding the shares and possesses voting and investment powers over the
shares on behalf of the trust. See "Other Agreements and Transactions With
Directors, Officers and Certain Shareholders."
(3) The source of this information is a Schedule 13G dated February 8, 1995
disclosing beneficial ownership by certain operating subsidiaries of the
Capital Group Companies, Inc. These entities were reported to possess, in
the aggregate, sole voting power for 1,069,800 shares, sole investment
power for all of the shares and no shared voting or investment power.

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ELECTION OF DIRECTORS

(ITEM 1)

It is intended that votes will be cast pursuant to the accompanying proxy for
the election of the fifteen 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.

Messrs. Dabrowski 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 26 through 32 of
this proxy statement.

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<TABLE>
<CAPTION>
AMOUNT AND
FIRST YEAR NATURE OF BENEFICIAL PERCENT
ELECTED A OWNERSHIP AS OF OF
NAME AND OCCUPATION AGE DIRECTOR(1) FEBRUARY 28, 1995(2) CLASS
------------------- --- ----------- -------------------- -------
<S> <C> <C> <C> <C>
William I. Miller................ 38 1989 36,068(8) *
Chairman, Irwin Financial Corpo-
ration, financial services com-
pany
Donald S. Perkins................ 67 1974 4,266 *
Retired Chairman, Jewel Compa-
nies, Inc., diversified retail-
ing
William D. Ruckelshaus........... 62 1974 1,266 *
Chairman of the Board and Chief
Executive Officer, Browning-
Ferris Industries, Inc., waste
management services company
Henry B. Schacht................. 60 1969 127,882(9) *
Chairman of the Executive Com-
mittee of Cummins
Theodore M. Solso................ 47 1994 55,110(10) *
President and Chief Operating
Officer of Cummins
Franklin A. Thomas............... 60 1973 918 *
President, The Ford Foundation
J. Lawrence Wilson............... 59 1990 2,265 *
Chairman and Chief Executive Of-
ficer, Rohm and Haas
Company, chemicals and plastics
manufacturing
</TABLE>
- ---------
*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 14,400 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.
(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 640,964 shares beneficially owned by Mr. Miller with sole voting
and investment powers and 28,042 shares beneficially owned by Mr. Miller's
wife, Xenia S. Miller, with sole voting and investment powers.
(8) Includes 14,034 shares held by Mr. Miller for the benefit of his children.
Mr. W. I. Miller is Mr. J. I. Miller's son.
(9) Includes 22,000 shares which Mr. Schacht has the right to acquire within
the next 60 days through the exercise of stock options.

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(10) Includes 10,500 shares which Mr. Solso has the right to acquire within the
next 60 days through the exercise of stock options. Also included are
23,710 shares held by Mr. Solso's wife who has sole voting and investment
powers thereof.

Directors will be elected by a plurality of the votes cast. Votes cast for a
nominee and, if no contrary instructions are indicated on a signed proxy, the
shares represented by such proxy will be voted for a nominee. Abstentions,
broker non-votes and instructions on a signed proxy withholding a vote will
result in a nominee receiving fewer votes. However, the number of votes
otherwise cast for the nominee will not be affected by such actions.

THE BOARD OF DIRECTORS AND ITS COMMITTEES

The Board of Directors held five meetings during 1994. 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 three times
during 1994.

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 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 during 1994.

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 1994.

Executive Committee. The members of the Executive Committee are H. B. Schacht
(Chairman), J. A. Henderson, J. I. Miller and W. I. Miller. The Executive
Committee is authorized to exercise the powers of the Board of Directors in the
management and direction of

5
<PAGE>

the business and affairs of the Company during the intervals between meetings
of the Board of Directors. The Executive Committee met two times during 1994.

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; K. R. Dabrowski, W. Y. Elisha, J. I. Miller and T. M. Solso).

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 paid in the
form of restricted stock. 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.

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.

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 1994,
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.

Nominee Henry B. Schacht has a consulting arrangement with the Company in
order to retain, for the benefit of the Company, the knowledge and judgment of
Mr. Schacht in connection with strategic planning, business alliances and other
significant matters. Pursuant to the arrangement, Mr. Schacht will be available
to the Board and senior management for at least one week during each month. For
his services, he will be paid $250,000 per year. In the event more than twelve
weeks of services are required by the Company during any calendar year, he will
be paid additional compensation in direct proportion to his additional periods
of service. No amounts were paid to Mr. Schacht pursuant to this arrangement
during 1994.

6
<PAGE>

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.

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

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<PAGE>

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.

Section 162(m) of the Internal Revenue Code ("Section 162(m)") limits the
corporate tax deduction to one million dollars for compensation paid annually
to any one of the named executive officers in the proxy, unless the
compensation meets certain requirements. As indicated in last year's report,
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. Because
regulations implementing this legislation are still in the proposal stage, some
uncertainty exists as to the requirements for qualifying compensation under
Section 162(m).

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<PAGE>

As indicated below, the Base Salary of the named executive officers is set at
the median of the range of the salaries of individuals with similar positions
in companies of similar size to Cummins. The Committee intends to continue this
policy notwithstanding the enactment of Section 162(m). The Company is
proposing for shareholder approval under Section 162(m) (see pages 21 to 24
below) plans which implement the Committee's Short-Term and Medium-Term
compensation objectives while maintaining the tax deductibility of compensation
under these programs.

The plans being proposed are similar to the plans already in effect, but
modified to conform with Section 162(m) requirements. The modifications are as
follows:

. Participation is limited to the Chief Executive Officer and other
executive officers designated by the Compensation Committee each year.

. The Committee cannot increase a payout from the amount that would be
payable based on the performance measures the Committee established for a
payment period.

. The Committee must certify the Company's performance in writing before
any payout can be made.

.There is a stated maximum payout that can be made to any participant.

At present, the Committee does not propose to take action with respect to the
Company's 1992 Stock Incentive Plan. Stock options granted under the plan
already comply with Section 162(m) until 1997. And, the Committee believes the
stock ownership provided by restricted stock granted under the plan is
important in itself to link management's compensation with shareholders'
expectations.

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 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 Cummins.

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

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Committee and reviewed annually. Each person is assigned a participation rate
that is a percent of salary. The quarterly bonus is then determined as follows.

(Short-Term Bonus) equals (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 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. In 1994, return on equity
was the measure used to compare performance. 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 1994, we used a full corporate tax rate, not taking credit
for tax loss carryforwards.

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.

In order to comply with the requirements of Section 162 (m), a modified
version of the Short-Term Bonus Plan, called the Senior Executive Bonus Plan,
is being submitted to shareholders for approval. The Senior Executive Bonus
Plan will cover the CEO and other executive officers designated from time to
time by the Compensation Committee. For a further description of this Plan, see
page 22 below.

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. For 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
under this program will be in 1995. The performance measure for Award Cycles
ending before 1997 is return on equity. The Committee establishes a scale of
multiples of the Target Award to be paid for various levels of Company
performance over each Award Cycle. The plan pays the full granted amount if
Cummins' performance (based on the applicable performance measure) 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.

In order to comply with the requirements of Section 162(m), a modified
version of the Three Year Performance Plan is being submitted to shareholders
for approval. The new Plan will cover

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<PAGE>

the CEO and other executive officers designated from time to time by the
Compensation Committee. The Plan will be effective for Award Cycles beginning
in 1995 and thereafter. For a further description of the Plan, see pages 22 and
23 later in this proxy statement.

4. Long-Term: The 1992 Cummins Stock Incentive Plan

In December 1992, 1993, and 1994 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.

The Medium-Term and Long-Term plans described above were adopted in 1992,
following a review of the executive compensation program by the Committee. They
replaced the Five Year Performance Plan and the Performance Share Plan. The
Five Year Performance Plan compared the Company's return on equity to the Peer
Group companies over a five-year plan cycle. No payouts were made under that
plan for the Award Cycles ending 1987-1992. The final payout under the Plan was
made in 1994 for the five-year cycle ending 1993. Under the Performance Share
Plan, grants of restricted stock were made to the named executive officers in
1987. For the individual to earn the shares, the Company had to achieve profit-
after-tax levels approved annually by the Committee and the Board. Once earned,
actual distribution of shares to the individual was deferred over specific time
periods. All of the remaining deferred shares were distributed in January, 1995
and are reflected in the Summary Compensation Table for 1994.

COMPENSATION OF THE CHIEF EXECUTIVE OFFICER

Henry Schacht was Chief Executive Officer and Chairman of the Board until
July 12, 1994, when he relinquished the CEO position, remaining as Chairman of
the Board. James Henderson became CEO on that date.

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 Company 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.

11
<PAGE>

The Company substantially exceeded market median financial performance in
1994, and the Short-Term Bonus payouts reflect this performance.

The final portion of the Performance Share Plan grant made in 1987 was earned
based on 1993 financial performance. This final portion was approximately 25.4%
of the original number of shares granted. Based on the payout schedule
established at grant, one-sixth of the CEO's earned total grant was deferred
and distributed in January, 1995.

In December, 1994 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 1997) under the Medium-Term Three Year Performance Plan. This
was the third set of grants under these Plans. 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 Plan, 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.

The Committee reviews the CEO's performance annually, based on how well the
Company is implementing its business strategy and achieving its business
objectives, both short-term and long-term. This review considers both
quantitative and qualitative performance matters, and is a key factor in
setting the CEO's compensation.

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 COMPANY, INC., S&P 500 INDEX AND PEER GROUP

<CAPTION>
CUMMINS
Measurement Period ENGINE S&P
(Fiscal Year Covered) COMPANY,INC. 500 INDEX PEER GROUP
- ------------------- ------------ --------- ----------
<S> <C> <C> <C>
Measurement Pt-
12/31/89 $100 $100 $100
FYE 12/31/90 $77.38 $96.88 $79.61
FYE 12/31/91 $114.68 $126.42 $81.83
FYE 12/31/92 $165.37 $136.08 $104.22
FYE 12/31/93 $228.92 $149.80 $162.93
FYE 12/31/94 $195.49 $151.78 $144.04
</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 and accompanying notes on the following pages
include individual compensation information for the last three fiscal years on
the two persons who served as Chief Executive Officer during 1994 and the three
other most highly compensated executive officers at year-end 1994. Mr. H. B.
Schacht relinquished his position as Chief Executive Officer to Mr. J. A.
Henderson on July 12, 1994, but remained one of the four other most highly
compensated executive officers of the Company. 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
----------------------- -----------------------------------
(1) (2) (3) (4) (5)
RESTRICTED STOCK FIVE YEAR
NAME AND STOCK OPTIONS/SARS PERFORMANCE LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS AWARDS (#) PLAN PAYOUTS COMPENSATION
------------------ ---- ------ ----- ---------- ------------ ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
H. B. Schacht
Chairman of the Board 1994 $665,000 $779,550 $ 0 30,000 $214,400 $1,297,500 $50,343
(through 2/14/95) and 1993 $600,000 $450,000 $319,338 14,900 $0 $1,596,176 $33,918
Chief Executive Officer 1992 $530,000 $232,800 $285,950 8,500 $0 $2,358,079 $35,637
(through 7/12/94)
J. A. Henderson
President and Chief 1994 $654,000 $765,690 $346,000 22,600 $203,680 $1,081,250 $39,520
Executive Officer 1993 $554,000 $415,500 $303,100 14,200 $0 $1,330,040 $31,999
(effective 7/12/94) 1992 $471,250 $207,060 $240,800 7,200 $0 $1,965,107 $32,769
T. M. Solso
Executive Vice Presi-
dent 1994 $405,417 $442,269 $177,325 11,500 $ 91,706 $ 378,438 $28,203
and Chief Operating 1993 $352,500 $242,344 $175,906 7,000 $0 $ 736,885 $21,140
Officer 1992 $337,917 $135,117 $150,500 4,000 $0 $ 684,575 $21,464
P. B. Hamilton
Vice President and 1994 $325,000 $285,638 $103,800 6,900 $ 68,591 $ 216,250 $27,674
Chief Financial Officer 1993 $307,500 $172,969 $ 94,719 3,750 $0 $ 469,363 $20,532
1992 $290,000 $ 95,175 $ 75,250 2,000 $0 $ 449,543 $20,790
F. J. Loughrey
Group Vice President 1994 $275,000 $241,763 $129,750 8,000 $ 57,704 $ 173,000 $19,230
Worldwide Operations 1993 $253,500 $142,594 $ 94,719 3,750 $0 $ 375,533 $15,437
1992 $231,000 $ 75,983 $ 75,250 2,000 $0 $ 359,618 $15,361
</TABLE>
- ------
(1) Pursuant to the Corporation's 1992 Stock Incentive Plan, a total of 58,950
shares of Restricted Stock were granted in 1994, having a total value at
date of grant of $2,549,588. 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 1994, the total number of shares of Restricted Stock and the value
thereof held by each executive officer was as follows: H. B. Schacht,
13,500 shares, $610,875; J. A. Henderson, 20,000 shares, $905,000; T. M.
Solso 11,350 shares, $513,588; P. B. Hamilton, 6,150 shares, $278,288; F.
J. Loughrey, 6,750 shares, $305,438.
(2) Stock Options awarded pursuant to the Corporation's 1992 Stock Incentive
Plan. Stock Options may not be exercised for two years subsequent to grant
and expire ten years from grant.
(3) Represents payout in 1994 for the 1989-1993 Award Cycle under the Five Year
Performance Plan. The payout is calculated as Base Salary times
individual's Participation Percentage times Payout Factor for the Award
Cycle. The Payout Factor was based on the Corporation's Return on Equity in
comparison to the median ROE of a panel of eleven comparator companies over
the Five Year Award Cycle.
(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
were 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; the final
distribution was made in January 1995.
(5) Amounts reported as "All Other Compensation" for 1994 include,
respectively, matching contributions by the Company under the Retirement
and Savings Plan, "above market" earnings on previously deferred
compensation, and premium payments made to the Supplemental Life Insurance
and Deferred Income Program as follows: H.B. Schacht ($0, $17,827 and
$32,516); J.A. Henderson ($826, $8,572 and $30,122); T.M. Solso ($5,080,
$4,761 and $18,362); P.B. Hamilton ($5,017, $4,913 and $17,744); and F.J.
Loughrey ($5,017, $1,382 and $12,831).

14
<PAGE>

SECURITY OWNERSHIP OF MANAGEMENT

Set forth below is information as of February 28, 1995, regarding the
beneficial ownership of Common Stock of the Company by the persons who served
as Chief Executive Officer, each of its three other most highly compensated
executive officers for 1994 and the directors and executive officers of the
Company as a group.

<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT
OWNERSHIP OF CLASS
----------------- --------
<S> <C> <C>
Henry B. Schacht
Retired Chairman of the Board and Chief Exec-
utive Officer 127,882(1) *
James A. Henderson
Chairman of the Board and Chief Executive Of-
ficer 91,214(2) *
Theodore M. Solso
President and Chief Operating
Officer 55,110(3) *
Peter B. Hamilton
Vice President and Chief Financial Officer 32,420(4) *
F. Joseph Loughrey
Group Vice President--Worldwide Operations
and Technology 20,864(5) *
All directors and executive officers as a
group, a total of 25 persons 1,173,300(6) 2.85%
</TABLE>
- ---------
* Less than 1%
(1) See footnote (9) to the director nominee listing on page 4.
(2) See footnote (5) to the director nominee listing on page 4.
(3) See footnote (10) to the director nominee listing on page 5.
(4) Includes 4,000 shares which Mr. Hamilton has the right to acquire within
the next 60 days through the exercise of stock options.
(5) Includes 4,000 shares which Mr. Loughrey has the right to acquire within
the next 60 days through the exercise of stock options.
(6) Includes 95,950 shares which the officers have the right to acquire within
the next 60 days through the exercise of stock options.

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 1994, and their potential realizable values.
<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........... 30,000 7.1% $43.5625 12/13/04 $823,331 $2,077,931
J. A. Henderson......... 22,600 5.3% $43.5625 12/13/04 $620,243 $1,566,375
T. M. Solso............. 11,500 2.7% $43.5625 12/13/04 $315,610 $ 796,540
P. B. Hamilton.......... 6,900 1.6% $43.5625 12/13/04 $189,366 $ 477,924
F. J. Loughrey.......... 8,000 1.9% $43.5625 12/13/04 $219,555 $ 554,115
</TABLE>

OPTION/SAR GRANTS IN LAST FISCAL YEAR

Stock option and stock appreciation right exercise activity during 1994, 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, 1994.

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........... 0 22,000 44,900 $241,580 $50,700
J. A. Henderson......... 5,000 $94,844 14,400 36,800 $112,896 $38,194
T. M. Solso............. 0 10,500 18,500 $ 81,620 $19,435
P. B. Hamilton.......... 0 4,000 10,650 $ 31,360 $11,661
F. J. Loughrey.......... 0 4,000 11,750 $ 31,360 $13,520
</TABLE>

Estimated benefits payable to each named executive pursuant to long-term
incentive plan rights awarded during 1994 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 $ 0 $ 0 $ 0
J. A. Henderson.......... 0 $85,000 $340,000 $680,000
T. M. Solso.............. 0 $42,750 $175,000 $350,000
P. B. Hamilton........... 0 $20,000 $ 80,000 $160,000
F. J. Loughrey........... 0 $31,250 $125,000 $250,000
</TABLE>

16
<PAGE>

- ---------
(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 1994-1996 Award Cycle (payable in 1997) 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 the Company's ROE is 50% of the Peer Group
companies' median. The Maximum Payment is earned if the Company's ROE is
200% of the Peer Group companies' ROE.

PENSION PLAN TABLE

The following table sets forth the estimated non-contributory annual benefits
upon normal retirement in 1995 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
AVERAGE YEARS OF SERVICE
BASE -------------------------------------------------------------
SALARY 10 15 20 25 30 35 40
-------- ------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
$200,000 $24,520 $ 36,780 $ 49,040 $ 61,300 $ 73,560 $ 85,820 $ 98,080
$225,000 $27,640 $ 41,460 $ 55,280 $ 69,100 $ 82,920 $ 96,740 $110,560
$250,000 $30,770 $ 46,155 $ 61,540 $ 76,925 $ 92,310 $107,695 $123,080
$300,000 $37,020 $ 55,530 $ 74,040 $ 92,550 $111,060 $129,570 $148,080
$350,000 $43,270 $ 64,905 $ 86,540 $108,175 $129,810 $151,445 $173,080
$400,000 $49,520 $ 74,280 $ 99,040 $123,800 $148,560 $173,320 $223,080
$450,000 $55,770 $ 83,655 $111,540 $139,425 $167,310 $195,195 $223,080
$500,000 $62,020 $ 93,030 $124,000 $155,050 $186,060 $217,070 $248,080
$600,000 $74,500 $111,735 $148,980 $186,225 $223,500 $260,715 $297,960
$700,000 $87,000 $130,485 $173,980 $217,500 $260,970 $304,465 $347,960
$800,000 $99,500 $149,250 $198,980 $248,725 $298,470 $348,215 $397,960
</TABLE>

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, 1994 for the persons who served as Chief Executive Officer and the
three other most highly compensated executive officers during 1994 are as
follows: H. B. Schacht, $558,000, 32 years; J. A. Henderson, $521,600, 30
years; T. M. Solso, $345,000, 23 years; P. B. Hamilton, $298,000, 11 years; F.
J. Loughrey, $242,000, 21 years. In addition to the pension benefits described
above, the Company will also provide a supplemental life annuity to H. B.
Schacht in the amount of $75,000 per year.

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

17
<PAGE>

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, 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 persons who served as Chief Executive Officer
and the three other most highly compensated executive officers during 1994
would be affected under these provisions. A change of control for these
purposes is defined in each of the various plans and programs providing these
benefits.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Company's Compensation Committee are Hanna H. Gray, Harold
Brown, Donald S. Perkins, William D. Ruckelshaus and Franklin A. Thomas.

Member 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 1994, 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

18
<PAGE>

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 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. Dabrowski 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. The Company reimburses certain of
Ford's warranty costs associated with these products and also purchases
gasoline engines and parts from Ford. During 1994, Ford paid the Company
approximately $356,200,000 and the Company paid Ford approximately $8,500,000
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.

19
<PAGE>

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 1994, Case and other Tenneco subsidiaries
paid the Company approximately $39,900,000 and the Company paid Case
approximately $800,000 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 1994, Case paid the
Company approximately $5,100,000 and the Company paid Case approximately
$2,300,000 pursuant to such agreements. Purchases from the Company 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.

During 1994, the Company had agreements with companies 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 companies. The net amount
paid by the Company was $151,474. The Company believes such amount is
competitive with the amount that it would have paid to unrelated third parties
for comparable space and services.

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 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, 1994, the largest
aggregate amount owed for such purchases and loans at any time since January 1,
1994, and the amount owed as of January 31, 1995:

<TABLE>
<CAPTION>
AMOUNT OF
LARGEST INDEBTEDNESS
AMOUNT OF AS OF
INDEBTEDNESS JANUARY 31, 1995
------------ ----------------
<S> <C> <C>
Mark E. Chesnut............................. $ 80,750 $ 80,750
Roberto C. Cordaro.......................... 220,000 220,000
Robert L. Fealy............................. 71,500 71,500
James A. Henderson.......................... 367,892 367,892
M. David Jones.............................. 143,250 143,250
Henry B. Schacht............................ 226,875 226,875
Theodore M. Solso........................... 182,500 182,500
Richard B. Stoner, Jr....................... 201,500 201,500
</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 1994, no executive
officer sold shares to the Company pursuant to this policy.

20
<PAGE>

SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS

(ITEM 2)

The Board of Directors has voted to appoint Arthur Andersen LLP as the firm
of independent public accountants to audit the accounts of the Company for the
year 1995. Arthur Andersen LLP 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 LLP 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 LLP as the firm of
independent public accountants to audit the accounts of the Company for the
year 1995 will be adopted if the number of votes cast in favor of ratification
exceeds the number of votes cast against ratification. Votes cast against and
abstentions on the Item will be counted as votes against the Item. Broker non-
votes will not change the number of votes cast for or against the Item. If the
shareholders do not ratify the selection of Arthur Andersen LLP, 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.

SENIOR EXECUTIVE BONUS PLAN AND SENIOR EXECUTIVE THREE YEAR PERFORMANCE PLAN

(ITEMS 3 AND 4)

The Company has maintained the Target Bonus Plan ("TBP") and the Three Year
Performance Plan ("TYPP") as integral parts of its compensation program for
officers and key employees for several years. The Board of Directors is
submitting the Senior Executive Bonus Plan ("SEBP"), a version of the TBP, and
the Senior Executive Three Year Performance Plan ("SETYPP"), a version of the
TYPP, both applicable only to certain of the Company's executive officers, to
shareholders for approval in order to enable the Company to qualify payments
under the SEBP and SETYPP as deductible for federal income tax purposes. The
TBP and TYPP continue in effect for other officers and employees.

In 1993, the Internal Revenue Code (the "Code") was amended to add Section
162(m), which places a limit of $1,000,000 on the amount of compensation that
may be deducted by the Company in any tax year with respect to certain of the
Company's highest paid executive officers. However, certain performance based
compensation that has been approved by shareholders is not subject to the
deduction limit. In order to maximize the deduction under new Section 162(m) of
compensation paid to these officers, the Company is requesting that
shareholders approve the SEBP and SETYPP (collectively the "Plans"). Incentive
payments under the Plans are based on objective Company performance criteria
established prior to or shortly after the beginning of the period for which
such payments are earned. The Plans are not intended to change the amount of
incentive compensation opportunity currently available to any of the Company's
officers.

21
<PAGE>

The full texts of the SEBP and SETYPP appear as Exhibits A and B to this
proxy statement respectively. The principal features of each plan are
summarized below and should be read in conjunction with those exhibits.

SENIOR EXECUTIVE BONUS PLAN

The SEBP is designed to pay quarterly bonuses based on the Company's
operating performance. The Company's Chief Executive Officer and other
executive officers designated by the Compensation Committee during any fiscal
year will participate in the plan for that year. The plan is administered by
the Compensation Committee of the Board of Directors. The current members of
the Compensation Committee are listed on page 5. Prior to or shortly after the
beginning of the first quarter of each fiscal year, the Committee will
determine which of the executive officers are to participate for the fiscal
year, the participation or award rate established as a percentage of the
participant's quarterly base salary, and the performance measures applicable to
each quarter during the year. Performance measures are based on return on
equity, return on sales, net income, sales growth, return on assets, and/or
total shareholder return.

A quarterly bonus is determined by multiplying (i) the participant's
quarterly base salary times (ii) the participation or award rate times (iii) a
payout factor established by the Committee. The payout factor is targeted to be
1.0 if the Company's business performance, based on one or more of the criteria
listed above, is at the median of Fortune 500 industrial companies over recent
history. The Committee establishes the payout schedule annually based upon the
business criteria it selects as the measurement of performance.

At the end of each quarter, the Committee reviews the Company's performance
against the selected criteria. When the Company's performance against the
selected criteria is below the median performance level, the payout factor is
less than 1.0, resulting in a lower quarterly bonus, and when performance
exceeds the median, the factor is greater than 1.0, resulting in a higher
bonus. The maximum quarterly bonus payable to any participant is $750,000.
Bonus payments may only be made after the Committee has certified the Company's
performance in writing. The Committee may reduce but not increase the amount of
any bonus otherwise payable to a participant upon attainment of the performance
measures. Bonus payments are made in cash as soon as practicable following the
end of the quarter in which they are earned.

The Committee may, in its discretion, administer the plan in a manner that
measures and makes payments with respect to the Company's annual, rather than
quarterly performance.

SENIOR EXECUTIVE THREE YEAR PERFORMANCE PLAN

The purpose of the SETYPP is to reward participating executive officers of
the Company for the attainment of specified corporate performance goals during
successive three fiscal year periods. The Company's Chief Executive Officer and
other executive officers designated by the Compensation Committee during any
fiscal year will participate in the plan. This plan is also administered by the
Compensation Committee of the Board of Directors. Prior to or shortly after the
beginning of each three year award cycle, the Committee establishes a
threshold, target and maximum dollar award payable in cash to each participant
at the end of the three year period and the performance measures to be used in
determining the extent to which that award will be earned. Performance measures
are based on one or more business criteria specified in the plan.

22
<PAGE>

These business criteria are return on equity, return on sales, net income,
sales growth, return on assets, and/or total shareholder return. Under the
SETYPP, the Committee has the option to pay awards based on the attainment of
one or more different performance measures provided the measures, when
established, are stated as alternatives to one another.

The target dollar amount will be earned by the participant if the performance
measures used by the Committee equal the median of such measures when applied
to the peer group of companies listed in connection with the shareholder return
graph on page 13. The threshold dollar amount will be earned if performance is
50% and the maximum dollar amount will be earned if performance is 200% of the
median for the peer group. The maximum dollar amount that may be paid under the
Plan to a participant with respect to any three year award cycle is $2,000,000.
Award payments may only be made following the Committee's written certification
of the Company's performance against the measures. As with the SEBP, the
Committee may reduce but not increase the amount of any award otherwise
payable.

Participants whose employment with the Company is terminated by retirement,
death or disability during any three year award cycle are entitled to receive
all or a portion of the award otherwise payable, based upon their length of
employment during the cycle. Participants whose employment is terminated for
other reasons may receive a portion of the award, solely in the discretion of
the Committee.

BENEFITS UNDER THE PLANS

Benefits payable under the Plans will vary depending on the Company's
performance against the selected business criteria. However, the following
table sets forth the dollar amounts which would have been received under the
SEBP and SETYPP had the Plans been in effect during the Company's last fiscal
year.

<TABLE>
<CAPTION>
NAME AND POSITION SEBP SETYPP
----------------- ---- ------
<S> <C> <C>
Henry B. Schacht
Retired Chairman of the Board
and
Chief Executive Officer...... $ 0 $ 0
James A. Henderson
Chairman of the Board and Chief
Executive Officer.................................. $ 705,675 $425,000
Theodore M. Solso
President and Chief Operating Officer.............. $ 407,206 $250,000
Peter B. Hamilton
Vice President and Chief Financial
Officer............................................ $ 0 $ 0
F. Joseph Loughrey
Group Vice President--Worldwide Operations and
Technology......................................... $ 0 $ 0
All executive officers as a group................... $1,112,881 $675,000
Directors who are not executive officers............ $ 0 $ 0
All other employees................................. $ 0 $ 0
</TABLE>

23
<PAGE>

FEDERAL TAX ISSUES AND OTHER INFORMATION

Awards under the Plans constitute ordinary income taxable to a participant in
the year in which paid. Subject to Section 162(m) of the Code and regulations
thereunder, the Company generally will be entitled to a corresponding deduction
for the year to which bonuses under the Plans relate. As mentioned above, 1993
amendments to the Code limit the allowable deduction for compensation paid or
accrued with respect to the chief executive officer and the four other most
highly compensated officers of a publicly held corporation at the end of each
fiscal year (commencing with fiscal years beginning on or after January 1,
1994) to no more than $1,000,000 per year. Pursuant to proposed Internal
Revenue Service regulations issued in December 1993, as amended in December
1994, certain types of compensation are excluded from this deduction limit,
including payments subject to the attainment of objective performance measures
and satisfaction of disinterested director and shareholder approval
requirements.

Awards under the Plans meet the performance-based compensation requirement
because the amounts are paid upon meeting the performance measures based on
objective business criteria established by the Committee for each fiscal year,
in the case of the SEBP, and for each three year award cycle, in the case of
the SETYPP. The Plans' administration by the Compensation Committee, as limited
by provisions in the Plans governing the Committee's discretion in making
awards to participants, meets the second requirement. The submission of the
Plans to shareholders for approval and the Plans' provisions (i) limiting
maximum awards, and (ii) precluding the Committee from exercising discretion to
increase awards to participants are intended to qualify payments made under the
SEBP during 1995 and subsequent years and under the SETYPP for the 1995-1997
Award Cycle (and award cycles thereafter) so as to preserve the Company's tax
deductions, if and when awards are paid under the Plans.

The Board of Directors believes that the Plans effectively motivate the
officers to perform and exert maximum efforts for the success of the Company
and make a large part of their total compensation dependent on objective
business and performance based criteria.

The Board recommends a vote FOR approval of the Plans. Item 3 and Item 4 will
be approved if the number of votes cast in favor of each Item exceeds the
number of votes cast against the Item. Votes cast against and absentions on the
Item will be counted as votes against the Item. Broker non-votes will not
change the number of votes cast for or against the Item.

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

1995 SHAREHOLDER PROPOSALS

Proposals intended to be presented by shareholders of the Company at the 1996
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 6, 1995.

24
<PAGE>

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 6, 1995

25
<PAGE>

NOMINEES FOR BOARD OF DIRECTORS

Mr. Henderson was elected Chairman of the Board of
the
Corporation in 1995 after serving as Chief Executive
Officer since 1994 and its President since 1977. 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 also Chief Operating Officer from 1975
to 1994. 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, a
member of the Policy Committee of the Business
Roundtable, and a member of The Business Council.

JAMES A.
HENDERSON

Mr. Solso was elected President and Chief Operating
Officer of the
Corporation in 1995 after serving as Executive Vice
President--Operations since 1992 and Chief Operating
Officer since 1994. From 1988 to 1992 he was Vice
President and General Manager--Engine Business after
serving in various other executive positions with the
Corporation. Mr. Solso received a B.A. from DePauw
University in 1969 and an M.B.A. degree from Harvard
University in 1971. He is a Director of Cyprus Amax
Minerals Company and Irwin Financial Corporation, and
is a member of the boards of Cummins Engine
Foundation, Heritage Fund of Bartholomew County and
Otter Creek Golf Course in Columbus, Indiana. He is
also a member of the Board of Trustees, DePauw
University and of the Dean's Advisory Boards of the
Schools of Business of Hofstra University and Indiana
University.

THEODORE M. SOLSO

26
<PAGE>

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 Alumax, Inc., CBS, Inc., Evergreen
Holdings, Inc., International Business Machines
Corporation, Mattel, Inc. and Philip Morris
Companies, Inc. He is Chairman of the Beckman
Foundation and a Trustee of the California Institute
of Technology and the Rand Corporation.

HAROLD BROWN

Mr. Dabrowski received bachelor's and master's
degrees in
Mechanical Engineering from the University of Detroit
and an M.B.A. from Wayne State University. He joined
Ford Motor Company in 1964 as a co-op student,
advancing through a number of positions in
Engineering and Car Product Development until being
named Manager, Vehicle Engineering Department in
1973. From 1978 to 1985, Mr. Dabrowski served in a
number of executive engineering positions at Ford,
being appointed Executive Director, Body Engineering,
North American Automotive Operations in 1991. He
became Executive Director, Product Strategy Office in
1994, and was named Vice President, Commercial Truck
Vehicle Center, Ford Automotive Operations in 1994.
He is Chairman of the Board of the Ford Design
Institute, a director of Geometric Results, Inc., a
Ford subsidiary, and is also a member of the Xerox
Engineering Excellence Board of Directors.

KENNETH R.
DABROWSKI

27
<PAGE>

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

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. Mr. Elisha is a trustee of the
Brookings Institution and of the Committee for
Economic Development, a member of The Business
Roundtable serving on its Policy Committee, the
Business Council, the Counsel on Competitiveness, and
is a member of the President's Advisory Committee for
Trade Policy and Negotiations, and is First Vice
President of the American Textile Manufacturers
Institute. He is also a member of the Board of
Directors of the Associates of the Harvard Business
School.

WALTER Y. ELISHA

28
<PAGE>

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
Chairman and Chief Executive Officer and a member of
its board of directors, he is also Chairman of Case
Corporation, a Tenneco subsidiary that manufactures
and markets agricultural and construction equipment.
Mr. Mead serves on the board of National Westminster
Bancorp, Alco Standard Corporation and Baker Hughes
Incorporated. He is the Vice Chairman of the National
Association of Manufacturers, 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 Trustees of the Logistics Management
Institute, 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

29
<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.

J. IRWIN MILLER

Mr. Miller received a B.A. from Yale University in
1978 and an M.B.A. degree from Stanford University in
1981. 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 Tennant Company (a
manufacturer of industrial cleaning equipment), 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, and Public Radio
International, Minneapolis, MN.

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, Kmart Corporation
(Chairman as of January 1995), Illinova Corporation,
Inland Steel Industries, Inc., LaSalle Street Fund,
the Putnam Funds, and Time Warner, Inc. He is a Vice
Chairman of Northwestern University, Trustee of the
Hospital Research and Education Trust and was the
Founding Chairman of the Civic Committee of the
Commercial Club of Chicago.

DONALD S. PERKINS

30
<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. Schacht served as Chairman of the Board of the
Corporation from 1977 to 1995 and Chief Executive
Officer from 1973 to 1994. He was President of the
Corporation from 1969 to 1977. 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, Aluminum Company of America and
The Chase Manhattan Corporation; a Trustee of The
Yale Corporation, Committee for Economic Development
and The Ford Foundation; and a member of The Business
Roundtable, Council for Foreign Relations, Inc. and
The Business Council.

HENRY B. SCHACHT

31
<PAGE>

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 AT&T,
CBS, Inc., Citicorp/Citibank, N.A., Alcoa, and
PepsiCo. and serves as a Trustee for The Ford
Foundation.

FRANKLIN A.
THOMAS

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. and is Vice
Chairman of The Chemical Manufacturers Association.

J. LAWRENCE
WILSON

32
<PAGE>

APPENDIX A

CUMMINS ENGINE COMPANY, INC.
SENIOR EXECUTIVE BONUS PLAN

1. Purpose. The Senior Executive Bonus Plan is designed to (i) reinforce the
financial objectives of the Company in the minds of senior executives, (ii)
attain and maintain a leadership position for the Company in its method of
compensating its senior executives consistent with the relative size of the
Company, the industry in which the Company competes, and the relative
performance of its senior executives, (iii) recognize the performance of the
Company as a whole, maximizing the contributions of the Company's various
businesses, and (iv) reward both team and individual performance. The Plan is
an incentive plan providing compensation that varies with the financial results
of the Company.

2. Philosophy. Bonus payments should relate to the importance of the
executive's position in influencing Company performance, the financial
performance of the Company during a Quarter, and the performance of the
individual during that Quarter. Bonus payments should encourage and promote
outstanding decisions and efforts by senior executives for the benefit of the
Company.

3. Definitions.

(a) "Base Salary" means the salary paid to a Participant during a
Quarter, exclusive of allowances, incentive pay, reimbursed expenses,
fringe benefits and other similar forms of payment.

(b) "Compensation Committee" or "Committee" means the Compensation
Committee of the Board of Directors of the Company.

(d) "Participant" means the Company's Chief Executive Officer and other
executive officers designated by the Compensation Committee.

(e) "Performance Measure" means the Company's return on equity, return on
sales, net income, sales growth, return on assets, total shareholder
return, or a combination thereof.

(f) "Plan" means the Senior Executive Bonus Plan described herein.

(g) "Plan Year" means the Company's fiscal year; provided, however, that
the first Plan Year includes only three Quarters beginning April 3, 1995.

(h) "Quarter" means a fiscal quarter of the Company.

(i) "Target Bonus" means an incentive bonus amount described in section 7
of the Plan.

(j) "Target Bonus Percentage" means a percentage of the Participant's
Base Salary intended to be paid as a Target Bonus under the Plan.

4. Eligibility. The Compensation Committee shall designate the Participants
each Plan Year and establish the Target Bonus Percentage applicable to each
Participant. The Committee shall have the power to change the Target Bonus
Percentage of a Participant or remove one or more

33
<PAGE>

Participants from the Plan; provided, however, that the percentage shall not be
increased following the commencement of any period for which a Target Bonus may
be earned.

5. Target Bonus Percentage. On or before the 20th day of each Quarter during
which a Target Bonus may be earned, each Participant will be informed of his or
her applicable Target Bonus Percentage. The Target Bonus Percentage assigned to
each Participant by the Committee shall be based on various criteria applicable
to the Participant including, but not limited to (i) the scope and breadth of
the Participant's management position, (ii) opportunity for independent thought
and action, (iii) effect on the Company's financial performance, (iv) role in
decision-making, (v) working relationships within the Company, and (vi) the
level of compensation prevailing in the industry in which the Company competes.

6. Bonus Payout Schedule. On or before the 20th day of each Plan Year, a
Bonus Payout Schedule will be calculated by the Committee and communicated to
Participants. The Bonus Payout Schedule will specify the Performance Measure
and the performance level against the measure during the Quarter required to
achieve each payout factor ("Bonus Factor"). The "Target Performance" is that
performance which provides a 1.0 Bonus Factor.

7. Target Bonus. A Target Bonus is calculated for each Participant by
multiplying Base Salary times the Target Bonus Percentage designated for the
Participant.

8. Earned Bonus. Corporate performance during the Quarter in excess of the
Target Performance or performance less than the Target Performance will result
in an increased or diminished bonus, respectively, from the Target Bonus
communicated to the Participant. The "Earned Bonus" will be calculated by
multiplying the Target Bonus Percentage times the Participant's Base Salary
times the Bonus Factor associated with the actual performance for that Quarter
as specified in the Bonus Payout Schedule in effect for the Plan Year
containing the Quarter. In no event may a Participant receive an Earned Bonus
for any Quarter in excess of $750,000.

9. Change in Accounting Standards. For purposes of determining the Bonus
Factor, the Company's actual performance under the Performance Measure will
exclude extraordinary charges and credits which result from a change in
accounting standards of the Company.

10. Adjustment for Individual Performance. The Earned Bonus will be the bonus
paid, except in unusual circumstances where poor individual performance
justifies a reduced bonus.

11. Termination of Employment. During any Quarter that a Participant's
employment is voluntarily or involuntarily terminated, including termination
due to death, disability or retirement, the amount of the Earned Bonus for that
Quarter will be paid to the Participant or his or her legal representative or
estate, whichever is applicable.

12. Bonus Distribution Date. Any Earned Bonus will be distributed as soon as
practicable following the determination of actual performance and written
certification by the Compensation Committee that the performance level with
respect to a bonus payable to the Participant has been met. In general, the
Earned Bonus will be distributed approximately six (6) weeks following the end
of the Quarter in which earned; provided, however, payments under the Plan may
be deferred pursuant to the Company's Deferred Compensation Plan.

34
<PAGE>

13. Administration. The Plan shall be administered by the Compensation
Committee. No member of the Committee shall be eligible to receive a bonus
under this Plan while serving on the Committee. The Committee shall have
authority to interpret the Plan and to establish, amend and rescind rules and
regulations for the administration of the Plan, and all such interpretations,
rules and regulations shall be conclusive and binding on all persons.
Notwithstanding any other provision of the Plan to the contrary, the Committee
may impose such conditions on participation in and bonuses under the Plan as it
deems appropriate.

14. Optional Administration as Annual Plan. The Plan is designed to operate
primarily as a quarterly plan, measuring Company performance and paying Target
Bonuses on the basis of quarterly results. From time-to-time, however, the
Committee may, in its sole discretion, determine it wishes to measure
performance and pay Target Bonuses on the basis of a Plan Year. In the event
such a determination is made, all references contained in this Plan to the term
"Quarter" shall be deemed to mean "Plan Year" as the context requires, and the
maximum Earned Bonus referenced in section 8 of the Plan shall be increased to
$3,000,000.

15. Effective Date. The Plan shall be effective for Quarters beginning April
3, 1995, subject to its approval by the Company's shareholders.

16. Amendment and Termination. The Board of Directors may at any time amend,
modify, alter or terminate this Plan.

17. Governing Law. This Plan and all determinations made and actions taken
pursuant hereto, shall be governed by the laws of the State of Indiana and
construed accordingly.

18. Miscellaneous. There shall be no bonus pool or cumulative bonus pool.
This Plan is based upon the number of Participants, the Target Bonus
Percentages, the Bonus Factors and the Base Salaries of the Participants.

35
<PAGE>

APPENDIX B

CUMMINS ENGINE COMPANY, INC.
SENIOR EXECUTIVE THREE YEAR PERFORMANCE PLAN

1. Objectives. The objectives of the Plan are to (i) serve as a balance
against the short-term compensation provided by base salary and bonus payments
of the Company, (ii) emphasize the medium-term performance of the Company as
compared to its industry competitors, (iii) strengthen the relationship between
Company management and shareholder interests, and (iv) encourage participants
to remain with the Company through important business cycles.

The size of grants under the Plan are intended to reflect the degrees of
influence participating executive officers have in their functional positions
on the medium-term (three year) performance of the Company. The calculation of
payments from the Plan is intended to reflect the Company's performance against
certain performance measures designated by the Compensation Committee.

2. Definitions.

(a) "Award Cycle" means the three year period upon which a particular
years' payout is calculated. A new Award Cycle commences with the beginning
of each of the Company's fiscal years. Payments, if any, under the Plan to
Participants during a fiscal year are based upon the Company's performance
during the most recently completed Award Cycle.

(b) "Change of Control" means the occurrence of any of the following: (i)
there shall be consummated (A) any consolidation or merger of the Company
in which the Company is not the continuing or surviving corporation or
pursuant to which shares of the Company's Common Stock would be converted
in whole or in part into cash, other securities or other property, other
than a merger of the Company in which the holders of the Company's Common
Stock immediately prior to the merger have substantially the same
proportionate ownership of common stock of the surviving corporation
immediately after the merger, or (B) any sale, lease, exchange or transfer
(in one transaction or a series of related transactions) of all or
substantially all the assets of the Company, or (ii) the stockholders of
the Company shall approve any plan or proposal for the liquidation or
dissolution of the Company, or (iii) any "person" (as such term is used in
Sections 13(d) (3) and 14(d) (2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), other than the Company or a subsidiary
thereof or any employee benefit plan sponsored by the Company or a
subsidiary thereof or a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company, shall become the beneficial owners
(within the meaning of Rule 13d-3 under the Exchange Act) of securities of
the Company representing 25% or more of the combined voting power of the
Company's then outstanding securities ordinarily (and apart from rights
accruing in special circumstances) having the right to vote in the election
of directors ("Voting Shares"), as a result of a tender or exchange offer,
open market purchases, privately negotiated purchases or otherwise, or (iv)
at any time during a period of two (2) consecutive years, individuals who
at the beginning of such period constituted the Board of Directors of the
Company shall cease for any reason to constitute at least a majority
thereof, unless the election or the nomination for election by the
Company's stockholders of each new director during such

36
<PAGE>

two-year period was approved by a vote of at least two-thirds ( 2/3) of the
directors then still in office who were directors at the beginning of such
two-year period, or (v) any other event shall occur that would be required
to be reported in response to Item 6(e) (or any successor provision) of
Schedule 14A or Regulation 14A promulgated under the Exchange Act.

(d) "Company" means Cummins Engine Company, Inc.

(e) "Participants" means the Company's Chief Executive Officer and other
executive officers designated annually by the Committee to participate in
the Plan for the ensuing Award Cycle.

(f) "Payout Factor" means the percentage determined by the Committee and
applied to a Target Award to determine the amount of an award to be paid as
described in section 4 of the Plan.

(g) "Peer Group" means the group of companies selected by the Committee
whose primary industry is similar to that of the Company's. As of the
effective date of the Plan, the Peer Group consists of the following
companies: (i) Arvin Industries, Inc., (ii) Caterpillar, Inc., (iii) Dana
Corporation, (iv) Deere & Company, (v) Dresser Industries, Inc., (vi) Eaton
Corporation, (vii) Ford Motor Company, (viii) General Motors Corporation,
(ix) Ingersoll-Rand Company, (x) Navistar International Corporation, and
(xi) Paccar, Inc.

(h) "Performance Measures" means the Company's return on equity, return
on sales, net income, sales growth, return on assets, total shareholder
return, or any combination thereof.

(i) "Plan" means the Senior Executive Three Year Performance Plan
described herein.

(j) "Target Award" means the amount of targeted compensation described in
section 3 of the Plan.

3. Target Award. The Committee shall assign each Participant a Target Award
for each Award Cycle, in its discretion, based upon, but not limited to, the
scope and breadth of the Participant's position, ability to effect the
Company's medium-term financial performance, and his or her working
relationships within the Company. The Target Award for an Award Cycle shall be
expressed in terms of a threshold, target, and maximum dollar amount.

The Target Award for each Award Cycle shall be assigned and communicated to
each Participant as soon as practicable thereafter, but in no event later than
the 270th day of that Award Cycle. Target Awards may be changed during the
course of an Award Cycle based on the Committee's reevaluation of the criteria
described in the preceding paragraph; provided however, a Target Award shall
not be increased following commencement of the Award Cycle.

4. Payout Schedule. On or before the 270th day of each Award Cycle, the
Committee shall establish the Performance Measures to be used in determining a
Payout Factor applicable to the Award Cycle. The Committee may determine the
Payout Factor based upon the attainment of one or more different Performance
Measures, provided the measures, when established, are stated as alternatives
to one another.

Under the Payout Factor schedule, the targeted dollar amount ("Targeted
Amount") of a Target Award will be earned by a Participant if the Company's
performance against the

37
<PAGE>

Performance Measures equals the median of the performance of the Peer Group
during the same period against the same measures. The threshold dollar amount
will be earned if performance is fifty percent (50%) and the maximum dollar
amount will be earned if performance is two hundred percent (200%) of the
median performance of the Peer Group. The maximum dollar amount that may be
paid by the Plan to a Participant with respect to any Award Cycle is
$2,000,000.

5. Change in Accounting Standards. For purposes of determining the Payout
Factor, the Company's actual performance under the Performance Measures will
exclude extraordinary charges and credits which result from a change in
accounting standards of the Company.

6. Plan Payments. Any payout under the Plan will be made as soon as
practicable following audits of the Company's financial statements applicable
to all fiscal years of the Award Cycle and written certification by the
Committee of attainment of the applicable Performance Measures and
corresponding Payout Factor. Payments under the Plan may be deferred pursuant
to the Company's Deferred Compensation Plan.

7. Administration. The Plan shall be administered by the Compensation
Committee. No member of the Committee shall be eligible for a Target Award
while serving on the Committee. The Committee shall have authority to interpret
the Plan and to establish, amend and rescind rules and regulations for the
administration of the Plan, and all such interpretations, rules and regulations
shall be conclusive and binding on all persons. Notwithstanding any other
provision of the Plan to the contrary, the Committee may impose such conditions
on participation in, awards under and payments from the Plan as it deems
appropriate.

8. Termination of Employment. If a Participant's employment with the Company
terminates during the first year of an Award Cycle, other than by reason of
retirement, death or disability, the Participant will not receive any payout
for that Award Cycle. If a Participant's employment so terminates during the
second or third years of an Award Cycle, the Committee, in its discretion,
shall determine whether the Participant will receive a proportionate payout of
any payment with respect to the Award Cycle based on the period of employment
during the cycle.

If a Participant retires, dies or become disabled during an Award Cycle, the
Participant or such Participant's estate, as the case may be, shall receive a
proportionate share of any payment with respect to the Award Cycle based on the
period of employment during the cycle, regardless of the length of time of such
employment.

9. Change of Control. Notwithstanding any other provision herein to the
contrary, in the event of a Change of Control, an amount shall be immediately
payable from the Plan to each Participant equal to the Targeted Amount times a
fraction, the numerator of which is the number of days in the Award Cycle
preceding the Change of Control and the denominator of which is 1095.

10. Effective Date. The Plan shall be effective for the Award Cycle beginning
January 1, 1995, subject to its approval by the Company's shareholders.

11. Amendment and Termination. The Board of Directors of the Company may at
any time amend, modify, alter or terminate this Plan.

12. Governing Law. This Plan and all determinations made and actions taken
pursuant hereto, shall be governed by the laws of the State of Indiana and
construed accordingly.

38
<PAGE>

CUMMINS ANNUAL SHAREHOLDER MEETING
APRIL 4, 1995--10:30 A.M. (E.S.T.)
COLUMBUS EAST HIGH SCHOOL AUDITORIUM
LOGO

<PAGE>

March 3, 1995

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 1994 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 any questions about the shareholder materials, please contact
Mark Gerstle (812-377-3520).

Sincerely,
Vice President--Human
Resources
<PAGE>

CUMMINS ENGINE COMPANY, INC.

PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
P THE COMPANY FOR ANNUAL MEETING APRIL 4, 1995
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 4, 1995, 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, Kenneth R. Dabrowski, Robert J. Darnall, 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, Theodore M. Solso, 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
-------------------------------------------------------------------------------

[X] 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 of Directors. (see everse)
FOR [_] WITHHELD [_]

For, except vote withheld from the following nominee(s):

--------------------------------------------------------

2. Proposal to ratify Arthur Andersen LLP as independent accountants.
FOR [_] AGAINST [_] ABSTAIN [_]

3. Proposal to approve Senior Executive Bonus Plan
FOR [_] AGAINST [_] ABSTAIN [_]

4. Proposal to approve Senior Executive Three Year Performance Plan
FOR [_] AGAINST [_] ABSTAIN [_]

TO WITHHOLD AUTHORITY TO VOTE FOR AN INDIVIDUAL DIRECTOR NOMINEE, MARK ITEM 1
BOX "FOR" AND LIST NOMINEE'S NAME FOR WHICH AUTHORITY IS WITHHELD; OTHERWISE,
MARK "FOR" TO VOTE FOR ALL NOMINEES OR "WITHHELD" TO WITHHOLD AUTHORITY TO VOTE
FOR ALL NOMINEES.

- -------------------------------------------------------------------------------

The signer hereby revokes all proxies heretofore given by the signer to vote
at said meeting or any adjournments thereof.

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